Hawker wants both gas projects to continue

Says in-state line backup for AKLNG, work not duplicative, both needed to ensure gas for Alaskans in event large line noneconomic

Steve Quinn

For Petroleum News

House Rep. Mike Hawker has been a member of the House Finance Committee, which he also served as co-chair, a member of the House Resources Committee and is completing a two-year stint as chair for the Legislative Council.

But the one constant during his entire 12-year career in office is the Legislative Budget & Audit Committee. Hawker has served on the committee made of members from the House and Senate since first being elected in 2002. In 2010, when the House held the gavel, Hawker served as chair and he will again when lawmakers return to Juneau in January.

With heavy-hitting discussions on a prospective natural gas export pipeline pending, LB&A will be tasked with, among many things, finding the right consultants and analysts to assist the Legislature in understanding the complex global markets Alaska faces as an entrant into that environment.

Hawker, an Anchorage Republican, gave Petroleum News a preliminary outlook on what’s ahead for 2015 and why he believes the state is on the best course for advancing a pipeline project.

Petroleum News: Can you start with providing a sense of what LB&A’s mission is, especially these next two years?

Hawker: Legislative Budget and Audit committee is a joint committee from both the House and the Senate, so it’s one of the places where we can come together and work together on issues that are before the Legislature.

LB&A has been and continues to be the committee where we assign for conducting all of the audits of administrative agencies and that includes those both under the reauthorization audits, where we have to look at each agency that is sun-setting and determine if its performing in accordance with legislative intent and determine if we want to reauthorize it. It includes the HB 30 performance audits of individual agencies. It now includes the HB 305 and 306 audits of indirect state spending. So we have a huge responsibility for auditing the efficiency and effectiveness of government.

Then in addition to that, we have responsibility for engaging and managing all of the consulting resources the Legislature engages to support it on various projects. Specifically at the moment we have two major projects under review. One looks at how we can improve our approach to funding schools in the state. The second is the oil and gas consultants that have been necessary to maintain, these being very topical subjects in the Legislature.

Petroleum News: When do you see yourself engaging the consultants in the Legislature? Is it too soon to do anything with the contract proposal for the LNG export line not due until the end of next year?

Hawker: I think it’s imperative that the Legislature continues to keep itself abreast of developments. Look, we’ve got new people coming into the Legislature who need the opportunity to be completely and totally introduced to these subjects: the issues, the background, the questions, the approaches considered to date. We also have returning legislators who will need to be kept informed and appraised of projects to date.

I think there is always a role for both our economic consultants and evaluators. As well, we are going to continue to need legal analysis that enables the Legislature to truly evaluate the contracts that might be brought for us. This sort of work needs to be ongoing and not wait until after the fact. It needs to be proactive and not reactive.

Petroleum News: During your first stint as LB&A chair you got the ball rolling on an interim symposium that ultimately your successor and now predecessor carried out for you. Is that the type of thing you’re talking about?

Hawker: We engaged and conducted the first LNG101 courses for the Legislature and I expect to continue that same course of action. As I’ve said we’ve got legislators at all levels of knowledge and sophistication on these areas. We need to be sure every legislator has access to the resources they need to be comfortable making decisions they need coming before them.

Petroleum News: What do you see are the priorities for the Legislature on the resource development front for the next two years, and if you want you can break down those two years any way you like?

Hawker: Well, I can’t speak for the Legislature. One is making sure my community maintains its energy security and that nothing happens to impede the renaissance of development that’s going on in Cook Inlet. We also need to be addressing the high cost of energy that’s going on in other communities of this state, specifically those where we can truly make a difference with immediate actions such as Fairbanks.

We need to continue to build a long-term vision for an energy policy for the state and work on getting Alaska’s natural gas resources to all folks in the state. That then will link back to continuing progress on a North Slope natural gas pipeline as a linchpin to all of the above.

Additionally we’ve got the state back on track with regard to a stable and working tax regime on North Slope oil and I think we need to make certain that we protect that regime and continue to create an economic environment that fosters investment and growth, and remains internationally competitive for investment capital.

Petroleum News: Speaking of oil taxes, it seems that this debate went strong for about eight years and has now subsided with the voters upholding the current tax regime under SB 21. Can this help the Legislature move forward onto other priorities?

Hawker: I certainly hope that the public vote on the initiative to repeal our current oil tax structure and the failure of that vote makes a clear and convincing statement to the Legislature to let our oil tax system work and move forward with other pressing issues. I certainly have some anxiety that the message may not have been received in all the corners of the Legislature, but I’m hoping it’s received in enough corners of the Legislature to move forward.

Petroleum News: The new governor has said he pretty much won’t touch the new tax system. Is that your understanding?

Hawker: (Walker) has been very circumspect. I think we’ve been hearing him say he was going to and his words were “going to respect the will of the people,” then there is always a comma, but he thinks we need to restore these upfront incentives that were taken out of SB 21 because they were incentives based on spending, not on production. I think we are getting a bit of a mixed message from the governor.

We need to be very, very circumspect of how we look at saying that we are going to preserve the SB 21 tax structure then we are going to change it back to what it was before through adding back all of these credits.

I don’t think you can have it both ways at the same time. One thing I am noting, I’m seeing an awful lot of colloquial commentary that somehow SB 21 is resulting in us getting a lot less money. Nothing could be farther from the truth. Getting that truth before the public is a critical part of the LB&A role.

The fact is at $80 a barrel oil we are collecting probably $200 million to $250 million more than we would be collecting at that same $80 a barrel oil under ACES. And likewise, Alaska’s oil and gas industry does not determine global oil prices as the public thinks it does. These are the kind of truths we’ve got to continue pursuing at LB&A. My belief is the single most important thing that constitutes good governance is when you look at an issue, you listen to all sides of the issue and you get the facts straight before you start talking about it and making decisions that can be in the best interest in the state of Alaska. There is still an awful lot of rhetoric out there that is not based in fact.

Petroleum News: Speaking of $80 oil, do you think these recent prices have provided a reality check to the volatility for Alaskans who are accustomed to $100-plus oil?

Hawker: It’s certainly a reality check. When I was first elected back in 2002, we were in a similar situation. We had just come off of oil that had come down in the single digits. We were still producing a 1.2 to 1.3 million barrels a day and were able to get by. But in the past few years we’ve had this phenomenal circumstance that has masked the declining production of North Slope oil.

For whatever reason I think the public has lost its nexus to understanding the importance of oil in our economy, the importance of oil to providing all the things needed in this state and the reality that oil provinces ultimately decline.

We have to manage them as a mature basin before we look at recovering the more difficult, harder to find oil, as well as now how critical it is that we get to the gas resource that has to date been used to produce additional oil. It’s now time for us to be prepared to produce that gas.

Petroleum News: You’ve got a new administration coming in. What do you think would work best as far as a relationship?

Hawker: We are seeing the names the governor is putting forward. They are names by and large known in the political process. The governor is surrounding himself with people who have had difficult situations with the Legislature and have not had track records of success in promoting the development of Alaska’s resources. The governor does get to appoint and consider who he wants. The Legislature has a responsibility of working with them in the most productive and constructive way possible and we’ve just got to see what policy initiatives the governor takes.

Petroleum News: One of those appointments, the chief of staff Jim Whitaker, was very critical of you and two of your colleagues as being too close to the industry when oil taxes were being debated. Can those comments be set aside, forgiven, as things begin next year?

Hawker: I think that appointment is going to be a bit problematic, but in this world politics is all about the future. It’s never about the past. The statements that individual made demonstrate a certain disrespect and disdain on their part for good governance.

Petroleum News: Another appointment, Mark Myers as commissioner for the Department of Natural Resources, has worked with the Murkowski administration before and was part of a mass exodus from the administration. He’s also worked for the Bush administration and academia before coming back. Do you think a second go around could work with the Legislature?

Hawker: Well, again he’s a very opinionated person who has repeatedly stated his own challenges in working constructively and productively with those people we need to be investing in Alaska to develop our resources. I’m hoping Mr. Myers has learned something in the time he’s been away from administrative government.

Petroleum News: Onto the gas lines. Can the state afford to continue to pursue both gas lines at this point?

Hawker: This is the misnomer that troubles me. That question makes it sound like we have something that is duplicative going on. What we have with AGDC (the Alaska Gasline Development Corp.) is an ongoing in-state project that is there to be a backup for the state to fall back on if the larger AKLNG project again - once again - proves noneconomic to the investors that are needed. The work being done jointly now with AGDC as part of AKLNG has made sure that those projects are additive, not duplicative. AKLNG is relying on work AGDC has done and vice versa.

We made it very, very clear we wanted to avoid duplicative efforts. It is a fiction to carve it out and say we are trying to build a competing project. No. There never was going to be a competing project. The state needs, at this time, to make sure we have a way to go at it alone if the industry decides it’s not economic. We need to make sure we protect ourselves but at the same time fully invest ourselves as we are doing under the AKLNG project in moving forward with the right sized, largest possible, economically viable project.

This is a case where the politicians of this last campaign presented to the public making it sound like the AGDC project was a competitive project to AKLNG. It is not. It is a symbiotic project. In the prose of campaigning, it became an easy target as a project that needs to be stopped.

Well no, you don’t want to stop a backup project. You want to keep it working and moving forward in the context of the larger project in case we do have to fall back on it again.

We have always said the state needs to construct the biggest project possible. Bigger is better. We’ve got to look back at history. The big AGIA project which had the sole and exclusive right to Alaska’s North Slope gas, except for a very small amount, was looking at an uneconomically viable project to the Lower 48. We saw that in the Legislature.

We created AGDC and said look, they can go to the Lower 48 all they want. We know they aren’t going to get there. We’ve got to start a project to get Alaska’s gas into the hands of Alaskans. I cannot overemphasize that. AGDC is about getting Alaska’s gas to Alaskans. It’s about putting Alaskans first and foremost before all other interests in the state.

We also empowered AGDC with the ability to work with any project that becomes economically viable and truly can move forward but still with the mission of making sure that Alaska’s interests are taken care of.

That’s the magic of the AKLNG project. It has the conceptual of a pipe within a pipe design. The state gets a quarter that we can do anything we want with it. We can take care of our people. We get to move to market all of our royalty gas. There are three other players: BP, Conoco and Exxon. They get to treat their quarters however they want to. It’s a very ingenious and functional mechanism that we don’t want to upset at this time.

Petroleum News: Given the campaign and post-election statements that you referred to, are you expecting any pushback on this plan as it’s designed to move forward?

Hawker: I have no ability to second guess what we are going to be seeing coming out of this administration. I fervently hope that they take the time to study AGDC, AKLNG and get their facts straight and truly understand how this gas project is progressing. I hope they truly take the opportunity to understand what AGDC’s mission is and how it is working to accomplish that. I really hope the take the time to understand the AKLNG project.

I’m very concerned with the statement that continues to be made that AKLNG is fatally flawed. We’ve never yet seen anyone be able to give us a concrete answer to that question - it’s been used in political rhetoric - but when asked, what is the fatal flaw, there is no definitive answer: So all of these things are going to have to be sorted out in the session.

I am very much hoping the folks in the incoming administration take their time to get their facts straight and truly understand how successful these projects are and continue to be before they take any actions that could impede their progress. It would be a travesty for an incoming administration to turn success into failure at this time.

Petroleum News: You noted early on about educating the public. Is there any additional way of going about that beyond public hearings?

Hawker: Public hearings present a very important aspect of an open governance process, but I think we have to do more outreach in various forms, whether it be Chamber of Commerce, Rotary, community councils and directly to the public through the media that do a better job of presenting fully and accurately exactly how successful this project has the potential to be but also fairly analyzes its risks and its challenges.

Petroleum News: What would you like to see from the administration by the end of next year?

Hawker: As anticipated under the heads of agreement, the MOU (memorandum of understanding) and the enabling legislation, it is anticipated that we will come back in a special session to approve a series of contracts needed to move a project forward and that session would occur in 2015. What I would hope we would see out of that process and what I hope we would see on the table are the necessary key governance agreements for Alaska to look at and say this is a good thing and a good way for all of us to move forward together. Those would include commercial agreements. Those would include gas balancing and access agreements and some other very technical agreements very necessary to operate a project. They are the agreements that when you work with government you have put them on the table and have a public discussion.

Petroleum News: That’s some heavy lifting. Can something like that be accomplished in 30 days as the contracts come back and are reviewed in a special session?

Hawker: Yes it can. That’s part of the LB&A responsibility to work with the Legislature along the way there to make sure they are prepared to undertake that task. It is also why it’s important for individual legislators to continue to be as informed as possible, which gets us into the need for the ability to engage in a degree of confidential conversation with the administration and with industry to stay abreast with the developments, so when they get brought out into the public, the Legislature is ready for a robust, full and clear dialogue on the merits of the agreements.