A pipeline to move gas from the North Slope to Lower 48 markets is “key to Alaska’s future” and “an issue all Alaskans want resolved,” Gov. Frank Murkowski told a joint session of the state’s legislature Wednesday.
It was the first day of a special session called after the Senate during the regular session failed to agree with House changes to a bill that would overhaul the state’s oil and gas production tax. Delay in approving a new tax structure is costing the state millions in lost revenue and holding up development of a natural gas pipeline that many see as the Holy Grail of domestic gas development. The tax legislation is linked with a plan to commercialize Alaska’s 35 Tcf of gas reserves through a pipeline development agreement with producers ConocoPhillips, BP plc and Exxon Mobil Corp.
It was not until Wednesday that Murkowski released to lawmakers and the public documents relating to his agreement with the producers, after being ordered twice by Superior Court to do so (see Daily GPI, May 9). Some lawmakers had balked at approving tax legislation before seeing the contract, which Murkowski all along had promised to release May 10 following the regular session.
Late last month, the Alaska Senate completed action on its tax bill with a 16-4 endorsement of a 22.5% net production tax on oil and 7.5%, or one-third of that, for natural gas (see Daily GPI, April 27). It then went to the House where early Tuesday morning members passed a bill that set the tax rate at 21.5%.
While it trimmed the tax by 1%, the House version of the bill still taxes companies at a greater rate than what Murkowski wants. He has pushed his own “20-20 plan,” which includes a 20% net production tax and a 20% credit for capital investment (see Daily GPI, April 26). The Senate bill offset its higher 22.5% rate with a 25% investment credit.
Murkowski has warned that the higher tax could jeopardize the agreement that he has worked out with the three producers for the $25 billion Alaska gas pipeline. During Wednesday’s joint session, Murkowski praised the legislature for taking up the tax issue and sought to instill a sense of gravitas among the lawmakers. “The economics support this project now, and they didn’t before,” Murkowski said. “And the state must have the revenues to meet legitimate needs of Alaskans. It’s the key to Alaska’s future. I cannot overemphasize the historical opportunity we have before us.”
He also emphasized the cost of any dalliance by lawmakers. At the 21.5% rate, Murkowski said the state’s Department of Revenue estimates that at $60/bbl oil the tax will generate an additional $1.4 billion per year. “Somebody figured out that that’s approximately $3.8 million a day in lost revenue,” Murkowski said of the delay in passing legislation. “Now the progressivity factor included in the House bill would have brought in another $826 million, or roughly $2 million per day. When you bring those two together, and you come up with a potential revenue loss of about $5.8 million per day at $60 oil, and that is where we are currently today as a consequence of not being able to come together on a PPT [petroleum production tax]. That’s significant.”
Looking out longer term, Murkowski said that gas development could mean $12.5 billion to the state at $2.50/Mcf gas and as much as $78 billion at $8.50/Mcf gas over the 35-year operating life of the gas contract. Alaska’s risk-sharing and participation in gas development “results in the essential improvements in the economics of this project and results in significant new revenues,” Murkowski told lawmakers. “You’re going to have the opportunity to delve into that when you go into the contract.”
The contract is available at https://www.revenue.state.ak.us/gasline/ContractDocuments/.
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