Feige managing House Resources oil work

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Committee co-chair working closely with Senate Resources chair to coordinate, avoid duplication in work on governor’s oil tax bill

Steve Quinn

For Petroleum News

House Rep. Eric Feige is among the handful of lawmakers who didn’t need to switch offices. That’s because he’s back at the helm as co-chair for the House Resources Committee. The major issues haven’t changed, just the numbers assigned to the bills.

House Bill 110 oil tax reform bill is now HB 72 and went directly to Feige’s committee. HB 9 in-state gas line bill is now HB 4 and also will go to Feige’s committee.

References to each remain strong, looking back and looking ahead.

One thing has changed. Rep. Dan Saddler will sit on the committee alongside Feige as co-chair.

He replaces Rep. Paul Seaton, who will remain on the committee.

Feige sat down with Petroleum News to share his thoughts on pending debates with the Legislature already two weeks under way.

Petroleum News: You’ve done this for two years. What have you learned first about the job and second about Alaska’s resources?

Feige: As far as the job, before I came down here, I thought there were some secret squirrel rules that you had to figure out when you got here. It’s not rocket science. It just takes a willingness to talk to people and listen to what other people have to say, then try to incorporate everyone’s needs, wants and desires into something that has the proper balance. We did that with coastal zone management during the last session, and I expect we’ll do that again on oil taxes and all the other issues that come forward. A couple of other pieces of legislation were actually created using that philosophy. We did it with HB 276, which we called the middle earth exploration bill, which got incorporated on the last night of the session into SB 23, which were the tax credits for six different zones throughout the state that had high potential and were also close to population centers. So we’re trying to help as many folks in the state as we can. The one good thing about me getting this particular seat right from the start, is that as a commercial pilot in Alaska, I’ve been all over the state and worked for most of the industries, be it oil on the North Slope, or be it places like Donlin Creek and other mines and exploration activities over the course of my flying career. A lot of these folks I see in committees I’ve had in my plane. The job gives me the opportunity to get my foot in the door on places I’ve previously flown over, but I’ve been inside them now. It gives you the opportunity to get into places and hear from more people in the industry. I’ve certainly got a pretty good appreciation for what it takes to make money in the resource business and what kind of statutes need to either be changed or be created to help further the resources industry.

Petroleum News: Now looking ahead, what are your legislative priorities?

Feige: Between myself and Dan Saddler, I’ll handle oil and gas issues. As the other bills come before us we’ll decide on a case-by-case basis who gets what bill. My biggest priority is the oil and gas bill introduced by the governor. I’m working pretty closely with the Senate Resources chair, Sen. Giessel, to coordinate our efforts so there is not a lot of duplication and we can run this thing in a well organized manner. There’s been a lot of talk and conversations between myself, the Senate chair and the administration. We are all working together on this to move the bill forward. I spent a lot of time talking to the industry going as far back as August, saying “guys we’ve had this debate now for the last two years, do you have any new ideas? What do you want to see in a tax bill?” HB 110 when it first came out, the critics were very quick to point out that the governor put this bill together with the help of the oil industry. Well they are the major entity who is going to be affected by it. Why the hell wouldn’t you talk to them? I don’t profess to know everything there is to know, but I am willing to hear what you have to say and if it can be worked into a bill, and if it’s fair to everybody and if it’s a wise move to the state of Alaska, then we certainly would be willing to consider it.

Petroleum News: One of the criticisms early on is there is a fear a bill will be rubber-stamped and pushed through.

Feige: Sure that’s a fear that anybody might have, but the way I look at is we’ve got a three-quarters majority in each body and it’s a Republican controlled majority in each body. I am operating under the assumption that we will pass an oil tax bill. My job is to make sure the oil tax bill is the best that it can be, that it does what we want it to do, that it’s a stable structure that is going to last a long time and be adaptable to changing conditions down the road. I’m certainly not looking to give away our resources. That’s not being fair to the people of the state. On the other hand, I’m going to be fair to the companies and let them make a reasonable profit. People have complained about a lack of a guarantee in HB 110. When we write the bill, the structure of the bill and the fact that you have to do something before you get a tax break, is the guarantee that people are looking for.

Petroleum News: What are your thoughts on HB 72?

Feige: I was involved in the development for it. There is nothing new that has been mentioned in any the statements of the governor or his people. It’s pretty much in line with what we put together the last three or four months. There is a lot better intellectual underpinning on this bill than perhaps there was on HB 110. I’ve seen a lot of the analysis that the consultant, Econ One, has generated. Some of the justifications they are using are certainly solid justifications for the statute changes they are looking to make.

Petroleum News: The other criticism was stripping progressivity outright. What are your thoughts on that?

Feige: One of the main problems of ACES (current tax structure), as the price of oil went up, the profit margin didn’t necessarily go up, either. It was taking away the upside from the industry as a whole. OK, you can say we are still allowing them to make a profit, but the problem is other oil provinces that we’re competing with for investment don’t have that limitation, so it puts us at a terrible competitive disadvantage to those other regions of the world that we compete with for investment dollars. You’re taking away progressivity, but let’s not forget that we’re also taking out capital credits. It’s roughly a wash. You’re cutting back a little more revenue than you are cutting back on expenses.

One of the things brought out in the analysis with the current tax system was that if everything we want to happen — Point Thomson, Brooks Range moving forward, Pioneer moving forward, Great Bear especially moving forward — all those projects that we want to happen so we get more oil in the pipeline, those all come at a cost up front to the state with those capital credits.

So the state was having to give away a lot right up front. The time to get that money back, well, we were looking at a pretty significant financial hit to the state. With the new bill not being as generous up front, but we’re also being more generous on the backside by taking away progressivity. The other advantage of taking away progressivity is that you completely eliminate the whole decoupling issue between oil and gas. That was another significant characteristic of ACES. If we did go to a major gas sale for export pipe, the state would take another hit on the treasury, just because of the way our tax law was structured. So, getting rid of progressivity is an advantage to the state and beneficial to the Alaskan economy.

Feige: Dan Saddler will be handling this HB 4.

Petroleum News: What are your thoughts on the gas pipeline situation right now, be it the in-state line or the export project?

Feige: You’ve got two projects that are trying to move forward. On the one hand, the bullet line is there and it spurs on the producers to say we better get going on this export line if we are going to do it, or the bullet line is going to go forward and take away the economic advantages of the bigger line. On the other hand, the folks who want to build the big line specifically the folks from Asia — the Koreans and the Japanese who have already approached us about building, definitely have interest in our gas. They are in favor of a bigger line. I understand they are pretty much looking at Valdez as the terminus for that export line. Certainly that would make the folks in my district pretty happy. It’s deepwater; it’s ice-free; you’ve got the maritime surveillance infrastructure already in place.

There are a lot of advantages to it. The depth of the water is particularly critical. Parts of Cook Inlet, around Nikiski, is only 40 feet deep, if you look at the chart. Looking at the depth sounders around Valdez arm this summer, 750 feet. Plenty of room. The bigger the LNG tanker you can bring in to export, the better the economics of the project are going to be because you are going to lower the unit cost for transportation. I’m hopeful the companies will eventually end up running that big line to Valdez.

Petroleum News: There are also permitting issues you’ll be addressing this session. What do you feel needs to be done?

Feige: This is something that’s been looked at for two years over at DNR. They are looking to the future of certain activities. They are looking at how things are done presently. A lot of the regulations go back many years. I think the changes are going to acknowledge how at this point we do certain things in a pretty standard way.

It’s a combination of acknowledging the current reality and the current practices and also looking forward to the future, but also saying if we change our tax rates, we are going to get a whole bunch of new activity. That means we are going to get a whole bunch of new permit applications flooding our offices.

We need to look at how can we get ahead of that so that we don’t need to increase the number of people processing all of this and do it so we don’t increase our operating budget. It all wraps around keeping government at a level that still fills its responsibilities to its people and stewardship to the state’s resources.

It’s a matter of being out front of the changes we foresee coming and making sure we don’t get behind.

Petroleum News: Getting back to HB 72 for a final question, who between you and the Senate Resources will move forward first?

Feige: Right now the Senate has sent the bill to the TAPS Throughput Committee. For them, it’s essentially a third committee of referral. When it comes out of TAPS Throughput, it’s going to go to Senate Resources. At that time we’ll drop it in House Resources. The Senate and House (Resource) committees will run that bill parallel. At some point, we may diverge, I don’t know. We’ll have to see how it goes, but our intent is to start hearings on that bill on the same day.

Keep in mind, it’s not like the House is sitting idle on this bill. At this point we are analyzing it. We need to figure out what we need to ask the consultants. We are using the time the Senate has the bill to prepare for our own hearings on the bill. We’ve got a fairly experienced committee on House Resources.

We’ve got Paul Seaton, Craig Johnson, Mike Hawker, Kurt Olson and Peggy Wilson from the majority. In the minority, you’ve got Chris Tuck and Geran Tarr. Johnson, Hawker, Olson and Seaton, those guys have been with the Legislature a significant amount of time. Rep. Wilson has an awful lot of experience on the Resources committee. Seaton and Johnson have been chairs on the Resource Committee. Hawker has been chair of the Finance Committee.

A lot of these guys were here for PPT, ACES, for AGIA — all the debates that we’ve had in the Legislature for the past six to eight years. They bring a lot to the table. I don’t need to explain to them what DNR does as a department. We are going to be able to address the issues. They know the history. They know what happened with previous legislative fights. With that expertise, we’ve got the best shot to come up with a bill that’s going to serve Alaska very well.