A Citizen’s Guide

Gov. Frank Murkowski on Friday panned changes the Legislature has made to his oil tax bill, saying amendments the House and Senate have made to his petroleum production tax could hasten the decline in oil production and endanger a deal to build a natural gas pipeline.

Murkowski also, at a Friday news conference, revealed that the proposed gas contract would have a duration of 35 years once the pipeline has been built and that the new oil tax system being debated in Juneau would be locked into that contract for 30 years.

He also said he opposes including a contract provision to allow the agreement to be reopened if conditions change and acknowledged that the Alaska Supreme Court will likely be asked to rule on the question of whether the current Legislature has the authority to bind future legislators. Both issues have raised serious concern among many legislators in each chamber.

In criticizing the Legislature, the governor and members of his administration urged lawmakers to keep their eyes on the prize—the gas line.

“The Legislature needs to ask itself if a short-term, 5 [percentage point] higher severance tax is worth risking a gas pipeline that returns $70 billion and a 20-year extension of the trans-Alaska oil pipeline,” Murkowski said. The advent of a gas line would extend the life of the oil transportation system since the two would share some facilities on the North Slope and because oil and gas are found together.

Lawmakers tasked with reforming the state’s oil-tax system were unfazed by the governor’s comments.

House Majority Leader John Coghill, R-North Pole, said the Legislature would not be bullied into a bad deal by the governor.

“Our attitude has been pretty unanimous,” Coghill said. “We’re treating this as a stand-alone deal because we don’t know what the other parts of the deal are.”

Murkowski has long said reforming the state’s oil tax system was a prerequisite to finalizing a $25 billion deal with the major oil companies—Exxon Mobil, BP and ConocoPhillips—for a gas pipeline.

Murkowski maintains the oil tax legislation and the gas line are separate proposals that must be considered individually by the Legislature, and he has refused to release details of the gas contract until lawmakers complete their revision of the oil tax.

But the governor has also said the oil tax and gas contract were negotiated as a package and that any deviation from that agreement could scuttle a gas line.

Murkowski said the producers agreed to a 20 percent base tax rate with a 20 percent tax credit. His bill also includes a $73 million standard deduction and other tax breaks.

The Senate version of the governor’s bill increased the base tax rate to 25 percent with a provision to increase the rate when oil hits $40 a barrel.

Both the House and Senate altered the amount of tax credits and deductions in the bill, but so far the House has left the governor’s tax rate intact, though it does become progressively higher as the price of oil rises.

Administration officials said those changes were not part of the package deal agreed to by the producers.

“The deal is 20/20 with a gas line being built,” said Jim Clark, Murkowski’s chief of staff. “We have that in the bank. Everything else is a risk.”

What’s at risk is $70 billion over the 35-year life of a gas line and $14 billion from increased oil production over the next two decades, Clark said.

The governor said all of the changes to the bill that altered the oil companies’ tax liability needed to be returned to the original version.

“If we tinker on one issue, there are consequences,” he said.

Murkowski said it would be up to the oil companies to decide what tax rate would be acceptable.

Once approved by lawmakers, the new oil tax rate would be rolled into the contract for a gas pipeline. Clark said that once the tax rate is put into the contract for a gas line, it could not be changed by the Legislature or by voter initiative.

The latest round of criticism by the governor and members of the administration drew return fire from some legislators.

Senate Finance Committee Co-chairman Gary Wilken, R-Fairbanks, said the administration was changing the rules in the middle of the legislative process and called for the governor to release the gas line contract immediately so lawmakers could see the full picture.

“We’re being asked to decide on door No. 1 when we don’t know what’s behind doors No. 2 and 3,” Wilken said. “If they are truly all linked, then we need to see all three together.”

Sen. Donny Olson, D-Nome, said the governor was forcing lawmakers to take a shot in the dark by not showing them the gas contract.

“It’s a rather unfair way to negotiate because you don’t know what you’re dealing with,” he said.

Olson said he would be unwilling to accept a deal that sets the tax rate for 30 years.

“You’re actually going through an entire generation of people when you lock it up that long,” he said.

Coghill said there were legitimate reasons the state should be able to reopen the contract, including economic duress and local emergencies.

The bills are House Bill 488 and Senate Bill 305.

Staff writer R.A. Dillon can be reached at (907) 463-4893 or rdillon@newsminer.com.