Huggins positive on Alaska LNG project

Senate president says Exxon’s enthusiasm for North Slope LNG bodes well for project; opposes SB 21 tax repeal, return to ACES

By STEVE QUINN

For Petroleum News

Senate President Charlie Huggins says several years from now Alaskans may look back on the Legislature’s recent effort to rewrite tax laws and advance a large-diameter gas line as the most pivotal. He believes historians will trace a robust economy and a magnificent LNG export business stemming from the gas line to this past session. But he also warns against unraveling the Legislature’s work at the polls in August when voters will decide whether to repeal Senate Bill 21, Gov. Sean Parnell’s tax rewrite.

Huggins, a Wasilla Republican, spoke to Petroleum News about the upcoming vote as well as what he believes are significant accomplishments in passing SB 138, Parnell’s LNG, gas line legislation that allows the administration to negotiate a project development agreement with North Slope leaseholders ExxonMobil, BP and ConocoPhillips, plus pipeline company TransCanada.

Petroleum News: You noted this state’s past and failed efforts to advance a gas pipeline project. Why do you like this version?

Huggins: I think from the macro perspective, this is the fourth pipeline plan we’ve addressed. As you recall I voted against TransCanada which was really a vote against AGIA in the second round of review. It wouldn’t work. There was only one competitor and we were stuck with whatever the terms were. So there was lingering effect of that because of TransCanada. TransCanada is a good company. I don’t have anything against them. There just wasn’t any competition. To be quite frank, the way SB 138 is laid out there is a stepped approach so there are multiple reviews of where we are and where we are going.

I think the average Alaskan, if they sat down and looked at it, which I hope they have other things to do, but if they did, they would say here we have multiple bites of this apple and there are multiple places we can say yes, maybe or no. I like that. The number one trait, in my estimation of SB 138 is the fact that Exxon is exuberantly excited about this. Number two is the other two producers are on board.

They have chosen a destination, which I think is good. Plus the work that TransCanada has done in the past for quite a price tag - about 330 million if I recall - we can use some of that data. I think we have a full deck of cards. The players sitting around the table quite frankly are committed. I think the state is in a good place to capitalize. There are some elements with Dan Fauske (Alaska Gasline Development Corp. CEO) and company at the table and us having ownership in a couple of facilities. I’m very optimistic.

Petroleum News: Exxon seems to be quietly taking steps toward this project, be it signing on for the gas treatment plant in 2009, the Point Thomson settlement in 2012 or looking to lease real estate on the Kenai Peninsula. Is that what you’re driving at?

Huggins: Number one, anyone who is paying attention, realizes that it’s a hugely valuable field. If we had three producers sitting down at one table and asked what do you think some of the key elements for making the pipeline happen are, they would say number one you’ve got to have Point Thomson in the production cycle and number two you’ve got to have a healthy oil industry because whether we like it or not there is cross subsidization for the pipeline on the producer side, and the state, too, since 90 percent of our revenue is coming from oil.

Plus, when Exxon has made a decision that this is a good project and they have enthusiasm for that project, a world-class team working on that project, I would be willing to risk my money on Exxon’s solutions to things as an individual. When you’re looking to make money, they have a pretty good track record for coming in on time and on budget. There are exceptions to that, but they are exceptions, not the norm.

Petroleum News: So what do you believe the Legislature should be doing between now and the time an agreement comes back for legislative review?

Huggins: One of the things I’ve asked members of the Senate to keep in mind is when it comes to things that are multiyear, in this case the LNG project, the committees the bills go through, that we have some continuity on those committees. Let’s take the Resources Committee, for example. Cathy Giessel is the chairwoman and I would be a supporter of Cathy Giessel being chair of Resources again because that particular multistep project will come back through Resources. And that’s important. The same thing goes for the Finance Committee. I’m not saying we have to have both co-chairs, but one of them and we certainly want some members returning. Those are all important. The other part is keeping members up to date. One of the important tasks going that we will have after the elections and going into the next session is to make sure we have members up to date on what progress has been made and what variables will be in question.

Petroleum News: You spoke of continuity. You placed Anna Fairclough in a position to track the oil and gas bills from one committee to the next. Would you like to see something like that, too, next session?

Huggins: Maybe I should have used her as an example. I was one of the guys who put together what committees people would be on. She’s very talented. As LB&A chair, she got the consultants and saw that through the process. She could be a consultant for the rest of the Senate but she could bring continuity from committee to committee and remind members what’s been discussed so you would be redundant. Instead you could build on what’s been made in other committees.

Petroleum News: Now as LB&A (Legislative Budget & Audit) chair, Sen. Fairclough assembled consultants and analysts to educate lawmakers on the LNG markets last summer. This being an election season is it likely you won’t see anything until after November if at all before next session?

Huggins: It’s a little tougher this year. That brings up a good point. One of the things we normally do is have a caucus (meeting), and that can still potentially be done in December, if not January, then we can work the cornerstones of the caucus to give an update on SB 138.

Petroleum News: What would you like to see AGDC do during that same period, between now and when the contract comes before you at the end of 2015, be it actively marketing or keeping the Legislature informed?

Huggins: They have to continue to pursue the ASAP (in-state) line if for some reason the LNG project got in trouble or for whatever reasons it’s not what was supposed to be. You always have to have another option. My background is you always have to be prepared with an option if your primary course of action gets in trouble, if you will. You can’t be defenseless. You can’t come to the table without multiple solutions. Number two is sharing data that AGDC has and continually being an integrated member with the producers and TransCanada so the state is well represented if any changes come forward. They have to sort of serve as a consultant to the Legislature and the administration because they are a player at the time. I’m sure they’ve done some things I’m not aware of. Dan Fauske is a good man. Good people hire capable people. Dan Fauske shares our confidence. Though he is a problem solver just by general nature, he’s not outside his league in the players he’s dealing with. It’s a little different experience but the reason we chose him is all those things I just got done saying.

Petroleum News: On to oil taxes. You don’t always thrust yourself into an argument in public, often deferring to committee chairs for comment, but with oil taxes that seems to be different. You’ve even taken to social media. What’s changed?

Huggins: Well, number one it’s not naturally my style. No, two just because you don’t see it in the social media doesn’t mean I’m not circulating and talking to people. I’m one of those people who are confident Vote No is going to prevail. The only question is what the margin is going to be. It’s one thing to hype that it’s a $2 billion giveaway and on and on and on. It’s another thing when people start hearing the facts and the variables and the consequences. They recognize the traits of ACES and they recognize the traits of SB 21.

It’s interesting to me that some of the people who were big ACES supporters and huge TransCanada supporters like Hollis French as an example. I heard him talk about maybe we need to look at a different partner than TransCanada when he was a big supporter of them during the AGIA process. Now that’s it’s a different venue and he’s not more integral to the development on the LNG project he appears to be critical of them. That’s way too much politics for me.

Petroleum news: So what do you like about the new tax system we are under?

Huggins: Number one, it’s like any problem solving equation. You have to identify the problem. And the problem was when you looked at the construct of ACES, the incentives and credits, you could go out and spend - and a lot of it was infrastructure renewal, which was important - but what we needed was exploration, development and infrastructure renewal. You could see the investment the state needed to get those kinds of things wasn’t happening. Quite frankly the producers are smart people. They recognized what the traits of ACES were and they leveraged it to their advantage. They could make their money and do infrastructure renewal.

In the last year of ACES being in effect, we had a decline rate of 8 percent. The momentum of production descending is alarming. In SB 21, and I’m sure you could make a case that it’s not perfect, but low and behold if you look at the traits of it, it projects us on the low side. Now we are going to additional production, but I would just ask Alaskans to keep in mind the gold pot at the end of the rainbow for Alaska is OCS (the outer continental shelf).

Whatever we are doing now in stemming decline and increasing production, what we should be thinking about is OCS and how important that is for us in the future. You have to assume there will be revenue sharing and a significant amount will go through a pipeline. I always believed that some of it will go on ships. That’s must my opinion.

One of the things that disappoints me is when I heard radio commentary and read news accounts of people who are yes on repeal of SB 21 suddenly want to defame former Gov. Tony Knowles. To be quite frank, I don’t see eye-to-eye with him on a number of issues, but (Knowles) having been mayor and having been governor, well that really disappointed me. When I see people stooping to that sort of desperation, that gave one of the bigger boosts to the Just Say No to Prop 1 side than you could have gotten. People don’t like that. I don’t like that. It makes me angry. You don’t have to attack people personally. It’s sad. People talk about being tolerant of the other people’s perspective.

Petroleum News: Some of your own caucus colleagues still believe SB 21 went too far, not calling it a giveaway but still too far in favor of the industry.

Huggins: I have confidence in SB 21. It’s been in effect for less than a year. You’re only basing experience on half a year. My assumption is SB 21 produced as much revenue, if not more revenue than ACES would have. The difference is we have additional rigs exploring and we have the expectation of increased production. I am fully confident that the job growth has been good for Alaska under SB 21. For those who talked about the job growth under ACES, I guarantee you there is more job growth under SB 21 than under ACES. Guarantee you.

Petroleum News: If the repeal does pass, what’s next?

Huggins: I haven’t really thought about that. I’m fully confident the repeal will not pass. What’s sad is we do know that we will be back under ACES. I don’t know anybody, even the most fervent supporter of ACES, who won’t sit and tell you that ACES doesn’t need to change. So to repeal back to something that nobody in the Legislature supports is an odd way to do business. I’ve talked to (Hollis) French; I’ve talked to (Bill) Wielechowski; I’ve talked to Les Gara. It needs to be changed. It wasn’t in the form of change that some of the people thought it needed. That’s the way life is. We had a vote. They lost. We won.

Petroleum News: You talked about OCS oil production being our future. The Legislature has been very active on Arctic issues. How do you feel about the way the Legislature has advanced Alaska’s position on Arctic development?

Huggins: there will be a report out from the Arctic commission. I’ve talked to Sen. McGuire (Arctic Policy Commission co-chair) and others members of the House, but let’s be blunt our obstacle on OCS is the federal government. I’m not confident under the present regime - and this is one of my biggest disappointments in Mark Begich. He created expectations that he was going to help Alaska get into some areas that had been off limits. Shell as you know is not drilling in 2014. Neither is ConocoPhillips. Who knows what Repsol is going to do, but they are not drilling in 2014. If you looked across the way in Russian waters, they have some activity going on. So our federal government is our number one obstacle and we need some help in that.

Petroleum News: There was also the federal court driving the delays, so do you see this as the judicial branch throwing up roadblocks or the executive branch?

Huggins: It’s all of the above if it’s external to the state of Alaska. I’m hearing news accounts whereby some of the outer continental shelf is being put off limits. We have to be frankly honest with ourselves. Our president and many of his supporters are counter to what Alaska needs.

Petroleum News: From a macro view, taking all these under consideration, many of your colleagues believe these last two years could be among the most pivotal in oil and gas development. What are your thoughts on that?

Huggins: I agree. Hopefully, a majority of the people in Alaska recognize where the revenue comes from: oil. And where 30 percent of the jobs come from and you have descending production and questioning the viability of TAPS. They need to see all of that. I think SB 21 facilitated the LNG project. That’s the other part. That’s another leg under the stool of the viability of the state of Alaska. We continue to re-inject gas into the ground. With Point Thomson coming into production, the condensates there are very, very valuable. We have Exxon in the lead on this project; I’m just excited.