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Vol. 12, No. 3 Week of January 21, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

MEET ALASKA 2007: Envisioning Alaska’s oil and gas future

Kevin Banks says division will pursue petroleum development in state, while keeping close tabs on industry’s obligations

Petroleum News: What is the direction in which you see the Alaska Division of Oil and Gas heading?

Kevin Banks: If I had to come up with a slogan, it would be, “oil and gas development on our terms.” Obviously, we want to encourage development because it is such an important part of our economy, but we want to do it on our terms.

We recognize that we have some interests in common with the oil and gas industry, but we also know industry has obligations, commitments they have made to us in exchange for developing the state’s hydrocarbon resources. We’re going to keep an eye on those obligations.

We’re also going to be sure the state’s interests are being served in every decision and agreement we make.

That doesn’t mean the division hasn’t been doing that in the past, but I want to keep the obligation out in front of my people, so that they are thinking about it every time they have an opportunity within the division to act on that responsibility.

I also want to empower the people who work at the division. We’ve got some really good and talented people, and they want to be part of the decisions we make. They want to contribute. I intend to make sure they are part of the process. That’s what I mean by empowering the division — giving these talented people the authority they need to do their jobs coupled a strong philosophy of always keeping the state’s best interest in mind.

Remember when Gov. Palin spoke at her inauguration? Think about it. She goes to Fairbanks because that’s where the Alaska Constitutional Convention was held 50 years ago. She brings in as many people as possible that were part of the constitutional convention and then she repeatedly touches on the constitution in her speech.

Our state’s constitution is the mission statement for resource development in Alaska. Article 8 says our resources must be used for the maximum benefit of all citizens.

It’s a clause that appears in very few other state constitutions. … It’s great to have that kind of direction and guidance coming from the governor and from the acting Department of Natural Resources Commissioner Marty Rutherford.

PN: Tell us about the division today versus the division a year ago.

Banks: The division is in a really interesting place today, in two ways. Let’s talk about what’s happened in the last year with our tax structure. We passed a new PPT, petroleum production tax that is giving us a lot more variables than we are used to dealing with. Before, it was a matter of knowing what the price was and figuring out what kind of production rates you had, and you could pretty much estimate what your production tax was going to be. That constituted half the state’s revenue.

Now, with the PPT, the folks in the Department of Revenue are predicting a substantial increase in our taxes. But there are a lot more variables to think about. Revenues will be affected by price, by the investments being made by the producers and the kind of costs that they are facing. All of those variables will have to be accounted for; not only in our forecasts but they will certainly figure into the revenues we actually receive.

In my view, it makes our tax revenue more volatile. If it were based on price alone, it would be volatile. But now we have a lot of other variables to track, which makes it even more volatile, and will affect how much revenue the state brings in for taxes.

It places a burden on the division. Our royalty revenue becomes part of the state’s stable platform for revenues. If you know how much production you have and you know the price, you can figure out what the royalty revenue will be.

To me, this places perhaps a greater responsibility and a greater reliance on royalty revenues to act as sort of the underpinning of state revenues.

By modifying our tax system, the fiscal system in the state is presumably more progressive, and we have more incentives for new development. But at the end of the day when it comes to writing checks for schoolteachers and for public safety officers, you want to make sure the dollars are going to be there, so you’re going to have to look for royalties to play a significant role in the stability of our future revenue stream.

That will impose a much greater degree of responsibility on the division in terms of managing our royalty revenues.

PN: Tell us about the new team leaders at the division.

Banks: Commissioner Rutherford is pulling together people she knows, people whom she has worked with in the past, including Antony Scott, Kurt Gibson and me. All of us are part of the shuffle here in the division.

I become acting director, Kurt becomes acting deputy director and Antony Scott becomes the acting commercial section manager.

The three of us have worked with Commissioner Rutherford in the past on the gas line issue. She is bringing in talent as best as she can find it and trying to assemble the team for the gas line initiative. In part, that’s why we are where we are. She knows who we are. She has confidence in us to not only take care of the division at a fairly important time for Alaska, but also to work with her on the gas line as that moves forward.

Each one of us has about three or four jobs now instead of just one or two.

I’m pretty excited. This is something that can bring a lot of challenges and a fair amount of fun at times. I’m looking forward to moving in.

The other thing I can say about moving in as an acting director here is that I’ve worked for people like Jim Eason, Ken Boyd, Mark Myers and most recently, Bill Van Dyke. I have some really good role models for what a director should be like. As such, I’ve got something on them that they didn’t have. It will be great to take what those mentors have shown me here in the past and apply it at work here every day.

PN: What do you see being the initial approach the Palin administration is going to take on the negotiations for a gas pipeline from the North Slope?

Banks: The governor met with all of the interested parties in the past couple of days. … As we move forward, we’ll be laying out the strategy, adding to the superstructure of a strategy so we can move forward fairly quickly. You’ll soon start to see the results of those meetings.

PN: What has been articulated to you that you can share about where oil and gas development is going to be headed in the next four years?

Banks: On the oil and gas development side, the state has to do what it can to encourage new development. It almost sounds like “déjà vu all over again” because for the past many years, the recognition has been there that falling production is something that has to be managed. This means providing the climate for new development, new resource discoveries and providing as much access to the resource as we possibly can. This is definitely what has to happen in order to maintain the oil and gas industry up here.

On the gas line, the governor has committed to introduce a law of general application setting out certain requirements for a company or consortium to build a gas line. Those requirements include such things as jobs for Alaskans, local contracting and the need for access to the gas for in-state use.

That may be the first step, followed by a fairly open and transparent process to encourage the gas line’s construction just as soon as we can. One of the requirements of any kind of gas line initiative will be a commitment to pre-construction benchmarks, getting someone to tell us when the project is going to be built and sticking to it.

PN: Anything else?

Banks: Within the division, I’m fairly focused right now on the next six months, or so. I will work through staffing requirements because of the moves within the division.

We’re also looking at several new initiatives within the Cook Inlet that may come to fruition in the next year or so, possibly getting some new exploration activity up here. And a fair amount of development work is going on this year on the North Slope.

The division needs to get folks energized and get going. I think people are ready.

PN: What about initiatives started in previous administrations? Is there a hierarchy of what gets pushed forward first?

Banks: We’re still moving ahead with initiatives in the Bristol Bay region. In terms of non-conventional resources, I know our friends at the Division of Geological and Geophysical Surveys are focusing some efforts into gas hydrates research and to a certain extent that will involve the Division of Oil and Gas.

The new PPT and some of the other incentives that have been developed prior to the PPT are still in place. This means the state is going to participate with tax credits in ways that are unprecedented for the State of Alaska. So I would anticipate that when folks start putting pencil to paper and working out what that means for them that we will see quite a bit more activity. The division has to be prepared to meet that increase because folks will want to get moving fairly expeditiously to take advantage of these credits.

I certainly don’t want the Division of Oil and Gas to be any kind of impediment for some sort of bureaucratic reason to keep folks from getting access to the land and to the resources.

Frankly, I think a lot of the new development initiatives will come right out of industry. It will be our job to make sure we are prepared to facilitate their developments here.

PN: Over the years we’ve heard some companies say that it is like pulling teeth to try to get permits and other things done with Alaska’s regulators. More recently, I’ve actually heard people say it was smooth sailing and it’s easy as pie to get things done. Armstrong Oil and Gas is an example. What can you tell the industry that would be a tip, clue or maybe even a guidepost for how to make things go smoothly and quickly with their efforts to get through the regulatory process to get to drilling or exploration or development?

Banks: The first thing I would offer is, “Get to us early.” Talking about a project early on

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