Alaska Gov. Frank Murkowski earlier this month got the oil and gas tax revamp he said was necessary to move ahead with his administration’s plan for a pipeline to bring North Slope gas to Canada and the Lower 48 (see Daily GPI, Aug. 14). But before he can make his pipeline dreams reality he first must get reelected.

Voters went to the polls Tuesday, Aug. 22, in Alaska’s Republican gubernatorial primary, and Murkowski’s odds were less than appealing. Polls have placed him third behind two challengers. If Murkowski loses the governorship, it could unravel his plans for the $25 billion pipeline and send lawmakers back to the drawing board on efforts to commercialize Alaska’s vast natural gas resource.

Ironically enough, Murkowski’s most recent woes stem in part from troubles with BP’s Alaskan oil pipeline and the partial shutdown of the nation’s largest oilfield that they necessitated. Many blame Murkowski for the shutdown and resulting crimp in revenues in a state where — as the governor is well aware — taxes on oil production pay nearly every piper.

With the signing on Saturday of HB 301, Murkowski officially switched the state from a gross tax to a net profits tax on oil and gas production. Murkowski fought hard for passage of the 41-page oil tax bill, which the Alaska legislature approved Friday, Aug. 10. The Republican governor claims that at $70/bbl oil, the new tax scheme will provide the state an extra $2.2 billion a year. Companies producing oil and natural gas in Alaska will now be taxed at a rate of 22.5% of their net profits derived from Alaska production. Under a progressivity provision, the tax increases 0.25% for each dollar the price of oil rises above $40 net/bbl.

“While I continue to believe the 22.5% tax rate is higher than it should be to encourage optimum reinvestment in Alaska, I am pleased to sign this bill today,” Murkowski said in a statement. Producers also will get a credit of 4-20% of the cost of capital investment they make in new exploration and development in the state. “We expect to see significantly increased investment in oil and gas exploration and development resulting from this change in our taxation philosophy,” Murkowski said.

Revamping the state’s oil and gas taxing mechanism has been a cornerstone of Murkowski’s plans for the gas pipeline (see Daily GPI, July 17). And the gas pipeline has been a goal of Murkowski’s for much of his political career.

A controversial draft gasline contract Murkowski negotiated in secret with producers BP plc, Exxon Mobil and ConocoPhillips has yet to be ratified by the legislature, some of whose members, along with some voters, have been antagonized by how Murkowski handled negotiations with the producers (see Daily GPI, June 2).

The Washington Post reported that a poll last month by Survey USA put Murkowski’s approval rating at a mere 21%. Earlier in the summer a poll by the Democratic Governors Association showed only 15% of Alaskans said he deserved reelection, the paper reported.

In the Republican primary Murkowski faces Sarah Palin, former mayor of Wasilla; and John Binkley, a former state senator. Former Gov. Tony Knowles stands to get the Democratic nomination for governor. Knowles has been an outspoken critic of Murkowski’s gasline contract with the producers. In 2004 Knowles lost a bid for the U.S. Senate to Lisa Murkowski, the governor’s daughter.

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