Gas contract made public

Murkowski to explain how he intends to handle oil tax legislation today

Posted: Thursday, May 11, 2006

After two years of secret negotiations, Gov. Frank Murkowski unleashed a long-awaited draft of a North Slope gas pipeline contract Wednesday morning.

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The documents - including an unsigned contract and the state's fiscal interest finding on behalf of the project - exceed 900 pages.

The state predicts that design of the $21 billion project could begin next year and gas could begin flowing in 2016.

The Murkowski administration has reached agreement with three major oil companies - BP PLC, Exxon Mobil Corp. and ConocoPhillips - on all but one of the contract's fiscal terms, said Bill Corbus, the state's revenue commissioner, on Wednesday afternoon.

The missing part of the contract is the petroleum profits tax legislation the oil companies claim is needed for them to have fiscal certainty about the project.

The governor plans to address his intentions for handling the oil tax legislation today. The Alaska Legislature gaveled out Tuesday without agreement on a final oil-tax package.

Murkowski is hosting the first of two special sessions in Juneau and plans at least eight public hearings in other Alaskan towns. Only one of those hearings is planned in the Panhandle, on May 19 in Ketchikan.

north slope gas pipeline

• state income over 30 years: $26.5 billion to $129 billion (adjusted for inflation).

• project costs: $21 billion (2005 dollars).

• state ownership: 20 percent stake in the project ($4 billion).

• known reserves: 35 trillion cubic feet.

• annual u.s. gas consumption: 22 trillion cubic feet (2004).

• ramp-up: 10 years.

• duration of operations: 35 years.

• deadline: project must be initiated within 90 days of contract's effective date.

• employment: estimated 9,300 direct and indirect jobs during construction; 100 direct jobs during operation.

• public comment period: started wednesday; will run for 45 days.

• web links: http://www.gov.state.ak.us/gasline.

http://www.revenue.state.ak.us/gasline/.

The public comment period on the draft contract began Wednesday, and will last 45 days or even longer, state officials said.

The North Slope gas pipeline is one of the largest construction projects, ever.

It is also extremely risky, state officials and consultants said Wednesday.

"If there is a 50 percent cost overrun, the value of the project approaches minus $3 billion dollars," said Murkowski consultant Pedro van Meurs.

If costs ballooned and gas prices dropped, ConocoPhillips "could become a takeover target," van Meurs added.

Because of those uncertainties, the state needs to assure the oil companies of a high rate of return, van Meurs said.

Some governments around the world are trying to woo the companies with lower tax rates, van Meurs said.

The major method used by the Murkowski administration to make the project more palatable for the companies is to reduce their amount of investment.

The state has proposed to take 20 percent ownership and investment in the project. That means it will likely take on $4 billion in construction costs, and will be required to market and sell its own gas.

The state would own a 20 percent interest in the steel pipeline, in compressor stations located between the North Slope and Alberta, a gas treatment plant as well as a gas byproducts plant, if one is built in Alaska.

The entire project, expected to cost $21 billion, includes:

• A network of North Slope transmission pipelines.

• A North Slope gas treatment plant.

• 2,100 miles of 48-inch to 52-inch, high-pressure steel pipeline to Alberta, Canada.

• 1,500 miles of a new or existing high-pressure pipeline to Chicago.

The pipeline is expected to produce 4 billion cubic feet of North Slope gas per day during its 35-year operating life, state officials said.

• Elizabeth Bluemink can be reached at elizabeth.bluemink@juneauempire.com.



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