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Producers open talks with state about fiscal terms for gasline Myers characterizes July 24 meeting between the Knowles administration and the three North Slope gas owners as a discussion of terms, not negotiation of terms Kristen Nelson PNA Editor-in-Chief
AJuly 24 meeting between state officials and the three North Slope producers about state fiscal terms for the proposed Alaska Highway gas pipeline sparked questions from outgoing Sen. John Torgerson, R-Kasiolf, at an Aug. 19 meeting of the Joint Committee on Natural Gas Pipelines.
Torgerson, who chairs the legislative committee, asked Division of Oil and Gas Director Mark Myers the purpose of the Knowles administration’s high level meeting with the state’s major gas owners. Myers said the July 24 meeting was more a discussion about the meaning of the base fiscal terms for a gasline versus a negotiation of those terms.
The three major producers have told the state, Myers said, that it needed to provide a clear understanding of what the “conditions and terms” were for a gas pipeline.
The state has repeatedly asked the producers what they meant by that, he said.
This document, Meyers said, referring to copies of BP Exploration (Alaska) Inc. overheads from the July 24 meeting, “is the first attempt to look at those issues and to answer that question for us.”
Myers said the producers presented “a different way of valuing gas, a different way of taxing gas, a different way of looking at the royalty… basically a total overhaul of the current way we value gas.”
The producers suggested, he said, “some very radical changes to our public policy.”
Representatives from all three North Slope gas owners (BP, ExxonMobil and Phillips Alaska) were present, but according to Joe Marushack, vice president of ANS gas commercialization for Phillips, BP initiated and led the presentation.
What’s Knowles going to do? Asked by Torgerson what the administration was going to do with the proposal, Myers said he thought “the administration would like to have further discussions with the producers at this point.”
Those discussions, he said, would be about what the producers mean by various terms, including royalty and tax terms.
“I do not believe that the administration has the inclination to go into any sort of negotiations,” he said, but would like to have clarifying discussions.
The changes proposed by the producers are broad enough, Myers said, that they would require legislative action.
Myers said he thought the presentation “was a good faith effort by the producers to start a dialogue.”
Negotiation, he said, will be up to the next administration and the next Legislature.
“From our perspective it’s sort of a producers’ wish list of things they would like to have,” he said.
“The first thing is to start the dialogue,” Myers said. “And then the second thing is if the new administration and the new Legislature deems it appropriate that we enter negotiations” then outside help would be needed to help analyze the various proposals.
The fiscal terms the producers presented were clearly not to the state’s maximum economic benefit, he said, but were rather an “industry wish list” for gasline fiscal terms.
Subsurface discussions Committee vice-chair Joe Green said that at the time when Prudhoe Bay production started up in the 1970s “there was a really good cooperation between the operators and the state as far as subsurface geology, engineering” information was concerned.
“Do you anticipate that same degree of cooperation in the future,” he asked Myers.
Myers said he was “optimistic that that will occur.”
There hasn’t been alignment in the past at Prudhoe Bay among oil and gas owners, he said, “and we’re almost there with full alignment.”
“We’ve had, in the last eight months, a couple of very, very good meetings” on technical data for gas sales issues and mitigation measures that might be performed. Recently, he said, there seems to be more willingness on the part of the producers to share information with the state. “The alignment is helping somewhat,” he said.
On the other hand, “when the parties aren’t aligned you’ll hear multiple technical interpretations — which are all within a legitimate range…” and once Prudhoe Bay alignment is complete, the state will hear only one technical interpretation.
Reserves study under way Torgerson asked Myers about the status of a North Slope reserves report the division is working on and Myers said the division hopes to have something available by the end of September.
What the department is preparing will not be a lot of original work, but basically a synopsis, he said.
“There’s still, in the Foothills, lots of questions,” he said. “And so we have to give you a very broad range of numbers.”
In the Foothills, he said, “the most difficult issue to get your arms around is the size and distribution” of gas fields. We know the gas has been generated, Myers said. The question is, he said, is there enough permeability and porosity in the rock for a viable sustainable field?
There are also questions about development costs in the Foothills, he said, “so there are a myriad of issues that make it very difficult to quantify a meaningful economically recoverable number.”
The division also has some preliminary U.S. Geological Survey data from Interior basins that it will compile, Myers said.
For the Cook Inlet, he said, the U.S. Geological Survey is starting a major assessment.
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