Committee eyes oil and gas subsidy

Posted: Friday, February 01, 2002

JUNEAU (AP) -- Legislators are debating whether to expand an oil and gas subsidy program that a state official says does little to speed up development and costs the state a lot of money.

Rep. Hugh Fate, R-North Pole, is backing two bills to encourage development of natural gas in the Tanana River basin in Interior Alaska.

House Bill 307, extending the deadline on an exploration incentive credit program, passed the House Oil and Gas Committee on Thursday with no objection.

But state Division of Oil and Gas Director Mark Myers opposed House Bill 308, which would expand a program that reduces the state's share of oil and gas from some projects, and the committee put off acting on that bill Thursday.

The measure would expand a ''discovery royalty credit'' program that now applies only in Cook Inlet to the Tanana basin.

Andex Resources of Denver is trying to develop a natural gas project there that could supply energy to Fairbanks.

Myers said the state has lots of experience with the discovery royalty credit program, dating back to the 1960s.

''We don't think it's a good incentive and it costs the state treasury,'' Myers said.

The program reduces the state's share of oil and gas from a project from the typical 12.5 percent to 5 percent.

Myers said that is worth a relatively small amount to companies compared to other factors, such as price, that go into deciding whether to invest hundreds of millions of dollars in a project.

But the cost to the state is large, he said.

Myers said the state lost $29 million on the Redoubt Shoals project in Cook Inlet, a project that had been planned even before the incentive became available.

Jim Dodson of Andex Resources argued that the program is an effective incentive. Industry cannot control some of the major factors, such as price, he said.

''Everything else that you can reduce your risk by, you should do,'' Dodson said.

Rep. Fate said he has not changed his mind on the bill, despite opposition from the Division of Oil and Gas.

''We're very concerned about stimulating the economy in the state of Alaska, and it's certainly a resource state,'' Fate said.

If the program is available in Cook Inlet, it should apply in the Interior, he said.

Fate's other proposal, House Bill 307, would extend the expiration date of an exploration incentive credit program from 2004 to 2007.

Under that program the state can provide a credit of up to $5 million per project for companies willing to drill on unleased state land or on private land, provided the company agrees to share its data quickly with the state.

Myers said he does not know if the Department of Natural Resources would grant a credit in the Andex case because it's not clear the state would benefit from quickly gaining access to that data. But the state does not oppose extending the deadline to apply for the credit, he said.

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