Oil-Tax Bill Dies In Alaska

Failure jeopardizes what would be North America's largest construction project ever. Special session to revive bill seen likely.

JUNEAU, Alaska (AP) - Alaska state lawmakers have failed to agree on terms of an oil-tax bill, a key component to bringing a proposed 3,600-mile natural gas pipeline closer to reality.

The source of contention between the House and Senate was a single percentage point in the base rate of the tax on profits and how fast that rate would escalate as oil prices rise.

The different versions of the bill went to a conference committee, and negotiators emerged about 90 minutes before a special session was to end Thursday with a compromise tax rate on the Alaska profits of oil companies. But the House rejected the compromise and adjourned. The bill died, as it did at the end of the regular session in May.

Gov. Frank Murkowski, who has been pushing the pipeline contract, would have to call another special session for legislators to start the process again. Murkowski has said he plans to do so but has not said when.

The pipeline - at an estimated cost of $19 billion to Canada or $27 billion to Chicago - would be North America's largest ever construction project.

The House approved a base tax rate of 23.5 percent; the Senate's version had a 22.5 percent tax rate.

The compromise bill included a base tax rate of 22.8 percent, which would have brought an additional $2.5 billion a year to the state in tax revenue when oil is $70 per barrel.

The tax would have replaced the state's current production tax system, which legislators say is outdated and has resulted in large oil fields escaping or paying minimal taxes.

Murkowski negotiated a tax and royalty contract with oil giants BP, Exxon Mobil and ConocoPhillips to recover the North Slope gas; part of it was a 20 percent tax on profits, with no rate increase on high prices, that would be locked in for the companies' oil production for the next 30 years.

Any higher tax rate could hurt future investment in oil and gas development, the governor said.

There was no requirement in the proposed legislation or the contract itself that the pipeline actually be built, even if lawmakers eventually agree on a tax rate. That decision would be made about four years after the contract is signed, once permitting and design of the pipeline is completed.

The proposed gas pipeline would extend by decades the life of Alaska's declining oil and gas production.

There are 35 trillion cubic feet of proven natural-gas reserves in Alaska's North Slope, which the state for decades has been trying to develop and sell. Only in recent years, since natural-gas prices have skyrocketed, has the expensive gas pipeline been a realistic project for the three energy companies.

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