Alaska Oil Tax Dispute Centers on Gas Pipeline Pact; Vote Imminent

As the Alaska Senate moves toward a vote this week on a tax on oil and gas profits, Democratic legislators are demanding that they first see the terms of the contract the governor has signed with three major producers for construction of a $25 billion natural gas pipeline to the Lower 48 states.

One senator, Hollis French of Anchorage, has filed in the state superior court for an injunction to force Gov. Frank Murkowski to reveal the contract the governor says he signed last February. Hollis said legislators should not have to vote on the tax bill while they remain in the dark on the deal for construction of the natural gas pipeline and its implications for the tax bill.

"We're being asked to make a huge policy decision without knowing the basics," Hollis told NGI. The Anchorage Democrat said he could understand how preliminary negotiations should remain confidential, "but Gov. Murkowski announced in February he had a deal and nothing has been released" (see Daily GPI, Feb.23). Murkowski has said the pipeline pact is linked to reform of the state's current oil and gas production tax, and significant changes in the proposed tax measure could wreck the pipeline agreement.

In addition, Hollis said the tax measure emerged from the Alaska Senate Finance Committee over the weekend with a different tax on natural gas than on oil. "I'm not sure how that happened." Oil will be taxed at the rate of 22.5% of the value at the wellhead, but including an offset 25% annual credit for capital costs. It now appears natural gas will only be taxed at one/third the oil rate, or 7.5%.

"We need to know how it all fits together," Hollis said, referring to the pipeline pact that the governor signed with the three major North Slope oil and gas producers, BP, ConocoPhillips and ExxonMobil.

In a broadcast press briefing Monday morning Senate Democratic leader Johnny Ellis of Anchorage agreed. "We need to see gas line contract elements. It's like trying to take action with one hand tied behind our back. This is something that could affect Alaskans for generations to come." Ellis said the bill has numerous provisions for natural gas that could be impacted by the contract.

The bill that emerged from the Finance Committee Saturday also would change the tax escalator for high-priced oil. This latest version would increase the tax by 0.02% for every $1 increase in the price of oil above $50 a barrel.

The Senate Democratic leadership taking part in Monday's briefing expressed dismay over the substitution practically overnight and without consultation of the Finance Committee bill for the Senate Resources Committee bill, which had been worked on for five weeks. The Democrats said they would be introducing amendments to try to reinstate the Resource Committee provisions.

Regarding the producer pact for the gas line, the legislators said they weren't even sure it was completed, saying there were rumors that the governor and producers are still at loggerheads over both major and minor interests.

Hollis said he hopes the Alaska Superior Court acts quickly on his injunction request. If it doesn't, there are legal ways to speed up action. And, even if the Senate votes on the tax without court action, there will be other opportunities to change the bill before it is signed into law, Hollis said. Beyond that the Democratic legislators predicted there would be "immense litigation" over the measure. They noted the vote was scheduled just before producers' first quarter earnings come out.

The Republican Senate leadership has pledged to get the bill to the Alaska House by Wednesday. Responding to reporters' questions, Ellis said state senators are prohibited by law from absenting themselves from a vote or from abstaining.

Murkowski originally had proposed a 20% tax with a 20% tradable tax credit (see Daily GPI, March 15).

Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.