Arco Pays $172 Million in Alaska Tax Dispute

Atlantic Richfield Co. said Friday that it had resolved part of a tax dispute with the state of Alaska and had paid $172.3 million for liabilities incurred from 1978 to 1981 in connection with its oil exploration and production activities.

The settlement resolved 14 of 16 major issues related to Arco’s Alaskan operations, the oil company said, including issues related to pipeline income and allowable deductions for exploration and the operation of facilities in the Prudhoe Bay and Cook Inlet. Arco and the state decided to continue their legal fight on two issues, which involve a potential tax liability of $57.3 million. The issues involve disputes about the amount Arco can deduct for expenses related to pipeline costs and how revenue from refining operations should be taxed, said Arco officials.

The settlement costs will not affect Arco’s earnings because the company has a reserve fund for litigation related to past Alaskan operations, the company said.

The Los Angeles-based company’s Alaskan operations could be the subject of other litigation. The Internal Revenue Service, in an unrelated matter, has said Arco may owe back taxes and penalties totaling more than $1.1 billion. The dispute centers on windfall profit taxes owed on Arco’s Alaska North Slope oil produced between 1980 and 1983.

In unrelated developments, a federal appellate court Friday ruled that an independent gasoline company--USA Petroleum--can sue Arco for allegedly conspiring with its retail service stations to fix prices at below-market levels.

USA Petroleum contended that Arco unreasonably cut its prices in the early 1980s to drive out smaller independent refiners and marketers.

District Court Reversed

The 9th U.S. Circuit Court of Appeals in San Francisco reversed a district court ruling that dismissed USA Petroleum’s lawsuit against Arco on the grounds that it failed to prove it was the financial victim of monopolistic practices. Arco had contended that it has followed competitive--not predatory--practices.

“In the present case, plaintiff’s injuries result directly from pricing practices that defendants (Arco) admit (for the purpose of this appeal) are forbidden by the antitrust laws and are therefore illegal,” the circuit court said in its 2-1 decision.

The court rejected Arco’s argument that USA Petroleum’s injuries resulted from increased rather than decreased competition.

“The removal of some elements of price competition distorts the markets, and harms all the participants: those retailers which have lost their ability to set prices, the other retailers in the same market who are harmed by the distorted market, and the consumers,” said the decision written by Judge Stephen Reinhardt.