Governor releases full gas contract

Murkowski hands over another 106 pages of provisions to make document complete

Posted: Thursday, May 25, 2006

Gov. Frank Murkowski and executives from the state's three largest oil companies appeared together Wednesday to endorse a contract proposal that now includes placeholder language for a long-term freeze on the companies' oil and gas taxes.

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The contract to set the financial terms for recovering the North Slope gas - and possibly lead to a gas pipeline - has been under public review since May 10. But on Wednesday, Murkowski announced he was releasing another 106 pages of provisions for which negotiations had just been completed the night before.

He said the additions represent the complete contract, now a 457-page document, made public for the first time.

"It was stated for some time, 'Well, where is the contract?' Well, here, ladies and gentlemen, is the actual contract," Murkowski said.

The added provisions mainly deal with the tax freeze for oil production, and include terms of a disputed petroleum production tax bill that has not yet passed the Legislature.

The petroleum production tax provisions had been kept out of the draft contract while lawmakers deliberated the tax rewrite.

But because the Legislature hasn't approved a tax bill, that means the terms of the contract will change again if the final version differs from the deal Murkowski struck with Exxon Mobil Corp., BP PLC and ConocoPhillips.

That deal calls for a flat tax of 20 percent of the companies' Alaska profits, which would be lessened somewhat by a 20 percent credit on the companies' capital investments.

Murkowski and the oil companies say that bill increases the tax burden on the oil industry but provides enough incentives to spur continued exploration and development. They say it strikes a delicate balance that can be easily skewed.

Lawmakers this year have considered several versions of the tax, and none have stuck with the governor's bill. All have increased the tax, whether through the base tax rate or the addition of an escalator to increase the tax revenue when the price of oil is high.

One of the main messages the governor and oil companies had to the Legislature on Wednesday was for lawmakers to pass the governor's version, known as the 20-20.

"With the contract now solidly in place, we can go forward and recognize that there's even more reason to support and work and maintain, in my opinion, the 20-20," Murkowski said.

The contract proposes locking in the terms of the new tax for 30 years for oil, the tax stability the oil producers say they need to go forward with a North Slope natural gas pipeline, which would be the largest construction project in United States history.

Exxon Mobil Corp.'s Richard Owen warned that a change to the proposed tax could hurt the contract and the prospects for the gas pipeline, a $19 billion to $27 billion project that would carry 4 billion cubic feet of gas per day to Canada or the Midwest.

"Any changes to the oil terms that we've agreed will - could - potentially jeopardize the contract and our ability to progress the gas pipeline, and at a minimum would require us to re-examine the gas fiscal contract," Owen said.

Steve Marshall of BP and Jim Bowles of ConocoPhillips both said their companies are ready to sign the contract with the governor's tax bill, but they declined to say whether a changed production tax would scuttle the contract.

"We're prepared to sign this project today," Marshall said. "We're not prepared to speculate or even negotiate in public about what the Legislature may do."

Bowles said the terms in the contract recognize the needs of all the parties.

"ConocoPhillips is very eager to get this project going, and we hope to see the contract come back to us intact as we're ready to execute and go forward," Bowles said.

The Senate this week passed a version of the bill with a base tax of 22.5 percent. House members will consider the bill when they return from a Memorial Day break Wednesday.

Legislators shrugged off Wednesday's announcement, saying the added pressure to pass the governor's tax bill would have no effect. House Speaker John Harris, R-Valdez, said he doubts the 20-20 plan will stick.

"I think there are some who want the gas line probably under any condition and then there are others who want it under certain conditions. I think you have to wait it out and see," Harris said. "If the governor and producers try to put a heavy hand on things, I think it makes a bigger problem for them."

Rep. Eric Croft, D-Anchorage, said he doesn't blame the oil companies for trying to get the best deal they can, but he says the contract itself is fatally flawed because it doesn't guarantee construction of a gas line.

He said he appreciated Owen's forthrightness in saying a changed oil-tax bill could hurt the chances of a pipeline.

"I think Exxon is refreshingly honest," he said. "I don't like them, but at least they tell you what they're doing to you."

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