Meyer: Ready to resume AKLNG work

Anchorage Republican says he wishes other items were on the special session call, adds gas reserves tax a surprise and futile

STEVE QUINN

For Petroleum News

Senate President Kevin Meyer says he believes the time is right to advance the state’s prospects for a large-diameter natural gas pipeline and export facility. But he would prefer a more substantive special session when lawmakers reconvene in a week.

The Anchorage Republican has been in office - either the House or Senate - for nearly 15 years and shared his thoughts on the upcoming session that will examine whether to keep TransCanada as a project partner or buy out the Canadian pipeline company. He also weighed in on whether place a tax on natural gas reserves held by leaseholders BP, ConocoPhillips and ExxonMobil, an effort that failed at the polls in 2006.

Petroleum News: What is your take on the upcoming special session, say in a broad sense?

Meyer: We are not opposed to the special session by any means. In fact, we’ve been expecting this for some time in order to stay on schedule with SB 138 and keeping the gas pipeline progress moving forward so this is no surprise to us and we were planning a special session in October, now it will be late October. What caught us by surprise were the topics he wanted to bring up. We were thinking maybe PILT and maybe the constitutional amendment and maybe some statutory changes to give AGDC a little more authority.

We certainly weren’t expecting the gas reserves tax, that’s for sure. The TransCanada thing was something we certainly were expecting. That’s something we’d like to have resolved before year end. So that one is fine but the gas reserves tax threw us for a loop.

Petroleum News: So is there something that absolutely needs to be completed during those 30 days?

Meyer: No. The PILT can be done for example during regular session. The constitutional amendment, which seems important to producers can be done during regular session and still brought before voters in the coming election. TransCanada, we have to deal with that before year end, though I suppose we could reach an agreement with them to postpone a decision, but that’s probably something we have to do during special session and we will do.

Like I said, that one didn’t catch us by surprise too much. It was the gas reserves that caught us by surprise. Our feeling is we are there, we are there for 30 days, why not take up some of these other items and keep things moving forward.

Obviously during regular session we are going to have our hands full with the budget, and whatever revenue ideas that come up and will get discussed. The more we can do now, the better. That’s why we were a little disappointed the governor didn’t bring forward some of those other things I mentioned, but instead mentioned a new one, which has really thrown us for a curve.

But once we get there, we hope to get in and out as quickly as possible. That’s why we were hoping to get information early before we got to Juneau. That doesn’t look like it’s going to happen, at least the way we had hoped, so that will slow us down a little bit and keep us there a little longer. But everybody seems anxious to dive into this. We are anxious to keep the project moving forward.

Petroleum News: So what is your take on each of this, first on TransCanada, which has already been the subject of some heavy debate off and on these last several years?

Meyer: Whether we buy out their share or not, might have merit. The frustration that the speaker and I have now, we were not promised but kind of led to believe we would get all of our information 30 days before the special session.

So in other words when he made his announcement to have the special session, we were supposed to get all of the information so we could start reviewing the documents, have some discussion about it while we are here in Anchorage so folks in Southcentral could have some input.

Certainly this way all 60 of us would be up to speed before we get down to Juneau so once we got there, we could do the official committee process, amend the bill, have public hearings and get it to the floor. By the time it got to the floor for a vote, we would be pretty familiar with it. We could be in and out of Juneau in a week or two. The frustration is we don’t have the information with less than two weeks to go before special session begins.

We did get some preliminary information from Black & Veatch (consultants to the Walker administration), but it wasn’t very detailed. I read through that and probably need to read though it a couple of more times. Based on their numbers, based on their forecast, based on their variables, it makes sense to buy out TransCanada’s share.

But again, they are forecasting 10 years down the road and nobody’s numbers are correct or accurate10 years from now. I guess we have to keep in mind this is Black & Veatch’s best forecast of what things are going to look like in 10 years, which I suppose you could say their crystal ball is as good as anybody’s. It’s pretty risky. When government gets involved in the private sector decisions, we don’t have a very good track record.

I’m taking a fairly cautious approach. I mean this is a $45 billion to $65 billion project that’s very risky. In my mind, the more partners you have the better. You spread out the risk. TransCanada is a good partner. They know something about building pipelines.

So I’m keeping a very open mind on TransCanada and buying out their share. It may be a good thing or it may be the worst thing ever. We just won’t know yet until we are able to get our consultants engaged so they can compare numbers between their consultants and our consultants and see if our consultants agree. If so, then it may be a good thing.

Petroleum News: If not TransCanada, who builds it?

Meyer: That’s a good question. Obviously the three producers are capable as well. Conoco has built pipelines before; Exxon has; I’m pretty sure BP has, too. We probably wouldn’t necessarily need TransCanada to build it or their expertise. But again having four partners to help spread the risk and that fourth partner who specializes in building a pipeline, that’s pretty important.

Petroleum News: You mentioned government getting involved in the private sector, in this case Alaska is involved regardless, at the very least as having a share of the gas. So how do you strike a balance where the government is too involved? Where do you say stop?

Meyer: That’s a tough call. I was on the Anchorage Assembly in 1995 when the issue of buying out Beluga gas field came before the Assembly and the mayor. That was a one-third share. At the time, I didn’t think it was a very good idea to do that. It turns out it was a great investment for the city of Anchorage. So owing 25 percent, which is what it would be if we bought out TransCanada, may be the right amount. Especially since this is a very profitable venture.

Then again if it’s not profitable, then you would be much better off at the smaller percentage. One disadvantage we have is oil companies own projects all around the world. Just because this one may not be profitable at any one time, they’ve got other projects that can offset that. In our case, this would be it.

Petroleum News: The other issue with government having such a strong role, is how do you become an owner and a regulator or do you feel like you’re already there with the state having a share of the gas?

Meyer: I think you are doing that to some extent, but this would make us a much bigger owner. I can see some potential conflicts down the road but maybe those would be conflicts you would incur anyway, so I’m not sure how to answer that right now.

Petroleum News: OK, so part two of the special session is the gas reserves tax. What are your thoughts on that?

Meyer: My gut feeling is that it’s a terrible idea. Assuming that it’s similar to other gas reserve tax bills in the Legislature before and ultimately went to the voters, it would be a terrible way to have alignment or a partnership when you are holding a hammer over your partners head with this tax. I guess we just need to wait and see what he’s got in mind. My initial thought is that it’s not a good idea at all.

Petroleum News: What do you remember from when this issue went to the voters in 2006 and was soundly defeated?

Meyer: Well, what’s interesting is in 2006, oil prices were high; BP was having some pipeline leakage. It was not a good year for oil companies whatsoever and still the voters shot down a gas reserves tax. I think they saw it was not the right business environment, if you want to attract businesses to Alaska. If it didn’t pass in 2006, I don’t think it’s going to be very popular with the voters now. It’s funny, with the Medicaid issue, the polls show a majority of the voters want it passed, but no official vote has been done, whereas in this case the people actually voted and they overwhelmingly voted it down. So it’s not a popular concept with the public so I don’t think it’s going to be with the Legislature either.

Petroleum News: You’ve noted that haven’t seen the bills yet with less than two weeks to go, but do you foresee this being a one-committee bill, a two-committee bill or could you deploy some sort of joint committee in the mix, which was done during the AGIA licensing?

Meyer: I know there are preliminary talks going on with the administration, my office and the speaker’s office for the first day or the second day we are there to have the administration present one or both bills to the whole group so everybody can kind of hear what the thinking is. From there we will break out into committees and dive into the bills themselves. So I think it’s very possible we will have joint meetings to start with but then it will go through the committee process after that.

Petroleum News: You’ve noted during regular session that the governor was pretty accessible, whether it was for meetings on the third floor, or breakfast or dinner at the mansion, but you also noted communication wasn’t what you had hoped it would be, at least for clarity. Have things improved since session?

Meyer: No. I think I probably could call the governor this afternoon and if he’s in town, I could probably get into see him right away so he is very accessible. That doesn’t mean, even if I meet with him, he will tell me what I want to hear or get my questions answered. It is a little frustrating. As I mentioned the communication on the special session for example, we should have had the material over two weeks ago. That’s been disappointing. But as far as actually sitting down and meeting with the governor, yeah, he’s been great with that, so it hasn’t changed.

Petroleum News: So, on the AKLNG project itself, what’s your view on how things are moving along? What concerns do you have?

Meyer: There are some things that the producers need from us - us being the state –- they haven’t gotten. We’ve made changes to the project and we’ve got to know every time you make a change, everybody has got to go back to the drawing board and see out how that change is going to impact them.

For example, going from the 42-inch line to a 48-inch line. I’m not sure where that came from other than it’s something the governor feels we need to have. Well obviously that impacts the whole design of the project. That delays things and obviously adds cost. The RIV-RIK decision is important. It’s something that has to be done and hasn’t been done. Those are things that concern me. We tend to throw rocks at the producers yet our own house isn’t clean, either.

Petroleum News: Is there anything you would like to see from the producers? I know we’re kind of at a point where people are waiting for the state to make some moves and the producers to make some moves, too.

Meyer: I’ve met with the producers. I think the producers have been pretty good about meeting with a lot the legislators. I don’t know if they have met with all of them. Everybody seems anxious to make this project work, which surprises the heck out of me seeing what gas prices are today and what oil prices are today, while knowing the oil companies are capital constrained right now so I’m a little shocked and surprised that everybody is still spending the millions they are and putting the man power toward it.

To me, that’s a very positive sign. We need to make sure we don’t blow this positive momentum by doing something stupid like a gas reserves tax frankly. That could potentially delay the project either through litigation or the oil companies saying Alaska isn’t a good place to invest in and we’ll go someplace else. Which I’m sure the governor would say that’s fine we’ll do it ourselves. But that’s easier said than done as well.

Petroleum News: Earlier you touched on the prospects of going to the voters to pursue a constitutional amendment that would enable the Legislature to lock in taxes for decades. How much of a priority is that for you?

Meyer: I think the producers feel that it’s a must have. Maybe that’s why the governor isn’t offering that up right away, holding that back as leverage - which is fine, as long as he explains to us that’s what he’s up to. I think the majority of the Legislature can understand the producers don’t want to spend billions of dollars that from one year to the next, depending on who the new legislators are, the economics can change pretty much overnight.

I do hope we take that up. I think it’s something we can get past the voters if again the governor and the Legislature are on the same page that this is a good thing and it’s important for progressing the pipeline project. It’s a tough hurdle. It requires two-thirds of a vote to get it out of the Legislature. That’s why I would prefer to see it done during a special session rather than a regular session.

A lot of times when you are trying to get that two-thirds vote during the regular session then you’ve got members leveraging for other things, maybe budget increases or other items. That’s why, swinging back to your first question, I would have preferred to see that on the call this month.

Petroleum News: Speaking of next session, the topic of tax credits and whether there needs to be a change is certain to come up. You were in charge of finance in both bodies at one time or another when these came before you. What is your thinking on this?

Meyer: Sen. Giessel and Sen. MacKinnon have been heading up a special committee over the interim. There have been several other members involved with that. They have been trying to ascertain are all these credits working as intended and are they all necessary? As you know the governor vetoed $200 million of the $700 million that we funded in the budget. He’ll be the first to admit it’s not a budget cut; it’s a delayed payment that we owe.

The tax credits have worked. We were looking at the possibility of importing gas to Southcentral, where the bulk of the people live, plus the mayors of Kenai, Anchorage and the Mat-Su Valley were telling us to be prepared for brownouts, be prepared to turn down your thermostat because we could very well run out of gas. Most of the credits are being used in Cook Inlet and have done exactly what we wanted. We’ve gone from a shortage of gas in Cook Inlet to a surplus.

We probably should take a look at whether or not we need to continue in Cook Inlet now that we have a surplus of gas. Also when you find gas, you find oil, so we’ve got oil production coming out of Cook Inlet. The only thing I have seen is that sometimes we’ve given tax credits to companies that are kind of on the margin to begin with. Right now we’ve got one, maybe two, small companies that even with the tax credits are struggling financially.

We may need to look at some financial requirements before credits we’ve given or we may just say we don’t need to do any more credits. The credits we do have on the North Slope are working exactly the way we want it. Caelus is expanding their field using the tax credits. Repsol made a major discovery, again using the credits. I think the minority who are saying the tax credits are a giveaway to the big producers. Well, they are wrong. As far as I can tell, except for maybe Exxon, BP and Conoco aren’t using the tax credits.