TC Alaska AGIA license OK’d, but Legislature delays execution

The administration of Alaska Gov. Sarah Palin is three for three on its big oil and gas initiatives: It won passage of production tax changes in 2006 with ACES, Alaska’s Clear and Equitable Share; in 2007 it won 59-1 passage of its approach to getting a gas pipeline with AGIA, the Alaska Gasline Inducement Act; and by a Senate vote of 14-5 on Aug. 1 it won approval for awarding an AGIA license to TransCanada Alaska, selected earlier this year under a lengthy review process by the commissioners of Natural Resources and Revenue.

One thing the Palin administration didn’t get was the immediate effective date it wanted on the bill.

When the Alaska Legislature passed AGIA it gave itself the job of voting up or down on an AGIA license. While the bill approving the license passed, the bill also contained an immediate effective date clause, passage of which would have allowed TransCanada to begin the partially reimbursable fieldwork this summer.

The effective date passed on the initial House vote, but failed to receive the required two-thirds vote on House reconsideration. That means the legislation won’t take effect until 90 days after it is signed by the governor.

As this issue of Petroleum News went to press Aug. 7, the last day of the 30-day special session, the Legislature had yet to send the bill to the governor for her signature.

The hiccup

TransCanada also had some unexpected dialogue with legislators following passage of the bill that stemmed from an article in the Globe and Mail.

TransCanada Chief Executive Officer Hal Kvisle had given an interview to the Toronto newspaper following the vote, and was quoted by that newspaper as saying: “Nothing goes ahead until Exxon is happy with it.” The article noted that BP and ConocoPhillips have proposed a competing pipeline, and that ExxonMobil has yet to commit to either line, and quoted Kvisle on a subject TransCanada has addressed frequently — its belief that five parties, the three major North Slope gas leaseholders, the State of Alaska and TransCanada, are necessary for a project to move ahead.

“This is not about TransCanada dreaming up the project we think will work, it’s about the five parties getting together and crafting something here,” Kvisle told the Globe and Mail.

While BP and ConocoPhillips’ Denali project is drawing attention, Kvisle said ExxonMobil is very active.

“Things aren’t always as they seem. Exxon is not the front-and-centre party in the press but I know for a fact that they’ve got very hard work going,” he told the Globe and Mail.

Alaska reaction sharp

Kvisle replied the same day, telling Harris: “TransCanada is committed to fulfilling all its obligations under AGIA in a manner that satisfies the State of Alaska.”

He stressed the importance of attracting shippers: “As described in our AGIA application and in our responses to the Legislature, TransCanada intends to vigorously pursue commercial negotiations with the Prudhoe Bay producers to secure their commitments as shippers. There are no more logical shippers for this project than the Prudhoe Bay producers,” he told Harris.

As for his comments about ExxonMobil, Kvisle said: “It is a common phrase in the energy sector that ‘nothing goes ahead until Exxon is happy.’

“My wry observation along those lines was not meant as a negative comment on ExxonMobil, nor was it meant to imply that ExxonMobil has any sort of veto on the building of an Alaska gas pipeline,” he said of the statement from the Globe and Mail story.

“In fact, the reporter and I were discussing the importance of developing commercial arrangements that satisfy all parties, and I observed that it’s often a challenge to meet all the expectations of all parties.”

Negotiation normal

“That clearly is not the case.” TransCanada is fully committed to the AGIA obligations, he said.

BP, ConocoPhillips and ExxonMobil are three logical customers for a TransCanada pipeline from Alaska’s North Slope, Palmer said, and part of normal business for TransCanada will be “to try to attract them to our pipeline.” He added that TransCanada fully understands the sensitivity in Alaska to some unrelated issues regarding Exxon.

A decision will be made within the week on summer season work and if TransCanada proceeds this summer it would be without any possibility of being reimbursed by the state, he said.

But discussions with customers will continue, Palmer said.

TransCanada has committed to leaving the application valid until the license is issued, Commissioner of Revenue Pat Galvin said at the press conference following the Senate vote approving the AGIA license. He said the administration is committed to move the project forward as expeditiously as possible.

Palmer said that TransCanada agrees with Galvin, that there are no issues about the validity of the license. The issue is reimbursement, he said.

Galvin, in response to an e-mail question from Petroleum News, said: “The state reimburses for a qualified expenditure.” Under statute, a qualified expenditure is incurred after the license is issued. “Therefore, any expenditures prior to issuance of the license will not be eligible for reimbursement,” he said.

Palmer said at the press conference that TransCanada is “highly motivated” to move the project forward and also said it is not unusual at this stage — the business development stage — for pipelines to have competition. He said TransCanada will take the action necessary to make the project competitive.

On dealing with the producers, Palmer noted that BP is TransCanada’s largest gas customer and ConocoPhillips and ExxonMobil are also very large customers.

TransCanada works with these companies every day to move their gas to market, he said.

—Kristen Nelson