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Vol. 12, No. 46 Week of November 18, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

THE EXPLORERS 2007: Banks sees partnership of equals

Kevin Banks

Acting Director of the Alaska Division of Oil

Much has been made this last year about the relationship between state government and Alaska’s oil and gas industry. Many of you in the business community have no doubt heard and maybe repeated rumors about the state’s apparent dislike of the industry and the lack of access to government decision makers. Nothing could be more wrong. Obviously things changed in some very important ways when Governor Palin’s election in November 2006 signaled a move towards a more populist government. To interpret this change as anti-industry fails to accommodate the nuances of the relationship between the state and industry. I challenge you to find a more pro-development spirit than that held by most Alaskans and their representatives.

People may not realize that we elect politicians who will not only serve as lawmakers and the head of state, but we also elect our leaders to serve as board members and the CEO of one of the largest oil and gas landowners in the country. When our leaders act as government policy makers and execute government policy, they use the tools available to the sovereign to raise revenues through taxes and regulate industry to ensure that operations are conducted safely and with the least environmental impact. When they manage the state’s land holding they are not much different than the managers of any company with a large oil and gas land position.

Our elected representatives receive guidance from the only clause in the state’s constitution that speaks to policy: that they are to “… provide for the utilization, development, and conservation of all natural resources belonging to the state, including land and waters, for the maximum benefit of its people.” In my view, we are fortunate in Alaska that these men and women recognize this responsibility in all that they do. Their debates about taxes and laws that regulate the oil industry usually turn on the impact of their decisions on resource development. When they lead the state in its role as the landlord, they usually find themselves aligned with and responding to the same incentives that private sector managers respond to. As Alaskans, we want our leaders to use the tools appropriate for a partner and full participant in the “commercial space” usually reserved for players from the private sector.

Those of us who work in the Department of Natural Resources — especially the Division of Oil and Gas — recognize that we often work in this commercial space. We must be entrepreneurial and recognize as best we can that we measure our performance in part by how much revenue our lands earn. We start with a successful leasing program to provide as much access to state land for responsible oil and gas development as we can. We offer lease terms that strike an appropriate balance between how the resource is shared with the lessee and the state. The lease contract is our deal with industry: We trade the largest share of our resource to attract investment and we expect that our resource will be developed.

As we unitize leases to facilitate development, we try to strike a balance between prescriptive and detailed work commitments and a more “laissez-faire” management philosophy. We want our lessees to find the most efficient and profitable development solutions. Should we disagree with our lessees about the progress of development, we will first try to find a truly workable compromise — and we can be very patient. If we fail to reach that compromise, we know that we can and must exercise the rights granted to the state in its leases and unit agreements.

Between the time that I write this essay and you read it, we may see some progress on events that will have far reaching affects on the oil and gas industry. The Legislature may have concluded its deliberations of Gov. Palin’s ACES tax initiative, perhaps the superior court will have ruled on the dispute between ExxonMobil and the state over the state’s termination of the Point Thomson unit, and you may have heard some news about AGIA and the “request for applications” for the Alaska gas line.

These events will help to redefine the relationship between the state and industry, a relationship that I think should be a partnership of equals. These events admittedly stirred up a lot of controversy and may have fueled concerns that the State of Alaska is unfriendly to industry, but I hope you will realize that those of us who work for you in government serve in the best interests of the state — just as we expect that our counterparts in industry serve in the best interests of their shareholders.

I believe that we are standing at the start of a new rush for oil and gas development of the Arctic. Policies implemented by Alaska over the next few years will reflect this expectation. We want to encourage new explorers in Alaska’s Arctic with land management practices that will treat them fairly while promoting continued development within the “legacy” fields.

One thing that has never changed: Alaska welcomes responsible and aggressive businesses that will explore, find and expeditiously develop our oil and gas resources.

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