Pruitt keeps eye on energy, Arctic issues

Anchorage Republican, House majority leader, positive about gas line opportunities, concerned about impact of oil tax referendum

Steve Quinn

For Petroleum News

Rep. Lance Pruitt spent his first term cutting his teeth on energy issues by serving as co-chair for the Energy Committee and as a member of the House Finance Natural Resources Subcommittee. In January, to begin his second term, the Anchorage Republican took over as majority leader while retaining his seat on the same subcommittee, giving him an up-close view as well as one with a wide-angle lens. Even while not serving on the full Resources Committee or Finance Committee, Pruitt works to stay updated on resource development issues, be it the oil tax change, progress on an in-state gas line by the Alaska Gasline Development Corp., AGDC, or Arctic policy. Pruitt discussed these issues with Petroleum News.

Petroleum News: How did your time on the Energy Committee during your first time prepare you for this second term?

Pruitt: First and foremost it gave me an opportunity to really be introduced to government and to the legislative process. I came from the private sector. I was in logistics and management. I had been to Juneau a few times, but only one day when session was in town; I had only been to the hill once. So that first term really introduced me to the process and also to the issues related to energy. I knew my life and natural gas here, but it gave me this understanding of the diversity of the energy situation throughout our state, the complexities and the expense in many cases. It gave me a unique chance to understand what some of my colleagues throughout the state are going through. Plus I got to have Neal Foster as a co-chair, someone who was from the rural areas (Nome) and we had a great relationship.

Petroleum News: Now as majority leader, you still serve as the natural resources subcommittee. Was that by design? You’ve got the macro of everything in play as majority leader, but this seems to give you a closer look on the subcommittee.

Pruitt: This is my third year on the subcommittee. I asked for it so — back in the first year — so I could understand DNR. Many of our jobs come from our resources. I wanted a better understanding of the department that kind of controls that. That initial opportunity, then and up to now, I have a better understanding of some of the things we’ve talked about to be able to say where are we going with this, what impact does it have in permitting, to getting oil in the ground or different resources extracted, and what are their barriers there. It still gave me an opportunity to being a part of getting a proper regime in place for the resource extraction by making sure DNR has the proper tools to be able to do its job effectively.

Petroleum News: So with having the macro view and the close-up view to a particular department, how do you feel you get prepared for a vote for bills like SB21 and HB4?

Pruitt: It takes a lot of time and energy outside of the committee. It means watching Gavel-to-Gavel at night; it means sitting down with people on the committee, the stakeholders and people with the governor’s administration getting their perspective on things. My staff will keep me informed if there is a committee hearing while I’m in another meeting. For myself, when it came to voting on those two, SB21 and HB4, I was pretty well versed by the homework done by myself and my staff since I didn’t get to sit on either of those two committees (House Resources and House Finance).

Petroleum News: OK, you mentioned two bills, let’s start with SB21. Two developments emerged since the session ended in April. The first was the referendum that goes on the ballot in August. The other was the discussion over gauging new oil and coming up with a clear definition for tax credits, and in this case it wasn’t just SB21 critics speaking out. Let’s start with the referendum. What are your thoughts?

Pruitt: I’m definitely concerned about the referendum, about the message it sends to people who are not in Alaska and even people who are currently investing in Alaska. What is the message we want to send? Do we have an environment where people will want to invest? Or do we want to see-saw back and forth. We are not establishing a sense of security with this referendum out there for someone who wants to spend their time and money investing in Alaska and getting Alaskans jobs, so I don’t think it’s a positive thing to do. I think Alaskans will see their neighbors and others around them filling some of these jobs posted by the service industry right now as different companies ramp up. People will start to see a grass roots movement being created and once and for all we can end this debate when people say no to the referendum. Not only did people say they wanted to see this change by electing a new Legislature who passed this, but they also state it with their vote that they want to see more investment take place in Alaska that makes sense for Alaskans and people from Outside.

As for the new oil discussion, it’s kind of complicated. It’s a fiduciary responsibility for the state. What was our intention with this new legislation? I will admit, I’m not an expert of all the technical aspects of how to do it. Here is what I think is important. Part of what the governor wanted was to make this tax simple because we don’t want to exchange one complex tax system with another. If it means monitoring is the way to go, then maybe that’s the way to do it. That’s what the state and our experts at Revenue and DNR, that’s what those guys are going to determine: what is the best way Alaskans, specifically as it relates to our treasury, that we are getting what we are supposed to be getting, and are filling the legislative intent behind that new oil provision. My understanding is they have the ability to determine what it (new oil) is. I like what Bruce Tangeman had to say: If they inject water into a well and move oil from one reservoir to another, then the new oil will be considered new oil. His point though is if they can’t prove it, then we are not going to determine that it’s new oil. That’s the key. They are going to have to show us that it really is new oil. We are not going to just take their word for it. We are going to complete our due diligence. That’s important for Alaskans to understand that we are going to require our government to complete their fiduciary duties.

Petroleum News: On to natural gas: LB&A held an LNG symposium a few months ago. What was your take on it?

Pruitt: I think it showed a couple of things. One of the most important things that symposium did was it started to introduce our legislators and staff to the very complex subject of natural gas. We just spent a lot of time, trying to understand, trying to research, trying to determine what oil is about. That’s a complicated subject in itself. Well natural gas is its own complex subject. Just because you know oil doesn’t mean you know natural gas. The other thing the symposium did was allow us to recognize that there is a true market for our gas. It was clear by the time it was over that it was not a futile effort to move forward on some sort of gas project. Whether it’s a small or large project, that’s getting into minutiae. I think the companies and the market will determine that. So they did a really good job of laying out that there is a market for our gas and to continue to pursue it, including working this next session on some sort of solution toward what our gas terms will be. It showed that’s the important next step and that we should be continuing in that direction.

Pruitt: The details of the terms themselves, I honestly can’t tell you what those terms should be. Some of the details I’m learning now. There needs to be a change. We are going have to come up with a different set up (with taxes). The person who needs to lead that is the governor. He has got to establish the ground work and introduce the framework, then from there the Legislature can move forward, just like he did with SB21. He’s going to determine how much we push gas. We have 90 days and if at the end of 90s days, he might have to determine is it important enough for us to come back in a special session. That will rest on him, but part of the bigger conversation is having the referendum out there.

There are two schools of thought where we should go with that. You know back to the referendum, there are those who argue that as long as the referendum is out there, we shouldn’t work on gas. There are others who argue we need to pass gas policy in this next session because we need people, when they are making the decision on the referendum, when they decide yes or no, they are making a decision on oil and gas; how that referendum is out there, is going to have an impact on what we do and on our discussions about natural gas. We don’t get gas if we don’t have proper terms on oil. That’s going to be part of the debate. I think it will be an interesting debate to tell you the truth.

Petroleum News: You said the decision on getting the details done rests with the governor, so if he gets enough to bring to the Legislature, would you like to see something in front of the Legislature?

Pruitt: My view is we’ve got 90 days, so I would love to see us pass something and make a statement in continuation of what we did last session. When people go to vote, they will see they make a determination not just on the future of oil, but also the future of gas, both for the potential in-state use and as well as for shipping outside and making money off other countries. Personally I’d like to burn as little hydrocarbons in Alaska as possible so we can make as much money off other people. I’d like the people to understand the weight of what they are going to be voting on in August of next year.

Petroleum News: You talk about investors. Pioneer Resources sold its Alaska assets. Pro-SB21 people believe the new tax system has made something like this possible; others believe the tax system discourages independent presence and future investments from independents. What are your thoughts?

Pruitt: I spoke with individuals from Pioneer and asked them about their reasons and I feel comfortable about it. They felt it was important to realign their business model. That was a business decision. It was clearly communicated to me by outgoing Pioneer leadership that the tax change we made did not scare them off, but it did influence the purchase by the new company coming in.

Petroleum News: OK, still on investment, the Arctic has been in the news globally for its investment prospects. I know a certain group has been entrusted with Arctic policy and development but have you kept up with that at all?

Pruitt: When I first started running, it was one of the first things I started learning and have had a passion for our state’s role in that from the late Commissioner Bill Noll. He was one of the first guys I met in politics, and we sat down for hours and talked about the Arctic, and of course his thoughts as former commissioner of commerce. I think that Alaska has an incredible role to play. The frustrating aspect is the lack of federal government interest in even recognizing that they are an Arctic nation. That is one of the most important things we have to do as a state is get them on board. Alaskans should be the ones who take the lead, whether it’s Rep. Herron, Edgmon or Austerman, or Reps. Kerttula or Neuman. They are involved because they know Alaska has a really unique role to play. In other parts of the U.S. you ask people where is the future of Alaska, where do you see as good possibilities for growth in Alaska. They say Alaska has good opportunities for the shipping business that’s going to happen and for being service providers to those ships and companies. We have to recognize that’s going to happen and how can we play a role in that. We just have to get Washington now to recognize it.

Petroleum News: Back to natural gas, there have been other developments on both lines since session ended. The governor announced his board for AGDC, with the former AG (John Burns) being voted on as chair and the big line partners have put Nikiski at the head of the class as the terminus for a prospective LNG line. Let’s start with the in-state line, is this really meaningful or is it as some might say window dressing?

Pruitt: I think it’s great progress; it’s meaningful progress. If they look at the board, there are incredible individuals on the board and there is incredible knowledge there. We will be able to draw from it. I don’t think it’s window dressing. I think it’s an initial step. It’s great progress having a board set up and having them far enough into it that they’ve met already and they have already voted for their chair.

On Nikiski, here is one of the things I asked: what were the determining factors on this? I asked was this influenced politically in any way shape or form. They said no, this was based on what was best financially and what was best engineering wise. It showed me the determination of where it’s going to go and the realities behind it rest on the people making the investment. They are the ones who are best to say where it should terminate and where it should run, all of those things. The fact that they determined where the terminus should be, I think is progress on their part. It’s a step in the right direction for finally getting us something. Frankly, I’m excited about it. It’s going to be an incredibly large facility that means a lot of construction jobs for us.

Petroleum News: So looking ahead, do you foresee anything done in the next legislative session toward resource development, or do you think everything was accomplished in the first of these two years?

Pruitt: I think gas tax could be a good possibility. Other than that, I don’t know that there is anything glaring. The governor, however, decided there was going to be a focus on tuning up regulations. Some of those are small things we can do. They may be small, but in the long run those tune-ups are vitally important, even though they may not seem big at times. Clearing the regulatory hurdles we have created over the many, many years, and making it so we don’t duplicate ourselves I can see some of that coming forward. I think that will be good. I think every year we need to sort though some of the stuff that is potentially holding back the proper development that should take place. No one knows how to manage our resources with the protection of our own lands better than Alaskans. I truly believe that. We still need to clean up the duplication and the things that are out there that just don’t make sense or are outdated.

Petroleum News: One of those bills remains. HB77. Some believe it goes too far and removes the local voice. What are your thoughts?

Pruitt: I appreciate that this takes time. (DNR’s Deputy Commissioner) Ed Fogels has been out there doing a good job of clarifying it. He gets out there and gets people to understand what it’s really doing. I think people when they get around the myths and misunderstandings, they will see it’s pretty good for the state.