Saturday, September 17, 2011

Alaska hire: Legislators drill into hiring practices of oil companies

Tim Bradner
Alaska Journal of Commerce

Senate President Gary Stevens, R-Kodiak, and Sen. Linda Menard, R-Wasilla, listen to testimony on resident hire in the oil industry on Alaska’s North Slope at an Alaska Senate Labor and Commerce Committee hearing Sept. 8 in Anchorage.
AP Photo/Dan Joling

State legislators held hearings in Fairbanks and Anchorage Sept. 6 and 8 to drill into hiring practices of North Slope oil producers and contractors and to listen to complaints about nonresidents working in high-paying industry jobs that should be filled by Alaska workers.

The Senate Labor and Commerce Committee, chaired by Sen. Dennis Egan, D-Juneau, held the hearings. It’s all a prelude to the 2012 legislative session, beginning next January in Juneau, when lawmakers resume work on Gov. Sean Parnell’s bill to reduce the state’s production tax on oil, which the governor says is so high that it is hampering new investment by the industry.

Labor leaders and others say the state shouldn’t reduce the tax unless there are assurances that new industry investment will employ Alaskans on the North Slope.

The governor’s bill, House Bill 110, has passed the state House and is lodged in Egan’s Labor and Commerce Committee in the Senate.

Going into the hearings, Egan and other legislators were concerned about data from the state Department of Labor and Workforce Development that showed unusually high rates of nonresident hire during the summer months. Egan said that, according to the labor department data, more than half of the new-hires by North Slope companies in the third quarter of 2010 were not Alaska residents.

At the Fairbanks hearing, Kara Moriarty, deputy director of the Alaska Oil and Gas Association, told the committee that summer spikes in nonresident hiring is not unusual for several Alaska industries, including oil, which have to ramp up for summer work and find the labor market tight at that time of year, particularly for certain skills.

Sen. Joe Paskvan, D-Fairbanks, a member of the senate committee, said he has heard reports of some contractors working on the Slope that employ 100 percent nonresidents. Paskvan asked industry officials who spoke about the reports.

Claire Fitzpatrick, BP’s chief financial officer for Alaska, acknowledged there are some out-of-state contractors working temporary projects that bring their workers, all specialists, with them as teams.

Overall, BP has a strong Alaska-hire record, she said. During the past five years the company has consistently employed 80 percent Alaskans in a workforce of more than 2,000.

“We will always hire the best candidate for the job, but our preference is to hire qualified Alaskans, and our record backs this up,” Fitzpatrick said.

Bill Hurley, ConocoPhillip’s Alaska human resources manager, told the committee that his company has maintained an 87 percent to 93 percent Alaska-hire rate from 2001 to the present. Of people hired so far in 2011, some 83 percent were hired from within Alaska.

AOGA’s Moriarty said the number of out-of-state workers in the oil and gas industry has been generally consistent for the past decade. She based her conclusion on the last set of complete figures in 2009. Alaska Department of Labor tallies since 2001 show 26 percent to 31 percent of workers in the industry have been from out of state each year, she said.

However, Tim Sharp, business manager for Laborers Local 942, said it’s clear to anyone who works in Prudhoe Bay that out-of-state hire is on the rise.

AFL-CIO President Vince Beltrami told the committee he questioned statistics that had been presented on Alaska hire. Anecdotes from workers make it nearly impossible to trust the methodology or accuracy of industry claims of 75 percent or more resident-hire rates, he said.

Moriarty said the long-term employment data from the department also show that industry jobs held by residents increased at a higher rate than nonresident jobs from 2005 to 2009.

“During that five-year period, resident hire grew by 44 percent, while nonresident hire grew by 35 percent,” Moriarty told the committee.

Hiring of residents and nonresidents also move up and down in tandem in the cycles of industry activity.

“We have never seen resident hire declining and nonresident hire increasing. They always move up and down in tandem,” she said.

On the summer spike in nonresident hiring, Moriarty showed the committee labor department job data for other industries. Mining companies also hired nonresidents for more than half of their new-hires in the third quarter, she said, as did seafood processors. Data showed that construction, technical and scientific professionals, health care and even state government hired more nonresidents than residents that quarter, Moriarty said.

On Paskvan’s question about contractors with 100 percent nonresident hiring, BP’s Fitzpatrick said she is aware of one company from out-of-state with mostly nonresident workers and which specializes in facility “turnaround,” or major maintenance, projects.

These are projects where an operating plant, such as a North Slope oil and gas processing facility, is taken off-line for a few weeks in summer for major overhauls of equipment. The company Fitzpatrick spoke of travels to several states and even nations, and comes to the slope for tightly scheduled six- or eight-week jobs.

“The company brings as many as 200 highly experienced workers with it that work as a team and they move together from job to job. These are special skill-sets that are used seasonally and we just can’t find the skills in the state who can do the work in that time period,” Fitzpatrick said.

Paskvan said there are about 3,000 nonresident workers on the Slope.

“It’s hard for me to believe that these are 3,000 people who all have skills that can’t be provided by Alaskan workers,” he said.

Fitzpatrick said the abilities brought by the team include specialty engineering and technical skills that are difficult to find in Alaska.

A problem in getting a clear picture of resident and nonresident workers is that the actual resident workforce tends to be underestimated in the Department of Labor data because of the department’s method for measuring residency, which is eligibility for a permanent fund dividend.

“The Department of Labor’s methodology for calculating workforce residence is based on PFD applications and as such produces a conservative estimate of ‘resident’ employment,” AOGA’s Moriarty said. “A new resident to Alaska must reside in the state for a full calendar year before he or she is eligible to apply for a PFD. Therefore it could take someone almost two years before they are considered an Alaskan resident. Someone who actually lives in the state, owns a home and has a family but is newly arrived would be counted as nonresident for possibly two years.

“While PFD applications are a reliable indicator of residency, other data can provide another, perhaps more up-to-date measure,” Moriarty added. “For purposes of a study McDowell Group is doing for AOGA, several of our members provided detailed payroll data by place of employee residence, as indicated as the mailing address on W-2 tax forms.”

The labor department also has found this. In its 2009 “Nonresidents Working in Alaska” report, the department reported nonresident percentages for specific employers that were higher by several percentage points than the percentage of W-2 tax forms that were sent to out-of-state addresses, Moriarty said.

Also, some nonresidents become residents, Moriarty noted.

“The Department of Labor confirmed that a portion of workers classified as nonresidents actually become residents. In just the oil and gas extraction sector, among workers who were classified as nonresidents in 2008, 13.5 percent became residents in 2009,” Moriarty said.

Many appearing at the hearings said the Legislature’s concern should be to more encourage new production. John Cook, CFO of Airport Equipment Rental in Fairbanks, said lawmakers have done a good job establishing incentives for exploration, but they should do more to encourage production.

The exploration incentives have the state paying for as much as 65 percent of costs of drilling test wells, but when it comes to putting a new discovery into production, the economics often don’t look good with the state tax taking a big slice of any profits, supporters of Parnell’s bill to lower the tax argue.

Cook said the Legislature should also look for ways to ensure that more oil-support business goes to Alaska companies, which would also result in more employment for Alaska residents.

“Our resident private-sector businesses are vastly underdeveloped, and our state is ranked last in business competitiveness,” Cook said.

Employment on the North Slope is strong but “at $100 oil, our employment should be double or triple what its is now. We’re not experiencing anything like the boom in other states, like North Dakota,” he said. “Many of the jobs are also maintenance-related, which require less skills and pay less than jobs related to constructing new production facilities. Summer is busy on the Slope with maintenance, but it’s not enough to offset the slowdown in winter,” when new slope construction is done.

Another businessman speaking at the Fairbanks hearing, Karl Gohlke, of Frontier Supply, said, “We all know that if we increased production, we would not have to worry about Alaska hire.”

BP’s Fitzpatrick agreed. “We think the best way to increase the number of Alaskans working in the industry is to increase the level of oilfield activity and as such increase the number of oil field jobs,” she said.

She said BP would soon add a provision on Alaska-hire performance to criteria the company uses for judging potential new contractors or extending contracts held by companies.

Other criteria BP currently uses include a company’s safety record and cost.

One development in recent years: as the North Slope workforce ages, employees are purchasing a Lower 48 retirement home and then move their families, which is possible because of the two-week-on, two-week-off work rotation schedule many companies use on the North Slope.

Ken Hall, with Lynden Transport, told legislators that the high cost of living in Alaska — along with a schedule that alternates two weeks on, two weeks off — persuades many Alaska residents to relocate to other states once they’ve been hired.

Jim Johnsen, of Doyon Ltd., said the Fairbanks-based Alaska Native corporation that owns Doyon Drilling, a major Slope contractor, said his company also has had trouble maintaining its in-state workers, despite a hiring preference for shareholders and Alaskans.

“It’s less expensive to live Outside — it’s that simple,” he said.

AFL-CIO’s Beltrami resident hire should be the No. 1 issue in considering whether the tax structure should be changed.

“The bottom line here is jobs for Alaskans,” he said. “This should be the first question answered before going one step further in considering what at this point, I think, can only be referred to as a bill that gives our state’s oil wealth away.”

A smaller tax burden on the industry, he said, does not translate into more barrels of oil produced, but would take a slice out of the $3 billion state capital budget that has provided construction jobs throughout the state, Beltrami said.

“Any state revenues that, let’s say, are diverted out of the state coffers and back into the hands of the oil producers, kills capital budget projects, and the jobs that are associated with those.” he said.

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Republished with the permission of the Alaska Journal of Commerce. The Associated Press contributed to this article. Tim Bradner can be reached at tim.bradner@alaskajournal.com.