Providing coverage of Alaska and northern Canada's oil and gas industry
October 2019

Vol. 24, No.43 Week of October 27, 2019

Competitiveness review board, created in 2013 by SB 21, now back at work

Kay Cashman

Petroleum News

Alaska’s Oil and Gas Competitiveness Review Board has been reactivated after being relatively dormant for four years. Created in 2013 by Senate Bill 21, the board was designed as a resource for the Alaska Legislature, tasked with establishing and maintaining salient data on oil and gas exploration, development and production. It was to advise the Legislature on the fiscal system, labor pool and regulatory competitiveness; its role to provide factual information not policy.

The competitiveness review board’s first report was delivered to the Legislature in March 2015, comparing Alaska’s competitiveness to oil and gas producing peers around the world.

Now it’s back in action, review board chairman Wyche Ford told Alaska Support Industry Alliance attendees at the association’s Oct. 10 industry forum in Fairbanks.

“We’re engaging in an update …. developing a score card that simplifies where Alaska stands with its competitors,” Ford said, noting the board met the previous week and planned another meeting Nov. 19, just prior to the Resource Development Council’s annual conference - that meeting and all future meetings would be public, he said.

What or who prompted the board’s revival?

The current administration, specifically Alaska Department of Revenue Commissioner Bruce Tangeman, Ford said.

The commissioner is a member of the current review board and directly participates, Ford noted.

Board members

The board was set up to have two public members, three administration department heads (including Alaska Department of Revenue, or DOR), one commissioner from the Alaska Oil and Gas Conservation Commission, or AOGCC, three oil and gas subject matter experts and two industry trade group representatives.

Current review board members are Ford, project director for Fluor Corp.; Tangeman; Lynn Kent, deputy commissioner of the Alaska Department of Environmental Conservation, or DEC; Jeremy Price, chair of AOGCC; Sara Longan, deputy commissioner of the Alaska Department of Natural Resources, or DNR; Tom Maloney, financial analyst and CEO of Ahtna Netiye’; Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, or AOGA; Bob Pawlowski, public member, owner of Applied Ocean Services, member of the Cook Inlet Citizens Advisory Council; David Reaves, public member, business manager of the International Brotherhood of Electrical Workers, or IBEW; Tom Walsh, public geologist, executive and co-founder of Petrotechnical Resources of Alaska, or PRA; and Bill Van Dyke, public petroleum engineer, and former director of Alaska’s Division of Oil and Gas.

Some review board members were appointed by the current governor, Mike Dunleavy, and others by former governors.

What is competitiveness?

Competitiveness is the cost of supply, Ford explained. “It’s more than just fiscal policy” - royalties, property taxes, severance taxes, and state corporate income taxes.

“Some factors are controllable,” he said, others less so.

Giving fiscal policy a five star rating, it is the quickest to fix, Ford said, ranking the federal, state and local regulatory environment and infrastructure as next in line with two stars each.

The least controllable factors impacting competitiveness were those with a one star:

* Labor, equipment and service resources.

* Logistics.

* Time and distance to market.

* Proven and undiscovered potential oil and gas reserves.

“Existing well-maintained oil and gas facilities serve as a platform to enable nearby prospects and the likelihood of additional discoveries,” a slide in Ford’s presentation explained.

All of these factors affect the cost of supply, he said.

How does Alaska compare?

In almost all the factors that impact cost of supply, Alaska has higher costs and increased risks, Ford said, noting more than once that the primary controllable factor is Alaska’s fiscal policy.

Before turning the presentation over to Walsh, Ford identified one other resource made available by Tangeman - a website page at dor.alaska.gov and a review board liaison, Genevieve Wojtusik, the primary contact for anyone interested.

The review board page includes its history, meetings scheduled, including an audio teleconference access phone number for the public, and a link to the review board’s 2015 competitiveness report.

History of SB 21

Passage in April 2013 of Gov. Sean Parnell’s oil tax change, SB 21, which eliminated the fiscal system enacted under the previous governor, Sarah Palin, was designed to make Alaska more competitive with comparable oil and gas producing areas, eventually leading to more investment by oil and gas companies, and ultimately increasing - or at least slowing the decline - of North Slope oil production.

The complicated progressivity under ACES was replaced with a 35% base rate and a per-barrel credit, Parnell said at the time, “ensuring Alaska’s treasury is not exposed to the risk of paying $1 billion and more in tax credits when oil prices are low, and keeping the state competitively positioned when prices are high.”

Immediate results were not expected because, as the Parnell administration said, additional investment would take time and added production wouldn’t come for several years.

That said, several oil companies have either entered Alaska’s North Slope since then or become more active; the biggest spenders being ConocoPhillips, Eni, Hilcorp, Oil Search and Repsol.

According to Alaska economist Ed King, once the new North Slope Pikka and Willow projects come online, production could “top out at 700,000 barrels of oil per day” (see story in Oct. 20, 2019 issue of Petroleum News).

Following passage of SB, there was an immediate call for a state-wide ballot referendum to dump the new production tax. It failed. But because of it, the competitiveness review board didn’t hold its first meeting until Oct. 15, 2014.

Walsh, a bird’s eye view

Walsh was pleased with the composition of the board, he said Oct. 10.

“It is very broad-based. … There are a number of members from the administration in key areas … key stakeholders for oil and gas competitiveness.”

“I think there are several criteria that need to be met by this board in order to be effective and those are really broad perspective and we’ve got that … (for example) input from landowners is critical,” Walsh said, noting in Alaska the land is primarily owned by the state of Alaska, the federal government and the Native corporations.

“We have … representation from the industry in terms of the major oil companies, independents and even smaller companies” to help identify “where we fit in the global industry.”

The review board’s composition lends to its credibility, Walsh said.

“It’s not just about being competitive to BP, ConocoPhillips and ExxonMobil for bringing money to the state of Alaska. … It is much broader than that. I think we need to make it very clear that this industry is critical to the state of Alaska and benefits the state of Alaska. We have $66 billion dollars in our investment fund right now and that’s all generated by the activities of the oil and gas industry,” Walsh said.

“I would like to put this in the context of the colloquialisms that seem to surround this discussion and those are things like ‘open for business.’ We always like to say we’re open for business but what does that mean? It’s a great line, it’s a catchall … we all like to think we’re open for business but if the folks” that explore and develop “don’t think we’re open for business then we really aren’t,” he said.

Another colloquialism is “fair share” - “a very common theme … I am going to start using that term in every sentence just to make clear it’s silly because what does that mean? … Is our fair share when we run the oil and gas companies out of business, out of Alaska, because we’ve taken all the profit?”

To Walsh fair share “is not a time-transient idea. If a company comes in and leases land, explores and develops it, and then some time down the road their fair share changes, I don’t think that’s fair.”

Walsh described his comments as pie in the sky or an overview: “Basically we’re going to be crunching data to see where Alaska stands.”

Moriarty there from start

Moriarty said she and Walsh had been on the board since it was created.

“I will tell you that when Senate Bill 21 was passed I testified against (creation of) the board every chance I got because from the industry’s perspective we were nervous that if we had a competitive review board constantly reviewing our competitiveness the … intention would be to always constantly make changes but if you talk to the framers of Senate Bill 21, the board was modeled after the competitive review board in Alberta, which was created after the industry collapsed after there was a major tax change,” she said.

“Since that time, I would also argue the board has really been underutilized. It kind of went into dormant status right after 2013 because of course the (ballot) referendum came and there was a question whether Senate Bill 21 was going to be the lay of the land.”

After the referendum was defeated “we got a new administration and oil prices crashed and there was all this knee-jerk reaction when I think the original intent was that if there was an idea that a legislator or administration official had that this board could be the sounding ground … (offering) a very broad perspective, analyzing different components.”

Moriarty said she was “really excited to see an attempt by the Department of Environmental Conservation - they are about to launch … regulatory improvement process through DEC that could help increase the ability to do business (in Alaska).”

Given current budget restraints, Moriarty hoped the board would be able to utilize the consultants in place that work for the Legislature.

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