Hawker sees hope for SB21 with education

Anchorage Republican says AGDC better way to move forward than AGIA; equity share nothing new — but has to be good deal for state

Steve Quinn

For Petroleum News

Rep. Mike Hawker has been a member of the House for 12 years, long enough to see three tax regime changes, including this year’s Senate Bill 21, a failed gas line contract proposal and another gas line plan that is slowly eroding thanks to market changes, the Alaska Gasline Inducement Act.

Still, Hawker, an Anchorage Republican, has also watched and helped shepherd what he believes is progress in advancing the state’s economic mission — and Constitutional obligation — maximizing the state’s resources.

Three years ago, he and House Speaker Mike Chenault backed the Cook Inlet Recovery Act, which provides the legal framework and incentives for natural gas storage facilities while adjusting tax credits to encourage Cook Inlet exploration.

This year the Legislature approved an in-state gas line bill known as House Bill 4, which empowers the Alaska Gasline Development Corp. to ensure natural gas commercialization to state communities. Time will tell how effective it is, but Hawker remains supremely confident AGDC, already with a board and chairman in place, will be instrumental in advancing North Slope gas commercialization.

Hawker, a member of the House Resources Committee and chairman of the Legislative Council, recently returned from Point Thomson, where operator ExxonMobil is carrying out its share of an out-of-court settlement with the state that ended a longstanding battle over field development.

Hawker sat down with Petroleum News to discuss these interim developments as lawmakers start preparing for a Juneau return.

Petroleum News: You recently took a trip to Point Thomson, long considered crucial toward advancing a pipeline and shipping North Slope gas south. What were your takeaways?

Hawker: Having spent a great deal of my professional career working in the Arctic and having been at Prudhoe since the early days of pipeline production and seen the development for Prudhoe to Kuparuk and then to Alpine, it’s been very fascinating to me to see the increasing commitment to environmental protection, to safety and to low impact drilling that Point Thomson presents.

Petroleum News: With that in mind, two U.S. senators recently announced how they want to permanently close off ANWR for oil exploration and production because of concerns of environmental protection and safety. What’s your response to that?

Hawker: That’s nothing new. Those senators have had a historic animosity toward Alaska, a bent for radical environmentalism in shutting down Alaska’s ability to develop our resources. No surprise. It’s the reason we’ve been fighting to open ANWR since 1981 and it’s the reason we need to keep fighting today. We not only are fighting to move forward. We are constantly fighting a rearguard action to prevent the Outside forces from moving us backwards.

Petroleum News: So why do you believe ANWR is still worth fighting for?

Hawker: there has been only one exploratory well in the 1002 Area of ANWR. That was the KIC 1 well back in 1981, I believe. That’s a very tight well still. No one really knows the resource potential under ANWR. It seems to me foolish, that we as a state or as a nation are not able to identify whether or not there are resources in the ANWR area that can be developed in an environmentally responsible way. Those fighting the development in ANWR are doing it with a bury your head in the sand approach rather than let’s determine all the facts, get all the information and determine what’s the best route approach.

Petroleum News: Circling back to Point Thomson, what do you believe the progress you’ve seen means for future resource development whether it’s oil or natural gas?

Hawker: What we see at Point Thomson is a very expensive development, a development that clearly is not going to be economically viable with the production of the oil that it currently is focused on. It’s a statement by Exxon, in implementing the Point Thomson settlement agreement, to be ultimately preparing to make Point Thomson gas available for monetization.

Petroleum News: You’ve been in office long enough to see the back and forth between the state and Point Thomson and the settlement that came last year. Is there a sense of relief to see the development finally moving forward?

Hawker: Relief is the wrong word. It’s certainly gratifying to see positive movement in developing the known resource. What’s it been — since 1976 that Point Thomson was identified? That we’ve moved forward both in the technical ability to monetize that high-pressure resource and that we’ve moved into an era where it is both economically possible and that we are truly looking at a coming era where there will in fact be a North Slope gas pipeline to get that gas to market. So relief is the wrong word, but it certainly is gratifying to be in public office at a time when this long-sought development is coming to fruition.

Petroleum News: DNR just released a report suggesting the state take an equity stake in an LNG pipeline project that would cover between 20 to 30 percent.

Hawker: That premise is nothing new by any means. It was an integral part of the proposal brought forth under the Stranded Gas Development Act and most recently under HB4, which gave AGDC the ability to participate in the equity ownership of a project that goes forward. HB4 didn’t mandate that AGDC do it, but it certainly gave it the authority to participate in the ownership of a project. I personally think that is a very viable proposal for us to consider as a Legislature. But the devil is in the details. We need to make sure we are getting a good deal for our investment, not just making the investment so we get a project.

Petroleum News: You noted how HB4 gives you the flexibility to do this. Are the features of HB4 emerging and showing their value?

Hawker: Without question. I’m hearing from stakeholders throughout the community. They are continually amazed how the elements of HB4 are truly giving the state empowerment it needs to participate in a project. I’ve even heard people in the industry use the word prescient in forethought in anticipation of what the state will require.

Petroleum News: Are you pleased with the progress with the in-state line? You’ve got your board in place and even a chairman voted upon. Can that be considered meaningful progress?

Hawker: I’m very pleased with the continued development of AGDC and I’m extremely pleased with the governor’s appointments to the board. As we state with our HB4 legislation, one of our fundamental concepts was to insulate AGDC from political influence as much as humanly possible in this state, to let it operate like a business venture making sensible business decisions. To do that, you have to have a properly organized management structure. That’s why we established the board structure as it was. The governor’s implementation of that board structure with extremely competent people is a huge affirmation of his support for AGDC, for HB4 and for our efforts to make certain that any gas development in this state begins with getting Alaska’s gas to Alaska’s citizens.

Petroleum News: Is there anything else to highlight regarding the in-state line and HB4 since the session ended?

Hawker: I am not privy to any information that is not already public. All I can do is observe and watch the public record as we’ve all seen it. I just think they are moving everything in the right direction forward. We’ve seen them actively engaged with the producers on the project that was started under AGIA that was certainly fraught with peril and challenge. I have all the confidence in the world that the AGDC effort, which will always make certain that Alaskans get first access to Alaskans’ gas, is finding a very compatible place along with the producers as they look towards a larger monetization for its economic advantage.

Petroleum News: What problems do you see right now with AGIA, whether it’s something that is continuing or something that has emerged?

Hawker: It’s the same problems today that existed the day it was passed. I certainly did not vote to grant TransCanada the exclusive license. It’s the same inventory of issues that arise when government thinks it can pick a winner in a marketplace where they have no idea where that marketplace is going to be or what that market is going to look like. The AGIA premise was based on the pipeline going to the Lower 48. That has proven to be noneconomic. The AGIA pipeline has a series of must-haves incorporated into it that cumulatively remain a challenge to industry’s ability to work under that environment. AGIA has proven to be a failure in accomplishing its desired outcome. We’ve got producers; we’ve got an administration; and we’ve got AGDC that see we need now to revisit that whole issue. We will start to see forthcoming changes proposed to AGIA that remove the government-imposed constraints that stand in the way of gas pipeline development in this state. We stand on the greatest opportunity that we have in my 12 years in the Legislature.

Petroleum News: Do you see that happening in the next legislative session?

Hawker: I would like to see the issues brought forward in the next legislative session that are necessary to take the next major advancement in developing a gas pipeline. I think those are dealing with the economics, our state’s approach to taxation of gas and the need to revisit the artificial constraints imposed by AGIA. I very much would like to see those addressed by next session. It’s my firm belief that the response to those issues be initiated by the administration based on all of the information they know that the Legislature is not privy to.

Petroleum News: Would you introduce any legislation toward that?

Hawker: I am very happy to sponsor any legislation that the administration would like to talk to us about that would aid in the development of Alaska’s North Slope natural gas, specifically legislation that would allow us to get that gas into the hands of Alaskans.

Petroleum News: Should TransCanada be removed from this process as former Gov. Frank Murkowski has said publicly, either in appearances or in published op-eds?

Hawker: That is part of the business decision the administration, the producers and AGDC will have to make. This is where we need to get politics out of the process and let business decisions be made by partners making the decisions.

Petroleum News: Did you attend the LNG symposium several months ago that LB&A sponsored? If so what were your takeaways?

Hawker: I was out of town and didn’t spend as much time there as I would have liked. I can make the anecdotal comment on how the program materials were very comprehensive. They were very well presented and by very competent presenters, of course. It gave the Legislature a very strong grounding and understanding of how LNG markets work, which is much different than the gas markets of a single pipeline delivering gas to a hub like somewhere such as Alberta. A true understanding of the value chain from wellhead to consumer that is necessary for an LNG gas pipeline project, was very important and defined very well for the Legislature.

It was something two years ago, when I was head of LB&A, we discussed the need for the seminar. I was happy to see Anna (Fairclough, Eagle River senator), the current chair, follow through with that and bring forward the seminar on the difference between the big pipeline to a hub and a market specific LNG value chain. It was needed. The Legislature, for 10 years, has been focusing only on the fundamentals of a large pipe to a massive hub. LNG being so substantially different in the value chain, this necessitated a vector in our learning process.

Petroleum News: On to oil taxes. SB21 has two lingering issues since the session ended in April. The first is the upcoming referendum next August that seeks to repeal SB21. The second is the issue of providing a clear and concise definition of new oil for tax credit. Let’s start with the referendum. What are your thoughts on it?

Hawker: The referendum is unfortunately a sad distraction. SB21 was a good and well thought out piece of legislation. Unfortunately a referendum by its very nature becomes a popularity contest that is not based on the merits but is based on bumper sticker rhetoric. I am certainly hoping the public of Alaska sees through the bumper sticker rhetoric and sees the importance of restoring our international competitiveness in our oil and gas taxation.

Petroleum News: How do you work through the popularity contest or anything that you might deem populous rhetoric?

Hawker: I have, over 12 years in legislative office, come to respect the wisdom of the Alaska voter. I truly believe with the presentation of adequate facts and telling the whole story of the tax bill and the consequences on restoring Alaska’s international competitiveness, the additional investment already occurring, and its importance in the development of a North Slope natural gas pipeline, the public will stand behind the SB21 legislation.

Petroleum News: Do you think it could have a chilling effect on investment between now and next August as some have said?

Hawker: I continue to see, as I speak to the industry, oil field support services industry and the regulatory agencies themselves, a continued uptick in investment by our producers. They are committed to making these investments today and moving forward. However, the continuance is all very dependent on us maintaining an economic environment. I personally believe there is absolutely zero chance of a North Slope gas pipeline moving forward if we lose the tax provisions in SB21 and the further refinements to address gas taxation that are necessary to develop that project. We all knew we would have to address gas taxation separately and it was addressed in SB21. Without SB21 and a further evolution of that tax system to encompass a project supporting a gas tax regime, there is no project.

Petroleum News: On to defining new oil. It wasn’t just SB21 critics who have concerns. Some concern came from the industry as well during the public hearings. What do you see happening?

Hawker: I think that line is a bit blurry. It could be an area where SB21 could be improved. Of course, it could be handled next session. But it’s cleaning up and defining a blurry line. It’s not rewriting the tax structure itself.

Petroleum News: One of the other items the Legislature has focused on during the interim is the Arctic. I know that you’re not on that committee, but you’ve been in office as long as just about anyone on the Arctic policy commission. Do you have any thoughts?

Hawker: I think Bob Herron and Lesil McGuire are doing incredibly good work with the Arctic Policy Commission bringing issues to national prominence and national attention as well as communicating those efforts and their concerns within the state of Alaska within the global Arctic community. The Alaska Legislature really has recognized this need to be a player, to be a participant. We have actually stepped up and we have established ourselves as having a very strong voice on these issues.

Petroleum News: Given DNR’s recent report and how the oil tax issue has been resolved for now, do you see yourself moving any resource development legislation in the upcoming second year of the legislative session, or has the heavy-hitting stuff already been cleared this year?

Hawker: I am always open to moving legislation that is appropriate that advances Alaska’s economic interest. At the moment I don’t have anything nearly as profound as the Cook Inlet Recovery Act or HB4 in my, well just call it my kit as the British would say. But we are certainly open for anything that’s identified as appropriate for my office to move forward. I think this coming session, we will have initiatives by the administration which will build on what we’ve done in the past years, hopefully moving forward specifically toward getting that Alaska North Slope natural gas pipeline truly out of the discussion stage and through the next development gate into a pre-feed condition.