Bishop listens, learns, votes yes

Fairbanks Republican Senator says TransCanada buyout was necessary first step, praises Legislature for productive special session

STEVE QUINN

For Petroleum News

For six years Click Bishop’s view of the state’s efforts to advance a natural gas pipeline project came from that of a Labor commissioner. For the last three years, the Fairbanks Republican now sees things as a state senator. Being on both sides of the table, he says, gives him a unique balance that helps drive his votes and committee questions.

Bishop sat down with Petroleum News to discuss his views on the recent special session and what awaits the Legislature when it returns to Juneau for a regular session in January.

Petroleum News: You were a yes vote, but it wasn’t easy to tell with some of your questions and concerns laid out during the committee hearings.

Bishop: I was a yes vote. When I first came down here, I was a no vote because I wanted to follow what I had known up to that point and time. We had two off ramps for this project. I wanted to learn more about the project and make my decision at the second off ramp. We are going to have to pay the money either way, but I wanted to see the due diligence completed. After getting here and with the back chatter, I asked TransCanada straight up, I hear you guys want to sever the relationship. Is that true? And they said yes.

So at that point the decision for me is pretty cut and dried. When someone wants to leave - and I go back to my years of managing crews and running people, it’s a piece of advice my dad gave me: when an employee wants to drag up, don’t try to talk them into staying because their head is not in the game anymore.

Shake hands, cut them loose and leave them on good terms. Say I’ll see you on the next job. That’s the philosophy I took into this. If the partner wants gone, right, wrong or indifferent, sever the relationship and move on. It was hard for me. Why I was weighing, when I first came here, keeping TC into the project was because of all the upside of TC. I worked under the Palin administration and the Parnell administration under AGIA then as we transformed into SB 138.

You know I had a very good, close relationship with TransCanada from a workforce development side. I was part of the Palin gas team. I sat in those meetings twice a day every day. But my expertise was the workforce side.

I understand pipeline work very well. It was a pure pleasure working with TransCanada on the workforce development issues and seeing firsthand how they run pipeline work. Every project they’ve ever done has been brought in on budget or under budget. They are the number one owner of pipelines in Canada - over 30,000 miles. They run a good efficient operation.

At the end of the day, when the partner wants gone, shake hands and walk away friends because you never know when you might want to strike a deal on the next big job.

Petroleum News: Was there anything the administration told you that helped your decision?

Bishop: No.

Petroleum News: Was there anything the administration told you that gave you pause prior to this.

Bishop: the big pause for me from the administration standpoint was that I think it became clear there were growing pains and turf battles, if you will within AGDC and the state. Now, I’m not going to over play that. It’s not uncommon when you stood up a corporation and you are starting from scratch. I believe now, after those 10 to 12 days of testimony and talking, and this deal gets executed and the buyout happens, now AGDC has all the marbles. They get full 100 percent voting rights from our 25 percent.

It’s one thing to chase the car. Once you’ve caught it. What do you do with it? I have faith in Dan Fauske from a management perspective. I worked with him inside the Palin team on AGIA. There is no doubt on my mind, Dan Fauske has got the management abilities to hire the right people, put them in place and have them execute their jobs in the state’s best interest going forward.

But there are growing pains. It’s about figuring out everyone’s piece of the puzzle. They have got to get together sooner rather than later. I’m hoping there is internal alignment and there is high level team meetings so they can get a clear, bright line on chain of command on execution of their portion of the project. They don’t have to always agree, but they need to all be pulling in the same direction. Anybody inside that team, if I was running the show, isn’t pulling in the same direction, I’d give them two checks and tell them to hit the road, then get somebody who could.

Petroleum News: with a lot of your peers, there were concerns that there didn’t seem to be one or two people they could go to regularly and either get an answer or that person could find the right person to find an answer the way you had in the past with (former natural resources commissioner) Joe Balash and (former deputy revenue commissioner) Mike Pawlowski. Did you get that sense?

Bishop: Yeah, but I think the administration and AGDC has heard loud and clear from the Legislature what I stated previously. There has got to be someone in charge at the top who ultimately makes the decisions on all the information to them though their team leads. Steve Butt from ExxonMobil coined it best: the best player plays. Dan Fauske has got to make sure he’s got the best players playing inside of his organization. The AGDC board has got to make decisions on facts and project economics, then move on.

We’ve got a lot of work in front of us with expansion piece, this 42- to 48-inch study that SB 138 required and hasn’t been executed to date and pushes the project back a bit. We’ve been waiting 50 years for a gas line so now is not the time to get in a hurry. We want to execute in a timely fashion, but you want to limit your liability to make bad decisions.

Petroleum News: So talk about the 42-inch line versus the 48-inch line. Do you favor the larger line or simply the due diligence?

Bishop: You have to do the due diligence. If you don’t, you’ll always be second guessing yourself. You have to do the due diligence on the differential on the pipe sizes. I fully understand why we put 48-inch in SB 138 to look at it. The producers’ best interest might not always be our best interest right? DNR and AOGCC, we have to look out for our interest too. There is a lot of gas yet to be discovered and we need to be thinking, this project is looking 20 years out, the state needs to look 50 years out and longer, right?

Having the expandability in that pipe to bring new volumes of gas in, maybe it’s a foothills discovery or Umiat; we know there is gas there. Maybe the Nenana basin. This pipe is going to go right by there. And there are other gas plays and oil plays along the route so the state has got to be looking out for our best interest too. I fully support doing the due diligence and looking at the economics. Then you can make an analytical side-by-side comparison with the two pipe sizes.

Petroleum News: So what would you like to see accomplished next, especially with pre-FEED as far down as the end of next year?

Bishop: Well, I would like to see the theoretical timelines that are on paper, I’d like to see us meet those project milestones. I’m jumping to the end. That may be a little bit selfish on my part. I think we all have the same goal. We all want gas. We definitely need a new revenue stream. But I’m not one to push a project to a hard date of 2025 for first gas. It’s got to be done correctly. ExxonMobil, they are the lead on this project. You look at the org chart and you look at the number of people that (ExxonMobil) has into this project from an engineering and management standpoint. They have over 50 percent of the team leads and that is to their credit. They are the best of the three remaining partners in an LNG project. So best player plays. Bring them. Just like the New York Yankees - or the Kansas City Royals (newly crowned World Series champions).

Probably one of the biggest things next session is looking into getting a constitutional amendment drafted, getting that thing passed so we can get it on the November ballot. That passage will give the state the authority to go back and negotiate the fiscal terms the projects say they need for the project to go forward.

Petroleum News: Do you believe you’ve advanced the project during the special session?

Bishop: I do. I really do.

Petroleum News: How so?

Bishop: Well, in and of the fact that we had two options in SB 138 to execute the purchase of TC’s share, we did it in the first option versus the second option, we passed the governor’s bill. We also authorized his spend that he needed to execute this.

And to the administration’s credit, just in 10 days the administration came back and trimmed $600,000 from the first day they laid the bill on the table. So that’s a positive. We’ve limited our debt because there is no doubt in my mind we can borrow money cheaper than TC can borrow money.

Fingers crossed, hopefully we are showing alignment to the other project partners between the administration and the Legislature.

Petroleum News: When you look at this project, and you’ve been seeing it for quite a while, and, given these low-price times, you see other projects are being shelved temporarily or shuttered completely, do you feel grateful the project is still moving forward?

Bishop: Oh, absolutely. I’ve said it and I’ll keep saying it until I’m proved wrong, Exxon doesn’t send their best player plays to come up here to Alaska to do a back of the envelope exercise on an LNG project. In the macro and the front end of that statement, ExxonMobil is not spending money on Point Thomson if they don’t want to see this project go to fruition. Point Thomson does not pencil out on 10,000 barrels a day of condensate. The way that project pencils is the 8.2 trillion cubic feet of gas sales from the Point Thomson unit. They didn’t get to be where they are at by making too many mistakes in life. Now back fill that with what I said about Steve Butt being here and Exxon having the best player playing.

Petroleum News: What questions would you like to have answered still?

Bishop: The big question for Click right now is to let the dust settle on this special session, which I think has been a good one. I’ve enjoyed my time here. It’s been intense. You’ve been in those meetings. We were working six and seven hours a day in committee hearings, not counting the behind the scene hours doing the due diligence.

I want to let the dust settle on this special session and let the administration absorb everything that they have observed during this special session as it pertains to questions and comments from the Legislature. I want to give them some breathing room and go back to look at some takeaways from this. Then I’m going to have some follow-up meetings to make sure they got the message that we need clear, bright lines. You, AGDC, have got to operate like a pipeline company, as an owner, as a participant, and bring you’re A-game. Those are the questions I’m going to go back to ask AGDC in time after everybody has had time to go home, reflect and step back from this to really analyze this special session.

They have got the tools. They got all the marbles. They got what they asked for. So now tell me how your best is going to execute and bring the best player plays concept to the project.

I did a lot of work on workforce development on these projects under two administrations. There is a good template out there the department has. I wouldn’t say I was disappointed, but I’m going to be watching going forward. I want to see bullets on those slides. Workforce development: What are you bringing to the table for workforce development? That’s my whole life: workforce development and Alaska hire. I want to see that in black and white on these slide decks in presentations going forward.

You can have the best engineered project in the world, but if you haven’t got a workforce to execute it, then it’s just a piece of paper with a plan on it.

Petroleum News: The Legislature seems to have been giving the governor the benefit of the doubt for being new to its environment and this building at least for day-to-day operations. When does that honeymoon come to a close?

Bishop: I think that honeymoon is about done. I don’t mean that in a disrespectful way. You always learn. I mean certainly from my standpoint, I’ve worked for two governors directly - they signed my check. This one, too, but indirectly. I have no animosity toward the governor. Because of my personality, I’ll give him input where I think he’ll need input, but at the end of the day he is the governor.

Petroleum News: How has it helped you being on that side, the administration?

Bishop: Tremendously. People say you’re a freshman lawmaker. Yeah, I’m a freshman lawmaker, but I know how this building works. You know as well as I do, if you want to be successful here, it boils down to relationships. You’ve been around and watched me long enough, if you want a friend you’ve got to reach out and try to make a friend.

I’m not one to take all of my marbles and go home if we disagree today. I’m not going to break off my pick and never talk to you again. This world is made up of the art of compromise. We will agree where we can agree and disagree where we can disagree. But by God we’ll still go down and have dinner together, or go work out together or go for a walk together.

You don’t know and I don’t know when we will need to work together again in the next week, 10 days, 30 days or next year. It’s all about relationships. Knowing how the administration works, having worked there for almost six years, the people I work with now, they had six years of working with me from over there.

You asked me a question earlier, and I picked the phone up to get an answer. How quickly did I get a response back (from Deputy Natural Resources Commissioner Marty Rutherford)? That’s knowing where to go. The person who got that call - because if you want a friend, you have to make a friend - that’s how fast they call back. So there is a lot of value in conducting yourself that way.

Petroleum News: Looking ahead, the Legislature will be presented with a review and likely a bill on the state’s tax credit system, which prompted the governor to delay $200 million worth of payments under the current budget. What are your thoughts on that?

Bishop: Revenue said that would happen. I haven’t attended every meeting, but the majority of the meetings and I will be having my own meetings on tax credits. As with anything you need to take a look and see if we are getting a return on investment. I think it’s fair to say from the administration’s standpoint we are going to talk about tax credits. I’ve got questions that I’m not going to dive into with this interview, but I’ve got questions on these credits. My goal - and I think it’s everybody’s goal - you want to maximize them for the greatest return on investment for the state.

Petroleum News: But if you can no longer afford them ...?

Bishop: That’s the $64,000 question I’m going to ask. I want to go in with eyes wide open and do a good comprehensive, nonpolitical, purely economic look at these credits. I want to dig a little deeper, then I’d like to be able to see if we can parse out the return on those credits.

Petroleum News: What you’ve just said is what you pledged you would do three years ago with your vote on SB 21, which was if something is not working you would take another look, correct?

Bishop: We said we would take another look if it’s not working as advertised. That being said, the only thing that is not constant is that when we did SB 2, that 1 was modeled between $80 and $120 a barrel. Nobody - and I mean nobody - on this planet and in this business thought oil would be where it is today. That’s not a get out of jail free card from my standpoint, but we need to think about that when we are doing these credits.

Editor’s note: This interview was conducted following the end of the special session, but prior to recent AGDC board changes and the resignation of former AGDC President and CEO Dan Fauske.