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Natural gas, oil exploration top administration agenda

Critics have complained that Murkowski's campaign promises to develop haven't been met

Posted: Monday, December 29, 2003

Creating a friendly environment for oil exploration by independent companies, continuing the push for a natural gas pipeline to the Lower 48 and speeding up exploration on the Alaska Peninsula are among Gov. Frank Murkowski's plans for making good on his campaign promises in 2004.

Murkowski ran for election on a natural resources development platform, and critics have complained progress has been slow. The administration cautions that oil and gas resources must be developed gradually.

"I don't know if the Democrats think they're going to get instant gratification, but these things take time," said Murkowski spokesman John Manly. "Anybody who's watched this oil and gas business in Alaska understands that it takes a significant amount of time to get these things up and going."

Last session, the Legislature passed an oil exploration tax credit to induce companies to drill more wells and revived the Stranded Gas Act, which allows the state to negotiate a fiscal contract for a natural gas project.

The natural gas line has been a topic of discussion for years. The route being discussed by oil companies would run from Prudhoe Bay to Fairbanks, parallel with the trans-Alaska oil pipeline, and then veer off to follow the Alaska Highway down through Alberta, Canada and end in Chicago.

The administration hopes to receive an application to build the gas pipeline soon. The Stranded Gas Act requires that such an application receive legislative approval. Manly said Murkowski has spoken with several companies but said nothing has been finalized.

Dave MacDowell, spokesman for BP, said the company is working to develop an application but doesn't have a timeline for its completion. The application provides a framework for negotiations of the fiscal contract, which works out the details of royalties and taxes to be paid to the state.

Democrats have complained that Alaska can't attract any investors because Murkowski has not provided any real solutions to the state's fiscal gap, which is just under $400 million this year.

"One of the largest disincentives to oil exploration is the continued existence of the fiscal gap. You talk to anyone in the industry and they'll tell you that. It creates uncertainty and instability," said House Minority Leader Ethan Berkowitz, an Anchorage Democrat.

Berkowitz said the administration promised to provide legislators with a financial analysis of the oil tax credit plan, but neglected to do so.

"It's a breach of a commitment to a legislator, but more serious than that, it reveals that they don't have a systematic way of reviewing proposals, which, in this business climate, is unacceptable," he said.

But Berkowitz said oil and gas extraction is necessary for the health of Alaska's economy.

"I'm very excited about the prospects for recovery of proven reserves of heavy oil with the proper sort of inducements, which also includes infrastructure developments," he said.

MacDowell said BP is looking for a "clear and durable fiscal contract for gas."

"We've said all along that it's important that Alaska have ... a climate that supports large investments," he said.

Spokespeople for ConocoPhillips and Exxon, the remaining two of the "big three" North Slope oil companies, did not return calls for comment Friday.

The administration also is planning a bill that would change the leasing schedule for oil exploration on the Alaska Peninsula. State law says lease offerings must be on the Department of Natural Resources' schedule for two years before they are leased, and the administration wants to accelerate that. Manly said the law was introduced decades ago when many leases were going up at the same time, and was intended to give the Legislature more time to consider each lease.

"We don't have quite that problem anymore because we don't have as many leases going out," he said.

The administration also is working to attract independent oil and gas companies to invest in Alaska. Murkowski met earlier this month with representatives of about two dozen independent oil and gas producers to get information on how to make the state more attractive to independent investors. Manly said the three major companies have been on the North Slope awhile and aren't drilling exploratory wells.

"Independents would be inclined to do that because they're putting money into that kind of exploration with the hopes that they'll find another Prudhoe Bay or something that would make it worth their while," he said.

Manly said one of the main hurdles to getting independents to Alaska is providing them access to existing facilities operated by the three big companies.

"You'd have to negotiate with the big three to develop the oil and put it through their production facilities and into the pipeline. One of the (independent) companies said they'd be here drilling four or five wells a year if they had access to the facilities," Manly said.

He said Murkowski plans to negotiate such access with the major companies.

BP's spokesman for that issue did not return a call for comment Friday.

• Masha Herbst can be reached at masha.herbst@juneauempire.com.



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