Petroleum News: What advice do you have for Alaska Gov. Sarah Palin regarding oil and gas matters?
Ken Boyd: I think you canít really expect more giant oil fields on state land. Just offsetting the decline in oil production in Prudhoe Bay and Kuparuk is going to be difficult to achieve in the future.
Our future is natural gas. So there is nothing, I think, more important than getting a gas pipeline, not just getting the existing known gas reserves but also the potential future reserves in the Foothills and other places. It should be at the top of the list.
PN: So how does she go about doing it at this point? Former Gov. Frank Murkowski spent a year trying to get a gas contract through.
Boyd: Iíd say more like two years. But personally I hope that she will use some of the work that the Murkowski administration has done. There has been a tremendous amount of information presented. Sure, there are people who donít like certain aspects of the contract. Thatís fine. But certainly, there is a lot of good information out there that needs to be reviewed. It shouldnít be just rejected out of hand. It should at least be reviewed and cherry-picked for the good stuff, the stuff she agrees with. It would save some time in negotiations.
I think the gas line is something where she has to sit down and see in which direction we can go and try to get it done. There is a deal in there somewhere that needs to be made.
PN: Are there any pitfalls or potential land mines for her?
Boyd: There are all kinds of pitfalls whenever you are dealing with a contract that is going to last for as many as 40 or 50 years. One of the problems is the state doesnít have a lot of experience with gas. I hope she will be able to hire people, either on contract or as part of her administration, that have experience with gas. Alaska has just historically not dealt with these huge gas sales. Weíve had small gas sales in Cook Inlet, of course, but not on the scale of a world-class project. So Gov. Palin is going to need some good advice from people who are very, very knowledgeable about gas.
PN: People say another area of concern is the Alaska Coastal Management Program. What advice do you have for the new governor about this program?
Boyd: Iíve been involved with the ACMP a lot, if you remember. The oil industry has been working safely here for 50 years, and we are the most regulated region on the face of the earth. What we really donít need is two conflicting sets of rules ó state rules and the ACMP rules. Sometimes they do conflict.
At this point in our history, we need to realize that weíve done a lot of this work. An example is drilling winter wells. Weíve drilled hundreds of them, but we approach it like weíve never done it before.
I say, No. 1, would be to get more oil and gas activities on the ďBĒ list.
Under ACMP, there are three categories ó ďAĒ list, ďBĒ list and ďCĒ list. On the ďAĒ list are a lot of simple things ó snow fences, light poles, thing that need rubber-stamp approval. On the ďBĒ list are things that are a little bit harder to do, but you can get a permit without a gigantic 50-day review. And on the ďCĒ list are the harder things to do. Iíll just use drilling a winter well on the North Slope as an example. Itís something that has to go through a consistency determination.
What I am saying is for instance, Iíll say 10 years ago, the state and the industry took ice roads. And we built thousands of miles of ice roads. It used to be on the ďCĒ list and had this huge, long process. Gee whiz! We build thousands of miles of them. The ice roads were moved from the ďCĒ list to the ďBĒ list because they are all the same. All you had to do was look at anything that might be different. Thatís the point.
Get things that we have done over and over again, that are well known, that have been permitted dozens or hundreds of times, off that ďCĒ list category and move them into a general concurrence on the ďBĒ list. Iíd use winter wells on the North Slope as an example.
What you want to do is worry about the differences, not things that are the same. To me thatís important.
The other thing would be that we go out to the coastal districts in an ACMP review. Thereís a different set of standards under ACMP. The companies, I think, tend to get caught in the middle of state law and the ACMP. And even the state agencies have a different set of authorities under ACMP. I say, if itís a good idea to do something, then put it in state law.
Bottom line, have one rule book that doesnít conflict, one rule book that everybody understands. Everybody knows how to play the game, and everybody knows the rules.
PN: What about other oil and gas policies? The state of Alaska has made great strides recently in attracting smaller companies to do exploration and development. What advice would you give the new governor on how to encourage this sort of activity or other activity? What should she do about taxation and anything else in the oil and gas industry that needs looking at and fixing?
Boyd: Well, it used to be that whenever you had one of these chamber of commerce lunches or RDC conferences or Alliance meetings, the companies would get up and basically talk about four things: reasonable access to state lands and a decent leasing program; a fair and reasonable taxation program; a sensible permitting program; and the fourth one, which has come on more recently and only for some companies, access to facilities. And thatís only an issue if you donít happen to own facilities. But itís important for the new players.
Taking them in order, now in the present, that list in my opinion has shrunk to three things. The one that has dropped off is the access to state lands because of areawide leasing. You canít lease more than all the land we have. The leasing program, in my opinion, has worked. You donít hear that anymore. Itís no longer on the list.
Mostly from the big companies, itís fair taxation and permitting. For the small companies, itís getting access to facilities. It is important. If a company makes a discovery, how can they get their oil processed? How can they get it into processing facilities? These kinds of agreements have been difficult. The smaller companies are still struggling with that, but they are making some progress.
The other access issue for the near-term and the future is access to the gas pipeline, because the gas pipeline will not be a common carrier. It will be a contract carrier so there has to be a way for companies to be able to get their gas to market, not just the 35 trillion cubic feet of gas reserves we know about. What about the 100 trillion cubic feet of reserves that we hope are there and havenít been discovered yet? There has to be a way to get that gas to market, too, in some fair process. I think those are the kinds of things the governor really has to look at.
The ACMP and a better, more reliable permitting system are important.
As far as taxes go, we have a new tax system. It certainly has raised taxes, but I think the result is yet to be known. How is this going to work?
Certainly, increased taxes, generally, are not something that draw companies to want to come work in your area. However, the ability to write off some expenses sort of offsets some of that tax burden. So, film at 11. I think the jury is still out on whether this new tax program is going to work At least for another six months or a year, we need to be flexible enough to say, if it doesnít work, how can we fix it? Give it a chance to work. If it doesnít work, then fix it.
So taxes, permitting and access ó having good programs for those are the three important things.
PN: Any other advice?
Boyd: Yes, two things. Yesterday, the headline in the paper was about Bristol Bay. The state has held a state lease sale and now includes it in its areawide program. It will be offered for leases every year on the Alaska Peninsula onshore. As you know that goes out three miles offshore and the rule is you have to drill the wells from onshore.
So thereís a lot of support from the local community for that program. Not 100 percent, but pretty good.
However, now the Minerals Management Service, which runs the offshore oil and gas lease sales for the federal government wants to look at Bristol Bay again, and itís proposed to be on their five-year schedule. Itís the newest offshore area to be looked at, and a decision will be made sometime in 2007, I think.
This causes a bit more consternation with the locals. How will this affect the fishing? Itís the usual fishing resource-subsistence argument vs. oil and gas development.
All I would say in that regard is to look beyond the extreme environmental rhetoric. Offshore oil and gas exploration and development is a safe, well-established process. Use appropriate mitigation. There is a way to do this so that everybody wins, so that everybody is protected.
Then thereís the Point Thomson issue. All I would say is forget the emotional hot air. Evaluate the Point Thomson issue only on the facts. Carefully weigh the litigation risk the state will probably face, and then, be prepared with a settlement option. In other words, if this winds up in court, which it almost certainly will, I think the state should at least have in its back pocket, so to speak, an option to settle and find a way to move this forward.
Weíre talking about a quarter of the known gas on the North Slope. The Point Thomson field was in Gov. Murkowskiís gas contract deal. And in the next breath, weíre foreclosing on the unit and the leases. I believe there has to be a deal in here somewhere to make this work. Or else, the gas line negotiations could be impacted in a negative way.
PN: Anything else?
Boyd: Thatís all I had on my little list. I think the gas line, by far, is the most important issue. Point Thomson, as an adjunct to that, is important. Permitting and taxes are important. The Bristol Bay sale needs to be addressed because it is a potential new source