New to both AOGCC, competitiveness board

David Mayberry talks about his new roles as commissioner, member of Oil and Gas Competitiveness Board formed by SB 21

Steve Quinn

For Petroleum News

David Mayberry recently was sworn in as commissioner at the Alaska Oil and Gas Conservation Commission, leaving behind 15 years of private practice law work, most recently with Anchorage firm Crowell & Moring.

With his appointment came a seat on the state’s newly formed Oil and Gas Competitiveness Board.

The board is a product of Senate Bill 21 - or the More Alaska Production Act - which narrowly survived a voter referendum repeal attempt in the state’s recent primary.

The 11-person board includes some familiar names like Natural Resources Commissioner Joe Balash, Revenue Commissioner Angela Rodell and the Alaska Oil and Gas Association’s Kara Moriarty.

The board is entrusted with gauging where the state places in a globally competitive oil and gas environment.

It will come under close scrutiny in light of the 4 percentage points that separated those seeking a repeal and those opposing it.

Mayberry says he’s abundantly aware of the pending scrutiny, welcomes it and hopes the board can drive the state closer to a consensus on oil production tax philosophy with an objective review.

He spoke to Petroleum News about his new positions and what lies ahead.

Petroleum News: What piqued your interest to leave a law practice and join AOGCC as a commissioner?

Mayberry: I had been aware of the position for some time as a practicing attorney. I grew up here. The oil and gas industry, I’ve witnessed the importance of it to the state my entire life. Even while going to law school and coming out of it, I knew I wanted to practice in the industry. Practicing law is one thing, representing clients and doing litigation, the legal aspects of it. But I was aware the commission dealt more on the technical side of things, the engineering, the downhole issues, more of the regulator functions, which cross over into the legal world. But it really wasn’t anything that I dealt with as a lawyer, thought was always interested in it. When I became aware the position was open, I had always thought of it as something in the future. Low and behold the future is now.

Petroleum News: As commissioner, what do you see as your mission?

Mayberry: I don’t see the mission of the commission changing, absent of a statutory change. To a certain extent the role of the commission is somewhat limited as compared to say DNR and the Division of Oil and Gas whose jurisdiction is broader in terms of policy and direction to the industry. We deal with prevention of waste, protection of ground water and maximizing ultimate recovery. In terms of thinking of the industry in terms of spurring development and encouraging development, we don’t offer lease sales, we don’t define lease terms, we don’t deal with royalties, we don’t deal with taxes. We have a different set of playing cards. Perhaps my perspective is a little more conservative when it comes to those sorts of issues. Certainly there are very important things the commission will deal with.

Petroleum News: Is there something people outside the industry should appreciate about AOGCC?

Mayberry: I think it’s true that people appreciate how the commission plays an important role in those areas I discussed. Not to regurgitate trite sound bites, but we protect the public interests and play an important regulatory role as does our sister agencies DNR and DEC. We have a very robust inspection program. Our inspectors work in the fields and oversee operations, reviewing and approving permits to drill. These are very important functions that only AOGCC fulfills, and I think the industry appreciates that and understands there is a very important function being served by the commission. Everything I’ve observed so far the industry is supportive of the functions.

Petroleum News: You quickly got a seat on the oil and gas competiveness review board. This board will naturally be under a lot of scrutiny. What would you like to see this board accomplish as it evolved?

Mayberry: Obviously we need to accomplish the statutory mission that is there. Frankly, I’d like to sit down and discuss our mission with my fellow board members, which we have not yet done. We have a deadline coming up in January of next year (submitting its first report to the Legislature). Granted it looks like the statute has a little bit of flexibility in it. My ultimate goal would be hopefully we can provide some relevant information to the Legislature as they move forward and provide some new information to guide policy makers as they look at things. The perennial topics that seem to keep coming up lately is the taxation of the oil industry. We need to try to bring more of a consensus view. We saw with Proposition No. 1 that the vote was pretty close, and while the no votes succeeded, one would probably hope on important policy matters like that there would be a greater consensus among the population. Maybe - hopefully - the competitiveness review board, through its work, can help develop information that might try to settle this down a little bit more, provide stability moving forward. That would benefit not only the public, but the state and the industry and well.

Petroleum News: And what about the scrutiny that certainly comes with this appointment. Are you ready for that?

Mayberry: I’m going to have to be if I’m going to sit on that board. I’ve heard people say they will hold people to their promises. I don’t think public corporations can make enforceable promises like that. We can look at the history as things develop and see how things work out. The Legislature passed SB 21 with hopes that it would encourage behavior by industry, that being investments that would lead to greater production. We need to watch that and see if the legislation has that effect. It’s sort of like the observations being made under the former tax regime, I think a strong case can be made that production was not increasing under the former tax regime. It was declining.

There was a strong enough movement to change things around and hopefully lead to a different result. If the competitiveness review board is going to be analyzing statutes, regulatory programs, royalties and whatever other relevant factors we take into consideration, it will also depend on what’s happening on the ground: are there more wells being drilled; is there greater production; is there greater investment; is there more activity coming; do we have new companies showing up; how successful are the lease sales. We will have to look at all of those things to determine whether it’s working or not.

There was a lot of talk that about the events that are happening on the ground now, these were decisions by the companies made a year or two or longer ago, decisions made under ACES, so what is the new tax regime doing? That’s a short-term perspective on things. It’s going to be what are the decisions that maybe are being made now doing? The oil and gas industry plays out over years so I think it’s a good point when people say let’s see how the tax reform plays out, see how it works and give it a chance. The decisions being made now under the current regime, we are going to see how those play out next year, the year after that and the year after that. Companies don’t make billion dollar decisions to pursue development programs overnight.

So we are going to have to look at everything from the very beginning. It’s going to start with the next lease sales. It’s going to start with investment by private investors. I know in my former life, which wasn’t too long ago, we worked with smaller, independent companies, they are in need of capital and they go to private equity markets. I can tell you from experience private equity markets were very encouraged by the tax reform changes and we were seeing a lot of interest in investing into oil and gas companies doing work Alaska.

These are the types of decisions being made now but we won’t see the fruits of them right away. People are going to have to be patient. Granted we are going to see things happening now, but to really get a sense of how long this is going to play out, we are going to have to sit back and watch for a little while.

Petroleum News: One of the sticking points, even after the law was passed, was placing a clear definition on what’s new oil. Do you see that as something the board is going to have to monitor?

Mayberry: Well, I see that as a relevant factor. It gets complicated very quickly. You can be talking about new investment in oil fields and people could say that’s really not new oil because that was an existing field that was discovered 10, 20 or 30 years ago. Some of these producing fields people are relying upon were discovered back in the ’50s. Or you could say new oil means penetrating a reservoir or something that’s never been drilled before or you need to step out of these existing units. All of these definitions can be justified at some level. I would be hesitant to define new oil too narrowly because even investments in existing fields to tap resources that are there require substantial investment decisions. So like I said, it gets complicated real quickly. It depends on the purposes on what you’re defining as new oil. What are the objectives we are trying to achieve when we consider that definition? Then you have to look at how do we craft a definition of new oil that will achieve these objectives.

Petroleum News: Will you be able to differentiate between more oil and new oil?

Mayberry: That’s a new one to me. I probably would want to talk to people more about how we would distinguish those concepts. If we are talking about just more oil, I think everybody would agree more oil is a good thing. New oil, if we are going to separate those concepts, would be even better.

Petroleum News: What do you believe are the parameters the board’s reviewing? Do you monitor what the companies tell the state and rely on the face-to-face discussions or do you monitor their public comments to Wall Street?

Mayberry: I don’t know that I would take an either or approach to it. If companies are doing investor conference calls or filings with the SEC, I would hope they would be fairly reliable sources of information given that not being truthful about those things generally is not a good thing. Then I would also invite public comment. I would think the competitiveness review board at the very least would solicit this comment and maybe hold public hearings. I don’t know so much about private sit down conversations. Those might be helpful as well if they help promote candor. But I wouldn’t take an either or approach.

Petroleum News: What kind of relationship and transparency can the board have with the public? Would it be a website? Notifications?

Mayberry: I would think we would be as transparent as we can. Obviously there are needs for certain information to be confidential. There is longstanding precedent for that under existing laws. If we are asking companies to share proprietary data, that can be held confidential. In terms of the work of the board itself I would think we would want to be as transparent as we can with a website, and notice of meetings and inviting comment. Public scrutiny I think would be good. To do otherwise, I think would be counterproductive of the board itself.

Petroleum News: Do you think this the board can help bring the state closer to that consensus you noted earlier?

Mayberry: I would truly hope so. More discussion outside of a campaign context where we are just sharing information can make a difference. I would hope the board would be as objective as we can in terms of what is the raw data, what does Alaska’s tax structure look like as compared to other jurisdictions as a basic piece of information. What are the royalty rates? What are other lease terms that have a bearing here? There should be objective data we can identify. How much money is being invested? What are companies spending in other jurisdictions? What sort of regulatory costs and burdens do they bear in other states and other countries then try to compare that to the situation in Alaska.

It is a globally competitive environment. Oil and gas companies, especially publicly traded companies, have a duty to their shareholders. It’s just a reality of a capitalist system. They are not in the business to not make money. If they can invest elsewhere and have a greater return, that’s a pretty strong incentive to invest elsewhere. Granted there may be some non-monetary benefits to working in the U.S. or Alaska. The bottom line is we need to position our self for the future. If you take away the oil and gas, it would be hard to extremely hard to pay for services like education.

Petroleum News: How do you convince the public that this board won’t just fall in line and support SB 21 regardless?

Mayberry: One, that’s not the mission of the board as I understand it. I can only speak for myself, but that’s not how I will approach this. I will look at the duties as defined by the Legislature. It’s a brand new board. Like I said we have yet to have an organizational meeting. So the public will just have to look and see what we do. It’s correct that the public does that. I do not read the duty of this board as the defenders of SB 21 or any kind of rubberstamp committee. I will do my best to do what the Legislature set out as the duty of this board and deal with as much objective information as we can because I think the more people share a common understanding of the objective facts - as least as best as we can make them objective - hopefully that will lead to a greater consensus as I mentioned earlier in the conversation.

Petroleum News: Those who supported ACES said ACES needs time to work, so do you feel it’s time for people to give SB 21- or the More Alaska Production Act - to work?

Mayberry: Yes, I do. I wouldn’t tie the two together. I wouldn’t compare the two. I can only speak in terms of my view of SB 21. What we need is some stability. My understanding is that in the last eight years, there have been what four or five significant changes to our oil and gas production tax system. That’s not good for anyone trying to plan for the future when companies and their investors are trying to make decisions involving substantial sums of money. Uncertainty and instability are not good. Purely just in terms of that consideration alone, we need to have stability in a tax situation. Think of your own household. If you knew next year your taxes were going up 20 percent and then it’s going to go down 12 percent. Play out any hypothetical you want, it’s similar though on a much greater scale in terms of companies making decisions about how and where they are going to spend their money.

We still have to give it time to see how it works, whether the behavior we hope these tax changes we promote will actually occur. Oil and gas projects take time from the decision point to actually executing a project. It can take years sometimes. We can’t enact a structure one year and change it the next year and say, “see it didn’t work.” It takes time to gauge success or failure. Like I said I wouldn’t make comparisons to ACES. I don’t know that structure well enough.

Petroleum News: The statute says the board must meet at least once in a calendar year. Is that enough?

Mayberry: In terms of meetings, just my own personal view, between now and Jan. 31 of next year, one meeting might be realistic. More probably would be better. That’s not to say the activities of the board cannot be ongoing in terms of collecting information and building a website and disseminating information while trying to put together a report to the Legislature. Trying to get together 11 people together in the next 11 months might be a little bit difficult. That’s not to say the board can’t set out policies for the conduct its work by organizing subcommittees that would hold meetings on particular topics, instead of having a committee of 11 trying to deal with everything. That way we can hold more meetings where it’s not the entire board but we can still have a public meeting, and take testimony.