February 21, 2006 --- Vol. 12, No. 12February 2006

20-20 oil tax goes to Legislature; agreement reached on gas pipeline

Alaska Gov. Frank Murkowski said today that the State of Alaska and the North Slope producers have reached agreement on a natural gas pipeline contract.

The governor also said he is sending tax reform legislation to the Legislature. The proposed 20 percent tax rate on production profits is combined with a tradeable 20 percent tax credit. The governor said the new tax would give the state 35 percent of revenues from oil and gas production in the state vs. the 29 percent the state receives under the current production tax system. At current oil prices the state would receive an additional $1 billion per year in production tax revenue. With the federal income tax take also considered, the companies’ share drops from 46 percent to 42 percent.

The governor said at a press conference this afternoon that the state reached contract agreement with the producers, represented by Tony Hayward, BP’s group management director and CEO, Jim Mulva, chairman of the board of ConocoPhillips and Morris Foster, president of ExxonMobil Production Co. The agreement, reached late Monday, covered gas as well as a replacement for the state’s current oil production tax.

Technical issues connected to the gas contract must still be addressed, along with oil fiscal stability terms, the governor said.

Legislative leaders also met with the companies Monday. The governor called it “a very, very healthy dialogue where the legislative leadership got an opportunity to ask questions and get, I think, reassuring answers.”

The governor said the tax proposal he is sending to the Legislature calls for a 20 percent tax rate on production profits and a 20 percent tax credit. Pedro van Meurs, the state’s consultant on both the gas pipeline contract and the oil tax change, had recommended a 25 percent tax rate and a 20 percent tax credit.

“I did tilt the balance a bit; I tilted the balance in favor of creating new incentives,” the governor said. “After a great deal of consideration I made the decision on Sunday to move forward with a 20-20 balance which will provide stronger incentives to develop.

The effective date of the new tax would be July 1 of this year.

Note: Watch for full story in the Feb. 26 edition of Petroleum News.

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