Gov. Walker calls special session on TransCanada, gas reserves tax

Alaska Gov. Bill Walker has called a special session of the Alaska Legislature for Oct. 24 to consider buying TransCanada out of its role in the Alaska LNG project and imposing a gas reserves tax.

In announcing issues for the special session the governor said, “With a $3.5 billion budget deficit, this gasline project has gone from a wish-list item to a must-have.” Walker said that under the negotiating process established by Senate Bill 138, “very little has been accomplished on the commercial agreements. It is time to make the necessary legislative changes so a single party cannot delay the production of Alaska’s natural gas resources and sway our resources.”

The governor’s proposed gas reserves tax legislation had not been released when this issue of Petroleum News went to press.

The buyout of TransCanada would require “supplemental, capital, and operating appropriations” to the departments of Natural Resources, Law, Revenue and Commerce, Community and Economic Development, as well as to the Alaska Gasline Development Corp., the governor said in the Sept. 24 executive proclamation calling the special session.

The buyout of TransCanada has been estimated at $108 million. The state would also need to fund its participation in AKLNG, something which TransCanada has provided for the gas treatment plant on the North Slope and the pipeline. The Alaska Gasline Development Corp. has funded the state’s participation in the Nikiski liquefaction plant.

Legislative response mixed

The House majority caucus called the reserves tax a “resurrection of a failed plan” to put such a tax in place, referring to a 2006 ballot measure which was defeated by voters.

House Speaker Mike Chenault, R-Nikiski, called the reaction of the House majority caucus one of shock. “This reserves tax proposal wasn’t mentioned by the governor, at all, during our meeting to discuss special session options this past Monday,” he said.

Referring to the governor’s recent trip to Asia and reports of Asian interest in Alaska LNG, Chenault asked: “If the market is there, as he said on his return, then why is there a need to take a shot at our partners?”

“What’s going so wrong in his negotiations that he has to take this unusual and confrontational step - out of the blue - and why hasn’t he been up front and straight-forward with us on this?” Chenault asked.

Sen. Cathy Giessel, R-Anchorage, chair of the Senate Resources Committee, said the Senate “is enthusiastic about moving a natural gas project forward” but said “the governor’s legislative priorities will make achieving that goal elusive.”

She called the policy discussion on whether to terminate the state’s relationship with TransCanada “timely and appropriate,” but said “proposing a reserves tax is something the administration has a tremendous burden to justify.”

The Democratic response was different.

“I like that the Governor is using our state sovereignty, as the owners of the natural gas, to negotiate from a position of strength,” Rep. Chris Tuck, D-Anchorage, House minority leader, said in a statement from the Alaska Independent Democratic Coalition. “A natural gas pipeline is vital to the future of Alaska, and we can’t afford to let any major multi-national corporation kill the project,” he said, adding that while legislators will need to consider details of the proposed reserves tax, “this may be what it takes to stop the delaying tactics that have been used for decades and move forward on a gasline project.”

In a Sept. 25 press conference the governor said the gas reserves tax was a step in leveling the playing field and said the reserves tax proposal wasn’t about taxing someone into building a gas project, but about aggressively pushing what is best for Alaska.

Walker said the state’s partners in the project - BP, ConocoPhillips and ExxonMobil - have asked for fiscal certainty. He said that from his first day in office he has asked for project certainty, and said his gas reserves tax proposal would ensure that if any producer withdrew from the project they couldn’t block the project from moving forward.

The market will determine whether the project happens - the state just has to get out into the field with this project, Walker said.

The goal of the gas reserves tax, he said, is to block anyone from blocking the Alaska LNG project.

He referred to nine LNG projects which he said ExxonMobil is considering, and said Alaska has only one project.

He said he’s asked for a project package to present to the Legislature and hasn’t received it. The only issues resolved are ones on which the state has given up something, which he said was the case with PILT, payment in lieu of taxes, where he said the state gave up about a billion dollars.

He also said some of the state’s partners have asked for fiscal certainty on oil, and said that’s unacceptable to Alaska.

Alaska has to have a gas project and can’t be blocked by someone else, Walker said. He said the gas reserves tax isn’t so much about leverage as about the state controlling its own destiny.

Mixed response from producers

ConocoPhillips said it hadn’t seen the proposed legislation and wouldn’t have a response until that was available.

BP said the proposed “gas reserves tax makes an Alaska LNG project more difficult.”

“BP wants to be part of a successful Alaska LNG project that includes the State of Alaska as an equal participant and co-investor. A gas reserves tax complicates this process and results in unintended negative consequences, such as: distraction and delays to negotiations, impacts to investment, and Alaska jobs.”

BP also said a tax targeted at any one of Alaska’s producing companies “impacts all companies and will reduce work activities on the North Slope during an already challenged time for the State.”

ExxonMobil also said it found the proposed reserves tax problematic.

“We remain on target to complete activities on the schedule set out in the 2014 heads of agreement (HOA) signed by the state of Alaska and the Alaska LNG project participants. We must all work as partners with a shared objective to progress an economic and timely project.

“Introducing a gas reserves tax undermines the efforts of all parties to progress the Alaska LNG project and puts investment in Alaska’s future at risk.”

- KRISTEN NELSON