BP comes up with gas line tax alternative

Posted: Thursday, October 03, 2002

FAIRBANKS (AP) -- At the request of the Bush administration, a major North Slope oil company has come up with an alternative tax credit to boost prospects for development of a North Slope natural gas line.

BP is not proposing the alternative but simply provided it as another choice, said BP spokesman Dave MacDowell.

The alternative could replace the tax credit the Senate has already adopted in its national energy bill. The Bush administration opposes the version in the Senate bill.

When gas prices are low, the alternative tax credit could divert less money from the federal treasury than the version in the Senate bill, John Katz, director of Gov. Tony Knowles' office in Washington, D.C., told the Fairbanks Daily News-Miner.

However, the BP alternative could reduce government revenue from the project, Katz said.

A conference committee is working this week to merge the Senate bill with the House bill, which does not include a tax credit. The bill then must be returned to each chamber of Congress for a final vote before going to President Bush for his signature.

Katz said the state would not support the BP alternative unless it became clear that the existing language faced trouble in the conference committee, he said.

The committee has met several times but has not taken up the gas line incentives.

State Sen. John Torgerson, R-Kasilof, who is in Washington, D.C., to lobby on the issue, also said he would prefer to stick with the version already in the energy bill. Torgerson chairs the Alaska Legislature's joint gas pipeline committee.

The federal tax credit in the current bill was first proposed by another major Alaska oil producer, Phillips Petroleum. The credit would kick in when market prices fall below $3.25 per million British thermal units of gas at a distribution hub in Alberta.

The companies could deduct from their taxes the difference between what they would have made at $3.25 and what they actually make at the lower price. They would have to repay the money if gas prices rose above $4.88.

The alternative BP devised is a production tax credit also designed to help out when gas prices are low. Under certain conditions, the credit could cut up to 52 cents from a company's taxes for every mBtu of gas it produced at the field.

''The tax credit begins to phase out at field prices above 83 cents mBtu, and at $1.35 the credit would be zero,'' MacDowell said.

Some in Washington have criticized the Phillips-proposed tax credit in the Senate energy bill because they think it creates an artificial price floor for Alaska gas producers, giving them an advantage in the market. MacDowell said the alternative production tax credit would not create a floor.

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