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Vol. 13, No. 40 Week of October 05, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Lawmakers revive reserves tax as proposed ballot initiative after measure failed in 2006

A group of state lawmakers have revived a measure to tax Alaska natural gas reserves.

Rep. Harry Crawford, D-Anchorage; Rep. David Guttenberg, D-Fairbanks; and Rep. Beth Kerttula, D-Juneau recently filed paperwork for a proposed ballot initiative to levy a 3-cent tax on every thousand cubic feet of known gas reserves in large fields in Alaska.

The measure, called the Alaska Gasline Now! Act, could appear on ballots in 2010.

The measure is nearly identical to one filed several years ago by Crawford, Guttenberg and then-Rep. Eric Croft, D-Anchorage.

Following a lengthy and expensive public relations effort by oil companies and vigorous debate on both sides of the issue, voters opposed the measure by a ratio of nearly 2-to-1 during the 2006 elections.

The old and new measures both serve the same purpose: to prompt lessees to develop North Slope natural gas resources. Those resources are currently stranded because the infrastructure to carry Alaska gas to markets outside the state does not exist.

The debates over the previous measure in 2006 came as negotiations between the state and the producers on developing a gas pipeline stalled, leaving the mega-project in limbo.

Since the previous measure failed at the ballot box, two proposals for building the multi-billion-dollar pipeline have made significant strides.

A state-sponsored effort by the Canadian pipeline company TransCanada, and a BP and ConocoPhillips joint venture called Denali both intend to hold open seasons on separate pipelines in 2010.

But potential pipeline builders have been talking about moving toward an open season “for the last decade or so,” Crawford told Petroleum News on Sept. 29.

“Show me, don’t tell me,” Crawford said.

The progress made on the project over the past two years, though, adds a twist to the gas reserves tax debate. Now, the intent of the measure is not simply to spur construction of a pipeline, but also to get the producers to commit to shipping their gas down a pipeline as envisioned by Gov. Sarah Palin and a majority of the Alaska Legislature.

Crawford said he would cancel the new reserves tax measure should the North Slope lessees eventually commit gas to a pipeline, regardless of the sponsor, that meets a set of 20 requirements, or “must haves,” set out under the Alaska Gasline Inducement Act.

As the sole licensee under that act, TransCanada is required by law to meet those 20 must haves as it moves to certificate and build a pipeline. The Denali project, as currently proposed, meets many, but not all of those requirements.

Prudhoe. Kuparuk. Point Thomson?

The proposed measure would apply to conventional reserves in state units created since 2002 and known to contain at least 1 trillion cubic feet of known natural gas reserves.

Under that definition, the measure would certainly cover the gas reserves in the Prudhoe Bay and Kuparuk River units, which hold nearly 25 Tcf in estimated reserves.

But Crawford believes the proposal would not apply to the estimated 8 Tcf of gas reserves in the Point Thomson unit because of a state decision to terminate the unit.

ExxonMobil, the unit operator at Point Thomson, is challenging that decision in court.

The new measure would allow leaseholders to reclaim the entire tax through annual credits. The previous measure included a similar provision, but stopped reimbursing companies after 2030. The newly proposed measure contains no such deadline.

The previous measure would have brought the state around $1 billion per year.

Palin opposed measure in 2006

As the respective operators of Prudhoe Bay and Kuparuk, BP and ConocoPhillips would be the primary lessees impacted by a reserves tax. TransCanada, an independent pipeline company without North Slope reserves, would not be directly impacted by the tax.

“A reserves tax would not move a gasline project forward,” BP spokesman Steve Rinehart wrote in an e-mail. “It would create uncertainty that would cause serious concerns for any potential investment in Alaska. Alaskans understand this, which is why they defeated the last reserves tax initiative by a huge margin.”

ConocoPhillips did not respond to a request for comment.

According to a spokesman from the governor’s office, Palin had not yet read the new proposal by Oct. 1, the day the initiative became public. However, Palin, along with the other gubernatorial candidates in 2006, opposed the first iteration of the gas reserves tax.

“It’s taxing income before it’s earned,” Palin said at a September 2006 forum sponsored by Commonwealth North and reported by the Anchorage Daily News. “Fundamentally, I have a problem with that…We should be negotiating for development, not litigating.”

—Eric Lidji

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