A Citizen’s Guide

JUNEAU—Gov. Frank Murkowski on Wednesday introduced three bills meant to smooth the way for ratification of his contract proposal with three oil companies to develop the North Slope’s natural gas.

One of the bills would amend the state’s Stranded Gas Development Act, the law under which Murkowski has negotiated a deal with ConocoPhillips, Exxon Mobil Corp. and BP PLC for recovering the North Slope’s 35 trillion cubic feet of natural gas reserves.

That contract must be approved by the Legislature to become effective. But the deal Murkowski and the companies negotiated goes beyond the scope of the Stranded Gas Development Act, so the governor must first ask lawmakers to change the act to make the contract legal.

The bill would allow the governor to negotiate existing oil and gas tax agreements with the companies as part of a gas deal. Current law now prohibits “significantly altering tax and royalty methodologies and rates on existing oil and gas infrastructure and production.”

Murkowski intends to ask the Legislature to ratify a contract proposal that would freeze the three companies’ tax and royalty rates 30 years for oil and 45 years for gas.

Many legislators have questioned the wisdom and constitutionality of locking up taxes for so long, and several have predicted Murkowski’s contract won’t be approved if there is no way for future Legislatures to change the companies’ taxes.

The governor and the companies say tax stability is needed for the companies to invest the money that will be needed to build a natural-gas pipeline from the North Slope. Murkowski consultant Pedro van Meurs estimated the cost to build facilities and a line 2,100 miles to Alberta, Canada, to be $19 billion.

Besides the three new bills, the Senate introduced a resolution to create a special committee on natural gas development. The committee, of which Sen. Ralph Seekins of Fairbanks would be chairman, would be made up of members from the Senate’s Resources and Finance committees. The committee would consider a Stranded Gas Development Act contract proposal and any other oil and gas matters that affect the contract. The new committee was scheduled to hold a hearing Thursday afternoon, even though the resolution creating the committee had not yet been passed.

Murkowski, in the rest of his package of three bills, also proposes expanding the state’s negotiating power to include partial ownership of a pipeline, changing existing oil and gas leases and accepting payments in gas instead of cash.

The bill also would create an account for grants to municipalities and nonprofit organizations that would be affected by a pipeline.

Another bill introduced by Murkowski Wednesday would give the Alaska Supreme Court original jurisdiction for a judicial review of a contract. It also would set a time limit of 60 days for challenging a contract after it is executed.

The purpose of the bill is to reduce any period of uncertainty after a contract is finalized to allow the pipeline project to proceed in a timely manner, according to an analysis by Jerry Burnett of the Department of Revenue.

The third bill would create a public corporation within the Department of Revenue called the Alaska Natural Gas Pipeline Corp. The corporation would finance, own and manage the state’s interest in the pipeline.

Murkowski proposes the state own 20 percent of the gas pipeline to reduce the investment and risk to the three oil companies.

That 20 percent—about $4 billion—would be paid for by legislative appropriation and bonds issued by the new corporation.

The Legislature, which resumed its special session Wednesday after taking a long Memorial Day break, was to begin hearings on the bills Thursday.

The special session lasts until June 8.

Murkowski has said he plans to call lawmakers back into a second special session if they have not completed the work by that deadline.

The House is also considering a major rewrite of the state’s oil and gas production tax, which is to be written into the gas contract proposal. The tax rate of the new tax is in dispute, with Murkowski and the companies pushing for 20 percent of companies’ Alaska profits and most lawmakers looking for something higher.

The Senate has already passed a bill with a 22.5 percent tax rate, which would increase at high oil prices.

The bills are House and Senate Bills 2002, 2003 and 2004, and Senate Resolution 201.