Oil companies try to sway gas line plan

Large producers lobby for changes to AGIA to fit needs

Posted: Monday, April 16, 2007

Oil companies holding leases on North Slope natural gas are asking the Alaska Legislature to keep them in the lead in the quest to build a gas pipeline.

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"A producer pipeline will provide maximum value to the state of Alaska," said Marty Massey, Exxon Mobil's U.S. joint interest manager.

Under former Gov. Frank Murk-owski, the producers had a favored place, as Murkowski negotiated exclusively with them.

Gov. Sarah Palin's proposed Alaska Gasline Inducement Act, now being considered by the Legislature, opened up the process to other and smaller pipeline builders.

Her bill established a list of the state's "must-haves," criteria which the state deemed necessary to make the project work.

Exxon Mobil and other oil companies have said publicly they support the AGIA process, but Massey and representatives of BP, ConocoPhillips and allied companies have spread out among legislative committees, pointing out what they consider to be flaws in the bill and lobbying for amendments to fit their needs.

"We believe AGIA can be successful if some key issues are addressed," said David Van Tuyl of BP-Alaska Exploration Inc.

Massey and Van Tuyl both said that Palin, rather than establishing "must-have" criteria, should outline what the state's objectives are and let the producers and anyone else negotiate to meet them.

Palin, however, has warned that the producers may try to amend AGIA so much that it takes away its effectiveness.

"Simply passing AGIA is not enough. We must not strip away its core concepts," she said in her recent gas pipeline progress message.

The producers say they need to be involved so they can hold down costs. Costs to build the pipeline will translate directly into what it costs to ship gas on the pipeline, and thus how much it will eventually make the state, they reason.

Massey said Exxon Mobil had a track record of managing huge projects and keeping costs down that few could match

The gas line would be the largest private investment ever in North America.

"Size amplifies the cost of poor execution," he said. "If a mistake were made, it would cost us all dearly,"

That's why a company such as Exxon Mobil should build it, he said.

"Large projects with significant complexity is what we do," he said.

The producer representatives have been arguing that AGIA needs numerous amendments, while at the same time saying they support the process.

"They like AGIA, they just don't like anything that's in it," said Rep. Mike Doogan, R-Anchorage.

The producers hold a key position in the negotiations, because they now control leases to the bulk of the known gas reserves on the North Slope.

So far they're saying they won't participate in the AGIA bidding process.

"As drafted today, we would not," said BP's Van Tuyl.

Some Capitol insiders fear the producers would undermine any pipeline they don't control by withholding their gas.

At same time, natural gas exploring companies like Anadarko Petroleum Corp. have said they're concerned that if the producers - their competitors - win the contract, they would deny the little guys access to the pipeline.

Palin's AGIA includes requirements that other companies be allowed into an expanded pipeline, but the producers have balked at that and other provisions of AGIA.

Rep. Beth Kerttula, D-Juneau, said the producers were bluffing when they say they won't sell gas.

"At some point they are going to be forced to sell their gas," she said.

Kerttula leads the House Democrats, and is a former oil and gas attorney with the Alaska Department of Law.

The state has already taken steps to take back leases on gas at the Point Thomson field on the North Slope, leading to litigation with the producers.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.

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