Thursday, March 21, 2013

Fairclough: tax bill process thorough

Steve Quinn
For Petroleum News

Sen. Anna Fairclough has never backed down from a heavy workload since joining the Alaska Legislature in 2007.

As a freshman member of the House, the Eagle River Republican served on seven committees.

Now as a newly elected Senator she is the only member to serve on the TAPS Throughput, Resources and Finance committees.

That places her on the front lines of the highest profile bill this session: Gov. Sean Parnell’s oil tax reform proposal.

Before the Senate Finance Committee approved of a committee substitute and forwarded the bill to the entire Senate, Fairclough sat down with Petroleum News to discuss oil and gas issues.

Petroleum News: Having sat on all three Senate committees hearing SB 21, how do you think the process went?

Fairclough: I think it’s been very fair. It’s been methodical. It’s been slow. The chairmen of the TAPS Throughput Committee as well as the Resource Committee has tried to make sure that all perspectives were allowed at the table and that methodologies could be changed. You could ask your chairman anything you wanted. Now if you’ve chosen to remain quiet until the very end, that creates, maybe in some people’s minds, the perception of not being inclusive. But both chairmen have been wanting to hear what the general public had to say about the proposed changes and secondary to the committee, what each committee member wants to talk about.

Petroleum News: What provisions of the bill right now do you think can help?

Fairclough: Well, the gross revenue exclusion is trying to provide that incentive and that connection between actual production and what Alaskans receive in a benefit in the form of a credit. So, I believe the governor’s proposal for gross revenue exclusions is trying to incorporate all that we’ve heard in the last two years, if not three years, on how we can tie production to credits.

Petroleum News: Now that’s still being worked out, the formula, and could be when it gets to the House as well.

Fairclough: Exactly. In the Senate Resource Committee, a concern was raised, would all oil eventually become gross revenue exclusion oil. In other words would all oil, production North Slope, or otherwise, start to receive that gross revenue exclusion and Alaskans would see a credit become a norm.

So again, there was conversation in the Resource Committee of whether there should be a time limit on that, and I support that. I assured the member who raised that issue that I would carry that forward in the Finance Committee. Again, when people drop amendments and don’t talk to people about those amendments, it’s hard to say yes, I support it or no I don’t until you have an opportunity to think about it for a little while.

It’s like the bill. In the TAPS Committee, I want to hear line-by-line, section-by-section and hear what the administration is proposing from their perspective. Sometimes the language doesn’t match the proposal. So when someone just lays an amendment on the table, whether it’s on the Senate floor or in a committee, and they haven’t had the courtesy to tell me why they are proposing it, versus just in the public forum, I don’t have a lot of opportunity to say that’s a good idea or no that’s not.

Petroleum News: Why did you set yourself up for TAPS, Resources and Finance; that’s quite a workload?

Fairclough: During organization, I wanted to be involved in TAPS because of the whole throughput issues, wanting to make sure that there was quality maintenance going on for the trans Alaska pipeline; wanting to make sure people took the time to understand the viscosity issue, the water issue in the line; pigging and why cleaning is important; the feeder lines; the agreements inside of who controls how much oil can be in there and who can put that oil in the pipeline. Those are all important things for Alaska. It’s our backbone. We need to ensure that backbone is functioning properly. That it allows appropriate access and that it’s maintained well.

Resources was an opportunity to learn and understand more about all different facets of our state, whether it’s fishing that might be important to medium size communities to rural communities that depends on our rivers and stream or the hunting aspects that are very controversial. As you know, when I served in the House for my first term, I replaced a member and was able to serve for one year on Resources. So this is a chance to expand that statewide perspective on issues really important to Alaskans.

House Finance works differently than Senate Finance, and I’ve always wanted to understand the economics of Alaska, to make sure Alaska has a vibrant economy so people can go to work, that there is quality education and one way to do that is make sure our fiscal picture looks healthy, so as you know for three years I’ve been trying to establish a fiscal plan. Finance would be my best opportunity to do that.

In the House, that’s the only committee you have. In the Senate, because there is a smaller group of people, you are a partner on a whole bunch of different committees. The time also affects what you can ask to serve on. Finance can meet mornings and afternoons, so I have to be careful on where those other committees position themselves. TAPS, Resources and Finance wound up that, for most of the time, I can manage all of them.

Petroleum News: Go back to TAPS for a second. You detailed a lot of what you want to be involved with and what you want to learn. What have you learned that maybe you didn’t in other hearings?

Fairclough: Well, people are saying there are more people at work on the North Slope than ever. That’s a true story, but what are they doing? People allude that it’s because of maintenance. That’s what seems to be true. There’s not a lot of well work in the form of new exploration. There is some exploration going that ACES contributed to. ACES is doing its work in some manner, in some functions. We have more, smaller explorers up on the North Slope, but they are not dropping those wells into the ground; they are not able, like the legacy fields, to produce oil in the short term. So Alaska’s best hope if we want to stem the decline, is to get that oil from the legacy fields.

So with TAPS I’m learning more. We’ve had presentations from Admiral (Tom) Barrett before on TAPS and talking about the waxing issues. In the last year, I know they thought a ball of wax was a pig coming at the station where it would have been discharged, so they have to go back and find it. That’s just new challenges that are happening because of the waxing situation. People may not know that Alyeska is currently exploring whether we can change this pipe to a cold line pipe in some way, and totally extract all water out of the oil and continue to move it without any freezing difficulties. It’s new technology to see if the trans Alaska pipeline can migrate toward new equipment, new technology. I believe they have Alaskans best interests at heart when it comes to the environment. They want to have a reliable line for the investment group, the producers who put oil into the pipeline. They are trying to be responsible to people who utilize the line and the people of Alaska.

Petroleum News: You mentioned a feature of ACES that’s working. What part of ACES is holding the state back?

Fairclough: The progressivity is a huge portion of that. I was OK with raising taxes on oil from 22.5 to 25 percent. But what was happening on the House floor and the Senate floor was what I consider a feeding frenzy. We just started turning knobs. We didn’t know what the unintended consequences were those last 24 hours. I went to the speaker (John Harris) being a freshman serving on the House and said, ‘I need a fiscal note. What happened here?’

We had just removed the ability for the legacy fields to monetize their expenses. Until they could get more information about what was qualifying as expenses, they wouldn’t allow them for a certain period. I had no idea what the fiscal consequence of those knobs that they were turning on the House floor. It turns out it was over a billion dollars more in take that was unanticipated that was coming in that we didn’t know we were going to get.

On progressivity, that was a concept the Palin administration had originally started at .2 percent, but in the end we took it to .4 above $92.50 a barrel. It was never modeled to the Legislature above $80 a barrel. So we had no idea of the consequences that night on the floor. So now the take is incredible. Alaskans are benefitting from that take, but industry is having a hard time from a global perspective competing for capital in those board rooms for Alaska, so there is less investment happening I think because of the progressivity take.

Petroleum News: Let’s switch to natural gas. HB 4 could be coming your way soon and pipeline discussions will replace oil taxes. What are your thoughts on the status of the state advancing a pipeline project?

Fairclough: It’s an incremental conversation in that Alaskans are most important to me. Whether you live in rural Alaska along the Kuskokwim or you live in Delta Junction or North Pole and the energy costs that are breaking economic opportunities for the people of Alaska. If we don’t have a resource that can keep people warm and keep the lights on, Alaska will eventually whither and different pieces of Alaska will die off. I hope in all scenarios that the fuel whether it’s propane or natural gas, that it can break off a backbone structure and make it to smaller communities so they can heat their families and keep their livelihoods whether its subsistence living or a refinery in North Pole that those economic opportunities are available at a reasonable cost. So with reasonable cost, another increment is what size should that pipeline be.

An argument and what I believe brought the bill (then HB 9) to its end last year was because the opposition was able to provide fear that the rates would be too high. We have to have that conversation, but coming from the Cook Inlet region, we had that conversation where the RCA told us the rates Marathon Oil were offering to Enstar were too high. RCA, in an attempt to protect the consumer, said no to those higher gas rates. Let me tell you, Marathon was right. RCA was wrong.

The consumers would have been better off today if we would have accepted those rates. Because it was something what we considered out of the norm, we said no, now we’ve invested huge dollars in a storage facility to try to keep the spikes down so we continue to supply Eagle River, East Anchorage and municipality of Anchorage.

So going back to the incremental, I don’t know if a 36-inch line is right or a 24 or something smaller. But I do know Alaskans are starving for those energy molecules. We need to quit arguing about how we get there and find the best way forward to accomplish the goal.

Another increment we need to look at is our window. Right now the Asian market is still looking for natural gas in the form of contracts. If Alaska isn’t on the board — now — this year, I think we miss our window for the long term. Then all we can look at is a state-funded, very small-diameter pipe to meet our needs, and I don’t know then what the cost is on the North Slope to those who hold the leases and whether it would be cost prohibitive to bring our gas online.

Petroleum News: So what do you think can be done to get on the board for the Asian markets?

Fairclough: I think we need to bring all Alaskans together. I understand why Valdez wants a gas pipeline to their terminus. I understand why Nikiski wants a terminus to their point. As an Alaskan, I don’t care. I want a cost-effective project that provides low transportation or at least reasonable transportation costs and puts those molecules into a market that Alaskans can benefit and I want a rate of return from somewhere outside of Alaska to help offset those prices for Alaskans. I don’t know where the right point is. I think the private sector needs to determine that. Nikiski has its pluses in that it has a plant established there. Can we retrofit it so that it can last? Can we extend the life of that facility? Creating a new whole one at two different points is going to be expensive. In the end, I don’t have a vested interest in whether it’s Valdez or whether it’s Nikiski. I have a vested interest that we just move forward.

For me, I would get it to North Pole, and then argue. We just need to get it across Alaska and coming. But we have to have the terminus point determined so we can actually establish the contracts. I would say to the naysayers, for those who don’t want Nikiski, I wish they would put Alaskans first and quit arguing for their own personal benefits; for those who want to naysay on the Valdez terminus point, put Alaskans first and stop it.

Let’s talk about a reasonable sized pipe that provides reasonable transportation. Alaskans in general have expectations that a 48-inch pipe is somehow normal. So anything lower than 48 inches may seem small. One of my questions to people who have been providing us information, is: is 24 inches standard for the rest of the world, or is it 36? I think it’s 24. We are comparing it to the Trans Alaska pipeline sometimes when we really need to think differently. Alaskans are used to elephant pools of oil and large construction. We need to make sure our glasses on right when looking at what a natural gas pipeline should look like.

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