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Alaska Reserves Tax Ballot Measure Will Go to Voters Nov. 7

The Alaska gas reserves tax ballot initiative, crafted last summer by Anchorage Democratic Reps. Eric Croft and Harry Crawford, was certified last week and will head to voters Nov. 7 regardless of what the legislature does with a bill (HB 223) that would impose a similar tax on state leaseholders (see NGI, Sept. 5).

The ballot measure would impose a tax of 3 cents/Mcf/year on gas reserves under lease until production begins. It amounts to about $1 billion a year given the 35 Tcf of estimated reserves under lease. The measure is designed to be an incentive for producers to get moving on their $25 billion gas pipeline project to the Lower 48 states so that gas production can begin, increasing state revenue through royalties.

Given the time it would take to build the pipeline, the tax could be levied for nearly 10 years. However, the measure calls for an escrow account to hold the proceeds of the taxes in case producers file a lawsuit to challenge the tax. The funds collected also would be returned to producers in the form of a credit against future severance taxes as soon as the pipeline is built. The proposed ballot measure is based on a tactic the state used in 1975 to get an oil pipeline built.

Producers have said all along that a commercial pipeline project can't be taxed into service. "We believe this bill is bad policy -- bad for industry and bad for Alaska," Ken Konrad, senior vice president of BP Alaska, told the House Oil & Gas Committee last Monday at a hearing on HB 223. "Furthermore, it de-stabilizes Alaska's fiscal regime at the very moment Alaska is trying to attract massive oil and gas investments."

He noted that the ink is still drying on the preliminary pipeline agreement that Gov. Frank Murkowski reached late last month with ExxonMobil, ConocoPhillips and BP. While the proposed pipeline deal has been signed, it still has not been released to the public. Instead, proposed oil tax revisions that were negotiated between Murkowski and the majors have been presented to the legislature as a precondition to the gas pipeline deal.

"The stars are aligned," said Konrad. "The state and all three major producers are aligned behind a single...gas export project -- both as resource owners and as equity partners. The opportunity to advance an economically efficient gas pipeline is at our doorstep."

However, proponents of the reserves tax believe it would give the state much-needed leverage against producers who have been allowed to sit on their reserves for 30 years. Rep. Eric Croft, who sponsored the ballot initiative, told NGI last week that consultants hired by the legislature have said the oil tax revision proposal , which is a precondition of the pipeline deal, takes in "far less" revenues than "it should.

"I believe that Alaska has been effectively bullied into giving away oil revenues as the price for a gasline," Croft said. "I intend to use the opposite approach of standing up to Exxon and demanding rather than begging for a gas deal. The reserves tax is part of that strategy. This belief that Alaska needs to stand up for itself is why I am also running for governor in 2006."

According to the Anchorage Daily News, on the street the ballot measure appears to be much more popular that the tax bill, which may have attracted some opposition in the legislature.

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