|
Alaska gets down to specifics with North Slope producers Murkowski administration team now ready to propose contractual equity, risk sharing figures to slope gas owners BP, ConocoPhillips, ExxonMobil Kristen Nelson Petroleum News Editor-in-Chief
Alaska’s negotiations with the major North Slope natural gas owners over a fiscal contract for a gas pipeline project are at a new stage. On Oct. 29, Murkowski administration negotiating team members told an Oct. 25 press briefing, the state will be presenting figures for state equity participation and gas shipment to the sponsor group — BP, ConocoPhillips and ExxonMobil.
Negotiations have been under way since last February, and the state has been working the issues for 18 months, since April of 2003 when petroleum economist Pedro van Meurs was hired as consultant for the fiscal contract.
Even today, van Meurs said, there are no guarantees an agreement can be reached, but the state has developed equity sharing and gas shipment numbers it believes are in Alaska’s best interest, and is ready to begin negotiating those numbers with the producers.
The state is in two sets of gasline fiscal contract negotiations: with the sponsor group and with TransCanada, the Canadian pipeline company which holds permits dating from an earlier effort to take North Slope gas to the Lower 48.
It’s “clearly the number one resource development issue in the state,” said Department of Natural Resources Commissioner Tom Irwin, who said if the gasline isn’t “the number one priority in this state, we need to communicate further.”
Irwin reviewed three recent events of significance to the gasline: congressional passage of gasline incentives; the governor’s Oct. 13 request to the Legislature that it consider the state taking some of the risk of a gasline; and the governor’s Oct. 19 meeting with the producers. The congressional passage is “a milestone — we feel from the state’s standpoint we can really build on this,” Irwin said.
State has been working contract issues Van Meurs, who heads the state’s negotiations with the producers, said the state has been working contract issues since he was hired in April 2003. “Between April and October 2003, we worked on the concept of a traditional fiscal contract, as it was actually contemplated in the stranded gas act,” he said, and in February 2004 the state began negotiations with the producers.
As it looked at all the things a contract should contain, the state looked at the economics, “and we ourselves came to the conclusion that a traditional fiscal contract was actually not in the interest of the state, that if we really wanted to obtain the kind of benefits Alaska should obtain,” both fiscal benefits and cash flow benefits, the state needed to consider “equity participation in the line and very importantly, risk sharing.”
In April, van Meurs said, he presented the idea of equity participation to the Legislature, “and the initial reception was sufficiently positive for us to say OK, now we really need to start working on it.”
Between April and the governor’s October presentation to the Legislature, “we significantly developed internally this concept of risk sharing and equity participation,” van Meurs said. This involved studying issues the state hadn’t studied, such as how would the state finance its participation? What would the structure be? How would the state contribute capital and take its share?
The state also did due diligence on the numbers presented by industry and “between April and October … we really studied equity participation from a structural point of view and all the other aspects of the agreement,” and discussed all of the aspects of the contract internally and with the producers.
Starting Oct. 29, van Meurs said, the state will “start an entirely new phase of negotiations, that is, the phase of actually discussing figures.”
Van Meurs said the figures are part of the confidential negotiations, but the amount of the state’s equity participation in the line would have to be negotiated, as would the amount of gas the state would ship: just its royalty share, or royalty share plus gas to cover all or a portion of other taxes. The state’s equity share in a pipeline would have to be financed, and van Meurs said the state believes its investment could be debt-financed. On the gas side, the state would ship its gas, pay the pipeline tariff and share the risk of changing market prices for the gas along with the producers.
Risk analysis done on price risk Marty Rutherford, deputy commissioner of the Department of Natural Resources, said the Legislature funded a risk analysis, which allowed the state “to look at price risk over time, and the potential for a construction cost overrun.” The state built a model to look at the gasline project under “differing fiscal and commercial terms,” a model that can be linked to the risk analysis to look at how different conditions “would affect both the project economics and the state fiscal take,” she said.
The state, in addition to work of outside experts, has spent some 15,000 hours of executive branch time on the gasline project.
Rutherford, who leads the TransCanada negotiations, said “the state is also considering taking an equity participation position, in both the pipeline and risk capacity,” with TransCanada.
Revenue will do best interest finding Revenue Commissioner Bill Corbus said that once contracts are completed and an agreement reached with either the producers or TransCanada, or both, the Department of Revenue will do a best interest finding, “and that best interest finding goes into a great deal of detail as to why we believe it is in the best interests of the state for the Legislature to approve the agreement and for the governor to sign it.”
There will be a 30-day public comment period on the draft best interest finding with public hearings, Corbus said.
Revenue, Natural Resources and Law will review input on the draft. “If we think some of the suggestions are appropriate, we will go back to the applicant … and ask to reopen contract negotiations to include some of these suggestions that were made.”
A final best interest finding will then be completed and the contract or contracts submitted to the Legislature, he said. The plan is to get the contract to the Legislature in the upcoming session.
| 