Contact the Governor
Frank H. Murkowski
Juneau Office
P.O. Box 110001
Juneau, AK 99811
907-465-3500 phone
907-465-3532 fax
State info 907-465-2111
Anchorage Office
550 West 7th Avenue, Suite 1700
Anchorage, AK 99501
907-269-7450 phone
907-269-7461 fax
State info 907-269-5111
Kenai Office
11312 Kenai Spur Hwy, Suite 2
Kenai, AK 99611
907-283-2918 phone
907-283-3037 fax
Mat-Su Office
877 Commercial Drive
Wasilla, AK 99654
907-352-2585 phone
907-352-2526 fax
Fairbanks Office
675 7th Avenue, Suite H5
Fairbanks, AK 99701-4596
907-451-2920 phone
907-451-2858 fax
Washington DC Office
444 North Capitol NW, Suite 336
Washington, DC 20001-1512
202-624-5858 phone
202-624-5857 fax
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Volume 4March 2nd, 2006
In and above the ground:
A look at the relationship between oil and gas
Governor Murkowski's oil production tax proposal is the focus of ongoing hearings in the House and Senate Resource
Committees in the Alaska Legislature. The Governor's proposal aims to modernize an outdated oil production tax system,
calling for a 20 percent tax on net profits that could bring more than $1 billion in revenue to the state at current oil
prices. It also provides important incentives for expanded exploration and development through a 20 percent tax credit
on capital expenditures in Alaska.
The public, state officials, the state's consultant Dr. Pedro van Meurs, and representatives from the producers
(BP, ConocoPhillips and ExxonMobil) have all testified on the bill. Committee members also heard from representatives
of independent oil companies, including Anadarko Petroleum Corporation, Chevron, Pioneer Natural Resources,
UltraStar Exploration and Alaska Venture Capital Group.
Questions have been asked about the relationship between oil and gas and about the relationship between the Governor's
production tax proposal and the potential gas pipeline contract. Following are some points about this relationship--both
in the ground and above it, beginning with a basic definition of these two high-profile Alaska resources.
Oil or crude: Oil is a mixture of many different liquid hydrocarbons. At refineries, the different hydrocarbons
are separated and produced for commercial uses. Examples include motor oil, aviation fuel, kerosene, lubrication oils,
and asphalt. At room temperature and normal atmospheric pressure, oil is a liquid. In the ground, almost all oil has some
gas dissolved in it.
Gas or natural gas: Gas is, as indicated by its name, a gaseous mixture of hydrocarbons. This means that at room temperature
and normal atmospheric pressure, it exists as a gas. It can be liquefied, as is the case in the conversion to Liquid Natural
Gas that is currently exported from the Cook Inlet to Japan via special liquefied natural gas (LNG) tankers. The most basic
component in gas is methane, which can be burned in your home gas-fired burner, or cook stove. It also contains other
hydrocarbon gases like propane. On the North Slope, the vast majority of gas has been re-injected back into the ground
to maintain pressure.
Inextricably linked below the ground, oil and gas are linked in the discussion on oil taxes and the gas pipeline, too. Why? As
companies look for more oil as a result of the incentives provided in the Governor's proposal, they will undoubtedly find more
gas. Alaska has 30 trillion cubic feet of proven natural gas reserves and another 100 trillion cubic feet of untapped gas
resources is estimated. In addition, the TAPS oil pipeline is only half full and oil production from current fields has been
declining each year.
The Governor believes filling both the existing TAPS oil pipeline and a future gas pipeline can be achieved by providing
incentives for exploration and development.
Knowing the level of oil taxation in advance of committing over $20 billion to a gas pipeline agreement is similar to wanting
to know the fixed interest rate on a mortgage on your home. Two of the three North Slope Producers (ExxonMobil and BP)
have said that they must have "fiscal certainty" on oil in order to move forward with a gas pipeline agreement. After an
oil production tax bill is passed, components will be integrated into the gas pipeline contract. Passage of oil production
tax legislation is critical to moving the gas pipeline forward.
The proposed oil tax will provide more revenue to the state and incentives for exploration, in addition to advancing the gas pipeline agreement. The result is that
the oil tax will have tremendous impact on both the near term and long term future of Alaska.
For more information, please visit the Governor's Petroleum Production Tax link on his web page. There you will find prior editions of the Insider as well as
questions and answers about the petroleum production tax legislation.
If you've missed the past volumes of PPT Insider Edition, check out:
PPT Insider Volume 1 - Historic Oil Tax Legislation Proposed
PPT Insider Volume 2 - Oil Tax Bill Long Overdue.
PPT Insider Volume 3 - Some Basics on the Big Three Oil Companies in Alaska.
For more information about the Governor's oil tax legislation, including questions and answers, charts and graphs and past issues of this PPT Insider's report, visit
http://www.gov.state.ak.us/oiltax/
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