Providing coverage of Alaska and northern Canada's oil and gas industry
February 2016

Vol. 21, No. 6 Week of February 07, 2016

Stoltze: Treat Permanent Fund with care

Chugiak Republican, Sen. Resources member says Legislature needs to exercise caution with spending, credits, AKLNG commitment


For Petroleum News

Sen. Bill Stoltze is among a select few who voted no last November on SB 3001, Gov. Bill Walkerís bill to sever ties with TransCanada. He also sat on the working group examining oil tax credits, preparing himself for what is certain to be a hearty discussion on what changes are reasonable.

The Chugiak Republican also questions whether the prospective AKLNG project really is feasible. He shared these and other thoughts in an interview with Petroleum News.

Petroleum News: So starting with the AKLNG updates, what were your takeaways from those meetings?

Stoltze: Probably the one the members of the public were hearing - where the administration was. The thing I appreciated the most is Marty Rutherford, though not a perfect person, but sheís a person with a lot of integrity and a lot of gas line experience. Having her at the lead gives people less discomfort. I still have questions about the economics and whether or not this is the right project at the right time.

What really needs to be ferreted out is the governorís plan to use the Permanent Fund for the budget. Whatever the plan, it has to be more forthrightly declared, because as Iíve said, you canít use the Permanent Fund more than once.

Petroleum News: What about the governorís letter to the producers, establishing deadlines for fiscal terms? What were your thoughts on that? Is that an ultimatum?

Stoltze: When he spoke publicly, he had more of an ultimatum tone. Then I saw the administration downplay the ultimatum.

Petroleum News: Did you get a sense that the producers felt that way and that there would be push back?

Stoltze: I think a lot of folks are concerned about what the stateís ultimate position is. There is more than a little rhetoric and pronouncements about an Alaskan led project, whether or not we have the expertise and financial wherewithal to do that. We live in a state where we are looking at a $4 billion functional deficit so are we able to take a pretty high level risk that could bankrupt those companies as well if they are wrong? Would I love to have an Alaskan majority? Absolutely. I think most would. But do we also want to take that risk? I donít think we have the capability.

Petroleum News: You sat on the tax credit working group during the interim. What were your takeaways?

Stoltze: First, I think the administration and a lot of my colleagues are correct in that we have to make sure our tax credits are working effectively. Tax credits, whether itís for film, whether itís for fish, whether itís for mining, tax credits are essentially general funds and we have treat them with the same care that we treat other general fund expenditures. Tax credits are more on the oil industry by and large because they are an industry that pays taxes and more applicable. Often they are applied to other industries that donít pay a lot of taxes as was the case with the film industry.

The governor was correct in drawing attention, as many of us have, in the growth credits. A lot of that is a spillover from ACES. Some of them are in the Cook Inlet bill that passed virtually unanimously with a lot of claim of bipartisan credit being taken. Itís unfortunate that itís turned into a partisan issue. I think the governor made a political move vetoing out tax credits that we owed. He did it for political purposes.

Even (Tax Director, Revenue Department) Ken Alper and Commissioner (Randall) Hoffbeck have acknowledged multiple times that it didnít save any money in the budget. It was a losery - thatís my term, not theirs. All we did was take a credit card payment that says you can pay $39.50 or you can pay the balance. The governor and the administration punted and deferred the balance. All it did was add to our deficit for this year. Those are obligated payments we have to make.

Unless Ken Alper really goes (socialist military leader) Che Guevara on us. ... I donít think we are going to go that far. They are out there. They are obligations. We need to honor those obligations, which become a big part of our budget. I think they are all well intentioned and you look at them differently at $100 barrel of oil than you do oil in the $20s or as we were talking in the summer, the 30s and 40s.

Petroleum News: Doesnít this also come down to whether the state can afford them or not?

Stoltze: Sure, but we have to pay what weíre already obligated. Thatís real clear. Getting control of future costs and making sure when we do employ the tax credits, we make sure they are working effectively. You just take a lot harder look when your oil revenues are down. Itís always been real money. What youíre willing to invest in and endure during times when youíre trying to rebuild, we have to make sure the ones we do employ have good returns and are effective.

Petroleum News: Wasnít that something you espoused with your film tax credit bill? You wanted some value for the credits to the treasury right?

Stoltze: Thatís a whole other thing. Thatís an industry that never has and I didnít see them paying any taxes anytime in the future. That was really a clear subsidy. It was a fiscal issue with that and itís a fiscal issue looking at these tax credits. Itís not coincidental reduction on the oil and tax credit appropriation we owed. It was a political statement to his film industry supporters saying, ďhey, I stuck it to oil, too.Ē When all it did was defer the payment. And it caused upheaval in the financial world over the stateís willingness to keep up with its obligations. That said, I think there has been a maturity that has developed. Maybe they donít listen to their tax director so blindly now.

Petroleum News: Last year, the Legislature closed out 2015 by supporting the governorís special session bill, SB 3001, but you were a no vote. How come? Was it a no against buying out TransCanada? Or was it more of a statement that you didnít like the process?

Stoltze: Itís a statement. It was multifaceted. I heard some of the members, even of my own caucus, alluded to the motive of the valley delegation (Stoltze, Charlie Huggins and Mike Dunleavy) and how we arrived at our vote. We arrived at those votes independently without consultation and conversation with each other. I think we didnít have an anticipation of how each of us were going to vote. I think it was three people who live and talk to the same constituent base, and who share some of the same concerns and values coming to their own independent decisions. I can only speak for myself. That would be my assumption. Sen. Huggins and I both voted against the AGIA contract back in 2008. I have my own trepidation about us getting into a gas line project thatís driven less on market and economics and more on a vision quest.

Petroleum News: So was it the bill or the process?

Stoltze: I think it was a combination. It was the process and an overall concern. Hey, letís analyze whether or not this is the right time, whether the economics are right on this project. There is just a lot of anecdotal and subjective information that is fueling this discussion about amorphous type markets, like Asian markets. Well, Asia is pretty big. The governor did receive a good reception in Japan, but I donít see anybody peeling out their checkbooks. Frankly, every time Iíve confronted Japanese businessmen, they are very shrewd businessmen. They are always polite. I wouldnít expect them to be anything other than gracious or polite, but until they whip out their guarantees or their checkbooks, all it is, is a social visit.

Another thing is I guess there is too much stuff not being said about where the governor is going. I hear about his intent on collateralizing the Permanent Fund. Frankly, Iím not sure if the governor and his administration are aware of this, you can only spend the Permanent Fund once. You canít spend it on funding government and funding his gas line.

It kind of reminds me of Democratic amendments where they use the same budget decrement to cut the budget. You can only use it once. There is a little bit of that in there. I think there is not as much transparency, or maybe opacity.

I think we have a more opaque process than what weíve had in the past. Iím troubled by the structure the governor has put together with his people and some of the changes heís made in state government to facilitate less public process with outside counsel he used to have business with helping restructure the AGDC to get more favorable decisions and maybe a clear glide path with no objective criticism.

Iím concerned about such a big project that is a gamble with Alaskaís future at a time when folks in the oil and gas business arenít putting their own money in and the high level of failures from folks in a market with more favorable conditions than this. Would I like to have a gas line and be exporting? Not if it cost us money to do it. I donít want to build it for the sake of building it. The economics have to be there. The market has to be there. You canít wish and dream it.

Petroleum News: There are some who believe this is as far along as weíve ever come and there are some who remain dubious as ever that weíll ever get a gas line built. Which camp do you fall in?

Stoltze: Iím a cynic who wishes I wasnít cynical on it. I wish I could be more hopeful. Iíve heard - and I donít have any documentation for this - that key Murkowski officials said, ďThank God we didnít build a gas line to the Midwest in a glutted market right now. Weíd be losing our tail on that.Ē This is one of those things where if we pull the trigger, we are not going to hear the shot for a long time. We only have one firewall left for Alaska and thatís the Permanent Fund. We need to make sure we have it for sustainable use of essential government and our constitutional mandated services. Again we canít spend it twice. If we go to unsustainable funding levels, which the governor doesnít want to do reductions, then it wonít be too long until we are at that unsustainable level. Whatís our next firewall for protection after the Permanent Fund? I donít know what it is. I donít think it exists. I have some folks in the valley - fortunately they are in the minority - who say we are going to make it with green energy and say we are going to replace oil with alternative energy. Frankly, I think they are jumping ahead of the curve voters legalized in 2014.

Petroleum News: Speaking of voters, the governor has said he would like to put a constitutional change forward to the voters enabling the state to lock in fiscal terms he deems necessary to advance a gas line project. What are your thoughts on a constitutional change?

Stoltze: Well, right now, the first pushback Iíve heard has been from some of the mayors on revenue - that this isnít a fair deal for local government. And those are people who are supporters of the governor. This is on the revenue and the constitutional affects the revenue and they feel they wonít have a sustainable share. Thatís the feedback Iíve gotten. There are a lot of questions that need to be answered. We never got a vote on that issue under Murkowski. It came close to germinating but weíll never know how it would have gone.

For a project like this, I donít blame them for wanting certainty, especially when they (industry) have the biggest target on their backs when it comes to taxes. Income tax doesnít even pay for the inflation and the formula growth. You would have to have one of Walkerís income taxes just about every year to keep up with what he wants to keep doing with state government. Whoís got the bullís-eye on them?

Weíll have to weigh everything. Do we want to put our one last nest egg at risk? Iíve got to tell you I donít know as much as Iíd like to know - enough to be very cautious. And I donít think the governorís people have an expertise on this. Let me put it this way, I donít think they have market supported and economically supported ideas and visions for investments. Itís more about ďwe know how to do it. We know how to get it done. We are going to do this right.Ē There is so much vagueness right now.

Petroleum News: So what do you want to hear from the governor on the gas line moving forward?

Stoltze: I would like to hear more candor about what their plans are. I would like the governor to get rid of his attorney-client privilege. We have the governor setting up a circumstance with the peopleís lawyer who is really the governorís lawyer where they have probably the political equivalent of taking the fifth on stuff the people should be aware of. The governor should waive his attorney-client privilege with his attorney general which is allegedly the peopleís attorney general. I think that would be helpful. Get rid of the secrecy and this cloak-and-dagger stuff. If everything is good and honest, then let people know about it.

Petroleum News: Along those same lines, there are three other partners. What would you like to hear from them in the future?

Stoltze: You know, I donít know. I guess Iíll be cynical. Some are telling me the industry is willing to spend money to show an interest in developing gas because itís cheaper than developing a reserves tax. Thatís the real cynical side of it. But looking at some of the companies, I think they do have a sincere desire to develop gas and export it. Itís tough to do it in the environment we are in. I think they may have some of the same skepticism that many Alaskans have about this being a state dominated, Jim Whitaker/Bill Walker oil company with 51 percent. It probably frightens anybody in the private sector who understands economics and markets. I have a populist streak in me but when youíre investing other peopleís money and your own, you would probably take a more clinical, less altruistic approach.

Petroleum News: Last year at this same time, we were talking about the Arctic and opportunities becoming fewer and fewer. Be it Shell pulling up stakes or efforts to make the 1002 Area further off limits. What do you make of this?

Stoltze: I think itís a combination. We had a resolution expressing our concern about the federal decision. The governor really put his Democrats to work to stop that from coming up. It was really unfortunate. The governor didnít acknowledge receipt of the resolution, stayed hands off. Youíd think it was something he would support.

My Democratic friends said it was procedural, then they stood up and said this isnít appropriately before us. They said it was unconstitutional. We revealed it was appropriately brought before us. Then people like Chris Tuck and Sam Kito and on down proceeded to say why it wasnít. It was interesting to watch it play out. It was very representative of the concern in the Northern communities and the rural communities. It was sensitively written. I didnít run it by Shell. It was a surprise to them that I introduced it.

It passed, but with no notice. The governor virtually ignored it. I went through the whole special session without talking to the administration. They chose who they wanted to talk to. I was totally blown off on an issue to speak up for an important Alaskan concern. It was unfortunate that they got partisan.

Petroleum News: So, even as youíre not the chair or vice chair, what would you like to see accomplished on Resources this year?

Stoltze: One, I think we can help mold the bill that helps us deal with the tax credit issue because thatís a big part of our budget issue and we want to make sure we do it right without inhibiting potential development. I think we had some real successes in Southcentral Alaska and had potential successes in Nenana basin. That group Great Bear, they were totally funded by tax credits. That was the one Senate Democrats and House Democrats were huge supporters. So itís been selective among some of my colleagues on the other side as to how they see it; they supported the independents because they disliked the majors. I think we should look at the tax credits as to whether itís just good policy or not. Not the political side of it.

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