Oil company sues over Alaska’s beleaguered cash-for-credits program

Cook Inlet oil platforms are visible from shore near Kenai, Alaska. Cook Inlet Energy and its parent company, Miller Energy Resources, have sued the state after emerging from bankruptcy. (Photo by Rashah McChesney/Alaska’s Energy Desk)

An oil and gas company is suing the state over $5.3 million dollars in unpaid cash credits. Miller Energy Resources wants anything that happened before it went bankrupt in 2015 to be off-limits to state tax auditors, according to the lawsuit and the company’s bankruptcy filings.

And, until the lawsuit is resolved, it wants the state to set aside a chunk of the cash credit payments it’s owed — so it won’t be paid to other companies in the meantime.

The lawsuit is a new snarl in the complicated knot of the state’s controversial — and now disappearing — cashable oil and gas tax credits program.

At its core, it’s a fight over just how fresh of a start a company gets when it goes through bankruptcy.

But, according to Glacier Oil & Gas Chief Executive Officer Carl Giesler, it’s not really a fight.

“What the suit is about is not so much about oil and gas tax policy or even about the wisdom or not of cash tax credits,” Giesler said. “It’s really about the picayune and frankly often tedious but still important aspects of bankruptcy law.”

To understand the bankruptcy law the state and the companies are quibbling over requires a jump back to 2015, when Geisler was the CEO of a company called Miller Energy Resources.

Miller Energy Resources was a publicly traded parent company to two other companies in Alaska: Cook Inlet Energy and Savant Alaska, LLC. One operated in Cook Inlet, the other on the North slope. All three companies were working and applying for exploration and production credits from the state. Then each redeemed some of those credits with the state, for cash.

When oil prices crashed and some lending fell through, Miller Energy slid into bankruptcy. And when it emerged, it had new owners and a new name, Glacier Oil & Gas.

The reorganization and the new name are a sticking point, because the state’s tax division is just now getting around to auditing tax credits that were paid to companies back in 2010 — when Glacier Oil & Gas was still Miller Energy.

State auditors want to examine tax credit payments the Department of Revenue made to Cook Inlet Energy, one of Miller Energy’s subsidiaries. And so far, the company is resisting.

Ken Alper is the director of the state’s tax division. State law prohibits his division from talking specifically about companies that the state owes credits to, but he can talk generally about the auditing process.

Every year, the auditors sit down and go through records of old tax returns or tax credits the state’s issued.

“And if we find an error or an overpayment or an invoice that shouldn’t have been paid on or something like that we’ll make an adjustment to a past tax credit and say ‘you owe us the difference’ essentially,” Alper said.

Each year, the Department of Revenue puts out an audit assessment memo tallying up how much money in back taxes and interest, is owed to the state. Those adjustments typically bring in more than a $100 million a year.

If the state finds that a company owes back taxes, and the state happens to owe that company money — like the $5 million it owes to Miller Energy — Alper says the tax division will just subtract what it’s owed from the balance and then pay out the rest.

But, Giesler said, all of the credits that were paid pre-bankruptcy should be out of bounds.

“What we think is that one of the key tenants of bankruptcies is (that they are) meant to create a clean start for the new entity,” Giesler said.

A fresh start for Giesler means that the state shouldn’t take pre-bankruptcy debt from the millions it owes his company now.

“That defeats the whole point,” he said.

Until that’s resolved, the company wants the state to put aside a chunk of the $5 million it’s still owed into an escrow account. That way, if the judge rules in Miller Energy’s favor, there will still be money left to pay it.

And it’s not an unfounded concern, because the state isn’t paying off the cashable credits it owes to these companies immediately.  Two years ago, the governor and then the legislature decided to pull back and just make minimum payments.

The state will owe an estimated $1 billion in unpaid cash credits this year and the legislature appropriated $77 million.

Alper said that means companies will get about .16 cents for every dollar they’re owed.

And, in Miller Energy’s case, the state is actually refusing to pay any of the $5.3 million it owes to the company, until the case is resolved, according to bankruptcy filings.

“What we don’t want to do is risk having a Pyrrhic victory where the judge rules in our favor and then we turn to the Department of Revenue and they say, ‘Sorry, we’ve already paid out all the money that was appropriated by the state legislature and governor there’s none left for you’,” Giesler said.

Ken Alper can’t say how much money is being paid to companies and which are getting paid this year, but he did say that when the money is disputed, the tax division holds onto it.

“Their share is being set aside,” Alper said. “So we’re not going to give it to anybody else.”

The company and the state will meet in court on August 22, in Anchorage.

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