Kerttula pans passage of oil tax bill

Says not enough information available on effects of Senate Bill 21, calls it a giveaway, ranks it as worst deal state has ever made

Steve Quinn

For Petroleum News

House Minority Leader Beth Kerttula wasted little time after the legislative session ended before she tore into Gov. Sean Parnell’s oil tax reform bill and called on Alaska voters to weigh in.

Kerttula pulled no punches in assessing the bill, the legislative process and her belief that debate lacked the openness found in past discussions, comparing it to the special session under former Gov. Sarah Palin and her Alaska’s Clear and Equitable Share plan.

Kerttula talked to Petroleum News about her concerns over oil tax reform and the status of a natural gas pipeline project.

Petroleum News: After session ended, you quickly drafted a short list of what you didn’t like about Senate Bill 21. Can you talk about that list please?

Kerttula: We started out with about 100, so it was a massive effort to get it synthesized. The first one is that it’s a massive giveaway.

Petroleum News: So what makes it a giveaway?

Kerttula: The fact that we are going to be losing a lot of money, and the estimates are anywhere from $700 million in some of the governor’s figures to $1.7 billion a year. That should make everybody stop in their tracks and think long and hard about what’s going to happen to the state with those kinds of losses.

The second thing to me is, I’ve been thinking about this a lot since session ended, and except for some of the past really bad deals the state has been involved in, none of which rise to this level, I can’t think of a time when the state has made a worse deal without any kind of promise in return.

It’s as if we just decided to give away the state’s revenue and give away the state’s resource for nothing in return. Even a very simple contract with a mutuality of benefits and service, this doesn’t have any of that.

Petroleum News: You kind of knew you weren’t going to get any promises in return, right?

Kerttula: But you don’t even have an expert coming in with that kind of assurance. You don’t have anybody not tied into the legislation saying this is what you can expect to happen. In fact we had a lot of information to the contrary that this wouldn’t matter, that it’s not all about the tax rate. It’s about a lot of other things as well.

I think that bothers me terribly. You feel like under our constitution you feel such a duty to be certain that the state gets a reasonable return for our resource wealth to the maximum benefit of the citizens of the state under Article Eight Section 1.

When that didn’t happen, I think that, other than the sheer numbers, the worst thing about this: that we are asked to step out with complete trust. I don’t think that’s a good move. It’s not what we were elected to do, nor is it what we took our oath to do.

Petroleum News: You said there were other factors. What are they?

Kerttula: We don’t share in profits windfall at the high prices. That was one of the attractive things about ACES to begin with. I think that’s why I supported a profits tax. At high prices why wouldn’t Alaskans share as well as the companies? The new bill discourages investment in Alaska. Under ACES we actually have provisions for re-investment in Alaska.

That’s Alaska’s history. As a state we have gone through this for centuries. It was our fur; it was our copper; it was our other minerals; then it was our fish. We fought for statehood over our fish. I love hearing the stories about Gov. (Bill) Egan and how he fought with the outside interests about protecting the fisheries and getting our rights back for Alaska. To not have any kind of encouragement for reinvestment here in Alaska so we keep some of those profits in Alaska is very troublesome to me.

Then you get down to some of those almost crazy making sections of the bill like what’s new oil. That’s a huge one. I’ve heard a lot of people on both sides of the aisle talk about that. That was something people recognized as a problem as we were going along. It was something we never fixed.

At some point along the way all oil is potentially new oil and getting all of the benefits of those incentives to get new oil. That leads into the next part, which is we are giving perfectly producing fields these benefits. I understand an incentive to get new companies up here, to get new investment, to get hopefully the big goal — new production.

But when you’ve got an already producing field and it has been for a while, why would you give them an incentive? It’s meaningless. Here we are giving them an incentive that isn’t necessary. That seems very poor on the part of the state. And it’s in the fiscal note that says it’s $25 to $50 million a year in that one section alone. Do you know how many schools you can build for that? Why do we do that? It doesn’t need an incentive. It’s perfectly producing. This gives more of a tax break.

We did very well under ACES. We paid back a lot of our little accounts. We paid back a big one, the CBR. We had a healthy budget. The last two years we had large capital budgets, getting money out into Alaska. Now we will go into deficit budgets.

There is great need in certain areas that need funding, like education, which is a desperate problem. Here in Juneau we had overcrowded first grade classrooms. Thankfully they could hire a new teacher. When you’ve got considerations like that, you really should be doing a better job of getting something if you’re going to give a huge tax break like we did.

I think it was completely unnecessary. There were things that could be done to modify ACES in thoughtful ways at the very high end with the math issue, how much take the government got. That could have been fixed very easily.

Maybe some of the credits were too generous. We had our own legislation that dealt with underlying systemic problems like giving loans so companies could build their own processing plants so they could get oil into the pipeline. That leads you right into what I believe are huge systemic problems on the Slope. The bottom line is we have huge monopoly system. It makes it different for new entrants. We need to be ever mindful of that so we are assured to continue to get production and hopefully — what everybody is after — new production.

All in all, I think it’s a dismal situation we are in. I think it’s so dismal and I think the people of Alaska have recognized it as being that way, so we are going to see the referendum.

Kerttula: In the long run, I think they’ll get the signatures. The campaign will be very expensive. Given the oil companies can spend a few million here and there in order to keep the tax break.

Petroleum News: So what was different about this debate from other tax change discussions?

Kerttula: With ACES, being asked to stay with a profits tax, we had access to world-renowned experts almost across the board. I give Gov. Palin great credit for being very open about what she was trying to do and about allowing us to spend in some cases days with certain experts and ask all kinds of questions and get all kinds of answers. Even though it was a quick (special) session, it was long enough to be able to come to a final understanding of it.

This was in high contrast of what just happened. We had a couple of experts and we didn’t have access to them. We met with (PFC Energy’s) Janak Mayer for about an hour. He was the Legislature’s expert.

It was an issue of doing something with very limited ability to tell whether it was a good idea or not. The schedule the bill went through and how quickly it happened. The public process was incredibly poorly served. It should have been more open; we should have had more experts; we should have done it in a thoughtful measured way, and that did not happen.

At the end of the day, sometimes it really is about that. Give people open access to understand how things work. Give them the time to ask questions. I watched the Finance Committee get all this information shoved at them.

Petroleum News: On one hand you have people saying this bill will help. You’ve got ConocoPhillips following through on what it planned and Repsol advancing its project. Are these really good signs?

Kerttula: Things just don’t happen overnight on the North Slope. Those things have to be set in motion years earlier. Anybody who says the behavior at this minute is due to that bill, that’s not right — at all. You can’t do something overnight in that kind of industry. You have to have things planned out. If they are bringing hundreds of rigs, that’s different. If we suddenly see a huge influx, OK.

Petroleum News: So what would convince you SB 21 can or will work?

Kerttula: It’s not going to be two or three rigs; that’s for sure. If you suddenly see new barrels into the pipeline; if you see new companies; if you see access to the pipeline; if you see an openness on the Slope. Those things aren’t going to happen. It’s not going to happen. That’s how you would see it as a turn around.

The only way you’re going to see those things happen is if we get a governor who goes nose-to-nose with the oil companies and who says, “you’re going to allow access and you’re going to see the new oil in the line from the new smaller companies,” and they work it out through MOUs or whatever they’ve got to do.

Until that happens, I don’t think this is going to change. That is what made a difference before. Sarah Palin and her administration did a good job of opening that up. But this is a huge step backward.

One of the hopes with ACES was to encourage new development — and we did that. Now what’s going to happen? Are we going to step back from that and just continue with the three big guys who have been harvesting us? There is not a lot of new production that’s going to come out of those companies because they don’t need to do it. This is a terrible place for the state to be. They have already paid for TAPS. It’s just a cost center to them. Look at Point Thomson. It took 30 years of lawsuits.

Petroleum News: Let’s switch to natural gas. What would you like to see over the interim and into the next session to advance a pipeline project?

Kerttula: What I would like to see is information we didn’t have this session. I would like to see how we market Alaska’s gas internationally, and what the best market is so that we can figure out the quickest way to build that line and sell it. We get more money that way than we do ever from an in-state line. I think we need to be focusing on how we get energy to Alaskans. I think we should be frankly more like Norway and look to the renewables and put our resource wealth into renewable energy for Alaskans and not find ourselves beholden to our own asset. I still think the big line is best. The problem is I don’t know what we do from government side to help incentivize that to see that it goes as quickly as it can. I feel like we are losing the Asian market as we speak. That’s why I’d like more information on that.

Petroleum News: So whose job is it to get that information? Is it Larry Persily? Is it the governor? Is it Commissioner (Dan) Sullivan?

Kerttula: I think it’s the governor. It lies with the leader of this state and that’s the governor. It takes a stronger governor who is actually willing to make those overtures and go himself or make certain the information is gathered in a meaningful way so that the Legislature understands it. I don’t think that happened this year. I don’t think that the governor was all that thrilled with the in-state line (House Bill 4). I think that was a political decision. I think it undercuts the state. I don’t think the in-state line ever pans out to give people a good reasonable price for gas. So there you are. You’ve spent good money after bad to go after a project that probably never happens.

Petroleum News: So should this be a priority for the interim and for next session?

Kerttula: Yes. We should have a better idea on both of them, what the reality is. I thought (Sen) Bert Stedman made a good statement about these projects where one sponsor goes to the other and all of the sudden you see these huge projects go through without much oversight, with very little information and massive amounts of money: $300 million here; $400 million there; $95 million to Susitna. Sometimes there are great ideas, but you’ve got to back it up with how much it’s going to cost in the out years and how much it’s going to cost consumers.

Petroleum News: Do you have any closing thoughts on oil tax or natural gas?

Kerttula: My background before I came to the Legislature was as an oil and gas lawyer for the state. I did TAPS tariff cases that were worth millions and millions of dollars to the state. In 15 years, I have never seen such a poor bill go through the Legislature as this tax bill. It undercuts this state at just about every point. There is no guarantee of new production. If you wanted new production to be the thing, why aren’t we out there getting data and looking at the actual geology so you can have some realistic predictions and using that as some kind of center? It just seems to me our focus was way off. Because of that we put the state at great risk of the future.