Alaska officials warn reserves tax would thwart gas pipeline

Alaska officials warn reserves tax would thwart gas pipeline

Anchorage (Platts)--19Jul2006

Alaska officials warned Wednesday that a ballot proposition appearing
on the November state election ballot imposing a natural gas reserves tax
would ruin the economics of a proposed $25 billion natural gas pipeline and
chill exploration for oil and gas throughout the state.

Jim Clark, Governor Frank Murkowski's chief of staff, said in a briefing
that the governor's current objective is to include language in a pending
fiscal contract with North Slope producers that would shield the pipeline
project from the tax, which is expected to be passed by voters.

Roger Marks, an economist with the state Department of Revenue, said that
if the ballot measure is approved by voters, producers BP, ConocoPhillips and
ExxonMobil would pay about $1 billion/year in new taxes to the state beginning
in January.

The tax would stay in effect until gas flows through a new pipeline,
which is not expected until 2016 under the most optimistic scenario, Marks
said.

The initiative allows a partial credit for taxes paid against future
production taxes and the major producers would be able to recover 45% of their
money, Marks said. But, the net effect would be to add $14 billion in
front-end costs to the pipeline's current construction cost estimate of $25
billion, he added.

"In our opinion, that will make the gas line uneconomic," Marks said.

Clark said it would be a terrible blow to the state's reputation if the
reserves tax initiative becomes law. "We would present ourselves to the world
as a state where there are disincentives to new investment. None of us want
that," he said.

The reserves tax initiative was cleared for placement on the November
ballot earlier this year after voter signatures were gathered on petitions.
The effort was sponsored by Representative Eric Croft, a state legislator from
Anchorage, who is running for governor in the 2006 elections. Croft was
unavailable to comment on Clark's remarks.

Marks also said the administration's reading of the ballot proposition is
that while Croft and other supporters intend the reserves tax to only apply to
the large Prudhoe Bay and Point Thomson gas fields, the tax could also apply
to newly-discovered gas under certain circumstances.

That would chill exploration for new gas and even oil, Marks said,
because exploration for oil often results in gas also being found. If
explorers are uncertain whether the tax applies, that would cause companies to
hesitate, he said.

--Tim Bradner, newsdesk@platts.com

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