Doogan wants to let ACES tax system ride

Anchorage Democrat says credits show companies using system, believes state should hold off on changes, see what companies do next

Steve Quinn

For Petroleum News

State Rep. Mike Doogan is used to being in the minority. After all, he’s a Democrat in Alaska. Doogan arrived to the Capitol for his first term in 2007 armed with his signature sarcastic touch that can lighten a tense mood created by the divisive oil and gas tax debate. The man who once invoked the term “bumfuzzled” in a previous tax discussion now sits on the House Finance and Legislative Budget and Audit committees. The Finance Committee has begun reviewing Gov. Sean Parnell’s tax rewrite plan, House Bill 110. Doogan sat down with Petroleum News to discuss oil and gas issues.

Petroleum News: There are a lot of ideas floating around the building about what needs to be done with the state’s tax system. What do you feel should be done?

Doogan: To be honest with you I think it should be left alone right now. I’m not sure where the dividing lines are, but we have rewritten those taxes a lot. In my view we should wait and see what they do. We know some things that we’ve done are working to the extent that we will spit out nearly a billion dollars in tax rebates both for the big producers and smaller producers out there trying to find oil. We have no idea what they’ve done. If you decide you’re going to do something because you want to have a certain affect and you don’t wait to see whether it has that affect, you’re just wasting your time. What we’ve done is making some pretty substantial changes in the new oil tax regime. And it’s my view it’s time to see what they do first.

Petroleum News: That was the argument against breaking away from PPT, that enough time hadn’t been given.

Doogan: I wouldn’t have argued with that position at that time. We had a very popular governor who wanted a change. They were capable of making rational arguments in favor of making those changes. It was a combination of policy and politics just like anything else. I decided to go along with that and I did. Now we have a governor elected for the first time and he wants a change, but he doesn’t have the kinds of arguments in favor of change that she did. I haven’t actually been able to sit and listen to the entire case being made yet, but so far what I’ve heard and what I’ve read, it is not convincing to me.

Petroleum News: The other argument against what’s going on is that it’s moving too fast, pushed through committees without enough discussion.

Doogan: I’ve got to tell you. The way the House Resources Committee handled the bill was shameful. There was one do pass, two never pass and everybody else was a no recommendation on that bill (four no recommendations and one amend). In talking to my colleagues in that committee, no one seemed to understand what it would do or whether it was a good idea. They sort of got pushed pretty hard by leadership to move that bill along.

Petroleum News: Aces only took 30 days with three committees on each side hearing the bill, plus a full day of discussion with LB&A before you guys gaveled in. That’s pretty quick, too, isn’t it?

Doogan: Yeah, but the issues were a lot more clear cut in ACES. It wasn’t complicated. As I sit here now, I’ve read the bill, I’ve sat in a couple of committees, I still don’t know what it’s going to cost the state, or that it’s going to cost that much and what it’s going to do. The ACES discussion with the exception of in the Senate when you would click in the higher tax rates, it wasn’t complicated. It was to that extent to what it was you were doing and what effect it would have.

Petroleum News: Last year the Legislature found creative ways to drive business to Cook Inlet. Are there some creative options beyond cut this and drop that?

Doogan: With Cook Inlet, you’ve got a pretty small basin. You sort of know where you are likely to find oil and gas. The problems there aren’t discovering stuff. The problem is what do you do with it, once you’ve got it. Right now we are producing more oil and gas than we can absorb. Once the plant in Kenai shuts down, you’re going to have a lot more hydrocarbons than you’ll know what to do with. The problem we’ve got on the North Slope is that the oil production keeps going down 5, 6 or 7 percent every year. That’s going to be a problem because you’re not going to be able to run the pipeline. State revenue, employment, a lot of things are going to suffer because of that. There is the possibility you are going to produce oil offshore. That oil is presumptively, they will have to build a spur and run that oil down the trans-Alaska pipeline. If you are capable of doing any production in NPR-A, that’s still more oil. Then you’ve got heavy oil. The situation on the North Slope is not that there is not enough oil. The problem is the producers want more money to produce it. That’s not a function of their cost, though it will be more expensive to produce the heavy oil. What they want is a lot more money to do what they would do otherwise. Their rap is Alaska, you’re pricing yourself out of the market. My response is good luck producing that oil on Sakhalin Island when the political system goes south. Have fun in Venezuela. Have a good time when you’re in places when you’ve got to airlift your employees out of the area because they are getting shot at.

Petroleum News: You’ve got feuds with the federal government. Every state has them. But these feuds, regardless of what side of resource argument you’re on, it inhibits the state’s ability to put oil in the pipeline. What would you like to see this administration do?

Doogan: It needs to take a more realistic view of what oil production in Alaska is. Among other things, how it is now. It’s pretty cheap oil. It’s very secure oil. It’s expandable oil. You can get more if you put more effort into it. A national administration says, ‘we know we’ve got this oil, we know it can be produced, we know it will lower our dependence. But we’re going to do it (impede production) anyway.’ Well, you’ve got to wonder, who is doing the thinking?

Petroleum News: You didn’t go to energy council. I know you don’t do a lot of travel but you are on LB&A and on House Finance, which are on the front lines of important decisions. Why didn’t you go?

Doogan: The decisions that I am involved with, the decisions I sort of got a piece of are not decisions that are related to what happens at the Energy Council. The decisions dictated by the federal government are a separate set of decisions from the decisions that I have any purchase over. It doesn’t help me I guess is my answer. I haven’t learned anything that helped me do the job I’m elected to. It didn’t seem to me to be a worthwhile use of my time particularly when I could use the time to go back to my district and talk to people about things important to them.

Petroleum News: Can the state afford to live on $2 billion less each year?

Doogan: The answer is no, depending on what the price of oil is 18 months from now, or yes, depending on that price today, which is $117 a barrel as we sit here. If it gets down below between $80 to $85 a barrel, it ain’t going to be cheap no matter what. If something bad happens in Saudi Arabia or Libya gets wrapped around the axel that they can’t produce oil anymore those values are going to go up.

Petroleum News: I ask because at one time not long ago, the state did live on less.

Doogan: Sure, we could get along with substantially less money. We’ve increased the budget on an average of 10 percent a year I think eight years now. I’m just talking about the operating budget. Can we get by on less than that, sure we could. Do all of the people who are beneficiates of some of this money want to have to do that, no they don’t. That’s why these budgets keep going up. Can it go down, sure. Would it get ugly, yes it will. Anyone who can recall when things went gunnysack in the late ’80s will tell you that was not very much fun. Having money is more fun than not having money. A lot less fussing and fighting. Would it be doable to dial back, sure. Does anyone want to, I doubt it.

Petroleum News: Has anyone told you where this money is going to come from? Have you been asked that when you go home?

Doogan: I’ve had people question essentially if you guys are going to do that, how do you finance it. Ether you get really lucky in the roulette game we play with oil values or you end up taking the current surplus and throwing it at the oil industry and hoping something good happens. The people who are engaged in this system we’ve got here — like people who run schools districts — are watching this very carefully because they are afraid their stuff has to be cut so we can make our friends at BP happy.