Chenault seeks LNG progress, not regress

House Speaker’s concerns: lack of movement under SB 138, communication from administration, and clarity on special session items

STEVE QUINN

For Petroleum News

House Speaker Mike Chenault says he’s ready to come back to Juneau for a special session addressing two developments on the state’s pursuit of a natural gas pipeline and an LNG export facility. But the Nikiski Republican adds that he remains in the dark on Gov. Bill Walker’s plans, such as how he plans to implement a controversial natural gas reserves tax.

Chenault says he remains concerned about the overall communication from the administration to the Legislature and hopes the special session can free up some clogged channels.

Chenault offered his thoughts to Petroleum News on what lies ahead with the special session as well as the coming regular session.

Petroleum News: Let’s start with your overarching view of things with AKLNG as we approach the special session in two weeks. Is it the status of things? Is it the communication with the governor?

Chenault: From what I see and what I hear and folks that I talk to, what I see on the project is not a lot. It seems there’s a lot of talking but very few details are being worked out. The last thing that was brought out was the PILT (payment in lieu of taxes). It seems like they kind of have an agreement but all the details have to be worked out on it. They figured a number but now they have to figure out how it’s going to be paid out to communities across the state that are affected by this project. So the devil will be in those details.

It seems like there are other things that need to be worked out. We’ve got the RIK (royalty in kind) versus RIV (royalty in value) problem and they need to figure out what we are going to do there. We are waiting on DNR to do that. The PILT is not going to be available for special session.

We’ve finally received the Black & Veatch paper. I haven’t gone over that with a fine tooth comb yet. That is going to bring up a number of questions as to whether or not we should buy out TransCanada. If we do, what we need to know - and I’ve explained this to the governor before - we need to know what’s the risk and what’s the reward. What affect is it going to have on Alaska? If we take a bigger share of the project, how are we doing to finance it?

Then we’ve got this reserves tax thrown on us and we don’t know what that looks like yet. The governor says he’ll have something for us I’ll assume in the next week or so. We need that. It’s what I’ve explained to the governor and I’ve explained to his staff what the Legislature would like to see as soon as possible.

To take and go to Juneau for a 30-day special session and not get the information that we need not only for ourselves to look through, but also our consultants, that’s just going to make the session last long and cost more money.

Petroleum News: So on the TransCanada buyout, what concerns do you have right now? You guys knew this was coming.

Chenault: No, it’s not new, but it’s up to the administration to put forward a procedure or a plan to buy out TransCanada. We need to know what those numbers are going to be. They continue to fluctuate from a low I’ve heard of $77 million and a high of $108 million.

Back during special session, the administration approached the Legislature about putting $108 million into an account so that they could buy out TransCanada. Without any pertinent information to make a decision, the Legislature told the administration we were not going to do that. We would need more information. There are a number of issues and Black & Veatch kind of brings some of it out: what is the cost going to be; what are the benefits; if we buy out TransCanada, how are we and where are we going to come up with funds moving toward FEED?

Petroleum News: Is 30 days enough for that?

Chenault: I don’t know. I think that it is. If we get the information early that we will be able to check with our consultants, and have meetings we need to have with the administration. Whether it is or isn’t a good investment for Alaska, we’ll have the time to dig down through that and make that determination.

Petroleum News: Do you see that as a two-committee bill?

Chenault: I haven’t seen a bill yet. At first blush, it would probably be a single-committee bill. It will probably go straight to Finance. But then it depends on what’s in that bill will determine whether it goes to a couple of committees. At first blush in talking about it, it will probably go to just Finance.

Petroleum News: With the reserves tax, we’ve been down this road before in 2006. What are your thoughts on this?

Chenault: I think in 2006, the voters voted overwhelming two-to-one to not enact a reserves tax. I’ve always felt to try to force people into a project, especially one of this magnitude, is just not the way to go. I keep hearing this thing may be different, I don’t know. I’ve always felt that we need to work with our partners. Let’s all get in a room, fight it out, and at the end of the day, everyone will walk out of that room unhappy, but they will go forward with it. Maybe we need to make sure we understand every aspect of this project at the beginning so that at the end of the project we are not throwing dollars at it to finish it because there is something there we didn’t think would happen, something there that transpired that we were not ready for. We need to understand this whole project from beginning to the end. That’s the cheapest way and the best way to get this project done on time and hopefully on budget.

Petroleum News: During regular session, you and other members of the Legislature were concerned about how well the governor was communicating his plan with the Legislature, but you were willing to give him the benefit of the doubt for being new on the job. That concern doesn’t seem to have eased. What’s going on?

Chenault: Well things keep changing, but it’s not things we hear about. At one point, we say we want a 42-inch line versus a 48-inch line. Back during session, the governor proposed spending upwards of $187 million on ASAP to make it a competing project with AKLNG. That kind of went away. Then we want to own 51 percent. Then that kind of went away. Now it’s we want a 48-inch line instead of 42. From what I see there, that’s going to cost a six-month or one-year delay. I don’t know what that’s going to cost us to make that determination. It has the potential to delay the project. Now they are saying they haven’t done the things they said they would do, so we are going to try to institute a reserves tax.

I don’t think that you force people on a project like this. I don’t think you get a completed project if you try to force. I think we need to work and make sure our interests are taken care of at the table. We should get some of the things that we want. We are not going to get everything, but neither is anyone else. Our partners, ConocoPhillips, BP and Exxon are not going to get everything that they want. And they shouldn’t get everything that they want. I just think it sends the wrong message that we keep changing our mind. That causes indecision and indecision causes concerns. Right now with the price of oil being where it’s at they are still spending millions of dollars in this state trying to push this project forward where other projects are being shelved around the world.

Petroleum News: From a communications standpoint what do you think would help the Legislature advance the project and move forward?

Chenault: I don’t know right now. I’m going to meet with DNR folks next week. Let’s figure out the plan we are going to go forward with and try to get some things done. The state or the administration will complain that our partners haven’t got anything done, that they haven’t got a gas balancing agreement, some other issues as well. But I can also look that under SB 138 we were supposed to have PILT done, we were supposed to have the RIK/RIV issue resolved on which direction we wanted to go as a state.

We’ve accomplished absolutely nothing. None of those agreements are put into place right now. The administration will complain our partners haven’t done anything and we don’t want to put all of our pieces on the table, and I can certainly kind of agree with that. But somebody has got to make the first move. Whether that’s us or one of our partners, I don’t know, but if we want this project to happen we’ve got to start getting some of these pieces of the table. Maybe that will allow other pieces to get done.

Petroleum News: Certainly with a new administration there is going to be some change so that might not surprise you, but is it the constant change that’s throwing you off?

Chenault: Previous governors have brought leadership in or brought legislators in and said OK, here is what our vision is, here is the direction we are going, or here is why we are doing this. The administration has some smart folks, people in DNR and AGDC. I’m very comfortable with those folks.

But it seems like maybe sometimes the left hand doesn’t know what the right hand is doing.

Petroleum News: The state is also on its third negotiator in place. Rigdon Boykin. How do you feel about his being in place - to the tune of $120,000 a month?

Chenault: You know I’ve spoken to Rigdon numerous times. I think he’s a very smart guy. He’s the one who has said he’s never negotiated a successful LNG project, but that doesn’t mean he can’t do it. I think we’ve got some very capable people on the state side, whether that’s Rigdon, or Dan Fauske or Mark Myers. Who is going to get to put the stamp of approval on that? The governor? The AG? We don’t know who these guys are dealing with because we aren’t on that level. I think we can get it done, but we’ve got to go in earnestly and negotiate deals we need and be able get a contract with our partners that if they know there is a deal made they know it’s going to be upheld.

Petroleum News: Does it concern you at all that he’s an outside consultant - against to the tune of $120,000 a month - rather than have this lead negotiator be closer to home?

Chenault: Not that there aren’t any Alaskans who can because I’m sure that there are, but there are people who are good at their job who don’t necessarily live in Alaska. There are times where there is an Alaskan who should do the job, but then there are times when you don’t have someone who is readily available to be able to pick up an issue on a moment’s notice and get to the end result. You know maybe it’s sour grapes but we let three people go (from AGDC) that had roughly 60 years in gas pipelines and LNG projects we were getting for basically nothing and replaced them with a couple of guys we are paying quite a bit of money.

Petroleum News: The prospects of going to the voters for a change in the constitution to enable the state to lock in taxes for the long term was floated earlier this summer, but it seems to have faded. Has it been shelved?

Chenault: I don’t see it being shelved. I think there are some things that we need before we go to the voters and ask whether Alaska should provide fiscal certainty on gas taxes when we don’t have any contracts before us of any sort. I don’t think that makes for good legislation. I mean to go to the public and ask for a blanket agreement that hey you guys give us a blanket authority to do this and we’ll get back to you and tell you what we finally negotiated. I don’t think that settles well with Alaskans. And I know it doesn’t with the Legislature. And I don’t think it does with the governor also. I don’t think he wants to come forward and ask for a constitutional amendment without having at least some of the pieces of the puzzle on his plate.

Petroleum News: So in two weeks, you’ll be in special session. What would you like to accomplish at the very least during that time?

Chenault: I would like to have made the determination whether or not we move forward with the buyout of TransCanada or not. I have no idea what the governor is going to propose for a reserves tax. I have my own ideas but that’s about it.

We’ll look at it and we’ll look at what the governor proposes and we’ll make our decisions based on what we get from the administration and from our consultants. Then we’ll decide whether or not we’ll go forward with either of the two issues the governor has on the call.

Petroleum News: You mentioned earlier that going from a 42-inch line to a 48-inch line could delay the project six months. Is six months really a lot if a 48-inch line is the way to go?

Chenault: That’s not my idea. That’s the administration’s idea. Is six months or even a year going to make or break this project, you know I don’t think so. But that goes back to who is going to pay for this. If the state is going to pay for it, I’ll assume it will be in the millions to make this determination, but as far as the time goes we want to extend time to determine whether 48 inch is the right size pipe, yet we aren’t willing to extend the pre-FEED because we are concerned our partners are taking too long on the pre-FEED so we want to institute a reserves tax.

Like I said earlier, if I’m paying for it, I would rather spend more time at the beginning to make sure I understand the whole project so that at the end, we are not throwing money at a problem that we didn’t foresee.

Because that’s where it’s going to cost you: It’s not going to cost you at the beginning of the project. It’s going to cost you at the end to finish it. And I think we need to make sure that we absolutely do know that we know what the costs are, what are the things that could go wrong, might go wrong, and what kind of delays we might have. There are lots of things that go into projects of this magnitude. I would rather spend a little extra time at the beginning to make sure we got it right before we push the go button.

Petroleum News: The governor also recently took a trip to Japan to tout the state’s resources. What are your thoughts on that? Should any of the Legislature have gone?

Chenault: Well, one no one was invited from the Legislature. I see no reason why the governor should not have gone. I see no reason why the administration shouldn’t go there and open up venues for corporations buying our gas; I think that is a good thing. While it may not have produced anything tangible to speak of, that’s how you build relationships, especially with a project of this magnitude. You are talking long-term commitments, 30-year commitments and you are going to want to know who your partners are, not only the ones who are helping you build it, but the ones who are buying the commodity. I have no problem with him going over there talking to the Japanese leaders. We’ve got a 30-plus year history with ConocoPhillips. Everything I’ve ever heard was they were happy with the product that they got. I think it’s good to go over there and talk with folks and get a better feel of what the need is for the product we are going to sell.

I’m sure they were happy to see us there and happy to hear about this project. It gives them one more supplier if this project goes through, one more supplier to not only help out the folks in Japan but also help drive down the costs.

Petroleum News: Looking ahead to next regular session, there is certain to be a bill or two revisiting the state’s tax credit system. What are your thoughts on this? Is it the right thing to do or premature?

Chenault: It never hurts the Legislature to go back and look at something we’ve done to make sure it’s done what we intended it to do. I don’t know whether or not we’ll make any changes to it or not. Certainly with the revenue picture being where it’s at, we should examine not only that but all other programs where we are spending money.