Prep for potential special session focus

Giessel begins second term as Senate Resources chair, wants to see both Alaska LNG project, Alaska Stand Alone Pipeline progress

By STEVE QUINN

For Petroleum News

Sen. Cathy Giessel begins her second two-year stint as the chair of the Senate Resources Committee when lawmakers return to Juneau and gavel in Jan. 21.

Giessel, an Anchorage Republican, says one of the priorities will be making sure the committee prepares the Senate’s majority and the public as much as it can for a prospective special session this fall covering an LNG export project that could cost as much as $65 billion.

In familiar discussion, the project is known as AKLNG. The Alaska Gasline Development Corp. is a state entity that gives Alaska a seat at the table with North Slope leaseholders and pipeline company TransCanada.

Giessel says AGDC’s role is vital on this project as on the smaller, in-state line known as ASAP.

In an interview with Petroleum News, Giessel offered her concerns over recent decisions from newly elected Gov. Bill Walker’s office to replace three AGDC board members. She also discussed oil taxes and the state’s potential role in Arctic policy as a member of the state’s Arctic Policy Commission.

Petroleum News: What are your priorities as it relates to resource development, during the session and throughout 2015?

Giessel: Our priorities for the Legislature are going to be addressing the budget, but for Resources my interest is going to be in growing the pie - in other words increasing revenue. My big topic that I’ll be keeping my eye on is the gas pipeline, and making sure both the ASAP and the AKLNG lines continue moving forward.

Petroleum News: So with a prospective special session on the LNG export project in the wings for the fall, is there any ground work you would like to establish?

Giessel: That is a great question and an important one. If we stay on the timeline that we hope to stay on, it will call for a special session this coming fall. So that will be the focus of my committee: continuing to monitor the gas line progress, but also keeping the Senate majority up on the progress, but also the citizens themselves. As this process moves forward and these reports are turned in as part of the environmental impact study that triggers public hearings around Alaska.

That means citizens have the opportunity to read these reports and comment on them. So, I want to make sure citizens know that and they are participating in the process early on and throughout the process. Resources Committee will be working on that information and educational process not only for fellow legislators but also for citizens.

Our goal is that the gas pipeline progress to the place where there will be documents that need legislative approval by the fall and they will require legislative approval.

Petroleum News: With that in mind there have been developments at AGDC with the ASAP line with prospective funding and with three board members being removed. Let’s start with the board. Can you please review your thoughts on that?

Giessel: Sure. You know when folks who were appointed to that board and the Legislature confirmed them, we looked at the qualifications and also the qualifications required for the job.

The three people who were removed were imminently qualified. They had decades of cumulative experience in the oil and gas field, specifically gas pipelines. Mr. (Richard) Rabinow had actually built gas pipelines. Drue Pearce, certainly a former president of the state Senate, has lots of experience in the gas realm internationally.

So I was sad to see that the governor didn’t recognize this expertise. When we talk about this board, it’s not a garden club board. This is a technical board. It requires a high level of expertise and tremendous capacity to understand complex issues, including international markets.

So finding people qualified for this is a tall order. We had three people who were very qualified, who had been working together with other members of AGDC for months and moving the project forward.

Petroleum News: Do you see this as any kind of setback or delay?

Giessel: I see this as disruptive to the process. The ADGC board met (Jan. 8) and there were only two remaining board members present who actually knew what was going on. The two commissioners were new to the process. They had not even had time to read the material to prepare for the meeting. There was a vote to approve an aspect of the work that these new members had not even read, and yet that had to vote.

So the timing of this was very inopportune to say the least.

It will fall now to these two remaining board members - John Burns and Dave Cruz - to do significant orientation for the new board members who will be coming on. We still don’t know who they will be. But those two remaining board members will have a tall order to bring others up to speed.

Another thing is I got a phone call from one of the support industry companies who has offices overseas and they had a company teleconference. The overseas office asked is the gas pipeline being set back? Are they going to change the oil taxes? They are reading reports in the media.

So there is uneasiness. This is in another part of the world. What we do here affects that project and is being heard around the world. I think that is something we need to be cognizant of.

I do want to mention something about confidentiality, too.

I get this question a lot. Citizens are concerned that there will be closed door or closed information. This is part of being in a business. Citizens have been saying for a long time, “it’s Alaska’s oil, it’s Alaska’s gas. We want a seat at the table.”

So when the AGDC board was created and when SB138 was written, we sought to have a seat at the table. And we have it. We are partners with three large (oil) companies and a pipeline company.

That seat at the table requires confidentiality that all businesses operate under in contracts and other business arrangements. By having two board members - and by that I mean the two commissioners - prohibited from entering into confidentiality that means they don’t have a seat at the table.

When confidential information is being discussed, they are going to have to leave the room. When votes are conducted that are based on that confidential information, they will be uninformed. This is a problem.

Even though the governor has said that Deputy Commissioner Marty Rutherford will be allowed to have that confidential information, she is not the one on the AGDC board who votes. In addition, because it’s confidential, she won’t be able to share that information with others. So this is a big problem. I’m not sure that’s clear to the citizens. If we want a seat at the table, then we need to fully participate and that means participating in confidential information in a business environment.

Petroleum News: Certainly these board members serve to the pleasure of the governor and the last governor did remove some experienced people from some similar resource-related boards. That didn’t seem to be a problem for folks in leadership. Do you see a difference here?

Giessel: The difference here is this particular board is managing a mega project, the largest possibly in the world and certainly the largest Arctic gas pipeline in the world. It’s very, very complex and important to the state of Alaska’s future so yes this is different than other boards and commissions, especially with the gravity of the work and the impact of Alaska’s future.

Petroleum News: He’s been in office just a few weeks; does the governor get the benefit of the doubt at this point?

Giessel: Well, of course he deserves the benefit of the doubt in the sense perhaps he has imminently qualified individuals already in mind. I’m hopeful that’s the case. At the same time, I know the qualifications of the people who were removed and the amount of work they had been doing. That expertise, that experience, that knowledge is lost.

Petroleum News: Still on ASAP, the funding for the future remains in question. What are your thoughts on that?

Giessel: The ASAP line has been doing important work that not only benefits an in-state - what’s been called a bullet line - but also benefitting the AKLNG project. In fact the AKLNG project is actually gaining information from the ASAP project to prepare the environmental impact study they are submitting to FERC, which will ultimately result in approval of any gas pipeline. The ASAP line is doing important work; they are doing it in a very fiscally frugal way and they are doing it expeditiously, and yet thoroughly.

It’s exemplary work. To stop that process, we would also be further inhibiting the process of the AKLNG project. The two projects are working hand in hand and the information is being shared. There is no duplication of work from what I’ve seen and from what I understand from people working on the ASAP and the AKLNG projects.

Petroleum News: Getting back to administration appointments, the governor made some appointments such as his chief of staff (Jim Whittaker), his DNR commissioner (Mark Myers) and deputy commissioner (Marty Rutherford). They bring previously stated philosophical differences from the Legislature with them, and that’s drawn some early pushback. Do you have any concerns about that?

Giessel: The people who have been appointed as commissioner and deputy commissioner, etc., will all be working under the direction of Gov. Walker and I believe Gov. Walker is interested in the best possible outcomes, the best future of Alaska. I’m looking forward to working with him.

I’m looking forward to having good conversations with him. I believe that his goals and that of the Senate majority certainly align. At this point, it’s so early, he’s so new in his role and we haven’t had the opportunity to work with him, to communicate with him. These other appointments, they will be working under his direction and I’m optimistic that we will develop a positive working relationship.

Petroleum News: You’ve seen the governor’s column on the state paying out more than it’s taking in as far as revenue versus credits. What’s your take on this?

Giessel: Well, not only his opinion piece, but a reporter also had a piece described as the incredible shrinking tax. These credits are approximately 50 percent Cook Inlet and 50 percent for small operators who are still experiencing a net operating loss. So these are not the big three producers who are getting what’s being described as very generous credits. These are credits the Legislature put in place to incentivize production. That’s what SB21 was all about and it’s working.

Petroleum News: So you don’t have any concerns right now about the credits?

Giessel: In other words in this low-price environment, we are simply not getting enough revenue to offset the credits which are actually increasing production. So it’s not the credits that are the problem; it’s the low oil prices.

Petroleum News: Do you see anything that needs to be done as far as a review, even if there is no new legislation to consider, given the price per barrel environment we’re in?

Giessel: The low oil price trough that we are in right now, we’ve been here before. These troughs are typically short lived. Clearly, none of us are perfect at forecasting the future, but the general consensus in the industry and throughout the world is that this will be a short-lived period. I think we hold steady, that we don’t make any rash moves, that we don’t make any panic moves. Instead we wait and watch the market correct itself, which the market ultimately always does.

So I don’t see any prudence in abruptly addressing a new tax structure that we’ve just put in place and that’s working. We’ve got more production. We’ve got more citizens working. We don’t see the companies pulling back any of these projects. They are continuing to press forward, so there is no reason at this time to make any knee-jerk reactions or revise something we don’t believe is broken, and I don’t believe SB 21 is broken.

Those incentives that we placed in that bill have brought on more production, brought on more work and we’ve protected the state at low prices. We are making more revenue on that tax than we would have under ACES. We also drastically revved back the credits. We would have been spending a billion - that’s with a ‘B’ - under ACES. To go back and revisit this now, I think it would be imprudent.

Petroleum News: You mentioned production. Over a calendar year, the first full year under SB21, we are down about 4 percent. Under the most completed fiscal year, the state’s production is nearly flat. How do you reconcile those two?

Giessel: Well, it certainly does depend on when you look at it because clearly production increases during the winter. The fiscal year is going to be a better reflection and a better comparison. It’s apples and oranges. Looking at fiscal years, as we have done historically, we have brought the decline to a virtual standstill.

Petroleum News: Speaking of the low price environment, do you think this brings a dose of reality that we are beholden to a world market, especially as we’ve enjoyed $100-plus barrel prices for the last several years?

Giessel: I hope that it brings a clarity and realization to the average citizen. I think that much of the media is not credibly recognizing that, but a lot of citizens are starting to ask questions, ‘how did we get here?’ Some of the media is reporting that, in fact, OPEC is responsible for these prices staying low for so long. They are looking at their own best interests too, not giving up markets as they’ve done in the past, pull back their own production to raise prices worldwide. I hope that Alaskans, the average citizen, realize that Alaska is not the center of the planet, that we live in a global community, that we are affected by global events. We need to be much more cognizant of that, especially as we think about selling our natural gas on the open market. We need to be very savvy. We need to have people who are in charge of that process, understanding that complexity.

Petroleum News: OK, on to the Arctic. You’ve been heavily involved with the state’s Arctic Policy Commission, which will submit a final report and likely some legislation. What have you learned in those two years and what do you see happening this year?

Giessel: Well, this coming year our country will be chair of the Arctic Council. That’s a pretty big deal. The Alaska Arctic Policy Commission was formed with that in mind, seeing it on the horizon. Sen. McGuire, of course, is instrumental in that and seeing that we needed to inform the federal government of the realities of Alaska.

My time on the commission has been very informative working with folks from all over the state. Of course, I’ve worked and lived here my whole life. I knew a lot about the Arctic but learned a whole lot more as a member of this commission. In terms of what I see moving forward, I think that all of us on the commission continue to have some concern that the Alaska voice is heard clearly and in a practical way.

I know that Sen. McGuire has been talking to the Department of the Interior and other folks in Washington, D.C., and I think she will make sure that our voice is heard. We’ll have to see how this goes. I hope that resource development and economic development for rural Alaska particularly is a focus and I think it will be. I think the Arctic Council has formed a new group that is actually looking at economic development in the Arctic. So that’s very positive.

When people have the ability to earn wages, make a good living and still be able to live in a rural area, it allows them that opportunity to determine their own destiny: where will they live; how will they live; what kind of education will they pursue. We are on a monetary system even though they live in rural Alaska.

Petroleum News: Do you think Alaska’s voice is getting stronger on Arctic issues?

Giessel: Yes, I do believe it is. I think the reports that we have sent to Washington have had an impact. I think Washington, especially Admiral Papp, who will be leading the charge out of Washington on the federal level, is aware that we are here and he’s aware of our concerns. How much our concerns shape the U.S. direction on the Arctic Council remains to be seen. But we will not give up. I’m confident that we will continue to make our voices heard very loudly.

Petroleum News: Speaking of a voice, Sen. Lisa Murkowski is now in charge of the Senate’s Energy Committee. How do you think that can help in the coming two years?

Giessel: I am very excited for her and for Alaska. You know she is going to be controlling funding for such agencies as EPA, BOEM, Fish and Wildlife. She will have much greater influence over how those agencies work and how they work for Alaska. There are few greater advocates for Alaska than Sen. Murkowski. She’s been positioned waiting for that opportunity (as ranking member while serving in the minority), and now she has that opportunity. She is going to do a great job and I’m looking forward to seeing her work.