AGIA justification remains high priority

Chenault says oil tax up to Senate, which has bill; July 1 in-state gas line report could warrant special session just on that issue

Steve Quinn

For Petroleum News

House Speaker Mike Chenault believed it was time to go home, so he adjourned the Legislature’s special session three days before the 30-day limit expired.

The Legislature, he says, had done all it could, including failing to overcome an impasse with coastal zone management legislation, which failed by one vote in the House.

He’s taking heat for not casting the deciding vote in favor of a bill that divided the House and Senate on two issues.

They are: Giving weight to local knowledge of an area versus scientific evidence; removing a coastal policy board member for cause rather than that member serving at the pleasure of the governor.

The Legislature can still call itself back into another special session to iron out the differences by July 1, the day the current law expires.

Meanwhile, Chenault says lawmakers still have plenty of work to do until they formally meet again.

And when they return, a priority will be HB 142 which calls for “evidence of progress,” according to a bill analysis.

He sat down with Petroleum News to discuss resource development priorities moving forward.

Petroleum News: Just a few days after the special session ends, and you’re hit with news that Denali no longer believes a large-diameter pipeline is economically viable. What does the announcement mean to you?

Chenault: Even the energy department said it could be delayed at a minimum of 20 to 30, maybe 40 years because of the shale gas finds in North America. They are figuring they have a 100-year supply of gas. So it wasn’t surprising that it came out. It was a tough sell to start with. There were a lot of uncertainties.

Petroleum News: Does this lend credence to your concerns outlined in HB 142?

Chenault: I think that it does. We’ll wait and see what, if anything, TransCanada comes back with. It’s been quite a while. I don’t know why TransCanada isn’t coming out with any more information. Tony Palmer said they are about through with everything they can finalize. It will be up to the State of Alaska to negotiate fiscal terms with the shippers and finalize what’s going on with Point Thomson. They said when this thing was passed that no gas line would move forward without fiscal terms and the state needs to negotiate those with the shippers.

Petroleum News: Is it time to start doing that or do you need to know more before you move forward?

Chenault: We have to have some kind of project out there that looks like it might go forward before we get there. I wouldn’t have a problem negotiating terms, but until we see there is a project there to ship gas, I’m not sure exactly when the right time is to negotiate terms.

Petroleum News: OK, so HB 142 didn’t advance to the Senate. Will you consider recasting it with the appropriate deadlines seeking answers from DNR and Revenue?

Chenault: It’s unfortunate that we got away from that to deal with budgetary issues. I think it would have been a good piece of legislation to pass. It would have required DNR and Revenue to come back to say that project was still economically viable. In turn that would save the State of Alaska money. As it is right now, it’s laying dormant until next session. It will be one of my high priorities to get it passed out of the House at the beginning of next session and get it over to the Senate. We will be a year and a half from the open season by then. If that project is going to go forward, we should have information back by then.

Petroleum News: You adjourned without a coastal zone management plan. Sen. Stedman said last week he thought that you or the Rules Chairman (Rep. Craig Johnson) should have changed your vote, accepted the conference committee version, then pursued a clean-up in January.

Chenault: They were offered another deal twice on the last night of session. That was to accept the House version plus the original five changes that were agreed on by the administration, industry and all of those who were involved without the other two the senate had tried to put into the bill. They refused to do that. I went down later as a final olive branch and explained I thought the bill would die on the House floor if we couldn’t make some changes. You know, they could have done the exact same thing, accept the 40-0 House vote that went to their side, then come back next year and clean up some remaining issues.

It was a finely tuned compromise by industry, administration and the House and I know (North Slope Borough Mayor) Edward Itta helped work on it. The House has worked for two years on this. It was finely crafted. They made five changes and it was agreed upon. Then they made a couple more, and unfortunately it wasn’t agreeable for enough House members to pass the bill. So it could have worked both ways. They certainly could have accepted the House’s version and come back and tried to add more things to it next year versus letting it die.

Petroleum News: Just as you folks were adjourning, President Obama said that he wants to loosen things up for development at NPR-A. Is that cause for optimism or cautious optimism?

Chenault: I want to hear more. Certainly, there is optimism there but what’s the time frame? Are we talking two years, five years, 10 years or 20 years? It’s always easy to talk about it. It’s tougher to get it done, though. If the President is going to throw that out there as an option, then he needs to get behind it as soon as possible.

Petroleum News: What are your other priorities during the interim?

Chenault: Around July 1, we should get a report back from the Alaska in-state gas line team headed by Dan Fauske. We will go through that information. My understanding is there is a trove of information there. It’s not something we will be able to glean in just a few minutes and see what’s there. It’s going to take some time to go through and see what all they’ve researched, what all they’ve looked at. What’s their best guess is in terms of a project? And if we have a project there, what the cost is. I would suspect later on that would all be rolled out to the Legislature and the Legislature would have a chance to look at it. Depending on what’s there, I would be open to looking at a special session to deal with it.

As a Legislature we need to look at projects being proposed. You have Great Bear and their project. From what little I know of it. Seeing what they proposed as far as 200 wells a year. We need to ask: What is that going to entail? Can our departments handle that kind of load? What kind of infrastructure needs to be built in order to facilitate that amount of drilling? Do they have the backing and so forth? If they don’t what does the state need to do to incentivize or try to make that project go forward to try to fill TAPS? It’s important on both aspects whether it’s gas or whether it’s oil that we deal with those issues. How do we put more oil in the pipeline? How do we get more investment into the state? That’s what we, as a Legislature, need to work toward.

Chenault: If we had a special session in the fall to deal with the report back from Fauske on in-state gas, we would want to limit ourselves to just that project. You get mired down in the politics if you were to throw the oil tax back in the mix. It would just muddy the water. What we don’t want to do is muddy the water. What we want to do is look at the option that they are going to propose. If it’s a good, sound project, then we need to decide whether we move forward based upon that information and not try to muddy it up with oil taxes or any other issue out there. If we are going to take up oil taxes, then we need to take that up as a separate issue. The House has passed a bill. It’s on the Senate side. It would be up to them to run with that piece of legislation to come up with a compromise if they pass it.

Petroleum News: A few things have happened since then that some believe could change dynamics of the conversation: heavy oil coming out of the ground; (ConocoPhillips CEO) Jim Mulva’s comments; (BP Alaska President) John Minge’s comments. Do you believe these developments could change the discussion?

Chenault: I think that it could. A lot of the conversation was how do we know they are going to invest here? I think Minge and Mulva’s comments were probably as strong as they could give without a 100 percent commitment. For Mulva to come out and say what he did, or Minge to come out and say what he did, that comes from a pretty high source. That doesn’t come from a mechanic on a platform making that decision. As you well know there is nobody higher up in ConocoPhillips than Mulva. The only one he answers to is the board of directors. When he says something you ought to pay attention. Can he guarantee it? No he can’t, but he’s in a position of making it happen.

All of us have different concerns, like local hire. I wish 100 percent of employees at Prudhoe Bay were Alaskans. Should there be more Alaskans there, I think there should be. Will it be 100 percent Alaska? I don’t see that. Some of the technological advances in the production of new wells are being done elsewhere. I know a little bit about coil tubing, but there’s not a lot of Alaskans who know about that. Normally those people come from areas that use that type of technology. As we use more of that here, then we do build a workforce that is able to be with more Alaskans.

There will never be 100 percent local hire, which I would love to see, but hopefully working with the industry people and also with the contractors, we will able get those numbers up. We can’t force them too. I don’t think us incentivizing them to hire Alaskans versus something else is the right way to go. I think we need to apply a little pressure and also need to make sure we have a good working relationship with them. It’s a two-way street. It’s always a two-way street. Hopefully we can meet to work some of those issues out and get more Alaskans in that workforce.

Petroleum News: What progress can you identify toward main goals of a gas line or putting more oil in the pipeline?

Chenault: I’ve tried to pass a number of pieces of legislation. One was an in-state gas line account. We had a bill that dealt with language issues in common carrier pipelines. We’ve tried to pass legislation to move us forward to get us off the dime. All of that legislation is sitting over in the Senate. And that’s OK. I would like to see it passed. It’s not the end of the world, but it does delay things. We made sure in the operating budgets that we put in more money for DNR to try to get rid of the backlog of permits they have (nearly $1.5 million). They have about 2,500 permits in backlog. That causes delays. And that may be for mom and pop trying to open up a gravel pit. If you are delaying it, you are delaying these people from being able to go to work and make money. So we put that much more money in DNR to get rid of those backlog of permits to make sure it’s not a permit that’s holding up a project.

Petroleum News: That seemed to be a common priority among the legislators. Do you see it that way?

Chenault: I think it is that way. Let’s say you have a drilling program that’s going to happen in Prudhoe Bay and you have to build an ice road, and it’s a four-year project. Right now in order to build an ice road, you’ve got to go get permits. Well next year, you’ve got to go get the same permits again and you’ve got to go through the same problems. The next year you’ve got to get the same permit. Doesn’t it make sense to get that permit for four years? So you permit the project for the entire time so if things change, then you can come back and address it.

As it is now with the backlog of permits, as soon as they get a permit to do the ice road, if they are going to do the same one next year, they have to start again, so now they have the same people working from now until they get the permit every year. Does that make sense? Wouldn’t it make sense to have a permit for the length of the project? Give them a permit to build an ice road. If you’re building the same road year after year, why do you have to keep getting a permit? Why do you have to do through that process? Because that’s the only process we know right now.

Things like that speed up the permitting process and allows these projects to go forward so we’re not spending valuable state employee time. We are not spending valuable corporate time to get the same permit over and over.