Von Imhof: Keep HB 111 to cashable credits

Anchorage Republican, freshman lawmaker, uses finance acumen — replete with spreadsheets, charts, color markers — to reach conclusions

Steve Quinn

For Petroleum News

Sen. Natasha von Imhof began her first year in office as the lone legislator to serve on the Resources and Finance committees. That changed when Sen. Shelley Hughes, already on Resources, took the Finance seat since vacated by Sen. Mike Dunleavey. But von Imhof, an Anchorage Republican, has been along for double duty since day one. She’s known for her finance acumen and self-proclaimed love for spreadsheets and multi-colored flip charts that can lead to answers on heavy hitting items like an oil tax bill, HB 111. Von Imhof shared her views on her first year in office and the state’s oil tax regime.

Petroleum News: Until the recent change with Sen. Hughes you were the only lawmaker in either chamber to be on both the Resources and Finance committees. So my question to you is, is this something you pursued? I understand the caucus has the final vote on these assignments.

Von Imhof: I think how it worked out is when I was elected I looked at the different committees and wanted to see where my strengths were, education of course being on the school board. You have a forum that says you have all of these different committees, what interests you? Transportation? State Affairs? Whatever it may be.

I had wanted Finance because that’s my background. I had been a financial analyst for 15 years. My background is that I have an MBA. We had two years of financial training. I worked as a financial analyst for a company called Latash Investments. What that was, is when Elmer Rasmuson passed away in 2000, he bequeathed his $500 million worth of Wells Fargo stock to the Rasmuson Foundation.

Well we had to diversify it. Diversifying $500 million in stock is no easy task. So, I spent the first five years of the 2000s traveling across the United States looking at all the different types of investments: private equity; hedge funds; venture capitalists; public equity funds. Then diversifying the $500 million into a varied portfolio.

So that’s my background. As you can see, I do spreadsheets and spreadsheets and spreadsheets so I can see where the answers are.

Senate Resources (Committee Chair) Cathy Giessel reached out to me and asked me to join Resources, and I accepted. So that’s how it worked out.

Petroleum News: OK, so let’s start with Resources first. What have you learned by being on Resources?

Von Imhof: Being on any committee, it is a Ph.D., it feels like, in a variety of subjects. When they say you are going to be drinking from the firehouse, that’s exactly what it is. What have I learned being on Resources? We have received in-depth presentations on Alaska Seafood Marketing, Alaska Tourism Industry, DNR mapping in Alaska, Alaska Standalone Pipeline, Alaska LNG project, Mental Health Land Trust law. We learned very in-depth, detailed descriptions on many things resources. Oil. Seafood. Tourism. Mining, though I’ve been to several mining symposiums. That’s what we’re learning.

Petroleum News: So are you having fun learning all this? It’s clearly a lot of work.

Von Imhof: Click Bishop and I have been working together. I finally got this big flip chart. It’s like a big giant, sticky note. We have eight colored markers. We’re down in his office periodically the last couple weeks. We’re having people explain to us the tax credit process and how it all works. With all of these different markers, we’re able to follow the conversation in a visual way. We peel off the giant flip chart sticky and put it on the all.

All of the sudden you have all of the charts and you can follow along. It begins to make sense. We’ll put them all together then we have a new person come in. Person B comes in and we do it all over again. We can at least cross compare. That has been really helpful. I’m a big fan of giant sticky note flip charts with color markers because it’s been really helpful.

Petroleum News: What have you learned as far as the commitment, the heavy lifting, the dynamics?

Von Imhof: Alaska is a resource state and brings in revenue through a variety of taxes. To me, it’s important to keep tax appropriate and the regulatory structure so we can attract and retain capital in order to keep our economy going in perpetuity.

In all of the different resources - whether it be mining, fishing, oil and gas, tourism - where can we tax those industries to help fund government in a variety of ways, but at the same time not drive out industry. That’s a tough - a difficult thing to do. You also have the regulatory pressure as well. Look at the federal government.

When you had Obama close down hundreds of miles of coast line. That’s not really helpful. Is there a way to protect the coast line but at the same time have resource extraction from it? What I’m learning is Alaska is a resource state. That is how we make our money. We can’t lock up our state in perpetuity. We have to be able to in a very thoughtful and prudent manner continue to move forward and extract resources.

Petroleum News: Let’s talk about one of those areas. I’m not sure how much you’ve paid attention to the discussion of ANWR (1002). It’s been up for discussion every two years on the congressional cycle and two years here. Do you see that as a futile fight or is it an essential fight?

Von Imhof: I think it depends on who is president. Right now we are seeing the Izembek Road kind of moving forward. Everyone thought that was futile. So, I think that it depends on the leadership that we have. It depends on the political sentiment at the time. No I don’t think it’s futile. I think it’s something our state needs to continue to advocate for as long as we can because that’s our future. Again in an environmentally thoughtful way.

Petroleum News: Getting back to who is in power, are you more optimistic about development prospects now that you’ve got a new administration and a GOP-led Congress?

Von Imhof: Yes. Izembek Road is the first example of that. The Trump administration just released some offshore drilling allowances. With the Obama administration, neither of those were options. They are now. That leads me to believe that potentially other things will develop over time. Hopefully.

Petroleum News: So, you’re on Resources and that’s your first crack at HB 111. So how does being on Resources help you with being on Finance?

Von Imhof: On Finance you see the whole picture. You see revenue and expenses. You see all agency funding including big-ticket items like (Department of Education and Early Development) and (Health and Social Services). You see it all in Finance but you see the expense part. Resources usually deals with the revenue side because we are a resource extraction state. My guess is over time, if I was going to be here for a long period of time, patterns and trends could emerge on the Resources side then we can see this is what the future is for fishing or for tourism, or this is what we think of oil and gas if we are looking at a global picture.

Then you take this information and you take it over to Finance when you’re doing the operating budget and say collectively when I’m looking at these resources, the future looks good or the future doesn’t look so good. Or the future looks good in this industry but not so good in that industry because I’m seeing all these presentations.

I can put things together and see that we may have a tough time in revenue in a few years and we may want to be thinking accordingly when we start making our long-term budget plans. That’s how I think those two can mesh together.

Petroleum News: How about as it relates to HB 111? Does it help you that it was already in one of your committees and now it’s followed you to another?

Von Imhof: The more often that you see it and hear from the experts, if you hear it more than once, you understand it better. It’s a very complicated bill. We were able to hear all the presentations in Resources. Much of it was the same again in Finance. It solidified the details of the bill.

Outside of Finance, several of us senators have been meeting with (tax director) Ken Alper, with DNR as well as other viewpoints of industry experts, people who are past tax folks, people who are associated with oil and gas but maybe not having a dog in the fight. So, we are trying to get everyone’s viewpoints and do what I call vectoring. You go in the middle and see where opinions are landing at this point.

I also think the tax code is very complicated and to try to change anything in a couple of weeks is not fiscally responsible. It’s been agreed upon all along by the governor, and the Senate and the House that tax credits - cashable tax credits - need to be addressed. There was never any discussion about addressing SB 21 and production taxes as a whole. If people want to do that, there needs to be a thought out committee over the interim made up of a variety of people and if that’s the direction we want to go to, we need to take time and do it right. You have to have industry experts come in. We have our consultants, we have to make sure our consultants are involved whomever they may be and help with modeling.

The oil tax credits is what we need to be dealing with. The cashable credits. And that’s it in my opinion.

Petroleum News: One of the criticisms of portions of SB 21 is that the state can’t afford it. Do you see a bill ultimately emerging of something the state can afford?

Von Imhof: Just because you can doesn’t necessarily mean that you should sometimes. We would have to have significantly higher prices in order to theoretically afford a cashable credit program, but I would argue that we may not want to do that anyway for a variety of reasons. I think that (consultant) Rich Ruggiero stated there is no other regime in the world that does cashable credits. So do we want to be an outlier on this? Does it make sense to be an outlier in this particular program? In some things you want to be a leader in a new movement. Sometimes you don’t want to. I think in this particular instance, we are moving away from cashable credits and I would not urge that we go back to that program in the near future.

Petroleum News: It still looks like there will be a credit program of some kind.

Von Imhof: Yeah, per barrel credits. Net operating loss. Carry forwards. That’s not necessarily cashable. It’s an exchange for less revenue, which is a different funding mechanism. Rather than paying out a bunch of cash up front, we take less cash over time in revenue, depending on whether it’s a full 100 percent or a discounted rate and how it relates to the per barrel credit.

Petroleum News: So, let’s say you have a working group during the interim that examined other features of SB 21 that some are concerned about and others are not, who would make up this working group? The Senate had one a few years ago (to examine credits) but it was just the Senate and industry people.

Von Imhof: You know, I don’t know because this is all kind of new to me. It would make sense to have people who have a variety of viewpoints but also with substantial experience in this area. We have people who can think three dimensionally and understand the cause and effects of a variety of decisions that interact with one another. (People) who actually have experience and can draw from that experience, this is what happened in the past when you have these combination of factors. Or using my experience in more of a global or national sense, if we do these combination of factors, I predict this will happen.

That’s what we need. Those people are not a dime a dozen. They are specialists. We would have to look around and see both in-state and out of state. You have to be mindful of costs. I really don’ know who those people are.

Petroleum News: So this group would be made up of the House and Senate and you would invite others to talk?

Von Imhof: That would make sense to me, yes. To be balanced.

Petroleum News: The other concerns that some had about SB 21 is hardening the floor. What are your thoughts on that?

Von Imhof: It’s better for the state to harden the floor; however, at very low prices it can be difficult for companies who are generating cash losses and not necessarily booking losses and still having to still pay a tax. Having to balance that between legacy and new fields, with the theory that legacy fields are still making money at somewhat lower prices. Of course, there is a threshold with the cost of transportation. I think we are trying to be fair that if we do harden the floor, we are making it in a way that there are mechanisms that’s fair to both the state and the producers within a certain type of price range.

Petroleum News: Let’s switch subjects. I want to talk about the gas line as much as you’re comfortable. What is your take right now on the gas line? You said you’ve learned about different segments of it whether it’s standalone - ASAP - or AKLNG.

Von Imhof: I don’t think you can force a project to happen out of sheer will if you’re playing in a global environment, because you cannot force buyers to buy your gas at a certain price. You can control what you control and the governor is trying to do that to the degree that he can with becoming a tax exempt entity. I don’t know how he’s going to control the cost of actually building the line. Steel is what steel is and the permitting costs are what they are.

When Conoco is pulling out of Point Thomson, it’s kind of worrisome. You kind of worry if that’s an indicator. The governor has stated on the record that he is going to try to make a go or no-go decision or something along that line by year end, so we may be able to put this to rest one way or the other.

Petroleum News: What would you like to hear next from the administration on the gas line project that might help you?

Von Imhof: I sent an email out. When they (AGDC) came and spoke to us, I said if you’re going to present to the Legislature in the future, your presentation needs to have these five big ticket items. You should have a full analysis and a model. There are five inputs: the FERC licensing; the global demand; the actual cost of the pipe itself; the cost of the LNG; financing. You should have a model and say, OK these are all the inputs that need to go into an Alaskan, 800-mile LNG project with all of the different LNG plants and compression plants. Your model should say we need to have rates at 3 percent and we need to have buyers at $7 (an mcf); we need to have 3 billion cubic feet coming down the pipe at any given time; we need to have the supply to be this amount to the demand will be this amount.

So you have to tell us all of the five inputs, the ranges by which it works, then you have to tell us are we at those ranges today? Can you manipulate them? What can you do to make those inputs work? Right now they are not telling us any of those key inputs as far as I can tell or it’s just disjointed. Then we don’t know what the ranges are and we don’t know where we are today and how we are going to march to making the model work. So I sent all that out in an email and so we’ll see what the next presentation is. Hopefully it will have those inputs. If I were a private industry person, that’s what I would do.

Petroleum News: Are you at all heartened that China’s president sought an audience with the governor during a stopover?

Von Imhof: No. It’s the five factors that I just described. That’s what going to make a difference.