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Vol. 15, No. 43 Week of October 24, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska’s next gov?

Parnell, Berkowitz debate ideas on oil taxes, gas line, suing Uncle Sam

Wesley Loy

For Petroleum News

Alaska Gov. Sean Parnell and his challenger, Ethan Berkowitz, can readily agree the state has one overriding need — to put more oil in the trans-Alaska pipeline.

But the two have divergent ideas on how to do it, and in an Oct. 20 debate in Anchorage each tried to shoot down the other’s approach.

Berkowitz, a Democrat, called the governor’s proposal to adjust state tax law more to the liking of drillers a “cosmetic” change. Parnell, in turn, said his opponent’s plan for the state to rely on royalty deals rather than production taxes could discourage industry and kill jobs.

It was, all in all, a polished and civil debate between two veteran politicians, though the big crowd in the Hotel Captain Cook ballroom was treated to the occasional testy moment.

“Sean, there you go again, making things up,” Berkowitz said at one point, refuting an assertion that he proposed a state-owned natural gas pipeline.

Parnell fired back later when he said he had a picture to prove that Berkowitz did, despite his denial, campaign for Barack Obama.

Organizations representing several of the state’s major resource development industries sponsored the hour long, lunchtime debate: the Alaska Forest Association, the Alaska Miners Association, the Alaska Support Industry Alliance and the Resource Development Council for Alaska.

Sue or be sued?

Alaska voters will decide the governor’s race in the Nov. 2 general election.

Parnell, who moved up from lieutenant governor to finish out Sarah Palin’s term after she resigned effective July 26, 2009, is now seeking a full, four-year term. Berkowitz, an Anchorage resident and former state legislator, is trying to take the job away from Parnell.

Both are approachable and likeable guys, and despite their different party affiliations see eye to eye on some of Alaska’s top oil and gas issues. Moderator Jason Brune of the Resource Development Council demanded concise answers on key questions:

Open the coastal plain of the Arctic National Wildlife Refuge to responsible oil and gas exploration and development? Berkowitz: Yes. Parnell: Yes.

Designate new wilderness areas in either ANWR or the National Petroleum Reserve? Berkowitz: No. Parnell: No.

But the two soon part company over how best to provide for Alaska’s future, and to coax maximum performance out of the state’s bread and butter industry.

As governor, Parnell has shown a propensity to sue the federal government when, for example, the Interior Department bans exploratory drilling on Alaska’s outer continental shelf as fallout from the Deepwater Horizon disaster.

Parnell said he just might bring another suit against the U.S. Environmental Protection Agency, which he said is holding up ExxonMobil’s Point Thomson project on the eastern North Slope to study noise impacts on ANWR, located just east of the field.

The governor said the state first will “work to persuade EPA that this is a crazy territory to be in, and if they do not relent, then we’re going to sue EPA.”

Berkowitz, however, said suing the U.S. government is not as good as Alaska showing it can make things happen for itself, responsibly.

“Here we are, we’re in Wally Hickel’s hotel,” he said, referring to the late governor who built the downtown landmark. “I always liked it when Wally fired up the bulldozers and just threatened to start moving. That’s the kind of thing we’re going to do. I’d like them to sue us for a change instead of us having to sue them. That would make a marked difference in showing how serious we are about developing oil on the North Slope.”

On oil taxes

One of the main flashpoints between Parnell and Berkowitz is how to go about collecting state revenue from oil and gas production, which in Alaska occurs largely on state land.

Parnell, on Oct. 15, rolled out a plan that he says would stimulate more production and jobs. He said the plan builds on his 2009 proposal to offer tax credits to encourage more drilling within existing fields.

“In order to fill our pipeline we need a more competitive tax structure,” Parnell said during the debate. “The plan that I have this year is very similar, with one addition. It’s a two-part plan.”

First, Parnell proposes capping the progressive rise in the state’s production tax rate as oil prices reach higher levels. Oil companies have been complaining, he said, saying they won’t spend here because the state takes too much when oil prices are up.

Second, Parnell proposes tax credits to encourage technically challenging developments, such as producing the North Slope’s vast heavy oil deposits.

Berkowitz said his own plan “is far more ambitious than the cosmetic changes that Sean offered up to you.” At the debate, a Berkowitz campaign worker distributed a position paper outlining his “all-royalty” approach, where the state would negotiate with leaseholders for a share of production.

This would provide “fiscal certainty” for industry, which wouldn’t have to worry about the terms changing because the deal would be a contract the Legislature couldn’t undo, Berkowitz said.

“My administration will expect producers to make work commitments and take steps to protect Alaska’s interests as part of the negotiated packages,” his position paper said.

Parnell, however, said the Berkowitz plan is flawed because the Legislature still would have constitutional taxing powers, thus creating uncertainty.

One of the biggest frustrations for many Alaska governors has been how to achieve a second big pipeline — one to carry the North Slope’s enormous natural gas reserves to market.

Brune, the debate moderator, put this question to Parnell and Berkowitz: What else should the state do to commercialize Alaska’s gas?

The governor said Alaskans should wait for a set of competing pipeline proposals to play out. Two partnerships, one involving TransCanada and ExxonMobil and the other pairing ConocoPhillips and BP, have held open seasons, received bids to ship gas, and are trying to work out final deals. After that, the state will have to deal with the issue of how to tax the gas production.

The state should see the process through and not shove it off to the side, he said.

“This is not the time for a government gas line, which my opponent has proposed,” Parnell said. “We need to fan the flames of the private sector, not write a check from the state for $26 billion for a government gas line.”

That got a rise out of Berkowitz.

“Maybe it’s convenient for you to continue to tell that story, but it’s just not accurate,” he told the governor.

One problem is the state’s so utterly dependent on oil and gas that it’s an investment disincentive for industry, Berkowitz said.

“We need to make sure that we’re not using annual oil and gas revenue to sustain our state budgets the way we have. That will send an incredibly strong signal,” he said, accusing Parnell of authoring some of Alaska’s biggest budgets.

Another way to spur a gas line is to develop in-state demand “so we’re not dependent on Outside interests consuming that gas.”

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