Dan Saddler sees state moving forward

Eagle River Republican positive on oil tax, gas line work; sees value for Alaska in US heading Arctic Council; LNG report Sept. 29

Steve Quinn

For Petroleum News

House Resources Committee co-Chair Dan Saddler says this interim hasn’t been as hectic as previous session breaks, but the committee remains engaged in developments, either with the recent oil tax vote upholding the new tax regime or the developments with the state’s efforts to develop a liquefied natural gas export system.

The Eagle River Republican will be at the head table Sept. 29 when the Senate and House Resources committees hold a joint hearing that Saddler believes will feature an important update on the gas line project but “away from the passions of session.”

Saddler spoke to Petroleum News about his views on interim developments.

Petroleum News: A great deal has happened since you left Juneau in April, whether it’s developments with the gas line and LNG export facility or the oil tax vote. Taken as an aggregate, what does this tell you?

Saddler: It tells me that Alaska is making realistic, rational steps forward toward achieving a dream we’ve had for a long time. I understand the frustration some people have had at previous efforts to aim at a Lower 48 market and how they were stymied. I think it’s evidence of the market realities and nimbleness to be able to pivot, take information developed in previous projects and apply what they can to a more market realistic project to export LNG to the Asian markets.

One thing we realized over the years is that LNG is a different market and a different industry so a lot of the paradigms and information that we understand about oil pipelines and markets doesn’t necessarily translate. So all of the years we had in preparation do pay dividends as we look toward the current market in Asia. So I really don’t see the previous years as a loss.

Petroleum News: What development do you see as most significant? Is it the application for the export license? Is it the FERC filing?

Saddler: Those speak to the very fact that we have alignment among all parties, among all the producers, the state and TransCanada. Nobody has permanent friends, but they do have permanent interests. We’ve been able to - through market convergence and hard work - align all the parties’ interest in this natural gas pipeline project, and pull in the same direction. So the application of the FERC permit, the seeking of the export license from the DOE, those are natural consequences. They prove we are actually working together because this stuff doesn’t happen by itself. The most important development in recent years is the alignment, the willingness to work together, doing real work toward a real project. That’s very, very promising for the state of Alaska.

Petroleum News: We’ve heard the word “alignment” before attached to a gas line project. What makes you think this is different?

Saddler: Well, you’ve heard it before: Nothing is going to happen until Exxon says it’s going to happen. Well I think Exxon is on board. From the previous administration and current administration’s ability to get the settlement done, and whatever calculation Exxon makes is in its best interest to bring Point Thomson gas and other North Slope gas to market. That’s what’s different.

The state of Alaska, we can want a gas line and its benefits all we want, but we sold the rights to develop that gas to the producers. Until it’s in their best interest and they make a decision to come along and bring that gas to market, we are a little bit stymied. We can stamp our feet and shake our spear all we want, but that’s why it’s so important to take advantage of this alignment now.

Petroleum News: Speaking of Point Thomson. You took a trip there last fall. What are your impressions and are they playing out?

Saddler: I was impressed that they are building a quality development, certainly not gold plated, but they are building for the long haul. I was impressed that while the Point Thomson settlement calls for production of 10,000 barrels per day of condensate, they are building support structure that would allow them to deliver 80,000 barrels day westward. Likewise the airfield they have there is a tremendous facility, and I think it speaks to their desire as a base of operations not only for gas developments for places like, oh I don’t know - ANWR? So they are certainly going to meet their obligation and it looks like they are going to go beyond that. They made it clear they don’t expect to get their money back just on Point Thomson gas. They are going to extend that over a larger gas industry and oil in the future. You don’t make money as soon as you turn dirt. You make it on the long-term. They are building a facility that’s going to be there for the long term and I hope facilitates all kinds of oil and gas developments for decades to come.

Petroleum News: Getting back to an earlier point, people seem to look at Exxon as a key indicator whether a project is going to move forward, starting back in 2009 when they announced a partnership with TransCanada on the gas treatment plant.

Saddler: I think they are a bellwether but they are also an industry leader. Exxon has sharp pencils and they are in the business of making money where they can. They do their analysis, and they make their plans carefully with long-term in mind and pursue their interests that way. It behooves the state to not follow blindly, but to look to what Exxon is doing for direction as to where the economics of a project might point. It’s not a terrible thing to say that we should watch Exxon and see where they are headed. It’s a very good sign that they want to pursue this natural gas export project and I’m pleased we are partners with them instead of working in opposition to them.

Also as co-chairs of Resources, we had the opportunity to travel elsewhere on the Slope. We went to Kuparuk as well. We saw one of their two drilling rigs and toured the airfield facility there. Frankly, we got a better perspective as to how important technology is. It’s not brute force drilling. It’s a lot of finesse. I was impressed at how high tech this was.

They showed us the geology, the maps and data. They are able to track an oil-bearing development down to, in some cases, inches to find out where the best play is. That is the future of the North Slope. I don’t think there are any more elephant fields out there, but we are going to keep probing the ones we have very carefully.

Petroleum News: So do you believe then that the industry is doing all that it can to maintain production?

Saddler: Absolutely. They have a tremendous capital investment into the North Slope, an important part of all three companies’ portfolios. It serves their shareholders interest to make sure they get the most of what they can. Not coincidentally, it benefits the state of Alaska as well.

Petroleum News: Now that the oil tax issue seems to be off the table for a while, do you get a sense of relief that the state can move on to other resource development issues?

Saddler: I think so. There is a truism in the Legislature that if you have the votes, you vote. If you don’t you talk. There is a little bit of a sense that we took our votes and we passed the legislation, but the other side didn’t like it and continued talking. They were able to secure a do over with the initiative process. I’m hoping that gives us time for the new oil tax regime to operate to see where it’s succeeding and see where it can be doing better. I have some concerns that people are going to be trying to tweak it before they’ve had much of a record. I have a concern they are going to keep fighting that fight one more time. We have other issues that we need to deal with. Frankly, we need to let this tax system operate for a while and see what the strengths and weaknesses are before we try to change it.

Petroleum News: What would be a while? Three years? Four years? Five years?

Saddler: I think one year is too fast. Two or three years might be the first window. We have to wait to see how the companies themselves respond to our new oil tax regime when it comes to investing in Alaska. If in three years we are not seeing the numbers we would like to see, then that’s time we might want to ask ourselves questions, but to put an arbitrary timetable right now might not be appropriate.

I think one of the benefits of the oil tax debate in the Legislature and the public has been a much-increased public awareness of and attention to the issue of how oil taxes affect the industry and Alaska’s fiscal health. I’m sure a lot of people are going to be watching very carefully how successful SB 21 is. I hope the same attention goes to the natural gas pipeline. LNG and gas lines are a different critter from oil taxes and oil pipelines. I think it would behoove Alaskans to inform themselves about the differences, the parameters and the dynamics of LNG markets and technology so when it comes time for the public to understand it and it comes time for the Legislature to vote on it, we all understand what we are dealing with. It’s a steep learning curve. Oil has been Alaska’s business and I think we are looking forward to a future when gas is Alaska’s business.

Petroleum News: So what realistically can the Legislature do between now and the end of next year when you’re looking at a special session to discuss a contract?

Saddler: I’m gratified that we are meeting our milestones in the process, so we are knocking off the things called for in the legislation. DOR will have to do its financing plan recommendations. The governor created a municipal tax review board to review how the municipalities will be affected by this gas line. It’s going to be important for us to keep asking questions about TransCanada and what it’s doing.

As you recall, the legislation did have provisions for three times a year, a briefing for the legislators on the project’s progress, including what expenses the state might be exposed to for TransCanada’s work. That first such briefing is the 29th (of September) so that will be an opportunity for the Legislature and members of the public to get some reassurance that the project is advancing the way we said it would or find out if not, then why not.

Petroleum News: So you may not be as busy this interim but will remain engaged as the next legislative session approaches in five months?

Saddler: The last few years we’ve done some heavy lifting, so yeah we aren’t as busy. But I know that I and other members of the Legislature have met with some new leadership with TransCanada and given our thoughts on what we would like to see. So yes, we’re staying engaged.

Petroleum News: Now the Legislature advanced SB 138 pretty overwhelmingly, but many did so with cautious optimism and even some skepticism. Do you see any of that changing now?

Saddler: I think in reviewing some of the news stories and recalling some of the floor comments, it’s important to remember that this is not a done deal, it’s not a guarantee of a gas line. It’s an authorization to proceed, to negotiate, to investigate more and make more information available. Yeah, it’s incumbent on us as legislators to stay up to date on information that is available so that when it’s time to push the red or green button, on the contracts themselves, we can make informed choices. I think most of the folks on the Legislature now, and certainly those coming in, understand that this is the biggest issue facing the state and they will take the responsibility to stay informed.

Petroleum News: So what can the Legislature do next session, and not necessarily new laws, to stay involved and abreast on LNG development?

Saddler: It’s incumbent on the Resources committees to take the lead on that. We did the lion’s share of the work, along with the Finance committees, on the gas line legislation. I think other members of the Legislature will look to us to kind of give them information. I hope those who are really interested will attend these briefings. There’s a tremendous amount of information, almost too much information, about the project, the timeline and the legal structure for it on the (Legislative Budget & Audit) website.

Petroleum News: Let’s switch to the Arctic. There’s a sense that Alaska will be on the forefront on Arctic issues soon because the U.S. will take over as chair for the Arctic Council. What is your take on Arctic policy and development as this approaches?

Saddler: I’m rather impressed the Legislature had the foresight to set up the Arctic Policy Commission. I know that Sen. McGuire and Rep. Herron have done a good job of getting information out about that. One of the benefits to going back to Washington, D.C., for Energy Council is the other stuff that happens while we are there. I was able to take part in some briefings with the Arctic Council watching how Canada addressed its opportunity as chair these last two years and what Americans should be doing next year. I think Alaska is going to get its props - finally.

From a resource standpoint there is a tremendous amount of oil and gas, and other resources, in the Arctic. Those are American waters, Alaskan waters.

It’s important for our country to pay attention to it. I think it’s going to be essential to have the indigenous people involved: Alaskans who are U.S. citizens and are also Arctic residents. That will be news to a lot of people in the Lower 48. I’m hoping America does take advantage of this opportunity to be a leader in Arctic policy. I will say this. I know the military would very much like to have additional port resources in the Arctic. I’m hoping the Coast Guard’s work into investigating a port at Port Clarence by Nome bears real fruit and gets real investment by our government.

Petroleum News: So do you see a stronger military presence speaking to bolstering resource development?

Saddler: You have to have a place for response ships to come to port. You have to have a place for the support vessels to dock. From an open navigation of waters, you have to have a place for the cutters to base so they can patrol and respond to search and rescue calls. All of the things you need on the frontier are also necessary on the new frontier of the increasingly exposed Arctic Ocean. If you’re on Port Clarence, you are a heck of a lot closer than Kodiak or Adak. I think it makes good sense strategically, politically and economically for our nation to invest in Alaska’s Arctic infrastructure.

Petroleum News: Speaking of Alaska getting its props the next few years, there has been a big push to educate the Lower 48 about Alaska. Do you think that is bearing fruit? Are you sensing any success?

Saddler: I hope so. I think the more we work at it, the more success we will have. As we see what Vladimir Putin is doing in Russia, his saber rattling both militarily and economically, might bring a message a little closer to home that what’s important for Alaska is important for our country. And they had better pay attention and they had better invest in us.

You have to remember Congress - the House of Representatives - turns over fairly frequently and you have to keep carrying the same message over and over about Alaska. So it’s like pushing a rock up a hill like Sisyphus.

Petroleum News: You mentioned Canada and its role at Arctic Council chair. What do you think we can glean from their role as we look to have it handed over to us next year?

Saddler: The most important thing is that people live in the Arctic. The theme of their chairmanship is we live here. I think that’s an important thing for America to focus on as well. It makes it more real. It’s peoples’ homes and that makes it more accessible and more understandable.

Petroleum News: Closing with the Arctic, Shell just announced hopes to return in coming years. It’s kind of a do over for Shell. Are you confident they have learned from their mistakes?

Saddler: I don’t know if it’s a matter of learning. I think any complicated, remote exploration program is going to have its challenges. They have expressed tremendous willingness to work with the government and regulators to do it right. I think it’s important for our nation and important for our state to responsibly develop offshore fields. It’s important for our pipeline. It’s important for the livelihood of our state.