While terms of the deal the State of Alaska is negotiating with BP, ConocoPhillips and ExxonMobil for a North Slope gas pipeline remain confidential, a good deal of information has been bandied about in the press. Alaska Natural Gas Development Authority Chief Executive Officer Harold Heinze used that information to put together an estimate of what the terms might be.
“I have absolutely no comment” on Heinze’s “best guess,” Deputy Commissioner of Revenue Steve Porter told the ANGDA board Nov. 8. “We are in daily negotiations with the producers still and working very aggressively at completing a contract,” he said.
The “best guess” Heinze presented includes:
• The state takes 20 percent of North Slope gas in-kind for 30 years in lieu of both gas royalty and gas severance tax;
• The state contracts for gas transportation and markets the gas itself;
• The state buys 20 percent of the stock in the corporation set up to design, build, own and operate gas facilities and gas pipeline segments taking the gas to market;
• That corporation uses the 80 percent federal loan guarantee and is subject to federal income tax;
• The corporation builds the gas conditioning plant, both the Alaska and Canadian portions of a pipeline to Alberta, a Y-connector from Delta Junction to Glennallen, and take-off points at the Yukon River and in the Fairbanks/North Pole area;
• The corporation files with the Federal Energy Regulatory Commission and conducts an open season with corporate owners as anchor shippers;
• The oil and gas industry will pay local property tax or an equivalent and state income tax; and
• There will be a statewide oil severance tax as a “uniform percent of net value that allows for cost deductions and trading of exploration cost credits.”
Y to Glennallen?
Board vice-chair Scott Heyworth noted that the governor has repeatedly mentioned four take-off points: “I understand the Yukon. I understand Fairbanks. I understand Delta. But he continues to say Glennallen, so in my … visualization that means this project has a stub going down to Glennallen 150 miles or so…”
Porter said he couldn’t comment.
“It’s clear to me that the ownership structure on the U.S. side may be different than the ownership structure on the Canadian side,” Heinze told the board. “It just seems like an awful good guess, given the fact that you’ve got to win approval on the Canadian side separate from … the Alaska side.”
He said that in conjunction with his assumption that there may be “different ownership of the different segments, there may be a different ownership (of the 150 miles to Glennallen) even if it’s part of the big deal…”
The spur line for which ANGDA has applied runs from Glennallen to Palmer.
How to market the gas
Heyworth asked about problems the state could encounter marketing the gas it takes in-kind in competition with three very large and very experienced gas sellers: BP, ConocoPhillips and ExxonMobil.
Porter said he couldn’t say what is happening, but said there are a “range of options that are out there.”
The Treasury Division in the Department of Revenue works by dividing up its assets among a number of financial houses, evaluating how they do, and then moving the state’s money to the group that does the best, Porter said.
The state could build an in-house organization and market its own gas, he said, or it could work similarly to how the Treasury Division works and look at using BP, ConocoPhillips and Exxon to market the gas on the state’s behalf.
A decision on how to market the gas would be made once a contract has been approved by the Legislature, Porter said.
Source of gas for ANGDA?
Heinze said there was another issue for ANGDA: If it buys gas to ship to Southcentral, where would it get that gas? “Many people think of the state as the in-state provider of gas,” he said, but it might be smarter for ANGDA to buy gas from someone other than the state.
Once ANGDA is ready to move it could probably strike a commercial contract more quickly with one of the major gas owners than with the state, which has “a very deliberative process.”
Taking ownership of the gas on the North Slope adds a real financial element, Heinze said.
“While you may find people that are capable of marketing and doing a lot of other functions for you,” he said, the shipping commitment is a huge one, in the range of $20 billion to $40 billion. “It may be that the state through ANGDA can play some small role in some smaller volumes but the more difficult issue is … you have to arrange for shipment.”
Heinze said ANGDA’s problem is small in comparison to the state’s, and assuming “the state figures out how to do that … then I can always say ‘me too.’ I’ll take a 20th of their action.”
