Exxon and Palin Butt Heads Over Taxes in Pipeline Deal

By Wesley Loy, Anchorage Daily News, Alaska

Mar. 9–Alaska has a bad habit of changing its tax policy, and that poses a big problem for Gov. Sarah Palin in trying to get Exxon Mobil or other energy companies to commit to a multibillion-dollar natural gas pipeline, the company’s chief executive told Wall Street analysts this week.

“The state of Alaska does not have a good track record on fiscal stability,” Rex Tillerson said. “I’m not trying to be, single them out or be critical. But they’ve changed fiscal terms on us up there 13 times over the last couple of decades.”

The Palin administration Thursday rebutted that, claiming Alaska had changed its oil tax structure only twice.

Tillerson’s comments are the latest in what seems to be a budding war of words between giant Exxon and Palin, who’s been in office just over three months and is the latest in a long string of Alaska governors who have tried to entice, cajole or force energy companies to build a pipeline to tap the vast North Slope gas reserves. Such a project would inject billions of new dollars into the Alaska economy.

On Valentine’s Day, Palin took offense at some remarks Tillerson made at an industry conference in Houston, in which he questioned the state’s latest approach. She said in a press release it was “painfully obvious” that Exxon didn’t favor her “competitive, open and transparent process” to designate a pipeline builder.

Tillerson, in addressing Wall Street analysts for more than three hours Wednesday about the company’s profits and global energy projects, spent about four minutes answering a question about Alaska’s gas line.

He said a draft contract Palin’s predecessor, Frank Murkowski, presented last year between the state and Exxon, BP and Conoco Phillips — the three companies holding most of the Slope gas — would have set long-term oil and gas tax rates if the trio built a pipeline across Alaska and Canada. That’s key for any company gambling on a $25 billion-plus megaproject, Tillerson said.

Murkowski’s contract was never signed and died in a hail of criticism from state lawmakers and others who didn’t like the proposed tax freeze and other elements.

Palin has restarted the process by introducing legislation offering certain incentives to would-be pipeline builders and users, including an offer to freeze the tax rate on gas for 10 years, a much shorter term than Murkowski proposed.

The main concern for Exxon, Tillerson said, is the risk that the state might jack up petroleum taxes before a pipeline begins to pay off.

“As we do with all of our other big investments — and we say this to decision makers everywhere — we’re willing to take geologic risk, we’re willing to take cost risk, and we’re even willing to take price risk. But we can’t take fiscal-terms-changing-on-us risk,” he said.

“You just can’t undertake something of this size and not have durability around the terms,” Tillerson added. “And I think that’s probably going to be the most significant challenge for this new administration to deal with — understanding that and securing that and providing it.”

Tillerson said Exxon would look at the Palin plan, which he described as “a little short on details,” to “see if there’s something there that would make sense and might work.”

Palin’s revenue commissioner, Pat Galvin, issued a statement Thursday questioning Tillerson’s facts.

“There have only been two changes in the state’s oil tax structure in the last 26 years, and prior to last year’s change, the tax structure had been in place unchanged for over 17 years,” Galvin said.

Lawmakers last year overhauled the state’s petroleum tax code to increase tax revenue when prices are high, as they are now. That could mean Exxon and other oil companies will pay billions extra in taxes in coming years.

“Alaska is a stable government, where companies don’t have to worry about terrorism or have their employees live in compounds,” Galvin continued. “Alaska’s attractiveness to global energy companies is demonstrated by the large investments of companies such as Shell Oil who see tremendous opportunities in Alaska, in contrast to the instability seen elsewhere in the world.

“We are confident that Exxon will continue to recognize the opportunities Alaska offers.”

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