Alaska Official Quits, 6 Others Follow After Flap with Gov. Over Pipeline

Alaska Gov. Frank Murkowski said Thursday Natural Resources Commissioner Tom Irwin agreed to quit his job after questioning the legality of the governor's negotiations with producers on an agreement for a gas pipeline to the Lower 48 states.

Six other high ranking members of the Department of Natural Resources also quit their jobs after hearing of Irwin's departure. All six referred in their resignations letters to Irwin's "dismissal."

Murkowski reached a preliminary agreement with ConocoPhillips on Oct. 21 on the "base fiscal contract terms" of a proposed pipeline deal. He said the preliminary step with ConocoPhillips was "one leg of a three-legged stool -- the other two legs being agreements that must be worked out with BP and ExxonMobil for the pipeline contract to move forward."

However, BP Alaska spokesman Daren Beaudo thought it odd that ConocoPhillips chose to announce a preliminary deal with the state on its own when all three producers still have to sign on the dotted line of a single final agreement.

"We don't think it's a good time to announce portions of an agreement...," said Beaudo. "In the end there will be a single contract endorsed by the sponsor group, which consists of all [three production companies]. There will be just one agreement. Everyone knows that there are still issues to resolve."

Irwin wrote his memo to Attorney General David Marquez one day prior to the ConocoPhillip announcement. In his memo, Irwin questioned the legality of some of the potential concessions to producers that Murkowski is offering as well as other steps the governor plans to take to make the pipeline project happen.

"My concerns over the legality of current and anticipated actions are great, and I respectfully request receiving a legal opinion on the subjects raised in this letter," Irwin said in the memo,which was reprinted in the Anchorage Daily News. "Furthermore, I must point out that putting members of the Department of Natural Resources in a work environment where they seriously question the legality of administrative actions they are asked to participate in is so troubling that it could result in the resignation of exceedingly valuable members of our gas pipeline team, which would be a great loss to both the short and long-term interests of the state. For these reasons, I ask for your or your agencies immediate counsel on these issues."

Irwin asked for a legal evaluation of whether the state administration could continue negotiations with the producers under the Alaska Stranded Gas Development Act when the governor himself admitted that the gas reserves in Prudhoe Bay and Point Thomson are no longer "stranded" as defined by the act itself because of high natural gas prices.

He also questioned the legality of the governor offering the producers changes in oil taxes in the deal, and he wondered whether he could legally endorse an agreement that subjects the state to "significant risk" due to the acceptance of all royalties "in kind" rather than in cash "without substantially improving the producers' incentive to develop the pipeline."

Irwin said no current modeling shows the "need for the proposed fiscal support from the state to the producers and the need for a guarantee of fiscal certainty extending three decades from the pipeline's in-service date.

"Based on the administration's project modeling (which is generally consistent with the modeling discussed publicly by others), I do not believe that the economic viability of the project requires the state's 'give'... Therefore, my question here is whether current law permits me to support/sign a preliminary fiscal interest findings and determination endorsing contract terms that runs counter to the best data within the possession of the administration."

Irwin said he was aware the administration was attempting to tackle many of these legal issues in its plan, but "I am not sure that the plan itself is sufficient or permissible. The plan, as I understand it, is to propose legislation amending current law as needed to bring the law into conformance with the proposed producer contract."

However, he said the governor does not intend to introduce the needed legislation until after the contract with the producers is signed, "which raises the issue of the legality of my actions at the time of signature as well as of the actions of this administration at this time."

"Furthermore, the Stranded Gas Development Act invited potentially interested applicants to apply and negotiate with the administration under the terms of the act as it now reads." Changing the law afterward would be like change the rules of a request for proposals after all the proposals were received in order to favor one proposal over the others, Irwin said. He also wondered if it would be illegal for the governor to deny the other applicants a proper evaluation of their alternatives.

"The requests for legal advice contained in this letter are not made lightly but with recognition of the serious and long-lasting ramifications of any proposed contract and preliminary fiscal interest findings and determination issued under the Alaska Stranded Gas Development Act," he said.

Marquez, appearing alongside Murkowski at Thursday's news conference, said Irwin's contentions in the memo were wrong. "The governor has broad authority to negotiate contracts on the state's behalf and to propose legislation," he wrote in a legal opinion.

Mike Menge, Murkowski's senior adviser on energy issues, was named to replace Irwin. Murkowski said he could not allow internal discord to prevent his negotiating team from working together. He also said that he did not talk to Irwin about the memo until Saturday, three days after receiving it.

"I expect every member of my cabinet to confer with me on major policy issues, major policy disputes, as they arise," Murkowski said. "And I don't really consider a copy of an e-mail significant notification."

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