State should move ahead with gas line

Other suggestions to state: bear costs in mind, ensure access to land; to Palin — broaden base of advisors, fix this contract

Kristen Nelson

Petroleum News

What oil and gas issues are of most interest to Alaska’s resource community?

Mostly how to get more exploration — and a gas pipeline — according to questions the audience asked as the Resource Development Council kicked off its 27th annual conference in Anchorage Nov. 15.

John Shively, RDC president, and vice president, government and community affairs for Holland America Line — a former commissioner of the Alaska Department of Natural Resources — poised questions from the audience to Jim Bowles, president of Alaska’s largest producer, ConocoPhillips Alaska; Ken Thompson, a former president of ConocoPhillips Alaska predecessor ARCO Alaska and currently managing director of independent AVCG/Brooks Range Petroleum; and Cam Toohey, Alaska government and external affairs manager for Shell E&P Inc., which has just returned to the state and has taken a large exploration position in the Beaufort Sea.

Is Alaska attractive for business?

Thompson said looking at “the number of new companies that have come to Alaska in the last few years” it is attractive — and the resource base is huge. But, he said, “it is very important that the State of Alaska keep a competitive system in terms of their taxation.” He said he thinks the production profits tax the Legislature passed this summer “was a bit much.”

He also said he wishes “Alaska would do something on the fiscal certainty and balance their budget and get things in line there. That would provide a little more measure of … assurance and comfort.”

“You find oil where you found oil,” Bowles said. “And Alaska has certainly proved itself to be an oil and gas province, so it is an attractive place very much for that reason.”

With the resources the state has, you’d expect to see more activity, he said. One reason there isn’t more activity is “it’s a high-cost place to operate” and is a long way from market. It is important for the state “to find the right balance” and to recognize the cost structure, he said.

Toohey praised the effort that both state and federal agencies have made over the last five years “to provide for access to good acreage and resources.” It’s a long-lead item, he said, which sometimes isn’t recognized, “but it is extremely important for us to have opportunities to gain access to good prospective properties.”

He said regulatory certainty is also important, “being able to feel fairly confident that through the process of applying for and receiving permits that we will have a license to operate” once logistics and exploration challenges have been overcome.

“I think access and regulatory certainty are two very important pieces that are both federal and state as well.”

Impact of Democratic majority in Congress?

He said he had seen bi-partisan support in Washington, D.C., for “a gas pipeline from Alaska into the Lower 48” because natural gas is a cleaner energy source than coal.

Some Democrats did support drilling in the National Petroleum Reserve-Alaska, but not north of Teshekpuk Lake.

Thompson also noted that drilling in some offshore areas was “tough, years ago, when there was a Democratic majority.”

To Bowles: what next on gas negotiations?

Bowles noted that Gov.-elect Sarah Palin has said she will “sit down with all potential players with gas pipeline proposals Dec. fifth. Of course that will just be a kickoff” and only an introduction.

It’s a “very, very complicated project, and as we’ve said several times, the past administration has really worked this for a number of years to get to the point where they were.”

“So I think the challenge that we have as a group is to work with the new administration and communicate all of the issues, the complexities around it.”

Bowles said ConocoPhillips is committed to move a gas pipeline project forward as fast as possible, but said “I think the reality is it is going to take longer than we would like it to take.”

What one request of new administration?

Thompson said it would be to have a smooth administrative and auditing process for the PPT investment credits. The benefit is “very favorable” and should help exploration, he said. But the formula to calculate the tax is “the most complicated formula I have ever seen anywhere in my 30 years in the industry,” he said, asking for a “clear and transparent” process. “Otherwise, it is going to be quite a headache for all the producers.”

What would help ConocoPhillips with exploration? A longer drilling season, Bowles said. “The state’s done a lot of work to try and extend that winter drilling season, but I think there’s more that we could do to extend that season so that we could drill more wells and have more access.”

Toohey said Shell has “made plans and assumptions over the past 12 months for our permitting and our exploration activities and it’s real important to keep the process and programs in place without changing them, because change is one of those things that’s more difficult for us to address in the short-term.” And, with the increased level of activities, agencies need to be adequately funded.

Top priority for first 100 days of new administration?

For Bowles the answer was simple: “get that gas pipeline advanced. … I think it is by far and away the most important issue we are facing here,” he said.

Thompson had a lot more to say, starting with encouraging the new governor to meet with majors and independents, “ get to know the players and increase her base knowledge in regard to the oil and gas exploration and production business.”

Although his company is not involved in the gas pipeline, it is important to independents to be able to sell gas, he said.

“I think the biggest mistake the governor could make is to start over from scratch.” Rather than “entertaining other offers and what have you, I think it would be far better, in the first 100 days, if the administration took what’s on the table, looked at what caused all the heartburn” among legislators, “see if somehow it can be tweaked or changed” and create “a win-win for the producers, a win-win for the state.”

“And I think the governor, to do that, must broaden where she’s getting her input. She has a narrow set of advisors … in the campaign. That was okay for the campaign. That is not okay for a big business such as a natural gas line.”

Thompson said he thinks Palin “needs to broaden who she listens to, including the experts in the majors and others with experience in industry” and try to make the deal on the table work, “else we will lose years, I think, in a natural gas pipeline.”

For Toohey the issues are federal — and the input the state can have on federal issues.

The five-year outer continental shelf leasing program for 2007 to 2012 is up for approval. “It is very important that the governor, in her first 100 days, come out strongly supporting” the areas proposed for that five-year leasing schedule, because that determines “the access that will be available to companies like ours and others for the next 10 years.”