Oil tax plan by Alaska Gov. Murkowski under fire

By Yereth Rosen

ANCHORAGE, Alaska (Reuters) – Alaska Gov. Frank Murkowski
came under fire on Friday after proposing sweeping changes to
the state’s oil-tax structure as a part of negotiations for a
natural gas pipeline contract with the major North Slope oil
producers.

“There’s no reason we should have to give away our oil
taxes to get a gas line,” said state Rep. Eric Croft, an
Anchorage Democrat who is campaigning to replace Murkowski.

The Republican governor is “desperate for a gas line to
save his political future” and appears to have been bested by
negotiators for ConocoPhillips, BP Plc and Exxon Mobil Corp.,
the three major North Slope producers, Croft said.

“He’s agreed to give away large portions of the state’s gas
revenue, and now he’s negotiating to give away large portions
of the state’s oil revenue,” Croft said.

State Natural Resources Commissioner Mike Menge countered
it is reasonable for the oil companies to want to ensure that
oil-tax rates are not increased to make up for any perceived
concessions on natural gas taxes.

“Imagine a situation where you would commit yourself to
construction of a $25 billion infrastructure … and the
legislature decided, ‘Why don’t we just double the oil taxes?”‘
Menge said.

Shortly after the trans-Alaska oil pipeline began operating
in 1977, “the state jumped the oil taxes substantially,” Menge
said. “So it made sense to put a taxation position together on
the companies that addresses all of their taxes.”

In a column on Thursday in the Anchorage Daily News,
Murkowski said changes to the oil-tax system were a logical
part of the gas pipeline negotiations.

The state should change its oil-production tax system,
especially the Economic Limit Factor, the formula designed to
give breaks to fields considered marginal, Murkowski said.

“Under the Economic Limit Factor system, there is no
severance tax on almost half of the oil currently being
produced — and in 15 years, only 19 percent of the barrels
will be taxed. We are proposing to replace ELF with a net oil
production tax. This will cover all North Slope oil being
produced now and in the future,” Murkowski’s column said.

Objections to including oil tax changes in the gas pipeline
negotiations led in part to the removal last week of seven top
officials from the state Department of Natural Resources.
Commissioner Tom Irwin was ousted on October 27, a week after
writing a memorandum to state Attorney General David Marquez
that questioned the legality of such changes, along with other
aspects of the emerging gas pipeline contract.

Murkowski announced two weeks ago the state and
ConocoPhillips had reached agreement on fiscal terms for the
gas pipeline.

A pipeline has long been envisioned to ship the North
Slope’s known natural gas reserves of 35 trillion cubic feet.
The pipeline proposal being negotiated by Murkowski and the oil
companies would run over 3,000 miles to the U.S. Midwest,
delivering 4 billion cubic feet a day. It would cost at least
$20 billion, according to state and oil company estimates.