Fund trustees call for oil probe

Permanent fund officials question whether large oil companies are keeping smaller outfits out of fields

Posted: Friday, February 21, 2003

ANCHORAGE - The Alaska Permanent Fund Corp. is calling for an investigation into whether oil industry practices on the North Slope are shortchanging the state.

Bob Storer, executive director of the fund corporation, wrote to the Alaska Oil and Gas Conservation Commission on Wednesday, suggesting the commission take a look at whether the big oil companies are keeping smaller ones from developing Alaska oil fields.

The letter stems from a resolution proposed by Permanent Fund trustee Carl Brady Jr. and passed unanimously by the trustees last week. Brady, an Anchorage insurance executive named to the board by Gov. Frank Murkowski, would not comment on his resolution.

Storer said in his letter that Brady was worried about large oil companies leaving leased Alaska fields undeveloped in favor of pursuing prospects elsewhere.

"Trustee Brady explained that smaller oil companies might find such fields economically attractive for current production, which would benefit the state," Storer wrote. "However there are barriers - namely standing underutilized leases - that bar the smaller companies from leasing the fields and producing oil."

The resolution asks the commission to "conduct an investigation of all maintenance and operational practices, including tariff and facility pricing" that could limit oil development.

The permanent fund, which delivers annual dividends to every Alaskan, receives a slice of the state's oil revenues. That amounted to more than $250 million last year.

"We are obviously anxious," said Eric Wohlforth, chairman of the trustees. "A major component of our income is from royalties and severance taxes."

Wohlforth said the trustees were concerned about tariffs - the amount the big oil companies that own the trans-Alaska oil pipeline charge to ship oil down the pipeline. A high tariff could discourage other companies who want to develop oil from state leases on the North Slope, he said.

Pipeline tariffs also affect how much money the state receives in oil royalties and severance taxes. Higher pipeline charges mean lower revenues for Alaska.

The Regulatory Commission of Alaska recently found that tariffs charged to transport oil to in-state refiners are too high, a ruling that is under appeal. It also doesn't apply to the vast majority of the oil shipped out of the state. The tariff structure arose from a 1986 agreement between the state and the pipeline owners.

Representatives of BP and ConocoPhillips, the biggest North Slope producers and owners of a combined 73 percent of the trans-Alaska oil pipeline, wouldn't comment.

The resolution asks the commission to report back to the trustees on the results of the investigation and any steps it is prepared to take as a result.

Murkowski this week named two new commissioners to the three-member oil and gas panel: Republican Party chairman Randy Ruedrich and former Wasilla Mayor Sarah Palin.



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