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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2016

Vol 21, No. 24 Week of June 12, 2016

Wilson: Breached impasse crucial

North Pole Republican says House compromise may not have prevailed but it helped Legislature reach final passage on HB 247

STEVE QUINN

For Petroleum News

House Rep. Tammie Wilson has been in office seven years after first being appointed to fill John Coghill’s unexpired term after he shifted to the Senate, following Gene Therriault’s departure. The North Pole Republican has spent six years on the House Finance Committee and this year found herself part of an intense negotiation with fellow Republican Paul Seaton to advance Gov. Bill Walker’s oil tax credit bill.

The House’s version reflected the compromise authored by the two members, but ultimately what emerged was the Senate’s version during a conference committee made up of members from both chambers.

Wilson spoke to Petroleum News a few days prior to and immediate after the House narrowly passed the bill, 21-19, with Wilson among those voting yes.

Petroleum News: What is your take on the dynamics of HB 247, at least from the perspective of somebody on Finance?

Wilson: Well, HB 247 is really unique because you are talking about the North Slope, you’re talking about Cook Inlet and you’re talking about Middle Earth. All three of those have different issues and different costs, especially the difference between gas and oil. So to put all three of those into one bill and to try to make sure you’re giving as equal treatment as you can makes it very difficult, especially if we would have divided North Slope from the Cook Inlet/Middle Earth portion of it.

With Cook Inlet, we’ve heard from our economists that we put incentives in place. They are incentives. They are not tax credits because they don’t pay taxes in Cook Inlet so these are incentives that the state doesn’t get any money that’s returned. They were put into place when gas was running out in Cook Inlet. You were looking at Anchorage, the largest city in Alaska with the possibility of having to import gas.

Well nobody wants to start importing anything when you’re a resource state. So those incentives were put in place and they worked. We don’t have the brownouts. One of the things we heard before in Finance was they worked. One of the questions was how quickly could we take some of those incentives back in Cook Inlet without also causing another issue in 2021 and having to put the incentives back for some reason.

They have oil in Cook Inlet. Why would we not charge any kind of tax until 2021-2022? Right now that is the biggest issue we have on the North Slope: how much taxes we make the companies on the North Slope pay. It’s not an issue whether we charge for North Slope oil. The rates are there, so why do we not do the same thing for Cook Inlet, especially since their oil is a better quality oil than what we have on the North Slope.

What we did in the bill Rep. Seaton and I had, one of the big portions is we moved the date up to 2019, putting together a working group and saying we need to look at that. Just to put it in the bill right now without having due diligence on that particular issue in my opinion would not have been the appropriate thing to do.

But to move it up and put pressure on the Legislature and on the working group to say we don’t just want to hit that deadline and watch it automatically go in without knowing what the reaction would be. They will still have two years to pass legislation to make sure it’s the right rate. To me that was one of the areas that everything we heard about Cook Inlet and what had to be dealt with. You also have to watch out that you don’t make changes that it becomes more affordable to import.

Petroleum News: So talk about working with Paul Seaton on this. You’re in the same caucus and aligned on many things like the budget and other issues that come before the floor, but not on oil and gas. But you found a way to make it work and get a product passed by the House.

Wilson: We are very opposite on which way we believe, especially on the North Slope. The bill was pulled from the floor after some amendments had passed. Then we were sitting and waiting. A discussion group was put in place. I was not a part of the discussion group but Paul was. It was my understanding that some things had kind of fallen apart and ended.

When I saw Paul - somewhat out of the blue - I thought that if I could find out where we agreed, then we could start from that point. I thought maybe if we brought enough people together who had different opinions, we could then say I want this and he wants that, then what could be the middle and what could be the justification. Sometimes the justification is it’s not your way and it’s not my way. Knowing it’s going to go to the Senate next, those discussions were going to continue. The next day we got together and we did a chart. We divided it up in different areas and said where do we disagree.

For example, we were talking about new oil. He wanted the mark set from 50,000 barrels per day to 3,000. That’s way too low. I could see going down to 30,000. So we just made a chart and then we invited more people in for the discussion. It was the day that we were being moved out of the Capitol.

It was just who was around and it was a pretty good cross section of those from all parts of Alaska. Then we started agreeing on what we could possibly live with and what could be discussed more in the Senate. Once we got it done, we started looking for votes and looking for the minority. They didn’t get everything they wanted but they agreed to vote for it. We didn’t get everything we wanted. It was a compromise.

Petroleum News: Even though this version didn’t prevail, can this be any kind of blueprint for ironing out future differences?

Wilson: I hope so. I mean it’s what you have to do. You have to make a decision first. If you don’t care whether it passes, then you have to let it die. We needed to look at certain areas and make some compromises. I didn’t think the House comes out clean. That’s the whole point of having a conference committee. I’ve never seen a case where one or the other comes out untouched.

When you have larger pieces of legislation, you’re going to have cases where that divisiveness shows. To me the best answer is bring some of the most opposite people together in a room and look at what you agree upon the most first, which then narrows down the scope. I would say more often than not you would end up with a compromise.

Petroleum News: So how much did you two agree upon when you first started?

Wilson: We actually agree on a lot. It was pretty much North Slope we didn’t agree on. Cook Inlet we agreed on a lot. There was one thing with SB 21 and new oil is not new forever and that was one of the biggest sticking points. Were there other ideas on net operating losses? Were there ways where we could keep what we said we were going to do but diminish our liability? We really got down to about five items. That’s about all there was.

Petroleum News: As someone not on Resources, this seemed to be a different exercise for you. What as that like?

Wilson: I think it was really good. Paul doesn’t sit on Finance and I don’t sit on Resources so we were coming from two different angles. I think that helped. We also brought Resources members and Finance members into the discussion. I’ve had an oil tax bill before me almost every year I’ve been on Finance. I keep hearing we won’t do it next year and it seems like here we are again doing it next year. Paul’s been here longer than I have (14 years) and has always sat on Resources. He sees a whole different realm. Plus, I followed Resources meetings and I think he did the same thing with Finance.

I mean it just sat there for a month. To take it upon ourselves is what we need to do more of at anytime you get deadlocked. You have a choice of letting it sit there or talking to those who have different opinions. We could talk amongst ourselves who agree, but we’re probably not going to get anywhere or change our minds if we agree. But for me to understand more about Paul and the others he was speaking to and to find out there was middle ground in there. It’s the legislative process but it usually happens in a regular committee and not in someone’s office.

Petroleum News: OK, you’ve talked about Cook Inlet and the North Slope, talk about the Middle Earth region which is more of your backyard.

Wilson: Middle Earth turned out to be a unique issue especially with Ahtna, because Ahtna was using Hilcorp, who also gets credit in Cook Inlet. By not doing anything to help that area, they weren’t going to be able to get somebody to drill. So again, you can’t just take one part of the state without affecting another one. If we can find gas, whether you are talking about Ahtna or Doyon doing it, that’s huge.

It will take the price down considerably - we won’t have to build as much infrastructure if they are able to find it. And it doesn’t just take care of Fairbanks but all the areas around wherever the find is, so it’s huge for our area to be able to find another gas reserve besides just Cook Inlet.

It’s my understanding they have done a lot of work there. They are having to put a lot of money into it. I can’t imagine them making that kind of investment if they didn’t expect a return on it.

Petroleum News: What do you want to see from a bill, perhaps things like stability, which is one of the buzz words?

Wilson: I think we have to be careful about making huge changes to SB 21. It’s only been in effect about a year and a half. The voters voted on it. We should give it time to be able to see whether or not it’s doing what we want. We’ve already seen more oil going down the pipeline. At the same time, too, we want to make sure in Cook Inlet, if it’s just incentives and money we are not going to get returned to the state. Protecting those in a development stage who took what process we have in place, and went forward, who got loans, that they are able to go forward. But we also make sure people who aren’t just coming in to utilize state money but they are not serious about developing the resources and we aren’t throwing money at a project that doesn’t have merit.

Petroleum News: The question of stability has come up from the House, the Senate and even the industry during testimony. How important is it that HB 247 contribute to stability?

Wilson: Oh, it’s huge on making sure that it’s not just about saving money today. That’s what we’re looking at, trying to close this gap. If we go too far with HB 247 and investment stops in the North Slope, and five or 10 years from now the decisions we make today makes it so we have even less oil flowing down the pipeline, that’s a huge deficit we cannot get from anywhere else.

We also learned that the Senate decided to end the in-state refinery credits. We just about lost a $100 million project in North Pole with PetroStar. Those are very finite credits where you spend a certain amount of money - it had to be a certain kind of project.

Unlike some of the other tax credits that go on forever, we learned our lesson in realizing we need to make them very specific, put sunsets on some of these so that it forces us to go back and say did we incentivize the right thing and how can we now prove that we did.

Looking at the asphalt plant that’s opening up the first time, you can measure that success. It’s not just about the construction progress but DOT who uses a lot of asphalt will show those savings as well.

Being able to measure whether we are giving incentives or tax credits whether or not what we got what we thought we were going to get for the state. Then be willing to change it based on whether it worked, not whether or not we are trying to close a deficit. That’s what everything we are doing is about. Yes, we are looking at the deficit that we have, but what we are doing today could have a huge detriment not just on the oil companies, but mining, fishing and the other ones we are looking at.

Petroleum News: So is that what drove your decision to side with the Senate’s version out of the conference committee?

Wilson: Well, we did take away quite a few of the incentives in Cook Inlet. Although a minimal tax, we did start taxation and we’ll review it next year. It didn’t go as far as we went; it got us going down the lane we need to go down.

Petroleum News: Do you expect this discussion to continue next session?

Wilson: Oh, absolutely. Again, when you try to do the North Slope, Cook Inlet and Middle Earth, and they have so many differences to it, it’s not easy. Once the price of oil adjusts we are going to find out whether or not we have any issues, or when it adjusts we may find out everything is working the way we thought they were. SB 21 really hasn’t had that chance to go at it without looking at it again. We made little adjustments without changing our whole tax regime.

Petroleum News: Do think there are some lessons to be learned from the way credits and loans have been done?

Wilson: That’s what SB 21 really did. When we started measuring the successes of the incentives, we found out that companies were doing maintenance projects. Well, we should be giving tax credits for maintenance projects. That’s part of what you do as a business. So we changed that in SB 21 and it had to do with how much oil came down the pipeline, how far away you had to be develop so that you actually had new oil, not from the fields you already had. We need to be able to go back to DNR and Revenue and say, “now show us what did you pay out? What did you gain?”

Petroleum News: One of the sticking points, that isn’t necessarily financial is the transparency that some lawmakers say is essential to know what and if the state is getting for the credits.

Wilson: I know they can’t give you all the information that they have because they are competing with each other, but if you take the tax credits, I think people have a right to know that this company took this much credit. Then hopefully we will be able to get the answer when they took these credits that we have the administration able to tell us how much more oil we have coming down the pipeline.

We are not able to do the same thing necessarily in Cook Inlet because again they are incentives rather than tax credits where you get a return for your investment.

Petroleum News: You guys should be out of here soon, but toward the end of the 90-day session, you folks spent one of the last days with confirmation hearings. Two names not brought forth were someone for DNR commissioner and another person for AOGCC commissioner. Are you concerned about that, first with DNR?

Wilson: Well, I haven’t heard any complaints from DNR. We have very competent people working there. I would hope that if he hasn’t, it’s because he hasn’t found anyone who is the right fit and so I don’t see any reason why we should be concerned at this point.

If we starting hearing that DNR is unable to get the work done that they need to, on things like AKLNG, they are very important when it comes to permitting and other things, I think I would be concerned. But right now I haven’t heard that there are any issues.

Petroleum News: How about AOGCC?

Wilson: Same thing. I just hope they are trying to find the right person to get in place. Sometimes it’s not so easy to find that right fit in those organizations. That’s the administration’s job to make sure they put the best person in a place where they can get confirmed. Getting the right person there makes a big difference.






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