Recognizing potential adverse impacts on oil and natural gas operations and explorers, Gov. Sean Parnell last Thursday vetoed Senate Bill 305, legislation that would have decoupled Alaska’s petroleum taxes through separate levies on oil and gas production.

The Republican governor’s first veto came one day ahead of the open season launch for the Alaska Pipeline Project, a joint effort between TransCanada and ExxonMobil Corp. to develop a natural gas pipeline under the Alaska Gasline Inducement Act (AGIA) (see related story). The simultaneous open seasons in Alaska and Canada began last Friday and will run through July 30.

Some lawmakers saw the pipeline open season as reason to have gas and oil production taxes dealt with separately.

“SB 305 effectively would have levied a significant overall tax increase on companies engaged in oil and gas production,” Parnell said Thursday. “At a time when my administration proposed tax credits to incentivize more Alaska jobs in the oil patch, a tax increase would send us in the wrong direction. Changing the tax regime now could be a destabilizing influence and adversely affect the two upcoming open seasons for Alaska natural gas shipping commitments, the first of which begins tomorrow [Friday].”

The governor also noted the opinion by Attorney General Dan Sullivan that the legislature has broad flexibility to change production taxes either before or after the open season. “The state has up to 10 years before gas starts to flow in which to determine the appropriate tax system. We should not be changing the tax regime now and then again after the open season,” Parnell added.

“While the legislative hearings on SB 305 were a worthwhile exploration of important state policy issues, not enough consideration was given to the complexity of the subject. I fully expect the state and producers to be discussing fiscal system issues over the next few years, leading up to a decision to sanction the gasline project around 2014,” he said. “The debate about SB 305 provides a valuable starting point.”

Earlier last week, Parnell signed in-state gasline legislation at the Pipeline Training Center in Fairbanks, AK. HB 369, sponsored by Alaska House Speaker Mike Chenault, creates the Joint In-State Gasline Development Team and establishes an in-state gasline project coordinator in statute.

“This is a significant step toward bringing Alaska’s gas to Alaskans and markets beyond,” Parnell said. “Our existing in-state gas pipeline team has worked aggressively on identifying the costs and the regulatory challenges for the bullet line option that would supply natural gas to the Railbelt for in-state use. Their research provides a solid foundation for the Joint In-State Gasline Development Team to build on.”

The team’s In-State Gas Pipeline Plan is to be submitted to the legislature by July 2011, providing information for informed decision-making on approaches to providing affordable energy for Alaskans.

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