Neuman seeks efficient state operations

Big Lake Republican, finance co-chair says removing unnecessary regulations can help with budget crisis as state pursues gas line

STEVE QUINN

For Petroleum News

House Finance Co-Chair Mark Neuman says if Gov. Bill Walker wants to generate new revenue, part of that solution needs to be removing regulations that could stifle the state’s need to develop its resources. Buoyed by the progress of the AKLNG project, Neuman says the Legislature has some heavy lifting ahead in deciding the right path toward a sustainable budget that creates a climate for investment and sustained interest in building a natural gas pipeline. The Big Lake Republican spoke to Petroleum News about the recent special session and what lies ahead when the Legislature reconvenes Jan. 19.

Petroleum News: You’re less than a month away from the regular session. One of the heavy-hitting items on your plate will be the prospects of changes made to the state’s oil tax credit system. What are your thoughts on that?

Neuman: You know the Senate put together a working group to look at some of that. I haven’t had the opportunity to look at the effects of that but we will drill down into it. Obviously Cook Inlet has been very successful. It’s a success now. There is a sunset there for 2016 so there’s the option of just letting it run out anyhow. If you go back and look at the governor’s discussion as to why we should create a new spending plan, in there it mentions stability, showing industries like the banking industry that we have stability. So when you start making huge changes like that, it goes contrary to what their concept is.

But I haven’t had the opportunity to dig into that they way I would like, but I will.

Petroleum News: Do you have to ask yourself at some point, can the state afford it?

Neuman: It’s about the economy. We are a resource development state. If we are not making money from producing our resources and not supporting our public by the jobs they create and making sure the industry has an environment in which they can thrive.

That’s the problem now, trying to get some of these opportunities up: the petroleum reserve; ANWR, some of these areas where we are trying to develop resources.

I look at what can we do to reduce regulations and get this state open for business. You are going to hear that call from me a lot. It’s regulations that continue to stifle us. The public is saying we need to reduce government. There are probably programs that are going to be reduced - fully. But it’s over burdened with regulations. That’s why I went back at statutes over the last 10 years.

I get it. You can’t keep cutting these departments when they are carrying the same workload. But I think reducing that workload of broken regulations that have gone for 57 years and stifled the industry’s investment in this state - that’s where we need to start. We do not have capital dollars. We need to do all that we can to have a good environment to thrive in. Reduce their risk so they invest their capital dollars. That’s where we need to start pulling in new revenue. That needs to be the major focus in my view. That has to go along with it. This governor talks about a recession. If you don’t do this this year there will be a recession. Equally important is that we have industry available for jobs.

Petroleum News: You’ve noted AGDC’s important role of removing politics out of the equation and now you’ve got another two people removed, Dan Fauske and former board chair John Burns. Do you have any concerns about the stability there or is it ...

Neuman: Absolutely. Absolutely. We had a pretty solid, stable board. Now there is only one member on the board from a year ago. The president is gone. The chairman is gone. Yeah, I have concerns. I have huge concerns. Right now we don’t have much choice. We’ll have to wait and see how things start rolling out with the decisions they start making. We were very clear to make sure government kept their fingers out of this and stayed out of it. I personally talked to the governor about it. A lot of risk talked about with this project has generated out of the governor’s office. There’s a lot of discussion on the risk and where is the biggest risk at? With the governor’s replacement of any of these board members, it certainly did raise a lot of questions. I guess I’ll just leave it at that.

Petroleum News: OK, so getting back to the special session, you were a yes vote last month. What drove that vote?

Neuman: Well, do we want a natural gas pipeline in Alaska? I think the answer is yes. This was set up as a stage gated process. We are at that second stage in the pre-FEED where you gather the information that you have and decide if you are going to move forward, are we going to fund it. As I said on the floor, it’s so critical with the three partners that we’ve got and the amount of gas that we have and the impact that it represents, we are in the eyes of the world, they are watching. It’s absolutely critical that this Alaska state Legislature supports this gas pipeline, that we feel this is a good opportunity.

Quite frankly, I don’t see any other way to pay the bills in the future. With the amount of money it takes to run a government and the amount of oil that continues to run down TAPS, we need to do all we can to diversify our revenue streams. This is going to have the greatest impact and the greatest chance of success. Just having one of those companies as a partner, any entity would be thrilled to have that.

But to have all three as a partner, including Exxon - this is the best opportunity the state has ever seen. They know how to get it done. They know how to keep the prices down. They are competing against each other so I feel confident the prices will stay down. They know what they are doing. They have done this before.

Some of the questions I’ve asked, too. Is there an advantage for those companies to have the state as a partner? Well having the entity that controls the permitting and all the regulations as a partner is obviously a good thing for them.

What I want was to compare whether should Alaska just back out of this, just dump it, vote no on it and say we don’t want to go forward or keep moving? Would the producers move forward if the state wasn’t a partner?

Petroleum News: You talk about how there could be a benefit to the producers by having the state as a partner. With that in mind, can the state effectively be a partner and a regulator at the same time?

Neuman: I think that’s why it’s so important to have AGDC as a separate entity out there that does that. RCA does regulations and they do a good job. Alyeska’s pipeline company is a good model. But with the state as a partner, the state is going to have to set it up the right way. That’s why we went through the confidentiality agreements and spent so much time on setting it up. We did all we could to say to the administration or whomever, keep all of the politics out of it, let’s run this like an industry, like a business and keep the costs down. Quite frankly show our partners that there is not going to be outside political influence in this. That raises the risk and it’s all about risk and keeping risk down: Risk down, project forward.

Petroleum News: So as you look back at the special session, what concerns emerged for you?

Neuman: Let’s start at the beginning. First off we weren’t getting any information. As the chair of the committee responsible for putting those programs together, I like to go through a presentation first and make recommendations. A lot of times they will talk about a program or a cost but they don’t put the numbers in there. There are a lot of times we can improve their presentation. As a legislator I think I have a better understanding of how legislators will appreciate their presentation. We didn’t get anything until Friday (the day before session started). We were scheduled to have meetings at 1:30 on Saturday. On Thursday we didn’t know what we were looking at. The last discussions I’ve had with the administration was they got it; they got the message. But the 39-0 vote made me feel good.

Petroleum News: So what did 39-0 tell you?

Neuman: It told me that the legislators who came in here that were pessimistic and had a lot of angst moving forward, that we satisfied them. They received the answers with enough confidence to go to the next step. Are there still questions out there? Absolutely. But do you know enough about this project that you feel confident to go to the next step? Sure. Having the House solidly behind this thing, I think, is a big deal.

Petroleum News: What was missing for you in this session?

Neuman: More discussions. We’ve got to break down the barriers of communication like discussions with the commissioners. How are we going to get into next year’s budget with what we are going to have to do, whether it’s the governor’s plans on fiscal certainty or whether it’s the Legislature’s plans on further reductions? There have got to be better communications, and that’s not happening.

Now those walls have to break down. Don’t get me wrong. There are a few commissioners who I’ve had great communications with and some I have not. They should all be communicating with the co-chairs of finance. I had one commissioner last spring call me and ask what should we be looking at next year. This takes a team effort. I’m expecting them to tell us what do you have to have to run this department? What regulations do you need?

I had a great discussion with (Natural Resources Commissioner) Mark Myers and (Deputy Commissioner) Ed Fogels. You know Ed has been in the regulation scheme his whole life and he’s good at what he’s done. He could go to work on this gas pipeline project and get paid a whole lot more. Both of those guys. I asked what do you need to have to get the job done.

When people ask me where are you going to reduce the budget, last year, we went back 10 years of all the legislation that was passed. Seventy-five percent of them had a fiscal note. All of the subcommittees are working on that.

We need to go back and look at the fiscal notes and ask: does it make good fiscal sense for today’s business climate; would we pass that today and at that level? It’s good to go back and look at what you’ve done. With the reductions that we did last year, the first thing I did was talk to Gunnar Knapp and I asked what’s going to happen. His estimates are 8,000 to 10,000 Alaskans will lose their jobs because there is $1 billion less in Alaska’s economy. And we’ve another $1 billion to go. These are good, hard-working Alaskans and that scares the hell out of me.

The governor talks about bringing in more money as the highest priority, but the biggest priority is the economy. We’ve had about two year’s worth of money left in the capital budget, and now we’ve got none. We’ve got federal highway fund money, so we’ve got horizontal construction money but there is absolutely not one dime for vertical construction money. All the people in the construction industry: builders; electricians; plumbers. That scares the hell out of me.

So we have to make sure we have a good business environment to make sure these businesses can thrive. We have got to make sure we’ve got a business environment that can thrive in this state because of the money that is not going into the state is connected to jobs connected to the construction industry - the 8,000 to 10,000 people who will lose their jobs this year because of that money not going into the economy.

Petroleum News: So how do you tie this to the oil and gas industry?

Neuman: That’s why I started this discussion with Ed Fogels and Mark Myers. I asked what do you have to have. We continue to reduce these departments’ budgets, yet we have all the same personnel, all the same laws, all the same regulations. They are going to get so tight funded they won’t be able to operate. Your inputs and your outputs aren’t going to work. We need to reduce the size of government. I understand they think their job is important.

There has to be good communications between the commissioners and their deputies. Do I know all the regulations that need to change? No I don’t. But what about these commissioners and directors who are looking at how to reduce their budget? Right now, they should be telling us here is what we need to do and here is what we don’t need to do. We can’t afford to be doing this because we don’t use this information.

We don’t have to put five people together to see if some guy can put new steps on his dock. This has to be a cooperative effort.

But let’s go back to the tax credit question. How many of them is the state paying on because a company has to go and do work because a permit and regulation is not needed. We are covering costs for a requirement that’s not needed to do the job. That’s wrong. Wrong. Wrong. Wrong.

Petroleum News: Getting back to the AKLNG, what would you like to see next?

Neuman: I’d like to step outside the box, this political play, and just look at what industry is doing that tells me this is going to be successful. You’ve got Point Thomson, which has spent $4 billion. Even a company as sophisticated as ExxonMobil can only sit on $4 billion for so long before they start to amortize the investment.

We met with Cathy (Foerster) and Dan (Seamount) from AOGCC one evening and they said now we can comply with the amount of offtake without affecting production. What got my attention more than anything, there are 22 regions within the state that similar geologic formations like Point Thomson and Prudhoe Bay. God didn’t make it so oil and gas stops because there is a line on the map. You’ve got NPR-A, you’ve got ANWR, you’ve got other areas of the state that have yet to be developed. You got two of 22 and you’ve got $4 billion-plus invested just in Point Thomson where there are 3.5 billion barrels of condensate that they will develop, but they will be producing gas up there. They are in the business of buying and selling a finite product.

So to have all three partners moving with the state on this project, I think this is going to be a successful pipeline.

Petroleum News: So, as you hear of projects around the world being shelved but watch this project still inching forward, does that give you optimism?

Neuman: who owns those projects? Conoco, BP and Exxon. So they have the ability to control those projects. Would they invest this type of money - $1 million a day, $30 million a month? - would they be doing that if they didn’t want this project to go? Their ability to slow down other projects benefits this state. I’m glad they have got portfolios that are worldwide because that’s our competition.

Petroleum News: So has the administration and the Legislature advanced the gas line project, with the special session and the partners announcing Dec. 3 the intent to move forward or has not enough been done?

Neuman: Oh absolutely. We looked at the numbers and reduced their request by $614,000, which is huge. So we did that and built the bill so we could track every dime requested and put a tracking code on it. This way we know we are not back filling the reductions the Legislature put in place last year. Even the public can do see where that money went.

One of the most important things in all of that, and it was probably the biggest part of the conversation, was the Department of Law funds. We scrubbed this bill pretty well and looked at what every word means. We got rid of language that should not have been in there.

We put only funds for FY 2016. If you want more for 2017, you’ve got to request it. A lot of people don’t look at the technicalities of all of that, really.

Petroleum News: Well, one of the non technical provisions was buying out TransCanada. What are your thoughts on that?

Neuman: When the governor went out six months ago and said I want to pursue the termination clause, it took all of the wind out of their sails. Nobody talked to them because they didn’t have to. The producers didn’t talk to them because their vote didn’t matter. They are out of it. What they said didn’t matter, so why talk to them. They were left inert, without a lot of say.