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Gas Pipeline Costs Exceed $25 Million: GROUNDWORK: Oil Firms and Consultants Have Stakes With State in Early Going.

Posted on: Thursday, 22 June 2006, 12:00 CDT

By Richard Richtmyer, Anchorage Daily News, Alaska

Jun. 22--A North Slope natural gas pipeline would cost billions to build, but state and local governments, oil companies and others have spent millions to scrutinize the idea and to shape public opinion about the elusive project.

The state has bought at least $25 million worth of advice from an army of lawyers, economists, consultants and other experts working on the proposed contract with BP, Conoco Phillips and Exxon Mobil.

Meanwhile, the producers -- as well as groups who favor a different pipeline plan -- are spending big on advertising and public relations campaigns.

Last month, Gov. Frank Murkowski released the long-awaited proposed contract that he and his top aides spent more than two years negotiating with the oil companies. The 460-page document sets tax and other state terms that would apply if the companies build a pipeline from the North Slope to the Lower 48 at an estimated cost of $21 billion.

The administration over the past three years has spent at least $22 million for outside help in negotiating the contract, according to figures the governor's office released this week.

That money went to more than two dozen contractors with a range of expertise in areas including engineering, economics, public policy, contract law, and oil and gas projects.

"It paid for investigating a project that, at today's prices, has the potential to bring $70 billion to the state of Alaska over the next 35 years," said Deputy Revenue Commissioner Tom Boutin, justifying the spending.

The Murkowski administration's $22 million estimate includes only money spent on outside advice. It doesn't include such costs as printing hundreds of copies of the contract and its voluminous supporting materials.

Nor does it include travel, salary and other expenses state officials have incurred while working on the contract. Just this week, for example, a contingent of state workers and consultants traveled to Washington, D.C., to discuss possible changes they might make.

A gas pipeline project has been a perennial Alaska dream since the discovery of vast reserves of North Slope gas more than 30 years ago. It promises to create thousands of jobs and pump billions of new taxes and royalties into state coffers.

Murkowski's proposed contract could help advance the long-deferred project, but it has a long way to go before it can be signed.

State lawmakers would first need to change a key oil tax, then amend the state's natural gas development law in order to make the proposed contract legal. They left the Capitol earlier this month failing to do either after a special session.

Presuming they make those changes, lawmakers would then also have to approve the final contract.

To help them understand the complex oil tax and gas pipeline issues, lawmakers have spent nearly $3 million on consultants, not counting the cost of the monthlong special session.

"This information is invaluable for legislators to make a decision," said Sen. Gene Therriault, co-chairman of the Legislative Budget and Audit Committee, which is overseeing the consultants' work.

"To have another opinion and to make sure what we're hearing (from the administration) is valid is very worthwhile because this project has such a big economic impact on the state," said Therriault, a Republican from Fairbanks.

The other committee co-chairman, Rep. Ralph Samuels, R-Anchorage, agreed.

"It's such a vast amount of money we're talking about in the long run that you can't be penny-wise and a pound foolish now," Samuels said.

Murkowski, who has announced he wants to be re-elected this fall, is expected to call the Legislature back to Juneau for another special session for another try at the oil tax and gas law changes, but it's not clear when.

In the meantime, the Republican governor and his top aides have been pitching their contract during public meetings throughout the state.

Their proposed deal has quickly become a campaign issue. In addition to the governor's race, 50 of the 60 legislative seats are up for election in November.

Though it's more difficult to pinpoint how much, advocates and opponents of the proposed pipeline contract have been spending money on advertising and other efforts to shape public opinion on the issue.

Though not as well-funded as the producers, groups that favor a rival pipeline project to Valdez for export of liquefied gas aboard specialized tankers have been making their voices heard over the airwaves and at public forums throughout the state.

"You can't compare our ability to the ability of BP, Conoco Phillips and Exxon in terms of ability to get the message out," said Fairbanks Mayor Jim Whittaker. He and officials from Valdez and the North Slope Borough are behind a group called the Alaska Gasline Port Authority, which is promoting the Valdez pipeline project.

A radio ad promoting that idea and panning the governor's proposal recently started airing around Anchorage. It is being paid for by the city of Valdez, said City Manager John Hozey.

Though he couldn't say how much the new ads are costing, Valdez officials have allocated $180,000 of city money to help promote the liquefied-gas project, Hozey said.

Meanwhile, all three producers are involved in a joint ad campaign supporting the proposed contract, and BP and Conoco said they plan to start turning up the volume.

"It's an important issue to BP and the state of Alaska, and we have a right and an obligation to communicate our views," said Daren Beaudo, a BP spokesman.

During the first three months of this year, BP spent roughly $103,000 for political advertising about oil-tax issues related to the pipeline contract. From April through June, it spent at least twice that much, Beaudo said.

Jack Griffin, a Conoco vice president, wouldn't give a specific figure on what his company has been spending recently on political advertising, but he said Conoco also will be stepping up its efforts to tell the public why the company believes it's a good deal.

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Copyright (c) 2006, Anchorage Daily News, Alaska

Distributed by Knight Ridder/Tribune Business News.

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Source: Anchorage Daily News

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