Gas line now hinges on oil production tax changes: 'ExxonMobil and BP are sitting on at least 35 trillion cubic feet of gas that they control in the Prudhoe Bay and Point Thomson units, as well as other holdings on the North Slope.'.

• Author: Liles, Patricia

Forward movement to develop Alaska's vast natural gas resources on the North Slope now hinges on the ability to change the state's existing production tax structure on crude oil, a taxation system in effect for nearly 30 years.

Gov. Frank Murkowski and key members of his administration spent January and early February involved in a full-court press, publicly touting proposed changes to production or severance taxes on oil.

They say the existing tax structure, which offers a reduced production tax for small, more costly fields, is antiquated, flawed and it is "... no longer working for Alaska, particularly in the high prices of today," according to Revenue Commissioner Bill Corbus.

Additionally, altering Alaska's oil production taxes will help provide certainty and stability desired by North Slope oil producers, the key group negotiating with the administration for fiscal terms to develop a natural gas pipeline project.

"Prior to investing $20 billion in the gas pipeline, our proposed corporate partners insist that in addition to fiscal certainty on gas and property taxation, they must also have fiscal certainty on oil taxation," Murkowski said, in a speech before the Meet Alaska oil and gas industry conference in Anchorage in late January.

"The reason is simply they do not want to enter into a long-term contract with the uncertainty of the state having the authority to assess taxes indiscriminately," he added.

Even though the two areas of natural resource development are linked, oil production taxes should be changed no matter what happens with gas pipeline negotiations, according to the Murkowski administration. "The new (oil) tax regime must be adopted on its own merits regardless of the gas line negotiations," Corbus told state legislators, during a briefing on the administration's proposed production profit-sharing system.

No Contract Yet

Nearly two years ago, ConocoPhillips, BP Exploration (Alaska) and ExxonMobil submitted their proposal under Alaska's Stranded Gas Act to develop Alaska's North Slope natural gas. The producers want to build and operate a high-pressure, large-diameter gas pipeline, stretching roughly 3,600 miles through Alaska, the Yukon Territory and Alberta, connecting with existing infrastructure and pouring the massive amounts of gas energy into the nation's existing gas line grid.

A conclusion to those negotiations for fiscal terms with the Murkowski administration was expected by the public months ago, based on announcements from the governor and tentative plans being discussed for...