Johnson seeks more answers, transparency

Anchorage Republican says he believes gas line project is moving ahead, but worries about alignment under Walker’s leadership

STEVE QUINN

For Petroleum News

Fresh off a hearing questioning who is in charge of the state’s role in AKLNG and learning how “there is no clear demarcation of responsibility” from Alaska Gasline Development Corp. board Chair John Burns, House Rules Chair Craig Johnson leaves Juneau’s special session worried.

Also a member of the House Resources Committee, Johnson says he remains willing to give Gov. Bill Walker’s team the benefit of the doubt, but time for that may be running low as Walker has already received these considerations for nearly one year.

Johnson, an Anchorage Republican who has been in office since 2007 when the Legislature debated the Alaska Gasline Development Act, spoke to Petroleum News about his concerns and why he remains bullish about the prospects of getting a gas line under construction.

Petroleum News: I know you have concerns about getting a complete picture. What’s missing?

Johnson: I don’t want to characterize it as a complete picture. I just want a picture. Right now we have no idea, we have no assurances. We’ve heard testimony that we assume this is going to happen and we think that is going to happen, but tell us is it the intention of the administration to turn over TransCanada’s assets to (AGDC)?

They don’t have to. The language is permissive. It’s not mandatory. DNR shall take it or their designee. Now that could be anyone. That’s the kind of thing. So a picture? It doesn’t have to be crystal clear, but just a little guidance would help and we haven’t gotten any.

Petroleum News: So what would help? A plan? A blueprint? A road map of some kind?

Johnson: You know that’s an interesting question. I was thinking about that when we were talking earlier about what it would take. Someone asked me what would it take for me to be satisfied. I think if someone came in and said - and this is hypothetical - “we want to take over TransCanada, we are going to move it over to (AGDC), and we are going to progress down the road and we want assurances.”

“But that’s what we want to do. We are going to continue down the process. We are going to ask for funding to continue down the AKLNG route and that’s our mission.”

I know the assurances are withdrawal agreements, but I don’t necessarily agree with how you do it. I don’t think you threaten your partners into doing what you want to do.

But you know, we keep hearing different things like I’m in Japan. I’ve got memorandums of understanding that may include financing. You keep hearing about at Mat-Su the LNG plant changing the destination. So those kind of things cause me concern. Is it smaller plant that is going to provide Fairbanks? Is that the ultimate destination and if it is what’s the engineering on that port? My understanding is that it’s not a suitable port for that project.

I’d like to have someone I can call up and say, “tell me about this,” and they can say, “I don’t know. I can get you the name because it’s this person’s purview and they can answer that question.” Or they can answer the questions directly. Right now if I’ve got a question on where is the TransCanada assets are going, I get, “we assume it’s going to (AGDC).” That’s not very definitive. That hasn’t come from the administration. That comes from (AGDC).

I just need some assurances - on the record - that this is the direction that we want to go and we have not seen that. Then you’ve got to kind of filter in the governor’s background with the kind of projects he’s wanted before which are different from this. I think it is closer to a project than we’ve ever had. So you start filtering the things he’s wanted to do in the past and the puzzle pieces that can be put in place as governor, I would like some clarity. The actions so far indicate that he doesn’t have a plan.

I lose sleep over this. I come up with all kind of nightmarish situations. The what-ifs drive me crazy. Take away all that I’ll be a much happier person.

Petroleum News: One of the discussions has been looking at whether AKLNG should go from a 42-inch line to a 48-inch line and there is money for that in the bill. What are your thoughts on that?

Johnson: I have a couple of concerns about it. I don’t know that it slows down the project. That’s a question you have to ask an engineer. Anytime you throw something in at a stage that you’re not ready for, it has a tendency to take you away from other things you could be doing.

Other than that, I think the logistics of that pipe are huge. The additional weight: Someone told me you could only carry three strands of that on a truck. So you are doubling your shipping. It is exponentially heavier. I mean I don’t know it’s only three, but these are things you hear, that you’ll need special tractors and equipment. So it’s not just the size of the pipe. It’s what does it add to the construction.

The other part that concerns me is that no one makes it in the United States. I believe we have tremendous support for this project on all sides: the Congressional delegation; labor; the buyers are excited about having it. There is a lot of buy-in with this project right now, but if you start shipping jobs overseas to Japan or China, do you lose that support, alignment or harmony - or whatever word you want to use? Then all of the sudden you have iron workers or steel manufacturing unions start saying “we don’t like the project now because you aren’t using us.” Do we start losing that support?

This is a project that is going to take everyone pulling together in harness going the same direction. We just need a lead dog - to go back to that lack of leadership point. If a team is not pulling well you’re only as strong as your weakest link. So if you’ve got people fighting you behind the scenes because we are building the pipe overseas, that is one more obstacle that we don’t need to fight. That’s my main thing: it’s philosophical.

Petroleum News: You’ve talked about what you haven’t heard. What have you heard so far that gives you concern?

Johnson: I think you heard it today in Resources. No one knows who is in charge. I think I stated it, if you don’t know who the boss is there is no boss. If you don’t know who is in charge, no one is in charge. You hear about turf wars. I think you heard about turf wars from the chairman of the board for (AGDC). That there are turf wars going on. We shouldn’t be having turf wars. We should be having people saying what can I do to help? We shouldn’t be fighting internally; we should be moving in a direction to find out if it makes sense. Hearing today, I believe it was stated they clearly heard the organizational chart is not a useable document. They had no input into it. They are going to work very hard the next two months to make sure when we come back in January that they have that organizational chart. If not, they are probably going to suggest substantive changes to SB 138 so that we force that. That concerns me. How long have we been in this project? I have heard that and it concerns me.

I’ve sat here in this office with producers and I ask questions and they can say here is the timeline. They wouldn’t show me the org chart with specific action. But they can tell you who is doing it, what the timeframe is, the accountables - everything. We could then go and say you didn’t deliver on this item on this date. What’s the problem? They are managing very much a mega project. We don’t even know who is in charge. As frustrating as it is for us and AGDC, it’s got to be equally frustrating for our partners.

I think if we voted today on the TransCanada buyout - clean - it would be a done deal, but then you get this other stuff. We have no plan for where it goes. We haven’t seen a real good explanation for that. Could this money go and be used for something else? It could be used to start another competing project. He used those words.

It was an indicator of where he wanted it to go. This can’t be a schedule driven project. You won’t force these decisions. Projects that are done on timelines fail. Projects that are done with all of the information - engineering, everything - those are the ones that are success.

Petroleum News: So how do you reconcile that philosophy with having expectations of certain items being on the call?

Johnson: That’s an interesting question. If you look at what’s not on the call, we should have had PILT (payment in lieu of taxes) on the call. There was talk about a constitutional amendment allowing for fiscal certainty. And I don’t think you can get a gas balancing agreement until you decide if you want your royalty in kind. That’s 25 percent of the product out there and they are going to have to agree to an offtake, balance and share who does what without having 25 percent of the puzzle. If we decide all of the sudden we want to do royalty in taxes instead of royalty in value that is a totally different mechanism for them to work with for those agreements.

The Department of Natural Resources can say today: royalty in kind. That would clear the way for some of those commercial agreements that I don’t think can happen until we do that. So we should have had that one. State is holding that up. We’ve not made a lot of deliverables on things like the PILT, the offtakes and the constitutional amendment.

Petroleum News: Do you think there was enough time for a decision toward a constitutional amendment during this special session?

Johnson: I think that for something as significant as this, I don’t think we would be limited to 30 days. If we were in day 30 and we had that hanging out there, I don’t think there would be a person in this building who wouldn’t stick around if that were a sticking point to getting a gas line. I think everyone wants to see one go. We have different road maps. I don’t think we would be limited to 30 days.

Petroleum News: Would you like to see it introduced next session when you have 90 days?

Johnson: I’d like to see all of the deliverables introduced. I’d like to see PILT. I’d like to see a commercial agreement. Now that’s not something we vote on but that is something that is key to the project. Along with that, the governor has asked for withdrawal agreements and the ability to purchase gas. I was told by the attorney general, I was told we would in the next session be having three gas purchase agreements to be dealing with. It makes me a little nervous that the state is going to be buying $2 billion worth of gas. That’s the direction they seem to be going in. It seems to be there’s a little bit of buy in. so if that’s what it takes to move this project forward, we’ll see what shakes up in the actual agreements.

Petroleum News: The constitution provision could be the most important but in the hands of the voters this time.

Johnson: It could be huge. The citizens could vote it down and it may not work if they do. I’m not sure they couldn’t do it contractually. We lease buildings. There are examples us doing things for longer periods of time. I think we can do it by contract. The governor so far has chosen the constitution. If the people buy into it, that’s a great thing. I’d like to see the people vote.

Petroleum News: Also next session, the Legislature will be looking at prospective tax credit changes. What are your thoughts on that?

Johnson: I’ve been pretty focused on where we are now. I’m not brushed up on it as much. I voted for the tax credits. I think the reason we don’t have rolling brown outs are because of the tax credits. No legislation is perfect. Could it be addressed? Do we want to get into it? I’m not ready to say. But I’ve never seen a perfect piece of legislation.

Petroleum News: Speaking of that, there’s been talk of retooling SB 138. Do you see that happening?

Johnson: A lot of it is going to depend on the outcome here and will be too late. If on Dec. 4 one of the parties says we’re not going forward then SB 138 is done. Everything is done. Whether the administration pulls the plug or one of the partners pulls the plug, if they decide on Dec. 4 not to go forward, we’ll be dealing with a budget crisis full time.

Petroleum News: Given that a lot of projects are being shelved around the world, are you surprised that this project is still up for discussion?

Johnson: I think the fact that we are still sitting here talking about it should give comfort to those people who have ever said the producers don’t want to build it. You hear all the negatives. I think the fact that there has been a million dollars a day spent and we are still talking about it is a big indication of their commitment. I don’t care how big you are, the board of directors at Exxon, ConocoPhillips or BP are not going to let you spend a million dollars a day on something they don’t think is going to pan out. It’s a fabulous resource.

The other projects being shelved, one thing we have going for us is there is not a certainty of gas. We are on almost a first name basis with the molecules on the North Slope. We know what’s there. It’s been years and years of recycling that. Point Thomson is a question mark. I think AOGCC made the right decision. We know Prudhoe. It is a proven reserve. So the gas is not the problem. It’s the second largest project in the history of mankind when this is done. So it’s going to take a lot, but gas is not the question. A lot of those projects being shelved, they have finance questions, they have stability questions, they have resources questions. We have one of those checked off. And we have great location. We have a lot going for us, plus it’s a great project.

Petroleum News: Speaking of the molecules talk about your thoughts on the recent AOGCC presentation.

Johnson: They do a great job. AOGCC is apolitical. I think that is one of their strengths. They are apolitical. They are in it for the resource. I think it was a critical thing for them to do. One of the rubs in the past is we don’t know the gas is even there. After their ruling, we know there is gas for the off take. There is no sunset. This is a good decision. This is something we can move forward on and we know this is how much we can take.

We know we have a definite number for offtake. That was a big plus. The producers actually had to do it. That’s not something the state could do. They had to request it. They are stepping forward and I’m glad to see it. That’s not inexpensive. I think they are excited about the resource and the product.

Petroleum News: You asked about whether Point Thomson is an oil field or a gas field. Do you have that concern?

Johnson: Not now. I wanted to ask that question to get it on the record because there was a lot of talk about it being an oil field and it needs to be treated like an oil field. The gas needs to be re-injected so it’s not going to be available. That’s a question that had to be answered. I feel good that they did their due diligence. It’s a gas field - with condensates.

Petroleum News: What would you like to have accomplished by the end of the special session?

Johnson: I personally would like to see some guarantees statutorily that the project is going to advance somewhat, that it’s the intention of this administration to go down the path of SB 138 with the AGDC model. I think buying out TransCanada was inevitable. He’s made the decision. We’re here to write the check. Does SB 138 need to be retooled? Maybe. But I think that can be handled with some communication, some assurances, somebody taking a role as a leader.

Petroleum News: You folks have given him the benefit of the doubt of being new quite a while. He’s almost got a year. When does that benefit of the doubt get pulled back?

Johnson: This could be it. If we come back and there is no plan, there is no leadership, the plug is pulled on the pipeline and because our partners are not confident in this administration, it could be it. I’m going to give him the benefit of the doubt as long as I can. But we are making decisions in a void, and I’m not comfortable with that.