Perfect example of how corporate taxation and royalties screw ALL of us...

6SpeedTA95 · 11-28-2007, 08:47 AM

UPDATE 1-Conoco cites tax, scraps $300 mln Alaska project | News | Bonds News | Reuters

ANCHORAGE, Nov 27 (Reuters) - ConocoPhillips Inc (COP.N: Quote, Profile, Research) said Tuesday it canceled a planned $300 million clean fuels project on the Alaska North Slope, following through on an earlier warning that new oil tax legislation passed this month would force it to reconsider planned investments in the state.

"Construction of this facility no longer makes sense under new rules passed with the new oil tax bill," said Natalie Knox, a spokeswoman for ConocoPhillips Alaska Inc.

The decision to cancel the project was made last week, Knox said.

In a special session on Nov. 16, Alaska lawmakers passed a bill raising oil production taxes. The session was called in the wake of a bribery scandal that many Alaskans believe had tainted the previous oil tax legislation passed in 2006.

In addition to raising oil tax rates, the bill also limits deductions that can be taken for operating costs at older fields such as Kuparuk and Prudhoe Bay, operated by ConocoPhillips and BP Plc (BP.L: Quote, Profile, Research) respectively.

ConocoPhillips officials said prior to the passage of the bill that the project to produce ultra low sulfur diesel (ULSD) was likely to be canceled and that other investments would be reviewed.

Other oil producers, including BP and Exxon Mobil Corp (XOM.N: Quote, Profile, Research), have said they will review all of their planned investments in Alaska in the wake of the tax increase and have warned that higher taxes could lead to less investment and more rapid declines in Alaskan oil production.

ConocoPhillips and BP currently extract diesel fuel for their North Slope operations from produced crude oil at Kuparuk and Prudhoe Bay using simple, miniature refineries called topping plants.

The new oil tax bill specifically excludes capital investments in North Slope topping plants as allowable deductions or investment credits.

The clean fuels project would have modified the existing topping plants to allow them to manufacture ULSD. Federal regulations require the use of ULSD on the North Slope by 2010. ConocoPhillips' ULSD project was announced in 2005 as part of a deal between the state and the major producers to implement the ULSD rules on the North Slope.

ConocoPhillips will now seek alternative supplies of ULSD and may resort to trucking the fuel to the North Slope, although no arrangements have been made yet, Knox said.

The only refinery capable of producing ULSD in Alaska is the Tesoro Energy Corp (TSO.N: Quote, Profile, Research) facility in Nikiski, over 1,000 miles south of the North Slope fields.

Alaska officials have questioned ConocoPhillips' motivation for canceling the ULSD project. They claim the previous oil tax legislation would not have permitted the deduction of the investment either, a position disputed by the company. (Additional reporting by Robert Campbell in New York; editing by Jim Marshall)

This is a perfect example of why LAWYERS with less than 10 years business experience have no business making tax law. The retards have no clue how the economy works or how a business runs. This is a perfect example of how taxes raise the ACC and decrease the IRR of projects that businesses must have to grow. Furthermore this project hurts everyone as it decreases the available supply of energy.

There are numerous projects like this canned ever year in the energy business. Projects are already incredibly risky and projects that do not pay off as expected can lead to the loss of billions of dollars. Yet these companies are straddled with even more costs in the form of taxation from state and federal officials. These same officials (see hillary clinton) will then bitch and moan about prices being high and throw around emotionally charged words like "gouging" when they are 100% clueless on the issue at hand.

Estimates show that the US could be producing 2.5 million barrels of its own oil each day, in addition to what we already produce, IF there were no taxes and royalties that have to get paid out. Instead we all pay the price of having tighter energy markets while politicians (usually on the left) push for higher taxes because making money is evil.

Stylerod · 11-28-2007, 09:01 AM

I'm all for lower taxes, but aren't these companies already getting massive tax incentives and earning billions in profits each year?

6SpeedTA95 · 11-28-2007, 09:58 AM

Originally Posted by Stylerod

I'm all for lower taxes, but aren't these companies already getting massive tax incentives and earning billions in profits each year?

Of course they are, so they should just throw out business principles like IRR and ignore the ACC? Doesn't make sense and all the taxes do is distort the market.

DosEquis · 11-28-2007, 10:08 AM

All i see is an excuse or some sort of ploy to try to illustrate how they feel about this new tax. If they really wanted to go forward with that investment they still have plenty of capital to do it and would still have billions in profit to satisfy share holders. In retaliation the government should strip them of hundreds of millions they get in subsidies. I have a feeling they would change their tune.

It would appear to me that this company is only "conservative" when it comes to taxes, but not so conservative when it comes to subsidation.

Reminds me of my republican aunt that won't get off welfare.

Stylerod · 11-28-2007, 10:09 AM

Originally Posted by 6SpeedTA95

Of course they are, so they should just throw out business principles like IRR and ignore the ACC? Doesn't make sense and all the taxes do is distort the market.

I don't know enough about this or what that new tax law is. Are they getting rid of some of the incentives?

It seems to me tax incentives should be used to help a struggling company that is needs to get back on their feet again. Or, as a one time thing to get a large company to come to your area to supply jobs. If the company turns out to be hugely successful they shouldn't need the tax incentive anymore, right?

JaJae · 11-28-2007, 10:11 AM

Originally Posted by DosEquis

All i see is an excuse or some sort of ploy to try to illustrate how they feel about this new tax. If they really wanted to go forward with that investment they still have plenty of capital to do it and would still have billions in profit to satisfy share holders.

How can you say that without knowing the logistics of it? I have never heard of an oil company who didn't want to make money. I don't think they're backing out of this deal as some "ploy."

In retaliation the government should strip them of hundreds of millions they get in subsidies. I have a feeling they would change their tune.

Retaliation?

6SpeedTA95 · 11-28-2007, 10:12 AM

Originally Posted by DosEquis

All i see is an excuse or some sort of ploy to try to illustrate how they feel about this new tax. If they really wanted to go forward with that investment they still have plenty of capital to do it and would still have billions in profit to satisfy share holders. In retaliation the government should strip them of hundreds of millions they get in subsidies. I have a feeling they would change their tune.

It would appear to me that this company is only "conservative" when it comes to taxes, but not so conservative when it comes to subsidation.

Reminds me of my republican aunt that won't get off welfare.

So you're telling me they should take that capital and invest it in subpar performers??? That makes ZERO business sense, NONE. Taxes impact investment decisions, always have and always will. You can not make bad business decisions and expect to remain profitable. This tax pushes them below their required return on the project and therefore they reject it. Its simple really.

6SpeedTA95 · 11-28-2007, 10:14 AM

Originally Posted by Stylerod

I don't know enough about this or what that new tax law is. Are they getting rid of some of the incentives?

It seems to me tax incentives should be used to help a struggling company that is needs to get back on their feet again. Or, as a one time thing to get a large company to come to your area to supply jobs. If the company turns out to be hugely successful they shouldn't need the tax incentive anymore, right?

We shouldn't have corporate income taxes at all. The only thing that hurts is our economy as a result. Incomes are hurt, employees get hurt and consumers get hurt. Period. Corporate taxation is nothing more than a feel good fuzzy introduced by some self rightous politicians to get votes from people who do not understand economics and business.

Ardentfrost · 11-28-2007, 10:28 AM

I'm far more okay with corporate taxation than I am personal taxation. But it should be flat, not setup in a way to hurt the company.

6SpeedTA95 · 11-28-2007, 10:29 AM

Originally Posted by Ardentfrost

I'm far more okay with corporate taxation than I am personal taxation. But it should be flat, not setup in a way to hurt the company.

I agree that if they exist it should be flat. But I'm an against corporate taxation and for a personal flat income tax. Taxing people makes far more sense than taxing their jobs. If the jobs disappear and corporate investment/profit suffers you lose your tax base much quicker. Furthermore it is impossible to tax corporations to the point of making enough money to meet infrastructure needs of the nation.

Ardentfrost · 11-28-2007, 10:35 AM

Originally Posted by 6SpeedTA95

I agree that if they exist it should be flat. But I'm an against corporate taxation and for a personal flat income tax. Taxing people makes far more sense than taxing their jobs. If the jobs disappear and corporate investment/profit suffers you lose your tax base much quicker. Furthermore it is impossible to tax corporations to the point of making enough money to meet infrastructure needs of the nation.

I view it more of a constitutional thing... I see no wiggle room in original intent to directly tax a citizen's income. But corporations aren't people, they aren't citizens. There exists a little room for interpretation there.

I don't necessarily think the fed gov't should be taxing the companies (in the perfect US that exists only in my head

), but states taxing them doesn't bother me as much as the federal government taxing citizens.

6SpeedTA95 · 11-28-2007, 11:23 AM

Originally Posted by Ardentfrost

I view it more of a constitutional thing... I see no wiggle room in original intent to directly tax a citizen's income. But corporations aren't people, they aren't citizens. There exists a little room for interpretation there.

I don't necessarily think the fed gov't should be taxing the companies (in the perfect US that exists only in my head ), but states taxing them doesn't bother me as much as the federal government taxing citizens.

I see your point, but the fact is both are taxed. In a perfect world there would be a flat income tax and it would be constitutional. Corporations are seen as US citizens under the law. Therefore are protected by the US constitution.

Finally, for economic reasons it makes for more sense to have a mild flat tax with personal exemptions on citizens than it does employers.

DosEquis · 11-28-2007, 12:18 PM

I am just trying to stay consistent on the conservative platform...the whole low taxes, if any taxes, idea... but in order to remain consistent you would have to advocate for the removal of subsidies.

With that, I am just sayin if you offered them a flat tax or any tax alternative that would be considered a tax cut, but in trade they would have to forfiet their subsidies...they will just deal with the taxes.

To me they are bitching and whining like a little kid who got his xbox 360 but it didnt come with guitar hero so he refuses to play.

DosEquis · 11-28-2007, 12:25 PM

Originally Posted by JaJae

How can you say that without knowing the logistics of it? I have never heard of an oil company who didn't want to make money. I don't think they're backing out of this deal as some "ploy."

Retaliation?

Ok maybe retaliation is a strong word for it if you want to get technical. However, in response to their pouting i would threaten to remove subsidies just to see how they would like it.

JaJae · 11-28-2007, 12:57 PM

Originally Posted by DosEquis

Ok maybe retaliation is a strong word for it if you want to get technical. However, in response to their pouting i would threaten to remove subsidies just to see how they would like it.

They wouldn't. They'd be forced into canceling other plans and policies that would make oil less available and more expensive to the American consumer.

I don't have any ill feelings towards them over this. They were planning a large expenditure that would effect the oil industry and they canceled it. They had to explain why. They did. Their response isn't over the top or absurd. It makes perfect sense. I'm sure they would still love to do this project, but it's way too risky now.

6SpeedTA95 · 11-28-2007, 01:36 PM

Originally Posted by DosEquis

I am just trying to stay consistent on the conservative platform...the whole low taxes, if any taxes, idea... but in order to remain consistent you would have to advocate for the removal of subsidies.

With that, I am just sayin if you offered them a flat tax or any tax alternative that would be considered a tax cut, but in trade they would have to forfiet their subsidies...they will just deal with the taxes.

To me they are bitching and whining like a little kid who got his xbox 360 but it didnt come with guitar hero so he refuses to play.

I'm all for the elimination of the corporate tax which would also eliminate subsidies. I do not like subsidies they're over used and abused by our government. However, in many cases what democrats in most cases call subsidies, they are really tax cuts and there's a big damn difference from an economic standpoint.

DosEquis · 11-28-2007, 02:11 PM

Originally Posted by JaJae

They wouldn't. They'd be forced into canceling other plans and policies that would make oil less available and more expensive to the American consumer.

I don't have any ill feelings towards them over this. They were planning a large expenditure that would effect the oil industry and they canceled it. They had to explain why. They did. Their response isn't over the top or absurd. It makes perfect sense. I'm sure they would still love to do this project, but it's way too risky now.

This is a PR thing to me. They are trying to make a public poo poo about it and could probably still do the program without any negative reprocussion on their company. Their margin might be less than they would like for the program but it would probably still be profitable. This appears to be a public protest against the tax and they are holding the environmental angle over the public head by canceling the "clean fuels" research. This is a 'liberals want to raise taxes, we cancel clean fuel research' pout fest trying to take a stab at the more liberal side of the country that wants to 'punish' oil companies, and they also coincidentally have an environmental/global warming agenda.

Thats my interpretation anyway. If you only look at the black and white of it, i come close to agreeing with you...but i am more of a grey area fan.

6SpeedTA95 · 11-29-2007, 08:57 AM

Originally Posted by DosEquis

This is a PR thing to me. They are trying to make a public poo poo about it and could probably still do the program without any negative reprocussion on their company. Their margin might be less than they would like for the program but it would probably still be profitable. This appears to be a public protest against the tax and they are holding the environmental angle over the public head by canceling the "clean fuels" research. This is a 'liberals want to raise taxes, we cancel clean fuel research' pout fest trying to take a stab at the more liberal side of the country that wants to 'punish' oil companies, and they also coincidentally have an environmental/global warming agenda.

Thats my interpretation anyway. If you only look at the black and white of it, i come close to agreeing with you...but i am more of a grey area fan.

They do an NPV analysis if it is no longer profitable then they reject the project period. How are they making a stink about this? They're not hte ones reporting to the press they'r enot taking the project. The analysts and press are following them around reporting what they do.