Costello: More AGDC answers needed

Anchorage Republican, L&C Chair says she wants to remain optimistic, but needs more clarity on the AKLNG project from Walker, AGDC

STEVE QUINN

For Petroleum News

Sen. Mia Costello was putting the final touches on details for a three-week vacation when the news came: SB 125, her bill to place legislators as non-voting board members on the Alaska Gasline Development Corp., was vetoed by Gov. Bill Walker. A day later, the Alaska Supreme Court vacated a voter initiative she spearheaded in 2014. The day before leaving for her break, the Anchorage Republican who chairs the Labor & Commerce Committee and sits on Resources as vice chair, talked to Petroleum News about her concerns over progress with AKLNG project and her expectations of Gov. Bill Walker.

Petroleum News: Let’s start with SB 125 being vetoed. It passed by a pretty wide margin. Were you surprised?

Costello: Was I surprised the governor vetoed it? No. I wasn’t surprised, but I was very disappointed. I think the ink wasn’t even dry on a newspaper article when Keith Meyer, the new head for AGDC, was saying that the No. 1 challenge for a gas line in Alaska is the relationship with the Legislature and he looks forward to improving the relationship.

The governor turns right around and he has the opportunity to sign into law a bipartisan measure that would allow Legislature members sit in as non-voting board members. They would listen in to these close-door meetings to help with that relationship, help with the continuity and preserve some continuity too because the bill required some experience with oil and gas on the board members.

But the governor vetoed it. He chose not to back up what he’s saying with actions so I’m very disappointed.

Petroleum News: One of the criticisms separate from what the governor wrote in his veto letter was placing lawmakers on the board would lead to politicizing the board. That’s contrary to the initial mission. How do you see this?

Costello: I did hear those concerns. There is precedent for legislators sitting as non-voting, ex-officio members on other boards but more important, I think is the nature of this project and the problems we’ve had with transparency. I think the governor is politicizing the issue. He’s made it difficult to figure out what his vision is.

We are just asking to have a seat at the table. As far as any concerns that it’s politicizing it, we are the people’s branch. Who is more deserving of knowing what’s going on with the project that the people’s branch of government? So I view it as only a positive thing, only improving the relationship, the communication and the transparency.

If the governor chooses to veto a transparency bill, that’s his prerogative. Minority members and majority members would have both sat in. It was amended in the House to include a minority member.

Petroleum News: So what do you next year? Do you try again?

Costello: I haven’t given it thought on whether I would introduce it again. I think the main concern that I have and the main interest I have is that the governor start sharing his vision for the gas line. When you look across at all the actions he’s taken, it’s confusing who is driving the policy behind the gas line.

The players are constantly changing. They are constantly hiring new people. We have a new DNR commissioner. The entire AGDC board except for Dave Cruz has been replaced. We have a new CEO. When you look across the landscape of this issue in Alaska, I think that this bill and the veto of this bill is one of many examples that indicate the governor has a vision for the gas line that he hasn’t shared with the people of Alaska.

That’s what this bill is trying to do. It’s saying this is the most important project we are facing. It’s only going to improve an outcome, improve a chance of success of it if we are communicating, if we are sharing and if we are behind each other, and we have an understanding of what the governor’s vision is.

Petroleum News: You’ve touched on turnover. One of your colleagues raised that issue during the AKLNG quarterly meeting. How do you see this?

Costello: I think some turnover in agencies and projects, that’s natural. The turnover we’ve seen is unprecedented and troubling.

Petroleum News: Is there any particular departure that concerns you the most?

Costello: You know, acting Commissioner Marty Rutherford leaving so suddenly, just prior to announcing he was going to reject the plan of development for the Prudhoe Bay unit, to me was another red light. Taken as a whole, there has been a whole lot of uncertainty, changing personalities that are often times controversial. It just makes you wonder what the governor is thinking about what he wants for this gas line.

Petroleum News: OK, let’s go to the POD hearing on the 19th. What were your takeaways from the hearing?

Costello: I’m concerned the governor is using his action to leverage the companies into giving him information that has never been requested. This is a plan of development, which is an annual submission that talks about the activities on the North Slope. I think it’s politicizing a process and it’s putting oil production at risk. We are at a time in our state’s history where we need certainty, to know that we have revenue coming into the state. To politicize a plan of development process sends mixed signals to Alaskans. He’s trying to get gas information out of a process, that up until this point, that information hasn’t been required.

Now we see on the heels of this, he’s hired an attorney who has experience suing oil companies. So you have to ask yourself about the fact that he made the announcement late in the day. It didn’t happen in the press cycle, and he didn’t have a press availability about the hire. It’s a big deal and I think the administration is trying to play it down in saying that now that AOGCC has approved more gas offtake, we are asking for this new information. The question we all have is why is the governor asking for this information.

The state has many roles in the gas pipeline and in production with our oil and gas. Those lines get blurred and it’s becoming unclear who is driving the policy within this administration. Division Director Corri Feige even admitted the governor doesn’t even talk to her. To me that was one more example that results in the question what’s the governor’s vision and who is driving the policy.

We’ve also seen the introduction of John Hendrix who we learned is a cabinet level advisor who is on par with the DNR commissioner, who is also new. Andy Mack was there and he indicated a lot of his time will be running the department so the question is will John Hendrix be running the policy for the gas line? More than anything Alaskans need to hear from the governor that if he has a vision for the gas line, he should share it with us.

Petroleum News: What you’ve noted sounds like concerns expressed over the structure during the last special session.

Costello: What you saw last session over the concerns with the organizational chart, many of those questions were answered. But when you change the personalities so often, I think the message he should be sending about his project should be clear; who is driving the policy should be clear. I think we should be working together. We should be communicating. We need to know why the governor is hiring an attorney, why the governor is hiring a cabinet level individual to handle the gas line issues.

I would have more confidence if he was talking to the director of oil and gas. Corri Feige has a tremendous amount of knowledge and experience. Taken together, I think we have a lot of individuals who are involved in this project. At the end of the day, Gov. Walker should tell the Alaskan public what his thoughts are, what his vision is. At this point, we are reading tea leaves.

Petroleum News: On the hiring of Mr. Hendrix, members of the Legislature have long wanted people who have been in the field. So he’s been in the field and in Alaska. Does that help in your mind?

Costello: Certainly his experience isn’t in question. Mr. Hendrix sounds like a qualified, decent individual. The governor, however, did veto SB 125, which required oil and gas experience from members on the AGDC board. Who the people are, I guess that’s a good question. I’m more interested in knowing who is driving the policy.

Petroleum News: And the other recent hire, you talked about Mr. Cotham being someone who has made a living suing the industry. Do you worry that he may be drafting papers for a lawsuit?

Costello: The producers have said the marketing information is propriety information. The governor is asking for it before we have a royalty in kind/royalty in value determination. Then enter stage left, this individual who said at the hearing flat out, he didn’t think this information was proprietary. So he’s already made a determination.

If you look at all the pieces and had to make an assumption - which I don’t want to make, I’d rather the governor tell us his plan - it doesn’t look that great. You don’t bring on lawyers for no reason and the governor has a long history for suing the industry. If it’s in the best interest of Alaskans to put Prudhoe Bay on hold and go into the courts and use our savings to pay for attorneys ... that’s why I want to governor to share his vision.

Petroleum News: You had called the situation over the POD troubling, echoing the thoughts of committee Chair Cathy Giessel. What do you feel that way?

Costello: It seems like each party had dug its heels in the sand. The governor and his attorney are saying this information is not proprietary; the industry is saying it is proprietary and that it’s information the state hasn’t requested in the past; it seems premature; it comes prior to the state knowing if we are going to market our own gas or if we are going to have one of our partners market it for us. This begs the question are we looking to approve their marketing plan and if we don’t approve it, then we are going a different route. It’s very confusing and it seems very political.

No one questions the governor’s passion for Alaska and for getting a gas line, it’s just that we want to know what is his vision for it, what is his idea for a project. Why is it worth putting Prudhoe Bay oil production at risk to get this marketing information?

The message we want to send Alaskans and the message we want to send the market is that we have an industry that we want to keep healthy. We want to keep Prudhoe Bay going. I don’t know what happens if a plan of development is not approved by Nov. 1. What happens to Prudhoe Bay? Seriously what is the plan? There has to be a plan. When that question was asked at the hearing the answer was we are expecting to get the information.

Petroleum News: Well, the governor has said he expects to get the information and he didn’t expect any consequences.

Costello: I hope he’s right. I hope there aren’t any consequences.

Petroleum News: Prior to this, you had an eight-hour AKLNG quarterly update. What were takeaways from the hearing?

Costello: Well, that is where we got our introduction to Keith Meyer. I think the questions in the minds of us listening were is there a different vision that he is going to pursue, that AGDC is going to pursue. He indicated that the state could have equity in the pipeline but not be at risk or accept any risk. I came away from that wondering how could you possibly have equity and not share risk. I was not able to get an answer to that. Again, anytime you bring somebody new in, there is a learning curve. He seemed to be on a different page from (ExxonMobil’s) Steve Butt.

Petroleum News: What more would you like to hear from Mr. Meyer as we approach the end of Pre-FEED?

Costello: I think there are these broad overarching questions over whether decisions have already been made. I have this recollection that this project may not go forward right away into FEED. I thought that the Legislature did a prudent and thoughtful job when we passed SB 138. It laid out parameters to the project and it had decision points that would be made to where the project would slowly ramp up. So from a project standpoint, it sounds like we are making progress. We’ve had some high points for that. To come in and say we might be changing course. ... I think you saw a lot of questions asking him, “Are you familiar with SB 138?”

That question has permeated ever single hearing we’ve had on the gas line. No matter who the new members of AGDC are, or you have a new CEO or you have a new commissioner: SB 138 is the road map and the guideline and the plan for moving forward. If we are going to deviate from that, it’s a concern because that’s the law we are working under.

Petroleum News: So what do think you would like to hear from the partners at the close of pre-FEED?

Costello: Well, at this point, I’m skeptical that the governor’s vision isn’t a different path for the state to go it alone. Every hearing there is always a surprise of some sort. I’m very curious to see what will happen in the fall. He did actually unveil a plan. Keith Meyer did say the state would like to go it alone, but the details haven’t been revealed yet.

Petroleum News: There was concern last summer when the governor unilaterally accepted federal funds to expand Medicaid. Do you see something similar coming?

Costello: You know, I haven’t given that a lot of thought. The Legislature would be funding the project. I wonder if there is some plan for him to use the Permanent Fund to fund the gas line. I’m not sure what his vision is. That’s why I keep bringing it up. I just feel like the governor should explain his vision. We all want a gas line.

Petroleum News: OK, put on your Labor & Commerce chair hat now and discuss the workforce issues that would apply to AKLNG.

Costello: That issue is very important. We need to know now what the workforce needs are going to be. Those needs will tie to what kind of project we will have. The opportunity the gas line brings is not only the energy issues and our fiscal issues, but also jobs. I ask this question a lot. The people who will be filling those jobs are in our schools right now. Are we training them for the jobs we know will be available. That is something I’m keenly interested in and I look forward to more details on that. One of the things that Alaskans want out of this project is jobs for us. That’s an expectation that we should meet.

Petroleum News: Are you hoping to get any kind of preliminary report from the Department of Labor?

Costello: I have asked for information on that and I haven’t had an update from Department of Labor yet.

Petroleum News: Do you have any kind of timeline when you would like to see a report, even if you have a different position on the Senate next year.

Costello: There was a report that was due and I know Commissioner Drygas sits on the AGDC Board and that’s one of the things they would be looking at. That’s another thing the Legislature should be intimately involved in: the jobs. That affects education issues. We fund engineering programs at the university. We helped fund an engineering building. We’ll have to look at things like welding.

I mean the training that is going to be required to get Alaskans into these jobs will be an immense undertaking. There will be public-private partnerships. There will be all sorts of jobs that will come with a project of this nature, so the last thing I want is an Alaskan to miss an opportunity for a job because he didn’t have the training that then would go to somebody from outside.

Petroleum News: So even if the project is seven to 10 years down the road, why is it important to have these workforce discussions now?

Costello: Because those programs need to be in place. A lot of times people decide what their interest is early on and you have to introduce these careers to students when they are in school. West High has a media tract, a healthcare tract and a process technology tract. They have a wing of the school where they put on a hard-hat. The work they are doing during the school days directly translates to a job they may one day get on the North Slope. It’s an important component. You don’t want to be caught off guard. We’re lucky. We know in advance that we need this information. It hasn’t gotten the attention publicly as it has internally within the department or the legislative branch, but it’s a very important component of this project.