Note: I and my staff will be sending these gasline updates on various aspects of the bill over the next few weeks, to give Alaskans more information about this important topic. Please feel free to forward this to other people who you think would be interested - Eric

Gasline Contract Strands Alaska's Gas

Draft Agreement Guts Producer's Duty to Develop

Throughout the legislative session, we at the legislature and all Alaskans were subjected to intense pressure about the PPT oil tax bill. We were told that if we made sacrifices on our oil taxes, and lock them in for 30 years, we would get the gasline we've been waiting for since the 1970s.

Yesterday we were given a look at the governor's contract, and it is disturbing. This contract does exactly the opposite of what we are told- it greatly weakens the state's ability to make the oil companies move forward. It actually protects the oil companies' ability to continue dragging their feet.

Our natural gas resources are leased by the oil companies. These are existing contracts with the state that give the companies the rights to sell our gas in exchange for certain taxes and other obligations. One of those obligations is the duty to develop. They must search for, develop and market Alaska's gas. They must even build a pipeline to bring it to market if the project is economic. If they do not, they are in breach of their lease contracts and the state can take the leases back.

Under current law, if the state feels a producer isn't making progress, the first determination is made in Alaska, by the Commissioner of Natural Resources. If a company appeals, it goes to an Alaskan court. We have full rights of discovery, where we can compel them to show their documents, and can bring their employees in for depositions. If we win, we have real remedies: we can compel them to build, or to pay us our royalties as if they were shipping the gas, or we can take the leases back.

Under the governor's contract, every one of these rights is diminished. The oil companies are required to "advance the project as diligently as is prudent under the circumstances." This is a very low standard with much lower protection for the state than our current leases.

In the proposed contract, there are very limited and tightly structured abilities to challenge. It goes right to third party arbitrators outside the state. The arbitration panel, chillingly called "the tribunal," would be made up of three people who can't work for the state or any of the three oil companies, but could work for another oil company. We can only get rid of one suggested arbitrator, while each of the three oil companies can get rid of one of ours. That gives them three times the control. We can ask for only a few depositions, and again they get three times as many. We get very limited powers of discovery, and can only ask for a few documents.

There is an extensive list of loopholes to their duty to develop, that we simply can't challenge them on. We can't hold them responsible of they've made an error in judgment. We can't hold them responsible if they take the profits they make from Alaska's oil, and decide its a better deal for them to develop a gas project on the other side of the world instead of ours. We can't hold them responsible if they simply can't reach agreement among themselves over who does what in a gas field development. The state is held to a higher burden of proof than in our existing gas leases.

The deck is so stacked against the state in any potential challenge that it would be almost impossible for us to win. And then, if we did win, we would have to give them time to "cure" the problem. Think about that- we've gone through years of arbitration to prove they're going too slow, and then have to give them more time to somehow make it better. In the end, Alaska's only remedy would be to cancel the contract, leaving us right where we are now with nothing to show for it but more wasted years and a bad oil tax bill.

An oil tax lawyer who I trust very much told me yesterday, "If I was working for the producers and didn't want to build, I would have written it this way." They can do a little bit of study and analysis every five years and then determine that its not economic to build the line. They can keep this up for 45 years, and for all that time they're protected from Alaska taking back our gas or getting someone else to develop the gasline. This contract would truly strand Alaska's gas.