If Alaska wants a gas pipeline connecting North Slope natural gas to the Lower 48 and wants to build spur lines from it to carry gas to the Kenai Peninsula and other areas, the Legislature needs to approve Gov. Frank Murkowski’s proposed 20/20 tax structure.
That was the message delivered to the Kenai Chamber of Commerce by Al Bolea Wednesday. Bolea, president of pipelines for British Petroleum in Alaska, opened his address to the chamber on the proposed Petroleum Production Tax schemes working their way through the Alaska Legislature with a word about about the tax’s impact.
“The PPT will have a very significant impact on every Alaskan and everyone sitting in this room,” Bolea said.
At the moment, there are three proposals being discussed in the Legislature, all with an eye to moving the natural gas pipeline deal forward. The first, proposed by Murkowski and accepted by ConocoPhillips, BP and ExxonMobil, would level taxes at 20 percent of production profits for oil and natural gas and offer a tax credit on 20 percent of a company’s annual capital investment.
The companies agreed to the tax scheme, which would be a significant increase in their tax burden, Bolea said, because it provided certainty to potential investors in the $20 billion to $25 billion pipeline project.
“We were looking for certainty and durability. What we are most fearful of is something arbitrarily changing on us,” he said.
Change is what happened in mid-May, when the House leaders proposed keeping the core rate of 20 percent, but increasing it progressively as oil prices rise above $50 a barrel. The Senate proposal, based on recommendations of state analysts, increases the base rate to 25 percent.
Bolea said Murkowski’s proposal amounts to a yearly $1 billion tax increase for BP, the House version amounts to $1.8 billion a year and the Senate’s version increases the BP tax burden by $2.4 billion a year.
“The analysts say increasing taxes won’t affect investment. We strongly disagree with that. Just ask yourself if an extra $2.4 billion in taxes would affect investment.”
Alaska already is a costly place to do business for BP, he said.
“It costs more to get Alaska crude to market than anywhere else in the country, and with BP, that’s anywhere else in the world.”
Bolea did not explicitly say BP would pull out of the gas pipeline deal if the higher taxes were leveled, saying the big three North Slope producers want to get the natural gas to market.
“We don’t have a project sitting there waiting for this to fail. We see a market, we want the Alaska gas to go to it. It’s the right gas for the right market.”
He did say the Legislature’s approach to the production tax was discouraging.
“Everyone’s confused. They’re thinking, ‘If we just increase it just another 200 million or another billion, we’re not gonna push them away.’ That’s the wrong question. What do you have to do to attract money, to attract investment, that’s the right question.”
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