Parnell: Changes promote jobs, more oil

Governor addresses tax proposals, access to federal lands, prospect of a natural gas pipeline, troubles jumpstarting OCS exploration

Steve Quinn

For Petroleum News

Gov. Sean Parnell didn’t wait for the Legislature to gavel in before introducing his plan to revamp the state’s oil and gas tax structure. He’s seeking to lower the 25 percent tax rate on net profits to 15 percent for production from new fields and reduce the surcharge known as progressivity. A few days later in his State of the State address, Parnell stressed additional resource priorities including access to federal lands and waters for resource development. This means collaboration with the industry as well as his peers; he serves as vice chair of the resources committee for the National Governors Association. Parnell sat down with Petroleum News and discussed a wide range of resource issues including oil taxes; the prospects of a natural gas pipeline; the trouble jumpstarting outer continental shelf exploration and production; and stemming the annual 6 percent to 7 percent decline of throughput in the trans-Alaska oil pipeline.

Petroleum News: What are your resource goals for the state?

Parnell: There are several equation changers when it comes to creating more jobs in resource development. One of those is tax regime. The other is permitting. The third is access to those resources. The fourth is accessible affordable energy.

If our administration can change for the better the tax regime and permitting regime, open up access, and create more opportunities for lower cost and lower abundant energy, we can create more resource development jobs.

That’s ultimately what I’m trying to achieve. As a state we were supposed to be able to access our resources so we would not become a ward of the federal government. What I can do is focus on state lands and those equation changers or game changers, which is what you’ll see us doing.

Petroleum News: Is the end game jobs or is it filling the pipeline?

Parnell: I’m interested in Alaskans having more opportunities. The production aspect comes with that: So greater production means grater revenue, more and better schools and public safety. They are all interconnected. I do tend to think of private sector and economic growth. Then I think about product for the state. I also think about our national security. Having more domestic production is a good thing.

Petroleum News: Can the state afford your tax reduction bill?

Parnell: I don’t think we can afford to stand still and cling to a parachute that’s only half full. The pipeline will keep working at a certain level. We can all do the math. Unless we get more oil production into that pipeline then we are at risk financially.

The notion that it costs money to do something is misguided because it’s a short-term view of things. I understand it comes from legislators who want to spend money right now. I’d rather provide a lower tax environment, and create new jobs, and new production. I’m not looking at the next five, seven, 10 years. I’m looking farther down the road, longer-term.

If the companies’ reinvestment is at a level of 50 percent of what they are taking out, the cost to the state is a couple of billion over the next 30 years. If you look out across 30 years and you assume a particular level of reinvestment of those tax credits the cost to the state is minimal compared to thousand or tens of thousands of jobs.

Think of the North Slope. You’ve got Prudhoe Bay and Kuparuk and they have been punched full of holes — hundreds of wells. There is a lot of acreage that rings those two fields, mostly to the south. It’s all leased but it hasn’t been drilled for years. Why not take steps to incentivize hundreds of new wells, and thousands of new jobs?

Petroleum News: Why the change of heart? Before you were re-elected you seemed to think ACES was working.

Parnell: Last session I introduced legislation to create infield drilling tax credits along with several other tax benefits because I believed it would create jobs on the North Slope. The Legislature said they were not going to do it for the North Slope. But we’ll create tax benefits in Cook Inlet and we have some increased activity for Cook Inlet. What I’ve said this year has been entirely consistent with that. If there is a demonstration there will be new jobs, new production, we are going to move forward with lower taxes. That’s entirely consistent with what I did last year and it’s what I want to do moving forward.

Petroleum News: Can this be done in 90 days?

Parnell: Sure it can. I’ve served in both the House and the Senate. When legislators start talking about a special session on Day 10 (of the regular session), it makes me wonder what’s really going on in the background. Legislators can move on jobs for Alaskans if they really want to during the 90-day session.

Petroleum News: Do you have any gas line concerns?

Parnell: Because of the uncertainty of whether a gas line will occur in the next eight or nine years, yeah that’s the concern. Any chance I get I push these companies to move together on commercializing Alaska’s natural gas, I take it.

Petroleum News: Have you lost any faith in the prospect of getting a gas line built?

Parnell: What I’ve lost is patience with legislators who think that a $40 billion deal comes together overnight. We’ve become this government that you order a burger and get it in two minutes. These deals take time to put together. We are still within the time line that AGIA contemplated. Legislators who supported AGIA ought to be willing to give AGIA a chance to work in the timelines contemplated.

Petroleum News: Are you worried shale development affecting Alaska.

Parnell: Certainly shale development can affect gas line economics. As long as the largest companies in the world appear to be seriously pursuing natural gas in Alaska, which is already coming out of the ground, I’m not so worried about shale. Shale is potentially a shorter-term play. New York has already outlawed it. It has its environmental concerns. It takes a lot of capital to punch the holes for shale gas. I think there is room for both. Everything we see says that natural gas will be needed for decades to come. That’s a 50-year horizon, not a 10- or 20-year horizon.

Petroleum News: What do you do if the companies come to you and say this doesn’t pencil out. Do you find any new ways to monetize the gas?

Parnell: I’m open to any ideas when it comes to monetizing the gas. I’m not sitting there waiting. That’s whole reason I want to see hundreds of new wells drilled. Alaska needs to monetize all of its resources. Just south of Prudhoe Bay and Kuparuk, that’s oil. We should not be standing still and letting that land languish. We should be providing incentives to get new oil production and jobs. There is a lot of oil still left in the North Slope. We are just not going to sit still.

Petroleum News: The state will have spent about $100 million by the end of this fiscal year on gas line reimbursements. Is that money well spent so far?

Parnell: I think so, especially when you consider that Alaska has never been in a place where companies have actually nominated their gas for a gas pipeline. That’s the historic nature of where we are. Being in a place where companies are negotiating precedent agreements. That’s the historic nature of where we are.

Petroleum News: Let’s get back to TAPS (the Trans-Alaska Pipeline System). What are your concerns in both filling the pipeline but also the integrity of the infrastructure?

Parnell: I’m concerned that Alyeska operates TAPS in an environmentally safe and sound way. That being said, one of the best ways to do that is put more oil in the pipeline. It’s like your boiler and the hot water lines under your boiler. When you shut down the water, then you have to restart it, you discover the heat from the water helped keep everything sealed. The valves work when everything is flowing full and hot. It’s the same thing with a pipeline where you have larger quantities of oil flowing through at greater temperatures. System integrity is not the kind of issue it is when it’s down to 300,000 barrels a day or 400,000 barrels a day. That’s why my emphasis is putting more oil in the pipeline. It gets hard to maintain at lower flow and lower temperatures.

Petroleum News: With that in mind, some would like to see oil come from the Chukchi and Beaufort. You spoke about federal overreach. Realistically what can you do about that?

Parnell: We cannot afford federal agency overreach that results in fewer jobs and diminished economic opportunity. It doesn’t bode well for our future. What I’m seeing is the agencies working to pick states off one by one. I think we’re stronger together.

Petroleum News: Does it trouble you that the federal government sold the leases but it’s the federal government who won’t let them drill?

Parnell: That’s the issue. The federal government has a leasing system. Five years later Shell can’t even get an air permit that takes months to get in the Gulf of Mexico.

It’s kind of a bait and switch by the federal government: to take money on one hand for a lease but not allow lease exploration and development activity.

Petroleum News: You’ve touched on oil a lot. Do you think the focus moved away from oil for a couple of years in favor of the gas line and now it’s shifting back?

Parnell: The question really should be what do we need to do to move forward. We still have a lot of oil to find, a lot of minerals to find and a lot of natural gas. Point Thomson is a priority for me. The first order of priority is more oil for TAPS. What you’re seeing is I recognize the value in all resources.

Petroleum News: Talk about Point Thomson. Where would you like to see this by year’s end?

Parnell: I’d like to see a settlement, a resolution that’s in the state’s best interest, and more work in Point Thomson. That’s been one of the state’s bright spots in exploration activity. I think there is a resolution that’s in the state’s best interest. At this point I wouldn’t call it imminent, but I think it’s possible. It’s an important key because it hold