ConocoPhillips pitches case to the Senate

Posted: Thursday, January 24, 2008

JUNEAU - Brushing aside a rejection from the governor, the state's largest oil producer took its case for an alternative proposal for a natural gas pipeline to Alaska's Legislature on Wednesday.

Brian Wallace / Juneau Empire
Brian Wallace / Juneau Empire

ConocoPhillips pitched its pipeline to the Senate Resources Committee, which began hearings with companies interested in building a gas pipeline.

ConocoPhillips did not apply under terms of the state's bid process. Five other companies did, but only one — TransCanada Alaska Co., LLC/Foothills Pipelines, Ltd. — was selected for the next round of scrutiny, a public comment period.

Gov. Sarah Palin refused to consider ConocoPhillips' proposal since it deviated from the state's guidelines.

But ConocoPhillips Vice President Brian Wenzel stressed to lawmakers that a pipeline is useless unless gas lease holders like ConocoPhillips commit to shipping gas, a process known as open season, which guarantees minimum daily throughput.

That means the producers who hold leases need to know what their long-term fiscal obligations — tax rates and royalties — are to the state, Wenzel said.

"We shouldn't focus all our efforts on just building the pipeline," Wenzel said. "That won't bring the gas to market.

"The foundational element to make this project move ahead is solving those tax rules, and the pipeline will happen by itself," he said. "It's essentially a means to an end."

ConocoPhillips has pressed its agenda publicly with television advertisements and town hall meetings the last few months.

Senate Minority Leader Gene Therriault, R-North Pole, said he was pleased ConocoPhillips remains interested in getting a gas line built, but added he'd like more substance in the message.

"It still seems like there were more questions than answers," said Therriault, who attended the hearing.

Lacking was "information that will result in a pipeline: hard dollar facts on the tariffs; cost on construction; and how you deal with potential cost overrun."

Also, on Wednesday, a TransCanada official visited with several Alaska lawmakers individually.

Lawmakers say they plan on having TransCanada and others who applied back to Juneau throughout the legislative session.

TransCanada Vice President Tony Palmer said Wednesday he met with about 10 to 12 members of the House and Senate. He says meetings are planned with Palin's staff for Thursday.

"We have some questions about process," Palmer said. "How do they intend to proceed? Do they intend to hold town hall meetings? At this point, we don't know."

This stage of the gas pipeline development began playing out Nov. 30 when applications were due to the state for the right to build a pipeline.

On that day, Houston-based ConocoPhillips submitted what it called an alternative to the state's Alaska Gasline Inducement Act, or AGIA. Palin rejected it two weeks ago.

The state wants a plan that guarantees progress toward pipeline construction and is friendly toward new exploration.

AGIA was designed to stimulate competition among oil and gas companies and independent pipeline companies.

Five applications were submitted under the state's terms. Only TransCanada advanced to a public comment period, which ends March 6.

ConocoPhillips didn't apply under AGIA. Even though Palin rejected it, ConocoPhillips is trying to advance its plan with lawmakers.

State Sen. Charlie Huggins, a Wasilla Republican who heads the Senate Resources Committee, says the Legislature still needs to hear ConocoPhillips' pitch.

"I didn't hear a lot of different things from Brian, per se, but it allowed the senators the chance to ask questions," Huggins said. "This is all about clarity and follow-up questions."

AGIA does provide a 10-year tax break for producers willing to be the first to ship gas in the pipeline, but last year producers said that wasn't enough.

A longer term failed under the previous administration, prompting Palin to chart a different course toward tapping the North Slope's 35 trillion cubic feet of proven natural gas reserves.

Locking in taxes and royalty terms — also known as fiscal certainty — for several years has driven one of the biggest wedges between the North Slope producers and the Legislature.

Producers say the fiscal certainty mitigates the multibillion dollar risk connected with a commitment to ship gas in the pipeline.

Former Gov. Frank Murkowski was willing to do this for up to 45 years in a deal with ConocoPhillips, Exxon Mobil Corp. and BP, the state's North Slope producers.

Enough lawmakers, however, balked at relinquishing the taxation powers, something Alaska Constitution prohibits, and the Legislature never voted on the proposed contract.

Rep. Jay Ramras, R-Fairbanks, will reprise the argument in a separate hearing next Monday, but this time with a proposed constitutional amendment.

In November's general election, Ramras wants voters to decide whether to empower the governor to provide oil and gas companies with fiscal certainty.

For a referendum like this to get on the ballot, it would take two-thirds approval from each the House and the Senate.

"This is an obstacle that the state can remove from the road to getting a gas line," Ramras said. "It seems to me we have the ability to remove that risk variable by going back to the root document and addressing it there."

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