Wielechowski: Eager for more answers

Market conditions remain flat, but Anchorage Democrat willing to listen to new ideas for advancing natural gas pipeline project

STEVE QUINN

For Petroleum News

Sen. Bill Wielechowski has been in office for 10 years and has seen two wholesale changes to the state’s tax system and proposals for a natural gas pipeline come and go. With the state facing a $3.2 billion to $4 billion deficit, discussions of each become more difficult. Wielechowski, an Anchorage Democrat, shared his views on where the state stands with the prospective project and whether it’s achieved a stable tax regime.

Petroleum News: Let’s start with the AKLNG quarterly update. What were your takeaways?

Wielechowski: I think there is the impact of low oil prices and gas prices. You’ve seen that with this project and with projects all over the world. That’s the essence of the project. The governor went out and got somebody new who has got a lot of experience. Hopefully we can weather these low oil and gas prices and hopefully the project turns out that it’s economic.

Ultimately if you can’t get buyers at a cost that is higher than the tariff - $11 or $12 - then the project is never going to happen. No one can make that happen. We are very price dependent and we have to weather these low prices. In some ways it’s a good time to be looking into building a big project because you have commodity prices that are lower. You’ve got a lot more people looking for work. Labor costs will be probably lower.

In some ways now is the time to be planning for the future uptick, which some people say will be happening at some point.

Petroleum News: Were there any particular takeaways from Steve Butt’s presentation? Was there optimism or realism?

Wielechowski: I think both. I think he’s done a great job. He’s a professional; he’s very qualified; he’s got experience building pipelines. I think there is room for optimism there. Many, many times over the last few years I’ve asked him to be realistic with us and give us his best advice on whether the project will happen or not. He’s always said that he thinks it will.

Alaska has a lot of competitive advantages with the cold weather and our location. The fact that we’ve got a huge amount of gas that’s already been discovered, you don’t have to worry about plunking down huge amounts of exploration costs. It’s being pumped and re-injected at Prudhoe Bay every day in huge quantities. We’ve got a lot of reasons to be optimistic. We’ve got a lot going for us.

It’s just the low gas prices around the world right now is the biggest hurdle. Most people seem to think the demand for natural gas will increase and the prices will rebound, so we’ve got to try to wait it out right now. The problem with looking at gas prices right now is that this isn’t where gas prices are going to be for the next 30 years. I don’t think so. Many people don’t think so.

There is this tendency to run from one side of the ship to the other side of the ship as prices go up and down. I think we’ve got to set a policy and keep going forward on it. This is a project that is going to take a very long time to build. As long as the fundamentals demonstrate that the price is very likely to go up, I think the project is still viable and it’s going to create a lot of Alaskan jobs and provide in-state gas for a lot of Alaskans. Hopefully, it’s something we can keep going with.

Petroleum News: You also heard from Mr. Meyer. What were your takeaways from the discussion with him?

Wielechowski: Well, he’s someone who has experience in natural gas. He’s very confident. There seems to be a bit of a change of direction in the overall gas line project. I think there is concern over having BP, Conoco and Exxon and the state of Alaska, they all have varying interests. Whereas BP, Conoco and Exxon all have competing oil projects and competing gas projects all around the world. I think a lot of times our interests are aligned but there can be times where there are not. I think we’ve got to look out for our best interest and they have certainly are going to look out for their best interest. Hopefully, we can find a way to see that all of our interests are met. We’ve got to worry about the people of Alaska. This is an important project for the future of our state, for low cost energy for revenue for our state. That’s where the problem comes in. Yeah, they have competing projects. This is it for us.

I think he recognizes that. He is open to looking at different directions to make sure the project gets going. As Alaskans know, this is a project we’ve waited for, for 30 years and it’s difficult to get all the interests aligned. I think that is a big challenge that he is trying to make happen.

Petroleum News: There seems to be some concern that his willingness to go forward if one of the partners backs out. The term go-it-alone was used a lot. What are your thoughts on that?

Wielechowski: You know it is a balancing act, and this has been the dilemma we’ve faced for 30 years. We have not had all of our interests aligned. As a sovereign, that’s very challenging to do. I think as a state, we have an obligation to follow the constitution to get the maximum value for our resources.

That doesn’t always line up with the timelines set by the producers. They’ve got competing projects; they’ve got different timelines; they’ve different hurdle rates they are pushing in other parts of the world. It is a complex negotiation that has to occur, but at the same time, as a state we have an obligation to develop our resources responsibly and get the maximum benefit for our resources. We hope we can figure out a way to be on the same timetable and work with the producers. But if we can’t and we think it’s in our best interest to move forward on it, and we can make money on it and they can make money on it, like I said we’ve been waiting for 30 years to get this done. It’s pretty hard to get everybody’s interests aligned at the same time. We may have to say yeah, we’ll go onto the next step on our own.

Petroleum News: So what do you want to hear next either at the quarterly update or at the conclusion of pre-FEED?

Wielechowski: I think it’s important that there be a demonstration that they are really looking at this project to try to figure out the economics of it, try to make it as profitable for them as possible while providing a reasonable return for the state of Alaska. I want to see a genuine movement towards doing the economic analysis, the construction analysis, figuring out what the tariff is going to be, what the market is going to look like the next 20 to 30 years.

I think that’s all we can really ask right now. We can’t ask them to go build a project because we don’t know if it’s economic yet, but I think performing a rational economic analysis and cost analysis is all you can really ask at this point.

Petroleum News: There was concern among your colleagues about turnover because there seems to be a different person at each quarterly update providing testimony. It’s always somebody else talking. Do you have any concerns or is this the governor still assembling his team?

Wielechowski: If you look at the oil industry, how many people have we had come before us over the years. If you counted up the number of different people from industry over the years, it’s certainly nothing that unusual. You hope to get good people and keep them on, but people have different things going on. I think the governor is working on putting together a good team. He’s only been in office not only two years. The financials have changed and the market has changed over the last couple of years. It would have been nice to have people there and stay there, but I think being realistic, people have different things going on in their lives. He’s got good people in there now, so that we can things moving forward.

Petroleum News: So let’s talk about one that’s left and two that have come on board. You lost Marty Rutherford at DNR. Talk about that.

Wielechowski: I’ve known Marty ever since I’ve been in office. She’s done an excellent job for the state. She’s got a great amount of institutional knowledge. It’s a loss of somebody with a lot of heart for the state, so I’m disappointed to see her go. I don’t think it’s a huge surprise. I’ve been hearing for almost a year now that she’s been planning on moving on. Still, you don’t like to see somebody of that caliber leave.

Petroleum News: Does it upset you that the governor couldn’t keep somebody of that caliber on board?

Wielechowski: It is what it is. The governor has known her since they were kids. I was happy he figured a way to bring her back in the beginning and help get a team together and make the transition. She had a lot of institutional knowledge and brought a lot to the table. I was sorry to see her move on.

Petroleum News: OK, onto those who came on board: The governor quickly hired Mr. (John) Hendrix to a cabinet level position. What are your thoughts on that hire?

Wielechowski: That was a little surprising. I don’t know him very well. In the past it’s always been oil and gas issues handled by the DNR commissioner and the Revenue commissioner has always been pretty actively involved in those issues. So I was surprised to see that. I haven’t spoken with him yet and I don’t know what his plans are or what new things he brings to the table, which is a probably a good thing.

Petroleum News: So if you’ve never spoken with him, what would you like to hear from next?

Wielechowski: I want to hear what his plans are to help us get more oil in the pipeline. What are his plans to get more oil and gas exploration? What can he bring to the table that others can’t? Our mantra was we need more tax cuts and it’s just tax cuts. We’ve tried that. We still don’t have more oil projected over the next 10 years. There are projected declines, in fact. So what are his ideas? What are his thoughts on how we do that? If he can figure out a way to get to 1 million barrels of oil, or even 600,000 barrels of oil.

Petroleum News: So have you met with Andy Mack?

Wielechowski: Yes, I have. It was a really good meeting. I like him. I’ve known him for a couple of years and he’s very qualified. He is someone who knows natural resources in the state. He’s very well connected throughout the state on natural resources issues and a variety of rural and Alaskan issues. I had a really good meeting with him and look forward to working with him.

Petroleum News: OK, so now you’ve got three new high-level players on board. What do you want the collective three to be able to accomplish?

Wielechowski: First of all, natural resources we tend to think of it as oil and gas, but there are other things like timber and mining. But the big focus is typically on oil and gas. I want to see what ideas they have and what thoughts they have to get more oil and gas moving through Alaska. Really, what are their plans to create more responsible development throughout the state?

Petroleum News: Let’s talk about a hearing that took place a few weeks later that questioned the administration over its pursuit for more plan of development information at Prudhoe Bay. You seemed OK with the request.

Wielechowski: I think it was a reasonable request. The state is the owner of the resource and we have an obligation to get the maximum value for the resource. Quite frankly, I’m surprised that previous administrations haven’t asked for this information. I think asking how this gas would be marketed is a perfectly legitimate question. I don’t think it’s any kind of attack or any sort of affront. It’s just simply acting as a responsible resource owner, saying hey we are interested in finding out how you plan on developing the resource. When you take out a lease from the state of Alaska, there is an obligation to explore, an obligation to develop and an obligation to market. The administration is simply asking, what’s the plan on how you want to market the gas and development. It’s the way any responsible owner would act.

Petroleum News: You said you’re surprised previous administrations haven’t asked for this information. That’s been the industry’s position how unprecedented the request is.

Wielechowski: I think one of the concerns they have - and it’s a legitimate one - so I asked the administration will you work with the industry to ensure the confidentiality of this information. They said absolutely. Anytime you do something a little differently, anytime there is a little change, there tends to be reflexive opposition to it.

I think in this case they are working to address the industry’s concerns about confidentiality. I think it’s a case where we’ve got a huge amount of gas on the North Slope, how do you plan to develop it. How do you plan market it? That’s a very reasonable, rationale request. If there are confidentiality issues, we’ll protect your confidentiality. But as the resource owner, we can’t just wait until the last minute, so I think it’s reasonable.

Petroleum News: Are you concerned this could end up in court the way Point Thomson did?

Wielechowski: I hope it doesn’t. I hope it doesn’t. Ultimately, we waited 25-30 years to develop Point Thomson. We didn’t really ask any questions. We just kept approving the various plans of development. We didn’t ask any questions. We just took them at their word.

No administration under Gov. Murkowski’s team said wait a second, this isn’t the proper approach. It took us taking away the lease; it took us going to court but finally it’s getting developed. You hate to have litigation as the answer to the problem.

We waited for 25-30 years on Point Thomson. What is happening with the governor is he’s saying we don’t want to go through this again; I don’t want to have to go through that again for decades more. We’ve already waited for decades. Nobody wants to through litigation. Sometimes you have to.

Petroleum News: On to what may be next. In the coming 2017 session, there’s an expectation that oil taxes and oil tax credits are expected to be on your plate. Are you expecting more bills?

Wielechowski: It’s tiresome. I’ve been here for 10 years and there’s not a lot of time that has gone by where we haven’t done oil and gas issues. There are still a lot of people who still feel our oil and gas tax system isn’t the way it should be. Even with the small fixes that were made to the tax credit system, I think there is still a lot of concern that we are getting the maximum value for the resource that we are required to do. I think you need to look at that. You want to balance that. You want to provide as much stability to the industry as you can. I think we need to look out for the people of Alaska as well.

Petroleum News: Do you ever foresee the state having a tax system that seems to be fair at all price levels? That seems to be elusive.

Wielechowski: We have to do that. I think it’s critical that we do that. If you look at a country like Norway, which has a very high net profits tax, they managed to do it. They get a lot at high prices and not very much at low prices. They have almost a trillion dollars in the bank and the companies are making good profits, and they are not changing their system every year. There has got to be a way to come up with something that is fair to them and fair to the people of Alaska. I don’t think we are quite there yet, but I’m hopeful that we can get there.

Petroleum News: Why does that seem to be so difficult? ACES grabbed too much at the high side and now the state doesn’t seem protected at the low side.

Wielechowski: I think it’s politics. I think you have the oil industry that is extremely active in our political system. They take a keen interest in protecting their shareholders. They are doing their very best at maximizing their bottom line. We had a system in place that worked, I thought. Everybody made money. The only thing that changed it was politics - redistricting. So it’s politics more than anything else. I think it’s the root of a lot of problems.