Combining dollars and cents with policy

Sen. McGuire moves from co-chair of Resources to member of Finance, Resources; planning Alaska competitiveness study for interim

Steve Quinn

For Petroleum News

Sen. Lesil McGuire wanted a change, but not too far from her interest in resource development. So she opted out of returning to the Senate Resources Committee as co-chair and chose to sit on the Senate Finance Committee while keeping a seat on the Resources Committee.

Before heading to Washington, D.C., for her seventh Energy Council meeting, the Anchorage Republican sat down with Petroleum News for a wide ranging discussion on resource development.

She discussed the state’s oil and gas tax system, her idea for a task force to review how well the state competes globally and Senate Bill 25, which would enable the Alaska Industrial Development and Export Authority to issue bonds for energy projects.

Petroleum News: What are your goals for this year’s trip to Washington, D.C.?

McGuire: My goals remain the same in part, but evolve every year as I build my knowledge base. My number one goal is to make sure the decision makers in Washington, D.C., know who the decision makers are in Alaska and get to hear from us what’s happening in our state. In particular meetings with FERC commissioners are important. This year will be really important because we have three new ones. I’m anxious to hear what they know about Alaska. What do they think about development in my state? The last few years have clearly been focused on the gas line: the large-diameter pipe; the smaller bullet line; the LNG export license out of Cook Inlet. This year one of the important topics I added was hydroelectric permitting. It’s a wonderful opportunity for us to stay on the cutting edge. I’m particularly excited to hear about what’s happening in North Dakota (and the Bakken Shale).

Petroleum News: The state has had three market moving pipeline leaks since 2006. Do you expect any push back from federal lawmakers or regulators on that?

McGuire: I can envision it happening. It would be a question that would be with merit, particularly when they are market moving and particularly when the trans-Alaska pipeline contributes to North America’s secure energy supply. That would be an exciting dialogue, the age of the infrastructure itself, and what we are doing in terms of maintenance. I could certainly envision that question coming up.

Petroleum News: What about the criticism that too many lawmakers (about half of the 60-person Legislature) are going?

McGuire: As the numbers have grown over these last 10 years, I see it as a sign that the Alaska Legislature has become more engaged in the global competition and the global technology that’s out there with respect to energy development. It makes it easier to come back to Alaska and draft competitive policies. When you’re dealing with state dollars, you should always be frugal and cautious. I think it’s important that people who are going to Energy Council are going there with the intent of building on their knowledge base. It’s an institutional knowledge base for the benefit for the people of Alaska.

Petroleum News: Why did you not look to return as Resources co-chair and go to Finance?

McGuire: It’s a natural segue from what I was doing last year. Where we found ourselves at the end of two years with the real understanding that while policy could take us part of the way toward solving Alaska’s energy crisis, dollars and cents were going to be the main solution. I don’t mean just state subsidization of infrastructure. I mean the state looking at tax structure and incentives for oil and gas companies. The separation of oil and gas taxes themselves, a look at mining taxes and whether or not they serve as an incentive or disincentive for the mining prospects we have in this state. From the renewable energy perspective, tax incentives and whether or not those tax incentives are the kind of thing that can get more renewable energy off the ground. When it comes to generation, transmission and supply of energy, Alaska is well behind the rest of the Lower 48, so it’s only from the finance table that those needs can be addressed.

Petroleum News: With that in mind, is Senate Bill 25 your idea of a place to start?

McGuire: I think we need to look at what are we doing with the $12 billion that we have in assets sitting in state coffers along with the $39 billion in the Permanent Fund and what do we want the state to look like 10 years from now, 20 years from now and 50 years from now. What role the state savings should play, if any, in the development of the state moving forward? How can the state use its AAA bond rating? How can the state use its unique structures like the Alaska Housing Finance Corp., the Alaska Railroad or AIEDA to partner with the private sector?

We do not want to be the 97-year-old who dies with zip lock baggies with hundred dollar bills under the mattress. At the same time we don’t want to be the 97-year-old who dies penniless, having exhausted the resources of all the immediate family and friends.

Petroleum News: What about the debate over the state’s tax system and the calls for reducing the state’s take?

McGuire: Alaskans are not convinced that the fiscal system is completely broken. Some lawmakers in this building are not convinced of that. Some lawmakers believe ACES is working just fine. That’s a problem.

Petroleum News: Do you think their position on ACES working is blunted by high oil prices?

McGuire: I was in the building when oil was down to $11 a barrel. I’m able to sit back and look at it from an economic point of view, a business perspective that if someone is taking 80 percent of your profits you have a disincentive to produce. You are globally competitive and you have an opportunity to invest your dollars anywhere on the earth. On one hand, there is a disincentive to staying in Alaska; instead you hold your assets where they are now and wait for a better time and a better tax structure while there is an incentive where you are going to make more profit and have the government take less of yours, then you’re going to invest there, not here.

To me that comes down to the practical part of the business mind that asks where can I make most profit for my shareholders? I don’t think having lawmakers in this building that wish oil and gas companies think less about profits is going to get them to think less about profits. I think the fact that oil prices are so high blunts the sting of it all. There seems to be attitudinally no pressure. I’m looking at the decline in the trans-Alaska pipeline and the numbers of (exploration) wells drilled. There is one planned. One. We compete globally against a variety of places that want the jobs in their backyard. They want the development; they are Alaskans are heart; they want to partner with us, but they are to make money.

Petroleum News: You mention being competitive. What do you hope to gain by a competiveness review from a task force, and is this something you want to lead?

McGuire: The competitiveness review is an idea to follow what Alberta did to bring the public and the Legislature along on a journey that will begin this interim to take a look at how competitive Alaska really is or isn’t from a variety of perspectives. Yes, it’s my intent to lead it. I want to bring along people from the House and the Senate and the business community. I want to look at Alaska’s permitting system. What is the tax structure doing to the investment in Alaska? What is it doing to the wildcatters? What is it doing to the Big 3 (ConocoPhillips, BP and ExxonMobil)? What is it doing in Cook Inlet? Where are we succeeding and where are we failing?

Petroleum News: Isn’t the Legislature through LB&A getting those answers?

McGuire: LB&A is looking narrowly at taxation. I know LB&A’s numbers are going to be critical to what we look at. (LB&A chairman) Mike Hawker and I have spoken a lot about competitiveness review. It’s my hope Mike Hawker will join me from the House side and be the leader he has been on these issues for many years.

Petroleum News: On the House side, there is House Bill 142, which calls for some answers as to whether a pipeline project backed by $500 million of state money is economical. Do you support that or is it unrealistic to be asking for these answers now?

McGuire: I support it. I do think we need a deadline. They are expecting to know what kind of firm transportation offers were made. The longer we wait and rely on that progress, the fewer opportunities there are for other projects to move forward. We’ve simply run out of time. It may well be that we accept the fact that the data we received on the big line is data we shelve for a later date. But to continue spending Alaska’s money and to continue to allow Alaskans to rely on the prospect of a big pipeline project without any real evidence of that is irresponsible.