Huggins reviews Senate work, priorities

New majority has been focused on reworking ACES, reducing rural and Interior energy costs, advancing natural gas pipeline project

Steve Quinn

For Petroleum News

Senate President Charlie Huggins has had plenty of frontline looks at oil tax and gas pipeline bills as a member of the Senate Finance Committee and chairman of the Senate Resources Committee.

This year, the Wasilla Republican has a broader view as newly elected Senate president. His majority caucus has 16 members, and has taken the lead in the oil tax debate and discussions on trucking liquefied natural gas to the state’s Interior region where energy costs are becoming increasingly prohibitive.

Priorities for this two-year legislative session have been reworking the state’s current tax system known as Alaska’s Clear and Equitable Share, pushing and developing ideas on reducing energy costs for rural regions and the Interior, and advancing a natural gas pipeline project.

Now in his 10th year in the Senate, Huggins sat down with Petroleum News just days before the Legislature was scheduled to adjourn.

Petroleum News: You’ve been on the frontlines on these issues, but now you’ve had to back off a bit as president to keep an eye on the bigger picture. With that in mind, what were your priorities for oil and gas entering this session and how would you say your team has done so far?

Huggins: I would give us probably an A. No. 1 because my vision was that we had to have a priority of what we wanted to do. We had to have a narrow focus. We had to be able to have some cohesion around that. The starting of that is always task organization. In task organizing I made those two special committees (TAPS Throughput and In-state Energy).

One of the designs of them was individuals on the committees: Anna Fairclough for example saw (the oil tax) bill all the way through Finance. That’s a good shepherd. That was by design. I never told anybody that, but that’s the way it was designed. So operationally, that was kind of our No. 1 priority.

Then the in-state energy piece (House Bill 4 natural gas pipeline and Senate Bill 23 LNG trucking) which has worked well for us. Of course tailoring the budget in a downward cycle so that we can start living within our means is part of that. All of those things have happened.

Here’s the beauty of it. In my estimation there were challenges of reinventing the culture of the Senate in Alaska. We took a number of new people — some were new to the Senate, some were new to the Legislature — and pulled them into a group. Low and behold, they have, for the most part, performed like thoroughbreds.

Petroleum News: You folks have taken a lot of heat this session for perceived conflicts of interest. How do you think they responded to that, at least the three who have taken the heat: Sens. Meyer, Giessel and Micciche?

Huggins: I cautioned our guys that there are opponents or critics who will choose to use anything they can find to get at you. And they won’t be shy about it. They will let their imagination rule. Take (Senate Finance co-chair) Kevin Meyer as an example: That guy voted for the oil tax bill (decrease) last year. Nobody even said, that guy works for ConocoPhillips last year when he did. That wasn’t even a topic in the conversation. Now it’s an issue. I think that’s very unfair. The fact that we have people who are professionals who work, understand how business works, have a family is a valuable commodity.

Everybody can’t be a retired person like myself. We’ve had lawyers in the Legislature who work for unions, recipients of vast amounts of money from unions. That’s the way our system works. I’m comfortable with the candor and the integrity of the individuals who we have in the Senate majority. You can take our press availabilities as an example. I seldom go to them. When I do, like today, I sat to the side. I wasn’t the lead person. We rotate our people so everybody gets to have their say. It’s not a shaped message from a small nucleus of people. Everybody is involved.

Petroleum News: I believe Sen. Micciche proposed a tax rate hike from what was discussed in the committee, right?

Huggins: He was following the guidance to be within the band of competitiveness. He was searching to stay within those parameters. He did a pretty good job at it. I have to admit one of the things as an individual that irritates me, when people use the words, ‘giving away.’ What we are really doing is taking less.

Petroleum News: What is the difference? Is it semantics?

Huggins: I don’t know about that. I don’t know a person who works in this building that if you told them they would have a 75 to 80 percent tax rate, they would bother to go to work. They would make more on welfare. Now clearly you have to factor in that this is a non-renewable resource. It’s a pretty high tax rate by any estimation, particularly when you overlay the cost of just doing business in the Arctic.

Petroleum News: With the oil tax bill there’s been a lot of give and take, back and forth with the tax rates, the gross revenue exclusion the competitiveness board. Is the Legislature getting anywhere?

Huggins. The target is to be within a middle band in what is better known as the competitive curve. There has been a search for that. I think we’ve done reasonably well with that. Up a little. Down a little. The beauty of it is we’ve had people with good ideas. There isn’t any one solution. Hopefully we adopt the best of multiple solutions and can push it forward. That’s why two bodies in multiple committees can really craft some pretty innovative things. On the other hand, you have to admit the product that came out of the Senate (SB 21) has just been tweaked. It’s been pretty durable. We tried to create some progressivity without having the progressive model that was in ACES — which is pretty destructive — (and it) is working so far.

Huggins: We signed a contract. I would say clearly it’s a commitment. Now when we are trying to move gas, there are a couple of things happening. The cost of moving the gas in a smaller volume is a liability. If you want to have a super robust export component, that’s restricted now. Anything you are doing, you want to have flexibility, but with the limit on the volume, it takes away the flexibility.

Petroleum News: Is HB 4 a good way to go?

Huggins: I think it’s a pretty good model. It’s been flushed out quite a little bit. I’m disappointed to see a community like Valdez openly campaign against it. That actually motivates me more to support it. I’ve always been an in-state gas supporter, The sad part of what I said is that I believe HB 4 is mechanically set up for a larger pipeline to anyplace as well as it would for just an in-state gas line that went down to Southcentral. The good news is Fairbanks wins in any event. I’m proud to be able to help them out. There are good people down there. Quite frankly, Fairbanks supported this new Senate structure and we’ve tried to let people know that with our actions.

Petroleum News: Did HB 4 leave Senate Resources too quickly with just a few hearings?

No. We have been looking at it quite a long time and (Senate Resources Chair) Cathy Giessel is a very bright lady. I didn’t have any problem with it at all. You figure HB 4 spent nearly 70 days in the House and got flushed out quite a bit. Now it’s up to the Finance Committee.

Petroleum News: Let’s move to the Arctic. What are your thoughts on the delays?

Huggins: Things have to go right for Shell from here on out because they’ve already burned up all their bad luck. It shows how risky the environment we are talking about is and the logistics of getting hardware and people to the point of exploration and development.

Let’s take the case of Shell. They were allowed to drill holes but not holes that will get you the gas or oil. Ultimately when you have to evacuate a significant amount of equipment, that’s a long logistical train. It’s costly and it’s time consuming.

The good news is when the Kulluk got in a squeeze, there were a number of organizations that rallied resources to help. Everything from aircraft to boats to personnel. It does your heart good. There is something American about that.

On the other hand just like any other trail to some place, kind of like the Oregon Trail or the Pony Express, things start to get developed.

I think Unalaska is going to be a significant gainer out of this. LNG and other resources are going to be a commodity of reduced costs because of their strategic location.

The scary part is if Shell hit oil today, it would be 15 years before the first oil went through the pipeline. From Alaska’s perspective, making the assumption that it’s all going to go through a pipeline might not be a good one. The maritime delivery of that product appears to become more and more feasible every year. That can’t be lost on anyone. The Russians have already committed to year-round shipping lanes. I believe they are building 11 or 12 ice-breakers to make that happen. They think it can be done. I assume it can.

Petroleum News: Do you think that’s one reason why Exxon sees Russia as a viable partner?

Huggins: I’m sure it is. My assumption, knowing Exxon, is that was part of the negotiated process. Exxon has to be able to move things year-round with maritime assets and Russia is committed to that, so off they went.

Petroleum News: In wrap up and closing with oil taxes, what would happen if an oil tax bill did not get passed this year?

Huggins: It would not bode well for the state of Alaska. No. 1, as you know, next year is an election year. That has its own set of problems. You’ll have a (U.S.) Senate race and you’ll have a gubernatorial race in addition just the wear and tear and the strife and division you get over oil taxes. It’s not like this is the first year we’ve been pursuing this. It would be multiple years before anybody has the energy to bring it back up. It’s too hypothetical. It’s not going to happen. It’s going to get passed.

Petroleum News: What else is at stake?

Huggins: Investment. Part of our conversation and action is we recognize there is a decline curve and we see there is a way to abate that decline curve and that starts with SB 21. When we started out with SB 21, it was laid out on the calendar, moved out through different committees, and for the most part, give or take three or four days, we met all of those milestones. That’s just part of good cohesion, a light vision and a spirit of let’s get it done. Remember what becomes key in that sort of thing is the people who shepherd this along. There is continued and growing ownership.

Petroleum News: There are no guarantees for new production, but what do you think will happen with oil tax reform?

Huggins: First of all, ACES is a perfect example of what can happen with change. We had significant credits out there that on an annual basis could be a billion dollars. But no new production. You can make a case that companies were smart enough to realize the infrastructure had to be renewed, that the profit to be gained off an effort for exploration and development wasn’t there, so they prioritized by redoing the infrastructure. With the decline curve like it was, we are the guys that are at risk. We have a significant amount of oil in the ground. Some of it is going to take technology to catch us up. That will happen.

It’s kind of like Point Thomson. People talk about Exxon sat on it for 30 years. Well for 30 years, Point Thomson was undoable because of technology. Exxon, did they just sit on it for 30 years? I don’t know. I firmly believe they did not have the technology. It did not exist within the industry.

What we are really doing here is we’ve made the assumption that offshore oil is going to happen and, oh by the way, some of it is going to come through our pipeline.

So we are bridging to two things: offshore oil or OCS, and heavy oil. With heavy oil, the question is what are the economics going to be and what the profit margin is going to be. We’re developing the economic bridge that gets us to that era which could be a significant boost in our production level.