Rep. Feige sees job loss on North Slope

Wants state production tax system changed to get more oil into the pipeline; also concerned about viability of AGIA-backed gas line

Steve Quinn

For Petroleum News

Some of the first words on record for prospective oil tax changes belong to House Resources co-Chairman Eric Feige.

Feige is a pilot who once shuttled North Slope workers to and from Deadhorse and who based his campaign on the need to restructure the state’s tax system.

Last year he was elected to take the vacated position once held by former House Speaker John Harris.

As a freshman Republican, Feige is entrusted with the first review of Gov. Sean Parnell’s oil tax bill, House Bill 110.

When hearings began, Feige went first with a three-minute introduction punctuated with a warning about what happens if no change ensues and oil production continues to decline: “You will wish you had already sold your house,” he told the committee.

Feige’s prelude to the first hearing:

“This is obviously an important issue for the future of Alaska. We have a choice today; we can act on this issue or not.

“If we fail to act, there is a good possibility that in less than 10 years we will be unable to keep the (trans-Alaska pipeline system) in operation due to low flow in the pipeline.

“This implies that there will be little oil production left to tax and the state will be forced to look elsewhere for its revenue.

“Most of us here today feel that we should address this issue now and not put it off to a later date. House Bill 110 is a good start for this debate.

“It will be the objective of this committee to make sure this bill puts more oil in the pipe and to focus on the aspects of this bill that encourage new exploration and enhanced recovery methods.

“The federal government continues to create more and more obstacles to resource development in our state.

“We must take action here in Alaska to keep oil flowing in the TAPS until the U.S. Environmental Protection Agency, the Department of the Interior and other agencies change direction and promote domestic oil production.”

A few days later, Feige sat down with Petroleum News to discuss his priorities for House Resources this session and for the two-year term.

Petroleum News: I gained a sense the tax issue is pretty close to your profession, more so than some realize.

Feige: It affects everybody in the state either directly or indirectly. I was in a very good position to see the effect the ACES legislation had on the exploration business because I was directly involved in the exploration business flying twin otters in and out of Deadhorse in support of a wide variety of different businesses. I’ve flown support for the seismic guys, the drillers, the people building the ice roads, the communications people, the cooks, the dishwaters. Everybody involved in those projects rode on my airplanes. Last winter, there was no flying. Not only were myself and seven other pilots and four mechanics out of work directly but all of those passengers and there were hundreds of people who we moved. All that was happening in the same time people in this body and the other body were saying employment on the slope was the highest it’s ever been. Most of it was dealing with maintenance, not new production or exploration. Production has continued to decline. It’s now approaching a point where we are having low flow issues. The pipeline was designed to carry 1.5 million barrels of oil a day. We are down to almost a third of that. The temperature of that oil drops as it transits the pipeline. Because you’re flowing less, the oil is moving slower. By the time you get down to 500,000 barrels a day which is two or three years depending on who is calculating, Alyeska expects to start having some problems. It will require more require more pigging and it will cause problems if there is a shutdown.

Petroleum News: What are your other priorities for House Resources?

Feige: The next thing we’ll have to be extension of the Alaska Coastal Management Program. The governor has submitted a bill which essentially requests we extend the program six more years in the current format. Personally I support that. Some coastal communities do not feel their voices are being heard. There is some acknowledgement from other members of the community, as well as myself, we need to figure out what we can do to fix that.

Petroleum News: Why is this important?

Feige: The coastal management program is part of a larger federal program. If we let our program lapse, the responsibility for administering that program will revert to the federal government. Quite frankly, from what we’ve seen of the federal government we don’t want to give them any more responsibility for our resources than we have to.

Petroleum News: Speaking of federal decisions, you noted in your introduction to the tax bill concerns about the federal government’s role.

Feige: It seems like every time we turn around the federal government is taking action in one form or another to limit the ability of the State of Alaska to develop its own economy, specifically the resource economy. It started way back with timber and it effectively shut down the southeast timber industry. More than likely you’ll see the direct manifestations of that in redistricting because the Southeast part of Alaska has lost so many people from its population base, that it will lose one House district. The result of some of these decisions will play out. We have a national petroleum reserve and a company (ConocoPhillips) wants to develop exploration prospects they already drilled. They want to turn those exploration prospects into producing fields. It’s a short couple of miles of connecting pipelines. There are pipelines they want to build over the Nigliq channel of the Colville River. The Army Corps of Engineers with input from the EPA said they cannot build a bridge over the channel. There is a bridge over the Kuparuk River and there are several other pipeline crossings of major waterways. Why all of the sudden is there a major problem with a channel about 100 yards wide? If you build a pipeline underground it’s a whole lot more difficult to inspect and maintain. If in 30 years something does fail it’s a lot easier to discover a leak on an exposed pipe.

Petroleum News: You and your colleagues and the governor are trying to make this work, regardless of how you pull the pieces together and when, do you have any concerns about what another pipeline shutdown can do as far as public trust into TAPS and the infrastructure?

Feige: I talked to the folks who run Alyeska. They are on top of what’s going on with the maintenance. The leak at Pump Station 1, they identified that particular line to be looked at. It was scheduled to be looked at in the summer at a time when there would be less grave implications for a shutdown. You can’t shut down the pipeline like that in the winter. I’m confident in the engineers who run the system that they will be able to stay on top of things.

Petroleum News: North Dakota is emerging as a major competitor? There seems to be concern about the state over taking Alaska in oil production some day.

Feige: Maybe they will. I wish them all the luck in the world. I’d like to provide jobs in Alaska for Alaskans so Alaskans don’t have to go to North Dakota to work. We’ve already seen evidence there are a lots of Alaskans down there working because that’s where the jobs are. They are not here.

Petroleum News: Have you talked to any of those folks who are shipping jobs elsewhere?

Feige: I’ve talked to Dave Cruz of Cruz Construction. He actually opened up a North Dakota office to put his people to work. He was one of the main constructers of ice roads on the slope. He isn’t building an ice road now, so he’s got to find a place to put his people to work. It’s possible a lot of our people will end up working down there.

Petroleum News: You threw your support behind a bill calling for economic accountability for TransCanada’s state-backed gas pipeline plan. How come?

Feige: I’m for developing a gas pipeline and getting Alaska gas resources to market — either to market overseas or to market in Alaska. The AGIA process in my view I’ve been saddled with because I was not a part of that group who put that legislation together. I also haven’t seen any results. They had an open season. They told us they hoped to have results by the end of the year. At this point we are paying 90 percent of the costs. A deal is a deal. But if the project is uneconomic, then it’s uneconomic. If both parties agree that it’s uneconomic, then we walk away from the deal. Our point with the bill is to prove to us you have an economic project. If you don’t, declare it uneconomic and we’ll find a project that has merit.

Petroleum News: What are your thoughts on an in-state line?

Feige: If we get a line, I would like to see the line go to Valdez with a spur line to Southcentral (Anchorage-Kenai area). I think that stabilizes the gas supply to Southcentral but it also maximizes the monetization of our state’s resources by carrying it to a deepwater, ice free port that can then be used to export the gas.