Producers continue attack on gas bill

Some lawmakers are questioning timing of companies' position

Posted: Friday, May 04, 2007

Energy giants long considered key players in building a major natural gas pipeline from Alaska's North Slope have sharply backed away from Gov. Sarah Palin's gas line bill, arguingthat her plan is unworkable.

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Since Saturday, Exxon Mobil, BP PLC and ConocoPhillips have told the Senate and House finance committees the Alaska Gasline Inducement Act is too rigid and not economically viable enough for them to participate.

ConocoPhillips and Exxon Mobil Corp. restated a message to the House Finance Committee on Wednesday that AGIA will not generate competitive bids to build a pipeline.

"Unless AGIA is adjusted, ConocoPhillips would be unable to make an AGIA application," said Brian Wenzel, vice president of ConocoPhillips' North Slope gas development.

A year ago, former Gov. Frank Murkowski was pushing his deal with the producers to lawmakers, many of whom criticized it as overly generous to the companies.

Now, with less than two weeks left in Alaska's legislative session, some state lawmakers are challenging producers' current assertions and questioning the late timing of the companies' position.

Palin's energy team drafted AGIA so that competition for the pipeline project could include more than the three major producers.

The administration also believes AGIA will encourage pipeline expansion and further development on the North Slope.

Under AGIA, producers and independent pipeline companies can vie for rights to build the pipeline that lawmakers hope will ship trillions of cubic feet of natural gas to market.

Exxon Mobil's Marty Massey, who oversees commercialization of the Irving, Texas, company's Alaska gas resources, challenged the intended spirit of AGIA.

"We have consistently advised the Legislature and the administration that AGIA in its current form, will not encourage competitive proposals and will not result in a commercially viable project," he said.

Later, Massey questioned the state's hard-line position and lack of prospects for amending the bill since Palin announced AGIA March 2.

"What we are struggling to understand is why the state is insisting on such a prescriptive way forward," Massey said. "AGIA should allow all interested parties to submit a conforming bid so that the people of the state of Alaska have the opportunity to see and compare all of the bids put forward to build a gas pipeline."

Rep. Harry Crawford, D-Anchorage, wasn't buying Exxon's position and offered another idea, one that failed at the polls last year: a tax on the gas reserves. Currently there are 35 trillion cubic feet of natural gas reserves on the North Slope.

"We'll get the money up front, and pay it back to you when you get the pipeline going under your terms and your timetable," Crawford said. "I want to see our gas get to market. Sooner or later, something has got to give. I don't see anything giving yet."

AGIA establishes requirements candidates must meet in their license application or risk having the proposal rejected as incomplete by the administration.

Some of those include a proposed pipeline route, a construction timetable and a deadline for getting commitments to ship gas in the line.

Producers say that bill's structure is too restrictive. They want broader objectives so the applicants can tell the state how it would meet those standards.

Rep. Mike Kelly, R-Fairbanks, said he didn't believe AGIA's requirements were so prohibitive.

"Every contract has terms and conditions," Kelly told Massey. "Some of these can't be giving you too much of a blood pressure problem."

Producers have also long said they need the state to provide assurances that their resource production costs, such as royalties and taxes, would remain constant and predictable. This means placing more emphasis on those fiscal issues for the gas first, producers said.

Palin's plan does provide tax breaks for 10 years to the first companies pledging to ship gas in the pipeline, but the companies also want other considerations in areas such as royalties, property taxes and income tax.

Addressing these fiscal issues, not pipeline construction, should be the priority, ConocoPhillips' Wenzel said.

"We need to address the resource terms first," Wenzel said. "If we can get that right, if we can make the project work from that standpoint, the pipeline project gets much easier."

Rep. Les Gara, D-Anchorage, criticized producers for failing to mention benefits already in place in addition to those offered in the bill. He listed several including one in the state's current Petroleum Production Tax, or PPT.

"I heard you talk about the risks, but I didn't hear you talk about the amazing amount of money the state has offered to give your company," Gara said. "In PPT last year the state committed to pay at least 42 percent of your gas field development costs. Does that not sound like a fair deal to you?"

Wenzel said the bill's fiscal framework remains insufficient and that the tax benefits are separate issues.

The bill is HB 177.

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