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Alaska Senate Committee Aborts Legislation to Force Producers' Hand on Gas Pipe

May 9, 2005
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The Alaska Senate Resources Committee has blocked legislation that would have made it easier for the state to force North Slope producers to build the long-proposed natural gas pipeline.

The proposed amendment to House Bill 71 was tacked on to an industry-supported exploration tax credit bill by State. Rep. Ralph Samuels, cochairman of the House Natural Resources Committee. He developed the amendment following a presentation to the legislature on the rights of the state versus lease holders (see NGI, April 25).

The amendment would have given Alaska's Commissioner of Natural Resources guidance to interpret the terms in existing state oil and gas leases on due diligence and obligations to develop discovered resources. The so-called "duty to produce" was adopted as a floor amendment without any hearings or public testimony, and would have given the state the right to determine whether the gas line was "reasonably profitable." If that determination was made by the state, producers would have seven years to build a gas pipeline, sell their gas to a company that would build the pipeline, or face penalties from the state.

"The seven-year clock, when and if used, is intended to assure not just the promise of a pipeline but the pipeline itself, at the earliest possible date, bringing jobs to Alaskans, affordable energy to Alaskans and Americans, and billions of dollars to the state and its municipalities before declining oil revenues diminish our northern way of life," legislative consultant Bonnie Robson testified.

However, in written testimony to the legislature, the oil and gas industry was unanimous in its opposition to the amendment. Opponents argued that it would be wrong for the Alaskan government to decide when a company should be required to spend money.

BP Exploration (Alaska) wrote, "It would make government the all-powerful decision-maker regarding project development, determining what level of profitability is 'acceptable,' regardless of the risks involved." Alaska officials would be allowed to base its decisions on internal estimates of future gas prices and construction costs. However, BP argued that the state could be wrong in its estimates. Would the state make up the difference, BP asked in its testimony.

Larry Houle, Alaska Support Industry Alliance general manager, also told the Senate Resources committee that the bill was "ill-advised legislation" that would make it harder to attract investment.

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