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Irwin, Myers, Menge address open caucus Legislators hear different viewpoints on how gas fiscal contract negotiations going; Harris promises all sides a hearing Kristen Nelson Petroleum News
Republican legislators held an open caucus in Juneau Jan. 12 and invited former Department of Natural Resources Commissioner Tom Irwin and former Director of the Division of Oil and Gas Mark Myers to talk about gas pipeline fiscal contract negotiations. They also invited current DNR Commissioner Mike Menge to comment, although House Speaker John Harris said the administration, the public, the producers and TransCanada will all have later opportunities to talk to the caucus.
Irwin told legislators their intent was good when they passed the Stranded Gas Development Act — prices were low, he said, and the intent was to jump start a gas line. But the economics now are very good, he said.
He said what worries him is that billions are at stake — the future of his kids and his grandkids.
Legislators will be told how much the state is going to make from a gas pipeline, but Irwin said he worries that they won’t be told how much the state could have made.
He asked that legislators dig into the details when the contract becomes public. The companies will look out for themselves, but the Legislature needs to look out for Alaska, Irwin said. He also said he believes the Legislature needs to have more than one option to look at when it makes a decision, not just the proposal from the North Slope producers.
Irwin said he wants a gas pipeline as much as any legislator, but let’s make sure we get the best deal, he said, urging the Legislature to be the state’s champion on the gas pipeline contract. Hard negotiations needed Myers said the state needs to negotiate hard with the producers: in his time as director the division never lost a negotiation with the companies, never lost an appeal and never lost a court case because the division did its homework and worked hard, and “when we made a deal we made them keep it.”
The gas line negotiations were the same, he said: sophisticated negotiating was required, but DNR believed it could get a fair deal for all sides. He told legislators that work commitments are a crucial part of a contract. Incentives are appropriate if the state wants to accelerate a gas pipeline, he said, but that requires real work commitments. Myers said he is concerned that the state has said its contract relies on due diligence rather than work commitments.
On the issue of the state being in the gas business, Myers said the state doesn’t control the gas — it doesn’t have an upstream arm, so has no authority upstream to manage the flow of gas into the pipeline. That means it takes a significant business risk in what he described as a difficult and risky business.
The alternative is for the state, under its lease terms, to take the gas in value — the producers use their expertise to market the gas and give the state the best price.
Access to the pipeline for explorers is also an issue, he said, because explorers are the most active drillers. Whether gas stranded an issue Asked if the gas is truly stranded, Irwin said he thinks the gas is economic and not stranded. Myers said there are numerous tests for whether gas is stranded. He told legislators you can’t rely on pre-built infrastructure, rather it’s an economic test involving reasonable rates of return. The Legislature, through Legislative Budget and Audit, has plenty of data to look at this issue, he said.
In response to a question about the administration’s negotiating, Irwin said he loves the word leverage and is willing to walk away from the table if that’s what it takes. This really isn’t a political issue, he said, it’s a big-time business issue, and the state is dealing with some of the best in the world, and they don’t mind using leverage and they don’t mind saying no.
If he had it to do all over, Irwin said, he thinks the Legislature should have formed a business unit that had its own board of directors accountable to the Legislature to work on a deal. He also said he thought the federal government took the right tack by putting incentives out there for anyone to use, rather than trying to negotiate a deal with a few parties. Business rather than litigation Menge said the administration made the decision to do a business deal rather than proceed through litigation to take the gas. Every question posed by legislators will be answered, he said, when a contract is brought forward.
But, he said, the truth of a contract will lie 20 to 30 years in the future.
He urged the Legislature not to abandon a business deal for litigation if the project doesn’t move forward quickly, and said each of the points raised by Irwin and Myers were valid, but would look very different to legislators when seen in the context of the overall negotiation.
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