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'Completed' Gas Plan Tossed to Legislature: PIPELINE: Oil Execs Ready to Sign, As Long As Lawmakers Cooperate, Governor Says.

Posted on: Saturday, 27 May 2006, 18:00 CDT

By Wesley Loy, Anchorage Daily News, Alaska

May 25--Gov. Frank Murkowski on Wednesday held up what he said was a polished natural gas pipeline contract that oil company executives are ready to sign immediately -- so long as state lawmakers don't make changes, particularly with respect to oil taxes.

The event at the governor's Anchorage office seemed designed to put pressure on state lawmakers in Juneau, who are meeting in special session and have shown an inclination to raise taxes on crude oil to a higher level than Murkowski and the oil companies want.

Flanked by top Alaska executives for oil giants Exxon Mobil, Conoco Phillips and BP, the governor repeatedly held up the phone-book-sized document, calling it the capstone for two years of negotiations that wrapped up around 2 a.m. Wednesday.

"What we have now is a completed contract for the first time," said Murkowski, who has made the gas pipeline the top priority of his administration.

"To the Legislature, the next move is yours," he said.

The contract is the second version the governor has released this month. The first draft, unveiled May 10, was 355 pages long. The new version has grown to 460 pages.

The document is not a construction contract. Rather, it sets out state terms should the three oil companies decide years from now to build an estimated $21 billion pipeline to carry the vast North Slope gas reserves as far as Chicago some 3,500 miles away.

Contract provisions include tax rates on gas production, tax credits to encourage more oil and gas drilling, a 20 percent state ownership stake in the pipeline, and a plan for fitting the pipeline with taps to siphon off some gas for Alaska home heating and industry.

Before they'll make such a huge and risky investment, the oil companies have said they want the state to freeze tax rates on oil and gas. The Murkowski contract would do that, fixing the oil tax for 30 years and gas for 45.

The governor's May 10 contract didn't specify oil tax rates and credits, but the new version does, incorporating the so-called 20-20 plan the governor has touted since February. The companies would pay a 20 percent tax on their Alaska oil profits, and they could subtract from their tax bills 20 percent of what they spend to find and develop new oil supplies in the state -- something Murkowski says is vital to stem the rapid decline of North Slope oil fields.

Under state law, however, the governor and oil company executives can't actually sign the contract until the Legislature approves. And lawmakers have signaled they want higher taxes than the governor, who says too high a rate could douse oil company spending in Alaska.

The Senate on Monday voted 15-4 for a 22.5 percent tax rate on oil. The House, before the regular session ended May 9, passed a 21.5 percent tax rate. And unlike Murkowski, both bodies want a clause to ratchet up the oil tax rate when oil prices run high, as they are now.

Oil executives Wednesday declined to say whether they'd still sign a gas pipeline contract if lawmakers don't embrace Murkowski's 20-20 vision.

"We need to see the whole package when it comes through," said Jim Bowles, president of Conoco Phillips Alaska Inc.

Exxon's Richard Owen did allow that significant oil tax tinkering "could potentially jeopardize the contract."

Lawmakers have recessed for Memorial Day until Wednesday.

Legislators shrugged off Murkowski'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.

"There are some who want the gas line probably under any condition and then there are others who want it under certain conditions," 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 appreciated Owen's forthrightness in saying a changed oil tax bill could hurt the chances of a pipeline.

"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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Copyright (c) 2006, Anchorage Daily News, Alaska

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Source: Anchorage Daily News

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