Agreement reached on gas pipeline

Governor's oil tax proposal lower than expected; firms 'comfortable'

Posted: Wednesday, February 22, 2006

Gov. Frank Murkowski said Tuesday he has reached an agreement with oil producers to build a natural gas pipeline from the North Slope, though a contract is not yet ready for legislative review.

The governor also announced that his plan for a new oil tax system is ready for the Alaska Legislature. It's a 20 percent net-profits tax, with which the producers - BP, Exxon Mobil and Conoco Phillips - are comfortable, Murkowski said.

"To have an agreement on both is historic," the governor said at an Anchorage news conference.

Critics said there still is no contract because the governor did not have one ready for the public to see.

The administration has been in secret negotiations with the North Slope oil producers for two years to build a $20 billion to $25 billion pipeline moving Alaska's gas to market.

Steve Marshall, president of BP Alaska, in a written statement said a gas portion of the fiscal contract dealing with taxes and royalties is complete.

"(We) are working to finalize durable oil contract terms that incorporate the new oil tax structure," he added.

Conoco Phillips reached a verbal agreement on the fiscal terms that the state was proposing last fall. According to former Alaska Department of Natural Resources Commissioner Tom Irwin, the contract said Conoco Phillips would not be required to build the pipeline.

"I wouldn't call it a real contract if the producers are not required to build it," said Rep. Les Gara, D-Anchorage. He said if the state does not get a serious commitment from the producers to build a gas pipeline, then the state should enforce their lease terms.

Jim Clark, the governor's chief of staff, said legal experts need to review the contract before it comes before the public.

The administration and the oil companies say they are waiting for the Legislature to approve the tax structure before they sign a final contract. The oil industry wants to know its fiscal outlook before committing to such a major and risky project.

The governor's bill would tax oil companies' net profits; the current system taxes production. It calls for a 20 percent tax rate on the net profits while giving a 20 percent tax credit as an incentive for exploration.

As long as oil prices remain high, the state stands to earn an extra $1 billion year or more if it approves the system. The new tax structure is favored by Democrats and Republicans, though they disagree on the amount of taxation.

The tax rates proposed are too low and it is now up to the Legislature to raise them before passing a bill, said Rep. Eric Croft, D-Anchorage, a candidate for governor.

"I think it's a sad day. One hundred thirty-nine years ago Russia sold Alaska for peanuts, and we just sold Alaska's oil for peanuts," Croft told The Associated Press. "I think we're going to get a gut check on this Legislature and finally find out who owns this state."

Another Democratic candidate for governor, House Minority Leader Ethan Berkowitz, D-Anchorage, said he believed the governor caved in to pressure by the oil industry in lowering the proposed tax rates.

"It seems to me he's been spelunking at the very least," Berkowitz said.

Earlier this month, the administration's lead consultant on oil and gas issues, Pedro van Meurs, recommended the governor set rates at 25 percent. The governor was set to introduce legislation last week with that rate but reconsidered after meeting with executives of the oil companies.

The state would get about $300 million less if it approves a tax system at 20 percent, rather than 25 percent, van Meurs said.

The governor said he wanted a rate low enough to keep oil companies in Alaska and continue investing in exploration.

The Democrats introduced a bill last week with a rate of 30 percent. According to a BP press release, Gara said oil companies dish out profits to shareholders when prices are above $20 a barrel.

"I don't know why we would want to reduce taxes on oil companies when they are making a ton of money," Gara said.

Hearings are already scheduled this week for the governor's oil tax proposal. House Majority Leader John Coghill, R-North Pole, said talks could take as long a month.

Chuck Logsdon, spokesman for the governor's negotiation team, said legislation will be needed to allow negotiators to include oil issues in the gas pipeline contract.

• Andrew Petty can be reached at

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