October 22, 2005 --- Vol. 11, No. 88October 2005

North Slope gas pipeline update

Yesterday Alaska Gov. Frank Murkowski said the state has signed an agreement with ConocoPhillips under the Alaska Stranded Gas Development Act (see Oct. 21 news bulletin) and is continuing negotiations with the other major North Slope gas owners. BP was present at the announcement and ExxonMobil has also said negotiations are continuing (see below).

The governor said the first leg of a three-legged stool was now in place — referring to the agreement with one of the three major gas producers — the state’s own three-legged stool (the departments of Law, Revenue and Natural Resources are all participating in the negotiations) appears to be wobbling.

In a five-page Oct. 20 memorandum released by the governor’s office at the end of the press conference yesterday, Alaska Commissioner of Natural Resources Tom Irwin asked Attorney General David Marquez for legal clarification on a number of issues in the gas negotiations, beginning with whether the state can negotiate under the terms of the Alaska Stranded Gas Development Act for gas which, because of the changing natural gas market, is no longer stranded as defined under the act.

That was the first of eight concerns on which Irwin asked for legal clarification.

The other seven are: conflicts between the proposed contract and the state’s oil and gas leases, including pressure the department is under “to endorse terms governing Point Thomson development that are inconsistent with and materially weaker than” obligations to develop the field under the unit agreement; whether the state should take the risk of committing to take all of its royalty gas in-kind without “proof or compelling evidence” that the project is dependent on that commitment; lack of modeling to support the need for fiscal support from the state over three decades of the proposed project (“I do not believe that the economic viability of the project requires the state’s ‘give’ nor that the prospect of long-term changes to the fiscal system are necessary,” Irwin said); whether proposed contract terms for events such as breach of contract concur with stranded gas act requirements; whether proposed contract terms are tied to “alteration of tax methodologies or rates on existing oil infrastructure or production,” and if so, whether that is legal under the act; whether legislation the administration would propose to address some of the above concerns would allow the signing of a preliminary fiscal interest finding in advance of such legislative changes; and whether Revenue’s determination that fiscal findings would not include a quantitative evaluation of alternative projects is legal under the act.

In concluding Irwin said “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.”

ExxonMobil: Still negotiating

Houston-based ExxonMobil spokeswoman Susan Reeves responded to Petroleum News’ request for a comment on the agreement announced yesterday between the State of Alaska and ConocoPhillips after yesterday’s news bulletin was sent.

Reeves said: “The negotiations are well-advanced on this complex agreement that underpins the largest private sector energy project in the world.

“The State, BP, ConocoPhillips and ExxonMobil are in constant negotiations, and the parties are negotiating in good faith.

“When successfully finalized, this contract will establish unprecedented commercial alignment between the State and industry.”

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