Gas Reserves Tax Initiative Poised for Polls

By Richard Richtmyer, Anchorage Daily News, Alaska

Mar. 8–JUNEAU — Alaska voters this fall could make their voices heard in the state’s negotiations over a North Slope natural gas pipeline.

A ballot initiative certified this week would make the oil companies pay a heavy tax on undeveloped natural gas reserves. Supporters say the prospect of such a tax — roughly $1 billion a year — would goad the big three North Slope producers into building the gas pipeline project.

The gas line is a long-deferred economic development dream that promises thousands of jobs and billions of dollars in new tax and royalty revenue.

The oil companies say the tax would be unfairly punitive and wouldn’t do anything to speed the development of the proposed $25 billion project. And industry representatives told a legislative committee Tuesday night that the state can’t tax a natural gas pipeline into existence.

For about two years, Conoco Phillips, Exxon Mobil and BP have been negotiating in secret with Gov. Frank Murkowski’s administration on a contract setting out tax and other terms for the proposed pipeline to carry North Slope natural gas to the Lower 48.

Last month, the governor said all sides had agreed in principle to the major components of a contract, but that the deal is contingent on lawmakers’ revamping the state’s oil-production tax system.

The governor has said the Legislature must approve the oil tax change first, because oil taxes could not be negotiated behind closed doors as part of the gas line contract. Those tax terms would then be incorporated into a gas contract, which lawmakers also would have to endorse.

Last year, Democratic state Reps. Eric Croft and Harry Crawford of Anchorage co-sponsored a bill that would impose nearly $1 billion in combined annual natural gas reserve taxes on Conoco Phillips, Exxon Mobil and BP until they commit to a pipeline project.

Although the bill has had some hearings, it isn’t clear if it will pass the Legislature.

That’s why he decided to pursue a ballot initiative petition to put the question to voters in November, Croft said.

He said he’s been frustrated by the lack of progress in the pipeline talks and worries that a contract, if and when one is revealed, won’t include any firm commitments by the companies to actually build a pipeline.

“If this road we’re on leads to a contract that is a good one, that is fair to Alaskans and has firm, enforceable commitments to build, then we don’t need this initiative,” said Croft, who is seeking his party’s nomination for governor.

“If I had seen that three months ago, I would have withdrawn it,” Croft said.

House Speaker John Harris, R-Valdez, agreed.

“If we get a legitimate contract on gas, and that’s a big if, but if we do, I think the public in Alaska will say, ‘That’s a really good step forward and we don’t need to do the reserves tax,’ ” Harris said.

“But if we don’t get a legitimate contract coming out of this Legislature, I think the reserves tax passes overwhelmingly,” he said.

Bill Corbus, Murkowski’s revenue commissioner and a member of the pipeline negotiation team, said Tuesday that the reserves tax issue hasn’t figured into the gas pipeline discussions.

Dawn Patience, Conoco’s Alaska spokeswoman, said that instead of spurring the gas pipeline project, imposing a reserves tax could instead threaten the project by adding another burden and increasing the risk. “This project cannot be taxed into existence,” she said.

Exxon spokeswoman Susan Reeves said the producers have already spent tens of millions of dollars studying ways to commercialize North Slope gas and said a reserves tax would be “inherently unfair” to her company.

At an appearance Tuesday night before members of the House Special Committee on Oil and Gas, Ken Konrad, a BP senior vice president and the company’s gas business unit leader for Alaska, said the state and the producers are aligned behind the gas pipeline project.

Warehousing the North Slope’s gas makes no sense, he said. The decision to move ahead with a project is based only on their commercial viability, he said.

Afterward, Konrad said he believes once the gas deal is released to the public and Alaskans see it, they will have a better understanding and will be disinclined to vote for the tax on the ballot, if that’s where it ends up.

Jack Griffin, Conoco Phillips’ vice president of external affairs, told committee members that this tax may actually give Alaska a reason to delay the gas pipeline project. The state would be receiving money for every year a line is not built, which could be an incentive for the state not to move forward, he said.

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