Wagoner: Senate Resources will be busy

Co-chair says items up for committee discussion include oil, gas taxes; marketing North Slope gas; unclogging permitting processes

Steve Quinn

For Petroleum News

State Sen. Tom Wagoner has his old seat back.

After spending four years in the minority caucus, the Kenai Republican will serve as co-chair for the Senate Resources Committee.

He spent his first four years as vice chairman then chairman before taking a seat on the panel as a member while serving in the Senate minority.

Wagoner returned to a bipartisan majority to serve as co-chairman with fellow caucus member Joe Paskvan, a Fairbanks Democrat.

Wagoner says the committee will be busy Monday, Wednesday and Friday discussing wide range of items.

They include prospective revised oil and gas taxes; getting North Slope natural gas to market and unclogging the bureaucracy of the state’s permitting processes.

Wagoner sat down with Petroleum News to discuss his priorities for this two-year legislative session.

Petroleum News: Where do you start with priorities?

Wagoner: One is the gas line. Are we or are we not going to build the gas line? If we don’t build a gas line, what are we doing to do with the gas on the North Slope? Right now I don’t think many people are going to come in and explore for oil, then hit gas knowing there is no market for it.

I want to have a consultant sit in and do an analysis for a gas-to-liquids plant on the North Slope.

You’re looking at putting Arctic gas on the market at maybe $6 (per thousand cubic feet) today. Oil today is between $85 and $90. If you put that gas into liquid, which is one of the finest and environmentally friendly fuels there is, and you ship it right down the pipeline with the oil. That may be the answer. I don’t know. But we need to have someone do a fairly thorough study of that.

Right now ... well we just have to wait and see about open season. If open season is not successful I don’t know how long we can afford to wait to build a pipeline and get more people exploring for oil on the North Slope.

The longer the feds screw around with Shell, the more critical it is for us.

Petroleum News: Speaking of Shell. The company has continued struggles with its efforts in drilling exploratory wells because of federal regulatory and judicial hurdles, especially after the Deepwater Horizon spill in the Gulf of Mexico. Are you concerned that the federal government is treating the Arctic and the Gulf of Mexico with the same criteria?

Wagoner: The problem I have is this: I find it ironic that you have Shell investing and spending $2 billion-plus in bidding leases offshore from the federal government, then divisions of the federal government turn around and throw up every road block they can to keep Shell from drilling on leases they paid for. I don’t know why anyone would want to come to the United States and buy leases in the future.

All these costs that accumulate for these delays are passed on to one person. That’s you and me. That’s an expense that people don’t realize is put on every gallon of product they put out. It has to. The oil companies aren’t going to pay for it. Accidents do happen, but they have a pretty good record worldwide. They know what all the effects are from the elements they are working in.

Petroleum News: Your second priority was taxes. Your committee is first in line for Gov. Parnell’s bill calling for a reduction of about $5 billion over a five-year period. What are your thoughts on his proposal?

Wagoner: The State of Alaska is being asked to give up over the next five years $4.5 to $5 billion dollars with no assurance of additional jobs for Alaska or with no assurance of additional money spent on infrastructure on the North Slope. Why would we do that? Why would we buy into something like that?

I’m not saying the bill is dead on arrival. Our job is to review the bill and see if there is something we can change to make it more palatable or work with it and understand it better. I understand the bucks real simple. We’re looking at a lot of money there.

There is nothing there that guarantees it’s going to be one additional barrel of oil into the pipeline. That is the crux of this whole thing. We are supposed to look at ways to put more oil in the pipeline.

We will hold hearings on it. We’ll want to hear from the administration, the Department of Natural Resources, the Department of Revenue; then we’ll want to hear from the companies. I want to hear how they are going to reinvest the money the governor is giving them back to Alaska.

Petroleum News: What do you propose?

Wagoner: In a couple of weeks, I’ll have a bill. What it’s going to do is the incentives will be a tax holiday for five years or the paying of the cost for exploration of drilling to the point of production whichever comes first. It’s similar to what they do in Alberta but they pull their royalties back until the company recoups their investment.

We would do away with the existing tax credit system we have. Right now we are paying 700 million to 800 million in credits. I don’t know what we are getting back for that. We need to take a look at that. If we aren’t getting some production back from that then it isn’t working the way it was designed to work. We intended that to be the driver that gets independents up on the Slope and producing oil to put in the pipeline and increase throughput.

The main vehicle to getting to that point is doing something with the gas. If we don’t do something with the gas, we aren’t going to get there with the other. People aren’t going to go to have drilling programs … if they don’t have somewhere to put there gas. You see Anadarko has quit drilling in Gubik because there is no place to put their gas. We need an avenue for people to have for their gas to get to a market.

Petroleum News: You’ve already heard from Commissioner Dan Sullivan in a committee hearing. What are your initial thoughts?

Wagoner: I’m happy to the see the commissioner taking a good hard look at the permitting process. I was kind of floored when he said there are 2,000 permits currently backlogged. He’s doing everything he can to analyze that. I don’t think we’ll have to spend a whole lot of time on permits if the commissioner is willing to make that a priority in his office.

Petroleum News: What do you want the commissioner to do when it comes to offshore drilling?

Wagoner: I want him to play hardball as much as he can. We’ve got the federal government enabling the importing of more foreign oil by not allowing for instance Shell to drill offshore. The longer we wait on that, the more foreign oil we are going to have in our supply. What is the sense in that?

Petroleum News: Let’s switch to Cook Inlet. There are the prospects of natural gas storage and two companies are racing to be the first to place a jack-up rig and take advantage of tax breaks the Legislature passed last year. Is Cook Inlet emerging as a wild card?

Wagoner: We call it the Cook Inlet stampede. When they started developing Prudhoe Bay, everything went north, and nothing has come back south. That’s why we did that bill we did last year. It looks like there is a fairly good proposal to bring a jack up-rig for a two- to five-year program. The good thing about having a jack up rig in Cook Inlet is that it’s also there as a back-up rig in the Beaufort Sea.

If there is a problem in the Beaufort Sea, that rig could be a first responder. The advantage to having a jack-up rig is there are a lot of gas prospects there to be drilled and there are quite a few of oil prospects.

They weren’t abandoned because they didn’t strike oil; they were abandoned because when they struck oil it wasn’t in the quantities companies figured they needed to produce to make a profit. That’s when oil was $3 or $4 a barrel. So the climate is very different.

Petroleum News: Let’s go back to the gas line. Are you losing faith in (the Alaska Gasline Inducement Act)?

Wagoner: I think it deserves to be played out until we see the final results in Open Season, maybe a little past that.

Before anybody walks and anybody pulls the pin on anything, we need to analyze what happens. If the reason we are going to pull the pin is the Legislature wants to build a bullet line and to build a bullet line they are willing to just finance it, then we need look at what that would do to the big line. If you are going to put that much money in a bullet line, put it in the big line, then you’ve got a spur that comes down and takes care of our needs and you come through Fairbanks and you take care of their gas needs.

We’ve gone too far and been too long at this to throw up our hands and say I’m tired of it. You don’t do business that way.