Thank you for the opportunity to again present a few thoughts, which I have presented to several state legislators the past few months, in regard to oil taxes and a proposed gas pipeline.
It appears to me that legislators have not had ample time to thoroughly calculate the potential results of a contract that consists of over 300 pages of legal jargon. In fact, no one can reasonably predict the prices of natural gas or construction and operational costs 40 years in advance. Any contract must have a review clause at least every 10 years. In fact, natural gas prices are less than half the high for the past year today. Even the Federal Reserve Board has difficulty predicting economic growth or decline for just one year.
It also appears to me that to figure on the oil company’s net income for a basis of anything would be unthinkable. The oil companies have the best lawyers and tax accountants available in the world and could adjust net income to fit any favorable situation. For instance, how would their billions of dollars of federal tax benefits be figured in determining net profits? Who could check on the oil company’s depletion allowances — on estimated or proven reserves and operational costs? There are entirely too many variables to consider net profits for the basis of anything. Our state cannot afford the undetermined potential liability in this proposed long-range gas pipeline contract. In fact, it does not even guarantee a pipeline will be built.
The bottom line is, would you, as an individual, make a 40-year contract with a party who does not believe in our rule of law and who has not paid a court ordered judgment to the people of the state for damages done 18 years ago? Of course, the answer is no. There should be no contracts with Exxon until the $4.5-billion judgment is paid. This alone would be an economic boost for Alaskans. The gas will always be there and when economically feasible will be developed by major oil companies. The oil tax and the gas pipeline don’t co-mingle very well and should be separate contracts. Any oil tax adjustments should be calculated on the production at the wellhead. If pressured into approving a 20 percent interest in a $20-billion gas pipeline, be sure no more state liability will be incurred for any additional costs in overruns or anything else.
Thank you, and please do not rush to pass any contracts under political pressure.
George Meeker
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