Alaska’s three North Slope producers — BP, ExxonMobil and ConocoPhillips — hemmed and hawed about taxes and fiscal assurances under the state’s gasline framework, all but turning up their noses at the process. But industry watchers were pretty much counting on an application from pipeline giant MidAmerican Energy Holdings Co.
However, on the evening of Nov. 30 when applicants were announced, MidAmerican, owned by corporate guru Warren Buffet’s Berkshire Hathaway, and the producers, were no-shows. (ConocoPhillips has proposed a pipeline project outside of the state’s Alaska Gasline Inducement Act). Buffet is known for making very few mistakes, certainly not big ones.
In a Nov. 30 letter to Gov. Sarah Palin, MidAmerican CEO David Sokol cites a number of reasons for staying away, chief among them “deepening and ongoing investigations into political and corporate corruption” that predate the Palin administration and Alaska Gasline Inducement Act (AGIA) process.
According to former state representative gubernatorial candidate (see NGI, Nov. 13. 2006) and businessman Andrew Halcro, a staunch critic of the AGIA process, MidAmerican’s corruption worries are a red herring and the company is abstaining from the AGIA process because it is flawed.
“A conforming bid by [MidAmerican] was almost a given, especially since the company as late as just weeks ago stated publicly they were certain to bid,” Halcro wrote on his website (www.andrewhalcro.com) Monday. “The explanation for their no-show leaves a lot of open questions.”
Halcro wonders aloud what corruption probes (see NGI, May 14) have to do with the gas pipeline since it’s a new project under a new governor’s administration not linked with indictments related to the state’s petroleum production tax last year. “The excuse of the current corruption probes is a red herring,” Halcro writes.
In his letter Sokol alludes to what can only be assumed is BP when he writes of “recent related performance issues in Alaska and elsewhere by one of your major producers” (see NGI, Oct. 29). Halcro: “BP’s past problems have as much to do with a new natural gas pipeline as the price of tea in China.”
But when Sokol brings up “ongoing litigating regarding natural gas leases with the producers and the current and projected complications in the heavy industrial construction industry…,” he gets Halcro’s ear.
The Alaska politico says litigation over leases in the North Slope’s Point Thompson field (see NGI, May 7), which the state is trying to reclaim from producers, is more likely the reason for MidAmerican’s absence.
“During the AGIA hearings I first brought this up in April when the state rolled out their economic modeling to show that a pipeline was profitable at any price,” Halcro writes. “In their calculations they included the significant investment in infrastructure needed to develop Point Thompson reserves in addition to throwing in billions of dollars in revenue from the field. This was highly suspect because at the same time the state was in court trying to cancel Point Thompson leases.”
Halcro writes that those watching the Point Thompson case believe that “Exxon has a good chance of prevailing.” He notes that Point Thompson is mainly a gas field and would be critical when it comes time to fill a pipeline. “[MidAmerican’s] worry probably lies in the chance that Exxon will win [the Point Thompson case] and still maintain control over the basin.”
Concern about oil/gas field costs is “another reasonable concern,” Halcro writes. “Given the [Palin] administration continued stiff arming of the producers’ request, concerns about costs increasing year after year is a legitimate concern.
Since the state “has no legal grounds to cancel the producers’ leases, [MidAmerican] probably realized that the AGIA exercise was just too risky with not enough chance of success.
“This is what some of us have said since the day AGIA was introduced,” Halcro added. “AGIA fails to recognize legal and fiscal realities and it’s apparent that [MidAmerican] realized that and acted accordingly.”
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