Arco Agrees to Pay $285 Million to End Alaskan Dispute

Atlantic Richfield Co. agreed Wednesday to pay the state of Alaska about $285 million to settle a dispute over North Slope oil royalties in what the company says will be the last of such sizable payments that will have cost it about $1.5 billion in recent years.

The company said the settlement would force it to reduce third-quarter profit by $25 million. The remainder of the settlement will be covered by funds the Los Angeles-based company had already set aside to resolve such disputes.

The $25-million charge “really should be relatively insignificant to Arco,” said energy industry analyst M. Craig Schwerdt of Drake Capital Securities in Santa Monica. Arco reported nearly $2 billion in profit for all of 1989 and $379 million in third-quarter profit last year.

Schwerdt estimated that the one-time charge will reduce third-quarter profit by about 15 cents a share. “That shouldn’t really impact investors,” he said.

Arco was one of several oil companies named in a lawsuit filed 13 years ago by Alaskan officials who claimed that the companies undervalued the crude oil they had pumped as well as their transportation costs, thus avoiding taxes and royalty payments. The state said it had been underpaid $902 million in oil royalties alone.

The state is pressing its case against 10 other defendants, and a trial is expected in about a year, state officials said. Alaska has accused two of the 10--Chevron Corp. and British Petroleum--with civil fraud.

The Arco settlement announced Wednesday also includes the dropping by the state of a civil fraud charge it had filed against the company.

Besides paying $285 million, Arco, the second-biggest producer of North Slope oil, also agreed to a new method of determining future oil royalties on 98% of the crude oil the company produces in Alaska. William E. Wade Jr., vice chairman of Arco Alaska, released a statement saying, “This methodology is intended to reduce the potential for future conflict and provide an effective means of resolving issues.”

Arco is the second company to settle a dispute over back royalties with the state. Amerada Hess in December agreed to pay $319,000.

The Arco agreement is the most recent in a string of settlements the company has struck with Alaskan and federal authorities in disputes involving taxes and royalties on North Slope crude:

* In 1988, Arco paid Alaska $172.3 million to settle a dispute stemming from the company’s Alaskan oil exploration and production activities between 1977 and 1981.

* In 1986, Arco agreed to pay the state $243 million as part of a tax settlement covering the company’s production on the North Slope and Cook Inlet fields.

* Earlier this year, Arco paid about $800 million to the Internal Revenue Service to settle a tax dispute over windfall profits from Alaskan North Slope oil. Arco had faced up to $1.8 billion in back taxes and interest.

The company said the agreement announced Wednesday will resolve all of the major claims made in the state’s 1977 lawsuit against Arco’s production of North Slope oil.