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Feb. 23, 2003 Anchorage Daily News on studying Alaska's oil prospects

Posted: Monday, February 24, 2003

One of the most interesting -- and promising -- ideas to emerge during the new Murkowski administration is a letter from, of all outfits, the Alaska Permanent Fund board of trustees. It asks that the Alaska Oil and Gas Conservation Commission look into potentially anticompetitive industry practices on the North Slope and tariffs for the trans-Alaska pipeline, and it deserves thorough attention.

More than that: It should stimulate a serious initiative by state government. The job is to be sure Alaska gets maximum value -- both now and in the future -- from its oil and gas assets. With a new governor determined to develop Alaska's oil and gas resources, this is the best chance in a long time to take on a review.

The idea for the letter came from Permanent Fund trustee Carl Brady Jr., who was appointed just this month by Gov. Frank Murkowski. Mr. Brady is said to be close to the governor, both personally and politically. Was he freelancing, or was he floating a trial balloon for the governor? The latter makes more sense, especially because it fits the governor's broader agenda and may follow up on the governor's still-vague notions of using the Permanent Fund more actively for leverage in the corporate and political worlds. Gov. Murkowski had one word for developing badly needed new state revenues in his State of the State speech last month: Oil. The pipeline now carries only half as much oil as it did at its peak and, as Gov. Murkowski vowed in his campaign last year, filling it up again would do wonders for Alaska's treasury. Both matters referred to in the Permanent Fund trustees' letter have a large bearing on whether that's possible.

Industry practices first: Some observers have long believed the state is being shortchanged by major oil companies who own leases on the Slope and use them to control the timing and scale of production for their own interests -- to the detriment of Alaska's. The trustees' letter called these ''underutilized leases.'' Some observers say the state should more aggressively manage these leases to force the companies either to produce oil on them or let smaller companies come in and do so. Gov. Tony Knowles, pleading the case for a constructive ''partnering'' relationship with the oil industry, refused to push that hard. Now the trustees' letter suggests the state should try it.

Nobody knows what might happen if it does. Endless costly lawsuits and a sour business environment on the Slope? Or an industry goaded into more vigorous exploration, development and production -- with associated revenues going to the state? The trustees' letter says, in essence: Let's check it out.

That's a good idea. The relative success of the Knowles policy of partnering and avoiding outward confrontation with the industry could never fully be shown. Close observers often wondered if the state truly was doing everything it could -- and should, as the owner of the resources -- to maximize its prospects. If the Murkowski team wants the conservation commission to look into a more vigorous state approach, good for them. The payoff might be more competition and vigor in the state's biggest industry.

Pipeline tariffs could be equally important. Recently the Regulatory Commission of Alaska issued a ruling that the price charged by owners of the pipeline -- mainly BP, ConocoPhillips and Exxon -- to carry the oil to tankers in Valdez has been unreasonably high. This means production and transportation costs are higher for new entrants or non-pipeline owners than for the majors, who essentially pay themselves for transportation and take their profits downstream.

High tariffs also mean lower state revenues, because they depress the wellhead value upon which state receipts are based.

Anybody who's serious about protecting Alaska's interests and developing its oil and gas resources needs answers to these questions. The Permanent Fund trustees might be an odd place for the questions to originate, but the questions are what truly matter. The conservation commission should look. The governor should look. The Legislature should look.

This is not to assume the major producers are either right or wrong in these matters -- just that Alaskans should find out for themselves. BP, ConocoPhillips and Exxon became some of the world's biggest, most successful corporations by protecting and pursuing their own interests. They've contributed much to Alaska's prosperity, not least several hundred million dollars a year in current investment.

But the people of Alaska, too, have a huge investment in this business. The state's biggest asset is our oil wealth. Now is an excellent time to make sure we're getting the best value possible for it. If Mr. Brady speaks for Gov. Murkowski in this one, good for both of them.



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