Friday, August 25, 2006

Alaska Deciding if BP Still Owes the "Vig"

From an August 18, 2006 Dow Jones Newswire article,
Stepping up its investigation into the shutdown of the Prudhoe Bay oil field, Alaska state officials on Friday issued subpoenas to BP PLC (BP) and its partners for documents on maintenance and corrosion-control programs that failed to uncover some pipeline problems.

Alaska's attorney general has been pursuing a claim against the BP-led consortium to recover lost revenues related to the partial shutdown of Prudhoe Bay, the largest producing field in the U.S. The state maintains that the venture should compensate the state for lost money if company negligence is found to be the cause of severe pipeline corrosion that led to last week's shutdown.

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Alaska is heavily dependent on revenues for oil operations on its territory for revenues. As the largest oil field in the state, Prudhoe Bay provides the single largest share of oil revenues for the state's $7.6 billion budget, which began the fiscal year with a $200,000 surplus.

Look at what the state of Alaska is trying to do. They are behaving as if they've been "damaged" by "negligence". But damages, and negligence are legal concepts that apply to
individuals or corporations who either have no relationship or a voluntary relationship between each other. The state has neither; it has a coercive relationship with BP Oil, as do all governments. It did not enter into an agreement voluntarily with BP, nor was it hanging around minding it's own business. It dictated the terms under which BP would surrender its revenue to the state. It decided the percentages, and it decided who's taxes it would rely on to fund its operations.

Now it's unhappy with the results, and looking for someone to blame. This mechanism is nothing but a veiled attempt at an ex post facto law, changing the law after the fact. Alaska is hiding behind the mask of a "injured bystander", when the real negligence lies with the state itself. Alaska is more like the powerful bookie, who doesn't care if you have the cash or not. You still owe.

All business entails risks in its operations; earnings can be volatile as a result. The basic investor knows not to put all his money into volatile instruments if he needs a steady income flow to deal with his expenses. Alaska, instead, is heavily dependant on oil revenues for it's tax revenues. Like fools they rely on an income stream that is inherently volatile, and now wonder why it's not delivering 15% every quarter.... and the rent is due.

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