New twist in stricken rig saga: Shell was moving it to avoid tax

love it! What a bunch…they deserve their misery!

[B][U]New twist in stricken rig saga: Shell was moving it to avoid tax[/U][/B]

Tom Bawden

Friday 04 January 2013

Shell’s ill-fated attempt to tow an offshore oil rig from Alaska to Seattle in the final days of December was motivated by a desire to avoid $7m (£4.3m) of Alaskan state taxes, it emerged today.

But the oil giant will instead suffer a multi-million dollar loss on the exercise after the rig ran aground off the Alaskan coast on Monday night.

The rig was beached during a violent storm on its way to a Seattle shipyard for routine maintenance, in a round-trip timed so that, thanks to an accounting loophole, Shell could avoid an Alaskan state tax.

However, because the rig ran aground late on New Year’s Eve and began 2013 within three miles of the Alaskan coast, Shell remains liable for a unique state property tax on equipment dedicated to oil and gas development and exploration.

Shell admitted today that its decision to move the rig, the Kulluk, just weeks after it was brought to the Gulf of Alaska in November, was motivated by financial considerations.

“It’s fair to say that the current tax structure related to vessels of the type influenced the timing of our departure. It would have cost Shell multiple millions to keep the rigs here,” a Shell spokesman said.

Another Shell spokesman, in London, said: “While we are aware of the tax environment wherever we operate, the driver for operational decisions is always governed by safety. In this case, what mattered most to Shell was the two-week window of favourable weather that was forecasted for that journey.”

He denied suggestions that the routine maintenance and inspection could have been carried out in Alaska.

David Gregory, a councillor for the city of Unalaska, said Shell’s equipment tax bill would come to between $6m and $7m, adding: “Maybe they should have just stayed there.”

In addition to the tax, Shell faces millions of dollars of charges including the cost of repairs. It must also reimburse the federal and state governments for an emergency response which involved more than 500 people, including the evacuation of the rig’s crew of 18 by Coast Guard helicopters in weather the Captain later described as “close to a hurricane”.

Salvage experts flown to the rig concluded that none of the 139,000 gallons of diesel and 12,000 gallons of hydraulic fluids on board had been spilled. However, they cautioned that it was unclear how serious the damage was or how long it would take to refloat and move the Kulluk.

For Shell, the incident is the latest in a series of setbacks in its costly pursuit of oil in the environmentally-sensitive Arctic region which is nonetheless regarded as the next great frontier for oil exploration.

The Kulluk began its journey on 21 December and a week later was about 50 miles south of Kodiak Island – out of reach of the Alaskan tax man.

But the tug that was pulling it suffered multiple engine failures just as a subtropical cyclone made its way into the North Pacific. On Monday night, in the dying hours of 2012, the rig ran aground about 1,600 feet from Sitkalidak Island, next door to Kodiak.

Shell has so far spent £3.2bn buying up leases and on exploratory drilling off Alaska’s north and north-west coasts but has yet to discover any commercial quantities of oil. Full-scale production in the region is still thought to be years away.

Shell shareholders…please demand Peter Slaiby’s head on a pike! HE MUST BE FIRED IMMEDIATELY

[QUOTE=SaltAir;93369]www.independent.co.uk/news/world/americas/new-twist-in-stricken-rig-saga-shell-was-moving-it-to-avoid-tax-8439128.html[/QUOTE]

Well Well Well - One cat just jumped out of the bag.
Remember this post:
An old Sea Captain (a man who experienced WWII) mentioned to a few of us who joined him in a honky-tonk tavern in a foreign sea port, “Men, before you call it an accident, see if there is a who or what benefitting.”

Hmmm. Pressure from the office? Kind of like what happened with the Bounty disaster.

I don’t really understand why this is a big deal. Hundreds of companies move businesses to avoid taxes, bank offshore to avoid taxes, register vessels with flags of convenience to avoid having to pay higher wages, etc. Plus, far more devious things.

According to another post the Alaskan statute that the tax comes from has been around for awhile and has always been public knowledge. It’s not like Shell was secretly trying to avoid the tax. Also, it was a foregone conclusion and reality for those involved in the venture that both vessels would be coming back to shipyards outside of Alaska after the season ended.

Putting lives in danger and the potential loss of multiple million dollar vessels is not the same thing as banking in the Caymans or hanging a flag of convenience.

This just keeps getting better and better.

Alaska does not have any personal state income or sales taxes. There is a small local option sales tax collected by some cities, e.g., Kodiak and Fairbanks. There is a modest state corporate income tax on “c” corporations. Just about all of Alaska’s state tax revenue comes from oil and gas severance taxes and equipment taxes of one sort or another.

If Alaska is going bear the environmental risks and social costs of oil drilling, at least they are smart enough to get some tax revenue out of it.

Shell should have been a good corporate citizen and just paid the damn tax. $7 million is peanuts compared to the $5 billion they have spent so far on this project.

You watch, Shell’s next tax fight with the State of Alaska will be over whether they should pay the tax based upon the pre-grounding value of KULLUK, or whether they should pay much less (probably nothing) based upon KULLUK’s post-grounding value. Shell will spend millions on legal fees litigating this issue for years before they will pay Alaska one dime of that tax.

When you’re right, you’re right tugsailor.

[QUOTE=Fraqrat;93400]When you’re right, you’re right tugsailor.[/QUOTE]

I agree x2

Flying home, via Newark, from the GOM I happened to be sitting next to a well dressed man (think Bob Kraft in the owners booth at Gillette). He was a CFO from a smaller exploration company here in the Gulf. I asked what kind of return they made on their investment, say a million dollars. He said they look at a 4-1 return. If they have 5 billion invested they will make a lot more than 20 billion. I don’t blame them for not paying taxes legally. I live in New Hampshire which has no state income or sales taxes. Too bad it will cost a lot more than the seven mil they tried to avoid and may void any jobs we may have had up there too. Alaska weather is incomprehensible to most of us in the lower 49 states. Going the great circle route in Jan through Unimak Pass I heard NPR weather report on AM radio say Nome was -40 with ice fog. I live in NH and have never seen ice fog except on Mt Washington. You folks in Alaska earn your money working out on the ocean up there.

I don’t see this being much of an issue. To an accountant decreasing expenses or increasing income is the same thing. Mariners move vessels both to make profits and to avoid losses or expenses. Our job is to keep risk at a reasonable level and provide feedback as to what levels of risk the various plans entail.

K.C.

[QUOTE=Kennebec Captain;93600]I don’t see this being much of an issue. To an accountant decreasing expenses or increasing income is the same thing. Mariners move vessels both to make profits and to avoid losses or expenses. Our job is to keep risk at a reasonable level and provide feedback as to what levels of risk the various plans entail.

K.C.[/QUOTE]

Does corporate and personal integrity enter this equation?

We used to do the same thing in the GOM when I worked for Seacor,moving the boat offshore on the last day of December to avoid the ad valorem tax.I’ve also done several boat deliveries where we took the boat into international waters, called the bank on the sat phone, and gave them the lattitude and longitude.They then consumated the paperwork and avoided state sales taxes on a multi miliion dollar purchase.The bottom line here was the choice of timing for a tow in the forecasted conditions.

[QUOTE=Sweat-n-Grease;93602]Does corporate and personal integrity enter this equation?[/QUOTE]

From what I’ve read it’s not even clear that the tax applies in this case. At Dutch they were saying they had never considered it before.

Also, evidently the tax can, in principle, be avoided by sailing out three miles on 31 Dec and returning on 1 Jan. If that’s the case it’s a dumb tax. Better to charge daily harbor fees or whatever.

I’ve been told to hoist anchor at 0001 Jan 1st, I’ve also stayed on the hook with cargo till Jan 1. It’s just business. I don’t see that anyone has a moral obligation to incur unnecessary expenses.

K.C.

Its an equipment tax, not a boat. 99% of the equipment it taxes, such as the pipeline, is fixed in one position, or would be highly impractical to move out of state. It was not designed for vessels and the amount of taxes collected from vessels would be trivial.

I also question whether the tax could be lawfully applied to a vessel, especially a foreign flag vessel. Vessels, airplanes, rail cars, and trucks used in interstate commerce, are usually considered to be"instrumentalities of interstate commerce," exempt from local sales and excise taxes. I don’t know if there is a federal law at play on that, but I suspect so. Similarly, I suspect that there are international tax treaties that restrict the ability of a state to tax a foreign flag ship that just happens to be in state waters on the day the tax is levied.

If would be very foolish for any company in a highly regulated industry to embark on a reckless course of action with the potential to result in lost lives and property — and derail an entire industry — just to avoid a tax few dollars of tax.

Earlier I asked if personal and corporate integrity enters into the equation. I have my answer, maybe you will agree. maybe not. All businessmen are son’s of bitches, they have to be, it comes with the territory BUT making decisions that quite possibly could seriously hurt or kill crew members in order to save on taxes is out of the envelope of corporate integrity. Personal integrity, well that’s up to how each of us understands the meaning.

[QUOTE=Sweat-n-Grease;93627]Earlier I asked if personal and corporate integrity enters into the equation. I have my answer, maybe you will agree. maybe not. All businessmen are son’s of bitches, they have to be, it comes with the territory BUT making decisions that quite possibly could seriously hurt or kill crew members in order to save on taxes is out of the envelope of corporate integrity. Personal integrity, well that’s up to how each of us understands the meaning.[/QUOTE]

If the Aiviq had sailed on the 31st of Dec into a 55 ft seas and 70 kts winds and the reason was solely to avoid paying a tax I would agree with you.

Voyage plans take into account many factors. Which factors are moral and which are immoral? If considering taxes is immoral, what about fuel costs? What about ETAs? What about daily charter costs?

The very reason commercial vessel go to sea is to make a profit. Levels of risk and reward is what it is all about. Shell would be better off to have saved the money and used it to send some executives in the marine division to a class in weather avoidance. Or a second tow boat, or a heavier wire…

K.C.

And another thing. This whole tax avoidance thing relies upon the assumption that sailing after 1 Jan was significantly less risky then sailing on 21 Dec. Also sitting in Dutch is not risk free. Sitting in Dutch waiting for the weather to clear in Kodiak doesn’t make sense either.

[QUOTE=Kennebec Captain;93638]And another thing. This whole tax avoidance thing relies upon the assumption that sailing after 1 Jan was significantly less risky then sailing on 21 Dec. Also sitting in Dutch is not risk free. Sitting in Dutch waiting for the weather to clear in Kodiak doesn’t make sense either.[/QUOTE]

But it if means the master of the AIVIQ not going into shelter or sailing through Shelikoff Strait as has been suggested then what? Negating the safest option because of financial considerations is a very valid question and for Shell to claim they have a “always safety first” corporate policy will be proven to be utter hypocrisy bordering on the criminal if not already so! Rather akin to BP being caught out like they were.

Did anyone object to the voyage plan in writing and will they come forward now? Likely not but there’s always hope.

.

As a master that I sailed with when I was a young mate use to say:

“Seamanship is that unholy compromise between safety and economics.”