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Vol. 12, No. 49 Week of December 09, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

MidAmerican wants ‘new way forward’

Company doesn’t apply under AGIA, says ‘deepening and ongoing investigations’ make compliant application ‘unrealistic’

Kristen Nelson

Petroleum News

MidAmerican Energy Holdings Co. was widely anticipated as an applicant to build a natural gas pipeline project under Gov. Sarah Palin’s Alaska Gasline Inducement Act.

The company demurred, telling the governor in a Nov. 30 letter that “the deepening and ongoing investigations into political and corporate corruption in Alaska make a thorough and thoughtful proposal in compliance with AGIA an unrealistic exercise for our organization.”

David Sokol, the company’s chairman and chief executive officer, made it clear that he did not consider the Palin administration to be a problem, telling the governor: “… your leadership and that of your administration has been outstanding and your integrity and transparent style are a breath of fresh air in what has proven to be a rather shady and smoke filled past in regard to energy issues in Alaska.”

Sokol said “integrity must be the foundation upon which all project elements are based” if a project of the magnitude of the Alaska gas pipeline is to succeed.

“As you are painfully aware the ongoing corruption investigations coupled with previous indictments, guilty pleas and convictions draw into question virtually every major Alaskan project participant and government levels from State to Federal. Obviously your administration had no involvement in these previous shenanigans nor did we; however, you and we alone cannot develop the pipeline project through AGIA’s expected process.”

Alternative way forward

Sokol said that with “ongoing criminal investigations, recent related performance issues in Alaska and elsewhere by one of your major producers, ongoing litigation regarding natural gas leases with the producers and the current and projected complications in the heavy industrial construction industry we would respectfully suggest that an alternate way forward be considered.”

Sokol did not offer details on what that alternate way forward might be, but said the State of Alaska and the federal government, “teamed with a proven and nonconflicted project development partner, will be required to successfully move this project forward.”

MidAmerican tried in 2004

MidAmerican applied to build an Alaska gas pipeline project in early 2004 under the Stranded Gas Development Act, but withdrew its application in a dispute with the administration of then-Gov. Frank Murkowski over a five-year exclusive development right for the Alaska gas line.

The issue for the company was apparently one of commitment: When the state turned down a proposal that the state reimburse it for half of the company’s estimated $100 million in development costs, MidAmerican then said it would go ahead with development work if the state granted it a three-year exclusive right to build the pipeline; that was later extended to five years.

The company clearly felt burned by the Murkowski administration.

Sokol said at a March 26, 2004, press conference after MidAmerican pulled out of the stranded gas contract negotiations that MidAmerican “would have no interest in re-entering the project.”

He added that it is hard to do business with the state “when people don’t tell the truth.”

The company argued that the Murkowski administration knew of the request for exclusive rights before MidAmerican ever submitted its application, although the governor said at the administration’s March 26, 2004, press conference on the MidAmerican withdrawal:

“For me to arbitrarily go out and negotiate a binding contract for five years … is something that I would be derelict in proposing,” Murkowski said. “In five years we could very well get the project back.”

Back in 2007

Although in 2004 MidAmerican bowed out, in 2007 it was back talking to legislators about the proposed AGIA legislation, although it appeared to be skittish after its 2003-04 experience.

Kirk Morgan, president of MidAmerican subsidiary Kern River Gas Transmission Co., told Senate Resources March 29: “We felt like, frankly, we were a stalking horse to create leverage for the last administration. And we’re not coming up here to go through another beauty contest.”

Morgan said while alignment with both the state and the producers is necessary for a successful project, it would go ahead with project work while the state settled alignment issues with the producers.

And he said that while MidAmerican did not ask the state for the $500 million commitment in AGIA, “The alignment that the $500 million creates is extremely important,” and not just to MidAmerican: “It’s an important signal to the marketplace; it gives the project much more credibility.”

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