Josephson eager for Obama, Kerry visit

Anchorage Democrat says he hopes President Obama gets an up-close appreciation for state’s far-flung regions, not just Anchorage

STEVE QUINN

For Petroleum News

House Rep. Andy Josephson says the pending visit from President Barack Obama couldn’t be better timed. With the recent permits awarded to Shell and the U.S.’s recent two-year appointment as chair to the Arctic Council, this is an ideal time for Obama to pay a visit most presidents have failed to do.

Once Obama and Secretary of State John Kerry have completed any possible tours of the state’s Northwest and Southwest regions, state lawmakers may still have some work to be done back in Juneau for a special session on an 800-mile pipeline and LNG export facility.

Josephson, an Anchorage Democrat who serves on the House Resources Committee, gave his thoughts on each development to Petroleum News.

Petroleum News: Let’s start with the latest news, this coming out of the Arctic with Shell getting its final permits. What are your thoughts on that?

Josephson: Well, it’s both exciting and I am concerned about certain harm to the environment. I know that they had their cap stacking equipment fail and that was required to be fixed. That’s certainly a good thing. There hasn’t been any drilling into that layer of seafloor for more than 20 years I guess. This is something they have worked really hard on.

Some of us have expressed concern about Shell’s and Shell’s contractors record so far. I’m thinking Noble Discovery; I’m thinking permit violations, I’m thinking the grounding of the vessel in the Kodiak Archipelago. It hasn’t been a smooth process, but I do wish them luck.

I think the other thing to keep in mind is that we won’t see the same sort of revenue as a state had it been on land and especially on state land. It’s not the same benefit to Alaska as I see it.

Petroleum News: Those revenue sharing issues are being worked on in D.C., correct? Would your thoughts change if there were a stronger revenue share?

Josephson: You know, yes they would change. I still think everyone agrees there is less risk to the environment if you’re drilling on land rather than water. I saw a presentation in February or March from an industry sponsored group talking about all the preventative measures that were being taken to keep the environment clean from equipment to standards and regulations to best practices, and all sorts of things. I think the industry has to, given the Deepwater Horizon/Macondo disaster and the Exxon Valdez, the industry can’t blame some of us for being somewhat suspect about it. Still, I wish them luck and I hope it’s fruitful, but getting back to your question, yes my thoughts would change. Given that we have a $3.5 billion deficit, it would absolutely change my perception of it.

Petroleum News: Were you surprised given the Obama and his administration’s climate change agenda?

Josephson: Yes and no. There has been criticism of that from the conservation community that he giveth with one hand and taketh with the other. There is no doubt in a purist perspective, there is a great inconsistency there. Frankly, even the Rule 111(d) EPA clean air power plan, which I’ve spent some time looking at, is arguably insufficient.

Although it’s a precedent-setting event, historians will look at President Obama and say the 44th president understood climate change and worked hard on this issue both nationally and internationally. His goals there are a 30 percent reduction from the 2005 carbon output. Is that going to be enough? I only go down that road because if you’re a real purist, you would say we’ve got to start living completely differently. We’ve got to drive electric cars and ride our bike to work.

He’s a realist. So I think he sees the benefit of the economic improvement we’ve seen since 2008. Unemployment is down to 5 percent. I suspect he sees the oil industry’s part of it. You can add that it’s under this administration that for the first time in a long, long while there will be exploration efforts from the Virginia coast down to the South Carolina coast.

That wasn’t something the previous administration allowed so it’s been a real contrast, the two: the Clean Air initiatives and the promotion of responsible development.

Petroleum News: What do you think this decision means set against the backdrop of his coming to Alaska?

Josephson: I think a couple of things are going on. No. 1, he’s got a year and a half left in his presidency. A trip to Alaska is the kind of trip you take when you have a year and a half left in your presidency. Because of the Arctic Council, there are an amazing amount of conferences from late August through September with national and international dignitaries and experts on the subject.

So it means a number of things. It was Sen. (Dan) Sullivan who expressed his real concern with Russian military development in the Arctic. This president knows that while we have climate change, we also have incredible competition because of the melting ice cap for resources there and it may be best to be a participant there rather than an observer.

So I think it’s all of those things coming together. The State Department has a role in some of what the Arctic Council is working on as well and so he’s being supportive of that.

Petroleum News: So how can Alaska benefit from his visit? What would you like to see as a takeaway from his visit?

Josephson: Well, on the one hand, I hope the president is given the opportunity by flying to Dillingham or flying to Kotzebue to see the length and breadth of the state, and to see its uniqueness and its scope, and from that understands that not only are we the last frontier, we are the last opportunity to get it right. By get it right, I mean melding good conservation practices with smart development. That’s one thing I hope he takes from this.

I hope he has the opportunity to hear the grievances from Native Alaskans about tribal rights issues. I hope that he has an opportunity to hear about economic opportunity, both in the Arctic and elsewhere, and get a sense of where the AKLNG line would be located. Perhaps fly over the Pebble Mine sight to get a sense of what that development would look like and the impact of that development.

And so I hope all of those things happen and that he is a voice of reason and wisdom when the Arctic experts gather and have their meetings, both in terms of the balance in preserving subsistence rights and exercising caution over sensitive places like the Hannah Shoal, while at the same time indicate that he is going to flex national muscle and asset jurisdiction on places like the outer continental shelf. We need to have a role in the Arctic as an Arctic nation.

Petroleum News: The last time we spoke, you thought advancing ANWR would take some creative thinking rather than the same pursuits. Do you still feel that way?

Josephson: I don’t think that’s on his agenda to do a fly over but I hope that it would happen. I still believe that aside from the AKLNG plan, which is 10 years off in terms of revenue we would see from it, almost everyone agrees the only opportunity for a super giant onshore is there, in the Arctic National Wildlife Refuge. The other developments you see in places like the CD-5 and others are incremental. All the do is replace diminishing production in other legacy fields. I think there is some trepidation that he is going to make some announcement that is unfavorable to ANWR. I don’t think that is going to happen.

I think it’s prevented by law.

One thing we do know is that presidents on their way out want an environmental legacy. We saw that with George Bush and his designation of the seas west of Hawaii and the designation of some reserves in the area near the state of Hawaii. I think he is going to have that sensitivity. If I had the chance to speak with him, I might say that some of us who are profoundly concerned about keeping Alaska as wonderful as it was at the purchase and at statehood believe that ANWR needs to be developed. That it’s in the national interest and that it can be done carefully. At the same time, I would express real concerns about Pebble mine, and my huge reservations about that.

You know when I read about Secretary (Sally) Jewel’s background, you see that she is a perfect reflection of the administration in that she worked for industry. She has a background in engineering and yet she has a conservation ethic. I think that is the dichotomy you are seeing with this president.

Petroleum News: Will you have a chance to be in the same room with the president during any of the more public events?

Josephson: Gee, I hope so. I think for most of us, meeting the president is sort of a dream. We don’t have a monarch. It’s the closest we come to that. It can bring out a 5 year old boy in the soul. The only thing akin to that for me would be meeting a professional baseball player or other notables.

The patriot in me wants to meet the president. I’ve been a fan of us, mostly a supporter of his. So I’m hoping that happens. The forum of that happening, I’m not sure what it will be. There will be something Aug. 31 at the Alaska Airlines Arena. I don’t know what other opportunities there would be. I know my caucus would like to bend his ear and talk to him about some of the things we care about.

Petroleum News: One of the things I know you care about as a member of resources is AKLNG. What is your understanding right now of where things stand?

Josephson: Where things stand now is there are negotiations going on. I think there has been some criticism about whether these negotiations are perfectly transparent. I think those are unfair criticisms. I don’t think anyone should expect for negotiations to occur in full public view.

I was a backer of SB 138 and I remain a supporter of SB 138. I’m absolutely a supporter of the equity option. I like TransCanada and I like the folks at TransCanada. I suspect they don’t like legislators to say that because it’s not their preference. The evidence I’ve seen is pretty clear that it’s a benefit to Alaska’s people that we exercise that option, that we save cash flow in the out years.

It’s better for the state to take over the equity share that otherwise would go to TransCanada as sort of a surrogate. What’s being discussed most recently is the governor wants to make some potentially serious changes to the formula that is SB 138 where there is a 25 percent share held by foreign interests basically with our share with TransCanada being one of the 25 percent shares.

In a perfect world the state would own 51 percent of the entire project and we would do that because we would see more revenue. We could charge tariffs and so there are many different kinds of new revenue.

The problem that I have with that is twofold: is it affordable and will the industry throw up its arms and walk away. If the industry does that, what is our ability through legal forms of coercion and other forms of cajoling the industry to keep them at the table and keep them interested?

So those are my concerns. I’m a supporter of the governor and am certainly interested in what other options are out there. I also have concerns that if we revamp this too much and it sets us back then we won’t see production in 2025. The potential for production is always suspect because of the already low gas prices and the international competition from places that don’t need an 800-mile pipeline to tidewater.

I suppose there is nothing wrong with asking. We’ve all heard that sentence described about anything. That could be as true here as whether you’re purchasing a pair of jeans at the department store.

Petroleum News: So you still like the framework of SB 138 but you’re willing to listen to modification ideas?

Josephson: Absolutely. Some of the work that has been done by AKLNG - for example the right of way and the land purchased for the right of way - that could not possibly be based on what the final configuration of “the deal” is. That work will be continued.

Petroleum News: You talked about being OK with 51 percent of the project?

Josephson: Of course we would be an owner and regulator anyway with 25 percent. It’s a different kind of ownership. When I said I was OK, I said I was OK in the abstract, but I also expressed concerned with those two points, the first being will the industry walk, will the good work that’s been done since 2013 be undermined. More importantly, can the state afford this? Where will we get the cash to pay for a potential $65 billion project? To make this point clear, there is real concern about taking over the TransCanada portion of it let alone the 51 percent portion of it. I’m very intrigued by it. I’m certainly willing to listen to it. I don’t want to upset the apple cart and set the project back if that’s what might happen.

Petroleum News: If you‘re called down to Juneau for a special session, what would you like for that to accomplish?

Josephson: Principally I would like to know that we complied with deadlines that SB 138 requires. We know that one of those deadlines is on New Year’s Eve day that unless we agree to extend that deadline contractually, we have to decide whether we are going to exercise our option with TransCanada.

The other things that need to be accomplished are we need to look at some of the additional agreements that are required by the overall deal to move into FEED and the final investment decision. We need to look at those agreements and really understand them better. I think all 60 of us need to be on the same page that these are the future deadlines in 2016, 2017 and 2018 before dirt is turned and we begin this project.

Part of it is there are certain things that must be done like the TransCanada equity option and there are other things that need more explication and explanation where there is a better understanding by the Legislature on where the project is and where it’s going.

I don’t mean to suggest the good people at AKLNG haven’t done their share and their heavy lifting in making that education possible. They have absolutely done a marvelous job of making quarterly presentations and being available to legislators. However the nature of this is that you have to keep revisiting these topics. So this is kind of like learning a musical instrument. You have to rehearse and repeat because it’s complicated. So I think the Legislature needs to do some of that. I would suspect we can get our work done in two weeks.

Petroleum News: Moving to next year’s regular session, it appears you folks will be reviewing tax credits. Do you believe this needs to be revisited or is it simply a matter of the governor delaying some payments?

Josephson: No, I think it absolutely has to be revisited. On June 17th, there was a resources hearing and I had to head off to Washington with a colleague for a Medicaid conference. But I attended the hearing before on AKLNG on June 16. I heard most of the presentation and power points of the June 17th hearing. It was a vitally important hearing.

We are not anywhere near the sweet spot in terms of these credits. These credits are a creature of shifting from a gross production tax to a profit tax system so we want some credits. I think what we are going to find - and I think it will be a bipartisan consensus ultimately - that they are too generous. In 2007 they start at about $500 million in terms of credits purchased by the state and credits used against tax liability.

Now they are scheduled by 2018 to reach over $1 billion in combination. Now those aren’t all going to be paid in a single calendar year but they are going to be credits that are going to be sanctioned during that period. The key thing that we need is that we’ve worked hard to get independents up here, and we’ve achieved that goal, but for the legacy fields where there are credits earned for production that would have occurred anyway and for new potential fields, we have to ask ourselves are we seeing any production out of those or are we in effect subsidizing as if we are the producer.

We are bearing so much of this risk with these credits. As was noted in the June 17 hearing, we are one of the few governments, perhaps the only government in the world, seeing less production tax than it pays out in tax credits. So I think we really need to look at these and say, what are we getting out of this?