Talerico: Heavy lifting awaits committee

House Resources co-chair says Alaskans need clarity on constitutional amendment pitch to change role on binding future Legislatures

STEVE QUINN

For Petroleum News

House Resources co-chair David Talerico didn’t have the natural gas pipeline bill - House Bill 3001 - before his committee during the special session, but the committee still held one of the more telling hearings that revealed concerns over communication and transparency from leaders with the Alaska Gasline Development Corp., who have since been replaced.

Talerico, a Healy Republican, says he and his co-chair Bennie Nageak of Barrow will be plenty busy seeking more answers, starting with a quarterly update from the partners of the AKLNG project.

Talerico says while he supports oil and gas tax credits, he will have his share of questions as lawmakers consider changes proposed by the administration.

In an interview with Petroleum News, Talerico spoke of these developments plus the prospects of putting a constitutional amendment freeing the state’s hands and locking in long-term taxes to advance the AKLNG project.

Petroleum News: Let’s look back first at the special session particularly since your committee held some pretty insightful hearings, even if the bill wasn’t before House Resources. What were your takeaways from the special session?

Talerico: It was very successful. I know some people didn’t think it went along smoothly, but I thought it went along rather smoothly. Of course there were a lot of Finance meetings and I was fortunate enough to be able to attend most of those. Of course the big thing was TransCanada. I think it got to a point where the best thing for all parties involved was their exit. They seemed to do that very courteously, which I thought was very important. I think the administration was courteous to them as well.

You know, TransCanada is a big player in moving gas and oil, in particular gas. Will TransCanada once again be involved in moving oil and gas in Alaska at some time in the future? Maybe. Not during my time but they certainly could be a player. So I think it was an amicable split. I’m not sure it started out that way. It might have been a little rougher earlier in the year.

What this did was clear the way for us to move forward with a clearer picture of who is involved and how do we do that. I certainly think TransCanada added quite a bit of value to the project from the beginning. There is a particular level of expertise brought to us. I would say that was a successful session.

It will be interesting to see what everyone’s perspective is now that we get into the session and dig into more AKLNG stuff. I think we’ve got them scheduled in the week after we start. We’ll be updated on lots of stuff. We want to do that right away, hit the ground running and find out what’s happening. I think between the special session and this session, I’m sure there are quite a few legislators who have more questions, even though the looming budget problems are on the top of everyone’s mind. I haven’t talked to a legislator who doesn’t have their own ideas about the budget.

Petroleum News: So with AKLNG having partners from the industry and the state, what would you like to hear from the state?

Talerico: It’s probably a different arena for us being in the partnership. Our level of participation, quite honestly, has to match the level of participation. We have to do it in a very cooperative spirit. We can’t just throw demands out. We also have to listen. That’s what successful partners do.

The old expression is don’t give up the farm. Well we don’t want to give up the farm. We want to be a full participating partner. Our structure is different from a private enterprise partnership, so that’s where it could potentially be frustrating to those partners because we don’t have a board of directors or president who says “OK underlings, do this.” We have to do our work for the people of Alaska.

We have to carefully maneuver our way around this. There really is quite a bit of time involved, more so than would be with some other things, but that’s going to be required for this to be successful. We’ll need to stay engaged more so than with other things we do.

My biggest wish is that darn gas wasn’t so far away. People ask me why don’t we just move that gas. If we didn’t have to move that gas so far away to get it to a customer, it would make it so much easier. I do have confidence in the partners we do have for understanding the market real well, having the ability to produce that product and market it. What they have to tell us about the marketability of this gas is critical.

Petroleum News: With that in mind, is there anything particular you would like to hear from the producers in your upcoming hearings?

Talerico: Mostly what I would like to hear is the progress they have made. The people they have on their team are pretty phenomenal as far as the construction of the project, getting the permitting in place, getting the FERC approval. Their team is not the marketers. They are the construction guys. They know how to build the structure that moves the gas. Now what I would like to hear from the producers is the potential that’s out there. We all want to hear about the potential. Who is our baseline customer? Are we going to be able to find that baseline customer? For the benefit of Alaska, it’s about having a large volume and knowing for a fact that we can get into the market. That’s what it’s all hinging on. Where are we at there? When those folks from that team come in and say we’ve figured out how to lay a 42-inch line under Cook Inlet. That’s wonderful news. Another concern that I have is everywhere we are going to put this gas line, everybody has been contacted for this right of way. I want to make sure we have all of our ducks in a row. It would be a shame to get to a point where someone says we’ve got this one entity where they have this private property and we haven’t quite cleared that yet.

So I’d like to make sure all the right of way is secured. As far as design for things like the compressor stations and other engineering, I’d like to have good assurances we’ve got all that. We are still trying to figure out who is going to build this pipe? How are we going to transport it? How does it move? How does it get in place? I think people on the labor side would like to have more information. This is one of the largest construction projects in the world. Nobody is going to do this willy-nilly. Nobody is going to say on a Tuesday we are going to build a pipeline so where are all the workers on Wednesday morning.

You know, we are still in pre-FEED. A big decision is going to be made whether we go into the FEED. My perspective on this is this doesn’t produce instant income. This is a long-term project with the income out 10 years when it starts to come in. It’s about securing future revenue. Those are tough decisions for people to make: the upfront money we will need. Some folks feel like it’s going to be hard to secure that if we do some bonding. I’m not sure, with the business partners that we have, if they make the decision that they think they can do something it’s going to be hard to invest in.

They are an economic driver in their own right. They have invested some money. I know some people believe the invested money was to avoid being taxed for the resource that’s in the ground. I don’t think they are real loosey-goosey with their investments, either. I think they are fairly careful with their investments. It seems to me that ConocoPhillips kept a lot of their capital here in Alaska. I think they had other options so that’s promising.

Petroleum News: A lot of projects globally have been shelved, but this one remains on the books. Is that a reflection of the commitment or because it’s in the early more affordable stage?

Talerico: One of the things that Alaska has offered is a stable government. Some other places where people have to do these projects, I’m not sure the security forces aren’t larger than the labor forces. If I were a board member of one of those companies, that would be an attraction. Getting down to the nuts and bolts of it, there are no bullets flying. We have our share of problems but we are not looking at a government overthrow at anytime. We are not looking at a military takeover. It’s a not dictatorial run government. We don’t have a royal family.

We provide some stability That particular stability provides confidence for some long term projects. I’m pretty sure these guys have been involved in projects where they couldn’t say, “boy we feel really good about the current government that’s in place and we don’t think it will ever be overthrown.” That’s a big plus for somebody when they have an investment they don’t feel like is going to be seized, overthrown or shut off by some marauding government force. I think that’s a big deal.

I don’t know that the Middle East has ever been stable in my lifetime. They have a lot of product over there. A lot of people have invested over there. There have found it to be friendly at times and incredibly unfriendly at times. So it does make us attractive.

Petroleum News: AGDC has undergone regular changes over the last year. Does that concern you or is that simply a matter of the governor getting settled in during his first year?

Talerico: Looking in the history in Alaska, there are usually administrative changes within state government. Right now, I would like us to stay consistent with people. Consistency has incredible value to it as well. I don’t think changes surprise me too much. Those happen every time you change an administration, but I think we need to stay consistent.

I appreciate those people who recently exited. I don’t see anyone who was not having good intentions to do this, but there are always differences of opinion.

Petroleum News: Well, you did hold a handful of hearings during the special session even as the bill was not in your committee. One of those hearings brought plenty of candor on issues of transparency and communication from the former board chair (John Burns) and president (Dan Fauske).

Talerico: They were very honest and open about what they say that might have been the issues. So now we still want to move forward, but those issues are still things they identified. It would be nice to see resolution to a lot of those things. I’ve seen this happen in other organizations from my municipal days. Communication breakdowns can destroy you in a heartbeat. That open flow of communication has to keep going all the time. That was something the former board chair had discussed. The more people you have involved the harder it may be to communicate and that’s the time you need to put your nose to the grindstone and make sure the communication is there.

The impressive thing is I’ve had the opportunity to talk to so many of these people. They are top-notch folks. They may not always agree on everything, but they do need to make sure that the communication is at the forefront. I don’t want the board finding something out late that the AKLNG team had done and vice versa. If the board has some kind of action coming, it’s not going to be a secret long, so bring people in.

That was one of the things that was glaringly obvious and they were so honest and upfront with us. Hopefully we move to a point where we have an open free flow of communication among everyone. They have to be in sync and be communicating. That’s not always easy. People get busy with things. I understand that. What I end up telling people is speak to me in English and reasonably simple English. I’m not an engineer. We have to keep this in terminology everyone understands.

Petroleum News: Given what you’ve heard from the former president and board chair do you have edicts as co-chair from the people involved?

Talerico: One of the things I’d like to do, I tell folks anytime you have anything you want to tell me, don’t hesitate to email, call or FAX. That’s for anything. I’d like to know. We are going to be called upon to make some decisions. We still have some questions to ask. When they have information, even a fleeting thought, get a memo out to us. We will look at it and we will appreciate it. I’ve never heard anyone say don’t contact me if you have a question. All the guys on the AKLNG and the AGDC board say if you have questions we’ll get back to you as soon as possible. We need to improve that back and forth. I may not need to know to every minute detail, but I would like to have a reassurance and have people tell me we are working on it. Their testimony being that open and honest with us may have helped us turn that corner and we’ll have that communication.

Petroleum News: Something else that could come before your community this session is the discussions on oil tax credits and revising the system. What are your thoughts on that?

Talerico: I’ve never been hesitant to say that the credits have worked well, even the Cook Inlet credits. I recall years ago I was visiting a friend in the Anchorage bowl when what they call the tri-borough mayors were doing advertisements on the rolling brownouts. It seems like different things were put in place and we’ve got a lot of gas. A lot of credit goes to the companies who reconfigured the wells and we’ve got a lot of gas. Again, from prospective residents, you try not to give away the farm. But you do have to recognize occasionally the credits can be an inspiration for people to come, get it right, get it fixed and produce something. I still have a lot of questions about credits, how do they work, what costs are they to us. They are not all the same because of the location and the resource. Because of potential difficulty, some are more difficult to access than others. Some cost a lot more than others. I have grandchildren in this state. I don’t want to create something they are going to pay for. I still have some questions about the credits. I haven’t resolved all of it. As you can see (pointing to book of oil and gas regulations sitting in front of him), I do a lot of research on it.

Petroleum News: So you’ve got AKLNG and tax credits, is there anything else on the oil and gas front that is a priority for you this session?

Talerico: I think one of the biggest things, if we do move forward on this project, there has been a lot of talk about a constitutional amendment and binding a future Legislature by a previous Legislature. Being in a partnership role, we are in a different mode. They are talking about fiscal certainty. That’s not an unusual thing when dealing with long-term contracts. I’m not sure what type of effort we will have to put out individually if we get to that point and we are going to bring that up during the general election next year.

That is going to be something people of Alaska are going to vote on, so we are going to need a good explanation for them. Then it’s up to them. It’s such a volatile industry. Anything else you can provide for the long-term probably helps make an investment decision. At the same time, questions will arise that ask are we going to get bang for our buck if we do that. I think it’s a good idea to get that out there and get that changed.

At the same time I’m sure we will hear some strong arguments about why it should not be changed. That is going to be an important thing with the partners that we have. That is one of those things that will be necessary. Binding the hands of a future Legislature is all based on a money thing. We do that constantly with the introduction of new laws. I would say that’s a big one for the producers and it’s a little different for us in a partnership role.

To be honest, at this particular point, I don’t know how the public would respond but I don’t think you just throw it out there without some really coherent explanation of why we think it’s necessary. I think it’s that important. We have to explain it in great detail. If you get that out there and everybody is counting on that, and then it fails, you’re done. It shuts you down.