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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2018

Vol. 23, No. 2 Week of January 14, 2018

Giessel: AGDC, tax system study on table

Steve Quinn

Petroleum News

Sen. Cathy Giessel wonít likely be hearing an oil tax bill this session, but she still expects a busy docket that will feature updates on the prospects of marketing Alaskaís North Slope natural gas, and a careful study of the stateís tax system as co-chair of a working group created under last yearís tax credit rewrite, House Bill 111. Giessel is also excited about advancements at the federal level that include the prospects of exploring the Arctic National Wildlife Refuge coastal plain, also known as the 1002 Area, and the opening of the outer continental shelf under the Trump administrationís new five-year plan. The Anchorage Republican and Resources Committee chair spoke to Petroleum News about what she sees for the upcoming session that begins Jan. 16.

Petroleum News: Letís start with news out of Washington on ANWR and how the state is closer than ever to exploration. Whatís your take on how this came about, say a broad look on where ANWR stands today?

Giessel: You know there are so many people who have said they never thought theyíd see the day when Congress opened up for development the 1002 Area. We are in interesting times. This is pretty exciting. About six weeks ago, one of the lead guys from the U.S. Geological Survey was here in Anchorage and he spoke about the 1002. He showed the geologic formations as they go across the entire North Slope, specifically Prudhoe Bay into the 1002 Area. It showed the continuity of those geologic structures, which contain oil and gas.

So the prospectivity of a significant find in the 1002 Area is just exceedingly high. Itís great news for Alaska. We have a pipeline in place. The royalties are significant. The size of the resource is just wonderful. I think about the return of those jobs and those families who had to move away in the last couple of years because of the job losses in the industry.

Petroleum News: Have you heard from anyone in the industry who believes there is genuine interest?

Giessel: I have not heard from anyone, but in the holiday time, I really havenít been in touch with anyone.

Petroleum News: Weíve heard how the west is more favorable for exploration right now, so do you have a sense there will be interest?

Giessel: You make a good point about the western Prudhoe area and the NPR-A. They have been moving in that direction now for multiple years. Infrastructure has slowly been put into place moving westward. So to move eastward does create some infrastructure challenges. The farthest east weíve gone is Point Thomson and there is one pipeline, one liquids line from the east. There would be more costly infrastructure needed. At the same time, oil prices are eking upward and so while this may not be a gold rush type stampede to ANWR, I do believe there will be interest in examining the potential there.

Petroleum News: With this being federal land, should there be some state incentives put in place, say infrastructure?

Giessel: Thatís also a good question. We have fallen behind in our infrastructure development of the state to begin with. The last substantial road weíve built was the Parks Highway. You could argue the Haul Road as well. One of the initiatives for the budget in 2018 was looking at the ASTAR system that would be a network of roads up on the North Slope creating more connectivity not only for oil and gas but also for the communities. We are also looking at the Ambler Road, same scenario: infrastructure for resource development, which we know is significant in terms of minerals to the west, but also connectivity for the communities.

Just last year Northwest Territories completed a road to the northern coast of Canada. It is estimated that for every villager in communities along that road, they will see savings of $25,000 per year in the cost of supplies, food and other items. For each villager. So roads are really impactful as far as community development and resource development.

The state of Alaska is a bit strapped right now, of course, for revenue, so we would have to look pretty hard at how to appropriate or how to incentivize more infrastructure.

Petroleum News: Speaking of federal territory, Eni announced its directional drilling program in federal waters. What does that tell you about the prospects for that area?

Giessel: Obviously that means there is something out there. Directional drilling for that distance (about six miles) is certainly not inexpensive or risk free. So Eni obviously has some data that is indicating to them that this would be a prudent step. At the same time in Cook Inlet, BlueCrest is pretty confident of a pretty significant gas deposit offshore of their leases. But because the tax credits owed them have not yet been paid, they canít proceed with that development.

So we have a lot of potential offshore. It is costly. Iím pleased that Eni is going forward on the North Slope. Iím hoping we can come up with a resolution on the unpaid tax credits for the folks who work in Cook Inlet.

Petroleum News: One last item with the feds. Talk a little about the appointment of Joe Balash to the Interior Department. What value does that bring Alaska?

Giessel: Iíve worked with Joe Balash almost all of the seven years Iíve served in the Legislature and know him to be a very capable person. Iím excited to have him where he is with the Department of Interior. He certainly knows firsthand the challenges we face with the regulatory barriers as well the environmental challenges. As an Alaskan, I know he not only wants to help facilitate resource development, he also wants to ensure that itís done safely while protecting the environment. I think Alaska has a wonderful advocate at the federal level.

Petroleum News: Going back to the tax credits, the governor has proposed an idea to pay off those credits by selling bonds. What are your thoughts on his idea?

Giessel: Iíve certainly seen the proposal. I have not delved deeply into the financials and what kind of risks the state would be taking if any, what it would cost the state. So there is a lot of detail clearly missing from that proposal. But itís worth looking at.

Petroleum News: I know the bill isnít out yet, but would you like to see that bill in your committee?

Giessel: I would love to see that bill in my committee. I have two members now on my committee who also serve on finance (Sens. Natasha von Imhof and Click Bishop) so I think we could have a really robust discussion in the Resources Committee about not only development of resources but the finances that support it.

Petroleum News: Talk about that a little. How do you believe that (having two members in both committees) helps both committees?

Giessel: It is very valuable to have at least one resource person who sits on both Finance and Resources. The Resources Committee of course works for the main financial drivers for the state of Alaska. Not just the public sector for Alaska but the private sector as well. So having at least one Finance member allows at least one member of Finance to have heard the bill, which inevitably goes on to the Finance Committee. They carry with them the discussion we had in Resources. It also enriches the discussion in the Resources Committee itself. Having Sen. Stedman there as a past co-chair of Senate Finance is exceedingly helpful as well. Plus, currently we have Sen. Meyer who co-chaired the House and Senate Finance committees in the past.

That kind of experience really broadens the discussion. Not just the where a well might need to be drilled but the cost of it, the implications for state revenue. All of those discussions.

Petroleum News: Do you think the bill comes to your committee first, it can assist in the efficiency with Finance, especially with Finance zeroed in on the budgets as they have been these past several years?

Giessel: Well you know when I call an Alaska LNG project update meeting, the Finance Committee is invited to join the Resources Committee. When I put together the membership of the HB 111 working group, I made sure to include not only resource members but finance members. The two subjects - resource development and financial management of our stateís revenues - go hand in hand. So this simply helps inform a broader spectrum of the Senate and the two committees who most deal with the subject matter.

Petroleum News: Speaking of the working group, did you or Rep. (Andy) Josephson have a chance to go to Texas and meet with industry personnel?

Giessel: We had planned a trip with a very small number of members potentially of the working group. Unfortunately, a hurricane occurred at the time we were going to go. We had to abruptly cancel the trip. Itís my understanding that Sen. Stedman who is the chair of the Legislative Budget and Audit Committee did arrange a trip to Houston and he took with him Rep. Josephson, who is the vice chair of Legislative Budget and Audit. They met with the three consultants LB&A has engaged with the Legislature.

Petroleum News: So what would you like to see the working group accomplish in coming months?

Giessel: When Rep. (Geran) Tarr and I sat down to discuss the future of this working group, one of the goals we discussed was the concept of raising the level of understanding and in-depth knowledge of our oil and gas policy for the state of Alaska. It is very difficult when very two years new members join the Legislature - this is part of our elective process - but what happens is new people come in and have no background in this very complex subject. So the first thing the working group did was convene an oil tax policy 101 course. We actually had it on Alaska Day, so it was unfortunate scheduling, but it was when people were available. We had two consultants present to us on the concepts of oil tax fiscal policy and touch a little bit on what we currently have in our law. The main part of it was the underlying economic fundamentals. It was an all-day course. It was attended by legislators, staff, the administration - departments of Revenue and Natural Resources attended - the public as well as the press.

It was very well received. In fact, we had nearly 100 people online because we were live streaming it as well as presenting it in person and in the class room. We are going to offer that course again. That is in my opinion, a fundamental value the working group can bring to this whole process, raising understanding of our policy as it is now and what are the best practices in terms of fiscal policy for oil and gas.

Secondly, we are going to be working with an advisory group. Youíll notice in HB 111 there is very detailed description of an advisory group to the working group. As I look at this description, what occurred to me, actually we have a group that fits this description perfectly. Itís called the Oil and Gas Competitiveness Review Board. This was established back in 2013 as a part of SB 21, the idea being we always want to be aware of where we are falling in worldwide competitiveness in terms of oil and gas. In realizing this group already existed, we approached Wyche Ford - he is currently the chair of the competitiveness review board - and asked him if his group would be willing to join us as the advisory group.

He said the group would be very interested in doing that. We now have a group of people who come from industry, economics, and different companies who will be able to provide us with subject matter expertise on different issues. That will be very valuable. We are connecting with the private sector. Those are the two values I see the working group bringing to the whole legislative process.

Petroleum News: Talk about the makeup of this working group. In the past youíve noted how you like how itís geographically and politically diverse.

Giessel: It really is. For the Senate side there is myself, Sen. Stedman, Sen. von Imhof, Sen. Wielechowski and Sen. Micciche. On the House side they have Resources co-chairs Rep. Tarr and Rep. Josephson, plus Rep. (Jason) Grenn and Rep. (David) Talerico and they are still looking for a replacement for Rep. Westlake.

But, again, we have a diverse group and with geographic distribution with people like Sen. Stedman (of Sitka) having been involved in this subject matter for a very long time and Sen. Micciche having worked in the industry in the past.

Petroleum News: What are your goals and objectives for the committee?

Giessel: We have some hearings coming up that will look at our regulatory process. One of the things I hear about frequently, related particularly with mineral development, is how some of the regulations are rather egregious and is there a way to make them more workable in real life for the private sector minor. Weíll be looking at that. Of course weíll have an LNG update. Fisheries is always a topic. Our timber industry is always a discussion point. Weíll be having meetings with our federal agencies. We had one a couple of years ago with Department of Interior, BLM and National Park Service. Weíll be doing that again to see how we can better work together.

Petroleum News: Speaking of AKLNG, what are your thoughts on where things stand right now?

Giessel: I think that right now we are in an interesting waiting period. We certainly have a wide variety of memorandums of understanding. We could probably paper a room with them. Now we are waiting to see what actually becomes real. In terms of the Senate Resources Committee, we will continually be asking for detail. Up until now weíve gotten very broad numbers. Weíve been told there is a $43 billion cost estimate. Yet we see no high or low estimates for best case and worst case as you would typically see in an estimate presented.

Iím also interested in hearing from the administration as far as what consultants they have engaged. In the past, Black & Veatch have worked for the administration and have provided detailed fiscal analysis to the Legislature. We havenít seen anything like that during this administration. Those are the kinds of things Iím looking for in this project. Iíve been following closely media reports about China. I see they are engaging with multiple countries in resourcing LNG. Iím also watching the Yamal project in Russia. They are exporting directly off of their north coast. They sent one shipment in an ice breaking capable LNG vessel. Iím very interested in how that project is evolving.

One of the things Iíve been asked about frequently is why the state of Alaska is not looking more carefully at the prospect of exporting directly off of our North Slope. So this is a subject I hope to look more into during the Resources Committee hearings. It probably will be busy. There is always lots going on with resources in Alaska.






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