State’s attractiveness for oil tops list

John Coghill, Senate majority leader, in-state energy committee co-chair, says his focus more oil in pipeline, energy for Alaskans

Steve Quinn

For Petroleum News

Sen. John Coghill enters his 15th year of public service this year as the Alaska Senate’s majority leader and co-chair of the Senate in-state energy committee.

It’s a special committee designed to address issues the Resources Committee cannot with 90 days to cover the heavy-hitting items like oil taxes, land issues and advancing a natural gas pipeline project.

Coghill spent 11 years in the Alaska House with stints as the majority leader and Rules chairman.

He joined the Senate in 2010, finishing Gene Therriault’s term. Last year, he served as the minority leader.

Under a newly organized, Republican-led Senate majority, Coghill finds himself back on the frontlines of high profile energy issues such as oil tax reform and developing natural gas.

Coghill sat down with Petroleum News to give his views of what energy discussions lie ahead.

Petroleum News: Speaking as majority leader, what are the legislative priorities?

Coghill: The top priority is making the oil field more attractive to investment with the idea of getting more oil flowing in the pipeline. We’re probably not going to turn the decline around, but you can certainly slow the decline and increase the investment. Oil at this point is the highest value to the producers and to Alaska. It’s still competitive at a world market. We are somewhat at a disadvantage because the shale plays have really drawn a lot of cash. We are not the only place competing for cash. In Texas and North Dakota, we compete in North America for cash investment. Alaska has a legacy field worth investment and we want to make sure it gets the most attention in can to the best advantage of Alaska that it can. So the oil flow is job one.

There are three ways to look at that:

• New exploration, legacy fields. Have we incentivized exploration to the point where we are not getting a bang for the buck for production?

• Have we taxed ourselves so high that we’re not attractive to invest? That’s one of the big debates over the campaign season.

• Is our regulatory scheme simple enough to be attractive to those who have to deal with it? Our time of investment in our permitting runs into timing of our exploration season, so how do we get that better worked out?

I think you’ll see the TAPS throughput committee looking at many of those issues. The in-state energy committee will look at gas first and then tier other things down because things like hydro also have potential. There is urban Alaska, rural Alaska and remote Alaska, so we’ll be looking at other solutions the state can be a big part of.

Petroleum News: In 2007, you voted for the current tax system whose familiar name is ACES. What’s changed?

Coghill: It’s a much different world. We hadn’t heard much about shale. We were anticipating $80 would be the top price. PPT (Petroleum Production Tax, ACES predecessor) had only been installed a year at that point. The idea of progressivity came to be and so did the idea of making our credits more targeted. I thought our credits were generous and were targeted toward production. That hasn’t played out. It looks like we are paying for action, but not production. I was expecting the new exploration would equal production. We wanted to raise the tax with the idea you could buy down the tax if you produce more, so we gave credits. Exploration was the focus. We were expecting exploration would lead to production. Now they (oil companies) tell us, we want to produce but the tax is too high. I think we need to have a better idea of how it can equal production starting from here. It’s true the overall tax rate in the legacy fields, especially if they are going to improve on heavy and viscous oil, may be too high. Last year the Senate majority, they were very reluctant to have the companies come and make their case and give the governor what I would consider an open-ended hearing. I think you’ll see things with a little different approach this year. We are going to have a very different, honest and open conversation. Be prepared to be surprised. Attractiveness to investment is the goal and more oil in the pipeline is the overall goal.

Petroleum News: With that in mind, have you had a chance to review the governor’s ideas for oil tax reform?

Coghill: No, I haven’t except for the five broad principles. It’s an excellent start. I’m not surprised he’s looking to steer the credits toward production and the whole conversation revolved around progressivity last year, so those are the things he’s leaning on big, and that’s good.

Petroleum: News: So what will your committee look to accomplish?

Coghill: There are a lot of things we’ll be looking at, starting with a look at regional issues. For example in Southeast Alaska, natural gas is a solution to some things but hydro and connecting hydro units is a bigger question than some other places like the Interior. If we can get natural gas for power production, if we can get it for our refineries and for our home heating, that’s a win deal. We’re pretty sure we can bring it in cheaper than diesel.

Watching what Donlin Creek is going to do, we can see they are going to run a pipeline out there. Then the question is: Where is the nexus between Southcentral and that and Fairbanks. Certainly we have a lot of coal in Alaska. It’s not politically palatable but it’s an energy source we need to keep an eye on.

Looking at regional issues, we’ll be looking at what’s available for energy use in Alaska and how do we make the best advantage at the lowest cost to our citizens. For example, ASAP (Alaska Stand Alone Pipeline) is going to propose a small, bullet line approach. Does that serve Alaska and Alaskans the best way? The big line would serve an Asian market, but we don’t know that it would serve Alaska well. I think, this session we are going to have to have serious conversations about that. I think you’ve seen Alaska wants to serve itself. Alaska wants to get the best use of its hydrocarbons to the best advantage for our home heating and industry. If we can export it to the benefit of our state coffers, that’s good. If we can do it with a big inch line or if we can do with a bullet line we’re going to do it.

Coghill: You know we have been the victims of many plans that have failed for a variety of reasons, like the changing economy under our feet. When we were going the TransCanada line, we expected that North America would be the market for our gas. Nobody expected the shale plays would come into such a degree as they have. It looks like a longer window than we had hoped for. It looks to me that the United States will have gas — and wet gas — for a good while long yet. It’s wrong for us to sit there and say we will wait that out because we don’t know what the benefits to Alaska will be. The question is can we fit a window in for the export.

The federal coordinator told me Alaska still has some advantages. Closeness to market is an advantage; the fact that we have some infrastructure ready is an advantage; the fact that we have a known supply of gas is an advantage. The disadvantage is we have to ship this stuff in a pipeline to tidewater a good long way and we have to ship it from tidewater to Asia. But there is interest. Those are all important things to us. While we’re doing that we have to ask the question, does it benefit Fairbanks? Does it benefit Southcentral or Valdez?

What I’ve heard from those looking at the big-inch line, is the cost of logistics is one of the bigger costs in pipeline issue. Well, to me that favors Anchorage in many ways. I have favored Valdez because it’s a deepwater port, so I’m going to listen very carefully to the advantages and disadvantages of going down the TAPS corridor or going down to Southcentral.

Petroleum News: What can you do to supplement the work of the Resources Committee, but also without duplicating the efforts?

Coghill: Probably what we’ll look at is, are there some tweaks in the law that can help? If the trucking in propane is one of the better options and the governor proposes we have some bonding, is the mix he said right or do we have statutory barriers we need to modify. If we can set things up rapidly so the Resource Committee has a package that has been looked at in broad terms, then they can look at it in a specific way. That way, not all of the time is consumed on just two or three items.

This is a way of taking a holistic approach. We’ve got 90 days, so this is a time management issue. We are the specialist committee; the Resources Committee is the committee of authority. We’re trying to get some of the preliminary work done, so when they get it, they have the policy calls lined out and the language sets drawn up. That gives them time to do other things. We are hoping this expedites the hearing process. We don’t want to throttle down the Resources Committee.

Petroleum News: That makes two senators from the Interior leading this committee. Do you see that as a problem?

Coghill: I think the two of us have a broad enough view that it’s not going to become the Fairbanks committee. You also have Dennis Egan, Pete Micciche and Bill Wielechowski, so they bring geographical balance to the committee; I’m excited to look at some real action items.

Senator Bishop would like to do the building blocks of an energy plan for Alaska. That requires that you have both a geographical and economic look. Southeast has hydro potential but you have places where they are on fuel oil like everybody else. You do have geographical advantages and disadvantage. I don’t know how well we’ve done that. I know (former Executive Director and Statewide Energy Coordinator) Steve Haagenson did base work.

We can look at that and determine how do you move forward from that. We have urgent issues, too. We have the Interior that has a trucking plan ready to roll. We also have an ASAP plan so we want to look at the timing and the expense of that to make sure we’re not stumbling over each other for dollars, and can we dovetail that so they work well together. I know in the Interior we are crying out for solutions.

There is no doubt in our mind that Southcentral is being constrained on gas supply, so we are going to look at them with the same question. How do you look at import as a short-term measure?

Petroleum News: What do you believe the Legislature can do that can last?

Coghill: This is one of the things I’m hoping Click (Bishop) and I can settle: get gas to Alaskans; get energy to Alaskans. We’re not going to settle all the items. You can have action items that get natural gas to the river system, the road system. If it comes out that a pipe becomes the next thing in line, that’s fine. If it’s a big pipeline that secures long-term contracts, that’s even better. But I think looking out for Alaskans to get energy from their resource to them at the best available price is going to be a focus. Then getting it to a market that’s either national or international and that requires an export permit. The national conversation being what it is, I think we are in a good place on two accounts: it’s something that has no real impact on the national market; it has a good benefit to the balance of trade. All in all we have good hope to export.