A Citizen’s Guide

OIL FREEZE: One of the Murkowski administration’s oil and gas consultants, Pedro van Meurs, spoke to legislators last week about how the governor’s plan to lock in oil taxes for 30 years is necessary to wrap up a gas line deal.

The producers “consider it an absolute deal-breaker” if this provision is not in the gas line contract, van Meurs said.

The reason they want it, he said, is that once the immense investment to build a gas pipeline has been made, the project will be generating large profits. And seeing those profits, Alaska lawmakers will want a bigger percentage for the state, the companies believe.

If lawmakers can’t raise gas revenues because they are frozen as part of the Stranded Gas Act agreement, the Legislature will raise oil taxes instead, the companies believe.

“And that is a plausible scenario, particularly if you look at the enormous net present values that will be generated over time as we go forward,” van Meurs said.

“It is for this reason that the producers consider it an absolute deal-breaker unless there was fiscal certainty for oil, because they could see the writing on the wall,” he said.

The consultant said a 30-year freeze on oil taxes would encourage exploration and it is a “reasonable period.”

The argument by van Meurs on extending “fiscal certainty” to oil taxes is weakened and open to question, however, because he took a contradictory position a year ago in advice he gave to the state.

In a memo on July 19, 2005, he said the oil companies were proposing “fiscal stability on oil that cannot be part of the contract.”

In that document, recently posted on the state Web site, van Meurs referred to a comment by an oil industry representative that “all international petroleum arrangements provide fiscal stability for oil and gas.”

“It is my view that this is very much overstating the case of international fiscal stability,” he wrote in the memo. “To begin with, the vast majority of the worldwide production of ExxonMobil, BP and ConocoPhillips is not subject (to) any fiscal stability.

“Producers want fiscal stability on oil, which is currently already in production and on which no fiscal stability was granted when the oil was developed. In other words, the producers want ‘retroactive’ fiscal stability on oil that is external to the contract,” he said.

“I do not know of a single international case where fiscal stability was granted to petroleum that was external to the contract,” he said.

He added that the fiscal stability offered the producers on natural gas was more favorable to the companies than many such arrangements around the world.

“Internationally, one finds that many production sharing and concession contracts exclude fiscal stability for certain taxes, usually corporate income tax. Such contracts, therefore, offer a level of fiscal stability that is of a ‘lower quality’ than Alaska has already offered,” he said.

Murkowski administration officials acknowledge that the consultant has offered conflicting positions on the issue of locking in oil taxes.

They say that the state’s position has evolved over the past year, as is natural in any negotiation. The oil companies wanted a freeze on oil taxes with the current tax system, but the administration refused to go along, said Jim Clark, the governor’s chief of staff.

The governor responded with the proposed net profits tax that has consumed the Legislature’s attention for most of this year.

Last Tuesday, responding to a question from a legislator, van Meurs did say that no other nation has offered fiscal stability on existing production in a contract. He said this is a “unique feature” to Alaska.

The unique 30-year oil freeze, which wouldn’t be much more popular if it shrinks to a 20-year freeze, is one of the biggest obstacles to legislative approval of the gas line contract.

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OIL WORK: Former Gov. Steve Cowper plans to be back in town for a week-long class at UAF on “Alaska and World Energy: Drills, Spills and Thrills.”

The class is from 8 a.m. to 11 a.m. June 5-9. Registration is $118 for the one-credit course. For more information, call 474-7021.

He will also give a free public lecture at 7 p.m. June 8 in the Davis Concert Hall on how Alaska fits into the world energy picture.

Dermot Cole can be reached at cole@newsminer.com or 459-7530.