Lawmakers, oil firms at odds over Slope development, tax

Posted: Thursday, January 19, 2006

A group of Alaska lawmakers and former Gov. Walter Hickel say oil producers are intentionally delaying construction of a $20 billion natural gas pipeline and the time has come to pressure them into a deal.

"We are not going to be the (natural gas) warehouse to keep a stock price up," said Rep. Eric Croft, D-Anchorage, during a House Ways and Means Committee on Wednesday.

While producers have grown fatter on the high demand for fuel, Wall Street wants to see that they have adequate reserves to keep up with the pace of growth, Croft said.

Producers are inclined to develop elsewhere, as nations such as Indonesia, Russia and those in the Middle East are putting more pressure than Alaska on the oil companies to pump gas on their leases, Croft said.

"Outside interests, determined to stifle any development in Alaska which might compete with their activities elsewhere, will attempt to acquire great areas of Alaska land in order not to develop them until they see fit," said Hickel, in a legislative committee hearing last week.

Representatives from the three oil companies involved in negotiations - Conoco Phillips, Exxon Mobil and BP Alaska - deny they are intentionally delaying the deal and say they are serious about building a pipeline.

"A large project like this takes time," said BP spokesman Daren Beaudo, adding that staff members are working 24 hours and seven days a week on the deal. The three producers spent $125 million to investigate the prospect of building the pipeline, he said.

Croft is sponsoring a bill he calls a "pipeline incentive tax," which would tax the known reserves of natural gas that producers have in their leases on the North Slope but that they have been reluctant to develop for several years.

A citizens' initiative also authored by Croft and asking for the same action is slated to be on the ballot in November.

Hickel said if the proposal appears to some as a punishment, they are right.

"If you keep what may be over $1 trillion worth of someone else's resources off the market for the benefit of yourself and your stockholders, you must pay the price," Hickel said.

The new tax could collect about $1 billion annually from producers until gas starts flowing and the fee expires. If a contract is signed, from that point producers could get their money back through credits applied against the production tax on the gas that is shipped.

Conoco Phillips spokeswoman Dawn Patience said the pipeline can't be taxed into existence.

"This initiative does nothing to move the gas project forward and it sends the wrong message to any company interested in developing an Alaska natural gas pipeline or companies that want to explore in Alaska," Patience said in a written statement.

Mark Myers, former director of the Alaska Division of Oil and Gas, said Wednesday that in his opinion, the bill would not discourage future exploration. The fee applies to gas in units leased before 2002 with more than 1 trillion cubic feet of known resources.

On Wednesday, natural gas was selling at $8.78 per 1,000 British thermal unit. Myers said any price more than $3 is robust for the industry and producers should not use the excuse that profits will not be made on gas at this time.

Another hearing on the bill is expected in February. House Ways and Means Committee Chairman Bruce Weyhrauch said the bill treads over sensitive areas - particularly now - because it may interfere with the contract negotiations.

"I don't think anyone is comfortable with it right now because of the unknowns," he said.

• Andrew Petty can be reached at andrew.petty@juneauempire.com



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