Tarr: Working group reflects strong balance

House Resources co-chair, Anchorage Democrat says she hopes oil and gas working group can help craft more simple oil tax code

Steve Quinn

For Petroleum News

House Rep. Geran Tarr is wrapping up her first year as co-chair of the House Resources Committee. Most of the immediate work lies with a working group she co-chairs with Senate Resources Chair Cathy Giessel. The 10-person group is tasked under HB 111 to bring recommendations to the Legislature on how to make the state’s tax system simpler, more economical and more effective for attracting and maintaining investment.

The Anchorage Democrat shared her thoughts on the newly formed group and last week’s update on the AKLNG project.

Petroleum News: Talk about the working group. It’s chaired by you and Sen. Giessel. For two people who are ideologically apart on a lot of tax discussions there seems to be a lot of collaboration most people might not expect.

Tarr: There is collaboration. If people didn’t expect that, I’m happy they are surprised by it. I really pushed for this working group specifically because I think the process can be improved by us working together sooner rather than later. What happens when you have a bill before the Legislature is that one body works on it and makes changes, then the other body works on it and makes changes, then you have to resolve those in a conference committee.

I’m hoping this process because it’s bicameral, bipartisan, urban, rural, people with more than a decade of experience and people in their first year, I’m hoping this kind of diversity will create a process where people can work together and resolve any differences throughout the process. That way when we get together and recommend any changes, it would be my dream if it could be something supported unanimously by all 10 members of the working group. That everybody’s voice was heard. That it was an inclusive process and that we could get to something that can incorporate diverse viewpoints.

Petroleum News: One of the takeaways from HB 111, and it was revealed in the meeting today, was how complicated the state’s oil tax law really is. You pull one lever and three or four others get pulled along with it. Is that one of the objectives, to simplify where you can?

Tarr: I’ve heard a lot of members talk about that. I think there will be an interest in that. It would help the whole process. The Legislature can understand it better and understand the revenue better. The Department of Revenue can complete audits in a more timely fashion. The companies would have greater clarity on more allowable expenses and non-allowable expenses. We could work a lot more independent of price. In addition to simplifying, I’m really interested in looking at something that could function more independently of price, in contrast of what we have now where most of the levers are linked to the price per barrel.

There is so much volatility in the price per barrel, that it makes the fluctuation of your revenue pretty dramatic. If we can de-link those and have them operate a little more independently, then we could have something that is more predictable. So both simplification and looking at things not being so linked to the price, like the per-barrel credit and some of the other incentives have been.

Petroleum News: You recently had some training for lawmakers and staff so they could get a better working understanding of the oil tax system. Talk about that. How do you think it went?

Tarr: The feedback so far has been very positive. I want to compliment Sen. Giessel on suggesting the idea a few months ago. Her observation was that because we are starting at different places and there is frequent changeover, we are all not on the same page. If we had an exercise like the one that we did, you could get everyone speaking the same language, understanding basic terms, understanding modeling.

Once you grasp it at that basic level, then that will allow those individuals to be that much more engaged in the conversation going forward. It’s been my experience in the Legislature that a lot of people have shied away from participation in the oil and gas tax debate simply because it seemed too complex. Because we did this during the interim, we had about 80 people participate in that, which was excellent. We would never get that many people during the session because they just wouldn’t have that much time to give - a full day to one activity. You’re lucky to have 15 minutes. To take that kind of time outside of session and have people we know we’ll be working with for at least a year and a half, then get everybody grounded, I thought was beneficial.

I’m probably at a little bit different place relative to some of the other participants in my understanding. It’s always good from a diversity of folks that you know and I can say, OK, you got it right.

Petroleum News: Do you get a sense that oil taxes can be less overwhelming as we go into next session?

Tarr: I think so. That’s the feedback we’ve gotten. People have said oh, OK, I really understand this now. Again, in the context of the legislative session there are so many other distractions and there is a lot of staff changeover every year, and of course a lot of staff are doing prep work for committees, so you get somebody walking in and they’ve been on the job for two weeks and now they are supposed to help their boss understand a complex oil and tax bill. That’s a pretty tough challenge. We talk about it now and they are building their understanding, so when there is a bill later that will only benefit them.

Petroleum News: Speaking of complicated, AKLNG is not that easy to understand, either. What were your takeaways from last week’s joint Resources meeting?

Tarr: There is a lot of pressure right now to have a better understanding of where this project is going. They have made great progress. Some of the things folks have complimented them on, the IRS private letter ruling is a good accomplishment. Being where they are in the approval process, getting documents in, finishing the important field work, there is a lot of great work that has been completed.

If we had been under the other arrangement, we were already supposed to have made a decision about going to the next phase. So we are operating in this in-between phase - between pre-FEED and FEED - trying to work out details, so things are a little bit out of sync from that original timeline and work plan. Moving along the pieces they can, which is positive, there is pressure with the limited state dollars that we have to know more about the potential.

I think the challenge with getting three times a year updates on a project that is going to happen over a multiyear process is there may not be a lot of change between the previous update and the one you get a few months later. But if you look from last year to this year, that’s where you might see a lot of progress. AGDC is under a lot of pressure to be producing results in a much truncated timeline. They made a commitment to having some information by the end of the year. I think that is probably sort of boxed in where the discussion is going to go.

I’ve heard some people talk about getting to a place where things could be paused or put on hold. I think that has yet to be determined. I’m trying to remain hopeful and optimistic but at the same time, feeling the same pressure my colleagues are in terms of what role the state can play in a project at this time given our financial circumstances.

Petroleum News: So what concerns do you have?

Tarr: How much risk the state is going to take on. Under the previous iteration, basically we could say 25 percent of the risk because it was a four-part group. Now, I know there is a lot of work going on - looking for customers, trying to find investors looking at this as an infrastructure project, the tolling model - there are a lot of ways pieces can be put together to work. It’s not clear how they are coming together just yet. For me, it’s really a question of how big is the risk going to be for the state, whether that means we have to find out how to borrow a substantial sum of money. That’s a risky endeavor. Do some other projects have to be put aside? That’s not necessarily a bad thing but that conversation certainly needs to happen. Who else is going to take on some of that risk? If we look at TAPS as an example, there were significant cost overruns. There were some delays but it was pretty much on schedule operationally. If we build this pipeline if there is a major issue with supply and that would delay things, who is going to pay for the cost overruns if they take place?

I need to understand better how this model works in terms of the PILT which was explained is worked into the financing to make sure small communities are taken care of. Right now, if something like this were to happen we are really not prepared in anyway. Small communities couldn’t take on thousands of people moving up and having to build a new school. It’s really important that we look at it holistically in my mind about what are the impacts as well as opportunities for communities around the state.

Petroleum News: AGDC board Chair David Cruz seemed especially bullish on where this project is headed. I can’t say that I’ve ever heard him sound so optimistic. What were your takeaways from him being so optimistic?

Tarr: It was great to hear that kind of optimism from someone who has got a lot more information than I do. It did make me think I might want to sign a confidentiality agreement and try to get behind the curtain and get more information. They sort of indicated there are pieces we don’t know about that have to be kept confidential. For example, I asked about the letters of intent. Details of those can’t be discussed publically.

It was great to see that kind of optimism. It made me feel like I need more information. I just hope we can get closer to a place where everybody is on the same page. That level of optimism, there are probably people just as far on the other side in terms of an unfavorable outlook. That is what’s pretty challenging about this project. There are divergent views about whether this can move forward at this time. I look to people like Larry Persily, who was a federal pipeline coordinator. I look to industry representatives. Some of them have been more positive. That’s why I come back to the risk. If I’m a resource owner via the lease and someone else builds the infrastructure, of course that’s a good deal for me.

Now I have a way to sell my commodity and get it to market. I didn’t have to take on any risk in getting it there. I’ve got the resource I want to sell but somebody else built it all. Now that it’s there, it’s like the road just opened, so of course I’m going to drive on it. I’ve heard positive comments on some of the milestones from industry folks, but no one is on the same page about where things are going in the next 12 months.

Petroleum News: So what would you like to hear by year’s end?

Tarr: Well, my recommendation was to not over promise and under deliver but under promise and over deliver. That’s why the timelines are of a concern to me because if the timelines are not met, for some people that will mean the progress is not sufficient and that the project is not going to go forward. That may not be an accurate evaluation of things if that timeline is not met. By putting points in the road where you say you’re going to get to and not meeting them that has the potential to cause people to lose faith. I just asked please be realistic with the timeline. I just need to understand how long will this take and what kind of risk is there to the state.

But the conversations, for example over the last few days, are public safety. That is the number one priority for the people I represent. They want more cops on the street. They want more troopers. They want more prosecutors. If I said, we’ve got 100 state dollars and how could you spend it, they would say public safety. It’s hard for the gas line to be a priority, given this near-term, every day public safety issues. So I need enough information that I can convince people that however long it’s going to take and how much risk the state is going to take on are really the right move and the right investments for the state.

Petroleum News: Let’s talk a little bit about ANWR. It appears to be inching forward for prospective exploration. What are your thoughts on that?

Tarr: You know I’m looking at more the near term. All of it is positive news, but we have some real fiscal challenges today and over the next couple of years. When I’ve been looking at what’s going on with oil and gas development, I’ve been much more focused at what’s going on at CD-5, what’s going on at the Willow development, the ConocoPhillips announcements with the five exploration rigs up there. I’m much more interested in those. It’s not that I’m disinterested in ANWR. The Department of Revenue is not looking more than five years out in their forecast right now. I guess I’m operating like the Department of Revenue.

These other announcements can be really exciting. This one is different because it’s federal. Hopefully our congressional delegation can negotiate something different if it moves forward. We know something like those developments are probably about 10 years off. What I’ve learned is people think there is new oil in the pipeline next year.

I just don’t want to give the public the impression that something is going to happen sooner or be more successful than it’s going to be. But I’m taking the approach of the Department of Revenue by taking a look at the next five years, the things we know because of where they are at, they really are going to happen. Focusing on what’s real and right in front of you, is a smart move at this point. If you look at the forecasts from years before when they did 10 years out, they were wildly wrong. It affected our decision making.

Petroleum News: Looking just a few months ahead, what are your goals for next session as co-chair of Resources?

Tarr: I don’t want to get ahead of this working group process. I really want to see what comes out of it. I want to see what ideas come out of it. I’ve been interested in non-tax incentives. Infrastructure development for example. I’m looking forward to working with those folks. We have people who are very knowledgeable about oil and gas, people with backgrounds in finance, people like Dean (Westlake) who is from the area. I don’t want to get ahead of it. I do think there is an opportunity to simplify the system. If it were just me working by myself, that might be where I’m headed, but being that I have these nine other people to work with and hear what their ideas are, I’m really looking forward to that.

Among legislators, what I’ve noticed is sometimes people avoid conversations because my impression is they think there will be disagreement, so they don’t want to engage at all. I just have a totally different experience. Every time I work with someone - and you mentioned at the beginning with Sen. Giessel - where public positions seem pretty far away, I’ve learned a lot from working with her and I appreciate that. I hope I will from all the other folks. Bert Stedman is kind of a money man, so I’m interested in his perspective. When you look at the different positions people have taken on oil tax, you’ve got pro-SB 21 people; you’ve got people who strongly oppose SB 21. Having that kind of group work together is going to be pretty good. So that’s why I don’t want to get too far ahead of the working group right now.