Walker wants more companies drilling

Governor says key to more production lies in more companies exploring on North Slope; with low oil prices, rethinking large projects

Steve Quinn

For Petroleum News

When voters went to the polls Nov. 4, North Slope oil fetched about $80 a barrel. Since then, oil has dropped $22 a barrel and newly elected Gov. Bill Walker faces issues hardly discussed or even anticipated on the campaign.

The sudden price drops have Walker re-thinking large-scale projects on the drawing boards, including an in-state line, known in the Capitol and various state agencies as ASAP, one of six for which new funding has been halted.

Walker, who ran as an Independent, remains bullish on Alaska’s resource development prospects, particularly by advancing a large-scale natural gas pipeline that would deliver gas to tidewater and an LNG export facility.

The following is an edited transcript from an interview between Walker and Petroleum News, and several follow-up questions via email.

Petroleum News: Let’s start with your visit to Washington, D.C., and your meeting with the president. What kind of feedback did you get from him on any resource development front?

Walker: We talked about the gas line, and I explained to him about the high cost of energy in Alaska, that we have the highest costs of energy in the nation. He expressed surprise in hearing that and we talked about how infrastructure projects are important to our country. I believe they referred to - I’m not sure if it was the president or one of his cabinet members - early in the day, he referred to our country as being in an infrastructure deficit.

So I explained to him that we have a large project in Alaska that would help with that and talked about the gas pipeline. We talked about the permitting process. He described a project done elsewhere in the country, which I believe was Florida, that had originally been a seven-year anticipated permitting process and they were able to get it down to one year, so I was very encouraged by the discussion of the gas pipeline.

Petroleum News: So do you get a sense that he’s serious about this because there has been a lot of criticism toward the president that he’s not serious about developing Alaska’s resources?

Walker: I thought they were serious. I didn’t get any sense other than that.

Petroleum News: Let’s get to your office. What is your vision for resource development?

Walker: Well I’d like to see a whole lot more exploration in the North Slope. I’d like to see a whole lot more companies on the North Slope. I’d like to see more companies on the North Slope, so I’m very aggressive on resource development - on mining as well. It’s not just oil and gas.

Petroleum News: So what is it going to take to get more oil in the pipeline or are things in place to get that done?

Walker: It’s going to take more exploration.

Petroleum News: And how are these new companies going to get here?

Walker: What we want to do is lower the bar of entry into our exploration somewhat by working with them in a collaborative fashion. It’s pretty difficult for independents. We are going to sit down with independents and talk about ways we can assist them in further exploration on the North Slope. We have in place incentives on the legacy fields and I want to make sure the independents are comfortable with where we are in exploration opportunities for them.

Petroleum News: Have you had any meetings with independents yet?

Walker: We met with some, not as many as we’d like but we’ve met with some individually and in groups.

Petroleum News: Are you at liberty to say who?

Walker: No, I can’t. Well I don’t mean to be evasive. We did meet with Caelus.

Petroleum News: Back to the gas line, which you noted earlier. What do you like right now with the progress of advancing a gas line, whether it’s the larger line under AKLNG or the smaller line under ASAP?

Walker: What I like about it is they are all going to tidewater. For a long time - we’ve spent 10 years and millions of dollars on a line going into Canada, which I never thought made any sense at all. So the good thing is all projects lead into tidewater at this point.

Petroleum News: What about any concerns you may have?

Walker: My concerns are is it going to be able to move along quick enough to match up with the market opportunity. My biggest concern is timing. I’m looking for ways for the process to move along quicker and be expedited.

Petroleum News: With such a premium placed on advancing a gas line project why did you include the ASAP line, which is a longstanding priority to many legislative leaders, in your Executive Order to halt new funding?

Walker: The ASAP line is one that is very costly. In talking with the folks at AGDC, they felt there were things that could be done to slow the spend rate without significantly jeopardizing what they’re doing overall.

Petroleum News: You noted a meeting with AGDC. What have you learned about the work they’ve accomplished? What kind of foundation has AGDC laid for the state to advance a project? What are the fiscal issues with AGDC facing the state in light of oil prices?

Walker: It appears at this point AGDC is going through a permitting process, which is necessary. The focus has largely been on permitting, and they’ve been doing cost estimates on which I haven’t seen the details, but it seems they have come up with cost-savings options.

Petroleum News: You signed an MOU with REI. Even though there are no binding details attached to it, why do you consider this significant? What would the next step be?

Walker: All relationships start with nonbinding MOUs. Every project starts with acknowledgement of mutual interests, so that is significant. The MOU also sends the message to world markets that Alaska is open for business. Since the REI MOU, I’ve heard from other market participants in Asia, who have contacted me directly. On Christmas Eve, I got a call from Tokyo asking for similar arrangements with other companies. That’s the way it works; it starts with a relationship.

Petroleum News: You said you’ve long believed LNG was the way to go. Talk about that a little. Why have you felt that way?

Walker: Well because that’s where our market is. We’ve been shipping LNG to Asia since October 1969. Our market has always been the Asian market. Everyone has been looking for a long time at the Asian market as the market. It’s unfortunate that we spent so much time and money on a line into Canada when in fact even Canada has been looking at the Asian market for a long time as the ultimate market. The other thing is, when you’re at tidewater, regardless of where you are, the world is your marketplace. When you are on a pipeline you live and die by the first liquid trading hub you get to. That’s where your gas is priced. You’re limited to what happened at that trading hub versus having the world at your doorstep.

Petroleum News: So with that in mind, have we missed any opportunities?

Walker: I think in some respects, yeah, absolutely we’ve missed some opportunities. Look at some projects being built around the world going to markets that we could have and should have gone to, you bet we missed some opportunities. That doesn’t mean we should stop doing what we are doing at all, but yes of course we missed some opportunities.

Petroleum News: One of the prevailing lines about the current efforts is that the three majors are aligned. They are aligned among themselves; they are aligned with the state; they are aligned with TransCanada. Are you sensing that?

Walker: I think they have aligned. In my discussions and meetings with them, and from the documents that I’ve read, it appears there is a certain degree of alignment. There is a lot of negotiating going forward, but it does appear at this point those four entities are aligned.

Petroleum News: What about the ASAP line, the in-state line, as you look at capital projects and finances, can the state afford to do both or do you see this the pursuits being complementary?

Walker: That’s what I’m trying to sort out. I’ll be receiving a briefing on the economics of the smaller line and see what that does for Alaska and what it costs us, then we need to make some decisions.

Petroleum News: Some of the criticisms directed toward you during the campaign came from former Resources Commissioner (Joe Balash) and were characterized as “conflict, litigation and blame.” What is your response to that?

Walker: My concern is that I’ve watched projects developed around the world by the same companies they (previous administrations) have been talking with. I have been very vocal about my opposition to the line through Canada, which the past administration has been very involved with. You bet I’ve been critical of that. I refer to that as the lost decade of efforts to getting a gas line.

My pro development work on getting Point Thomson developed - yes I did file for a hearing in 2007 or 2008. Obviously Point Thomson had been rolled over and rolled over and rolled over since the mid-1960s without a plan of development being performed. So I do take a bit of responsibility of that even beginning. That was the first time anybody challenged it and required that the hearing be public. I brought in a number of witnesses testifying what the intent of the constitution was on these lease areas and resource development.

Yeah, I haven’t always agreed with the administration and as a result of that, not as a result of what I’ve done, but now we are a looking at a pipeline to tidewater finally, now we’ve got Point Thomson developed finally. So sometimes you have to step up and say what’s right is right and what’s wrong is wrong.

Petroleum News: You wrote an op-ed during the campaign discussing several concerns over SB 138 and the current status of the LNG export project. One of those concerns was the state not being in control of the time line. Where should control lie. How much control can the state have when a project like this is really market driven?

Walker: You know my concern is that it seemed to be driven by those that. ... .The state barely had a seat at the table. We ceded our seat at the table to TransCanada so we were not at the table on the larger project.

We had 25 percent interest in the liquefaction facility, but as I watch projects signing long-term contracts around the country, we seem to be spending an inordinate amount of time in the permitting process and very little time in the marketplace. Virtually all projects that get developed, they have a strong presence in the market; that’s part of the project being developed. Many projects start in the market and the market has a significant role in the project itself.

Petroleum News: You also had a concern about Alaska receiving its tax payments in gas rather than revenue. Can that concern change?

Walker: Perhaps. We’ve given up some benefit in doing it that way. I don’t believe that is the best way to do it. We are still looking at whether that requires a modification or not in order to make that change.

Petroleum News: You were also concerned about the Prudhoe Bay leases being altered.

Walker: Yes, we were concerned about altering the language of the leases without a commitment for a project.

Petroleum News: Let’s talk about the team you’re assembling. You’ve got Mark Myers and Marty Rutherford. They bring a lot of institutional knowledge to your administration, but they also bring philosophical differences from the Legislature’s leadership, and that sparked some criticism over your picks. Can you speak to that?

Walker: They are both very, very knowledgeable in their area. I’m looking forward to working with both of them. I’ve got a long history with both of them. I’m just very pleased to have them on the team and working collaboratively with the Legislature moving forward.

Petroleum News: Was there anything specifically that led to you bringing them back into the fold?

Walker: Yes, their expertise, absolutely. Both have a background on oil and gas issues that’s advantageous to the direction we are going.

Petroleum News: Do you expect any further pushback?

Walker: I have occasionally received some pushback from different folks on different appointments that I’ve made. I suspect that will be the case with all of my appointments. There will be some groups or someone out there who thinks that position should be filled by somebody else, and I respect that.

Petroleum News: Your chief of staff (Jim Whitaker) has faced different pushback from three lawmakers who faced his scrutiny during the 2006 oil tax debate. Can those feelings be soothed over?

Walker: Yeah, we look forward to working with the Legislature going forward. I’ve met with the Senate majority in Girdwood and we had a very positive discussion about going forward so we look forward to having a positive relationship with the Legislature.

Petroleum News: So have you found that you’ve had to soothe over any hard feelings?

Walker: No. Not really. It’s all been positive.

Petroleum News: With oil prices the way they are right now, what do you believe the state can do to advocate for more resource development?

Walker: There are a couple of things we can do. Obviously we are in litigation with the administration in D.C. about exploration issues. The permitting process is fairly onerous in some respects. Really, until I meet with more of the independents and listen to them ... this part of the administration is doing a whole lot of listening to folks about what we can do to assist and what their goals are.

Petroleum News: Speaking of D.C., Alaska will soon have a senator (Lisa Murkowski) in charge of the Energy Committee. How do you think that can help the state with things such as the permitting issues you’ve raised? The administration hasn’t changed so there will be some differences. Can this still help pave the way for things the state?

Walker: Oh, I think so. The chair of that committee will be very helpful to us. I have spoken with Sen. Murkowski about that. I’ll be meeting with her soon and talking to her about what more she can do in her roll. I think this very significant change for Alaska.

Petroleum News: Sen. Murkowski is a big advocate for Alaska not just having a seat at the table but also a voice when it comes to Arctic policy. What are your thoughts right now on the state having a voice in Arctic policy?

Walker: I think it is appropriate. That’s why we appointed Craig Fleener as the special assistant to the governor’s office on Arctic policy. This year the U.S. will chair the Arctic Council. We have a meeting in Fairbanks. I definitely want to see an increased role for Alaska on that council.

Petroleum News: What kind of priorities do you see for the Arctic? Is it infrastructure? Is it exploration?

Walker: It’s a little of all of that. The infrastructure side, we certainly want to have oil spill response capabilities. It’s not only associated with our exploration. There is going to be exploration by other countries offshore that could impact our waters. We do want to talk about some oil spill response capabilities up there, you bet.

Petroleum News: I have had several people on various resources committees tell me just that. They want response teams in place, even if we aren’t doing the exploring, because the spill can come from outside our borders.

Walker: Absolutely. It’s a very valid concern and one that we will be expressing to Washington very regularly.

Petroleum News: So again with the state’s fiscal issues, can the state afford to start investing, or will this take a public-private partnership?

Walker: A public-private partnership. The position I would take at this point is since the federal government gets all the revenue at this point, they should fund the infrastructure so we can be prepared for any sort of problem if there is one.

Petroleum News: Still on the Arctic with exploration, what are your thoughts on the prospects of Shell returning to the Arctic this year?

Walker: I’m pleased to hear they are and I’m hopeful things will go well for them in their exploration.

Petroleum News: Do you have any concerns about their setbacks?

Walker: Again, I’m hopeful things go well to stay on track. They put an awful lot of money and effort. I do support what Sen. Murkowski has done, advancing an equity as far as the state’s share for offshore production. That is something I will support any way that I can.