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Governor Releases Natural Gas Pipeline Contract


May 11, 2006

Alaska Governor Frank H. Murkowski Wednesday released the proposed contract between the State of Alaska and BP Exploration (Alaska), Inc.; ConocoPhillips Alaska, Inc.; and ExxonMobil Alaska Production, Inc. for an Alaska Gas Pipeline project. Speaking to a joint session of the Alaska State Legislature, convened for the first day of a special session to address gas pipeline related issues, the governor highlighted the merits of the gas pipeline project and the importance of acting now to move the project forward.




"In April of 2005, I outlined six principles that would guide this negotiating process," said the governor. "They included a fair share of revenue, state equity ownership in the pipeline, jobs for Alaskans, access to the gas for Alaskans and new explorers and an expandable pipeline. We have negotiated a contract that achieves all of those objectives."

The governor noted that the project is one of the largest in the world and will require a huge capital investment. Without a contract, the location of Alaska's stranded gas and the project's risk result in a lower internal rate of return for the Alaska project relative to other gas prospects around the world. The proposed Alaska Gas Pipeline fiscal contract improves the internal rate of return compared to other projects. To accomplish that, the state had two options, either to lower the government take or to take an equity position in the project.

In the proposed contract, the state takes an equity position in the project and takes its royalty gas and production tax in-kind, assuming its own shipping and marketing risk. Through this structure, the state maximizes revenues while ensuring that the project moves forward. In nominal dollars, the state would realize a low of $26.5 billion (at a gas price of $2.50 per thousand cubic feet) and a high of $129 billion (at $8.50 per thousand cubic feet) in state revenue over the life of the project.

The governor noted the tremendous economic benefits that the project will have for Alaskans.

"This contract does much more than take our gas to market. It is the key to establishing a long-term gas industry in Alaska," said the governor. "It will generate significant state and municipal revenues over the project's life. It will create employment opportunities for Alaskans through stipulations regarding employment and training. It will provide in-state access to natural gas for use in homes, businesses and industrial plants. And it will generate income for Alaska businesses by providing increased economic opportunities. In short, the Alaska gas pipeline provides a bridge to our future."

The release of the gas pipeline contract and the accompanying preliminary fiscal interest finding by the commissioner of the Department of Revenue, begin a public review process that will last a minimum of 30 days. Governor Murkowski has indicated that this process will last as long as necessary to ensure a thorough public review.

Calling for clarification on the pipeline comment perioduring, in a Wednesday morning press conference Rep. Les Gara (D-Anchorage) mentioned a request to Legislative Legal Services regarding the public comment period for the natural gas pipeline contract.

The governor indicated the public comment period began when contract-related information was placed online at 10:30 a.m. Monday. Indications from the administration, and the fact that there is language but no agreement means the public would be considering and commenting on something that is incomplete, and subject to significant changes, according to Gara.

"My concern is the administration is asking the public to comment on what's behind door number one when the real contract might be behind door number three," Gara said.

Following the public review process, the contract will go to the Legislature for ratification.


On the Web:

For copies of the gas pipeline contract, the fiscal interest finding, the governor's remarks to the joint session, and other gas pipeline related documents:

Source of News:

Office of the Governor

Alaska Democrats

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Ketchikan, Alaska