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Gas line on fast track MidAmerican wants Alaska contract by March 12, but won’t cover costs Larry Persily Petroleum News Government Affairs Editor
MidAmerican Energy Holdings Co. says it wants to reach a contract with the state by March 12 for payments in lieu of taxes on the company’s proposed North Slope natural gas pipeline, but as of March 3 the company had not agreed to the state’s request that it cover Alaska’s expenses in the negotiations.
Meanwhile, the three major North Slope producers negotiating with the state under the same Stranded Gas Development Act signed their reimbursement agreement a month ago, and the state has billed the producers for $134,000, said Steve Porter, deputy commissioner at the Department of Revenue.
“We agreed (to the reimbursement) because we’re serious about trying to remove any obstacles in negotiations,” said Dawn Patience, ConocoPhillips’ spokeswoman. “We expect the state to treat all applicants equally.”
The Stranded Gas Act says the state may use independent contractors to assist in evaluating fiscal contract applications for payments in lieu of state and municipal taxes on a natural gas project. The law also says the Department of Revenue commissioner “may condition development of a contract … on an agreement by the applicant to reimburse the state for the reasonable expenses of independent contractors.” No comment from state or MidAmerican Porter declined comment March 3 on whether the state is insisting on a reimbursement agreement with MidAmerican or continuing to negotiate without an agreement and, if so, whether the state is doing the work without any the aid of any consultants. A week earlier he said the state was working with the company on the contract while waiting for a reimbursement agreement, but was unable to hire consultants without the assurance the money would be repaid.
MidAmerican was equally silent on the issue. “It’s not a decision that I’m at liberty to discuss,” said Robert Sluder, president of MidAmerican’s Alaska Gas Transmission Co., established for the pipeline project.
“That particular issue is part of the confidential negotiations,” Sluder said March 3. Sluder is based in Salt Lake City, Utah, where he also serves as president of MidAmerican’s Kern River Gas Transmission Co., which operates a 1,700-mile gas pipeline from Wyoming to Northern California.
Although the Stranded Gas Act says an applicant may request that the state hold proprietary research and commercial information confidential, there is no provision protecting the confidentiality of the reimbursement agreement. Producers cover expenses back to July 2003 The producers’ agreement, dated Feb. 2, says ConocoPhillips, BP Exploration (Alaska) and ExxonMobil will reimburse the state up to $1.5 million for the contract negotiations. The producers also agreed to make the agreement retroactive to July 1, 2003, so that the state could recover its costs of contracting with Pedro van Meurs, who has been helping Alaska prepare for Stranded Gas Act negotiations since last summer.
Van Meurs, an international oil and gas consultant, has advised the state on tax and royalty issues since the mid-1990s.
ConocoPhillips believes the state should require MidAmerican to sign an agreement similar to the producers, Patience said.
BP was less direct. “That’s a question for the state,” said company spokesman Dave MacDowell. “We believe the project described in the producers’ application holds the most promise for North Slope gas to Alaska, and that’s where we’re focused.”
ExxonMobil did not comment.
The producers and MidAmerican filed separate applications with the state in January, with each proposing to build a pipeline to move North Slope natural gas to Lower 48 markets.
Porter recently discussed with legislators the Department of Revenue’s need for additional state funding to work on Stranded Gas Contract negotiations and also for the Alaska Natural Gas Development Authority’s work on a state-owned project. “One of the things we cannot do is have the majors carry everyone else,” he told the House Finance Committee on March 2. March 12 ‘target’ for draft contract Sluder and MidAmerican’s Chairman and CEO David Sokol addressed the Senate Resources Committee on Feb. 25, telling legislators the company plans to finish work on its contract with the state by March 12.
“It’s not an ultimatum, it’s a target,” Sluder said in an interview March 3.
The law requires a 30-day public comment period after an applicant and the state reach a draft contract, with submission to the Legislature for approval after that. If MidAmerican is to win final approval before the Legislature’s scheduled May 12 adjournment deadline, it needs to get the contract out for public comment by mid-March, Sluder said.
Failure to get a signed deal this spring would jeopardize the company’s plans for $14 million in field work and other studies this year, he said.
MidAmerican’s contract talks should move quicker than the producers’ negotiations, Sokol told lawmakers. MidAmerican is interested only in running a pipeline and not producing or owning the gas, and therefore doesn’t need to negotiate production tax or royalty issues. And the company’s payments in lieu of income and property taxes would merely pass through to the producers or shippers through the tariff on the line, Sokol said.
“There really aren’t any contentious issues before us,” he said.
The pipeline company is looking to the producers, gas customers and other shippers to sign “ship-or-pay” contracts, Sokol explained. “Think of it as similar to leasing floor space in a building,” he said, with tenants paying for the space regardless whether they use it. Municipalities still meeting on contract Another issue in the negotiations is the contract’s effect on municipalities along the pipeline route.
The Stranded Gas Act required the Department of Revenue to set up a municipal advisory group to help ensure that cities and boroughs receive fair compensation under the contract in lieu of municipal sales and property taxes.
The group has met several times since last fall, with several members attending by phone, but the entire group is not expected to meet in person until March 10, Porter said in an end-of-February interview. “This is a complex contract,” and the state wants all of the municipal representatives together at the table, he said.
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