Hawker: state close as it has been to gas

Anchorage Republican, chair of LB&A, has already held LNG 101 to review for members, staff, public, where state is with project

Steve Quinn

For Petroleum News

House Rep. Mike Hawker is back in two familiar seats: that on House Resources and as chair for the Legislative Budget & Audit Committee, which is taking the lead in securing consultants for a large-diameter gas line project.

Hawker was interviewed three days prior to an announcement of the AGDC board members; names were not available at press time.

Hawker, an Anchorage Republican, brings institutional knowledge to the table, having served as a co-chair of House Finance among many other committees.

These next two years he is focused on educating the Legislature and providing as much leadership possible to help the House with discussions on a gas line project designed to reach an LNG export facility in Nikiski.

LB&A completed a primer on LNG for lawmakers who are bracing for series of bills throughout the year on the project.

Petroleum News: You’re starting LNG 101. You’ve done this kind of primer or tutorial before as LB&A chair as have your predecessors. What is your mission with this one?

Hawker: This one is a refresher course for everyone in the Legislature, everyone in the public and all of the staff around us to really remind us of what we’ve accomplished the last two years. It’s a refresher on what we did with SB 138, what the (Heads of Agreement), what the (Memorandum of Understanding) is and a lot of the analysis points we developed in the Resource committees over the last two years that really show us what the substance of the transaction is.

Petroleum News: A lot of discussion about SB 138 tends to be inclusive of HB 4. Is this the case here?

Hawker: This really isn’t about HB 4 or AGDC. This really is about the AKLNG project. Now, AGDC does have a role, of course, in the project representing the state’s interest. In this presentation, their role is really part of the whole. This is basically a two-hour presentation, a succinct presentation of where the state has been, where we are now and where we are headed.

Petroleum News: How successful have these been in the past?

Hawker: Incredibly successful. We go back four years ago when I brought up the Independent Project Analysis Institute to talk about the science of successful megaprojects. Legislators are still talking about that seminar and what they gained from it, and the perspective we got on how important it is for projects not to be schedule driven, how important it is to eliminate competing objectives at the onset of a project - critical elements that have really given the Legislature an ability to understand what we are doing here.

Petroleum News: How has it helped LB&A for the chairmanship to go from you to (predecessor Anna MacKinnon, currently LB&A vice chair) and back to you for continuity?

Hawker: As with any business enterprise, continuity of management is a good thing. It has allowed us to maintain direction.

Petroleum News: OK, let’s go back to one of your points about discussing where you are now. The Point Thomson issue seems to be off the table with the governor dropping his lawsuit. Is that a relief?

Hawker: I absolutely commend the governor for doing the right thing for dropping the Point Thomson lawsuit. It was definitely an element that really clouded the clear title to the Point Thomson resource. Clearing that title was critical to moving the project forward and I’m glad the governor saw it the same way.

Petroleum News: Did you feel when the governor testified in House Resources then left without taking questions, that was an affront to the Legislature?

Hawker: No. Not at all. I wouldn’t characterize that as testimony. Legislative testimony is when someone comes at one’s invitation, they testify and engage the committee in dialogue. What we had was the governor choosing to come and give a speech to the committee. It was very unusual in the way it was done, but it certainly was a statement on his part on how much the House Resources Committee has done on this issue. It was a very good place for him to make that announcement. We on the committee universally commend him on the decision that he made.

Petroleum News: So with that taken care of, the governor did introduce legislation setting parameters on future settlements, something he said he would do. What are your thoughts on that?

Hawker: I’m very, very pleased to see that the governor introduced the legislation without strings attached. In other words, he was willing to introduce legislation that will fare on its own, on its own merits in the legislative process and he unconditionally agreed to drop the Point Thomson lawsuit. The legislation now is just that. It’s legislation that has been proposed. It will be heard. It will be considered. It will be evaluated. The way legislation goes, it might even be amended. Who knows? But at the end of the day, that legislation will go forward with a full and fair hearing. I certainly hope if it comes out of here, it will do something good for the state. That legislation, as it’s introduced, really is limited to oil and gas issues. We also need to look at it more globally. If we are going to impose that sort of a framework on decision-making, we need to look at some of the other resources, too, like mining and fish.

Petroleum News: Speaking of your committee, you’ve got quite a balance in the makeup of the committee. You’ve got members with institutional knowledge dating back to the Stranded Gas Act days and you’ve got younger people in place to run the committee. Speak to that makeup and balance.

Hawker: It’s a really great balance. Look at the co-chairs. You’ve got Rep. (Dave) Talerico who is a freshman and spent his life in resource development extractive industries. He is someone who understands all the principles involved here. Then you’ve got Rep. (Bennie) Nageak, born and raised in ANWR now representing the North Slope Borough, one of the greatest stakeholders in the develop of our North Slope gas resource.

Then you look across the table at some of the older hands on that committee who have had a lot of experience. We bring a perspective of the whole discussion that’s built on years of experience on these matters.

Petroleum News: So how do you think that balance will help, say during a special session?

Hawker: Just like any committee with a strong, knowledgeable committee with good strong chairs who know how to lead and manage the committee process always results in a better outcome.

Petroleum News: The AGDC board is still missing three board members. It’s been over a month since the governor removed these people. Are you concerned?

Hawker: Fortunately, at this exact moment, there are no decisions facing the AGDC board that require a super majority vote, and really where things set overall with the development with AKLNG and AGDC’s role in that, there are not too many significant issues at all facing that board. So it is not mission critical to replacing those members.

That’s just talking academically. Substantively, it is of great concern to most of us that we have removed some tremendous business minds, individuals who were on that board and brought a tremendous wealth of knowledge to the process. Now that the administration is choosing to replace them, I certainly hope they are replaced with people of the same technical and intellectual caliber, the same skills in the development of a huge gas line project and that we don’t fill those positions with political appointees.

Petroleum News: When do you see it as mission critical getting these people named to the board? Or at the very least should they be appointed so that there is time for a confirmation hearing and a vote in April?

Hawker: Instead of thinking when it’s mission critical, because there is a vote to be taken, I think in good faith, the governor needs to appoint board members in time for the Legislature - in time for them to act for their confirmation. So yes, that is absolutely the time for those appointments to be made.

Petroleum News: So if there is no confirmation vote, will that delay anything?

Hawker: The change of administrations, and the change of personnel at all levels and the time it’s taking this administration to feel out the project that is under way, and vice versa, for those players in our partner companies to get comfortable with this administration, has definitely caused a delay of some indeterminable amount. So yes, the transition in administrations has definitely resulted in delay. Is it a fatal delay? No. Certainly not.

If everybody wants to get back to the table, keep working and move forward, I think we can be on schedule to meet a 2016 FEED decision. That doesn’t mean we may not have some delay in some of the other interim benchmarks that we need to accomplish. Those dates might slip a bit. I think there is a fairly universal sense for that 2016 FEED deadline.

Petroleum News: With projects that have such long timelines, dealing with administration changes is inevitable. Maybe this one caught many by surprise, but these changes do get factored into the timeline, don’t they?

Hawker: Certainly. I think it concerned many of us when we evaluated the campaign rhetoric we had been hearing from the incoming administration that we really didn’t know what to expect. Again, the administration has appointed some people who spent a lot of time looking at this. I certainly hope and do believe they are getting a lot more comfortable once they understand how this project was structured, how it has been developed and where it was going, that a lot of their public concerns are being assuaged with the better knowledge they are gaining.

Petroleum News: Is there anything at this point that you would like to know from the governor as far as his plan?

Hawker: I’d like to see some directors at AGDC so we can see how he really intends to run that organization. We have a very significant decision coming from the administration regarding keeping the project moving forward. That’s sometime within the next two to three months we need to get a very clear commitment from the administration that we will in fact be willing to take our gas as royalty in kind, which is a cornerstone to moving this project forward.

Petroleum News: What about getting legislation on municipal property tax or payment in lieu of taxes?

Hawker: You’re talking about the workings of the MAG group with the communities in developing concepts and bringing them back to us, and propose some sort of PILT language for the Legislature to evaluate. That’s another one of the agreements that needs to be brought forward - soon. We originally intended to be dealing with that in the legislative session.

Again, that is one of those things with the deadline. If some of this work slips, but not too much, it’s something we can easily recover from and keep on track with the larger goal of making our FEED decision.

Petroleum News: How important is this timeline that we are faced with?

Hawker: We really need to keep our eye on the prize. Our prizes are these major benchmarks. That’s the FEED decision in 2016 and then reaching the final investment decision a year or so later.

The decisions on the minor benchmarks on the way to the major benchmarks are again mission critical tasks, but their timing is a little less critical in keeping the project itself on track, as it is making sure they get done on time to meet those major benchmarks. That’s not to say that we can let them slide. If you let them slide too far, pretty soon the major benchmarks are forced to slide. What we don’t want to do is lose our major benchmarks.

That would be a time for us to reconsider where we are going. Time is money, and we certainly have a window of opportunity that works and we don’t want to miss it this time around. Likewise one of the first premises you learn in megaproject science is that schedule driven projects are much more likely to fail than projects that are outcome driven. We have to make sure that projects are outcome driven, not schedule driven.

Petroleum News: If you don’t want to be schedule driven, then why does the special session in October seem to be critical, at least judging from discussions around the Capitol, it is?

Hawker: The special session in October is one of those minor benchmarks along the way. Does it occur in October? Does it occur in November? Does it occur in December? There is some latitude to work that one out.

Petroleum News: What gives you optimism that you are still on track and that this creation of a pipeline within a pipeline still has promise?

Hawker: My greatest cause for optimism is that all of the aligned parties are still at the table and working together: the producer players, TransCanada and the state of Alaska are all still at the table working together. It’s one of those situations where actions speak louder than words. The action is everyone is still working together at this time is the greatest statement of continued progress.

Petroleum News: As the governor builds his team, exclusive of the AGDC board, what would you like to hear from these people?

Hawker: What we need to hear from the governor’s appointees, inside his cabinet and inside his regulatory agencies, are that they see the value of what we have accomplished. They understand that it is on the right track - despite some of their earlier hesitation and their public condemnation of our progress that they do see it as a way forward.

Petroleum News: As the project moves forward, is the state equipped to market its own gas?

Hawker: Today the state is not equipped to market its own gas. That is an internal ability that we need to develop over time as this project moves forward. It’s not anything specific to the previous administration or this administration. We needed to move this project forward in its proper sequence. Part of that sequencing was to develop the internal resources needed to do gas marketing. Along the way there were decisions that had to be made about how much we rely on outsourcing that and how much we develop as in-house capacity. That process and all those decisions were under way in the previous administration and are under way in this administration.

Petroleum News: Fast forward to the end of 2015. Where would you like to see the state with the gas line project?

Hawker: I would like to see us having completed a special session where the Legislature has been presented all of the key agreements, where we have approved those key agreements and we as a state are ready to make a very big financial decision, and that’s entering the FEED process.

Petroleum News: Given the times of austerity, can we afford to do this?

Hawker: We can’t afford not to do this. Gas revenues are a critical supplement to our declining oil revenues as well as an essential resource to get to the people of Alaska who are facing incredible energy costs in the Interior.

The budget question really gets to the recurring operating budget. What level of government service do people expect? We also have to be looking very strategically at how we are going to be diversifying our future revenues.

That’s exactly what a gas project is. It’s diversifying our future revenues for a long-term, multibillion dollar source of new revenues into the treasury. This is exactly why I wrote HB 125 a few years ago that requires 10 year forward financial planning. It’s so the administration and the Legislature look at how are we going to get from here to there with the capital we have available, the obligations we have to meet and the projects we desire to achieve.

Petroleum News: As you think back 12 to 14 years and the debates - some underscored with rancor among the various parties - and all the discussion on advancing a gas line, how would you summarize or review this?

Hawker: Over the course of the past 12 years, the state and the Legislature and the administration have learned from our mistakes.

We learned from the Stranded Gas Development Act that granting the sole negotiating authority - which was done by statute passed under the Tony Knowles’ administration - to an administration was not going to work.

We learned from AGIA that dictating the outcomes of the gas line negotiations was not going to work.

What made the difference was when industry and the state created a concept called a pipe within a pipe. That current design has the state owning a quarter of the pipe, the three major players own a quarter of the pipe, and those quarters are each proportionate to our throughput in the pipe.

Industry can do whatever it wants with its gas going down that pipe and look out for the interest of its shareholders. The state of Alaska by holding a quarter of the pipe and owning a quarter of the resource, whether it be using it in-state, export it, or do our best to develop value-added industries.

That made all the difference in the world when it was no longer the state dictating commercial terms to corporate players who didn’t share those same objectives.

That single event - the creation of that concept - is what unlocked that entire ability for this dialogue to move forward to where it is today: without question the closest we have ever come to a viable gas line project and one I truly believe can and will succeed if we do not inject politics into what needs to be good, commonsense business decisions.