Gardner anxiously awaits Obama visit

Anchorage Dem says coming months pivotal to Alaska’s resource development needs with special session, POTUS visit

STEVE QUINN

For Petroleum News

Sen. Berta Gardner entered the state Legislature in 2005, just in time for what seems like endless debates and discussions on advancing a natural gas pipeline project and continuous rewrite of the state’s oil tax policy.

Today, the gas line project is known as AKLNG and could be the focus of a special session this fall, a time when lawmakers hope to advance an LNG export project featuring a partnership among the state, North Slope leaseholders ExxonMobil, ConocoPhillips and BP, plus pipeline company TransCanada.

Gardner, an Anchorage Democrat who leads the Senate’s minority caucus, talked to Petroleum News about the gas line prospects, her concerns about oil tax credits possibly over taking production profits and the pending visit from President Barack Obama.

Petroleum News: Let’s start with the budget. Ever since the governor vetoed tax credit payments, there has been discussion about the need to review the tax credits. First, in general what are your thoughts on that? Are they necessary?

Gardner: Well, you’ll remember during the budget hearings and the debate we many times offered amendment to the tax credits. The fact is they burgeoned well beyond what anybody imagined.

The Department of Revenue just told us this morning that since 2007 through the 2015 budget cycle, the state paid out $7.353 billion in credits. So that’s eight years. In the next four years, it’s anticipated that we will pay $6 billion in credits. Clearly, we just can’t do that when our severance taxes are negative now. So we are not getting effectively any income on severance taxes because we are writing checks that are larger. So we just can’t do that. We can’t.

Equally important from my perspective, and I think the governor is thinking the same way, as a legislator and board member for the state of Alaska, if you will, I don’t know what we’ve bought with the billions of dollars that we spent.

I can’t say exactly what we bought and the Department of Revenue says taxpayer confidentiality is paramount. I argue state accountability - state fiscal accountability - also has a role. To the extent the taxpayer is sending a bill to the state we should know what we’re buying.

I’m not looking for anything that would inhibit their operations or the confidentiality of the things they are doing. It’s not a secret to any oil company if somebody is drilling somewhere or if they are building a landing strip or road. They know that. I’m not asking for something that impairs their business plan.

I just think Alaskans should know what we are paying for exploration to a given company, what we are paying for preliminary planning stuff. We should just know what we are buying.

Parallel with that, when we use money or try to use money to influence behavior we have to have a way of measuring whether we are being effective. If we are not being effective, we need to modify our investments. So without the accountability and disclosures we don’t know where we are being effective and where we are not.

Now, DOR could probably tell you that legislators, I believe, could sign confidentiality documents and get much more detail than we otherwise have. But if we can’t talk about that detail and use it to generate modifying legislation then it’s meaningless.

Petroleum News: Now these tax credits touch on several different tax regimes, even ELF, plus PPT and ACES and SB 21. So some of these tax credits you’ve supported, so how do you reconcile that?

Gardner: You’re right under ACES I did support tax credits. What we did under ACES, you’re right, it’s a high-risk very expensive field, and we are not going to ask you to do things we are not willing to do ourselves. We’ll put our own skin in the game. In return we want more at the high end. Well everybody has lost the high end now. To the extent there is any high end, SB 21 took that away. So what we did effectively is socialize the risk and continue privatizing the huge benefit.

Petroleum News: So what do you propose be done with these tax credits right now?

Gardner: I think we have to pay the ones that we owe now. If we delay some payments a few months, I think that’s something that we might just have to do. There is no reason that every state department, and our firefighters, and our school children, and our parks and all the services Alaskans rely on should be impacted and everybody shares some of the pain except for the oil companies.

That doesn’t make sense to me. I understand the unintended consequences from the governor’s partial vetoes it impacts the very people we very most need to help.

That is people who want to be producers but at this point are explorer-developers, and they are the ones who are left in line because of the way the system works. At the end of the year, they submit their spending documents rather than do it quarterly the way the producers do.

So the people who are on the cusp perhaps of being producers, the ones who are really putting in new oil, are the ones who are first hurt. I think what the governor is trying to do is force the Legislature to come to the table and have some serious focus on the whole credit system.

Petroleum News: Still on the budget. There are projects out there still getting funded: Susitna Dam; Juneau Access Road; Knik Arm Bridge. What are your thoughts are on these projects, are you concerned that money is being spread to thin with AKLNG being the purported priority?

Gardner: Well I’m not qualified to speak in any detail about each of the projects the governor has removed his red light on, but my understanding is generally - and broadly speaking - is we use federal dollars for some stuff and if we don’t reach certain gates or some points in the project development, there is potential that the feds say you wasted the money, give it back. You didn’t do what you said you were going to.

So I know in some cases, at least, we need to get to completing an EIS study or completing a certain level, and then there are the decisions on whether you go forward or not. So there is some of that at play. Some of it we may feel like we need to gather more information before we decide whether it’s a red light, green light or moving more slowly. He did not offer more funding. He is simply allowing them to move forward with funding already allocated.

Knik Arm, I would like to see that project with an arrow through the heart. Personally, and yeah, I think the people in my district feel much of the same way. It’s just sort of resuscitates and limps along. I think they have gotten ahead of themselves.

I think there is resentment about the high salaries and things like that. It’s been re-organized. It’s not something we can afford in the present climate and something we need. Susitna Dam, I’m not so sure about that.

Petroleum News: I noted AKLNG earlier, what are your thoughts on where the project seems to stand right now?

Gardner: We are supposed to, under the statute, hold hearings and meet and authorize the next steps. It’s supposed to be in October. My understanding from the oil industry and the Department of Natural Resources, nobody will be ready in October. We anticipate a special session, possibly very late in October, and into November. I think that will happen. I hope that it does.

The jury is still out. I don’t think anybody really knows whether it will happen. But I think there are some indications that we can retain some optimism that it might really happen. However, even if it’s green lighted and everybody moves forward and there are no reservations, it doesn’t solve our budget problems right now.

When it’s all said and done, the gas pipeline is great for Alaska, but it’s not the equivalent of TAPS in terms of revenue to the state. It’s just not. It’s not meant to be. It is hoped that as people have a way to sell their gas and get it to market, they will look for more gas, and in the process find some oil, but no it’s not going to be like TAPS.

If it happens, I think it would indicate that the parties to the deal, I fully anticipate they would want some tax deal. When have the oil companies not wanted that in gas line talks?

Petroleum News: The governor had told folks during an AOGA speech while you guys were in special session that he would like a larger share of the line. That could mean buying out TransCanada. You were certainly around, even on Resources, during those debates, and you supported the licensing of TransCanada. What are your thoughts on the prospects of buying out TransCanada?

Gardner: The way the whole deal was structured the idea was the state was an equal partner. That’s never been true. The state is not an equal partner. The state and TransCanada together are an entity that has equal shares with the majors, but at best the state is a junior partner in a sub partnership of the whole thing.

Again, if we are on the hook and we are ceding some of our sovereign rights under a deal on the grounds that we have parity with them, then we should have real parity.

Petroleum News: So would you be willing to buy out TransCanada?

Gardner: I think it is something that should be very carefully investigated, yes. TransCanada doesn’t always have to be an owner. They do a lot of deals where they are the constructing company for somebody who is the owner. That’s not a foreign proposal for them.

Remember that anybody can walk away. Anybody can walk away. Except for the state. Everybody takes their losses except for TransCanada and the state has to pay TransCanada all its cost and investment expenses. That’s kind of interesting. Here we have this egalitarian deal, though more egalitarian for everybody else.

Petroleum News: Next month you’ll be getting a visitor, President Obama. What can this mean for the state?

Gardner: I think it’s very exciting. I think it’s an opportunity, and I hope people will keep this in mind, to put our best foot forward and reasonably express our concerns and our hopes for this state and our relationship with the federal government. That goes for the military part, it goes for the Arctic, it goes for development of lands.

Petroleum News: What kind of role do you think the Legislature could play in this visit and advancing Alaska’s interests?

Gardner: I’m not sure exactly what the itinerary is and what the agenda is. My hope is some people will have the opportunity to express their views or perhaps ask questions, and I hope that is done respectfully and in the spirit of working together in the interest of Alaska. If they (Sen. Lesil McGuire and Rep. Bob Herron, leaders in advancing state’s Arctic interests) are the ones who speak for us, I am confident they can both do a very good job.

Petroleum News: Let’s talk a little bit about the Arctic, the Obama administration’s agenda for the two-year Arctic Council chairmanship leans toward climate change; many in the state want that agenda to favor economic development. What’s your take on this?

Gardner: I think we would be foolish to ignore the climate change issues. It’s upon us and we are a canary here. We know how our own budgets are already impacted by climate change. The storm surges and the new sea walls, and moving our own coastal towns and communities, and our wildfires seasons starting out being more intense and lasting longer than in years past.

Our very lives depend upon being aware and smart about that. That being said, we are a resource state. We don’t want to close development. We need to be cautious and informed in the decisions that we make. Also, we can’t afford to close our eyes to what’s going to happen with or without us.

Petroleum News: Speaking of the Arctic, Shell is on its way. Last month and even into late May, there was a lot of pushback in Washington state not only from protestors but elected officials such as the governor (Jay Inslee) and members of Seattle’s City Council. Do you see that as meddling in Alaska’s business or protecting their own interests?

Gardner: In years past when we have talked about ANWR, for example, I’ve always said let us be the best in the world. Let us have the highest standards and police them carefully, and enforce them, and makes sure everybody who develops in Alaska adheres to the rules, and show the rest of the world we can develop ANWR carefully, sustainably and with a very small footprint.

I would hope we can do the same in the Arctic, but I don’t think Shell is off to a great start. So far it’s an embarrassment and it ruins confidence that people might have in our ability to do things right. Let’s be really clear: Until there are global agreements on this stuff, doing things unilaterally has not nearly as much value.

But we should be the leader in being the cleanest, the most careful and everybody should know when they are in our waters and in our harsh shores, they better mind their Ps and Qs.

But we don’t even have the ice-breakers that we need, and that’s a federal thing. That was something Sen. Begich was working on. I hope our delegation now is trying to get ice-breakers up there. We need them. How do you check things? How do you deal with things quickly and promptly? You need to have the tools to do them.

Petroleum News: So is Shell then on borrowed time with the Kulluk grounding and sending one of its support ships to Oregon for repairs?

Gardner: It’s hard to know. I don’t have all the information. I think certainly it doesn’t look good for Shell. Not at all. I think the whole Kulluk fiasco where avoiding property taxes was such a high risk. Consequences for such things should be swift and inviolate, but should they be cut off, I don’t know.

I mean, they waited years and years for their air quality permits and the EPA at that time, when we talked to them during energy break, the EPA told us they knew whatever they did they would be sued.

They wanted to make sure when the lawsuits got to court, the decisions the EPA made were supported. Every time we went out there, we always went to talk to the Army Corps of Engineers, we talked about CD-5 bridges and air quality permits.

It takes time to do things right. It’s expensive to do things right. That’s what we have to do. We have to take the time. We have to spare no expense to do it right and I don’t know that Shell has done that yet.

Petroleum News: You noted the relationship with the federal government. In January, that was most of the discussion around the Capitol once decisions on Arctic development came out of the White House. What do you think can be done to soothe things over these vast differences, be it ANWR or offshore exploration?

Gardner: One way you soothe things over is by doing things right, not opening yourself to criticism, so that people who are on the fence recognize that we do know how to do things right. If you don’t do that, your other efforts fall by the wayside.

The other thing is have respectful discourse to keep the door open always, to not yell and scream and do name calling and forever shaking your fists at people.

That doesn’t get you any friends or any accommodation, or any interest except perhaps with the press. I think that hurts our case. We need to be firm, clear, reliable correct. All of those things.

That’s why I have concerns about when the president comes, and I hope Alaskans will be respectful and communicate our interests unflinchingly.

Petroleum News: For a while it was litigation that was the path to battling the feds but this administration has taken a different approach, more like what you’ve said.

Gardner: It (lawsuits) didn’t get us very far did it?

Resolutions after resolutions that just pile on the allegations and assertions that are just stretched to the limit without any acknowledgment of the things that have been done.

Under this administration, leases were opened; under this administration, permits were issued, including air quality permits; under this administration, Shell started drilling. Let’s remember that. If you think Shell should be shut down say so. If you think there should be more development, show that we can do it right.