Achieving Arctic priorities takes time

Bethel Rep. Bob Herron discusses Arctic with NWT’s McLeod in DC, returns to Alaska to resume hearty debate over oil tax credit bill

STEVE QUINN

For Petroleum News

House Majority Whip Bob Herron got a slight reprieve from the contentious discussion in the House Resources Committee’s review of HB 247, Gov. Bill Walker’s proposal to recast portions of the state’s tax regime, particularly the credit system.

Herron, a Bethel Democrat, spent the better part of a week in Washington, D.C., getting briefings and leading discussions at conferences held by the Pacific NorthWest Economic Region and the Energy Council.

Herron discussed those meetings, his thoughts on HB247 and the status of the AKLNG project with Petroleum News.

Petroleum News: Let’s start with the oil tax credit discussions. You recently showed an appreciation for the modeling but you wanted stronger discussion emphasis on the $40 a barrel scenario. Why?

Herron: The thing is I appreciate the modeling for looking at $40, $60 and $80 and how they all change in relation to the credits, both the status quo and what they are proposing in HB 247. The thing about it is when you have these remarks that say we’ve done these models because that’s the environment we are in but it’s not plausible to think we are going to continue to be that way.

I just came back from D.C. and one of the speakers reminded the people at the Energy Council meeting how he was saying oil would be under $35 by December 2015. Now he says $40 will be the high end all the way through 2016 and into 2017. If we are going to be living for the rest of this session and realistically into the next session, this is the new reality.

We need to look at those models pretty seriously and how we can adjust the proposed legislation so that it’s not only good for Alaska, it’s good for the oil companies. We need to have projects lining up, because you’ve got to have projects continue. I said, I’m sorry but we need to consider the bigger number models, but man $40 is where it’s at.

The one thing that struck me from this conversation by the economist, he said you’ve got to look at it this way. What has the United States become? Well basically it’s become energy independent when it comes to gas and oil. Well so have a lot of other countries.

What the Saudis have figured out is even though they have the world’s largest reservoir of oil and will for however long it takes to drain it out, they don’t want to become irrelevant. So this is their strategy - and they don’t think in years; they think in decades, sometimes beyond - is about how they want to make sure they are the primary player when it comes to oil.

So that really struck me. How can we hope for some sort of imperative where we will get wealthy again where maybe we have to figure out how we can we find that balance of living with low oil prices but at the same time not killing the goose.

Petroleum News: You’ve done your share of sparring with the administration on this bill, such as how they arrived at how much revenue the bill will generate?

Herron: They just threw a dart. They had to get to a number then they figured out how to do it. To me there wasn’t enough conversation about understanding it. Yeah, I get it. Mike Hawker described it as a money grab. Still, I just want to understand it.

Petroleum News: Is it a money grab?

Herron: It’s on record. Ken (Alper, Department of Revenue Tax director) basically said, we need cash.

Petroleum News: Is this a rewrite of SB 21?

Herron: I don’t think so. After he became governor, he said he wasn’t about to change SB 21. The fiscal reality became a slap in the face. I think what Janak (Mayer, legislative consultant) described, which was a really good analogy. It’s just salami slices. We’ll do a little slice here, a little slice there. Is it a rewrite? No. It’s moving the knob a little bit. Some of these knobs are huge. Maybe a rewrite would be good, but that’s kind of a heavy lift nobody has the stomach for right now. Politicians do tend to make quick decisions that usually backfire but a lot of stuff we do down here, we go slow and make sure we test it in different ways. It’s a balance.

Petroleum News: Is there anything else about the presentation that concerns you other than what you noted about the $40 mark not being treated as an immediate reality?

Herron: Well $40 is a reality, at least for the short term. High prices we shouldn’t bank on. We should be banking on what I call a common denominator. I think that’s how we should do it. The committee, we are going to craft a CS (committee substitute). We’ll have to trot it out here pretty soon.

Petroleum News: Is there merit to any of HB 247?

Herron: Yeah, there are. That’s when I asked Janak: What’s the good, the bad and the ugly? Some of the parts will be there in the CS, some of them won’t. I’ve been gone a week, but I’ll provide my input on what’s good and what might not be reasonable. I don’t want to pendulum to swing too far. I want it to find middle ground.

Petroleum News: Some believe that middle ground has been elusive whether it was with ACES or SB 21. Is it that the markets are that difficult to predict and accommodate with the right statute?

Herron: In a lot of ways you can say the market has stabilized, albeit at the wrong end of the spectrum. Unless something very volatile happens to the world market, we keep pumping out this oil all over the world. We are filling up every ship, every barrel, every tank. The amount of inventory is just incredible. Let’s say there is a super need for oil where somebody will be buying up the excess, it would take a long time to sell it all. It has this debilitating affect where if you are cash flow negative, that impacts your decisions to keep building upon a project, putting things in a line so that they come on line at a reasonable point.

So maybe we do need these low prices. Don’t get me wrong, I don’t know if it’s going to help anybody, but maybe it’s a reverse stabilization. Now maybe we’ll find out who the real players are. Yeah, there are ghost towns in North Dakota but they are just going to hunker and wait it out. When it comes back, it will come back. That is an approach that Alaskans are going to have to seriously consider. We’ll have to weather it. We don’t have a choice anyway. It’s like in your own lives when tough times come along. You figure out how you’re going to get through it and then you move forward.

Petroleum News: Let’s shift a bit and talk about your D.C. trip. What took you to Energy Council?

Herron: I was scheduled to go there for PNWER, which I did, but I was nominated to speak at Energy Council. What they wanted me to do was give a perspective on Arctic policy, Arctic values. The other person on the panel was Robert McLeod, the premier of Northwest Territories.

He gave a Canadian perspective about how their relationship with the federal government and how they are moving forward because they have a lot of stranded resources. That’s what I did from the Alaska perspective and where we are now with the federal government.

The timing was great because this week (Prime Minister Justin) Trudeau is traveling to D.C. This is the first time in 15 years the Prime Minister of Canada has traveled to D.C., which is pretty remarkable for our closest neighbor. They will have a common release on all sorts of things, the one most obvious being climate change.

Petroleum News: So what was it like to share the dais with Mr. McLeod?

Herron: It was good. It was fun. The facilitator asked if we could explain why the Arctic is important to their states, other energy producing states like Texas, Oklahoma, Louisiana, and others. I tried to share with them that our future is your future. It’s an on-going conversation.

(Pointing and paraphrasing his Energy Council PowerPoint presentation), I talked to them about how we need a port system and I went over our four vision statements about Arctic policy:

•Upholding economically vibrant communities sustained by development activities consistent with healthy environment;

•Collaborate with all levels of government, tribes, industry and NGOs for transparent and inclusive Arctic decision-making;

•Enhance the security of the state through a secure Arctic for people and communities;

•Value and strengthen the resilience of communities, integrate the culture and knowledge of Arctic peoples.

Petroleum News: Did you get any questions from people wanting to know more about this situation?

Herron: No because it was such a jammed up session. But it was good to visit with him (McLeod). Drue (Pearce, former federal pipeline coordinator) was there and she did a really good report at PNWER. She didn’t talk at Energy Council, but she’s been going there for a long time.

Petroleum News: Did you talk with McLeod afterward, comparing notes anything like that?

Herron: Not really. He’s a pretty busy guy. I’m just one of the guys around here. He’s running an entire government. His great grandfather showed up in 1851 in Northwest Territories from Scotland and on his mother side, he’s indigenous. His territory is very large. It’s a totally different world. Most of their oil and gas is up in the McKenzie region that arguably is a very large resource basin. The last time I was in Yellowknife they talked about how it’s not very far from Prudhoe Bay. We could take their stranded resource and put it in our pipeline. There are always conversations about Arctic corridors so we can get to Prudhoe.

The Northwest Territories, the Yukon and Alaska have so much in common and so much potential, but at the same time Bob did say there is a tendency from people from southern Canada and the Lower 48 want to lock up the resources and keep it away from those locals.

Petroleum News: Does that sound familiar?

Herron: It sounds real familiar.

Petroleum News: What did you do at PNWER?

Herron: I gave a talk with a lot of the same facts, but it was sort of from a different perspective, this one about what Arctic leaders are doing. It talks about how Arctic economic development council is important to Alaska. The Canadians really appreciate how Alaskans are trying to keep that going. I also told them about how Murkowski, five U.S. senators and (Energy Secretary) Moniz visited Western Alaska.

I told them how it had quite an affect to people who visited. I met with Wyoming Senator John Barrasso and he said “Man, I’ve been to Alaska many times but for me to go to your part of the state and to see a small town and drive on an ice road down to Oscarville and see 50 people in a community of 52 cram into a school was something.”

Petroleum News: With the Legislature looking to cut budgets, including dues to associations like Energy Council. It wasn’t too long ago, the Legislature was sending upwards of 30 people.

Herron: This the first time I’ve ever gone and the only reason I went because I was invited to speak on Arctic matters. I was there anyway. It’s going to be difficult. PNWER’s dues were cut in half. I told PNWER there might be a time shortly when we might not be able to afford that. You can’t operate in a room with no windows. You’ve got to be able to leave the room and find out what other people think and how they do things at the federal level, state level, local level. But we’re in a time where we have to realize the fiscal situation.

Petroleum News: Let’s shift to AKLNG. What are your thoughts on how things are right now taking into accounting briefings and the governor’s recent announcement?

Herron: I’m not the only one who said this. SB 138 had a stopping point to consider where we are going to go. At the end of pre-FEED, we would stop and take a look. Now the governor has done that well in advance. Pre-FEED must be concluded. But at the same time, we will have to realize and budget for this is - as you remember when Steve Butt was asked the question - what’s the stale date on a pre-FEED document.

A lot of the things within the pre-FEED document will be boiler plate that will be good next year, 10 years from now, etc. But he says part of that product will have a stale date for one year. Well what does that mean? If we have to sit out a couple of years for any number of reasons including a constitutional amendment is, are we going to keep the pre-FEED product fresh as the years go by?

I think that is one of the key things. Right now, do we have a choice? Probably not. Taking a pause after pre-FEED and seeing how we can deal with it is probably prudent. It’s just that I guess I didn’t understand why the governor gave us advanced notice that we were going to take that route.

Petroleum News: Are you worried about the project?

Herron: Well, right now in today’s environment, yeah. You’re seeing gas sold at a $1.67 (an mcf) and projects are being scaled back everywhere because it’s not the right time to be making such investments.

Petroleum News: You mentioned a prospective constitutional amendment. Do you see that as a vital component to this project?

Herron: It probably is. I’m not going to say that maybe we don’t need it. I think during these next several months to a couple of years, if this is something we are going to ask the voters to do, they will have to learn a lot. In fact, legislators are going to have to learn a lot because a constitutional amendment is hard to do anyway.

Let’s say it passes, it’s even harder to undo things like that. How do you learn something like this and retain it, to be able to retain it and retrieve it for the future? Let’s say we don’t vote for it in 2018 then it’s 2020 and we have to re-learn it all over. It’s going to be difficult, but this is our future. We’ve got the gas. With the science and engineering, we can do it. But it also has to make sense financially.

Petroleum News: Let’s get back to the Arctic for a second. The U.S. has been chair of the Arctic Council for nearly a year. What do you see as being accomplished?

Herron: That was asked of Bob Papp (State Department’s special representative to the Arctic) at PNWER when we were down there. My question to him was what has been your biggest surprise and what has been your biggest disappointment. He said it was the same. The Arctic Council and the seven international partners, it’s all consensus, it has to be unanimous, so things take a long time to do.

But, their priorities, people appreciate: climate change; ocean governance; then helping the indigenous people who live in the north, that they have a sustainable life. He said two years really isn’t long enough to do things. But you’ve got to make sure once you’ve got their priorities accepted by the other seven countries and they work their way down into the working groups.

They will leave a thumbprint or a fingerprint - however you want to say it - they’ll leave their impressions and they will get to continue to push for and work on. We’ll see if whatever this administration was able to influence on the Arctic Council is positive. Where I’m from and the people I represent, it’s about did those priorities help us - and that’s the test. That’s the bottom line.

If their priorities in these two years, and the continuing to be a member of the council, having those priorities in the base of the whole Arctic Council in five years, will that help the people of Alaska. That’s what matters to me. Sure it’s about the circumpolar north, but when your country has the chairmanship, it matters. A lot of these countries, that’s all they have is the Arctic whereas the United States has the Pacific Ocean with Hawaii, the 48 contiguous states and then they’ve got this Arctic guy up there in the north.

Petroleum News: You’ve probably covered this last question, but what would to see happen for the last year?

Herron: The bottom line is how are we going to measure it? The other thing is this state - whomever the governor is and whoever is in the Legislature - has got to pay attention to what others are trying to do to us. I don’t care what part of the state you live in right now, the Arctic is what has people’s attention for a lot of different reasons. It’s about just making sure you look out for you and don’t depend on others to take care of you. People can share any kind of analogy for that statement, but it’s true. If it’s good for Alaska, we’ll accept it. If it’s not good for Alaska, we are going to suggest that it’s not.