Exxon wants new tax terms to commit gas to pipeline

Exxon announced plans earlier this month to help TransCanada Corp. of Calgary to finance and pursue construction of the 1,700-mile pipeline, estimated to cost more than $26 billion. Before the company agrees to commit its gas holdings to the line, Exxon will seek "durable and predictable financial [tax] terms with the state," Marty Massey, Exxon's U.S. joint interest manager, told Alaska state lawmakers Tuesday in Anchorage.

"We hope to have that conversation with the state," Massey said in an interview during a break. He did not say when Exxon plans to approach the state or what terms it will seek.

Pat Galvin, commissioner of the Alaska Department of Revenue, told lawmakers the state has not been approached by Exxon, or any other companies, about revising the tax structure. "The state's fiscal system is adequate" and doesn't need tweaking now, Galvin said.

But Massey said Exxon doesn't believe the state's current 10-year tax terms (part of the Alaska Gasline Inducement Act) provide enough certainty for it to commit its gas to a pipeline project. What is good enough, Massey said, were the 35-year tax breaks proposed by former Gov. Frank Murkowski and his administration in 2006. That proposal was tainted with corruption as former oil contractor and convicted felon Bill Allen bribed key lawmakers during the legislative debate.

"Thirty-five years will be acceptable, 10 years not," Massey told lawmakers at the hearing.

Exxon, BP and ConocoPhillips, which hold the rights to develop and produce most of the discovered gas reserves in the state, are at odds over how to move the fuel to U.S. markets. They've long sought "fiscal certainty" -- a long-term tax structure and incentives that they count on from the state. In the past 18 months, though, the tax issue took a backseat as the Palin administration pursued a new path -- AGIA -- to spark pipeline construction.

TransCanada won support for its pipeline proposal and a promise of up to $500 million in state subsidies last year under AGIA. Exxon joined that project June 11. BP and ConocoPhillips have proposed a different pipeline outside of the AGIA process called Denali and haven't asked for subsidies or revisions to the tax structure.

Some legislators said Tuesday they're concerned the state will now be subsidizing Exxon via TransCanada under AGIA, even as Exxon remains uncommitted to the project without tax concessions.

"The question now is whether Gov. Palin has the political courage to provide the biggest tax concession in Alaska history to make this project happen," said state Rep. Jay Ramras in an interview Tuesday.