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Questionable Department of Revenue Loan Scheme Leads to Request for Audit from State Senator

In June of 2015 Governor Bill Walker vetoed $200 million of oil tax exploration credits owed to independent oil companies. This was very controversial as these payments had been made in the past without issue. The state was facing a multi billion dollar deficit at the time due to a crash in oil prices. But four months later, in October of 2015, the Department of Revenue (DOR) setup a Line of Credit Agreement for $22.5 million with an entity called Mustang Operations Center #1 LLC (MOC1). According to an Alaska Industrial Development and Export Authority (AIDEA) PDF, MOC1 is owned by AIDEA and CES Oil Services Pte, LTD, a Singapore based company.

AIDEA has been actively involved in the Southern Mileuveach Unit field development since 2012. They formed a company, Mustang Road LLC, to build and own a 4.4 mile road and a 17.4 acre gravel production pad. In April 2014 they agreed to pay up to $50 million of a $225 million facility project. Brooks Range Petroleum is the operator. This Journal of Commerce article, AIDEA revises Mustang investment to spur production, explains the details of the project.

I was given a tip about the loan from DOR and I started looking into it. I soon discovered that I was not the only person who had looked into this. In May 2018 Senator Bert Stedman (R – Sitka) sent a letter to the Legislative Budget and Audit Committee requesting an audit of this loan. Stedman is the chair of the committee. I have also been made aware of a report that was sent to Stedman in April of 2018 from DOR that details the loan. I have put in a request for the report. The Department of Law is reviewing it. I will provide the report if and when I get it. I reached out to Senator Stedman to ask about this. I left a message but have not heard back yet.

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Here is the letter from Stedman requesting the audit: MOC-Loan-Audit-Request

The letter asks if the loan was in compliance with state statutes. I could not find an appropriation for this program in the budget. The letter also says that the collateral for the loan is secured by the tax credits owed to MOC1. And the big question he asks is whether or not this loan program was offered to other companies. I spoke to people from other independent oil companies who are still owed tax credits. None of them have heard about this program. One person thought I was making it up. Another said, “Why didn’t we get a bailout from the state?”

The other interesting thing is the $22.5 million was supposed to be paid back, with interest, by December 31, 2016. The letter states that as of March 31, 2018 $19.7 million was owed with a maturity date of July 15, 2018. I am told no payment has been made since January of 2018.

I asked several administration officials if they were aware of the loan program. Two who were aware of it did not want to comment. Mike Barnhill, Deputy Commissioner of Revenue, provided me with some basic information about the program. He was not at DOR when the loan was approved. Neither was the current Commissioner of Revenue, Sheldon Fisher. Randy Hoffbeck was the Revenue Commissioner when the loan was approved.

There remains many unanswered questions about the loan program. Whose idea was it? Under what authority was it authorized? Was this due to favoritism because of AIDEA’s involvement in the project?

The tax credit issue is still ongoing. The legislature passed a bill this year, introduced by the Walker administration, to pay off the nearly billion dollars of owed oil tax credits by issuing bonds. But a lawsuit was filed after the bill was signed saying the bill is not constitutional. It’s currently in the courts.

This is a developing story and will be updated as more information is made available.

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