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Holiday hiatus for pipeline talks Governor: Negotiations will resume in January, but producers also need to engage on issues state wants Kristen Nelson Petroleum News Editor-in-Chief
The State of Alaska has suspended gas line negotiations with the North Slope producers for the holidays, but also until the producers are responsive to some policy issues the state wants addressed in an agreement.
“I obviously had hoped that we could conclude our negotiations prior to the legislative session. That clearly is not possible at this time,” Alaska Gov. Frank Murkowski told a press briefing Dec. 16.
The governor said the state has communicated to the principals “some items that are non-negotiable in a sense ... and we have indicated that as soon as those are addressed or as soon as they’re ready to engage in addressing them, why we stand ready to meet with them and pursue the finalization of contractual commitments.”
He indicated that there are areas where “after extended negotiation decisions” things are turned over to “the wordsmiths and the lawyers on both sides give you another shot at it.” That’s happened on a few issues, he said, “so that’s why recognition of the holiday season’s on, people are traveling, we’ve just decided to re-energize ourselves on some of these issues that we have been unable to close on.” A lot of ‘sideways movement’ Murkowski said “we had high hopes that we might conclude something by the end of this week and that’s — we were unable to do that — and that’s why I felt it necessary to give a little update to Alaskans on what was going on.” He compared the negotiations to a crab moving down a beach: “There’s a lot of energy, sideways movement ... but a little slow getting down the beach because they don’t go down in a straight line ...”
The holidays are part of the reason for the suspension, but the governor also said the producers need to be ready to engage on some issues where agreement hasn’t been reached, areas he characterized as policy issues important to the state.
While the negotiations have been productive, he said, they are not complete.
The governor called this “a defining moment in our negotiations, because we have reached consensus on many of the important issues,” including a basic agreement with ConocoPhillips in October.
“All of the parties have reached agreement on fiscal terms that are very positive for the state,” the governor said in a statement issued after the briefing. “But there are other critical issues on the table that, for the state, are non-negotiable. I am confident that BP and ExxonMobil will come back to the state after the holidays with satisfactory resolution to the items we have presented to them.” Some items non-negotiable for state What has been accomplished?
“We have come to terms on the numbers. That basically means the cash,” Murkowski said said.
As to when negotiations will resume, the governor said one issue is that some of those involved are traveling over the holidays and will not be available. Pedro van Meurs, for example, one of the state’s consultants, won’t be available again until Jan. 6.
The governor said there are some items which are non-negotiable for the state, and as soon as the producers are ready to engage on those issues, the state is ready to meet and work on finalizing the contract.
Those issues include access to the gas line by explorers — those who do not have gas reserves ready to go. Other issues, he said, are “equal treatment for all North Slope participants, investors and explorers,” “fair access to revenue for the local communities” and expandability of the pipeline. The governor also said there are “some technical things about procedure on auditing and in the sense of the structure of the LLC there’s a few items left.”
And there is an issue related to the money the state would borrow to finance the majority of its contribution to the pipeline. The governor said the state’s financial advisors say the producers would have to subordinate their debt to the debt that the state would take on.
“It’s a mechanical function that most financiers want to assure that their debt is paid off first,” the governor said, and the state’s financial advisors have advised “of the necessity of the producers subordinating to our participation in the sense of the equity contribution.”
These are points, the governor said, where the state cannot respond to the point of view of the producers, and has asked them to respond to the state’s view. Tough issues remain It’s not an impasse, the governor said. “We have, on a few points ... reached a state in the negotiations where we feel that we cannot respond to their particular point of view and are asking them to respond favorably to ours, and that’s just a part of the whole complicated process when you’re looking at the largest resource development in the history of North America, so it’s not a surprise...”
Jim Clark, the governor’s chief of staff and the state’s chief negotiator, said “we have provided information to ExxonMobil and BP in terms of what we need and when they’ve got all of that ready to come back, rather than piece meal, then we’ll re-engage. And that will be when we have that back from them.”
“We do have some important issues yet to resolve in a manner satisfactory to the state,” Murkowski said.
The governor said principals of all three companies have been emphatic about their desire to complete negotiations, and the working-level group will continue to work through the holidays.
Murkowski said he has talked to Tony Hayward, BP’s chief executive for exploration and production, and ExxonMobil President Rex Tillerson.
The governor said that he has invited the CEOs from the three companies — BP, ConocoPhillips and ExxonMobil — to meet in Juneau the third week of January. “And at that time I hope that we can perhaps either celebrate with some of our participants or substantially conclude our negotiations.
“I can’t tell you how emphatic the principals were of their commitment to conclude this project and develop Alaska’s gas.” The governor said there he had no doubt about “their collective intent” to complete the negotiations. ConocoPhillips, BP on remaining issues Joe Marushack of ConocoPhillips was present at the press briefing and Murkowski said BP and ExxonMobil had been invited to comment, but “they have corporate philosophy relative to being committed to finally finishing the deal before they would care to comment in detail,” he said.
Marushack, ConocoPhillips Alaska’s vice president for gas commercialization, said federal legislation was secured in October 2004 and this October ConocoPhillips “agreed to the base fiscal terms with the state.”
“There are enormous gas resources already known on the North Slope and we want to develop a new industry, a gas development and exploration industry,” he said.
With the magnitude of the project, “we need to get the right agreement,” Marushack said, adding that ConocoPhillips is encouraged by progress made, “and we’re anxious to finalize our contract with the state.”
On the policy issues outstanding, Marushack said: “Some issues take a fresh set of eyes — you have to think about it a little bit and come back with something that hadn’t been considered before and I think that’s what you’re talking about, is just considering if there’s different ideas, different ways of getting to an end that meets everybody’s requirements.”
Ken Konrad, BP’s senior vice president-Alaska gas, said in a statement: “We have agreed to suspend the negotiations over the holiday period. Our teams have been working very hard and need a well-deserved break to be with their families. Some difficult issues remain on both sides and we expect to resolve them in the New Year.”
ExxonMobil did not respond to a request for a comment.
When the negotiations resume in January they will move from Anchorage to Juneau.
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