Pruitt talks DNR budget, Arctic prospects

Anchorage Republican scrutinizes DNR finance subcommittee, while holding out hope for a stronger Alaska voice on Arctic issues

Steve Quinn

For Petroleum News

Rep. Lance Pruitt is now serving his third term in the House, having held such posts as co-chair of the House Special Committee on Energy, Majority Leader and now as a member of the House Finance Committee.

But the Anchorage Republican has spent his entire time on the Department of Natural Resources Finance Subcommittee. This year he chaired the group tasked with cutting funds to an agency that essentially regulates the state’s revenue generator.

Pruitt shared his thoughts on that role, plus the future role of Alaska and the United States as the U.S. takes over as chair for the Arctic Council.

Petroleum News: You ran the Department of Natural Resource subcommittee at a time when cuts were called for, unlike previous years. And this is the agency which oversees our state’s wealth so to speak. How did you handle it?

Pruitt: It’s very difficult to look at DNR because of the very thing that you just highlighted - the fact that we make our money from DNR. I was talking to former Revenue Commissioner (Angie) Rodell and she said, “No, no, no. Last year Revenue made more than DNR.” I said, “yes, but you wouldn’t have had that money if it weren’t for the Department of Natural Resources.”

It’s one of the most difficult discussions when you start looking at that department. As we started analyzing it, we kept an open mind. The department was very open with us, which was positive. I had seen some of the things that we did over the last couple years. What we asked them to do is come to us with a look at the last 10 years. What did you add the last 10 years?

They presented what they added the last 10 years. I was there four years ago when we added personnel to get the backlog of permits down. There were several other things over the course of the last two years that they had added. That being said, they didn’t grow as fast as some of the other agencies.

So we took that 10-year growth and compared it to what we currently have and asked the department to give us some places where they could manage a little bit differently. They worked with us but at the same time we kind of had to squeeze them. We had to make some difficult decisions.

We got rid of some of the vacant positions. For example, they had two commercial analyst positions open. They said they needed both. One was up for nine months, the other for six months. We gave them one position. I tried to balance those things throughout.

Petroleum News: There is talk about next year being tougher. We don’t know that for sure but price forecasts aren’t that great. That said, do you start planning for next year during the interim?

Pruitt: Absolutely. We made some difficult decisions, like in forestry and agriculture. I think, especially with timber, we are saving money but we are not cutting off the ability for them to do their job. I will spend some time over the interim to make sure we have the discussion with the parties on both sides - the state and the utilizers - and make sure we’ve got the appropriate system down, then see if there are additional savings potentially there.

If we’ve done what our intent was - take a division that has less revenue from few sales but hadn’t shrunk - by scaling it back to an appropriate size. We want to ask the questions like are you getting appropriate value for those timber sales. I don’t have those answers yet but in the interim I plan to look at that.

I’ve made that commitment to the divisions and to DNR as a whole. We want to sit down with the stakeholders and look at the difficult decisions. I don’t know if I’m going to be able to come back next year and say I’ve found a silver bullet. We’ll look at some of the other divisions as well, even oil and gas, but because of the gas line discussions, we’ve added to DNR this year. We won’t be able to get answers during the interim whether that money is being used effectively or not.

Petroleum News: Speaking of the gas line, that’s been a pretty hot button topic. There’s been a lot of public tension, mostly between the speaker (Mike Chenault) and the governor (Bill Walker), though it has simmered. What do you make of that?

Pruitt: I’m concerned about that. I’m concerned about the political challenges that get in the way of a business discussion. I probably should put my caveat in there. I obviously was a supporter of SB 138; I was supporter of the direction we were going under the AKLNG project. I clearly felt that the ASAP line was truly a backup. That was my view. That’s still my view. It’s still my view. So I have concern of getting off track and moving from a backup discussion to a competition discussion.

Now we have this uncertainty.

The governor has his own thought process and the speaker indicated that he’s more along the line of what my views are. I think this is going to put uncertainty within the market and potentially put us in a position where we could lose out on the current market opportunities out there in other parts of the world, especially as there are so many other projects that are either coming on line or looking to do the same thing. They are going to sign those contracts and every time a contract gets signed for gas, that’s one less customer off the table to make our gas line become a reality.

Petroleum News: Industry representatives and Marty Rutherford over at DNR have told various committees that things are moving along with the AKLNG line. The governor puts out a right-of-way bill that’s getting hearings and then there is a tax bill or payment in lieu of taxes, so things do seem to be moving along the path established by SB 138. With all that in mind why is there all this fuss?

Pruitt: We’ve had these ups and downs. We’ve had ups where it seems like everything is going to be fine. Then for whatever reason there will come out a statement or an op-ed, it will make us all say wait a minute and we put the pause button on.

At a certain point people are going to get tired of hitting the pause button. It does seem like things are moving along. Still from the discussions I’ve had with various people, mostly the industry, they admit there is caution outside of Alaska. They are putting their best foot forward. They are bringing some of their best LNG people to Alaska.

They are moving along and they are putting the investment there by brining the right people here. There is still hesitation because they really don’t know what we are doing. I’m concerned about having two different projects whose people can’t talk to each other. Why are we going to pay for the same information for two different lines when we should be going forward with AKLNG and that ASAP truly is that backup.

We are going to take some of that money we gave to AGDC with the intent of going all the way forward and never having to come back to us on AKLNG. Now they are going to have to use some of that separately on ASAP. So from that perspective I also have some concerns.

Petroleum News: What would you like to see happen this year?

Pruitt: Well, as you know the speaker has his own bill (HB 132) and I really wish we didn’t have to have that bill. My preference would be that we stay the course and that we allow ourselves to move forward with the methodology under SB 138 and didn’t put these kinks into it.

That would be my goal, that we had a definitive understanding that Alaska is first invested in AKLNG. We want to make sure we do everything we can that it’s what we are going to do or we are going to find out that it’s not possible and we need to step aside to let something else happen.

I’d love to come out of here with us having a clear distinct path and that secondarily we could be back here in September or October talking about the next stage. That’s my goal for this year, but right now I don’t know. I can’t tell you for sure that we are doing to be back here this year.

All projects have timelines and sometimes things move off. Those are just the realities of dealing with a massive project, but we are still on track and we’ve got the FEED discussion going. It’s still the uncertainty throughout that I’m really concerned about.

All three of them want to work with us so I appreciate that they didn’t come out.

Let us argue among ourselves. That’s our job to have those discussions and disagreements. I appreciated they didn’t jump into it yelling and screaming in public. They said we are here to work with you guys. I really appreciate that.

Of course Exxon did put a little bit more of a cautionary tone and rightly so.

Hopefully next year we will be looking at a large diameter line that we can spread the risk among four other players. It’s more than just politics when we have those people working with us.

If it’s just we are going to do a line, it’s politics at that point, but when you are working with partners who have billions of dollars of stockholders money at stake, it’s not just about emotion at that point. It’s about making sure you have a project that is viable, workable and makes sense.

Then we can have our discussion about how Alaskans get gas. The best thing we can have right now is four willing partners, who are going to make sure that the likelihood of this going over budget is minimal. That’s as opposed to a fully funded state project where politics are in play and I don’t necessarily trust state government to do it on time and on budget.

We are not going to be saddled with the burden of a very expensive project that has the potential to get out of control. Those players will help us keep that project under control because they focus on the business aspect of the project.

Petroleum News: You folks have been having a lot of discussions on the Arctic. Some of it is in response to the Obama administration’s decision for development in the Arctic. Some of it deals with the United States taking over as chair to the Arctic Council. Let’s take the first one. What are your thoughts and concerns?

Pruitt: First and foremost I was concerned with the ANWR designation. I think the irony of him filming his bit on what he will do to ANWR while he was in Air Force One. It makes me scratch my head. Do you not understand that you have got a very nice four-engine plane you are flying in and needs that oil? You are talking about shutting down a resource that is within your own borders and that we know is there and we know it’s not too far from the trans-Alaska pipeline that has been running for more than 30 years.

To manage it as wilderness, to go over Congress, first and foremost it shows how the president has decided he is going to do things no matter what Congress wants. That’s a dictatorship; that’s not one branch of an overall government. So that right there is incredibly frustrating. He is bowing to the pressures of environmental groups.

Second was the offshore decision. We just saw here last week, an energy committee in Washington declared that if we don’t start investing in offshore oil and gas in the Arctic we will have again have to revert to imports because the shale is seen as a temporary opportunity for us. That is a great poignant discussion on the separation between the Obama administration and reality. He would rather us continue to get oil from countries we don’t necessarily trust or have a rocky relationship with - or countries that may not have the environmental concerns that we do.

Nigeria is a great example of that. He would rather instead of us look at an area where we could be a forerunner in, establishing the appropriate way of developing oil and gas in the Arctic and providing our own resources, instead of doing that he’s saying, let’s shut it all down, Russia is going to do it anyway.

They are probably not going to be safe in doing it. I’d rather us figure out how to do it and have them look to us and go, “O.K., here is what they did to make it sure that it was safe” so they do it safe. The currents in the Arctic go right to Alaska. We can at least be the front runner and show them how to do it right.

Right there we can show them how to do it right on top of adding to our energy security and lastly having more jobs and utilizing the pipeline and keeping it full. I think he is being shortsighted and focusing more on those people who provide either the money or the support to his causes, while not having a rational discussion on while this is important for America, why this is important for Alaska, why this is important internationally for our own stability.

Petroleum News: And lastly, the second part. The U.S. will be taking over as chair to the Arctic Council. What kind of role would you like to see Alaska have?

Pruitt: First and foremost, the biggest challenge is the United States by having a seat at the table will start to recognize they need to focus more on the Arctic. By having the role as chair and having the State Department with a stronger role, there will be more people in Washington that will recognize, OK, there is something to this.

There are still too many people in Washington who believe that Alaska is somewhere down by Hawaii. And so hopefully this will put Alaska for lack of a better term on the map but on the right part of the map.

Against, first and foremost, it will be people realizing that Alaska is part of the Arctic and because of that the U.S. is an Arctic nation. Second, because of our strategic position, not just in the Arctic but with the Bering Sea and the Bering Strait, I would like to see us take a lead in establishing a rules of the road or rules of the water for shipping that goes through the United States. We are going to have the largest ramifications if something goes wrong.

On oil and gas, again, hopefully, it gives us an opportunity to set the appropriate stage that says here is what we think and how we can do this and do it well. It should be going right alongside Shell and the new investments. Hopefully there will be new discoveries on how to make everything work. It should give us a great baseline for other areas.

Lastly, hopefully it will help the rest of the U.S. recognize the need and importance of the investment and infrastructure needed in Alaska. Whether it’s the ports that we’ll need or the need for ice breakers, people will realize Russia has a bunch and China is pushing for more. So hopefully this kind of infrastructure discussion will be raised through this.

People will see the need to invest in Alaska, to make sure we are front-and-center in the coming years. One thing - and I should have touched on it earlier - is of course the security aspect. With everything that Russia is doing in militarizing the Arctic and with China’s interest in joining the discussion as they feel they deserve the oil and gas that’s up there because they have one-fifth of the world’s people.

My view on having this chairmanship is really Alaska utilizing it to get the rest of the U.S. onboard, recognizing we need to be onboard here. We don’t need to be behind. For our security, we need to make sure we have the necessary resources, assets, investment and infrastructure in Alaska for securing our borders and really being the first line of defense for some of the challenges we face whether it’s from China, North Korea or Russia.

We can’t do it if we don’t have the assets located here. It really comes down to getting the rest of the U.S. to just wake up. We are an Arctic nation. That’s why we need to spend more time focusing on it.

There are people who have this image that Alaska is full of igloos and ice, yet somehow they don’t correlate it with being up here in the Arctic. They don’t fully recognize the challenges with the ice opening up.

There are a lot of challenges that we didn’t have 10 years ago. We weren’t thinking this way. We didn’t need to think this way. Now we do.