Oil companies cautious, optimistic after incentives pass

Posted: Wednesday, October 13, 2004

WASHINGTON (AP) Spokespeople for two of Alaska's three major oil companies welcomed tax incentives ap-proved by Congress for a North Slope natural gas pipeline but said other steps are needed.

The U.S. Senate on Monday passed a corporate tax bill with two gas line tax credits.

The Senate also approved a military construction bill that offers federal construction loan guarantees and streamlines several regulatory processes.

Both already had been approved by the House.

The major oil companies disagree over whether the incentive package went far enough but have all previously said the provisions are essential.

Bob Davis, Exxon's spokes-person in Houston, and Dave MacDowell, BP Amoco's Alaska natural gas spokesperson in Anchorage, described the federal incentives as one leg of a ''four-legged stool'' necessary to support the line.

The other three legs include technology improvements, an agreement with the state of Alaska, and clear rules from Canada, Davis and MacDowell told the Fairbanks Daily News-Miner.

The line is expected to cost about $20 billion. If the companies see four firm legs, MacDowell said, they can start designing the line and seeking government permits. Those two efforts will cost close to $1 billion, MacDowell said.

Sen. Ted Stevens, R-Alaska, said he could see construction starting in two years, depending on negotiations in Alaska and Canada.

''If they decide there's too much delay, they'll move somewhere else,'' Stevens said.

Officials from the third major oil company in Alaska, ConocoPhillips, could not be reached. In the past, they have said that the federal leg approved Monday, to be effective, had to be braced with a tax break when natural gas prices are very low.

Congress rejected that proposal and the companies must assess the line's viability without it.

The three major North Slope gas owners already are negotiating as a group with the administration of Gov. Frank Mur-kowski. The Legislature passed a law allowing the executive branch to modify existing tax rules to make a project more attractive for developers.

Two Canada-based pipeline companies, TransCanada Corp. and Enbridge Inc., are also negotiating under that law, said Mike Chambers, the governor's spokesperson.

The gas owner companies and the pipeline companies can haggle with the state over sales, corporate income and property tax rates, Chambers said.

In addition, the three major North Slope operators, because they own the gas, can negotiate the share that the state collects as a royalty. The Legislature must approve any agreement before it takes effect.

Exxon's Davis said his company is not necessarily seeking lower state tax rates, just as it refrained from advocating federal tax breaks.

''That's been our historical position,'' Davis said of the gas line. ''It should be able to stand on its own.

''We're concerned more with certainty. We wouldn't want to go into a project and then three or four years later the regime changes.''

MacDowell also emphasized the need for certainty.

''What we're trying to achieve there is confirmation that the rules are clear, that everyone understands them and that the rules will last for the length of the project.''

MacDowell said the congressional action also could help develop an efficient, traditional regulatory process in Canada.

By efficient, he said, BP means a way to resolve aboriginal claims quickly.

Traditional, he said, refers to the Canada National Energy Board's standard process for approving pipeline projects, not the process created in the 1970s for the failed Alaska Natural Gas Transportation System.

For the owner companies, the fourth necessary leg is technology improvements. Those include high-strength steel, automated welding machines and large trenching machines, MacDowell said.

He said the group is optimistic about those possibilities.

High-strength steel allows pipe to be lighter, reducing transportation costs.

Stevens said the line would demand virtually all the output from the world's steel mills for a year. Passing the legislation was important, he said, ''to see if we could tie down the steel.'' It otherwise could go to tankers and plants used in the importation of liquefied natural gas from foreign countries.

''I think it's going to be a real chore to find enough steel,'' he said.

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