BP Alaska president blasts state business climate

By Yereth Rosen

ANCHORAGE, Alaska (Reuters) - Alaska's political climate, with the state hiking oil taxes and asserting claims against oil companies, is discouraging investment needed to offset the decline in oil production as Alaska fields age, the head of BP's Alaska unit said on Monday.

"Together we can work to attract new investment," BP Exploration (Alaska) Inc President Doug Suttles told the Anchorage Chamber of Commerce. "But it's going to take a new level of cooperation and a different environment."

Suttles criticized the state for enacting a new production tax, passed in a special session last November at the urging of Gov. Sarah Palin, that increased tax rates and narrowed allowable deductions and credits.

The new system, with its progressively higher rates as oil prices rise and its new restrictions on operating-cost deductions, has substantially jacked up taxes at the biggest U.S. oil field, Suttles said.

"Today, by our calculations, Prudhoe Bay has the highest production tax now in the world," he said.

Palin, a Republican, had urged the rewrite of an oil-tax system passed in 2006 under a cloud of political corruption.

A federal investigation has resulted in trial convictions and guilty pleas from former legislators and oil-service executives charged with bribery, extortion and other crimes. More charges are widely expected.

In his speech on Monday, Suttles also criticized the Palin administration for pressing forward with a likely lawsuit for lost state revenues stemming from a partial shutdown in 2006 at Prudhoe Bay, which BP operates, after two oil spills leaked from corrosion-eaten holes in transit lines there.

Suttles also predicted failure for Palin's strategy to develop a huge natural gas pipeline to send the North Slope's vast natural gas reserves to domestic markets.

At Palin's urging, the legislature last year passed the Alaska Gasline Inducement Act, which established a system for prospective sponsors of a natural gas pipeline to submit competing bids for a state license. BP and the other major North Slope producers, ConocoPhillips (COP.N) and Exxon Mobil (XOM.N), opposed Palin's approach as too restrictive.

Although five proposals were submitted in November, only one, from TransCanada Corp, was considered to have conformed to the act's requirements. None of the major producers submitted a competitive bid under the Alaska Gasline Inducement Act.

The proposed Alaska natural gas pipeline would be the "largest industrial project ever done in North America," Suttles said.

"So you would have thought that the world's big companies, whether they were pipeline companies or whether they were gas companies, would want to be part of it. But only one showed up. I think that tells you about the framework that we have in place today and the problems with that framework," he said.

ConocoPhillips is promoting a separate plan that does not meet the Alaska Gasline Inducement Act's mandates, but Palin has seemed it unacceptable.

(Editing by Richard Chang)