Dunleavy: Obama has gone too far

Wasilla Republican, Finance Committee member says outgoing Obama administration’s actions deny Alaskans chance at prosperity

Steve Quinn

For Petroleum News

Sen. Mike Dunleavy is looking forward to Jan. 20 when Donald Trump gets sworn into office. That means President Barack Obama can no longer issue executive orders Dunleavy believes are not in the best interest of Alaska’s economic prospect. While not on the Senate Resources Committee, Dunleavy does hold a seat on the Finance Committee and pays rapt attention to resource development issues. Dunleavy, a Wasilla Republican, shared his thoughts on Obama’s recent executive orders, the state’s gas line prospects and its tax regime.

Petroleum News: You’ve recently weighed in on some of the (Obama) administration’s decisions for resource development in Alaska, and were clearly upset - talk about that.

Dunleavy: I wouldn’t characterize it as upset. I’m being sincere when I say that. I have a philosophy that I can’t make anyone happy, sad or upset - neither can they do that with me so I don’t get emotionally wrapped around the axle over anything. I do believe President Obama has an agenda. He had an agenda and he’s been implementing it. When it comes to Alaska, I think it’s a combination of factors.

I don’t think they view Alaska as a state to be honest with you. I think they view it as a magical, mystical place way up north that America owns and thus it is so unique, so different, so pristine, so wonderful that we can’t allow the state of Alaska to be solely in the hands of Alaskans like we can Floridians, Pennsylvanians, or anyone else. We are so different that we have to be preserved. I think the president has looked at every possible way to push his agenda when it comes to resource extraction, the environment and climate on Alaska.

We are his poster child on this. Numbers wise we are small - 730,000. And so he has the ability to mobilize millions of people who believe like him. He has the ability to mobilize dozens, if not more, federal delegates - congressmen and senators - to buy into his views.

Here in Alaska, we don’t believe it has to be either or. We believe we can have some of the most stringent environmentalist policies and regulations here but at the same time develop our resources that the world wants.

His latest move was made when he closed off the Arctic to exploration because there could be spills. Well the world is still going to demand oil and gas, and coal. The Russians aren’t going to play by our environmental standards, rules and regulations. That’s for sure. So what he did was basically prevent Alaska from having opportunities for supporting these basins and finds with onshore businesses and labor - he basically killed that.

The idea that the president of the United States of America closing off the Arctic will preserve the Arctic defies logic and defies geography. It defies geopolitics. The Russians are going to develop the Arctic. The Norwegians are going to develop their small slice of the Arctic. We had Chinese ships pass through the Bering Strait when President Obama was here two years ago. So you have countries all over the world who see the Arctic and its potential for resource development and resource extraction, and here we have our own president cutting our own throats on our ability to benefit from this.

So upset? Emotionally no. But in my opinion this is just a bad move.

Petroleum News: You noted what other countries are doing. Are there any other downsides you’re seeing?

Dunleavy: Well, there is the stuff I just listed and the fact that if the Russians have an oil spill, trust me it’s not going to get the response it would here in the United States. We’ve basically told the Russians, “Hey, look we are doing you a big favor. We are not going to extract oil which means you can. You don’t follow our rules and adhere to our regulations so we are giving you a gift. Do what you want in the Arctic and we are going to handcuff the hands of our people in Alaska so they can’t.”

So with his actions, we don’t benefit at all. It does not decrease the demand for oil and gas. It doesn’t do that. And it doesn’t stop the Russians and Norwegians and others from exploring up north and developing it. None of that is prevented by this. He made himself feel good - that’s it - at our expense.

Petroleum News: What do you hope can be accomplished by the Trump administration?

Dunleavy: Everything the Obama administration didn’t do. The whole Trump thing is a fascinating, fascinating study. Two years ago or longer he was railing against the trade agreements. Those trade agreements started under Clinton. A lot of your so-called middle class Americans in your suburbs and rural parts of the country who were for decades staunch Democrats - labor Democrats, FDR Democrats - they became, in their minds, disenfranchised when Bill Clinton embraced these treaties and trade agreements and also embraced the white collar professionals over the blue collar. So they were set adrift. They didn’t feel they had a party any more.

My parents were FDR Democrats. They were conservative when it came to abortion, guns, hunting, but they were very much labor Democrats. When I saw Pennsylvania going and Ohio going, I could see it happening. Trump got those folks believing America could be great again. He’s a billionaire and he got people who are out of work to believe by voting for Clinton there was no hope but by giving Trump a chance there was hope.

In West Virginia it wasn’t hard because Clinton made it clear that she agreed with the Obama policies on coal. Coal is bad - terrible. We are going to stop it. She actually told the miners she was doing it for them like they were idiots.

Trump told them we are going to keep extracting. My hope is we keep extracting; my hope is we keep drilling; my hope we keep exploring; my hope is we keep exporting. The world still wants what we have. We can do it in an environmentally sound manner, I believe truly.

You know I have a daughter who is 24 years old. She works at Red Dog mine and has for a few years. She makes a salary we can only dream of making today. She’s working toward getting her college degree. You don’t see those jobs any more. It’s either folks on the lower end in terms of income and relying on receipts and welfare. And it’s a handful of individuals at the top. The middle class is really taking a hit and Trump capitalized on that.

When you look at the range of wages in Alaska, we are probably the number one state when it comes to a lack of disparity. We don’t have tons of millionaires in Alaska or tons of people in total poverty. You kind of have a tighter spread. We, of any states, have the ability to benefit from a Trump administration if he carries out what he said he would and what we think he will do.

Petroleum News: There is a lot of debate whether the Trump administration can undo what the Obama has done, in each case to the displeasure of certain groups in Alaska.

Dunleavy: I’ll be honest with you. I have to do a little more research as to under what authority he’s making these decisions. Are they executive orders that can be reversed by an incoming executive? For example, I won’t be shocked to get up in the morning and the paper says President Obama declares the coastal plain as one national park forever. That won’t shock me at all. So it all depends on how these decisions are made and under what authority to see if these decisions can be reversed.

There was a time when Ted Stevens was in Congress. We had Ted Stevens, Don Young and Frank Murkowski. You had a Republican administration and a Republican Congress, and Sen. Stevens made a play to open up the coastal plain of ANWR for exploration and he couldn’t get it done because some of his fellow Republicans bought into the Alaska is a sacred place and can’t be disturbed.

To answer your question, I don’t know what kind of support he’ll get from Congress. He’s in the same situation when Sen. Stevens was there. So you tend to think the stars will align and they will get behind him to undo some of these things in terms of resource extraction and development. So I don’t know the answer to that one yet.

Petroleum News: Should the Legislature weigh in with resolutions? Some consider them a voice for the state; others see them as a waste of time and paper.

Dunleavy: I think they should make a statement. Resolutions are a good thing because it tells folks what the sense of the Legislatures would be. I don’t’ know how much of a difference that would make. President Obama made a decision over the majority of Alaskans’ wishes. I’m convinced of that. I don’t have to do a poll; I’m just convinced of that. Labor, producers, etc, he did it over their objections.

So I don’t know what a resolution will do other than tell Congress how we feel. It’s going to be Republicans in other states - that’s the problem to be honest with you. They are in the majority now and if they buy into the idea that yes we are Republicans, we believe in a free market and yes we believe in creating wealth, but Alaska is a special case and we want to wall that thing off and make it a park, then we are in trouble.

Petroleum News: Let’s get closer to home. Next session, we know there is a motor fuels tax bill on its way but most expect another oil tax and oil tax credits bill coming back. What are your thoughts on reprising discussions on oil taxes and oil tax credits?

Dunleavy: The tax credits are a different issue from SB 21. Some of those tax credits predated SB 21. Many of those tax credits we are talking about actually benefit the little guy, the independents coming up who may be a little more nimble like Armstrong and Caelus. Then we had tax credits in Cook Inlet, which were primarily gas credits.

There’s an argument to be made that those tax credits worked in terms of getting people up here, exploring and in some cases finding oil and gas that can be developed. Then there are those who say it picks winners and losers. So I think the tax credit concept will come back up and we’ll have a robust discussion. I’m not sure where we’ll go.

We did some changes last year with tax credits (HB 247) especially in Cook Inlet. Middle earth, as they call it, really you’re just talking about what’s happening in Copper River and Ahtna with gas and in Nenana and Doyon with gas and possibly some oil. Middle earth will be a non-concept in a few years.

So really you’re back up on the Slope. Caelus and Armstrong are going to confirm their finds here pretty quick. If in fact they did what they say they are going to do, and they are able to produce recoverable oil of 200,000 barrels or 185,000, that’s significant going into the pipeline. We are going to have to seriously think about how we are going to entice those folks up, and keep folks coming up here to explore.

I think tax credits could come up for a deeper conversation: With SB 21, bringing that back is a whole other ballgame. You have a split Legislature. There are a lot of things that aren’t going to happen, and I don’t see SB 21 being revisited to a great degree to be honest with you.

Petroleum News: Some changes to any credits can be perceived as a tax increase, particularly removing the net operating loss credit being carried forward. Philosophically, how do you see it?

Dunleavy: Well, is that a tax credit or part of SB 21? That’s another discussion. Some say the NOLs are SB 21 and that would be tax policy. If you are dealing with just the tax credits, especially the tax credits before SB 21, that’s a whole other conversation. I try to differentiate between the two concepts. I think the concept of NOLs in SB 21, I’m sure there will be attempts to bring it up, but I’m not sure how far it will go.

Petroleum News: Let’s switch to the gas line project. What are your observations about where the gas line stands now?

Dunleavy: The governor is still very optimistic. The majors aren’t. The world is awash in gas. I’ll be a believer in terms of going onto further steps once we see contracts in hand. I haven’t seen those yet. The economics lead me to believe that’s very difficult. If there are no contracts, there is no project.

I haven’t seen any contracts because the Asian markets are in the driver’s seat right now. They can play us off of Australia. They don’t have to do long-term contracts as they once did. They can go shorter durations of five or 10 years. If they want to go shorter duration, that’s a problem for us. This gas line, this entire project, is again a $45 billion to $60 billion project. We more than anybody have to have certainty going on 20 to 30 years so we can amortize the costs and get a return on this.

I think Sen. Bishop stated it best during the special session a few years ago when he said I hope we aren’t going to build a $60 billion gas line so we can make $40 billion. That still rings true today. If the governor comes and lays contracts down in front of us that are such duration and the guts of the contract indicate that we can make a profit, I’m more than happy to take a look at it. I just think right now there is a lot stacked against having a liquefied natural gas line project.

People will say that within five to 10 years, the Arctic will be ice free. That may be a different ball game and we may want to look at a different way of delivering that gas. The bottom line is if we can make any money for Alaska, and we don’t have a fairly certain guarantee of that, I’m not willing to take that risk.

Petroleum News: Being on the Finance Committee, you get one of the first votes toward appropriations, what would you need to hear from AGDC if it were to come to you and say they need more money in working toward those contracts?

Dunleavy: They would have to convince me that it’s viable. They would have to convince me that coming up with tens of millions of dollars more - maybe hundreds of millions - that’s going to end in a project, or at least a contract. You know in the special session I voted no (to buy out TransCanada). I voted yes for the bill (SB 138) because in that bill we have to get to a pre-FEED stage to determine whether the FEED stage is feasible. Well, we got here in October and the majors said from their perspective, and I’m paraphrasing, “it’s not worth it for us to move ahead on this project as it is.” Well, if they are not going to move ahead on this project that certainly should give us all something to think about.

But they are willing to sell us gas. Of course they are willing to sell us gas. There’s no risk involved for them. They are not willing to take the risk but they want us to take the risk. I need to see something that is viable.

I’ll give you an example. If the Caelus find is verified, and if the Armstrong is verified, the amounts of oil they put in the pipeline, there is zero risk to the state. We don’t have to front any money for those projects. I don’t want us to lose sight - and I think that is what’s happening to some extent - that the true moneymaker is still oil. There is no risk to the state to produce it. So I have to be convinced it’s absolutely viable. If not, it’s going to be very difficult for me to keep putting money into it.

Petroleum News: Do you see the administration trying to advance an uneconomic project?

Dunleavy: I hope not. I’m not saying that. I’m saying the governor’s office is working very hard in trying to secure contracts for this project, and that the governor believes Alaska’s future is gas. I’ve got to tell you, I don’t disagree with that. It’s just the timeline. I’m not sure with the world’s situation of fracking in America and Australia is doing a good job too - Canada as well. I’m just not sure if we have a horizon that starts giving us a return in 10 or 15 years. I just don’t know that. Now 30, 40, 50 years out, does Alaska’s gas have value, yeah, I believe it does. So I think the idea of monetizing Alaska’s gas is a sound concept, but I find it hard to believe the Asian markets are going to contract with Alaska for 20- or 30-year contracts. Again, I still have an open mind; I want to see the contracts. I still believe sometime in the future, we’ll be able to make a profit from the gas. I just don’t know when.