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Vol. 11, No. 23 Week of June 04, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Gas bills drop

Gov. Murkowski sends stranded gas changes, pipeline corp., challenge bills

Kristen Nelson

Petroleum News

While the administration of Alaska Gov. Frank Murkowski continues with public hearings around the state on the proposed gas pipeline fiscal contract it negotiated with the North Slope project sponsors — BP, ConocoPhillips and ExxonMobil — it also sent three bills related to the gas pipeline contract to the Legislature.

On the same day, May 31, the Senate passed a resolution setting up a Special Committee on Natural Gas Development, consisting of the members of the Finance and Resources committees, to consider the contract and related legislation, including oil and gas taxation.

Ultimately, after the administration completes its hearings and negotiates any changes to the draft contract, the Legislature will vote up or down on the contract.

First, however, it is being asked to amend Alaska law to accommodate a very different project than the one it envisioned when it passed the Alaska Stranded Gas Development Act in 1998. The proposal now, the governor said in a transmittal letter for House and Senate Bill 2004, amending the act, is for state equity ownership in the pipeline and payments in lieu of taxes “that are roughly equivalent to the taxes in effect for the 2005 tax period.”

The original intent of the act was to provide fiscal certainty on gas taxes. “The sponsor group made a compelling argument that fiscal certainty must extend to taxes on oil as well as on gas,” the governor said. The amendments in the bill provide “express authority” for the terms of the proposed contract, broadening the scope of the act “to include fiscal terms relating to oil as well as to gas.”

The bill also expands the subjects that may be negotiated to include equity ownership, payment of obligations in gas rather than money “and changes in existing leases and other agreements with the state regarding oil and gas properties.” Under the bill contract terms would prevail over contrary provisions in state leases or unit agreements.

The bill will be heard by the House Resources and Judiciary committees, and by the Senate Special Committee on Natural Gas Development.

Alaska Pipe would be public corporation

House and Senate bill 2002 would confer original jurisdiction on the Alaska Supreme Court to provide judicial review of a contract executed under the Alaska Stranded Gas Development Act, the governor said in his transmittal letter, requiring challenges to be mounted within 60 days of the date the contract was executed. The bills were referred to the Judiciary committees in both the House and the Senate.

House and Senate bill 2003 would establish the Alaska Natural Gas Pipeline Corp. to finance, own and manage the state’s interest in the Alaska North Slope natural gas pipeline project. Alaska Pipe, as the governor calls the corporation in his transmittal letter, would be a public corporation of the state within the Department of Revenue.

Alaska Pipe’s board would include commissioners of the departments of Revenue and Transportation and Public Facilities and five public members with “experience and recognized competence in either finance, investments, business management or the oil or gas industries,” the governor said. HB 2003 was referred to Judiciary and Finance; SB 2003 was held pending formation of the Senate Special Committee on Natural Gas Development.

Alaska Pipe would be authorized to incorporate subsidiaries, probably for-profit corporations. The governor said it is likely that at least one Canadian corporation would be established to hold Alaska Pipe’s interest in a Canadian limited liability partnership that would build and own the Canadian segment of the gas pipeline.

In addition to these bills, the special session of the Legislature is working on the production profits tax. SB 2001 passed the Senate May 23, just prior to adjournment for the Memorial Day weekend. House Finance was scheduled to take up the bill June 1.

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