Neuman wants numbers run at $50-$60 oil

Incoming House Finance co-chair sees gas pipeline as priority, but also wants understanding of oil revenue at current lower prices

Steve Quinn

For Petroleum News

Rep. Mark Neuman enters his sixth term in office having been named co-chair of the House Finance Committee. It comes just as oil prices have hit five-year lows pushing slightly past $50 a barrel at a time when the state’s budget is based on $105 a barrel.

For Neuman, a Big Lake Republican, this is his third stint on the Finance Committee, his most recent term serving as vice-chair. Neuman also served as the House Resources co-chair prior to joining the Finance Committee and works as a co-chair for the in-state gas caucus.

Neuman says he hopes the in-state gas caucus resumes its role as a collaborative body that helps advance a natural gas pipeline project.

Neuman discussed his views with Petroleum News on priorities for this year.

Petroleum News: As a co-chair of the in-state gas caucus, do you foresee this group meeting this year?

Neuman: We want to start out as soon as we can in the session to make sure everybody is as knowledgeable as possible with updates from the Alaska Stand Alone Pipeline and the Alaska LNG to see where we are at. So we’ll have meetings as soon as we can. If nothing else, we’ll have them in House Finance. Either way, we’ll try to make sure we have updates from those two pipeline projects.

Petroleum News: What do you think the value has been to having an in-state gas caucus when you already have a Resources Committee and a Finance Committee that examine these issues pretty thoroughly?

Neuman: It’s nice to have a committee that’s made up of both bodies, House and Senate, Republicans and Democrats, asking questions about in-state gas. The mix of questions is different. Each body generally is looking at different aspects or if there is a piece of legislation that goes through the Senate first then to the House, or the other way. I think the mix of questions that you get is much better because of the makeup of the structure of the in-state gas caucus.

Quite frankly, we haven’t sat down just yet and put together an agenda, so I still think it’s very valuable.

Petroleum News: Now the ASAP project is somewhat on hold, at least when it comes to new spending, what does that due to the in-state line project?

Neuman: I don’t know how much on hold it is. There is a state entity managing both projects. They are still doing a lot of critical work. I don’t think they’ve missed a step There is still funding at least through this fiscal year to keep them going. There is plenty of work to do.

Petroleum News: So what value do you see with the concurrent work on the in-state line and the big line?

Neuman: Well, the extensive permitting that has to go on, and as a Legislature we need the best information we can get as soon as we can in terms of funding these projects and including them in the budget, and further evaluations. When we get to phase two, the state’s participation is vital so we need to get all the information we can get. That’s what they are working on right now, making sure we get all that information.

Petroleum News: What do you think the state can accomplish this session, even if it doesn’t come through a new bill, toward advancing a gas line?

Neuman: At this point, I’m not sure. I haven’t had recent updates from either of those projects. As far as what the Legislature can do, we’ll have to listen to requests that are put forward. If they need other operating or capital funds for those projects, we’ll have to evaluate where they are at for the feasibility of each project.

We’ll start by getting the most recent update on each project, look at the funding request then evaluate where we are going to go moving forward.

Petroleum News: So what do you see as the priority for the Legislature, at least in this first year?

Neuman: I know people mention is it more throughput or is it a gas pipeline? A gas pipeline where they develop gas and oil out of the same wells is going to have the same affect. So trying to make sure we get a gas pipeline up and running, again that will attract private investment dollars because we have long-term reliable energy. Then at the same time we are bringing more throughput out of those same wells. The unique thing about many of the wells being developed is you’re getting oil and gas out of there. I think it’s a benefit both ways, but oil is still king. We still make much more money out of oil. We are developed structurally for the state to provide a majority of its revenue stream through oil. We have to be doing both. We have to provide for an in-state gas line long-term and provide for as much oil production today for the short term.

Petroleum News: Are you optimistic that despite the low oil price issues that you face, progress can be made toward advancing a project, either line, this year?

Neuman: A gas pipeline is absolutely critical to Alaska’s future. We have to continue to develop new ways to expand and diversify our economy. A gas pipeline, I think, is critical to that, making sure we have long-term reliable energy available so that industries who want to invest in Alaska and turn Alaska’s resources into jobs, their risk assessments are going to be based on developing the infrastructure. I think that is the best way to do it to attract their capital dollars. The state doesn’t have capital dollars so we have to find ways to make sure we attract outside dollars into the state to develop our resources.

Either gas line is absolutely critical to that - and to continue lowering costs to long-term reliable energy. I’m not going to say cheap energy. I don’t think there is such a thing as cheap energy. That’s all a matter of perspective, but long-term reliable energy is critical to the future of Alaska, so yes we have to continue with these projects.

Petroleum News: Getting to your new appointment as co-chair, with this low-price environment and it being a stark change from when you adjourned, how do you approach this?

Neuman: I think the best way to approach this is look toward the future and not the past. We have a $3.5 billion deficit. How do we strategize a plan that reduces that deficit for the next five years? Is it going to be taking 20 percent for the next five years? We’ve yet to finalize a strategy of how we are going to do that. Looking to the past is the past. Looking forward into the future in how we are going to address this deficit, which will include infrastructure projects which will bring more revenue. Everything has to be on the table, both formula and non-formula programs.

There will be some dramatic reductions in state government. Trying to prepare the municipalities for that is going to be critical by being as straightforward as we can. We need to say the state does not have the money to provide for things that we have in the past. There is going to be some severe reductions.

The state has to take a position, has to prepare a budget, a fiscally responsible budget. If we don’t have the money, we can’t spend it. It will be our responsibility to reduce that budget but do it in a purposeful way so that we don’t collapse the economy at the same time.

Petroleum News: Have you had a chance to be in some meetings with the governor and if so, how did they go?

Neuman: Yes, I think the meetings went good. It’s very obvious to me that he’s new and a lot of the department heads are new. He’s trying to feel his way through the process, and get it figured out, and get his arms around this massive new job he’s got, and all the intricacies behind it. I think the most important thing here is the operating budget and how we will get a hold of that. I’ve committed personally to Gov. Walker to do all that I can to work in a cooperative fashion. I don’t believe in adversarial type of positions. The Legislature will have its opinions and the governor will have his, and that’s fine. Our difference is our strength. There is not a day that goes by when I don’t say that. That doesn’t mean we can’t be civil and work this out.

I don’t think there is enough knowledge within the administration to get into specific details, on projects or specific departments within the state operating budget. I’ve spent several hours with Pat Pitney and talked with several commissioners so far. I feel confident we will work through this. We don’t have a choice. That’s the bottom line. We don’t have a choice. The people who we work for expect us to do our job and that is to come out of this with a plan for a sustainable budget and we are going to do it.

Petroleum News: There has been some early pushback from the Legislature on some of his appointments such as Mark Myers, Mary Rutherford and Jim Whitaker, who bring philosophical differences that have been aired during previous administrations.

Neuman: Well Bill Walker was elected to be the chief executive of the state of Alaska by the people of Alaska. It’s his right to be able to select those people to his cabinet. We will work with them. Do I have concerns? I think we all probably have concerns one way or another. I think we will give them a fair chance to hear what they have to say, what their outlooks for the future are, then we’ll make some decisions.

Petroleum News: The oil tax debate seems to be laid to rest with the voters weighing in during the interim. Can this help the Legislature move forward without having it hang over their heads?

Neuman: No I don’t. I think there is always going to be a continued debate on oil taxes. There always has been. There always will be. My concern is when we did it, people who were advising us by predicting oil under very different scenarios. So the information that we received may not be as accurate as what we are seeing now. If you start punching in $50 in those calculations as opposed to $105, there is a big difference on the output and the amount of money the state has. We will have to go back and look at some of that from the $50 aspect, to make sure we have a good analysis. I already have my staff looking at it. When we look at the calculations for what the state brings in for the production taxes, for the different corporate taxes, what we are paying for credits, it makes a big, big difference if it’s $50 oil or if it’s $105 oil. So that will continue to part of the discussion.

Petroleum News: So is this review of the tax structure or is this a broader review of a greater range of prices?

Neuman: Well, right now it’s a broader review of a different range of prices. We have to have a good analysis of the state’s income. When we did SB 21 it was based on the price of oil being twice what it is. It was being predicted to continue to increase several percentages every year when we are seeing this dramatic drop. I quite frankly even, at the time, didn’t think the price of oil was going to increase. I thought we needed to be on the conservative side looking at what’s going on with the Lower 48 and Keystone. Soon you’ll have all of Canada’s oil going down the heart of America. That’s going to be hard to bring the price of oil back up, I think. We are going to have to go back and bring a full analysis again on how this all works at $50 oil. I think that’s just prudent.

Petroleum News: What about the production side? It was promoted on more production and the state is down about 4 percent on a calendar year. Is one year enough to start assessing its value?

Neuman: We are seeing a reduction in the decline in throughput. We are slowing the decline. That’s a good thing. But one year is not enough. Again, the structure at SB 21: Look at the credits. They are a big part of a lot of the new oil being developed now. Right now, I just don’t know. It’s too early in the process to predict any outcomes other than we just make sure we start punching in the $50 or $60 oil.

We have to make sure we have a good picture of the state’s income and look at how do we sit there and develop an operating budget and meet our constitutional mandates within that budget without the most accurate analysis of how much revenue we will be receiving as a state. You have to make the money before you start spending it.

Petroleum News: On to the Arctic. The U.S. will become chair of the Arctic Council. What kind of interest do you have in this and what kind of role would you like to see Alaska have?

Neuman: I was one of the original appointments to the Arctic policy commission and worked on the plan for economic development and wildlife.

As the only Arctic state in the United States, certainly I want to see Alaska take a lead role in any Arctic development. I think the biggest problem not facing just Alaska, but all states, is federal intervention. There is nothing better than local control. I think Alaska needs to make sure we have the authority and opportunities to express our goals and see Alaska’s goals going forward without federal intervention.

Petroleum News: What about infrastructure? That’s been listed as a priority for Arctic policy and development.

Neuman: Right now, it will have to be based on its own merits, the cost to the state and the value back to the state. I think there are opportunities to develop infrastructure. We looked at a lot of different ports and electrical intertie, which can carry an expansion of broadband, and how that could lower the cost of education. There is a tremendous amount of opportunity for infrastructure development in the Arctic.

Again, I think the state investing in those opportunities and then the net-back value to the state by having a more developed infrastructure, how is that going to affect more private industry investment into the state. That’s how I tend to look at these types of projects and the state’s involvement: what can the state do to attract private investment dollars.

Petroleum News: Speaking of attracting investment, I know the governor has said he would like to review how the state is incentivizing independents coming into to explore. How do you feel about that?

Neuman: Everything has got to be on the table. I feel the more companies that we can have investing in the state of Alaska, it behooves us to do that, as long as the net back is a positive to the state.

Petroleum News: Do you have any closing thoughts?

Neuman: Until we really start as a Legislature to develop a plan of attack, it’s still too early in the game to predict what we are going to do with oil and gas. We haven’t had an opportunity to sit down as a caucus, as a Legislature as a whole to develop a long-range plan with where we are going to go with $50 oil.

With the extreme stress we will have on our operating budget, we are still at the beginning of the game. Right now it’s too early in the game to have any of those discussions beyond conceptual ideas.

That’s our strength: gather the ideas that we have from some of the people who have been in the game for years but also hear new ideas from new guys coming in. We need to throw them out on the table and see what comes out in the mix.

It’s still early in the game. We have a new governor and a new cabinet. Some of us have been working on oil and gas stuff for a little while so we’ll have to get started right away.

It’s my goal as co-chair of finance to get the discussions started as soon as we can, learn what kind of revenue streams we have coming in, what our costs are to the state and go from there. First you have to paint the picture, then you have to make the decisions.