For ACMP changes, against tax changes

Beth Kerttula, House minority leader, speaks out on contentious coastal zone, production tax issues; says concrete info lacking

Steve Quinn

For Petroleum News

As a lawyer, House Minority Leader Beth Kerttula enjoys a meaningful debate and negotiating a compromise.

Kerttula, a Juneau Democrat beginning her seventh term, says, however, those items are lacking in House Bill 110, which proposes revamping the state’s oil tax system.

Kerttula says the debate lacks consistent information like what it will cost the state (between $1.5 billion and $2 billion a year).

So Kerttula, once an oil and gas lawyer with the state, looked to former ARCO executive and oil consultant Rick Harper for answers. The House Minority paid Harper $12,000 for three days work.

That included searing House Finance testimony that criticizing the bill, emphatically saying a sound argument in favor of a tax cut has not been made.

Calling the money, “incredibly well spent,” Kerttula sat down with Petroleum News after Harper testified and before the House Finance Committee passed the bill, 8-3, five days later.

Petroleum News: There are a lot of consultants out there. Why Rick Harper?

Kerttula: I’ve known him since the stranded gas act when he was working with (Legislative Budget & Audit) consultants. Over the years what I’ve seen is Rick has been consistent in terms of being able to look at complex issues and come up with good straightforward examples of what it means. I knew I could trust him to be independent, not to just say what anyone wanted him to say. Maybe the most important thing is that Rick is an oil guy. He was the head of ARCO gas. He has big experience with the industry.

I figured if anybody could understand it and tell me what the reality of it was, about whether the companies were really threatened with the tax system, that they had to have this to be able to stay in Alaska, to do their work, he would know.

Petroleum News: One of Harper’s salient points was the amount of information the Legislature is getting and the quality of information you’re getting. How much information can you realistically expect when some of it could be proprietary?

Kerttula: In the past legislators have had confidential information available to them if they signed confidentiality agreements, and that was pretty standard in TAPS cases, tax changes in the past. It was specifically available during BP-ARCO (merger). One of the things I hope we can do is to say to the companies if there is information of that nature, then let us sign confidentiality agreements and bring them in. They haven’t even said that: this is confidential; this is proprietary. We need you to sign agreements if we are to talk.

If it’s truly proprietary information, let us sign confidentiality agreements to see it. I don’t think that’s what’s happening. I think that ACES has been in place too short of time for anybody to know exactly what the impact is or what will happen next. We got told don’t change your tax regime too many times or you’ll become unstable and here we are requested to change it almost in historical terms immediately.

Petroleum News: Let’s get to the point about time being too short since ACES passed. That was the argument against ACES. Don’t change anything. It’s too soon. How do you reconcile that?

Kerttula: I think with PPT everyone could see there were huge issues. The state wasn’t bringing in the money. The companies weren’t particularly happy. Nobody was particularly happy. Then of course you had it terribly clouded by the corruption cases. I think it was a work in progress and everyone knew it. It wasn’t like we were going from one real system to another. It was a real system to a mushy situation then into ACES which I think is a real system.

Petroleum News: Let’s get back to lack information. What is missing for you?

Kerttula: What’s missing for me is any kind of a concrete agreement. What the companies are going to do for Alaskans when they give up $2 billion a year in revenue? How is this going to result in any new production for the pipeline? We all know the pipeline (throughput) is declining. We realize there is an issue. We very badly want to do something about it.

But I’m not willing to give up $2 billion a year in revenues when it may not benefit us with increased production and we may not be able to make up that shortfall ever. I’m a lawyer. I’m used to when somebody asks me to negotiate for something they say this is what we’ll give you for doing that. Here we are being asked, this is what we want you to do and we won’t promise you anything.

If working with Rick Harper has done anything it’s again boosted my morale about the North Slope and about the possibilities there. We need to step back and realize that Alaska is a huge asset. We are stable. We will not nationalize the companies. That we’ll not make it so that you’ve got to have oozies on the platforms. That we bend over backward to get the permits and fight the federal government when we think they are wrong to do things.

Some of the PR campaign that has been used against us, I really resent as an Alaskan. It turns us against ourselves. It makes us panicky. It makes us insecure. It makes us compare ourselves against the rest of the world, which I really resent. We should recognize the jewel; we should as legislators be as hardcore for our assets and our stockholders — which are our constituents — as the companies are for theirs.

Petroleum News: What are your ideas for putting oil into the pipeline?

Kerttula: We have a classic monopoly problem on the North Slope. We’ve got three major companies who control the pipeline, who control the access points into the pipeline. This is classic economics. You won’t see a system flourish if that’s how you are controlling things. You’ve got to allow new entrants.

My biggest push is supporting Rep. Guttenberg and Rep. Gardner’s bills for facility access because I know that’s something that will help. The small companies tell us that in private that would be a huge help. They are afraid I think to testify too openly about that of course because their lifeblood is controlled by the big guys. I think if we required access, if we gave some kind of credit for facilities, if we were sure that we would get the new explorers’ oil into the pipeline if there were agreements, then that would help us.

That’s the one thing I know for certain. Another thing that we need to do is to get a federal permit coordinator so we can start to streamline some of the federal processes. It’s taking way too long. It should be a fait accompli. That you can’t go into NPR-A, the National Petroleum Reserve to drill for oil doesn’t make any sense. They get pretty backlogged with their permits. With the smaller companies in particular we would hopefully move to one-stop shopping. It’s been something I’ve known we needed since I worked with coastal management.

Petroleum News: Speaking of coastal management, what would you like to see done with the Coastal Management Program?

Kerttula: I’d like to see the program go back in many ways to the previous program. I’d like to see the program bring back in the air, land and water quality standards that have been carved out. It’s ridiculous to have a coastal management program that can’t consider water quality. You’ve got an ocean program that doesn’t look at the ocean. That fundamental change has to come back. You need to have the communities and the state working together to have meaningful coastal policies so districts do have a right to control to some extent that land and water in the coastal zone. Right now the state is preempting them on everything. That is not the intent of the federal act. Frankly, some of the problems in the oil and gas area are due to the problems that happened in coastal zone. The two are directly related on the North Slope in particular. If you had allowed the North Slope’s program to be strengthened and to be worked out in a cooperative way between the state, the federal government and the Slope, you wouldn’t be having the issues you have now with offshore exploration. You have a program and take the communities out of it and you get distinct unhappiness with what’s next.

Petroleum News: Back to Rick’s discussion, were there any other points that he raised that should be considered?

Kerttula: Rick brings his very own very valuable perspective from inside the oil world. That the way the oil companies make their decisions is not what we are all focused on. We went to a profits tax. It keeps blowing me away. We are giving them all their costs. We are giving them front side credit. We’re giving them exploration. We’re not holding them back. We allow the credits to be stacked. We’re not even stopping that.

Petroleum News: What’s your understanding about Rick Harper’s point about having the wrong debate?

Kerttula: We should say to the companies, you are not showing us why and what we are going to get. You need to come in and prove to us why we are not giving you a good deal right now in Alaska. Come show us what you’re having to spend your money on. Come show us your figures. Come show us your AFEs (authorizations for expenditures). This is one time when I want to revert to being a lawyer for the state, and say I want to see the figures; I want to see what it really means to you. Prove it to us that you need it. Prove it. Prove it to us that you need it. Then once you prove it, show us what you’re going to do for $2 billion a year.