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Rep. Paul Seaton: Alaska hydro needs exception; notes most House Resources amendments to HB 110 geared to smaller companies

Steve Quinn

For Petroleum News

Rep. Paul Seaton just completed his first trip to the annual Washington, D C., Energy Council meeting. He joined 27 colleagues from the Alaska Legislature.

The trip came on the heels of the House Resources Committee forwarding Gov. Sean Parnell’s tax rewrite bill, HB 110, to the House Finance Committee.

Seaton, a Homer Republican, is co-chair of the Resources Committee, which approved several amendments designed to assist independent producers.

Upon returning from Washington, Seaton sat down with Petroleum News to discuss the merits of his trip and the state’s oil tax system.

Petroleum News: How well attended was the conference?

Seaton: I was impressed that there were as many Alaskans as there were. There were I think 28 Alaskans and 14 Canadians. There were not that many others. There were three or four from Texas, a couple from Kansas, one from Louisiana and one from Mississippi and that was close to about it.

Petroleum News: Is that overkill or does it suggest urgency on Alaska’s part?

Seaton: I think it suggests other states are undergoing a severe economic decline. They did not participate from my understanding as they have in the past. I think people got quite a bit out of it, but it was a lot of the people we see a lot up here which was not as beneficial as seeing other folks and perspectives from around the country.

Petroleum News: You had additional priorities than the standard natural gas pipeline. What were they?

Seaton: One is that hydro power is not seen or not federally recognized as a renewable energy source. It was interesting that the FERC Chairman (John Wellinghoff) was able to identify the reason for that because it has been perplexing to us.

Where they are trying to establish renewable energy portfolios, if you count the existing hydro facilities then many states and areas have a high proportion from those old projects so it wouldn’t stimulate wind, solar, biomass, other renewable portfolios. So in my conversations with folks on the Hill, the FERC chairman suggested we look at new hydro projects.

What I suggested is we might look at water sources that didn’t have economic competition for the water so that if you had an area where you are talking about needing the water for population and for agriculture then you wouldn’t get into it where you try to move that water into energy production. If you have 200 sources up here in Alaska that aren’t being utilized for anything else then it could qualify as part of a renewable portfolio.

We’re just trying to think of other ways to have it apply nationwide so it’s not an Alaska carve out. Washington and Oregon have lots of streams and flowing water along the coast that doesn’t go to other things and those should be classified as well.

Petroleum News: What was the second priority?

Seaton: The laws of the sea convention. It extends our jurisdiction north especially into the Arctic and capturing that economic benefit for the United States and Alaska of the oil and gas potential in the Chukchi Sea beyond the 200 mile limit. We got good feedback. Sen. (Roger) Wicker (Mississippi) was addressing the Energy Council. I asked about it. He said we should extend all efforts to try and do that. He was thinking it would be the administration’s and secretary of State’s responsibility. We have to balance the desire of that economic benefit versus some potential sovereignty questions.

Petroleum News: So it’s not strictly a fishing issue.

Seaton: No it’s not. It’s the 200-mile limit and the extension of the continental shelf beyond the 200-mile limit if you can scientifically show you continental shelf goes beyond. That would be roughly estimated the size of California in the Chukchi Sea north of Alaska. The U.S. Geological Survey has estimated that 25 percent of the undiscovered hydrocarbon resources are in the Arctic. So that could be a huge economic boon to Alaska and the United States.

Petroleum News: Was there any pushback from people in Washington about anything happening in Alaska, like the gas line development or the state’s tax system possibly hurting resource development.

Seaton: The conversations I had were they are hoping we proceed (with the gas line). They don’t know whether we will. They are supportive of oil. There is always an ANWR balance, however. There are individuals that well, if gasoline hits $5 a gallon, say there will be a push to get more national sources.

It’s interesting that the announcement by Repsol, how they are now 70 percent in with Armstrong, and the reason they are doing that is because they want to invest in OECD countries, those that are politically stable like us, Norway and other countries.

They want to enlarge their portfolio (in areas) that are politically stable. Even as we, Norway and other countries have higher tax rates than some Third World countries, the political stability is very beneficial.

It’s interesting how they don’t list any problems with the tax regime. It’s this balance act we’ve been talking about: Where does Alaska fall in relation to where people want to invest? Here we see that our balance is good enough to get three-quarters of a billion dollars.

Petroleum News: With that in mind, there is a lot of discussion about what to do with the tax system, whether it’s changing the base rate, or progressivity (surcharge) or credits, or a little of each?

Seaton: I’ve been a little surprised that the media has looked at the things we changed in the bill when it was in House Resources as if those were just monetary pieces. We were specifically targeting new exploration and new fields, like having to spread your credits from two years to one year so companies coming into the area could get their money turned around quicker.

We also expanded the small producer tax credits. The first seven amendments House resources did were all targeted toward accelerating production on the North Slope. My big problem with the way HB 110 is that it gives huge tax breaks to the three producing companies without having any plans for development, enhanced or expedited, at all.

We’ve had three companies come forward and say we want to expedite development: Brooks Range, Great Bear and Armstrong. They all have projects they are actively engaged in, have permits for and they are not in (Juneau) saying they need a tax rate cut.

They are saying that’s not what they need for development. What people have been missing is Great Bear says they need roads to resources. The only way you can have a build out in the scope in which Alaska wants — you know a couple hundred wells a year — is to have year-round roads. You can’t do it on an ice road. That is the way we can help that project the best.

Petroleum News: Is there an appetite for change in the tax system in this building?

Seaton: There is an intuitive sense that is what we need to do to fill the pipe. The proposal that comes forward doesn’t offer us any assurance at all of putting more oil in the pipe.

Petroleum News: How do you explain the production forecast dropping more than 100,000 barrels from the time ACES was first proposed until now? Do you see a connection?

Seaton: Not between that and taxes, not at all. There is none. You go through and look at what’s our production going to be and something is delayed, then that is lowered production.

When we went to a profits tax we did so because companies were not investing as much in Alaska as we thought they should.

That’s what the profits tax was created to do. If you reinvest your money here, you don’t have to pay taxes on it. If you take it to Bolivia or Indonesia, you’ll have to pay on the profits. It’s going to cost you money to take it out of Alaska. It has worked. The question is has there been the level of reinvestment that we want? No. Is there more investment than there was prior? Yes.

That’s the data the Revenue Department came up with. Maybe some of it was maintenance. Maybe it wasn’t all drilling wells. You can always question the data. But the one thing you can say is that there is more investment now and the investment didn’t occur before.

Petroleum News: So what is the answer to getting more investment and filling the pipe?

Seaton: I think we are getting it. You have to have projects. You have to have someone proposing projects. We have seen no projects proposed that were slowed down or didn’t happen because of the tax rate. You’ve got Point Thomson which is a disputed unit; you have CD-5, which didn’t go forward because of the U.S. Corps of Engineers and building the bridge over the (Colville) River; you have Liberty, which was supposed to come on and be drilled, but BP is reassessing the capacity of the rig to do it safely.

Every single project that has been delayed can be identified with a specific reason that has nothing to do with the tax rate. Where do you see BP, Conoco or Exxon saying here is a project that we would do if you had different tax rates? They have put no plans of development on the table. The people who have put plans of development on the table are Great Bear, Armstrong and Brooks Range.

They all have put money in and leased land. I just want to make sure we direct our state resources to the projects that are on the table, that are being proposed. Hopefully, they will be successful. But giving away state resources without any assurance that there is even a plan to accelerate development doesn’t make sense.