Wielechowski concerned by federal actions

On Alaska LNG project, Anchorage Democrat says October special session appropriate if governor has plan to present to legislators

Steve Quinn

For Petroleum News

Sen. Bill Wielechowski gets the Senate minority’s lone seat on the Senate Resources Committee. He’s not necessarily an antagonist as he agrees with committee colleagues on concerns directed to the federal government for recent decisions to severely restrict Alaska’s pursuits for resource development in Arctic waters and the coastal plain.

The Anchorage Democrat also says he would like for there to be a special session on a natural gas pipeline project that would deliver gas to an LNG export facility in Nikiski, but only if the state is ready with a plan - not sooner.

Wielechowski spoke to Petroleum News about his thoughts on the committee’s prospective role and the Legislature’s statewide pursuit for resource development.

Petroleum News: Many people outside the state view this as Republican versus Democrat. A little closer to home, it’s not quite the same. So as a Democrat, what’s your take on this, first the wilderness designation?

Wielechowski: Obviously, I think I share in the sentiments of probably the vast majority of Democrats and Republicans in this state. I was disappointed in the action. When I step back and try to ask the people what are the practical ramifications of it, I don’t know that you have a significant change in policy. ANWR wasn’t going to be developed anytime in the near future unfortunately. I think you have a political stalemate in Washington, D.C., on the issue of it going forward. I don’t see any chance at all that Congress approves wilderness designation.

So I think things stay pretty much the way they’ve been. With it not being developed, it’s not going to be declared a national monument, I don’t think. So I think it will stay the same. Nonetheless, it’s disappointing because there is so much oil there and it really has tremendous potential to be a lift for our economy sometime in the future. So I think we have to keep fighting to make sure it’s not designated for permanent status as a wilderness area.

Petroleum News: And what about the withdrawal of additional areas of the OCS, which many feel is important to the state even if there is not the same benefit to the state as oil coming from state-owned lands?

Wielechowski: Absolutely. I supported drilling in the Beaufort and the Chukchi Sea. I’ve sponsored resolutions in the past urging the federal government to pick up revenue sharing similar to what they have in the Gulf states - 37.5 percent. Again, there are still large amounts of acreage available, but it is disappointing when the state doesn’t seem to have a whole lot of say in what’s happening in waters just off of our state.

Petroleum News: Are you concerned that the state will not have a meaningful voice or seat at the table when the U.S. takes over as chair for the Arctic Council in April?

Wielechowski: Yeah, I’m a little concerned about that. I think because we are the only arctic state in the United States we should have a clear and important voice at the table and I’m not getting a sense that is going to happen. I think it’s important that we address the issues the president is talking about. I think climate change is something that’s important for Alaska. Look at what’s happening with the permafrost and look at what’s happening with the ocean acidification.

Petroleum News: What you would you like to see Alaska accomplish the next two years while the U.S. serves as chair?

Wielechowski: I think it’s critical that we figure out a way to have a plan that responsibly develops areas of the Arctic that are parts of the United States, and put environmental protections in place. But we also need to understand that as a nation we have this incredible resource there, this opportunity to further decrease our dependency on foreign oil and develop our natural resources to create jobs in the United States, help cut our budget deficit and our trade gap. I think there are tremendous opportunities. I think it will have been a lost opportunity if we don’t.

Petroleum News: People have kicked around different priorities for the Arctic: infrastructure? oil spill response? exploration? each working parallel with each other? Which do you see?

Wielechowski: I think it is all the things you mentioned. There is a lack of infrastructure on the North Slope that I think we need to improve upon. We need expanded Coast Guard presence on the North Slope. As time goes by and there is an opening in the Beaufort and the Chukchi seas, you’ll see more ships going through, so we definitely need a greater military presence, a greater coast guard presence.

I think spill response is absolutely critical I think it’s important that the first development that is done in the Arctic - the Beaufort or the Chukchi - has to be done right or else we will have setbacks. It will set us back for years, possibly decades.

I think we saw that the Shell rig that ran aground and set us back a few years. So it’s absolutely critical that the companies maybe take the extra step. They should take the extra step to make sure we do it right. The whole world is going to be watching. If something goes wrong, all the naysayers out there are going to say I told you so. That will greatly impact our ability to develop in the future.

You need to take extra protections to make sure you don’t have what happened in the Gulf (of Mexico) with those blowout preventers. It’s of critical importance. And you need to have an infrastructure in place to make sure development is done responsibly. If a safety issue arises then we can respond rapidly.

Petroleum News: Given all that’s happened these past few weeks with the Obama administration’s decisions toward the Arctic, what should the state do? Do we go to court? Do we threaten to go to court? Do you talk before that?

Wielechowski: What I’ve heard repeatedly is there have been violations of ANILCA, particularly the “no-more” clause. We’ve got some very smart people in the Department of Law. If there have been violations, then we have to go to court and as a state we need to fund those efforts, and we need to vigorously protect our sovereignty. I also think that’s a critical step.

I also think it’s important to improve our relations with the federal government. It seemed like we were on a track the last six years where we were seeing increased development in the Arctic. We saw the opening for the Beaufort and Chukchi seas for the first time.

We saw oil development about to occur at NPR-A. Things seemed to have slipped a little bit. We need to work on our relationship a little bit with the federal government while at the same time fighting vigorously to protect our sovereignty whether it’s through the courts or other diplomatic political opportunities that we have.

Petroleum News: On to the gas line. The governor announced that he is going to drop his current lawsuit on Point Thomson.

Wielechowski: I was one of those who shared concerns over the settlement with Point Thomson. I don’t think it was probably the best settlement we could have gotten. But, as a state I think it was probably time that we move on and figure out ways we can get it developed. Alaskans have waited a long time for Point Thomson. Thirty years. We’ve gone through more than two dozen plans of development. I think people are tired of fighting over this. Hopefully we are in a situation where we can move on and starting getting that oil and gas developed.

Petroleum News: Do you feel like you’ve heard enough from the governor on the direction he’s taking with the gas line?

Wielechowski: What the governor is doing is working within the statutory confines of SB 138. I didn’t support SB 138 for a variety of reasons. I thought SB 138 weakened our bargaining position by requiring us to go out and negotiate and have a result by a certain time, which was October this year. I analogized by telling someone they had to go out and by a house and they had to buy this particular house and they have to buy it from this particular person and they have to buy it by this particular date.

When you do something like that, you weaken their negotiating ability because the other person is free to just sit back. They know you are under pressure. They know you have to buy their house. And they know you have to buy it by a certain date. That’s the law. The governor is working within the law.

We’ve had presentations the last several weeks. (Exxon’s) Steve Butt testified in front of the Senate Resources Committee. I asked him, how’s it going with the new administration? He said I just want to say for the record, I think it’s going great. I thought that was encouraging.

If the governor is able to negotiate a deal that’s in the best interest of Alaskans, and he’s got it ready by October, I’m ready to come back for a special session. If he doesn’t believe he has a deal that’s in the best interest of Alaskans and he needs more time and some changes, I’m open to hearing what kind of changes he needs to make. I hope we are here by October; I hope we are here in a special session.

But I think that weakens our position by saying we expect a deal by October.

If you require a timeline on this, we’ve always heard testimony from the producers, don’t bind us to do specific things. It can be damaging in putting together a huge commercial deal. If we can get a good deal by October, sure I’ll be glad to come down. If we don’t have a good deal, then I don’t think it would be in Alaska’s best interest to force us to come up with a deal.

Petroleum News: Do you think you know enough about the governor’s direction right now?

Wielechowski: From what I can tell he’s pursuing SB 138 and he’s negotiating with the producers and other parties, coming up with terms. I understand that it’s a complex process. I look forward to the governor coming in and giving a report. I understand the governor has been in office for three months. I’m willing to give him time to get his feet on the ground and figure out what needs to be done.

I know he’s been following the gas line issue for decades and he has strong feelings about it. I think part of the reason the public elected him was because they felt like he was someone who could make progress on the gas line. I’m willing to give him some more time. I don’t know any specifics of the negotiations going on, but I’m willing to give him more time.

Petroleum News: He removed three people from the AGDC board before session. At least one of those people you didn’t support last year (Richard Rabinow). It’s within his purview to do it, but do you think it’s the right thing to do.

Wielechowski: I think it’s critical that the governor have a team on the gas line development board that he trusts and shares his philosophy. So I think it’s critical that he put people in policy positions that share his philosophy of how to build a gas line and what he wants to do as a state. I think it was within his purview and appropriate to put people in place who share that view.

Petroleum News: So when would you like to see him fill these positions. They are pretty key to advancing a gas line.

Wielechowski: Soon. I suspect we’ll have names within a couple of weeks. We have confirmation hearings coming and votes sometime in April. I suspect the governor is trying to find people he can trust. It’s a strong executive relative to other executives in the United States. I think it’s important that he get people in there quick and we’ll have an opportunity vet them and ultimately have an opportunity to vote them up or down in April.

Petroleum News: He’s also reviewing the confidentiality issues behind the project and restricting his commissioners on that front. What are your thoughts toward that?

Wielechowski: Here are my thoughts on confidentiality. I think there needs to be a balance. I thought we struck that balance pretty well in AGIA. What we said was if there is proprietary information or confidential information then the producers or the state for that matter, should come forward and prove that it’s proprietary and confidential trade secrets. Then that information if it’s determined to be so by a commissioner, should be kept secret, confidential. I think in a complex business transaction, that’s important. I think that’s an appropriate policy.

My concern with SB 138 was the language of what was to be confidential was overly broad and value in my opinion. What it said was anything related to contract discussions, anything related to gas line was to be kept confidential. That’s too broad. That gives too much discretion for people to keep things confidential.

It seems to me that the appropriate balance is to say look if companies have confidential information and they come forward and say look this is proprietary, this is a trade secret, it needs to be kept confidential, and the commissioners believe it needs to be kept confidential, I don’t have a problem with that.

I think that’s an appropriate policy. And you could probably interpret SB 138 to read that way. In the past it hasn’t been read that way. Or there is a concern by the public that it won’t be read that way. So there is that balance and I think we are going to get there.

Petroleum News: On to everyone’s favorite issue - oil taxes. Why does this remain so topical? Why not give it a chance the way people wanted ACES to be given a chance?

Wielechowski: Because we had a $3.5 billion deficit and we are not having more production in the long term. I think when people voted on this they didn’t anticipate in the very first year we were going to have a $3.5 billion deficit and a continued decline in production. That’s not what we bargained for. That’s not what we were told we were going to get. It’s 90 percent of our revenue. If things keep going the way they are going and oil doesn’t rise, we’ll be broke within three years. And so if you are faced with having to fill a $3 billion a year budget deficit, that’s an enormous amount of money to try to figure out where you’re going to get it. It’s always that constant question. It derives from our constitution of getting the maximum value for our resource. If you are giving out hundreds of millions of dollars more than you’re getting in tax revenue, I think a lot of people would question whether or not we are meeting our constitutional mandate and getting the maximum value of our resource.

Petroleum News: Now you’ve mentioned the deficit. That’s a product of price, not so much the tax regime.

Wielechowski: It’s both. Right now we have a tax structure where we are getting gross minimums for the legacy producers where they are paying a 4 percent gross tax. That’s less than what they are paying under ELF. That’s a third of what they are paying in Texas and North Dakota. So to say we are getting our fair share for the resource, I have a hard time believing that when comparing to other jurisdictions around the world. I’ll stop right there.

Petroleum News: You’re on Resources and the lone member from the minority. What do you see as the priority for the committee?

Wielechowski: I think the gas line is something that is critical to Alaska’s future. Monitoring that is important. We have an oversight role on that. The ultimate goal of the committee is to make sure our resources are being developed responsibly and to make sure we are getting the maximum benefit for those resources. I’d like to see us obviously continue on in a strong oversight role of the gas line. If there were legislation that needs to be made to move that along, I would support that. I do think we should take a look at a gross minimum tax. I think that getting 4 percent for our resource, less than what we were getting under ELF and a third of what you get under Texas and North Dakota’s laws is something we should look at. We generate 90-plus percent revenue from oil. When you have a structure in place that has you paying out more than you take in, that’s a fundamentally flawed structure.

Petroleum News: Well, circling back to the Arctic, the committee has also quickly delved into the issues connected to the recent decisions from the feds. Should the committee continue to immerse itself in that?

Wielechowski: Yeah, I would like to know the options we have as a state. I know this is something as a state we have been fighting against for decades. I’d like to see what can we do that has teeth, what can we really do. Let’s step back and find political solutions, but if there are legal solutions we need to pursue those as well.