Tax credits may spur gas field

That's a turnaround from the state's position last year, when the Department of Natural Resources' Division of Oil and Gas found Point Thomson operator Exxon Mobil Corp. in default for not developing the field itself and threatened to revoke its leases.

Under Gov. Frank Murkowski's net-profits tax bill, Exxon Mobil would be able to use tax credits on both oil investments and gas investments to develop the North Slope field and its 9 trillion cubic feet of gas, said consultant Pedro van Meurs.

The field has sat undeveloped for nearly 30 years and now figures prominently in negotiations between Murkowski and three oil companies, including Exxon Mobil, to build a $25 billion natural gas pipeline to Canada and Midwestern markets.

Before a fiscal contract for recovering North Slope gas and building a pipeline is released to the public, Murkowski says the Legislature must pass the net-profits tax bill. The tax rates and credits will be rolled into the contract, which lawmakers will then have to ratify.

Under the tax bill, Exxon Mobil would be able to claim credits for both oil and gas for Point Thomson's development. Van Meurs said it would be too complicated to separate industry's oil investments from its gas investments, plus the field will generate condensates essential for maintaining oil production.

Assuming it will cost $2 billion to build the facilities to tap into those reserves, and with a credit for 20 percent of capital costs, that adds up to a $400 million state subsidy to develop Point Thomson, van Meurs said.

"Is that an important issue? Of course whenever you mention hundreds of millions of dollars, that automatically sounds like an important issue," van Meurs said. "In the potentially $60 billion or more in revenues the state may get from the Alaska gas project, that's a relatively minor issue."

The bill before the House Finance Committee has a 25 percent credit for capital investment, which would bump that subsidy up to $500 million.

But the total amount the state pays for developing Point Thomson could be much higher. Under the tax bill, an oil company would be able to deduct its capital expenses for developing a gas field before its taxable income is even calculated. Then that 20 percent or 25 percent credit can be claimed against that tax for a "double dip" of those same capital expenditures.

It's been six months since the state Department of Natural Resources found Exxon Mobil Corp. in default as Point Thomson's operator, concluding that the company had no plan to bring the field into commercial production within a reasonable time.

Mark Myers, then the director of the Division of Oil and Gas, threatened to shut the unit down and revoke all 45 leases if the company didn't submit a better plan.

Exxon Mobil's plan said developing Point Thomson was not possible without first changing the state's tax and royalty laws and without a gas pipeline from the North Slope. The company proposed folding Point Thomson's development into the gas pipeline fiscal contract being negotiated with the state.

Myers said in his decision that tying Point Thomson to the North Slope natural gas pipeline negotiations was inappropriate.

Since then, Myers and Natural Resources Commissioner Tom Irwin left state government over a dispute with Murkowski in the gas line negotiations.

Irwin's replacement, Mike Menge, delayed by six months Myers' decision on the Point Thomson development plan. Menge now says he may delay enforcing that decision again until after legislators are finished considering a gas contract with the producers.

"It is an integral part of the gas line negotiations and the future of the gas line," Menge said. "There will be no gas pipeline without Point Thomson as part of the operation."

Sen. Kim Elton, D-Anchorage, said Exxon's "foot dragging" over Point Thomson may pay off. The oil company will end up benefiting if the net-profits tax is approved in its present form, Elton said.

"There are wells that haven't been drilled that should have been drilled that I think would get a credit," Elton said.

Menge will have until May 31 to decide whether to enforce Myers' decision or grant another extension. He said he is reluctant to enforce the decision because it could put the future of the gas pipeline project in jeopardy.

"If I were to take those leases and start that lease process, it would cast a massive pall of uncertainty over the future," Menge said.

Senate Resources Chairman Tom Wagoner, R-Nikiski, said Alaskans have been waiting decades to get the gas from Point Thomson to market and he wants to know there is an end in sight.

"We've talked a long time this year about putting more oil and more liquids in the pipeline, and by allowing these types of delays, we're not going to get there, I don't think," Wagoner said.