Wagoner says no tax urgency in Senate

His own bill, SB 85, to reimburse companies for qualifying costs between exploration and first production, is dead in the water

Steve Quinn

For Petroleum News

Ask Sen. Tom Wagoner to list the accomplishments of the Senate Resources Committee this year and he goes silent.

The committee held hearings on Gov. Sean Parnell’s oil tax bill, SB 49, but it never saw the House version HB 110.

And Wagoner didn’t have enough support for his own bill, SB 85, designed to reimburse companies for its qualifying costs, using tax credits once production has started.

With less than a week to go, Wagoner came back with another bill to assist with roads to resource development areas, SB 124.

None of the bills are dead, just motionless until the Legislature returns for the second year of two in the two-year legislative term, or for a special session.

Wagoner, a Kenai Republican, sat down with Petroleum News for a second time this session.

He reflected on his disappointment in the lack of meaningful progress on finding a solution that will help offset annual production decline of about 7 percent.

Petroleum News: What’s your assessment of the session?

Wagoner: I think we should have done a lot more. I feel we haven’t put much work out. We’ve had a lot of hearings but the work product has been very limited. We’ve crafted our bill, SB 85. We’ve got SB 42 out, but SB 85, there is no sense in pushing it. It’s dead in the water right now. There is no urgency on anybody’s part to do anything with taxes.

Some of the group thinks there are no lost jobs on the North Slope. Some believe there is no reason whatsoever to lower any taxes in any manner. I haven’t gotten into that debate as much as my debate about what we need to do to incentivize companies to go out, find and produce more oil for the pipeline. That’s basically what SB 85 does.

Petroleum News: That seems to be the only thing people agree on, fill the pipeline.

Wagoner: They will agree on it, but they aren’t willing to take the steps necessary to make sure the pipeline gets filled. You are not going to refill that pipeline with what we have left on the North Slope. It’s going to take something like Shell to get busy offshore or developing ANWR. It’s just a matter of numbers. There are resources up there that can be developed like Umiat. I’m not sure whether it’s up to the State of Alaska to lower the taxes by $2 billion.

Petroleum News: What about the catch phrase, do nothing senate? How do you respond to that?

Wagoner: I’ve done my best with SB 85 and I can’t get it out of my own committee. What major piece of legislation have we done? I just don’t see much being done other than budgets. Realistically, if this were a different year and we didn’t have problems we face with the oil taxes, I’d say that’s OK. The one thing I will say and Lesil (McGuire) really pushed this, is there is quite a lot of money being put into capital budget for energy projects and one of them is Ormat, which is the geothermal project over Mount Spurr. I think that is going to be an excellent project for the state of Alaska. I like the prospects of it. If you go from Mount Spurr, what’s next down there another 40 miles? Redoubt. That’s one of the more active volcanoes. That’s not too far of a way to go.

Petroleum News: You introduced a bill offering credits to build a year-round road to resource areas with just five days left in the session. What do you hope to achieve in the interim?

Wagoner: What we’d like to do is have a bill in place that allows a credit for a private company to build roads, not a lot of roads but roads to resources, going back to what the Murkowski administration was talking about. Right now what we need is a road to Umiat. I think if we get a road to Umiat, we’ll get additional exploration along that road. There are several different ways to do it. One way is looking at AIDEA (Alaska Industrial Development and Export Authority) to establish LLCs and AIDEA can be the state’s agent, similar to what they did at Red Dog mine. The advantage of having AIDEA doing it is there wouldn’t be such a battler over other parties using it. It would be a work road because of the safety issues and if we start putting public roads all over the North Slope I’m sure the North Slope Borough would object.

Petroleum News: What was your takeaway from ConocoPhillips CEO Jim Mulva’s discussion and pledge to increase drilling activity?

Wagoner: Several things he said there made sense. Having the discussion start the next to the last week of session — it’s a little too late for that. If he had come forward in January, we might be further down there line.

The thing we don’t know here is that people are looking at different numbers on the slope and local hire versus outside hire. I asked the commissioner of revenue, has anybody looked at what has taken place since BP started taking the corroded pipes out of the system and replaced it with new pipe. Does anybody know how many jobs that created during that time span versus how many jobs we’ve lost?

I have guys come through here like (Lynden International’s) Jim Jansen who tell me he’s down 50 percent on the North Slope. I believe him. Doyon Drilling is telling me the same thing. They are all looking around saying they are losing people, losing jobs.

Something is going on that has not been calculated into the mix. I’m not sure how we get to the bottom of it. We’ve been wrapped around the axel of SB 85. We still can’t get the votes to get it out of committee. I’m starting to think, “What are we going to do next session?” The governor said he won’t call special session. Whether that changes or not who knows? We’ve got to start planning for next session as to just what it is we can do. Hopefully we can have some of the people do a little better job of getting a handle of what’s going on the North Slope work wise, exploration wise, production wise. I know when they started replacing those bad lines (in 2006-07), jobs went way up. I want to know what happened to those jobs.

Wagoner: I don’t know there is a corrosion problem on the TAPS line right now. Nobody has made me aware of a corrosion problem. They don’t know if they get that pipe out of there whether it was corrosion or a bad piece of pipe. The admiral (Tom Barrett of Alyeska) said as soon as they figure it out, they will let us know. We probably will have a hearing on it. I’m not going to worry about something like that until they get it out and analyze it and see what happened to that pipe. The one thing that bothers me is the way they were buried under concrete. I’m sure they will give it a real good look. It’s not the blame game I’m worried about. It’s how can we prevent this from happening again. Thankfully it wasn’t really a leak. It was contained. There was no contamination.

Petroleum News: Who has responsibility for filling the pipeline?

Wagoner: I think there is some responsibility on both sides. We own the resource; they have the technology to get it out of the ground. I told them back then (during ACES debate in fall 2007), if we get it wrong, I’m going to come back and fix it. I’m not sure at this point how wrong we are. I think probably if we are wrong at any place it would be in the progressivity and how much we take at the upper end. I’m not against bracketing the progressivity. I’m kind of proud of a statement some reporter made to me and (House Speaker Mike) Chenault picked up on it, saying “Wagoner is taking baby steps.” You’re damn right. That’s the way to reduce the tax. You find the sweet spot. I’m not for taking a meat ax to the thing and carving out a bunch of things and finding out we reduced it too far. It’s a pretty rational approach you take to the budgetary process. You remember how critical Tillerson (ExxonMobil CEO, Rex Tillerson) was of us about changing the tax system and now the company is coming back and criticizing us, wanting us to change the tax system. It’s partly a game. They are playing their hand out and we are playing our hand out.

Petroleum News: So how much of the burden in filing the pipeline lies with the industry?

Wagoner: They have the responsibility they took on when they signed the lease to do everything they can, to continue to produce oil at high level. That being said, I don’t know we calculate what they could and should be doing in areas not in production. Just because they lease areas in Prudhoe Bay, I’m not sure what the requirements to produce those little fields that may or may not be economic. That’s why I like my bill because if they go out and produce those they can get out and get a credit to lay off against future production. That can stimulate production of the pods of oil. That’s a complete partnership right there. Are they required by the current lease terms to do that? I doubt it. They have a duty to produce, but to what extreme do you take that duty produce? After listening Spencer Hosie (proponent of pushing the industry in its legal duty to produce), we can force them to do other things, but it would be a long drawn out legal battle and nobody wins. Well, I shouldn’t say that. Lawyers win.

Petroleum News: How much are high oil prices affecting the debate, especially as high prices mean more money for the state?

Wagoner: I don’t think that’s affecting the debate. The thing that’s affecting the debate is the jobs. The thing that gets me is we are $12 (a barrel) over West Coast.

There are some hard feelings out there between some of the people and the governor and there is not much willingness to help the governor have his way so to speak. There doesn’t seem to be any willingness to help the governor make his points that he’s brought up. I don’t agree with the governor on several instances with his tax rates, but I still want to work with the governor and come to some conclusion that solves a portion of this problem or the whole thing. It doesn’t necessarily have to be a reduction of the tax system to have a solution to the problem. I think the carry forward credit we did in 1985 for people putting oil in the pipeline is as good as any solution than what’s going around the building. I don’t know, this whole thing seems to be one big disconnect throughout the building. Hopefully we aren’t in a total standstill next year. It’s easy for some people to sit here in Juneau and say I don’t think that’s going on. But Sen. McGuire and Sen. Wagoner sit here and we’ve got a big constituency who work for the oil companies and they are telling us we are losing jobs on the North Slope. Other people don’t have that in their districts and they think everything is fine. The jobs in their districts are from the capital projects. There is a different emphasis in what makes our worlds go around and it’s not a healthy deal.