Touring with BP, Exxon, Conoco, Shell

With trips to the North Slope and Seattle, Gov. Bill Walker cherishes his first-hand look at current and prospective operations

Steve Quinn

For Petroleum News

Gov. Bill Walker has been in office slightly longer than six months and has made frequent trips to Washington, D.C., to tout the state’s oil and gas prospects. He’s also fresh off a recent trip to the North Slope. This visit included an aerial look at the washed out Dalton Highway, and fields operated by ConocoPhillips, BP and ExxonMobil.

Walker also went to Seattle to visit Shell’s rig, which attracted pushback not only from environmentalists protesting but from local and state lawmakers weighing in or throwing up roadblocks at the Seattle port. The rig represents imminent Arctic drilling, which many in Seattle and Olympia view as an affront to climate change awareness.

Walker, however, said Washington’s state and city leaders need to back off and understand the rig represents prospective growth to the Alaska’s top industry.

Walker reflected on those trips among other developments since lawmakers adjourned from regular session and began devoting special session hearings toward a balanced budget.

Walker, an Independent, discussed these with Petroleum News in a recent interview.

Petroleum News: You spoke a little at the AOGA luncheon about how pleased you were about the Department of Energy granting Alaska the export license. What’s your take on that?

Walker: Well, as I said, it’s certainly not a big surprise that we received it. We were in the queue for it. What is a surprise is how we were taken out of the line of all the others that are in line and treated a bit favorable from a timing standpoint so I’m a very pleased about that. It’s the third export license we’ve received in Alaska, so I’m very pleased about that.

Petroleum News: You also noted how you would like for Alaska to have a bigger share of the pipeline, which would mean buying out TransCanada. Why would you consider that option?

Walker: Well, I’ve long felt we literally need to be at the table and not necessarily have a proxy at the table but actually be at the table. Right now we have TransCanada as our seat at the table so therefore the mechanism to do that is a provision in SB 138 to replace them and that is something that is certainly being considered.

Petroleum News: Have you had any discussions with TransCanada about a separation agreement?

Walker: I have a number of discussions since I’ve been governor with Russ Girling of TransCanada. They have all been very, very good discussions. We will have more dialogue on that as we move forward.

Petroleum News: Should you, on behalf of the state, move forward and acquire a larger share of the AK LNG project, can the state be a regulator with oversight and an owner at the same time?

Walker: We can. There shouldn’t be any issue of that. We regulate a number of things. We regulate the railroad and we own a railroad. We regulate marine traffic in Alaska and we own the ferry system. So no, I don’t have any problem with that.

Petroleum News: But in this case you would have partners to regulate. Look back in 2006 when there was a pipeline leak that partially shut down the system. How would you handle something like that?

Walker: Well, right now it’s designed we are an owner in the liquefaction piece and not the pipeline. As an owner we would share responsibility with our partners. Those are all part of the negotiating terms in how that would be structured.

Petroleum News: Speaking of partners, you visited each one and their operations on the North Slope. Talk a little bit about this visit. What are your thoughts on it and what impressed you?

Walker: The first day I flew to Kuparuk and toured Kuparuk; then I went over to Alpine field and went to CD-5. I was very pleased with what I saw. Not only were they safety conscious, but also the new technology is, as we’ve seen in Norway, a lot of the renaissance in Norway’s oil and gas business is a result of advanced technology. To see that being applied in the North Slope, and actually a lot of the new technology being applied came from the North Slope because there are such large, diverse fields. It was great to see that, and go on a drill rig and meet the workers. I had a very full day with ConocoPhillips.

The second day was with ExxonMobil. We had a briefing at Deadhorse then we had a bit of a weather challenge. So we took full advantage of that, spent time at the airport and going through a briefing there. At Point Thomson we toured the new drill rig that’s being built. Everything being built is relatively new. I was very pleased to see that and the pipeline in place that leaves Point Thomson ultimately for another connection. It was a very good day with ExxonMobil. I enjoyed that immensely.

The third day, with the flooding going on there was some question whether or not it made sense to stay on. I absolutely insisted that was stay and I’m glad that we did. You know 50 percent of the oil coming through TAPS comes from the Deadhorse/Prudhoe Bay facilities. It’s the anchor tenant or mother ship, however you want to put it, for the throughput of TAPS. So I was very pleased to see what they do. We saw the separation facilities. We went on a drill rig.

I was very impressed. I enjoyed meeting a lot of Alaskans there, certainly in the engineering area. I was happy to see not only the level of interest, but the level of passion for using the new technology to the maximum extent to get more oil out of the fields.

Petroleum News: Before you became governor you weren’t happy with the deal between the state and Exxon. Do you feel better about things now that you’ve been up there?

Walker: Well, I never had an issue with the recent development. I think some of the process it went through - I had some significant challenges over some details of the agreement. They had the leases since ’65, so I was glad to see the development taking place that I saw.

Petroleum News: You also mentioned something about the weather. Did it give you and additional appreciation for what takes place up there and the elements?

Walker: Well, the real elements are in January. The issue was the fog. That’s what held us up a bit. You get an appreciation for the vastness. I was impressed with Deadhorse itself, all the companies, the largeness, the companies’ presence. I began to refer to Deadhorse as the Las Vegas strip of Alaska because of all the activity. It’s really quite something. The flooding event also, I was able to attend one of the daily Unified Command System teleconferences. About 25 different folks were on the line, so it was good to be part of that.

Petroleum News: The flooding certainly spoke to what I was asking about elements.

Walker: The highway certainly is a unique situation I think because of the tundra, the drainage, the precipitation of last year. A number of things came together for that to have happened. It’s a whole new situation. It’s pretty disruptive. An entire city up there did not have truck transport. Highway transport is pretty significant. That definitely was a disruption of activities with everyone doing all they can to make up for it and getting things up there by air that can be taken that way. It was more washed out than I had anticipated. From the air you couldn’t exactly tell the depth of water over the road, but there were long stretches where you couldn’t see the road.

Petroleum News: Still on travel, you also recently went to Seattle to look at Shell’s preparations for embarking on to the North Slope. Talk about your impressions of what you saw.

Walker: Having been on a couple drill rigs already in Prudhoe Bay on the North Slope, what was interesting about the Shell rig because of it being offshore, the redundancies of back up, safety and the devices that are specific to Alaska, I was very impressed with. It was an opportunity to meet with the crew. They are excited about getting the final outfitting done and heading out to the Chukchi.

Petroleum News: Your trip also came on the heels of protests. It was sort of a two-pronged, the first from residents and citizens who didn’t approve, but also from politicians: the mayor, the city council, the governor. I guess I’m more interested in the pushback from politicians, the elected officials weighing in as they have.

Walker: I didn’t engage with the city council or the mayor but I did meet with the governor (Democratic Gov. Jay Inslee).

Gov. Inslee had a meeting at my request. I explained to him the importance of oil and gas development in Alaska. I expressed my displeasure with the Shell rig activities. I don’t believe the governor had a role in that, but he did cut a letter to Secretary Jewell some time ago expressing his belief that there should not be offshore oil and gas drilling in Alaska.

That I took strong exception to. I explained that practically my first week in office in Washington, D.C., with Secretary Jewell. I met with her again in Kotzebue. I met with her at another time in Washington when I met with the president. I thought it was inappropriate for the governor of Washington to send a letter that would have such a big impact on our state. I explained to him that if you took Microsoft, Boeing, REI, Nordstrom and four or five other companies, then combined them together, financially that’s where our income comes from. I explained to him that 90 percent of our income comes from that.

I thought it was unprecedented. We’ve had a long relationship with the state of Washington back when Sen. Scoop Jackson was there and Warren Magnuson, the Magnuson-Stevens Act on fisheries. It was unprecedented in my memory for the governor of Washington taking a position like that so I thought it was necessary to sit down and have a discussion like that.

It was certainly a civil discussion but, it is one that I wanted him to understand directly from me that as governor of a state with an oil pipeline that is three-quarters empty and a $3 billion to $4 billion deficit, I would not tolerate other states taking positions on our economy.

Petroleum News: So did you see this as a state protecting its interests or was it ultimately meddling in someone else’s interests?

Walker: I thought it was totally meddling in someone else’s interest. If they want to ban offshore drilling off the state of Washington, they have every right to do that. If they want to do anything on global warming in their state, they can certainly do that. When they reach over to our state and take positions about oil and gas exploration in our state I have zero tolerance for that.

Petroleum News: Closer to home, have you embarked on your 45-day review of the AK LNG line that you spoke of during the end of regular session?

Walker: Initially I was going to start as soon as legislative session was out. That seemed to be problematic. I think we are halfway through on that.

Petroleum News: Who are your leads on that?

Walker: Well, some are internal. Some are existing folks in DNR and Revenue. We’ve contracted with Greengate LLC on some financial modeling out of Washington, D.C. (principal lead is Radoslav Shipkoff). I have another consultant we brought in, an attorney with O’Melveny & Myers LLP in New York for many, many years. Rigdon Boykin is part of that. We have received absolute cooperation from all of the companies.

Really, what the review is, are there issues in the documentation, the work that’s been done that’s problematic and would cause significant delay or in any way cause the pipeline not to go forward. That’s what I’m looking for. I’m not trying to rewrite what’s been done, but just to do a thorough review of what’s been done so far and see if there are any significant hurdles that could bring a significant time challenge.

Petroleum News: So is this part of the due diligence to decide the expansion of the scope to the smaller line?

Walker: It is. My level of comfort on the larger line will be directly related to how much we do on the smaller line.

Petroleum News: I know I’ve asked this before, but do you not consider expanding the scope of the smaller line competition with the bigger line and ultimately against yourself?

Walker: No, I don’t. Our first choice is AK LNG and we are working aggressively on that. We have multiple meetings a week that I’m involved in. Others go on daily. We’ve been very, very engaged on the AK LNG effort. I’m a big believer in making sure that if for some reason one doesn’t go forward, we don’t have to start over again and we shouldn’t have to start over again. It should be no reflection of my lack of faith in the AK LNG project. I just believe we should have our own option if things don’t go forward.

Petroleum News: It’s not unusual for a company or a partner to have options globally but not necessarily along the same pipeline route. So how can you reconcile that?

Walker: They have them in British Columbia, so they that is certainly in the same competitive region. I don’t think that is unusual at all.

Petroleum News: OK, back to the Arctic. The U.S. took over as chair of the Arctic Council in April. I think when I asked you about this, you said you would go at it with full gusto. Talk about your wishes for Alaska as it relates to the Arctic Council.

Walker: It’s an opportunity to showcase Alaska as well as the Arctic. We’ve said many times that the U.S. is only a chair because of Alaska otherwise we wouldn’t be an Arctic nation at all. I met with Admiral Papp recently and talked about that.

It’s an opportunity to showcase what we do right in Alaska. There is a whole lot of things we do right on oil and gas development. We want to make sure that is done correctly in the Arctic as well.

Certainly there is a significant lack of infrastructure in the Arctic. One of the things I’m concerned about is that I know what goes on in our waters and federal waters are highly regulated and a lot of safeguards are in place. What goes on in other federal waters, most likely you won’t have that same kind of protection.

A problem offshore by another country certainly could impact our shores. I very much want to make sure we have infrastructure in place in the event there is a spill or a problem that we can respond to right away.

Petroleum News: The Obama administration has an agenda for the Arctic that favors climate change. Others in Alaska, however, want an emphasis on economic development. Can these two be reconciled and go hand-in-hand?

Walker: Well, I certainly am a stronger proponent of economic development and stronger proponent of the gas pipeline for the last 25 to 30 years. And gas is much more emission friendly than diesel, which we consume a great deal of in our state, so I think we are going to the right direction on that to get on natural gas rather than something oil-based.

Petroleum News: So can these two agendas come together and have something in place or in motion that speak to economic development?

Walker: I think so. That’s an area that (Arctic Advisor) Craig Fleener who we brought on board and elevated his position to a cabinet level position. That’s his entire focus.

Petroleum News: You recently met with the Norwegian King Harald V. What was that like?

Walker: I’ve been to Norway a few years ago so it was great to meet the king and talk about the Norway model, and how they do oil and gas. It was a very good meeting. The week before I had been to the Little Norway celebration in Petersburg. I’m hoping he will come back. I think he said he would like to come back later this summer. If so, I’ll look forward to more dialogue with him.

Petroleum News: So after summer do you plan on having a special session addressing various issues with the gas line?

Walker: I do. My goal is hopefully, in early November. That’s the target I have in mind for a special session I have on gas line matters. (Editor’s Note: After the interview, the governor’s press office said it’s still too soon to say when, but sometime in the fall.)