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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2014

Vol. 19, No. 22 Week of June 01, 2014

Pruitt: 28th will be viewed as historic

House Majority Leader says this Legislature will be remembered for oil tax change, fiscal order and work to advance gas line

Steve Quinn

For Petroleum News

House Majority Leader Lance Pruitt is wrapping up his fourth year in office, the last two as majority leader.

During those two years, lawmakers rewrote the oil tax production laws that now face a repeal vote in August, advanced natural gas line legislation that has jumpstarted optimism for a project as quickly as it has renewed skepticism, and offered some last-minute help to the state’s refining industry with prospective tax credits in the wake of Flint Hills shutting down operations.

Pruitt, an Anchorage Republican, spoke to Petroleum News about the last two years and why he believes they will be pivotal in the state’s political and resource development history.

Petroleum News: Let’s start with SB 138. Where do you think the Legislature advanced the prospects of a project with this bill?

Pruitt: I think the Legislature with that bill first and foremost put out our intent that we are going to be a part of something and we are moving forward with it. That is probably the biggest statement that we made with that piece of legislation: that we are serious at this point. Outside of SB 138, the MOUs (memorandum of understanding) and the alphabet soups of everything we agreed with various partners on, not only have we signaled, but they signaled back that they are ready to invest with us. So, us moving forward on the legislation was kind of our first step of saying we are serious about it. We are fulfilling our piece of the MOU in putting forth legislation that gets the ball rolling.

Petroleum News: There was a range of optimism and skepticism, mostly because some lawmakers have watched plans either not go before a vote or a plan that simply never worked as promised. The caution even comes from those who voted yes on SB 138. Where do you fall in that range?

Pruitt: I’m more on the optimistic side, still a bit cautious.

It may be possible that people hold that view because they’ve been here before. I recognize that. I understand. I can see how they may feel like they’ve been burned. It may be possible that I’m insulated from some of that, but at the same time it’s not like I haven’t been around. I’ve read. I’ve talked to people. I have family in the industry in some capacity. It was dinner table conversation in some cases. I recognize the skepticism. But even those who were around and are still here are more optimistic about this than they were about some of those others. Even (Senate President) Charlie Huggins said at the bill signing that this was his fourth version since he’s been in office and he said this time we got it right. So there’s really more optimism for this one - that this time we’ve got it right.

Petroleum News: Folks have heard that before. This time we’ve got it right. That’s part of the skepticism.

Pruitt: We’ve been talking ever since the initial TAPS went into place that the gas line was next. It was around the corner. I think it was Dan Fauske who likes to talk about an ad in the Fairbanks Daily News Miner from the 1950s that indicated a gas line was around the corner. We’ve been talking about this for years, so skepticism is understandable. But if we sit there and allow skepticism to stop us from moving forward, if we don’t take the opportunity and put a little optimism out there, making at least our efforts from the legislative side, then it’s not going to happen. We’ve got to be willing and open as legislators and policymakers, to maintain that optimism and make sure we understand where everything is going. That way when the next thing comes down the line, instead of having a pessimistic view saying that’s not going to work and I don’t know what to do. If this gas stays in the ground, we don’t get anything. Alaska is not a shrinking economy. It’s not a shrinking state. It’s one of those things that keeps Alaska growing and keeps Alaska this viable economic engine well into the future. So I’ll hold that optimism based on what we got out of this but with that understanding we’ve been talking about this for decades. I’m looking forward to being able to be there when the first gas comes down the line. I look forward to being a part of that.

Petroleum News: What do you believe the Legislature’s job is between now and when the administration comes with a contract at the end of 2015?

Pruitt: The administration has to do its part. We have to make sure we are abreast of what’s coming out of it. In the end, we are going to be the ones who have to sign off on this. We will be the ones who have to come back toward the end of next year to sign off on those contracts. We have to make sure we are well versed with an understanding of what the agreements will be. I understand that there are certain aspects that aren’t going be made public; those are negotiations. I get that.

But we need to make sure we are educating ourselves in what’s being developed. Maybe it’s just an understanding of these mega projects, just all of the pieces that go into building a massive project. We need to educate ourselves so when contracts come up we are ready to deal with them. Part of what happens between now and 2015 will be based on the decision the voters make (in August primary to decide whether to repeal new oil tax laws) and that’s one of the reasons I’m pushing for the voters to make the right decision, that their decision comes out supporting the tax changes we made that got us to the point of the gas line to begin with.

Petroleum News: So you’re saying studying the components of a project like this is essential while negotiations continue?

Pruitt: We’ve got to do our part of educating ourselves. Some members will do it more than others. That’s OK. We’ve had opportunities in the past whether it’s through LB&A, where we brought other people to help educate the Legislature - in the past it might have been on certain aspects of oil taxes. This past year Sen. (Anna) Fairclough did a good job of getting us prepped on the initial discussion on LNG. Despite whatever negotiations are taking place, we can utilize our resources to educate ourselves to what the next step in the project entails and what we should be aware of. The next step is almost unprecedented for the Legislature and for Alaskans. We’ve never been this far. There is a lot of discussion on the initial stage. The next stages are truly new for Alaska. We need to make sure we understand what we deal with, what we are getting into and continue to ensure Alaskans get the best deal.

Petroleum News: So did the symposium on the LNG markets that LB&A sponsored help for the recent deliberations?

Pruitt: I think it gave us an initial starting point. Gas is quite different than oil and we had spent so much time on oil the first year. It was great that we had legislators as well as the staff who were learning this. I appreciate Sen. Fairclough putting that together for us. That definitely helped. People had ideas and thoughts about what LNG entails. But this was experts giving us the real deal and the real understanding about where Alaska is on the worldwide market.

Petroleum News: What would you like to see AGDC (Alaska Gasline Development Corp.) do during this interim?

Pruitt: We’ve kind of empowered them, so I expect to see them grow in their position. We’ve got the plan B aspect and that’s good, but I expect they will build the relationships with the producers and the relationship with the market itself. I expect AGDC to be a corporation almost to the level of the permanent fund in the sense of its impact to Alaskans. This was kind of the ramping up period. I appreciate the governor utilizing the corporation and they could be our seat at the table, arguing for Alaska’s best interest in the coming project. On top of that, they will make sure if something goes sideways, the initial goal of AGDC - that Alaska’s gas will get to Alaskans - will take place through some smaller line. I appreciate they will work in tandem.

Petroleum News: I know it may be a tired discussion, but the issue of Richard Rabinow being on the AGDC board, while being a former Exxon exec and being from Houston. Did you ever have a chance to talk to him or meet him?

Pruitt: I had a chance to see him at the bill signing, but I did not have a chance to interact with him during session when we were debating his role or at the bill signing. But as this relates to AGDC and the issue that came up, my view is that with a project as important as this, that we have the best people available advising our corporation on how to handle this. Some of those people are going to be Alaskans. In certain case we are going to find there are experts Outside who can add to the conversation or have connections that some Alaskans don’t have and I don’t see why we shouldn’t utilize their expertise.

You know a lot of people cite Norway’s oil fund - their version of the PFD - everybody talks about how great that is. My understanding from a couple of years ago - and maybe that’s changed over the couple of years - that was actually run by someone from Sweden. It was kind of controversial, but at the same time, I don’t think anybody complained about the success of that fund. When you are looking to have something successful, my view is find the best people throughout the world. In this case, from what I had a chance to learn, I think he complemented the great people he had on that board.

Petroleum News: You’ve been in office four years, which may not be considered a lot when you compare to others who have been around for four pipeline debates. Did you consider yourself hamstrung or did you feel you had some fresh set of eyes to bring to the table? Perhaps both?

Pruitt: I had some catching up to do; I’ll admit that, even though I spent time trying to understand before it took office. I talked to people who had been in office at the time and aren’t now as well people who have been around and are still around. But I don’t know that I felt hamstrung. I think having people who had expertise helped us with overall discussion. But as I’ve always felt when it comes to the Legislature, I think that people having new perspective coupled with people who had that experience and expertise, together you come up with something that can be a real strong product. If you look at that committee (House Resources), there are a lot of veteran members and that’s usually what happens with that committee. If you look at the two co-chairs (two-term Reps. Eric Feige and Dan Saddler), they were able to help bring a better product.

Petroleum News: The debate over SB 21 is gaining momentum with the vote a little over two months away. I know you voted for it. With that in mind, do you have any concerns about it being repealed?

Pruitt: I’m concerned if we repeal it for sure. Not only does the $10 billion in commitment that the Revenue Source Book had, those commitments were based on that tax structure. If that tax structure changes, I don’t think those commitments remain in the same capacity. There might be a few already in place - because the work has started - but there will be others that don’t come to fruition. I can’t imagine having $10 billion go to other parts of the world when that’s investment that will bring oil out of the ground for us.

I’m also concerned about the gas line not happening if this changes. The gas line doesn’t happen unless we have the SB 21 framework. Right now Alaskans will be putting their thoughts together, reading through all sorts of different messages.

I think the most important thing most of us can truly identify with is the topic and concept of a gas line. If they knew repealing SB 21 would take away a gas line, I think it would be interesting to hear where they fall on this issue. I think a lot of people would say that’s not what we want; that gas line is important to Alaska. So I do see some concerns if the repeal goes through.

Petroleum News: If it does get repealed, what does the Legislature need to do?

Pruitt: If it gets repealed, we are going to have to pretty much go back to the drawing board. I think everyone pretty much admits, even the people on the other side of the aisle, people who might not necessarily have agreed with the tax change, will admit that the ACES framework in today’s market and in today’s world does not work. If it does get repealed, everyone would have to admit, we have to address the decline that was and would continue to take place under the old and what would essentially be the then current ACES framework. It again gets us back into a debate on oil taxes. It doesn’t stop the conversation. I’m not going to sit around while the amount of oil going through the pipeline continues to shrink. It’s actually incredible to see that since the change was made, the decline has slowed. I’m not going to sit around and let it decline the same rate that it was before. I’m going to be active and I think you would find others who ask what can we do to stem the decline? Is there some other form and to tell you the truth other than what’s in SB 21 that will move the needle? In my view, in August I would like to see Alaskans agree with the people who they elected in continuing forward with the framework we have under the More Alaska Production Act.

Petroleum News: Toward the end of the year, the Legislature came up with some last minute assistance to the refining industry. What are your thoughts o what happened and will it be necessary to revisit the status of the state’s refineries next session?

Pruitt: Because we just implemented this that next year is the right time to look at it again or if we need to wait a couple of years to look at what we’ve put in place are actually effective. I don’t know if there will be enough time is really the point. There were a lot of mixed feelings. Everyone agrees that we want to continue to refine, not because of the jobs that are in place but because we want to make sure that we have the energy security. We don’t know if the option the governor has done is really truly going to be the long-term solution. Maybe it is. We want to make sure we are refining our own products and providing some energy security. It may take a couple of years to recognize, to ask ourselves, “does this work or do we need to tweak it?” I think we all have the same goal. I don’t know that we can say that this is exactly going to work. I hope we’ve done it right but we’ve got to give it a little bit of time.

Petroleum News: Do you have any closing thoughts?

Pruitt: One thing I might add is that when people look back at the 28th Legislature it will be among the most historic Legislatures we’ve had. I think it will be up there with the Legislature that created the PFD and the Legislature that had to deal with the Exxon Valdez. You will find the 28th is just as historic with everything that we have done with SB 21, how we put our financial house in order, how we turned around the next year and took that next step getting us closer - the closest we’ve ever been - to getting that gas line. I think people will look back and say that’s one of those historic moments.






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