Tuck seeks resolution on TransCanada

Anchorage Democrat says getting firm decision on whether TransCanada is be a AKLNG partner should be priority for special session

STEVE QUINN

For Petroleum News

House Minority Leader Chris Tuck says there is work to be done to advance a natural gas pipeline and export facility project and a special session can address some immediate items such as whether the state should cut ties with TransCanada - to the tune of $100 million plus - or remain partners. Tuck says the more divisive topic will be Gov. Bill Walker’s push to implement a natural gas reserves tax, something voters solidly rejected in 2006. The Anchorage Democrat shared his thoughts on the upcoming session and recent news of Shell’s withdrawal.

Petroleum News: Let’s start with Shell’s announcement they are withdrawing from Arctic exploration. What’s reaction to that?

Tuck: It’s unfortunate that the well did not prove to be financially beneficial to them at this moment. It’s also unfortunate that they were only able to do one well. It was a huge investment off the shores of Alaska. I hope that down the road we will be able to have discoveries out there, more investment out there, but at the same time we will have some sort of revenue sharing component with the federal government so Alaska can start benefitting from some of that offshore drilling off of our coasts.

Petroleum News: Do you think this is a delay from the industry or do you think we’ve seen the last of any exploration?

Tuck: You know I really don’t know. I don’t know if any of that information from that well is going to be shared. It didn’t say they didn’t find anything. It said the well wasn’t commercially viable. I don’t know if Shell pulling out is a sign for other leaders in the industry to hold back or if the opposite is true. Maybe it’s not good for Shell’s portfolio, but maybe it’s good for somebody else’s portfolio. I really don’t know, but I hope the latter is true.

Petroleum News: In less than a month you’ll be down in Juneau for a special session. One item that surprised people was the discussion on a natural gas reserves tax.

Tuck: That was a little bit of a surprise coming from the governor’s office. There are a lot of people upset that he didn’t mention it beforehand, but we do have 30 days before the session starts. One of the reasons he may be introducing this is his frustration with the delays. I think it’s a negotiation tool with big industry who just delays and delays. They know the fiscal situation we are in. By delaying, it’s a strong negotiations tool. This may end up helping take the delay factor out of it. One of the good things about a gas reserves tax is that stalling will no longer be permissible. If they are going to lock up our resources, they will be penalized for it.

Petroleum News: What would you like to see accomplished this special session?

Tuck: A couple of things I would like to see is that the governor has sealed a deal somewhat with markets, knowing that we have a place to send our gas. I would like to know clear terms and conditions of the partnership arrangement we are going to have, from gas treatment plant to the gas pipeline to LNG to the marketing and shipping our gas.

I tend to agree with the governor at this point on buying out TransCanada so that Alaska has more of the share of the pipeline. I would like to see our negotiation going toward where Alaska owns 100 percent of the pipeline and let the other three producers take control of the gas treatment plant, the LNG plant at tidewater and marketing and shipping out gas. That would be the lowest risk and maintain our sovereignty.

There are some legal questions and constitutional questions in going into partnerships with the three majors on where our sovereignty would lie. Unfortunately, when the bill was passed (SB 138) through the House and Senate, it never got a judiciary referral in either the House or the Senate. It sounds like there are some legal questions that have to be answered. Governor Walker is taking what has been given to him from the previous administration and I believe he’s doing what’s best. Hopefully we’ll get a presentation to find out where we are with these negotiations. Unfortunately, I’m not a part of it. We’ll have to rely on the governor’s passion and expertise in getting a deal.

Petroleum News: Now the governor has put this in the hands of a new negotiator. Rigdon Boykin. How do you feel about a third-party negotiator?

Tuck: You know I come from a negotiator’s background and represent a diverse group of employees from all walks of life here in Alaska. Sometimes a good, skilled negotiator can really clarify things and help things out. But having a skilled negotiator isn’t everything.

You have to have other elements of bargaining strength and one of those bargaining strengths that Alaska has its sovereignty. Alaska does need to negotiate from a position of strength. One thing that would make it successful is having a clear understanding of what the kill point is. What we will not accept for terms and conditions on getting the mega project off the ground.

When we took the mega project class in 2011, that’s one of the things the instructor spoke of: having a kill point, making your objectives very clear. So whether or not Rigdon is doing that, I would think that as a professional negotiator, he is doing that. I don’t have a problem with having a professional negotiator there, because the ultimate decision will be based on information we get out of those negotiations and it’s the Legislature that makes the final decision.

Petroleum News: Let’s get back to TransCanada for a second. What tells you a buyout is the right decision?

Tuck: I’m not sure yet. I’m going to be listening about it. TransCanada is mostly financing Alaska’s interest in the pipeline. That’s the way many people see TransCanada, as a banking institution for us. I am concerned of having such a small ownership of the pipeline. The pipeline, in my opinion, carries the least risk of all the four components to get our natural gas to market. If anything we should own more of the pipeline and less of the other elements. So I do have a concern about us being such a small owner. If we get a lot of information and the right information, then maybe we should do it. I’m going to listen to the pros and cons. I would like Alaska to have more ownership, not less ownership.

Petroleum News: Do you have any concerns about the progress of the project?

Tuck: Being in the dark, not knowing what’s going on in negotiations. One thing that I think is very clear: The longer that we wait the tougher that it’s going to be. We need to take advantage of momentum. I want to make sure we have a minimal acceptance of a rate of return. I want to make sure that we are limiting our liability as much as possible. I want to make sure it’s safe. I want to make sure we have Alaska hire. There are some concerns that I have. I don’t know what’s being talked about and what’s not being talked about. Those are some of the conditions that I’ll be looking at, whether I approve or disapprove of any type of agreement.

Petroleum News: Do you have any kind of timetable where you’d like to see certain things accomplished?

Tuck: The first question we have to answer is whether or not we move forward with TransCanada being a partner with us on the pipeline ownership. The cost goes way up after Dec. 31. That’s one of the first questions we have to ask. I hope that all four interests are actually having productive discussions. I know from taking that mega project class that capital cost is considerably more important than it is the time required to execute the project. So I know from when we went to that class when people pushed a schedule ahead of what it should have been, the schedule slip isn’t as important as it is maintaining costs. So if it takes us a little bit longer to do things right, I’m OK with that because that is the biggest root cause for mega project failures. So when you look at loss of production, that’s about 10 percent of failures. When you look at an increase of capital costs that’s about 25 percent.

When you push a schedule, oftentimes safety standards are neglected; oftentimes, oftentimes your costs are neglected so I’d rather take my time and do it right. Schedules are really independent and determined independently of what needs to be done. So we need to do that first: determine what needs to be done and do it right. It’s based on data, not based on wishes. Do I wish that we had a project going now, yes I do. But that may not necessarily be best. I’d rather base our schedule on data, not on wishes.

Petroleum News: Let’s talk about something that will come up next session and is already being discussed with the working group on the Senate side and that’s tax credits.

Tuck: Right now we have formulas written in statute that would have limited us to $91 million in tax credits this year. But whether it’s $91 million or $700 million, the language that’s written in our budget says that if the money is not enough that’s been appropriated, it automatically comes out of the general fund. So you might as well budget it for only $1 because it doesn’t matter. Whatever comes in we are going to be paying out. And so we have written in statute, that formula to prevent the state from going upside down or going under when such as the situation we are in right now, the price of oil drops.

I know the majorities on both the House and the Senate did not want to bracket ourselves down to that $91 million. It’s true that we would be paying it anyway, but it would be only a slight delay in making the payments. That’s to cushion us for when our budget situation can’t afford it. It’s good to see that the governor did veto $200 million, but the language does exist that if we go over that $91 million, it comes out of the general fund.

Petroleum News: On the vetoes and the prospects of it happening again, what do you tell companies who often go to the banks and using this credit in their presentation seeking financing?

Tuck: It’s money that they are going to be able to receive, but it’s written in statute. I would think that anyone who has an accounting department and looks at the tax credits as part of the portfolio when going to the bank is going to realize those limitations are already written in statute. So the fact that we are going above and beyond that is a benefit and something they are not relying on currently.

Petroleum News: So you’re saying the onus is on the companies to understand the statutes on the tax credits?

Tuck: I would say so. Anyone that’s going into business should understand state law.

Petroleum News: So as long as we are still talking about the vetoes, how do you keep this from becoming a system where you’re just moving money around and delaying payments that could mount?

Tuck: I don’t have the exact wording in front of me, but the statute says that the department shall determine how to pay it out if the full appropriation isn’t there and the way the department has been doing it is on a first come, first serve basis. So those who did not make it in a given year will be the first ones in a next year. It may not be much of a delay for it.

Petroleum News: The discussion will resume next session. Are you committed to changes or are you committed to hearing what the administration has to say and whether changes should be made?

Tuck: I’m committed to some changes. One thing we want to make sure is we want to make sure of a couple things that need to happen. We need to make sure there is some transparency that we know for every dollar we give up, what we are getting for that. I think that needs to be in writing, information that we are getting.

I think that we need to make sure there is not just an across the board deduction or credit. It needs to lead to something. I’m a big proponent of tax credits toward exploration because we hope it goes into development, then production, but to give tax credits on some of the production without any proof there is new oil, that is still questionable in my mind. We have to better define what new oil is. I know the (Parnell) administration had problems with that and they kicked it over to the industry, but we need to have clear lines with these tax credits. I’m not opposed to tax credits. I just want to make sure what we invest in is the best bang for our buck.

We’ve got to look at a few principles. We want new oil into the pipeline. There has to be production before we have reduction when it comes to production tax credits. When it comes to exploration, we have to make sure we don’t break the bank at the same time. We have to protect Alaska’s economy. The main ideas are: new fields; additional oil from existing fields; and making sure we spark development then somehow strike a balance between high prices and low prices.

Petroleum News: When you say strike a balance, there is a school of thought that any change could be punitive to those who are producing and feeding our state’s treasury. What are your thoughts on that?

Tuck: We need to set a floor. The state should not be hemorrhaging, paying out more than we were taking in. that’s what I mean by striking a balance between high and low prices. One of the ways that balance was struck was a progressivity factor; I don’t know that we’ll ever get back to that. I doubt that we will.

Petroleum News: Alaska recently had a visit from the president. People still seem to be talking about it. What’s your take on his visit?

Tuck: Well, I have concerns, as most Alaskans have concerns, I think we’ve demonstrated that we do things right here when it comes to resource development. Sure we’ve had an oil spill, but the safety measures put in place, first of all that won’t happen like that again. Second of all, even if it does happen, we have better responses to it.

If you look up at the North Slope, even if a drop of oil hits the ground, it’s got to be reported. I think we’ve been doing a very good job of demonstrating that we can do it safely. Hopefully, he left knowing that Alaskans have that good old pioneering spirit of hard work, dedication and the will to succeed, plus the responsibility of doing it right. I’m glad he’s opened up the outer continental shelf for development.

I’m glad that he’s allowing an export license to Asian markets if we happen to get our natural gas to markets there. And the Energy Department has authorized Alaska to be able to sell natural gas to non-free trade nations also. So he is expanding opportunities up here and my hope is his takeaway is that he continues to feel comfortable with that. The last thing I want him to do is to restrict our opportunities, take opportunities away from us because he believes we are the ones responsible for any of the climate change that’s taking place.

Petroleum News: Did he visit the right communities?

Tuck: Well it was important for him to understand rural Alaska a little bit. I think that Alaska represented itself very well in front of the president. I think he’s got a better understanding and a better feel about us. I’m glad the weather worked out so he could see the awesome beauty that we have.

I think it’s important for him to understand the need to invest and to continue investment in Alaska, possible a northern Coast Guard or Naval base, looking at the need for ice breakers, looking at the need for more infrastructure investment especially in rural Alaska, Kivalina and Kotzebue, seeing how people are still many ways primitive compared to the rest of the Lower 48.

I hope he also sees the challenges we have with the remoteness, so I think it’s good that he got out there. I can only imagine what he must have thought getting out of an airplane or getting out of a helicopter in some of these rural areas and seeing how far of a distance he had to travel seeing nothing in between.

You travel in the Lower 48, and you fly over the country, you see farm lands, you see cities, you see things when you pass over. Here in Alaska, you can see nothing going from one place to another. I hope that has a high impact on him.