Coghill wants to see Walker’s gas plan

Senate majority leader says major changes in state’s role in LNG could delay project a decade, perhaps take Alaska out of market

Steve Quinn

For Petroleum News

Sen. John Coghill returns to Juneau in his second term as majority leader, the position which runs operations on the Senate floor.

The North Pole Republican held the post with the House and Senate and has held other key leadership posts since first taking office as a member of the House in 2001.

But never the Resource Committee. Until this year.

He will join Chair Cathy Giessel on the panel that was to begin the session right away with reviews from the Alaska Gasline Development Corp. and Larry Persily of the Federal Pipeline Coordinator’s office.

On Jan. 20, the day lawmakers gaveled in, Coghill said he was anxious to see newly elected Bill Walker’s plan to advance a natural gas pipeline, especially after the recent firing of three AGDC board members and putting a hold on new spending for the in-state gas line, known as ASAP.

Coghill says Walker needs to begin “reassembling” a plan soon or the Senate majority could have “huge doubts.”

Coghill addressed these and other resource development issues with Petroleum News. The following is an edited transcript.

Petroleum News: You’ve been around long enough to understand with some depth all of the big issues. So how do you feel about getting back on the Resources Committee?

Coghill: I am looking forward to it. I sat on the DNR budget subcommittee but I’ve never sat on the Resource Committee itself, so this will be a little bit new to me. The good news is, I’m pretty well heeled on some of the details of this stuff, but I’ll probably have to run double speed to keep up with this stuff.

Petroleum News: You’re returning amid an oil price environment that is starkly different from when you adjourned and recently the governor wrote a column about how the state is paying out more than it’s taking in. Have you given that any thought?

Coghill: Yes. I think he is mixing a couple of issues. The price sensitivity of oil: The volumes aren’t always a tax problem. He kind of left the impression that it was all a tax problem. It certainly is an income problem. There is no doubt about that. Just reading that as a cursory offering, then going back and studying it, I’m hoping that’s not going to be the mood to say look we have to redo our taxes.

Certainly we always have to look at them. I think the tax credits are partly the responsibility of a previous tax regime (Palin) and the (Parnell) tax regime, and he kind of left the impression that it all happened at once. Of course you can’t say everything in one article, but he did leave that impression in my view.

Petroleum News: So, even if changes to the tax system aren’t made, should there still be a review of the regime under these current conditions?

Coghill: Absolutely. The question arises, even with some of the discussion after that, would a gross tax be more flexible? I think that is a legitimate question. Did we get what we wanted when we were trying to incentivize our taxes and get new entrants? That is true.

We decided we would share in their risks and just like they had huge investments up there with risk, whether it was a large company or a small company, the state also shared in that risk. That’s something that gets lost deep in this discussion: we chose to say we’ll take some risks so we can improve the value of that field.

When we went through the production based tax that was a decision that we made in Alaska: that we would share in some of the risk with the idea of getting a mature field better investment. That was the part of the whole discussion.

The anticipation that oil taxes would fluctuate was definitely part of the discussion, but the range of the fluctuation still were on the extremities. So we are at an extreme position compared to where we were modeling.

Petroleum News: Could a review be an issue of just additional modeling so the Legislature knows how things could be under more scenarios that what’s been looked at?

Coghill: I think we will have to, yes. How quickly we get to that? Will it be a this-session thing? Will the governor seek a special session on it? That remains to be seen. He’s already set the stage saying that the income structure is not working for us. That means he’ll want to look at it. For some of us, we knew oil would be volatile so trying to get natural gas to market was part of getting a different set of income potentials out there. It’s still not as valuable at high oil prices but it’s still valuable to Alaskans by molecules and by volume.

Petroleum News: What does $50 a barrel oil tell you? Does that bring a sense of reality to the state and how vulnerable we are to a volatile market?

Coghill: It certainly is a volatility indicator. I also sat in the legislative chairs during the days when we bounced off $10 per barrel. I would say it’s not unprecedented. But it’s created an international dynamic in the oil industry that we just happened to get swept up in. I think our mature field is still valuable.

I don’t think anyone wants to throw it away. It’s good oil. It’s good gas. It’s a stable regime. I still think we are a very attractive player. I mean we’ve got our problems but we are attractive in many ways. If it takes so much to lift it out of the ground and transport and it costs more to do that than it does to market it, then we have problems.

Petroleum News: You mentioned natural gas. The governor has three spots to fill on the AGDC board after he removed some members. What are your thoughts on that decision?

Coghill: Well, I hope he has a plan to put some people in there who have the depth of understanding of the industry as those he let go. Drue Pearce had a huge industry understanding as well as a federal-rules understanding. He let go an industry expert who knew the right questions to ask and what avenues to go down. The individuals were pretty credible, pretty substantive. Now that creates a pretty big hole to negotiate and now with the confidentiality change, the question will be not only what are we going to do but how will the oil companies react who want to get gas to market.

Petroleum News: Do you think this places an onus on him?

Coghill: I think it does. The question in my mind is this: is he playing to a populous mindset or does he have something that is deliberate and is going to get this gas to market as good or better than what we have designed.

Petroleum News: The other part of that decision fell with the governor’s concern over confidentiality. There is always a certain percentage of confidentiality among partners in a project. What are your expectations for that?

Coghill: I thought we actually had a pretty good system in place. What you have is people with different economic interests, with very different boards of directors coming together to have a negotiated discussion to get gas to market. All of them have a portion to play and so it’s important that they are able to sit down at the table and have kind of an open discussion that allows it to come to some agreement - probably no different from labor negotiations. You try four or five different scenarios before you are settling on one. If those four or five different scenarios are brought out in the open, you might have some inordinate attention brought to one aspect and it might dominate a market driver.

Petroleum News: Still on the gas line, what do you think the Legislature or the collaborative efforts between the Legislature and executive branch should do this year to advance a project?

Coghill: For the Legislature we are going to watch AGDC very closely and make sure that they stay on track. The Legislature spoke very clearly: we want gas to Alaskans. The AGDC project is something the Legislature got solidly behind. The Legislature has been pretty resolute on making sure they are getting North Slope gas to Alaskans and to the market if possible.

So AGDC is probably our best opportunity for doing that. The larger project probably brings more capital to Alaska but it also requires more capital output. But the large gas holders trying to get it to market, I thought the governor put together a pretty good program. The AKLNG project seems to be taking some strides.

I would say 2016 is a date we will probably watch really closely.

As AGDC stands down a little bit, the good news is we are ready to go to open season; I’d say it’s poised to go. The question for us this session is did we get the right amount of investment in place. I think we did. Are there are any statutory issues that are going to be a problem? It looks to me that the confidentiality is going to be one of the problems on how do you share information now on a project you’ve just closed your ears to. I don’t know. It seems to me that we are going to have to figure that out. There may be a way of doing it. I agree with Dan (Fauske). Maybe there is a way of doing it.

It seems to me that what we did was say, we’ll negotiate in good faith, we have a project we are moving forward in case you can’t put it together but we’ll share information. That was in good faith. Now taking away that confidentially and the people on the AGDC board takes a little bit of that good faith off the table. Now it’s in a place where does he reset that good faith or does it create a blank spot that creates problems?

At this point now, with Gov. Walker taking those three people off the board, he has lost that good faith effort until he now can come up with new board members and a way to communicate with the AKLNG project. And he may have a way of doing it. I just haven’t heard and that’s a question that arises in my mind. So again, I think 2016 is a go or no-go for AGDC. It’s a critical juncture on how they move forward and we’ll be watching very closely at that point.

Petroleum News: OK, still on appointments, the governor made some appointments early on that drew some quick pushback starting with the chief of staff Jim Whitaker, who brings a history of criticism to some members of leadership in both chambers. Do you foresee a problem in the relationship between the Legislature and administration with this?

Coghill: I’m going give him a clean slate. I’ve worked with him. He is more liberal than I am but he’s an honorable man so I’m going to give him the benefit of the doubt until he shows otherwise. He obviously shows a strong liberal leaning and he is tied very closely to the AFL-CIO which means there is a union force there. That could be good for Alaska or it could be bad for Alaska politics. So I’ll watch that; but I’m not going to pre-judge him.

Petroleum News: What about the appointments at DNR with Mark Myers as commissioner and Marty Rutherford as deputy. Both bring different philosophies to the table than many leading lawmakers?

Coghill: I can tell you those folks were kind of adversarial to Gov. Parnell’s approach to getting gas to market, even though I think Gov. Parnell did some really good things. They were critical of them and now it’s their turn to make it a better way. If that means to reset it entirely, then in my view it costs Alaska a decade or more or even puts us out of the market. If they have a way to navigate through what we’ve done statutorily and what we have already put together with the heads of agreement or with ADGC. Both of those are, I’d say, alive and well at this point. It’s well within their ability to let them dry up. I think they would get a hell of fight from the Legislature on the AGDC one. On the heads of agreement, that’s the governor’s charge and I would say Mark Myers is very capable of negotiating good ways. I have great confidence in him. But I haven’t heard from him how he would move forward and I certainly haven’t heard from the governor on that.

Petroleum News: Given all of this, what do you see are the priorities for 2015 as a special session does seem likely?

Coghill: The budget, obviously, is going to draw a lot of attention because of the dramatic change in income. I mean it’s so dramatic that it takes your breath away. That will dominate a lot of the discussion. In reality our income has to change and that deals with natural gas from Cook Inlet and the North Slope. That deals with oil. That deals with our ability to get into other resource development like mining. That impacts our road development capacity and how we are going use some of those things.

Then there is the Arctic issue. The United States is going to be involved in the Arctic Council. It is going to be our turn to say what the value of the Arctic to Alaska is, what the Chukchi means for development, how do we regulate shipping and movement and development in the Arctic. I would say that’s critical for Alaska right now. America is going to be in the decision making seat. If they do it by turning a deaf ear to Alaska, it’s not going to look good for us.

So we will work with our congressional delegation and make sure that is front and center. We’ve got a couple senators and representatives who are very savvy on how to have that communication. We are going to give them every tool necessary because whether it’s revenue sharing or jobs or using the land across Alaska to transport gas or oil from the Chukchi or Beaufort, it’s important to have that long-term conversation while we are still watching our fisheries and while we are still watching our rivers.

While oil has been the income problem, the management of Alaska is multifaceted.

Petroleum News: As you’ve noted, you’ve had a few members of the House and Senate, spending a lot of time on Arctic policy, maybe behind the scenes until issues come to the forefront. Now they are on the forefront. Do you feel prepared?

Coghill: I do. This will be the year to do it. If Alaska is not at the table with our national delegation, I don’t think that’s any good for Alaska or America. Visiting with the president of the United States and working with Congress is pretty critical. I’d say we are standing at a pretty good place there. Sen. McGuire and Rep. Herron have been pretty active and found the right people to talk to.

We need to make sure we are at the right place at the right time, standing up for Alaska and looking for that seat at the table. I think we’ve already had some impact. This is not to cast any blame on America. Is just what you have to do is that continual education that one must do to the East Coast about the Arctic. It’s our duty now to stand up as a Legislature and as an administration. Having Craig Fleenor there is an absolute benefit to Alaska. He is sharp. He is articulate. He is well studied. He is a good advocate. We will work with him. We will work with our congressional delegation. I would say Alaska, looking at the Arctic.

Petroleum News: Speaking of the congressional delegation, Sen. Murkowski is now chair of the Energy Committee. How do you feel that bodes for Alaska?

Coghill: I’m very pleased. First of all, (OCS) revenue sharing will be under discussion. Whether she can manage to get it through the way we would like remains to be seen, but it’s much better than (former Sen. and Chair Mary) Landrieu. Even Landrieu probably had a sympathetic ear, but she was with the wrong caucus. With her getting to the (Keystone) pipeline bill right off the bat that was shown to be a bold move. To me, that was a good indicator and I’m real pleased.