BP executive wants gas line talks

Posted: Friday, February 14, 2003

ANCHORAGE (AP) -- An executive with BP is suggesting the state form a ''small, experienced negotiating team'' to negotiate an agreement for development of a natural gas pipeline to the Lower 48.

Bob Reynolds, manager of taxes and royalties for BP Exploration (Alaska) Inc. made his comments Thursday in a speech to the Alaska Support Industry Alliance.

For the project to go forward, BP and other oil companies that control the North Slope's vast gas reserves need long-term certainty on how much the state would take in production taxes, royalties and other levies on the gas, Reynolds said.

''Certainly, BP stands ready to talk with the state at any time,'' he said.

Building a pipeline to carry the Slope's 35 trillion cubic feet of gas across the state and Canada to the Midwest would be a tremendously risky venture, he said. Such a pipeline would be about 3,500 miles long and would cost around $20 billion.

Private investors won't touch that kind of risk unless some significant uncertainties are resolved, Reynolds said.

Some of those include getting stable, favorable regulatory and tax structures from the federal and Canadian governments, he said. Another is refining technological advances in pipe design that could cut costs significantly.

In Alaska, a state negotiating team could work with BP and other oil companies to hammer out a deal, Reynolds said.

On a big screen, he showed a graph showing that industry would take almost 100 percent of the risk in financing a gas line but would get only 16 percent of the return. The rest would go to governments, including 35 percent or $50 billion to Alaska, Reynolds said.

He used another chart, developed by the state Division of Oil and Gas last month, to illustrate what he said was significant legal uncertainty the industry has faced doing business in Alaska.

Since North Slope oil production began nearly 26 years ago, the state and oil industry have fought over how much money the industry owes Alaska, resulting in the industry paying billions of dollars in settlements.

A gas project can't withstand a repeat of that legal history, Reynolds said.

Other parts of the world are offering good incentives to develop oil and gas, he said. He was somewhat circumspect on exactly what terms BP wants from the state.

''The first thing that would happen if we got into a room together is, we need to find out what the state wants,'' Reynolds said.

One idea might be to simplify how the industry pays the state its share of the gas wealth, he said. Instead of making, and possibly arguing over, five different kinds of payments -- production taxes, property taxes, royalties, income taxes and net profit shares -- all parties could streamline matters by agreeing on a single payment, said Reynolds.

State revenue commissioner William Corbus said Thursday he believes BP has a point in wanting more fiscal and regulatory certainty to build a pipeline.

As for direct negotiations with the oil companies, he noted a move in the Legislature to revive and broaden the expired Stranded Gas Act of 1998. That law would give the administration permission to negotiate a special tax contract with producers and probably would accommodate what Reynolds suggested, Corbus said.

Major North Slope gas holders including BP and Conoco Phillips have endorsed the legislation.

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