US FERC chief applauds agreement on Alaska gas pipeline

Washington (Platts)--22Feb2006

US Federal Energy Regulatory Commission Chairman Joseph Kelliher
Wednesday applauded word late Tuesday that the state of Alaska had reached a
final agreement with three North Slope gas producers on a $20-bil pipeline
project.

     In a statement Kelliher called the announcement "a highly encouraging
step toward building a pipeline to bring Alaska gas to the lower 48 states.
Building this pipeline is a key part of our national effort to secure abundant
and affordable supplies of this environmentally friendly fuel."

     Keillher added that his agency "stands ready to expeditiously carry out
its regulatory responsibilities once this agreement is consummated and we have
proposals before us."

     Alaska Gov Frank Murkowski Tuesday said negotiating teams completed work
Saturday night and he met with senior executives of BP, ConocoPhillips and
ExxonMobil in Anchorage on Monday to discuss the gas contract as well as an
agreement under which the producers woudl support a new state tax on oil
profits.

     Murkowski's proposal to the Legislature calls for a 20% tax on company 
net Alaska production profits with a 20% investment tax credit that can be
applied against the tax. The tax credit would be tradable so that a new
company exploring in Alaska could convert its investment into a tax credit
that can be exchanged. Through this mechanism it would be possible for an
independent exploring in the state to recover as much as 40% of its
investment, Murkowski's chief consultant, Pedro van Meurs, said.

     The governor said BP, ConocoPhillips and ExxonMobil, the three major
North Slope oil and gas producers, agreed to support the tax proposal at the
20% rate after initially proposing a 12.5% rate. Van Meurs, had suggested a
25% tax rate. Murkowski said he agreed to a compromise with the producers at
20% and they considered it a "package deal" with the gas pipeline agreement. 

     If the Legislature enacts a higher tax rate, then the governor said the
producers might not support it, suggesting it might delay the gas deal
or cause negotiations to be reopened. 

     Murkowski wants the oil tax change enacted into law before the gas
contract is submitted to the Legislature for ratification. For their part, the
producers want the new oil tax rate, once it is enacted, to be included in the
special fiscal contract being negotiated with the state on the gas project. 

     A 20% net profits tax would bring Alaska an additional $1-bil per year at
current oil prices, van Meurs told reporters. Alaska will earn about $4-bil
this year in revenues from oil taxes and royalties, but Murkowski maintains
the current oil tax is obsolete under present market conditions and needs to
be replaced. 

     The gas pipeline contract calls for Alaska to invest approximately $4-bil
for a 20% share of the $20-bil project as well as the state taking its royalty
and tax interest in the form of gas production which it will market
independently. 

     The state now has the option of taking its 12.5% royalty share in kind
and does so with the oil production royalty, but taking the tax share in gas
would be a new idea.

     For more information, take a trial to Platts Inside FERC at
http://insideFERC.platts.com.

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