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Fiscal finding, draft LLC to Legislature Interim fiscal interest finding for North Slope gas pipeline contract includes proposed changes, limited liability corporation Kristen Nelson Petroleum News
In its last few weeks of office the administration of Gov. Frank Murkowski has wrapped up and passed to the Legislature and the incoming administration of Gov.-elect Sarah Palin an amended, but not renegotiated, proposal for a North Slope natural gas pipeline fiscal contract.
Murkowski, who hoped to complete a contract before he left office in early December, submitted an interim fiscal interest finding Nov. 16, including proposed changes to the May 24 draft contract and a draft of a limited liability corporation contract.
Both the changes to the draft contract and the LLC contract have to be negotiated with the project sponsors, BP, ConocoPhillips and ExxonMobil.
Murkowski said in a press release that the documents “will provide the basis for deliberations the Legislature, the producers and Governor-elect Palin will need to enter into very soon. The responsibility for making the needed changes to the contract and the LLC now rests with the Legislature and the new governor.”
He said his administration has moved the project forward over the past two years. “It is now up to the Legislature and the new governor to complete the process.”
In a transmittal letter to the Legislature Murkowski said he would “work with the new governor and her staff to finalize this contract,” and called the proposal “the only expeditious and economically viable project to market Alaska gas resources.”
Murkowski said proposed changes were developed from public comments. “But for the lack of time and will to conduct another special session these proposed changes could have been successfully negotiated,” he said.
In addition to the contract changes, the LLC contract must also be negotiated. Murkowski said the state and producers “were willing to reach an agreement and finalize the LLC contract. Again, without the time or will to conduct another special session, our negotiators were not able to finalize the LLC contract.”
Various changes proposed Examples of the changes proposed for the contract include:
• The administration proposes changes in the fiscal stability period of the contract in line with amendments proposed by members of the Legislature.
• In response to a concern that the fiscal contract didn’t specify the size, pressure and expandability of the pipeline the administration proposes specifying “that the pipeline will be a large-diameter, high-pressure pipeline and expansible by approximately 40 percent with in-fill compression.”
• The administration proposes meeting a concern that the contract doesn’t “explicitly specify that the contract follow the southern route” by adding specific references to the southern route and prohibiting a change from the southern route unless the Legislature has had a full session to disapprove the change.
• There were concerns about the work commitments in the contract and the administration is proposing several changes, including incorporating the May 10, 2006, project summary timetable into the fiscal contract; clarifying that participants are required to diligently pursue implementation of the qualified project plan until sanction; “and that the state can pursue remedies if any element of a qualified project plan amended by the mainline entity does not meet the diligence standard.”
• In response to a concern that termination was the only remedy for failure to proceed in accordance with the diligence standard the administration is proposing a change to allow it to either terminate the fiscal contract or compel participants to proceed with diligence. The administration is also proposing that it can use documents and information created by or in the possession of the mainline entity or its members to determine whether participants have met the diligence standard and in pursuing contract termination.
• Concerns about Alaska hire would be met with addition of a requirement that parties begin negotiations, after the effective date of the contract, for a project labor agreement which promotes Alaska hire and to establish hiring halls in rural and urban Alaska communities. A new provision would require negotiations with the Canadian government for a cross-border labor agreement.
• The administration proposes a change to explicitly provide that the jurisdiction of the Regulatory Authority of Alaska is unaffected by the contract.
• Because of concerns that state-initiated expansion provisions “may not serve the interests of explorers and in-state users,” the provision for state-initiated expansion would be eliminated.
• A change is proposed in the definition of off-take points because a Canadian off-take point may be needed for Southeast Alaska.
• The administration is proposing that the Petroleum Profits Tax terms incorporated into the contract will be those in place at the end of the 2001 legislative session or the Federal Energy Regulatory Commission application date.
• The administration proposes a change from the U.S. Arbitration Act to the Alaska Arbitration Act in dispute resolution procedures.
The interim fiscal interest finding is available online at:
www.revenue.state.ak.us/gasline/ContractDocuments/.
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