Oil tax bill headed for Senate Resources

Committee Chair Cathy Giessel preparing by attending other hearings, a practice she began in the last session as a minority member

Steve Quinn

For Petroleum News

In sports terms, Sen. Cathy Giessel spent her first legislative term on the bench. But she took copious notes and now she’s batting cleanup.

Giessel chairs Senate Resources and is about to have Senate Bill 21 land in her committee for review. It will be the second Senate committee to hear Gov. Sean Parnell’s oil tax reform bill, following the Special Committee on TAPS Throughput.

Getting to run the committee required paying special dues. Giessel spent two years in a minority caucus that did not receive many committee assignments.

That didn’t stop the Anchorage Republican from attending nearly every committee hearing — House or Senate — that dealt with resource development issues.

She was as much a fixture as any committee member, but Giessel took a seat among the audience, armed with a note pad and a few pens, taking copious notes, ultimately preparing herself to handle some of the heavier hitting pieces of legislation almost immediately. Giessel sat down with Petroleum News and talked about what she learned and the resource development priorities she sees for the Legislature.

Petroleum News: You seem to have served a self-appointed apprenticeship for two years. You attended more hearings in some cases than committee members themselves. What drove you decision to do that?

Giessel: I feel it was my responsibility to be as educated as I could be. Whether I served on the committee or not, I wanted to be there hearing firsthand the discussion. So I felt it was my duty and still feel it is my duty, though my calendar is a bit more full these days, so I don’t get to quite as many committees that I don’t serve on. I have focused, however, on attending the two special committees: TAPS Throughput and In-State Energy. I’m not assigned to those committees but they are doing the preliminary work for subjects that will come to Resources. Again, I just want to be there and hear the discussion.

Petroleum News: So that style of commitment hasn’t changed?

Giessel: No, it hasn’t changed. I’m here to work. That’s what my constituents elected me to do, to come and work for them.

Petroleum News: So with that style over those two years, what did you learn either about the job or about our state’s resources?

Giessel: Wow, I learned a lot about our resources. As I look at (Legislature’s consultant) PFC Energy presentations now — for example last week they were in the TAPS Throughput Committee — I look at the slides presented and compare to the information that PFC gave us last year and some of the metrics have moved a little as the world changes. Of course the petroleum industry is a worldwide market; it’s dynamic, so some of the elements have changed in their presentation. I’m going to be asking them about that when they come before my committee. So it’s been really good to have that background. Before I was elected I used to watch Gavel to Gavel pretty regularly, watching the (Senate) Finance Committee, and I particularly remember the in-depth discussions they had on decoupling and when (consultant) Pedro Van Meurs was before them, so it helps to have more of that historical background, I think.

Petroleum News: So knowing there was a change in that metric as you say, your investment into those two years seems to be paying off either with an appointment as a committee chair or an understanding of context.

Giessel: I think it’s paid off significantly for me and in the information that I can share with my constituents based on those two years of sitting in committees and hearing all of the discussion. Of course, I couldn’t participate in the committee itself, but certainly I could ask questions afterward of individuals and people testifying. But it gives me more information I could share with my constituents. Our founders believed strongly that our democracy would be held together by an informed citizenry. People are busy these days. They don’t all watch Gavel to Gavel. So I feel it’s my responsibility to learn as much as I can and share that information with them.

Petroleum News: Moving to this year, what would you say are your priorities this two-year session?

Giessel: No. 1 we’ve got to increase the amount of oil going through our pipeline, for a couple of reasons, the biggest one being that’s our main source of revenue. The second one being that pipeline is being very stressed with the low throughput. It’s becoming a real challenge to keep that equipment in tip-top shape. The best remediation is putting more oil through it.

The second one is energy. I live down in the Cook Inlet area. We are dependent on natural gas from Cook Inlet, but I’m a born-and-raised Fairbanks girl. My mother still lives in Fairbanks. She buys diesel to heat her home at a very high cost. My hometown is dying frankly. I’m very concerned we get natural gas from the North Slope down that central corridor of our state and branches out into rural areas as much as possible. There is of course other energy potential with the Watana Dam. I’m a very big supporter of hydroelectric: It’s clean, dependable, durable and a great source of energy.

The third one I don’t have quite so much say in it, but we have to ramp back our spending to a more sustainable level. I’m a grandmother with three beautiful grandchildren and a fourth one on the way in about a month. I want those kids to be able to live here far into their lifetime. That means our budget has to be sustainable so we are not spending everything we earn today.

Petroleum News: You’re going to get the oil tax bill very soon. How did having the bill spend time in the TAPS Throughput Committee help you?

Giessel: Having it in TAPS Throughput initially helped me in that I’ve heard the presentations already; I’ve already been thinking about what might be altered or not in the bill. I’ve seen some of the modeling already. So that’s been helpful. Truly I haven’t just been waiting for the bill to get to my committee. Our committee has been laying the groundwork. We’ve been looking at terms that are used in the oil fields. You know, what is a participating area; how are leases managed; how much resource is actually up there; what does the geology look like?

So laying that groundwork to prepare to manage that bill and altering our taxes to be more competitive and get more oil out of our fields. Our committee has not been just sitting there waiting.

Petroleum News: What are your thoughts on the bill?

Giessel: I think it’s a pretty innovative bill. I like the elements in it. When I look at the governor’s priorities, the features he wanted in it, they align with the things I’m interested in also: fairness to Alaskans. At this point we are giving out credits that never result in any production. That’s not a fairness for Alaskans. It doesn’t align our interests with the oil companies. We are paying for infrastructure, but does that result in more oil?

New production is a key piece. I was also very concerned about simplifying our tax. Again, listening to Pedro Van Meurs and PFC, a frequent message that was repeated over and over was you’ve got the most complex tax regime in the world and it’s frankly off-putting to companies who are looking at it and say I’m not sure we understand this, how can we invest here? So simplification is important. I sure would like this to be a bill, a tax regime, that’s durable. It adapts to the different kinds of hydrocarbons we have on the slope. So we don’t have to be coming back and tweaking it all the time. It is going to accommodate heavy oil, shale, viscous. This bill has some very creative elements in it that will do that.

Giessel: Well we have a loss carry forward for the companies, and that gains value as they hold onto it, and it gains value at 15 percent a year. As I look at that I understand Australia actually offers 20 percent. But how is 15 percent arrived at? Is it too high? You know inflation rate is 3 percent. That’s a piece I’d like to look at and perhaps modify, but I don’t know enough about that yet. That will be a discussion, a question I’ll ask in committee. Our committee is going to focus on the resource issues, that is, what it takes to get our hydrocarbons out of the ground and into the pipeline and revenue for the state. The really deep dive on the fiscal elements will be left to Finance, but some of these we’ll be looking at in Resources simply because you can’t separate fiscals from the oil and gas itself.

Petroleum News: What about the criticisms that this is simply going to get pushed through?

Giessel: Well on the Senate side we’ve got three committees looking at it. In my committee we have scheduled long meetings going into the evening to hear this bill thoroughly and allow multiple opportunities for public input. I plan to hear it thoroughly. At the same time, because it’s already been seen in TAPS Throughput and I’ve got some of the same members in Resources, we are not going to spend months looking at it, but it will be a thorough hearing.

Petroleum News: On to natural gas, what are your thoughts on the general status of the state advancing a pipeline project?

Giessel: I really like what the Alaska Stand Alone Pipeline has been doing, that’s being headed up by AGDC (Alaska Gasline Development Corp.). They have looked at the fiscals and altered them. Now they are going to be transporting dry gas. It lowers the tariff. It lowers the cost to communities, but also because it’s dry gas, it will allow multiple take off points. So I really appreciate the work they have been doing, not just locking into that initial plan, but being nimble and critical of their own plan and revising it to the best possible project.

So I really like what they are doing. At the same time, I really appreciate what the governor is doing by kind of pushing the three producers and TransCanada to tell us exactly what they’re planning to do. Give us some of the precise elements. He keeps pushing them on that, so it’s a good thing.

Petroleum News: What are your thoughts on the prospects on an LNG export market and following that, do you think Alaska should be lumped in with the Lower 48 on LNG export debate?

Giessel: First of all, Alaska should be the exception on any restrictions for export. We are not like the Lower 48 states. We are an island economy. We have to be able to export our resources. I actually have met some of the gentlemen from Japan who are interested in our natural gas. South Korea is interested in our natural gas. I’ve heard it said that China is interested. Bravo. I believe the market is out there. But we also have a potential in-state for industrial users. Donlin Creek has also surveyed in the potential for a natural gas pipeline to tidewater to power that mine.

My understanding is the communities around that mine are saying we don’t want you barging in fuel oil. It’s too much traffic on our rivers. Find a way to get natural gas so that’s what they’ve done. International Tower Hill in Livengood, another massive gold deposit, these mine projects are very energy intensive. There’s another potential industrial user.

These are just a couple that come to mind right off the bat, so I believe we’ve got the industrial users in the state. We’ve got the Agrium plant in Nikiski that could potentially be restarted. We’ve got refineries that can’t get natural gas now because we don’t have enough. I believe the markets are there.

I’m excited about our future, but then having been born here before statehood, I’ve seen what our oil and gas potential has done for our state. I tell people I used to think asparagus and spinach were supposed to be kind of gray and mushy because that’s how it came out of the can. We didn’t have Fred Meyer and Carrs and fresh vegetables and fruit. We’ve changed a lot and it’s because of our resource development, so I’m very optimistic about our future, but it requires us to make those courageous decisions now. We can’t keep waiting and studying and hoping that something is going to come over the horizon. We’ve got to seize the day.