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Economic Limit Factor Decision Explained
by Governor Frank H. Murkowski


February 09, 2005

By now most readers are aware of the administrative action I took in January to aggregate Prudhoe Bay and its satellite fields under a single taxation formula.

I have tried to remind all of those concerned with my decision that as Chief Executive of Alaska under our constitution I have a very broad responsibility to all the people of Alaska. While I have always considered the oil industry a valued "partner" with our state, it is important to be ever mindful of the fact that industry and government owe allegiance to very different bodies. Industry has a responsibility to serve the best interests of its shareholders, and government has a responsibility to serve the best interests of its citizens.

Some have expressed a concern with the manner of my decision. A little background I met with AOGA, the industry's trade arm, twice last year. As late as November I asked them to help us forge a solution. Their response was that they preferred the current arrangement - no change.

Interestingly, the owners of the trans-Alaska Pipeline failed to discuss with me ahead of time their decision to significantly increase tariffs on the pipeline by approximately 20 percent. If unchanged, this decision alone will cost the State of Alaska over $60 million by the end of next year. Not only that, but it will take 64 cents per barrel of value away from every producer on the North Slope that does not own enough capacity in the pipeline to cover the volume of oil it sends down the pipeline.

Consequently, the State has joined with Anadarko Inc. and ConocoPhillips in an administrative appeal of the tariff increase proposed by BP and ExxonMobil to the Federal Energy Regulatory Commission (FERC) for resolution of the tariff dispute. During the FERC process the facts upon which the TAPS owners have based their action will be rolled out, scrutinized, and evaluated with all parties having the opportunity to present their views and data.

This is precisely the same kind of proposal I have offered to the oil producers. If my decision to aggregate six fields with Prudhoe Bay was based on faulty data, I have given them the opportunity to come in and present their facts and figures to the Department of Revenue. In this way all pertinent data will be on the table so that at the end of the day both the oil producers and the people of Alaska will be treated fairly.

I ran for Governor to get Alaska's economy back on track. Tough decisions require a significant resolve of conviction and I am convinced that it was fair to aggregate the six fields with Prudhoe Bay for severance tax purposes. My decision reflects the producers' decision to consolidate the individual satellite fields into the Prudhoe Bay Unit.

Setting aside the rhetoric surrounding my ELF decision, the oil industry is an important partner in the creation of a 21st century Alaska economy. My oil and gas policies are clear and unambiguous: open the Arctic National Wildlife Refuge; build the gas pipeline; increase exploration for oil and gas across the state; increase petroleum investment in the state; put more oil in the pipeline; and provide responsible incentives to bring on marginal fields until they can pay a fair return to the State.

I have invited the industry to work with me to produce ideas that will achieve these objectives by modernizing existing incentives, particularly for heavy oil. Anyone who comes to my office with such proposals will find their proposals fully considered. I will always do what I believe is in the best interests of our state.



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