Huggins: Engagement critical in 2017

Wasilla Republican says things between administration and Legislature can improve, starting with Walker improving communication

STEVE QUINN

For Petroleum News

Senate Rules Chairman Charlie Huggins entered public service, having accepted an appointment from Frank Murkowski, in 2004. In baseball parlance, Huggins pretty much touched them all. He has served as Senate president, Rules chairman, Resources chair, a member of the Senate Finance Committee, among other appointments. He retires in January. Huggins, a Wasilla Republican, spoke to Petroleum News about his time in office, offering observations about the state’s resource development achievements and setbacks.

Petroleum News: Let’s start with AKLNG. What is your take from a broad perspective?

Huggins: No. 1, I’ve had my mental fingerprints on upwards of five different gas line propositions, of one different shape or another. One thing I’m fully confident in is that the environment in which you’re proposing a concept is always changing. No 2. is always be concerned about movement and haste and with rigidity for lack of a better term. You’ve got to be flexible. As far as the current process, Exxon, Conoco, BP and others, didn’t become large organizations because they made lots of mistakes.

They have made mistakes but they learned there is a deliberate process that you go through. By virtue of that, hopefully, you can ferret out some of the weak factors. Most important you want to winnow down the economic variables that decrease your costs and create a more positive environment whereby you can have the intended outcome of making a profit, delivering a resource and having a viable business.

I was talking to a member of the Murkowski administration. He came up to me and said aren’t we lucky that we didn’t build a gas line to Chicago. They wouldn’t buy the gas. That was said retrospectively, but we have to look at the what-if proposition. What does that mean? The fact that the producers in this case said let’s be very deliberate and not be hasty in going to the next decision point has some prudence to it.

On the other hand, in the current project, in my estimation, a couple of the key points were required for that process to go to feed. No. 1 was a gas tax policy that was durable for 20-plus years. No action on the part of the state. No. 2 was the PILT (payment in lieu of taxes). No action taken on the part of the state. I know the state did some negotiation, but from a legislative perspective, we never saw any evidence in a bill or a proposal that could be acted upon.

Hence, we the state, are as much an obstacle for a couple of prerequisites as others can say the producers are because they don’t want to go to FEED or pause.

Petroleum News: Even as you won’t be here in January, what do you believe needs to happen to start next year in the Legislature?

Huggins: It’s very clear to me, the governor is all about Alaska and the Legislature is all about Alaska. Between the governor and the Legislature, we represent every Alaskan. The fact that there is not a productive, positive rapport between the Legislature, and the governor and some of his people is a detriment and quite frankly a burden that the state will suffer from. Nobody is more guilty than the other. But rapport, communication and confidence is hugely important.

So then you can talk about the task. Here’s an example. The governor on the 15th of December is supposed to deliver his budget. It would certainly be nice that it’s on time. He was going to give it to us 30 days early last year. Be that as it may, in that development, it be a cooperative effort to some extent so that it’s not something you hand to someone and brief them on. This way it’s a joint working relationship.

With a process like that, because everything costs money, whenever there is additional processes that involved money, or policy and legislation, you can use that kind of relationship to produce better results.

Petroleum News: Do you see a trust issue in play?

Huggins: Oh, absolutely. Let’s take AGDC for example. AGDC has had nearly 100 percent turnover in their board and executive team. We have what some people call the million dollar man in Keith Meyer. He’s a nice person and I assume a good competent professional. Although I must admit when he was with Cheniere, the concept was 180 degrees off. They had to re-engineer the whole operation because it’s about import, not export. They got it 100 percent wrong. So you’ve got to be careful. That’s the rigidity part I’m talking about.

Quite frankly, one of the things when it comes to gas pipelines that could have been a positive indicator and a good communications technique was Sen. Costello’s legislation that essentially allowed a legislator sit in on AGDC meetings so you don’t have to be a participant but you can audit it for lack of a better term.

This gives you confidence because early on there is information flow that happens. There are a lot of ways to make that work but the governor vetoed it. People say the governor said it was unconstitutional. Well, I don’t know about unconstitutional. There are a lot of practices that have showed that to be a technique that has worked in the past.

Petroleum News: You’ve mentioned turnover with AGDC. There has been some significant turnover with DNR: Mark Myers left, then Marty Rutherford and most recently Corri Feige. Does that concern you as well in the same vein?

Huggins: I haven’t talked to either of those three people about why they left, but it gets back to this business about flexibility and input that I’ve talked about. All three of those people are very competent and professional people. They have different backgrounds, but for the case in Myers and Marty Rutherford, they had been in DNR previously. You have to listen to people like that. For whatever reason there is not a complete consensus, sometimes what happens is people will say this isn’t going to work because I’m not as effective as a leader in this organization. That’s speculation on my part, but they left. And I don’t think they left because they got a better job.

Petroleum News: What kind of onus of trust does that place on new hires like Andy Mack, Keith Meyer and John Hendrix?

Huggins: Those are all three different people who, in my assumption, are competent in their own right. But the same thing applies to each of those individuals. They have to have the governor’s confidence. To whatever degree they also have to have the legislators’ confidence, then the business of how you communicate to maintain that confidence and build upon it for effective results for Alaskans is what’s important.

John Hendrix has been out speaking publicly. I happen to have a lot of admiration for him. He has good background for the job that he has. I know him better than the other two, though I think each of the other two have professional credentials.

Rapport doesn’t happen because you’re both down in Juneau at the same time.

Petroleum News: In the 13 years you’ve been in office, what do you think the Legislature has accomplished toward resource development?

Huggins: The number one thing, if you sit back and be honest with yourself, and look at the dilemma we faced in a place like Cook Inlet. At one time Anchorage was practicing brownouts because the supply of gas was a question mark at best. Right now at least that is history because the Legislature took some action in concert with the Parnell administration that essentially created gas storage and incentives for explorers. Right now we have some gas that is being exported. As far as Cook Inlet goes, you look at a mining operation, which is one of the better infrastructure developments in the region. Donlin Creek has publicly said they plan on building a pipeline to their site. None of that could happen if Cook Inlet was not successful today.

The other one yet to be proven, the part of getting gas to Fairbanks, that hasn’t happened yet. The fact that Cook Inlet has gas that is adequate for the local region and that is the plan of action still remains to get gas to Fairbanks either by rail or by vehicle, maybe by pipeline at some point in time.

I think the success in Cook Inlet in turning around the problem with gas supply is huge. The second one is the aftermath of SB 21. Essentially in 2015 was the first evidence in a long time we had an increase of oil, consequences of SB 21. To be quite frank, that gets us to another piece that’s hugely important. The environment we are in right now with the price of gas and the price of oil is a huge aberration. That might be an extended aberration, we’ll see about that, but it’s not normal times.

When you are taking corrective action, you also have to keep in mind the duration of what’s going to happen based on actions you take and what happens to oil and gas production in the future. We as Americans are not very good on taking a long-term view of the effects of things we are doing now. In the case of resource development, we have to keep in mind that if we are going to be economically successful with the business of selling oil and hopefully selling gas, then we have to decide whether what we do will be enhanced and not to its detriment.

Petroleum News: With that in mind, do you feel the state has a durable tax system in place?

Huggins: I guess durable is relative. It seems like every few years if not every other year, there is tweaking going on if not major changes. Of course, it’s always popular to say that we need something different. For the same reason, in this case, the producers say we need a tax policy for a gas pipeline that is durable for the next 20 years is evidence that we have not had a system that’s been durable because people can’t resist the opportunity to change it.

Then in this particular year, I know the governor got on record saying he didn’t want to make any changes to SB 21. Some of the action he took was counter to that. That’s always destabilizing in my estimation.

Petroleum News: You noted that it seems to come up every two years. Why do you suppose that is?

Huggins: There are a lot of variables. There is always the underlying school of thought that these companies are taking Alaska’s resources and Alaska is not getting its fair share. The counterbalance is the average person has a hard time comprehending the differences and the cost factors of going to North Dakota and doing fracking where you move a rig in and in 30 days you expect to produce oil or in Texas where you’ve got a full road network.

Here you’ve got just the opposite. You’ve got seasonal operations. We have one road up and a lot of the places you have to build a pad. You might be able to build a road to it at some time. But there is limited infrastructure and then not to mention the harsh climate, and oh by the way you’ve got to fly your workers to work from Anchorage.

Then there is the fly in the ointment with people saying well you know we’ve got all these out of state workers. You know what, I think the percentage is lower than the average Alaskan realizes, but that’s still a true dilemma. In some case the skill sets don’t match up.

Petroleum News: That skill sets issue comes up a lot. What can the state do about this and bring that skill level up?

Huggins: Click Bishop is probably better armed to answer that question. We do have a significant number of dollars that goes toward workforce development. It’s fairly well structured and not inexpensive. We have the pipeline training center up in Fairbanks for example. There are lots of skill factors, plus we have the construction industry.

We have a limited number of people when you start taking who graduated from high school and who is available and has the appetite to go through that training. When you have a small pool of people, at some point, the supply of people can’t match the skill set and the qualification that’s required. You still have to have people who have some experience and you have to integrate people as they develop that skill set.

As I recall during AGIA DOT was looking to get a significant amount of money toward upgrading the infrastructure: the roads; the bridges; rail and a number of other things. Upgrading infrastructure takes a significant amount because of the logistics. On the other hand, what you do has to meet the timeline of success, and oh, by the way we know what happened to AGIA.

I didn’t vote for TransCanada to get the contract. We got saddled with them under contract with carried over to AKLNG. I think we paid them $380 million under AGIA and another $100 million to get them out of the Alaska LNG process. I think internationally, they were probably one of the most - if not the most - qualified builders in North America for sure.

Petroleum News: So why didn’t you vote for them?

Huggins: It became abundantly clear to me that there was an expectation that because it was such a viable project, and the economics of it was going to be very enticing for national and international organizations to bid on - one of which was Mid-American - well guess what. Nobody else bid with a qualifying offer.

For me that read lack of confidence as to what was happening. I had previously voted for AGIA - reluctantly - then when I saw the business of contracting, I thought this is a bad deal. It was a bit of a protest vote against what it stood for. No. 2, if you only have one qualified bid, be careful if you have a closed bid process. Not the least of which the state had to pay them $500 million.

Petroleum News: You’ve seen all these developments succeed and fail from various angles: as Resources chair, a member of Finance, as Senate president, as a member of the majority and even as a member of the minority. What do you tell someone next year, either a successor or a freshman who could be getting a seat on these committees?

Huggins: Well, certainly everybody is different, but the No. 1 thing you have to come to the process with, and you have to maintain and demonstrate on a daily, weekly, monthly business is your integrity, that you’re trustworthy. Also, you’re not special interest this and special interest that. Oh by the way, you need to be open minded. When somebody comes to see you and you’re trying to convince someone on a bill or a policy, or whatever the case may be you have to be opened minded about what you’re proposing. And you hope they are open minded when you are proposing something.

Just because you don’t accept their theorem, doesn’t make their theorem bad. It doesn’t make them evil because of that. They have a different perspective. They might come from a different region, and oh by the way, they have a different constituency and different concerns. You can’t fall on your sword in the sense well that person obviously isn’t enlightened because they don’t recognize the merit of what I’m trying to do.

No matter what the aftermath, it should be a positive environment, because the next issue is completely different.

Being in the minority, that’s a whole different thing. I chose to be in the minority when I was. That role professionally is probably incumbent upon you to display some of the counterpoints of what the argument currently is. You don’t do it in a hostile nature, hopefully in a constructive nature in working with people. Every two years there will be a reorganization. You still have to maintain your integrity.

Equally, and this is a trait some people have and others don’t, is a long-term vision. That’s one of my concerns right now. If you read some of the commentary and some of the comments attributed to people is Alaska’s future is gas. Well that might be but it might not be. We do know oil is a lot more valuable than gas. We have a lot of both, so we have to be able to have policies and an approach to allow both to prosper and allow us to share in that prosperity.

That’s one of the concerns that I have about this state right now. There appears to be an attitude of well let’s not forget about oil, but gas is king and let’s just talk about gas. Well, that’s done at our own expense if we do that.

Right over the horizon, we’ll be asking ourselves, future legislators and future governors, what happened to future oil production? What caused either hesitation or decline in oil production that wasn’t forecast and wasn’t anticipated? It’s like ACES. The state was making lots of money but it was hard to get anybody to come up to explore because the tax rate was so high.

The beauty of it right now is look at the number of independent organizations that are out looking for oil and gas.

Look at Caelus. They figure they found 6 billion to 10 billion barrels of oil. That is a success story that we have to maintain as much as we can going forward.