Alaskan Tax Proposal Paves Way for Gas Pipeline

AJUNEAU, Alaska – Three major oil companies and state officials reached agreement Tuesday on a tax proposal aimed at bringing a long-planned $20 billion gas pipeline from Alaska's North Slope to the Midwest closer to construction.

The accord on a tax and royalties structure for developing Alaska's natural gas will hinge on the Legislature passing a new state oil production tax.

Alaska Gov. Frank Murkowski on Tuesday introduced a bill that calls for a 20 percent tax of oil companies' net profits in Alaska plus a 20 percent tax credit for reinvestment in Alaska.

For more than a year, Murkowski's negotiators have been in talks with Exxon Mobil Corp., BP PLC and ConocoPhillips under Alaska's Stranded Gas Development Act. Locking up natural gas fiscal issues with the state is one of several conditions in building the gas line, which would run along the Alaska Highway through Canada and to markets in the Midwest.

Murkowski aide Jim Clark said all the major articles of the natural gas contract proposal have been agreed upon by the three companies, and what remains is technical work and contract reviews by outside attorneys.

The oil producers will closely scrutinize the fate of Murkowski's bill before any gas contract is signed and sent for lawmakers' approval.

"We need a healthy oil business in order to move to a healthy gas business," BP spokesman Daren Beaudo said. "We view oil and gas as one package and the agreement reached with the governor is finely balanced."

Murkowski last week planned to introduce a bill to tax 25 percent of the companies' net profits, but delayed the plan after the companies requested a meeting on Monday. After that meeting, Murkowski lowered the tax rate to 20 percent.

Under the governor's tax proposal, the state would collect $773 million over the current production tax in 2007 if oil averages $60 a barrel.

The oil companies said the governor's bill fit with their needs in order to move the gas pipeline forward.

"Oil contract terms consistent with the Governor's proposed oil tax bill would provide the predictability and durability necessary to advance the gas project to the next phase," Exxon Mobil spokeswoman Susan Reeves wrote in an e-mailed response to an Associated Press query.

Legislative Democrats see it differently. The tax rates proposed are too low and it is now up to the Legislature to raise them before passing a bill, said Rep. Eric Croft, D-Anchorage, a candidate for governor.

"I think it's a sad day. One hundred thirty-nine years ago Russia sold Alaska for peanuts, and we just sold Alaska's oil for peanuts," Croft said. "I think we're going to get a gut check on this Legislature and finally find out who owns this state."

House Minority Leader Ethan Berkowitz, a Democrat running for governor, said he believed the governor caved to pressure by the oil industry in lowering the proposed tax rates.

If Murkowski had stayed with the original 25 percent tax rate, another $300 million would be added that number, said Pedro van Meurs, the governor's lead oil and gas consultant.

But Senate President Ben Stevens said the tax proposal is not just about boosting tax revenue, but also for making Alaska an attractive investment.