Thompson relieved at Dalton Highway progress

Fairbanks Republican hopeful Interior Energy Project bill brings his region closer to more affordable energy, economic expansion

Steve Quinn

For Petroleum News

House Rep. Steve Thompson landed quite a gig for this third term in office: Co-chair of the Finance Committee, just in time for a massive budget shortfall. The Fairbanks Republican remains busy during this second special session trying to work out a fully funded budget with his House colleague Mark Neuman.

Next year, depending on the appetite for credit legislation, Thompson may put forward a bill to extend what’s known as Frontier basin credits, something he pushed through during his first term in 2012.

Thompson, however, understands advocating for tax credits during times of great austerity will be a tough sell.

He spoke to these and other resource development issues with Petroleum News.

Petroleum News: What are your thoughts on what you’re hearing and what you’re seeing on the Dalton Highway as the road kind of starts in your backyard?

Thompson: That one is just kind of scary. That’s our lifeblood for revenue from the slope. That being have torn up, and messed up and closed is going to hurt oil companies and our ability to maximize and increase oil production. I’ve heard some preliminary numbers. They said at first blush it’s going to be $27 million, and that’s not going to be the whole bill. They are going to do a lot of major work of bringing in several feet of gravel and putting in culverts. I’m glad the governor made it an emergency declaration last week because that will help as far as getting some work done more rapidly.

Petroleum News: And another recent development affecting Alaska. In Seattle protestors have voiced concerns about Shell’s rigs pulling into their ports, but also city and state leaders have spoke out against Arctic drilling to Interior Secretary Sally Jewell. Do you see this as Washington protecting their interests or meddling in Alaska’s?

Thompson: I feel like it’s more like meddling in Alaska’s than it is anything else. I was appalled in watching some of the news reports that came through. There are all these people protesting in kayaks made from petroleum. Things like that are just amazing to me. Then they said the amount of garbage those people in their kayaks left out in the water was incredible. And they are environmentalists? I’ve heard a lot of business are already talking about not using Seattle and going to the Portland ports.

Petroleum News: Is there anything the Legislature can do? I know there is HCR25 speaking to this but anything else?

Thompson: I think we do a lot of resolutions and they don’t always have a lot of affect. I think that one and some of the letters we sent off are hopefully going to have some effect. It’s kind of like hey, “we are business partners. Don’t you think we ought to stay in business?” It’s pretty amazing.

Petroleum News: Getting back closer to home with the Interior Energy Project bill, what would you like to see accomplished moving forward now that you’ve got the bill in place and how do you think it can help the interior in general?

Thompson: Well we haven’t seen any bottom line numbers yet and we are all hoping we can see gas delivered to the burner tip at homes for about $15 per mcf. That would still put us a lot higher than Anchorage but at the same time it would be about half of what we pay in Fairbanks for fuel oil.

The fact is our economy up here is really hurting because of the cost of energy. Costco is thinking of building up here but they say they are going to wait until they get some gas. There are a lot of companies that would like to bring their business to Fairbanks but with the cost of energy where it is, it’s kinda got everybody on hold. You know we’ve got other box stores up here. I just hope they don’t throw their arms up in the air and say we can’t afford to be up there.

Petroleum News: What do you like about the bill itself and what would you like to see done moving forward?

Thompson: It gives AIDEA the ability to look at other supply options that tries to get us down where it’s viable. If the cost of natural gas delivered to Fairbanks and through the delivery system to the homes and business is too high, people won’t change over. There is a major expense for somebody to change out from an older fuel oil furnace to a natural gas furnace. Some things are already in place to stretch out payments or have low interest loans for people to change over. But if there is not a big savings, they won’t change over because they savings won’t be enough for the changeover.

Petroleum News: So it runs deeper than a bill expanding the supply options?

Thompson: There are a lot of other concerns. Being out of compliance with the EPA’s PM 2.5 air quality is a big issue. That can have some long lasting effects on the Interior and Fairbanks areas. Because of noncompliance they can come down with some sanctions on us. So we are concerned that the faster we can get this done, the better off we will be.

Petroleum News: Still on natural gas, what would you like to see accomplished between now and year’s end with the AKLNG project?

Thompson: well, I think right now it sounds like the focus is still on moving forward. We are moving toward FEED and when we get to that point, there will be contracts with big oil companies and we will be able to have a special meeting to approve those contracts. If they are thought to be good, things will move forward. I’m concerned that if they do come to a halt, what’s the next alternative? The all Alaska line - the ASAP line if that’s what you want to call it - is an alternative, but that will set it back further. It’s exciting to think that maybe we get our distribution in then temporarily using trucked gas and when the big line comes by we will be able to start utilizing it right away. Without the build out we won’t have much ability to take much off of the line to start with. Right now they are laying lines in Fairbanks and throughout North Pole. So right now we will have gas distribution lines but gas to put in them.

Petroleum News: The House and the governor seemed to differ on a lot of things with the gas line and part is because many members of the House leadership didn’t know enough of what the governor’s vision was. Do you have any concerns along these lines?

Thompson: I don’t want to see it slow things down. We haven’t seen anything numbers wise, where the gas is going to come from, who are going to be the buyers, who is going to be the sellers, where are we in this process? So it’s kind of one of those where there is not enough information yet.

Petroleum News: Now the governor has embarked on a 45-day study or research to gain more information about AKLNG. Is this a good way to go and what would you like to see from the governor after those 45 days?

Thompson: I’d like to see something positive. I’d like to make sure we can get the information so we can weigh it out. None of us are real gas people. We are learning as we go. I think the people who are from big oil and gas companies, they are the ones who have the ability to decide how to go about this.

I want to make sure we don’t get in the way of that. I don’t want to see them have complete control and that’s why I’m very pleased Alaska is at the table. We weren’t at the table when they built the oil line; we didn’t have much input.

But by being partners in the gas line we will be at the table and be involved with every decision, which could really affect the bottom line, mainly to Alaska, making sure we don’t give away more than we should on the construction. It’s going to be interesting that we watch this process. I want to make sure we do it right.

Petroleum News: So how do you make sure that the state is equipped, given, as you said, the industry know their work as it’s their daily lives and it’s not the states.

Thompson: Well, we have some good people involved in the process. We lost a couple of really good ones (Richard Rabinow and Drue Pearce). I want to make sure we have people on there who don’t throw curves at everything and aren’t anti-big oil. That’s the scary part. I want to see that we move this project forward and that’s everybody’s desire, definitely to see this project move forward.

Petroleum News: You mentioned how the state wasn’t at the table for the oil line. One issue that seems to come up over the oil line is the dispute over the property tax. What is your take on this? That affects your district as well.

Thompson: Well, whatever you do with that. If you have a higher property tax, that gets taken off the state’s bottom line. And so if it’s a lower property tax, the oil companies are going to actually make more money. However you want to look at it if you have a higher property tax it’s just going to mean less money for the state of Alaska. I’m not against it. My borough depends on the property tax on the oil line going through the Fairbanks North Star Borough. I want to make sure that it’s valued at the proper price. We’ve got to make sure that boroughs and places along the line aren’t injured by the lower price.

Petroleum News: So right now you’ve got an almost annual battle over this tax. How do you avoid that with the gas line?

Thompson: That’s going to be a future item. When we first presented the gas line idea it was going to Canada. In the early 2000s, I was on the municipal advisory board back then and that was one of the questions asked back then. If you’ve got a gas line coming through your areas, there are increased costs for public safety and those type of things. We’ve got to make sure we don’t leave out those communities. There is a working group put in through SB 138, they are working to make sure there is upfront money that is going to be necessary to prepare for a huge construction project.

Back when the built the oil line, there were 30,000 employees who went through Fairbanks on their way to work. I think we are in better shape than when we built the oil line because we have a bigger work force now. But we’ll need to make sure we have the upfront money to make sure we hire public safety people and ambulances are set up, different things like that which will be necessary to be addressed before we get under construction for a gas line.

Petroleum News: Let’s talk about your work from 2012 in what people know as the Frontier basins. What do you believe has been accomplished and what do you see happening moving forward?

Thompson: Doyon Ltd. has been working out in the Nenana basin. They have drilled two wells, one before we had the bill in and one after. They are pleased with what their results are. They want to drill in another place between where the other two are. They think they’ve got real strong possibilities of finding producible oil and gas. That’s exciting because it’s only 60 miles from Fairbanks and we could solve our natural gas problems for one thing. I’m excited about that.

Out in Kotzebue, Nana Corp. is looking for a drill rig right now. They are excited about some seismic work and they feel there might be some natural gas up there. If they can get natural gas close to some of those villages it would decrease some of their energy costs. It would also decrease the state’s cost for power cost equalization. There are so many good things that could happen out of this.

Petroleum News: Now there is a sunset with this tax credit, isn’t there?

Thompson: Yes. 2016. Whatever is going to have to happen is going to have to happen rapidly. Unless we get legislation that can extend it, but right now with the fiscal situation the state is in, nobody is really interested in extending tax credits because that is money the state wouldn’t receive. But without exploration and discoveries there won’t be any more money coming to the state anyway. It’s sort of a catch-22. If you help them along and they find something, then there is going to be revenue to the state, so that’s what we are working on.

These have to be pre-approved. When you apply you are going to use them. The geological data is provided. The state has to come back and say we will work with you and provide tax credits if you go ahead and drill. They can also go ahead and say there doesn’t look like anything is there so we aren’t going to pay for you to go out and drill a hole. I think the state is going to be very strong that there has to be a very high probability of finding something.

Petroleum News: So if you’ve got these good sideboards on this, would you be willing to revisit the prospects of extending this next year?

Thompson: Oh absolutely. We are definitely going to follow-up on that.

Petroleum News: Speaking of tax credits, these have been at the heart of the budget arguments, that the industry has been held harmless in cuts, including citing the issue of the credits. What are your thoughts on that?

Thompson: There were $700 million in credits this year, which is more than we expected. A huge amount of those are being cashed in from the tail end of the ACES tax. If you look at what has happened with that. The Cook Inlet basin, over $300 million worth of credits in 2014. Those were put in there to try to encourage people to explore in Cook Inlet because there was a gas shortage and they were preparing for brownouts in Anchorage. Those tax credits seem to have worked. All of the sudden now they have got gas and there is no expectation of running out. Those have done their jobs.

A lot of other credits involved in this are small-company tax credits and that is what we were trying to do: encourage more small companies to go up north and do some exploration and work. That seems to be working to. If you look at the railroad reports and see the amount of drilling equipment and drill pipes shipped up through Fairbanks on the railroad. That saves the bacon of the railroad.

They had a big reduction in revenue because of Flint Hills refinery closing and they were expecting to have a big loss. Then come to find out with this increased activity they made enough in their freight charges. So it shows there is activity going on, even with low oil prices. But those have sunsets too, which will do away with a huge amount of tax credits.

Petroleum News: Shifting a bit north to the Arctic, the U.S. took over a few months ago as chair for the Arctic Council. What would you like to see for Alaska with this new role?

Thompson: Well, if it wasn’t for Alaska, the United State wouldn’t be part of the Arctic Council or part of the Arctic. That has to be taken into consideration. There is so much involved in the Arctic and what’s going on offshore up north, we have to be involved and we have to make sure we watch what’s going on and make sure that sanctions and changes taking place are not harmful to Alaska.

Petroleum News: So looking ahead to next year is there anything you would like for the Finance Committee to examine next year whether it’s the tax credits you discussed or a better look at the state’s tax system at a wider range of per barrel price?

Thompson: I think that is a subject that is going to be looked at quite a bit as far as the extra credits. We have to make sure we can survive. There is a lot of work to be done in that area. It’s going to take quite a bit of time to get into it and look at all of the numbers and figures to see if there is something we can do to help the state but at the same time not discourage investment by the oil companies on the Slope.

I think that it’s not going to get better. I don’t feel very confident that it will. I think we are going to have a harder time than we do this year and this one is getting stretched out. We’ll be working harder than we have in the interim. We’ll need to be on the phone with oil companies to make sure where they are at, what can we do to help them and at the same time what they can do to help the state. That’s the thing I’m most interested in.