Exxon: Gas line bill needs work

Company says current plan lacks financial stability

Posted: Sunday, March 25, 2007

Exxon Mobil Corp. called for significant changes to Gov. Sarah Palin's gas line legislation in testimony to lawmakers Friday.

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Exxon, one of three companies to discuss the Alaska Gasline Inducement Act, said the bill lacks important provisions that, if missing, could preclude a company from producing its gas.

Exxon says AGIA lacks fiscal stability on tax structure; should not set arbitrary target dates marking progress; and disputes should go to arbitrators, not the courts.

"Because fiscal terms could be modified under the proposed AGIA legislation, it does not provide the fiscal stability necessary to ensure a commercially viable project," said Marty Massey, who oversees commercializing Exxon Mobil's gas resources in Alaska.

"We must have agreements on this project that allow us to develop this project on predictable and durable terms," Massey first told the House Oil and Gas Committee, then the Senate Resources Committee. "If fiscal terms can be changed in the future, then we are not able to make a well-founded investment decision on behalf of our shareholders."

Dave Van Tuyl, BP PLC's gas commercialization manager, offered supporting thoughts when testifying to the Senate.

"Ultimately all risks are born, either directly or indirectly, by the resource owners," Van Tuyl said. "To ensure a low-cost project, it's important that those bearing the risk, are able to manage it."

If these stances sounds familiar to those tracking pipeline development last year, it should.

These are provisions and conditions from a contract in principle that never went before a legislative vote last year.

Exxon, BP and ConocoPhillips, had a fiscal deal locking in tax rates for oil and gas covering 30 and 45 years. They eventually hoped to build the natural gas pipeline.

Palin's bill sets project criteria which energy companies must meet in exchange for inducement incentives from the state to build a pipeline. Companies will vie for rights to the project.

It also affords tax incentives and royalty breaks for the first group of companies who commit to supplying the pipeline with natural gas, a process known as open season, which guarantees minimum daily throughput.

Successful passage of AGIA essentially means replacing the Stranded Gas Act, the foundation for last year's deal, which has the features Exxon says are vital.

"They haven't changed their position," said Department of Revenue Commissioner Pat Galvin after Exxon's presentation. "We need to change the dynamic of the discussion and that's what AGIA is designed to do."

Now the producers must start over in a larger competitive field. Massey's message, though firm and familiar, came with a refreshing approach, some lawmakers thought.

"Their demeanor was far less strident than last year," said Rep. Jay Ramras, R-Fairbanks. "I think you'll see they are going to rotate oil and gas (capital investment) dollars back to Alaska rather than just harvest earnings."

The fiscal certainty the producers seek was one issue that drove a wedge between many lawmakers and former Gov. Frank Murkowski's plan last year.

It is certain to test the state's constitution over surrendering power of taxation, another concern lawmakers have under the current proposal.

AGIA has a 10-year tax break, but the pipeline could be used for 30 or more years after that benefit expires, so producers believe the tax rate should be locked in longer than a decade.

Sen. Tom Wagoner, R-Kenai, asked Massey if he would be willing to consider another economic model, like one used in Alberta, which is not based on time, but one that still allows companies to recover a percentage of their investment. Massey said Exxon would listen to options.

The Senate and House will hold joint committee hearings on Saturday. Additionally, the Senate will hold its own hearing as well and hear testimony from ConocoPhillips.

Both committees are expected to hear additional testimony from producers and pipeline companies throughout next week.

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