Posted Wednesday, June 21, 2017 - 12:26 pm
Democrats in Juneau deserve credit for at least one thing: what they lack in good ideas they more than make up for in chutzpah.
Now 10 days from a government shutdown at the time of this writing, the legislative session has become a monkey fight inside a clown car driving into a dumpster fire.
The House Majority threw a tantrum last week after Gov. Bill Walker took away their income tax woobie in his proposed compromise to end the standoff with the Senate by passing an 11th hour budget funded entirely with the Permanent Fund Earnings Reserve including a $2,200 dividend check that will cost the state more than $1.3 billion on top of its $2.7 billion deficit.
Like a child who cleans their room by stuffing all the toys and dirty laundry into a closet, House Majority leaders then proceeded to claim that they had done their job by passing a budget and asked for a cookie.
House Republicans aren’t completely blameless in this mess, either. Half their caucus, including their leader Charisse Millett, voted for the budget-busting PFD. Perhaps she could better spend her time trying to figure out what her principles are rather than combing Gavel to Gavel footage looking for reporters goofing off in the gallery while her members make ridiculous analogies to Pearl Harbor, Ho Chi Minh and Vladimir Putin.
Some soul-searching is probably required when you’re on the wrong side of a vote by Les Gara.
But what the House Majority argument boils down to is this: they are willing to drive with the pedal down over the fiscal cliff if they can’t skim $700 million from Alaskans’ paychecks and double the tax rates on the beleaguered oil industry.
They must destroy the village in order to save it.
And here comes the chutzpah.
On June 20, S&P Global Ratings put the State of Alaska back on credit watch negative as a result of the impasse. House Democrats immediately put out a statement claiming the notice vindicated their plan.
Never mind that the state would be lucky to end up with junk bond status from the ratings agencies if the Senate approved their budget and Walker signed it.
Democrats keep tweeting about Kansas, where a Republican Legislature rolled back previous tax cuts to boost state services. They fail to note that the tax increases in Kansas are projected to raise about $600 million from a population of nearly 3 million to fill a budget deficit of about $350 million.
House Democrats want to raise taxes by more than that during a recession on a population a quarter the size in a state with some $17 billion in accessible savings accounts.
The comparison isn’t even apples and oranges. It’s apples and ham hocks.
Under the Democrats’ plan, middle class earners would get hammered while their favored constituencies of state employees and the failing education system are held harmless.
As an aside, when are Democrats ever going to be held accountable for the results of an education system they own and operate that consistently delivers some of the worst outcomes in the nation?
More than half of our high school graduates need remedial English and math education at the university level. Herb Schroeder, the founder of an actual education success story with the Alaska Native Science and Engineering Program, calculated that it costs the state and students $42 million per year trying to make up the ground lost in a K-12 system that spends more per capita than almost any other state.
That we find ourselves standing on the brink of a state government shutdown is truly inexcusable.
Both the Senate and House agreed on some major fiscal reforms at the beginning of the session: using the Permanent Fund earnings, guaranteeing a dividend of $1,000 or $1,250, and eliminating cashable oil tax credits for small developers.
Passing the agreed-upon measures would have set the state on a sounder fiscal path and could have been done months ago, but the Democrats can’t and won’t change their tax-and-spend stripes.
They cannot accept the fact that the state does not yet need an income tax, and refuse to recognize that there is not a bottomless pool of money to drain from the oil industry that has seen thousands of layoffs and now prices slipping back toward the breakeven point on the North Slope.
They keep calling a restructured Permanent Fund and smaller dividend an income tax on all Alaskans in a tortured bending of the language. The IRS certainly treats the PFD as income, but in no way is merely existing within the borders of the 49th State the same as working for a paycheck.
Then again, not knowing the difference between what is earned and what is given is what makes them Democrats.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, June 07, 2017 - 1:35 pm
Here’s hoping House Speaker Bryce Edgmon hasn’t gotten too attached to his gavel.
The once high-riding Democrat-led Majority in the House had a stake driven through its heart on June 5 when it was abandoned by Gov. Bill Walker, its one-time ally on raising oil taxes and bringing back a state income tax.
By immediately rejecting Walker’s compromise package that did not include an income tax, increased oil taxes or their preferred amount for the Permanent Fund Dividend, the rookie leaders of the House have set themselves up as the fall guys if the government shuts down with no budget by July 1.
It may be just posturing, as Senate President Pete Kelly mused while his caucus took a more measured and conciliatory attitude toward Walker’s proposed compromise that came down heavily in favor of its position.
Are the House Democrats really so wedded to their demand for an income tax that they are willing to push the state to the brink of a shutdown?
So far, they sound like it.
Not that it was ever a great idea to hitch their policy wagon to raising taxes on an economy in recession, but House Democrats are quickly becoming Ahab to the white whale of taxes.
With the governor now essentially aligned with the Senate on the greatest issues facing the Legislature — including its plan to pay off nearly $300 million in old oil tax credits using the Statutory Budget Reserve — the House has set itself up as the odd man out.
No doubt it must be a bitter pill to swallow considering it was just seven months ago the new Majority held a celebratory press conference following the November election as Democrats took the reins of power in the House for the first time in more than a decade.
However, the Democrats have no one to blame but themselves for their current predicament.
They overreached by ratcheting up their usual attacks on the oil industry with a bill to double and triple effective tax rates between $50 and $75 per barrel, refused to cut the budget by any measure, set up an overly generous PFD and attempted to pay for it by extracting $700 million per year from Alaskans’ paychecks.
The House proposals would be disastrous for the economy and it appears clear that the Senate Majority won over the governor when we heard Revenue Commissioner Randall Hoffbeck essentially repeat the Senate talking point that the House income tax proposal could end up overfunding government and therefore remove incentives to spending restraint.
Who knows what ultimately won over the governor on oil taxes and credits, but two events in the prior week may have played a part.
First there was Interior Secretary Ryan Zinke doing more for Arctic oil development with a stroke of a pen than Walker has accomplished halfway through his third year in office.
Then there was the announcement by Caelus Energy that it was postponing its appraisal well at Smith Bay for this winter based partly on low oil prices and partly on the uncertainty about what the rules will be for tax incentives and the hundreds of millions in unpaid credits of which the company is owed at least $100 million.
There has been plenty of fallout from the governor’s veto of $630 million worth of credit appropriations in the past two budgets, but this was a highly visible and hardly encouraging development.
What we learned June 5 is that the governor has been listening, and that the House still has its ideological earplugs in.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, May 31, 2017 - 12:46 pm
In a room full of the state’s business leaders dressed in sport coats and summer dresses, the visiting guest of honor looked and sounded as Alaskan as any of them.
Decked out in khaki pants and short sleeves, Interior Secretary Ryan Zinke, a retired Navy SEAL and former congressman for Montana, spoke passionately about President Donald Trump’s vision of American energy policy that goes beyond independence and into “dominance.”
Trump is a tweeting, Tasmanian devil of a president who makes sensational headlines daily for either real or manufactured outrages that overwhelm the sound decisions he’s made with cabinet picks like Zinke.
Alaska’s congressional delegation has not held back from criticizing Trump — its two senators officially withdrew their support for him last October after the infamous Access Hollywood tape was released — but they clearly recognize how greatly his presidency stands to benefit the state.
It’s safe to say no one is missing Zinke’s predecessor Sally Jewell.
“What a difference six months makes!” Sen. Dan Sullivan gushed at the Alaska Chamber reception for Zinke on May 30.
Zinke is also a geologist, and noted that not long ago in the early 2000s the trendy energy consensus position was the looming “peak oil” when the world would reach maximum oil production and start a gradual decline.
Boy, was that wrong.
If anything we’ve reached “peak OPEC” where the oil cartel’s ability to control world prices at its whim has been eroded by the U.S. shale revolution that is undermining current production cuts of about 1.7 million barrels per day from its member nations and Russia.
Now we have countries like Saudi Arabia nearly begging U.S. shale producers to cut back as prices have flattened out at about $50 per barrel and drillers are squeezing so many efficiencies out of their wells that some can make money at prices $34 or higher, according to Bloomberg.
OPEC thought they could break the shale drillers.
Boy, was that wrong, too.
The U.S. has become the world’s No. 1 energy producer and we can tell OPEC to go pound the abundant sand of the Middle Eastern deserts.
Zinke referenced his military career in the context of the goal of energy dominance.
The United States’ deep involvement in the Middle East and in particular the Persian Gulf has always been about preserving the steady flow of oil that’s led us into wars and uncomfortable alliances with some of the worst governments on the planet.
With the humility of one who has served, Zinke told the audience that he never wants to see anyone’s sons or daughters go to war and see the things he’s seen over access to oil.
There is renewed hope to finally open the coastal plain of the Arctic National Wildlife Refuge to oil development, as was intended when the so-called “1002” area was set aside under the 1980 Alaska National Interest Lands Conservation Act.
And before you hear the usual tropes about how ANWR production does nothing to change the U.S. energy picture — “drop in the bucket” often springs forth from the anti-development groups — it is worth realizing just how much that estimated million barrels per day figures under current domestic production levels.
Not only would that amount triple the current throughput for the Trans-Alaska Pipeline System, it represents 20 percent of our 2016 net imports of oil.
A million barrels per day is nearly the 1.1 million in imports from Saudi Arabia and would completely erase the 800,000 barrels per day from the deteriorating socialist wasteland of Venezuela.
All in all, since the lifting of the ban on crude oil exports last year championed by Sen. Lisa Murkowski, the United States has net imports of less than 5 million barrels per day with almost 60 percent of that total from our neighbors in Canada.
Energy independence is within reach. So, too, is energy dominance.
Trump truly found the right champion for that cause in Zinke and Alaska will be nothing but better for it.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, May 24, 2017 - 12:42 pm
By the time House and Senate members return to Juneau after Memorial Day weekend, they will have burned through 14 days of a 30-day special session without much, if anything, to show for it.
Two days later, pink slips will go out to virtually every state worker with the possible exception of troopers, corrections officers and Pioneer Home employees.
If only they could be sent to the 60 legislators as well.
Both bodies have passed operating budgets as well as bills to use Permanent Fund earnings and end the state’s cashable oil tax credit program.
That should be a plenty good starting point, but conference committees haven’t met on the budget or Permanent Fund bills, and the Senate hasn’t even named conferees to the oil tax credit bill.
Alfred E. Neuman would be proud.
What, me worry?
Both sides are blaming the other, and both sides are right for a change.
The Senate did indeed pass its budget and Permanent Fund bills with time to spare while the House took the full 90 original days to pass an income tax that had no shot in the Senate and was rightly shot down on May 12.
The House also took the full 90 days to send the Senate a bill ending the cashable oil tax credit program for which the state liability will top $1 billion by the end of the 2018 fiscal year.
Income and oil taxes are the obsession of the House this year despite the fact the economy is in recession and bleeding thousands of taxpayers annually, largely from the beleaguered oil sector that has led the job losses numbering in the thousands.
Members of the House have far exceeded their mandate on oil tax policy by not only ending the credit program, but getting way over their skis by proposing to double and triple production tax rates at prices between $55 and $75.
The House proposals are nonstarters for the Senate; likewise the House leaders say it is a nonstarter for them to pass a budget that doesn’t raises taxes on “the wealthy” and “the biggest corporations in the world” despite the fact that middle class earners will be bearing the brunt of the cost through either less takehome pay or no takehome pay.
There’s been plenty of press conferences staking out these positions, but rhetoric isn’t work and it won’t get the job done.
If the Senate really wanted to put pressure on the House it would be demanding conference committee meetings daily.
Show up to a committee room and sit there without them if you have to make the point, but adjourning for two weeks without even naming conference committee members to the oil credit bill shreds the Senate leaders’ credibility on the issue of time management.
Room for compromise can be found if the Senate will ease up on a few of its deeper budget cuts and the size of the Permanent Fund Dividend and if the House would drop its ridiculous attempts to tax everything that moves when the economy is hurting.
A good place to start would be splitting the baby on the $288 million in the Statutory Budget Reserve that the Senate has allocated to start paying down oil tax credits that Gov. Bill Walker has been allowing to pile up for the last two years by vetoing $630 million worth.
Take half of that and restore some education funding for the House Democrats and it would go a long way toward meeting the differences in the operating budgets.
The Senate likely has a winning hand with the public by standing firm on refusing to pass an income tax but they can’t believe they will win the argument on nearly $300 million in oil tax credits while cutting the PFD and education funding.
All of this could have been done in the first two weeks of the special session, or at least a healthy start before leaving for the holiday weekend that nobody in Juneau has rightfully earned.
Now we are likely headed toward another special session that could cross the end of the fiscal year and put the state in a place where no one wants to be.
Yet the Legislature whistles along past the graveyard.
What, me worry?
Andrew Jensen can be reached at [email protected]
Posted Wednesday, April 26, 2017 - 12:34 pm
It wasn’t a surprise that last week’s column drew a response from self-appointed PFD guru Brad Keithley.
Nor was it that he would go back to the well of the Institute of Social and Economic Research study that purports to show the most negative impact on jobs out of the current budget deficit-filling proposals is the one that relies on using Permanent Fund earnings rather than an income tax.
Resorting to the internet version of shouting by going to the all-cap font, Keithley repeated four times that ISER believes using Fund earnings costs more jobs than an income tax.
The oft-cited ISER study ties not a single direct job in the state to the payment of PFDs. Rather it relies on the economic multiplier effect for measuring impacts of using Fund earnings or collecting an income tax. The only scenario in which it can estimate job losses directly is from budget cuts to the state government.
Everything else is theory, although it would be nice to know how many small business owners will be hit by the income tax and how that will affect their ability to hire and grow in the name of preserving an artificial PFD level.
Where the ISER conclusion about jobs and reduced PFD payouts falls short is that it doesn’t match what we’ve actually seen.
In the two years after Alaska has paid out a dividend of $2,000 or more (2008 and 2015), the state lost a combined 12,500 jobs in 2009 and 2016.
ISER has estimated thousands of job losses will result from a reduction of $600 million to $700 million in the PFD payout, again, based on an economic multiplier effect and not on actual, direct jobs tied to dividend spending.
Yet were this actually the case, we should have seen it happen from 2009 to 2010.
The dividend payout shrunk by $450 million from 2008 to 2009.
According to ISER, that $450 million reduction should have cost the state 2,500 to 4,000 jobs, but in the 12 months following that reduction the state gained 7,400 jobs. That’s 10,000 jobs better than the low end of the ISER estimate.
By 2013, the PFD was $900 and the total payout was down another $280 million from its 2008 high.
There was no corresponding job loss.
Jobs were down by a rounding error of 500 a year later, and still up 17,000 overall from the 37 percent cut in the PFD payout from 2008 to 2009.
ISER acknowledges the point that actual job data compared to the size of the PFD doesn’t reflect its conclusions.
“The answer is that we likely would have seen the economy expand (under larger PFDs), if other changes — including significant losses in federal spending and losses in the oil industry — hadn’t been costing the state jobs. At any given time, many factors are affecting the state economy. Positive effects of one factor may be offsetting negative effects of others. That makes it hard to see the effects of both kinds of factors — but it doesn’t mean they aren’t happening.”
In other words, the PFD is not the be-all, end-all of the Alaska economy and it shouldn’t be treated as such.
Yet Keithley keeps using large letters and the ISER study to prop up his argument because the real world results don’t.
Citing Permanent Fund Corp. projections, he asserts the PFD should grow by $1,000 per person over the next 10 years, from an estimated $2,373 this September to $3,338 in 2026. That would have the state paying out more than $2 billion in dividends annually.
It’s baffling that an economist can really believe the PFD will grow unchecked for a decade when we have recent history that tells an opposite story.
The dot-com and housing crashes cratered Fund earnings and impacted dividends for years; just last fiscal year the Fund returned less than 1 percent even while markets did relatively well.
We’ve seen all-time highs in the markets once again, partly fueled by the cheap money policy of the Federal Reserve since the last financial crisis that is only now being tightened. A correction is inevitable, and the Fund and the PFD will be affected.
Claiming otherwise is the sort of irrational exuberance that creates bubbles as well as bad policy.
Policymakers can go with theory, or they can go with reality.
The data show that the state jobs picture over the last 15 years moves independently — and in fact nearly inversely — from the size of the PFD.
No amount of capital letters changes that.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, April 19, 2017 - 1:08 pm
The PFD is not a suicide pact.
The Alaska House and Senate are now engaged in a high-stakes game of chicken as the session has gone into overtime with less than 30 days to go before the mandated adjournment.
On one side is the Senate arguing it is protecting pocketbooks the most, while the House has taken the position of picking the most pockets.
At the center of it all is the Permanent Fund dividend.
The Senate would cap it at $1,000 for three years; the House at $1,250 for two.
The Senate Majority is adamant that it will not institute an income tax or raise oil taxes while the state is in a recession, and it does not favor the more generous amount of the PFD proposed by the House.
The House is equally adamant that using Permanent Fund earnings to fill the budget gap and reducing the amount available for dividends means they have to hit Alaskan workers with an income tax in the name of fairness and continue their neverending quest to keep plucking the state’s golden goose in the form of raising the burden on the oil industry.
Protectors of the PFD at all costs, which include the generally ideological opposites in Sens. Mike Dunleavy and Bill Wielechowski and statehood pioneers such as Clem Tillion, believe that the state’s top spending priority is the annual check in spite of ongoing deficits between $2 billion and $3 billion.
Nearly all rely on University of Alaska Institute of Social and Economic Research studies that count the PFD reduction as the costliest option to low-income Alaskan families.
Indeed the numbers bear that out, but the problem with the ISER study is that it uses a $2,000 PFD as the baseline for evaluating the impact of either the Senate or House plans.
Using a $2,000 PFD as a baseline unnaturally skews the numbers, however.
Since the first PFD of $1,000 was paid in 1982, only twice — in 2008 and 2015 — has the PFD been $2,000 or greater.
It would have been larger than that in 2016 as well, but Gov. Bill Walker vetoed half of the appropriation from $1.3 billion to $665 million to result in a PFD of $1,022.
We’ve heard time and again that the PFD is the best way for the state to spend money because it puts the decisions in the hands of the people rather than the government.
However, looking at the years following the largest PFDs in the state history shows big checks didn’t make a big impact on the Alaska economy.
In 2008, the PFD was $2,069.
The state lost 3,300 jobs from September 2008, the month before the checks were issued, until September 2009. The unemployment rate went from 6.8 percent to 8 percent.
In 2015, the PFD set a new high of $2,072.
This time the state lost 9,200 jobs in the following 12 months.
So much for propping up the economy.
In looking at the intervening years, the best thing for the Alaska economy is jobs, not the size of the PFD.
After the 2008 peak PFD, the size of the check declined every year for the next five (the 2012 and 2013 dividends were roughly equal at $876 and $900, respectively).
Over those same years, from 2009-2013, the state saw its population increase by 53,000, added 15,000 jobs, and the state gross domestic product grew by 20 percent from $50 billion to $60 billion.
Conversely, from 2014-15 as oil prices have crashed, the state paid out about $2.5 billion in PFDs with no corresponding uptick in economic activity and certainly not enough to offset the loss of thousands of six-figure paying jobs in the private sector across oil and gas, construction, transportation and professional services such as engineers.
Unlike an income tax, which reduces earned take-home pay, setting a dividend amount that is reasonable given the budget circumstances is the most prudent thing the government can do.
Under the Senate plan the PFD would be roughly equal to the historic average — which would be a much better baseline to use and would in fact show the low income Alaskans are being held largely harmless under the plan — and it would be larger than four of the dividends paid since 2003.
Under the House plan the PFD would be larger than half of the last 13 checks not counting 2016.
When ConocoPhillips lost $4.4 billion in 2015, one of the major steps it took was to reduce its dividend by two-thirds from 75 cents per share to 25.
That allowed it to keep investing while finding cost-cutting measures elsewhere.
It’s about time the state learned a lesson from the private sector instead of trying to bleed it dry.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, April 12, 2017 - 12:38 pm
It was Alaska House Majority Leader Chris Tuck for the win during a recent episode of “Democrats Say the Darndest Things.”
Amid the debate on the House floor April 10 over the oil tax policy rewrite hastily introduced and passed within three days by a single vote, the Anchorage Democrat uttered the most fallacious argument among the many offered by his cohort.
First the runners-up.
There was Rep. Scott Kawasaki, D-Fairbanks, describing 2016 Alaska profits of $85 million by BP and $265 million by ConocoPhillips as “gigantic.”
What’s gigantic is the ongoing ignorance about the oil industry displayed by House Majority members like Kawasaki.
BP and ConocoPhillips Alaska profits totaled $350 million in 2016.
Their combined payments to the state came in just shy of 10 figures at $959 million. That’s 27 percent for BP and ConocoPhillips and 73 percent for the state, but asking Democrats to do math is probably an unrealistic expectation at this point.
Then there was Rep. Justin Parrish, D-Juneau, whose head seems best suited as the home for the Legislature’s best gathering of hair and little else, stating that a bill doubling and even tripling the effective tax rate at prices between $55 and $75 per barrel “doesn’t go nearly, nearly as far” as he’d like.
Parrish wasn’t the only Democrat to say the bill didn’t extract enough new money from the industry, and several others including Resource Committee Co-chairs Andy Josephson and Garen Tarr actually claimed the bill is “modest” in its impact.
The ghost of Jonathan Swift could sue for copyright infringement, if only the Democrats’ modest proposal was also a satire.
Credit to Tarr for at least saying what Democrats believe, though, when she asserted that the companies aren’t going anywhere because Alaska has great geology. In other words, Democrats have carte blanche to pass any tax hikes they like and it won’t change production or investment at all.
Nevemind we have recent history under the previous regime known as ACES to know that policy does matter no matter how great the North Slope rocks.
But just when you thought Democrats were at peak self-parody, along came Tuck to plant the flag.
In answer to repeated statements by Republicans that the current policy is working, as evidenced by an increase in production through the Trans-Alaska Pipeline System for the first time in 14 years, Tuck said we should be thanking ACES for spurring the growth.
“Oil production is going up, but when you look at how long it takes to explore and develop, it takes seven to 10 years, so Senate Bill 21 isn’t playing a factor,” he said. “At this point it’s ACES that’s playing a factor in new production. Eventually some components of Senate Bill 21 might make that happen, but you can’t give credit to Senate Bill 21 when it’s only been in effect for about three years.”
With that, Tuck proved why he’s the captain of the Democrat canoe.
Tuck’s nonsense echoes the canard regularly uttered by Rep. Les Gara, D-Anchorage, that no increase in production on the North Slope can be attributed to the current policy passed in 2013 and upheld by voters in 2014.
Their only evidence to support this is CD-5, which ConocoPhillips started working on way back in 2004, and the fact Repsol started exploring on the Slope in 2011.
Just like their myopic focus on production taxes to the exclusion of all other sources of oil revenue, the Democrats are attempting to mislead the public about the current tax policy when they discount the growth in throughput and new projects.
For starters, there is Greater Mooses Tooth-1 in the National Petroleum Reserve-Alaska.
ConocoPhillips applied for those permits in July 2013, two months after former Gov. Sean Parnell signed the More Alaska Production Act into law. The company sanctioned the project in November 2015 and first production is expected next winter.
Drillsite 2S was sanctioned in October 2014 by the Kuparuk River field owners ConocoPhillips, BP and ExxonMobil and was the first new drillsite in 12 years.
ConocoPhillips, which operates the Kuparuk field, didn’t drill a single exploration well anywhere on the Slope from 2010 to 2012.
The price of oil during those three years averaged $94 per barrel.
Just to help out the Democrats again with the math, that’s about $40 more than the current price.
Same rocks, nearly double the price, and the state’s biggest oil producer wasn’t even exploring.
But sure, Rep. Tarr, tax policy doesn’t matter. The companies may not be going anywhere, but their capital certainly can and it has before.
Back to Tuck’s comment about crediting ACES for production growth, which was so farcical it resembled internet trolling. That would be preferable to the reality that Democrats truly believe this.
Tuck should take a look at the 2016 Prudhoe Bay Plan of Development, in particular the Division of Oil and Gas approval document issued last September:
“In 2015, (BP) again conducted a high level of drilling and wellwork in the IPA (Initial Participating Area) with 8 grassroots wells and 52 sidetrack wells. BPXA also performed 413 rate adding jobs and ~1,400 non-rate adding jobs. Rig Workovers have continued to increase over the past four years with 27 RWOs in 2015. Drilling and wellwork in all categories has been increasing for the last four (Plan of Development) periods in the IPA.”
Note the timeframe mentioned twice in that paragraph: the past four years.
That would be from 2012, when Parnell first introduced a tax reform bill, to 2015.
In 2012, BP performed 315 rate adding jobs at Prudhoe. That number increased to 485 by 2014.
In the Analysis section, the Division of Oil and Gas puts it even clearer:
“The activities conducted in the IPA over the last four years have seen record levels of drilling, RWOs, and rate adding jobs along with heavy investment in facility upgrades, pipeline replacements and inspections, and TARs (turnarounds). The IPA experienced an average daily production decline of only about 7,000 barrels of oil per day in 2015.”
After noting that Prudhoe Bay has exceeded its original recovery estimate by 2.7 billion barrels, the division stated BP is “progressing and developing new reservoir projects.”
Record levels of drilling.
New reservoir projects.
Rate adding jobs.
In. The. Past. Four. Years.
The current policy was designed to encourage both new oil, which would take longer to develop, and “old oil” from the legacy fields that it was known would result in additional production sooner.
And it worked.
So here come the Democrats demanding to tax these profitable fields more and thinking this will somehow encourage new development elsewhere when it is those very profits that are reinvested for new projects like Mooses Tooth or new reservoirs within existing fields such as the Sag River work at Prudhoe.
At $70 oil, the Democrats’ plan would increase taxes by about $2.5 million per day at current production levels. That’s about $900 million in a year, or about what it will cost ConocoPhillips to build Greater Mooses Tooth-1.
What is most troubling about the House action is the message it sends to industry. The bill itself will die a rightful death in the more sane Senate, but by insisting this bill is moderate, or doesn’t go far enough, tells the industry that if the Democrats ever get ahold of the upper body again things will get a lot worse.
Combine that with a governor perfectly willing to hike taxes on the industry while refusing to pay what the state already owes and you have the ingredients for chilling the Alaska investment climate once again.
Andrew Jensen can be reached at [email protected]
Posted Tuesday, April 04, 2017 - 4:45 pm
It was a good day to be a shareholder in General Communication Inc.
Shares of the Anchorage-based telecom leapt 62 percent, from $20.56 to close at $33.39, after a deal was announced April 4 to sell a controlling interest to Colorado-based Liberty Interactive Corp. for $1.12 billion that included a huge premium on existing shares.
The deal will pay existing GCI shareholders $32.50 per share; the company’s stock has traded between $12 and $20 over the previous year.
The new company will be dubbed GCI Liberty, but no major changes to existing service or management structure are planned.
“We will continue to run the company with our focus on providing the best value for Alaska customers, offering opportunities for our employees and investing wisely in the Alaska market,” said GCI President and CEO Ron Duncan on April 4.
GCI is the dominant cable and broadband provider in Alaska, and has a bit less than half of the wireless market share.
It has 127,000 cable modem subscribers, roughly the same number of cable box subscribers and more than 222,000 wireless lines in service.
Liberty Interactive Corp. operates and owns interests in a broad range of digital commerce businesses divided into the QVC Group and the Liberty Ventures Group. The QVC Group, named for the home shopping channel, includes QVC, an interest in the Home Shopping Network, or HSN, and zulily LLC. Liberty Ventures includes other assets such as FTD, Evite, Lending Tree and Charter Communications.
The assets of Liberty Ventures are being contributed to GCI in exchange for the controlling interest, which will together be spun off into GCI Liberty Inc. in a tax-free transaction for the parent company.
The last several years have brought about rapid change for GCI’s business. In 2013, GCI and Alaska Communications formed The Alaska Wireless Network, or AWN, by combining their infrastructure in a move designed to meet anticipated competition from the entry of Verizon that fall.
Not much more than a year later, in December 2014, GCI agreed to buy out Alaska Communications’ share of the AWN and all of its wireless customers in a deal worth $300 million.
The deal came with costs for GCI, which posted net income of $7.5 million, $9.4 million and $9.6 million from 2012-14.
In 2015, GCI posted a loss of more than $26 million based on the costs of the Alaska Communications acquisition, and a loss of $3.6 million in 2016 caused by renegotiated roaming deals with Outside carriers as well as a $10 million decline in wireless revenue as it shed more than 5,000 wireless customers amid the state’s recession.
It also saw a corresponding loss of 6,300 cable box subscribers last year.
The company has neared completion of its TERRA network, which has been built in two phases, Southwest and Northwest, connecting dozens of rural Alaska communities to high-speed broadband using a combination of 2009 federal stimulus funds, New Market Tax Credits and its own capital.
GCI, through its political spending and statements of executives such as Duncan, has been actively involved in the state budget debate and threatened grave consequences for his company if a fiscal solution isn’t found soon.
The company recently followed through with its plans to cut its capital spending by 20 percent in 2017, which it said it would do last August after the Legislature finally adjourned with no budget plan, a deficit funded by savings and Gov. Bill Walker vetoing half of the Permanent Fund Dividend appropriation.
Company officials announced capital spending in 2017 of $165 million, about 20 percent less than the $211 million in spent in 2016.
Posted Wednesday, March 29, 2017 - 10:58 am
After years of debate and endless hearings on the subject, it’s remarkable at this late date that Dan Seckers still had to teach a chapter out of “Tax Policy for Dummies” at the March 22 meeting of the House Finance Committee.
The tax counsel for ExxonMobil actually had to explain the difference between a statutory tax rate and an effective tax rate to Finance Vice Chair Les Gara, D-Anchorage, in a lengthy exchange that descended into the surreal from the sheer remedial nature of it.
After giving testimony more blunt than a two-by-four about the investment-killing implications of House Bill 111 that would raise oil taxes and slash deductions on losses, Gara took a pathetic swing at Seckers over the state’s base tax rate of 35 percent on net profits.
“You do recognize that’s a price-sensitive tax rate,” Gara said, “that that is the tax rate at like $159 per barrel that the world has never seen … You never pay 35 percent of your profits at prices below $150 per barrel, right?”
“People need to understand the difference between a statutory tax rate and an effective tax rate,” Seckers said, probably wondering why he needed to spell this out to one of the longest-tenured members of the Legislature. “Corporations don’t pay 35 percent (federal) tax, nor do companies here pay 35 percent production tax because it’s on net. It has to be below that because it’s on net. If you want the statutory rate to equal the effective rate then you need a gross tax. That’s the only way that’s gonna work.
“By its design a net tax can’t yield what you’re trying to imply. The effective tax rate will be lower, but we pay the tax. The calculation is based on 35 percent. If I have a $100 profit, my tax is $35 on that. It may get reduced by credits, absolutely, my effective tax rate may come down. But it’s calculated at 35 percent. That’s the function you have.”
Gara stepped to the plate again.
“I can’t let you get away with that,” Gara said. “The federal rate is 35 percent; obviously you get a deduction on a 35 percent tax rate. This is much different. The lower the price, the lower the actual tax rate … There is no 35 percent tax rate. It’s price sensitive.
“When you compare to federal rate at 35 percent, that really is a 35 percent rate at all prices and you deduct from that. You have to recognize there’s a big difference between those kinds of tax systems.”
“No, I’m sorry, I think you’re misspoken on this,” Seckers replied. “The statutory rate is 35 percent. Don’t believe me? Ask your tax director. If I have $1,000 of profit, my tax is $350 and credits come after that yielding an effective rate.”
At this point committee Co-Chair Neal Foster, D-Nome, tried to mediate the argument by saying “we’re going to have to agree to disagree,” but Gara insisted on trying to get the last word.
“The credit he’s talking about is price related,” Gara said of the sliding per barrel credits that reduce the statutory rate. “They have nothing to do with investment.”
Whiff. Strike three.
“We don’t get that credit because prices are whatever,” Seckers said. “I have to produce a barrel of oil. That’s an activity I have to take. If I don’t produce a barrel of oil, I don’t care what the price is, I get zero. So to sit there and say, ‘oh, I just get it because of price’; that’s not true.
“The only way I get it is I have to produce the oil. There are activities and steps I have to take, costs I must incur, to get that credit, to get that reduction if you will. I have to produce. That’s the whole purpose of putting that in there. The more I produce, the better off I am, which is good for the state. More production tax, more royalty, more income tax, more property tax. I have to produce to get that credit.”
And with that, Seckers sent Gara to the showers.
The impotent polemic by Gara against Seckers reveals a willful ignorance or disingenuousness on his part, as well as a fundamental lack of gravity by the Democrats who have elevated him to a leadership position on tax issues.
In short, nobody pays the statutory tax rate on net income. Not ExxonMobil, not Donald Trump, and not Les Gara, either.
Seckers didn’t blow this fastball by Gara, but his comment about the federal tax rate not being price sensitive deserves shredding as well.
The rate may not be sensitive to the price of oil, but it is sensitive to whether a company made money or not. That is definitely not the case in Alaska.
Rep. Tammie Wilson, R-North Pole, asked BP’s Damian Bilbao what the federal take was on oil last year. Bilbao testified moments earlier that BP lost about a million dollars per day last year in Alaska.
“I would imagine for this year, you’re going to get a wide difference between members of industry. If the industry is suffering a loss, I can’t imagine there was a big federal income tax payment due,” he said.
Compare that to Alaska, where the oil industry payments to state and local governments topped $2 billion in 2016 amid massive losses across the board with prices starting the year about $20 below the breakeven number for North Slope crude.
It’s no wonder Alaska can’t come up with a coherent tax policy when leading members of the Legislature like Gara can’t or won’t attempt to get the basics right.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, March 15, 2017 - 10:50 am
The first time Bill Armstrong met former Gov. Sean Parnell several years back he pointed at a map of the North Slope and told him where he intended to find a huge amount of oil.
A confident Texas wildcatter is about as uncommon as a member of the House Majority that wants to raise taxes on the oil industry, but only one of them is actually good for Alaska.
As information has trickled out over the years since Armstrong and his former majority partner Repsol began exploring, he has been proven more and more right.
First there were initial drilling results that Repsol described as successful, and led to some preliminary paperwork being filed with the U.S. Army Corps of Engineers that indicated potential production of 60,000 barrels per day.
That alone would have been a significant find, but it got better.
About a year later in late 2015, Armstrong swapped positions with Repsol to become the majority 51 percent owner and operator of the find, and the production estimate from the discovery in what’s now known as the Nanushuk play in the Pikka Unit doubled to 120,000 barrels per day.
Armstrong bought leases and drilled them this winter some 20 miles from his initial find, establishing that the Nanushuk play discovered at Pikka could easily hold more than 2 billion barrels of recoverable, high quality conventional oil.
Repsol billed this winter’s results as the biggest onshore conventional discovery in 30 years in a press release March 9.
Just five days later, and only four days after the bill was introduced, the House Resources Committee expressed its appreciation for the Armstrong-Repsol work by reducing the net present value of their discovery with legislation that would cut their deductions for development and raise their taxes across every range of prices once they reach production.
The process for the Resources Committee substitute bill was so rushed that a fiscal note from the Department of Natural Resources regarding the impact of provisions requiring approval of certain lease expenditures ranged from “minimal to significant.”
There has been no modeling on potential production impacts from raising taxes and cutting development deductions.
Talk about passing a bill to find out what’s in it.
This is just the latest episode in the neverending quest by Alaska Democrats to create a “heads we win, tails you lose” oil tax policy that isolates the state from the risk of exploration and low prices while allowing it to capture a majority share of the upside when a company like Armstrong or ConocoPhillips is successful.
Here’s what we do know about production.
During the last full fiscal year of the previous tax policy known as ACES that ended June 30, 2013, North Slope production was 531,000 barrels. That was down more than 200,000 barrels per day in the six years of ACES, or an annual decline rate of 5 percent.
Current North Slope production is averaging 520,000 barrels per day, which averages out to a 0.5 percent decline rate in just less than four years, or 10 times better than the rate under ACES.
Should the 5 percent decline rate have continued, we would be at about 433,000 barrels per day rather than the current 520,000. That adds up to 31.7 million additional barrels over just one year.
Democrats will cry til the cows come home that you can’t make a connection between the first production increase in 14 years with the tax policy they have staked so much political capital in overturning.
At current production rates, the North Slope will blow away the state forecast of 490,000 barrels per day and it is still a possibility we could see a second straight year of growth if the fiscal year finishes in June with a daily average greater than 514,000 per day.
It is always wise to not assume that correlation (production increasing) implies causation (changing oil tax policy in 2013).
But it is also a sound conclusion to recognize that the current tax law has certainly not hurt the state from a production or revenue standpoint. (The cashable exploration credits that are the source of so much budget angst predate the More Alaska Production Act by nearly a decade.)
It’s indisputable we’d receive no production taxes at current prices under ACES compared to about $2 per barrel under current law.
That doesn’t consider the royalty share either, which ranges from 12.5 percent to 16.6 percent off the top and means the state has unquestionably benefited from the near-complete reversal of the previous decline rate despite the price collapse.
The Democrat leaders of the House Resources Committee are not wrong in their attempt to ensure the state is getting maximum value for either its direct cash investments in development or foregone revenue in exchange for additional production.
However, it seems the only place Democrats are willing to examine return on investment regarding state spending is where oil tax policy is concerned.
They certainly have no interest in determining whether our health and education policies are working as those departments soak up billions in the annual budget while producing results that are mixed at best.
Any claim to the contrary is nothing more than the same lip service House Democrats paid to repairing the state’s reputation as an unreliable business partner while working behind the scenes to cement it.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, March 01, 2017 - 1:00 pm
As Ron Burgundy may say, “That escalated quickly.”
Things went sideways not long after House Resources Committee Co-Chair Garen Tarr, D-Anchorage, began a Feb. 22 hearing that was, in her words, to hear from the state’s “industry partners” about the oil tax increases proposed in House Bill 111 introduced by her and her fellow Democrats on the body.
Less than six minutes later, Tarr put the smack down on the lead representative of the state’s partners, Alaska Oil and Gas Association President Kara Moriarty.
Moriarty was in the middle of responding to the presentation two days earlier by the Legislature’s latest oil and gas consultant, Rich Ruggiero, who’d asserted that tax policy changes were a constant around the world and Alaska shouldn’t feel bad about tinkering with its system for the seventh time in the last 12 years.
Backing up that claim, Ruggiero used a slide from IHS CERA plotting the changes by regimes around the world from 2001 to 2011.
Former Resources Chair Rep. Dave Talerico, R-Healy, asked Ruggiero if he had updated information from 2012 to the present that would show how regimes have responded to the price crash that accelerated in late 2015 and early 2016.
“You had mentioned ‘if you had the rest of the years,’” Talerico said. “Is there any chance you might be able to finish this out to 2016 and maybe provide that information to the co-chairs?”
In response, Ruggiero said this: “That would be quite an extensive effort, and I’m not sure what it would inform. Which is why I stated on the slide titled ‘forward’ that some of these slides are dated. The message they’re telling is that Alaska should not be embarrassed or feel bad that it is changing its fiscal system because the regimes around the world where most of the money is being spent are changing their regimes as often or even more often than Alaska is.”
Ruggiero, by the way, is being paid $35,000.
Talerico looked a bit bemused.
“I guess that means no,” he said. “I would like to see even North America if possible.”
At that point Tarr asked Ruggiero to see what he could provide and he said he’d see what he could come up with before coming to Alaska the following week.
The committee didn’t have to wait that long, because Moriarty found the updated slide from IHS in a report to by the Oil and Gas Competitiveness Review Board from May 2016 that is hosted on the state Revenue Department website. She also got IHS to email it to her.
Not much of an “extensive effort” and quite a bargain considering the Legislature isn’t paying Moriarty anything, let alone $35,000.
What the slide shows is that in January 2016 while prices bottomed out at about $26 per barrel, every regime that changed its policy offered incentives, not tax increases such as those proposed by Tarr and her fellow Democrats.
Before getting into what riled up Tarr against Moriarty, it’s important to know what Ruggiero said on Feb. 20.
On his very first slide, he stated: “Working from a common understanding will help everyone better understand the input that will be received from various respondents putting forth self-serving opinions.”
Then a couple slides later he went into the “detractor themes” guaranteed to be deployed by the oil industry in response to increasing government take, namely stability, competition and jobs.
The next bullet point stated: “In their world there is no concept of the operator earning too much and a government earning too little.”
Later he said of the companies, “they’re not charities,” which is a bit rich from a guy who is hardly working pro bono himself.
He’d probably have an interesting opinion on a bill that would tax consultant income at a rate of 65 percent, which is roughly the government take on oil revenue between federal, state and local taxes. He might even have a thought about whether anyone would work for the Legislature if they were going to be taxed at such a rate.
Ruggiero portrayed the industry representatives as robotically repeating the same thing over and over no matter the circumstance.
“Part of what you have to do is decipher from that message is what’s really critical or will chill industry or negatively hurt the state versus their natural inclination, that they have to come out and say whatever takes money out of their pocket is a bad thing,” he said.
All this time as Ruggiero told the committee to tune out the oil companies as speaking from an agenda, Tarr never interrupted and never cautioned him not to question the motives of the industry partners she would later be calling to testify.
So after Moriarty explained how easily she found the updated information, she said, “Having your consultant share older data from other consultants may demonstrate that he either didn’t take enough time for his presentation, or he is possibly using the data to drive an agenda —”
At this point Tarr cut her off.
“Miss Moriarty, we’re not going to make statements like that in this committee,” Tarr said. “So you’re not going to impugn the motives of that individual. If you want to respond to anything that was said, that’s fine. But we’re not going to do that.”
Tarr’s anger should have been directed at Ruggiero, who’s being paid not a small amount of money to present outdated information and act as though getting new information is going to be an “extensive effort.”
It should also probably be directed at him for, to his credit, repeatedly stating that governments typically lower taxes and increase incentives in a low price environment, which is the exact opposite of what Tarr’s bill would do.
Moriarty further corrected Tarr on her statement Feb. 20 that the industry requested “half” of the six tax changes in the last 12 years. Moriarty noted that the oil business supported the current tax policy because of the elimination of progressivity at high prices even though it was concerned about the 35 percent base tax rate.
She pointed out that industry supported the Cook Inlet Recovery Act in 2010, but that bill didn’t originate at its request. It came out of the Legislature in response to looming natural gas shortages for the state’s population center.
“We supported two out of seven if you count the one before you,” Moriarty said.
If Tarr wants witnesses to stick to the facts and not make unfounded accusations against others she’s going to need to start with herself.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, February 01, 2017 - 12:08 pm
Dating back to before statehood, Alaskans know that overfishing is a bad thing.
Stopping overfishing of salmon and regaining control of the resource was in fact one of the driving forces in the effort to become a state.
What we know about sustainability of our vast fisheries resources is worth applying to yet another debate over another immense asset — our oil — and the means by which that resource is taxed.
Get ready for more proclamations from Democrats, soft Republicans and the friends of Gov. Bill Walker about receiving “our fair share” of the resource through taxation and the debunked claims that the 2013 oil tax reform was a “giveaway” to industry.
The “Alaska model,” as it has come to be known, holds an overarching policy to prevent overfishing and though the enshrinement of sustained yield in the state constitution it has largely been a success.
The reason is simple: while there may be short-term economic benefits to harvesting nearly every fish in the sea, the long-term effect will be to destroy the resource. Some of the fish must be allowed to reproduce to sustain populations in perpetuity.
It isn’t a difficult concept to understand, but when it comes to the oil industry there is a large segment of the population and their politicians who don’t get it.
True, oil, unlike fish, is not a renewable resource. But capital is.
Certainly it is tempting to want to collect every dollar possible from the oil business through taxation, but doing so robs the companies of the investment capital they require to expand existing fields and to discover new ones. In the long run, overtaxing will wreck the economic engine of Alaska in the same way that overfishing decimated the salmon resource.
The cashable tax credits whose origin in policy date back to the 2006 Petroleum Profits Tax have received the bulk of the attention for the deficit-stricken state budget as the tab is running to nearly $1 billion by the end of next fiscal year.
Dealing with the credits is a cash flow problem, however, and the more troubling effort is what is likely to come from either the governor or the new House majority to increase the tax on production.
The leaders of the new House majority and the governor opposed the 2013 production tax reforms and campaigned for the repeal and return to the previous system known as ACES in 2014.
Those critics of the current policy keep pointing to the low production tax revenue at current prices as proof that the regime is a “disaster,” as Senate gadfly Bill Wielechowski endlessly repeats.
Yet according to Walker’s Revenue Department, under ACES the state would have received zero — yes, zero — production tax revenue in fiscal years 2016 through 2018 and the current policy took in more than ACES would have in fiscal year 2015.
In fact, under ACES the state would receive no production tax revenue until the price climbs north of $63 per barrel.
ACES does collect more revenue at higher prices, but returning to the parallel of overfishing, at what cost?
There is no disputing that production declined by an average of 6 percent per year under ACES while the state share averaged 41 percent.
There is no disputing that ConocoPhillips, the most active explorer on the North Slope since 2000, did not look for oil from 2010-12 despite sky-high prices.
There is no dispute that under oil tax reform, we’ve seen no decline in fiscal year 2014, a slight dip in 2015 amid a record amount of drilling and workovers, followed by the first increase in 14 years in 2016.
What’s amazing about the results of the 2013 reform is that oil companies haven’t even seen the upside of it yet.
They have seen prices collapse to the point where losses have amounted to billions in the upstream segment — ConocoPhillips lost more than $4 billion in 2015 and another $1 billion in the first quarter of 2016 — and they are paying more in taxes at these prices than they would have under ACES.
What the 2013 oil tax reform proved is that allowing companies just the prospect of keeping more of their capital to reinvest is enough of an incentive to spur development and discovery even during a brutal price environment.
Not many would have thought when 2016 began with prices bottoming out at $26 per barrel that the year would end with a production increase and hugely successful North Slope lease sale.
The supporters of oil tax reform were proven right, but the fight isn’t yet over against those who would crush the North Slope through overtaxing the way the canneries nearly did to salmon by overfishing.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, January 18, 2017 - 12:20 pm
We aren’t hearing much from the opponents of the 2013 oil tax reform lately.
Facts tend to get in the way of rhetorical hyperbole, and it appears that reality has finally caught up with Democrats and Gov. Bill Walker, who collectively agitated for the repeal Senate Bill 21 in a 2014 voter referendum.
Losing that fight didn’t end the debate, however.
Nor did the undisputed evidence from Walker’s own Revenue Department that SB 21 was bringing in more money than the previous system as prices started to slide late in 2014.
Record employment and record drilling on the North Slope in 2015 didn’t stop the noise, either.
The 2016 fiscal year increase in production — the first since 2002 — was barely noted as the news came amid a chaotic end to the session and Walker vetoing some $1.3 billion in spending on June 29, about half of which was cutting the Permanent Fund Dividend to $1,000.
The calendar year also closed with an increase in production, which followed by only a couple weeks the third-best lease sale on the North Slope since the area-wide offerings began in 1998.
Now comes the news that ConocoPhillips has followed the Nanushuk formation now under development by Armstrong Energy and Repsol with one of its own in the same play that holds 300 million barrels of oil that could flow at a rate of 100,000 barrels per day.
The Armstrong-Repsol project in the neighboring Pikka Unit could flow at a rate of 120,000 barrels per day.
Those two projects combined are a bit less than half of the current fiscal year average through the Trans-Alaska Pipeline System of 510,000 barrels per day, and both companies are further exploring their acreage this winter with the belief there’s even more to be found.
Add in ConocoPhillips’ Greater Mooses Tooth 1 and 2 now in construction and permitting, respectively, and that’s another 60,000 barrels per day with GMT-1 to provide half that total beginning late in 2018.
Should the more longshot prospect being explored by Caelus come to fruition with up to 200,000 barrels per day from Smith Bay, we now have developments that nearly equal the current throughput potentially coming online by the early 2020s.
As we ring in the new year with the state expected to lose 7,500 jobs in 2017 and the sharply divided Legislature convening with its last best chance at fixing a $3 billion-budget deficit, it is the oft-maligned oil industry that is providing a lone ray of hope for the Alaska economy.
When the Legislature inevitably takes up oil tax policy this session, it is important to remember who was completely wrong about SB 21. All of the current developments and the 2016 increase in production would have been at risk if the Democrats and Walker had their way in 2014.
Walker, for his part, had a convenient case of amnesia in responding to the ConocoPhillips announcement after he proposed tax increases on the oil industry just last session.
“It demonstrates that Alaska remains an attractive place to do business and look for oil,” Walker said.
Certainly it does “remain” attractive, but that’s no thanks to Walker or Democrats whose preferred policy resulted in continued annual decline and no discoveries.
It is not hard to draw a straight line from the change in policy in 2013 with the increase in activity and possibly the biggest find since Kuparuk on the North Slope with the Nanushuk play.
ConocoPhillips drilled no exploration wells in 2010, 2011 or 2012. It drilled three last year, made a big find and snapped up hundreds of thousands of acres around its discovery in December despite losing billions in 2015 and 2016 as prices cratered.
The only good thing about that was a temporary pause in Sen. Bill Wielechowski’s banal quarterly press releases pointing to ConocoPhillips profits as a reason to jack up its taxes.
“There is a direct correlation between investment and tax policy,” ConocoPhillips Alaska President Joe Marushack said on Jan. 13 as he described the company’s process for allocating capital between Alaska and the rest of its global portfolio.
“If the tax changes, the economics change, the allocation changes,” he said. “It’s very simple.”
So simple even the Democrats and the governor should be able to get it.
Andrew Jensen can be reached at [email protected]
Posted Thursday, January 05, 2017 - 9:59 am
A brutal year in the Alaska oil patch ended on a positive note as calendar year 2016 followed the fiscal year trend with an increase in North Slope production.
Amid the worst price environment since the late 1990s resulting in thousands of layoffs for the oil industry, production grew in the fiscal year ended June 30 and for the calendar year ended Dec. 31.
With an average of about 514,000 barrels per day for the fiscal year and 517,000 for the calendar year, the state’s most recent production forecast for the current fiscal year predicting a drop to 490,000 appears extremely conservative.
After many recent production forecasts have overshot estimates, the state adopted a new, in-house approach that officials acknowledge will result in lower predictions.
Considering the state’s budget woes, erring on the conservative side is certainly not a bad thing. It will also leave room for a pleasant surprise by the end of the fiscal year.
Current North Slope production from July 1 through Jan. 2 is averaging 507,000 barrels per day, far greater than the forecast as the traditional peak production winter months await.
At 490,000 barrels per day, total fiscal year production would amount to nearly 179 million barrels of oil.
At the current production average, the Slope producers have already pumped 94.4 million barrels through Jan. 2.
What that means is that production would have to average 472,287 barrels per day for the rest of the fiscal year to hit the state forecast of 490,000 per day.
While there has no doubt been a pullback in drilling and well workovers from record levels in 2015, there is as of yet no indication that the production will fall by that much from the current daily average.
In the 2016 period from Jan. 2 to the end of the fiscal year on June 30 while prices averaged less than $40 per barrel, North Slope production averaged nearly 527,000 barrels per day.
That means that to hit the state’s production forecast, the daily average would have to drop by about 55,000 barrels per day during the same period of 2017 — a 10.4 percent decline — even though prices have rebounded to better than $50 per barrel since OPEC announced it would cut production back in November.
There is a conspiracy theory out there that the state is intentionally lowballing price and production forecasts to make the state’s fiscal situation appear more dire than it is — and it is dire — in order to make a harder sell for its package of revenue measures and the use of Permanent Fund earnings to plug the budget deficit.
There is no need to go there, but there is a need to push back on those who keep advancing the idea — including Lt. Gov. Byron Mallott — that the state’s days as an oil realm are drawing to a close.
Given the production increases, the third-best lease sale in decades in December and strong prospects under development, the evidence does not back up those who are spinning the end-of-oil narrative.
Gov. Bill Walker has not exactly expressed enthusiasm for prospects by independents Caelus and Armstrong, and his Natural Resources Deputy Commissioner Mark Wiggin reacted to questions about the 2016 production increase not with celebration but with an Eeyorish comment about how we’re not heading back to our peak production days in the late 1980s.
Production increases should be welcomed, not downplayed, and momentum established after the passage of Senate Bill 21 should be sustained rather than stifled.
The North Slope producers gave the state something to feel good about to end the year, and beating the ultra-conservative forecast in the new year would result in a much-needed boost to the bottom line.
Andrew Jensen can be reached at [email protected]
Correction: The original version of this column attributed a statement about not returning to late 1980s production levels to Tax Division Director Ken Alper. The statement is actually attributable to Natural Resources Deputy Commissioner Mark Wiggin.
Posted Wednesday, December 28, 2016 - 12:10 pm
Not unlike an evicted renter who plugs the toilets and punches holes in the drywall in a petulant rage against the homeowner, President Barack Obama appears intent on causing as much damage as possible before he’s finally forced to exit the White House on Jan. 20.
In between pointless musings over whether he’d have beaten Donald Trump in a hypothetical matchup for an unconstitutional third term and scapegoat-seeking for Hillary Clinton’s well-deserved loss on Nov. 8, Obama has been wreaking havoc on American industry and our closest ally in the Middle East as his eight disastrous years come to an end.
Ten days after voters rejected Obama’s preferred successor in favor of his complete opposite, he yanked the Beaufort and Chukchi seas from the five-year outer continental shelf leasing plan as a precursor to his near-complete withdrawal of the areas a month later that he and his green mafia believe can’t be reversed under a President Trump.
He’s ignoring the law and the permitting process in an attempt to shut down the Dakota Access Pipeline while his agencies continue to promulgate ridiculous “midnight” rules in defiance of Congress.
It’s nothing new for Obama, who took the shellackings he was handed in the 2010 and 2014 midterm elections that cost him the House and the Senate, respectively, not as a message to change course but to continue pushing his rejected agenda on an American public that took its revenge by electing Trump and preserving Republican control of the Senate.
Obama’s policies both domestic and foreign have been a disaster, from the unaffordable “Affordable Care Act” to Libya, Syria, Iraq, Iran and the infamously failed “reset” with Russia that sees him leaving office accusing the dictators he once buddied up to of meddling in the election to defeat Clinton.
The free-wheeling and unfiltered Trump has rattled nerves with his tweets about nuclear arms and actions such as taking a phone call from the Taiwan president, prompting the more hyperbolic to claim he’s going to start World War III with a 3 a.m. Twitter rant.
Instead it is Obama who seems determined to leave Trump with a world teetering on the brink of major conflicts as he floats sanctions against the Russians and stabs Israel in the back with a twist of the knife from the can’t-be-gone-soon-enough Secretary of State John Kerry.
Make no mistake, Israel will not abide by or respect the U.N. Security Council resolution declaring its settlements illegal and Jerusalem to be occupied territory, nor any plans Kerry has for laying out a vision for a peaceful solution after eight years of Obama betraying Israel at every turn and bending over while the Iranians pursue a nuclear weapon.
Israel will not allow itself to be threatened, sanctioned or attacked by its enemies, yet Obama has made another of his endless series of miscalculations in the Middle East that make a widespread conflict more likely, not less.
At least Israel knows it will have a staunch ally once again when Trump takes office, and we will see how far he goes to restore the relationship and whether Congress will follow through on calls from some to defund the U.S. contribution to the United Nations budget.
A better idea couldn’t be imagined than that by columnist Charles Krauthammer that Trump should find a way to kick the U.N. out of New York City and turn the building into condos.
At this rate, President Bill Clinton’s staff taking all the “W” keys off the computers and stealing furniture looks downright cute next to the malevolent Obama as he leaves office filled with anger at the American public who elected a man determined to undo his failed legacy.
The “undo list” is getting pretty long, and Jan. 20 can’t get here soon enough.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, December 21, 2016 - 2:35 pm
The next year could be even wilder than 2016, if that’s possible.
In less than a month, Donald Trump will be sworn in as the 45th president of the United States and the Alaska Legislature will convene in Juneau for its last serious crack at addressing the state’s burgeoning budget deficits.
It’s almost appropriate that one of Gov. Bill Walker’s last acts of the year was to kill the Juneau Access Project, because the Legislature has run out of road to kick the can.
The state’s savings won’t last more than another year and we’ll have to wait and see whether the dynamic of a three-way power struggle between the Republican Senate, Democrat House and independent governor forces a solution or only produces gridlock worse than what we’ve witnessed in the last two years.
Still, the ringing in of a new year is supposed to bring optimism and in that spirit here is a wildly optimistic wish list for 2017:
Stop pandering and fix the problem
This goes for both the budget hawks and the tax credit hawks heading to Juneau. To the budget hawks: Stop pretending there are hundreds of millions of dollars still to be cut out of the budget.
No doubt there are cuts that can be still made, and efficiencies to still be found, but none of it will add up to enough to avoid using Permanent Fund earnings, and thus reducing the dividend, or raising additional tax revenue.
There was bipartisan squealing when Walker cut the PFD appropriation by $666 million, but nobody on the right or the left side of the aisle ever put forward a plan to reduce the budget by that much.
Any tax increases, however, should go to the right places in the budget. Raising the fuel tax makes sense if it helps the Department of Transportation budget. The same goes for fish taxes.
To the tax credit hawks (and Walker): Pay the state’s bills. It doesn’t matter where you come down on the credit issue; this money is owed and it has to be paid sooner rather than later.
Democrats, and the Republicans who switched sides, are doing great damage to the state by demagoguing this issue as credits versus PFDs.
By all means, find a way to replace the credit program with something else that will still encourage development such as royalty modification (if they want to forgo future revenue to avoid the up-front development costs), but the state must get right with the companies it owes.
Democrats howl about “Big Oil” benefitting from the credits but in fact it’s “Small Oil” that is getting screwed and being forced to sell off credits to the majors to raise cash, and therefore reducing future state revenue.
The best thing the majority leadership has done is put Reps. Andy Josephson and Geran Tarr as co-chairs of the Resources Committee. They both seem to get that the state has become an unreliable partner to industry, and that whatever changes take place must first do no harm. Paying the bills would be a good place to start rebuilding the state’s reputation.
Tax and regulatory reform
On the federal side of things, we’ll see if noted budget guru House Speaker Paul Ryan has the stuff to finally fix our bloated and onerous tax code.
Corporate tax reform should be a must. Ours is the highest in the world and yet accounts for less than 10 percent of tax receipts.
That’s because corporations do everything they can to minimize their bills, often paying effective rates far less than 35 percent through deductions and exemptions, keeping their overseas profits offshore, or up and moving completely out of the U.S.
For those who complain about the influence of lobbying in D.C., you could probably wipe out half the lobbyists, lawyers and accounts there if you cut the corporate rate to 15 percent and removed all the incentives to game the system.
The same goes for regulatory reform. The bigger the government gets, the more big business gets to take advantage. Dodd-Frank is a prime example of how a regulatory reform kills small players and benefits the big hitters.
A smaller government is less influenced by big money.
The word is the Republicans have a plan in place to repeal it. Whether they have a plan to replace it is less certain.
One easy fix should be on the table, as should one fundamental one.
The easy fix is knocking down the state line barriers to buying coverage. Nobody understands this better than Alaska, where we’re left with just one provider in the individual market because our small population is almost impossible to manage as a risk pool.
Put us in a pool with 300 million other Americans and premiums would drop instantly.
The fundamental fix should be transferring to a system where all individuals own their policy and don’t depend on an employer to provide it.
Nobody loses their car insurance or life insurance or home insurance if they lose or leave a job. A system where you own your health policy and can shop for it in a national marketplace like every other insurance product would go a long way toward finally putting the “Affordable” in the Affordable Care Act.
If the legislators in Juneau and the new Congress and president could pull off this wish list it’s going to be Merry Christmas indeed in 2017.
Posted Friday, December 16, 2016 - 12:12 pm
President-elect Donald Trump reportedly offered defeated Democratic nominee Hillary Clinton five cents on the dollar for the fireworks victory display she canceled at the last moment, but he could save all his money and just watch liberals’ heads explode as he fills his cabinet.
There’s a saying that you can judge someone by the company they keep, which is true, but sometimes it as just as useful to see who are their adversaries.
Consider the latest statement from Greenpeace regarding the choice of Rep. Ryan Zinke, R-Mont., a 23-year veteran of the Navy SEALs, as his choice for Interior Secretary:
“Trump is on record calling climate change a hoax, and his proposed cabinet is filled with climate deniers, oil and gas industry shills, and hateful bigots. Climate-denying Montana congressman Ryan Zinke will fit right in. Zinke never worked for the people of Montana. He works for the fossil industry and coal companies, shilling for coal export terminals in disadvantaged communities in states he does not even represent.”
Gee, Greenpeace, how do you really feel?
It goes on:
“If climate change denial is going to be the official position of the Trump White House, then relentless resistance will be the official position of the American people.”
It’s cute that Greenpeace thinks it speaks for the American people. Cute like how little kids can’t pronounce “spaghetti,” with the only difference that kids eventually grow up (or don’t, if you look at the Play-Doh, coloring books, safe spaces and therapy dogs deployed on college campuses after Trump’s improbable win).
What a year it has been.
Here in Alaska it began with Gov. Bill Walker picking a fight with the producers over the Prudhoe Bay Plan of Development and is coming to a close with the CEO of one of those companies now poised to become the unlikeliest choice for Secretary of State by the unlikeliest president in U.S. history.
Rex Tillerson of ExxonMobil, who famously called Alaska “its own worst enemy” in September 2015, is about as unconventional a choice as Trump could make and although at first impression it was a head-scratcher on second thought there is likely no CEO with more diplomatic experience than Tillerson.
Who is better equipped to deal with the Russian strongmen like Vladimir Putin or the corrupt oil emirs of the Middle East than a man who actually has to do business with them?
An account of Tillerson in Forbes described him as the most “no nonsense” CEO the writer had interviewed in 17 years, as a man who still lists Eagle Scout on his resume and actually lives by the Boy Scout motto.
The left is howling about ExxonMobil’s Russian business interests after just voting for a candidate who whored herself out all over the world trading political favors and influence in exchange for Clinton Foundation donations that kept her, her husband and daughter living a luxurious lifestyle far beyond anything they’ve rightfully earned on merit.
He’s also a major step up from the feckless John F. Kerry, who has gotten rolled time and again like an Atlantic City tourist sitting at the poker table in the famous scene out of “Rounders.”
Put it this way: Nobody is going to look around the table at Tillerson and peg him for the sucker.
Rick Perry at Energy. Zinke at Interior. Rep. Scott Pruitt at EPA.
The media is aghast that Trump is nominating people who have blasted the agencies they are set to lead, which just goes to show they still don’t understand what’s going on any more than they did on Nov. 7.
The federal bureaucracy, which became a weapon under President Barack Obama as he failed to get anything through Congress, needs to be reined in and the people who are most familiar with its worst excesses are best positioned to do it.
The Energy Department doesn’t produce any energy. The EPA stands for Everything’s Prohibited Agency. The Education Department was formed in 1977 and we’re barely in the top 20 of math and science scores among global peers.
We can only hope that the polling that as much as 35 percent of the federal workforce would quit if Trump won was even half accurate. It would be a good start.
Posted Wednesday, September 07, 2016 - 12:40 pm
The home of the Salem witch trials has birthed another effort to hang the imagined heretics, and the State of Alaska is seeking to supply the judges with the rope.
Massachusetts Attorney General Maura Healey, along with 19 other attorneys general from 17 states, the District of Columbia and the U.S. Virgin Islands, have mounted an inquest against ExxonMobil seeking as much as four decades worth of internal documents and communications with independent groups in an effort to prove the company “knew” its fossil-fuel based products were going to destroy the planet and hid the evidence.
Under the guise of consumer protection backed by the threat of law enforcement, the thin veil on this masquerade was pierced almost immediately in April through uncovered emails obtained in a Freedom of Information Act request that showed climate change activists not only colluding with the AG offices from New York and Vermont about their strategy to bury ExxonMobil under a flurry of subpoenas but to also conceal their participation in the effort.
Unbelievably, Alaska’s brand new Attorney General Jahna Lindemuth is siding with those undertaking this blatant abuse of government power.
Lindemuth joined 16 other attorneys general — nearly all from the so-called “Green 20” group who launched this effort March 29 alongside carbon footprint hypocrite and former Vice President and Al Gore — in an amicus brief filed Aug. 17 in opposition to ExxonMobil’s complaint against Healey filed in federal court that seeks to quash her crusade against the company.
ExxonMobil took its case to federal court in North Texas, where it is headquartered, alleging that the Massachusetts AG is leading an interstate effort against it rooted in no law but rather in a purely political shakedown aimed at putting the company out of business and silencing those who diverge from the Green 20’s dogmas.
Because make no mistake about it. These AGs and their supporters who sought to conceal their involvement in this case want to put ExxonMobil into the same place it drills for oil and gas: the ground.
Also make no mistake about this: The same people who Lindemuth lined up with also want to put Alaska out of business.
Oh, Lindemuth has tried to defend her action as a “states’ rights” issue in a pathetic attempt to separate the amicus brief from the underlying action against ExxonMobil, but there is no differentiating the two.
While there is certainly a sound argument to be made that an entity subject to a state inquiry shouldn’t be able to go to federal court to halt the action, that is far from the case here.
The brief cites the undisputed authority of state attorneys general to investigate “fraudulent, misleading, or deceptive practices” within their jurisdictions, but there is no squaring that circle against the bogus charges being leveled against ExxonMobil.
Attorneys general do not have the authority to use the power of their offices to pursue political advocacy or to target people and organizations with differing perspectives.
Yet that is the practice that Lindemuth is attempting to secure through her joining this case as a friend of the Massachusetts AG’s defense.
The examples cited in the brief include 46 attorneys general who successfully litigated against the tobacco industry and the 50 who joined the investigation into fraudulent mortgage practices.
Were this such an obvious states’ rights issue, it is more than a little telling that the amicus brief was joined by so few attorneys general. The refusal of more to sign on is a glaring indication that the vast majority of states’ chief law enforcement officers see this effort for the transparent sham that it is.
Other cases cited included a Toyota recall, “four nationwide sham cancer charities,” and a telecommunications company based in New Jersey that was successfully sued by the State of Texas for fraudulent promises of service.
“These joint efforts have greatly enhanced the ability of state Attorneys General to uncover and halt widespread practices that harm individuals and businesses across the nation,” according to the amicus brief.
That’s all well and good, and rooted firmly in legal precedent.
It also has absolutely nothing to do with what the Green 20 are doing to ExxonMobil.
Considering that ExxonMobil is being targeted across multiple states with AGs and judges sympathetic to the Green 20 effort, it is laughable that Lindemuth would accuse the company of “forum shopping” in her letter to House Speaker Mike Chenault and House Judiciary Chair Gabrielle LeDoux.
If ExxonMobil is to be forced to defend itself in as many as 20 courthouses around the country it is only fair play for the company to seek any advantage it can, including taking these rogue attorneys into federal court.
Lindemuth told Chenault and LeDoux that “bad facts make bad law.”
Bad lawyers make bad law, too, and allowing these AGs to debase the law for their political aims will do far more damage than stopping this injustice in its tracks.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, August 17, 2016 - 11:55 am
Much like Usain Bolt in the 100-meter dash, contests for the state Legislature in November figure to be races in name only.
What drama could be found took place on primary night and ended up decided by a tiny fraction of Alaskans even in the contested elections.
Democrats succeeded in toppling one of their top targets within their party — Rep. Bob Herron of Bethel — and Republicans did the same by taking out one of their own as George Rauscher defeated Rep. Jim Colver in the Mat-Su Valley.
The Democrats may go two-for-two in their efforts to knock off members of their party from Bush Alaska who caucus with the Republican-led Majority of the state House. Rep. Ben Nageak was leading by just nine votes against Dean Westlake with 87 percent of the vote counted as of this writing.
GOP interests failed to take out Rep. Paul Seaton of Homer, another prime target from their ranks, and saw influential members of their House delegation fail in their bids to elevate to the Senate with the losses of Reps. Lynn Gattis of Wasilla and Craig Johnson of Anchorage.
Seaton and Colver are members of the self-titled “Musk Ox” caucus that coalesced late in 2015 when the Republican leadership, frustrated with Democrats holding out votes to reach the magic 30 of 40 to draw from state savings in the Constitutional Budget Reserve, introduced a measure that would have emptied the Permanent Fund Earnings Reserve into the CBR in order to remove the requirement for a three-fourths vote to fund the budget.
The Musk Ox caucus continued to draw party ire in 2016 as they joined with Democrats on bills sharply curtailing the state’s oil and gas tax credit program, creating an embarrassing situation for House Speaker Mike Chenault, R-Nikiski, who couldn’t wrangle his majority and had to pull bills from the floor once it became apparent he didn’t have the votes.
Chenault, who served a record four terms as Speaker, is stepping down from that role although he is headed back to Juneau with no opposition either in the primary or general elections.
With only half of the body up for reelection, the Republican-dominated Senate shouldn’t look much different in 2017. That can’t be said for the House after the primary shakeups and the entry of a yet undetermined Speaker.
No matter what happens in Nageak’s race, there is a strong possibility for a bipartisan coalition of some kind that could end up controlled by Democrats, who already succeeded this year in determining votes by linking with the Musk Ox Republicans and a couple other stray members of the Majority.
The Democrat minority had 13 members last year including independent-in-name-only Dan Ortiz of Ketchikan, who will face a Republican challenger in the general election.
If Ortiz returns, Nageak loses, and other districts maintain the status quo, the Democrat caucus would number 15. The five remaining members of the Musk Ox group could create a caucus of 20, which still isn’t enough to control the House.
That would leave the Musk Ox Republicans with a choice of being a minority within their own party, or a minority among their supposed opposition party.
Seaton, who’s opposed the oil and gas tax credit program and proposed a state income tax, aligns well with the Democrats on their favorite means of closing the budget gap.
Attacking the state’s No. 1 industry and going after the state’s federal taxpayers are bad policies but make for good politics, and they also happen to jive with Gov. Bill Walker’s revenue strategies even though they’ll diverge sharply on reducing the PFD to completely close the deficit.
This is probably a good time to recall that when 10 Democrats and six Republicans formed the Bipartisan Senate Majority they passed the most bloated budgets in Alaska history from 2006-2012.
In the end, it’s difficult to tell if Alaskans even care who goes to Juneau.
The highest turnout in any district on primary night was 21 percent in Herron’s race vs. Zach Fansler, followed by 18 percent in Seaton’s race.
While it’s understandable that uncontested primaries had pathetic turnout with no statewide ballot initiatives to draw attention, seeing turnout of 15 percent to 17 percent in supposedly competitive elections in the Valley, Eagle River and South Anchorage sends a pretty clear message to legislators: We don’t give a flying you-know-what.
It’s bad enough that districts have been so gerrymandered as to render nearly every race uncompetitive. It’s worse when even in races that matter more than 8 in 10 Alaskans didn’t bother to register an opinion.
An old axiom is that we get the government we deserve, and Alaskans’ nonchalance in the face of serious times means we’re going to get it good and hard.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, July 27, 2016 - 1:14 pm
Gov. Bill Walker likes to talk about his background in construction and how much he loves building things, but so far after a little more than 18 months in office his most successful project has been demolition.
The effort to undermine and eventually dismantle the Alaska LNG Project that began within days of Walker taking office in December 2014 culminated July 22 with the official announcement that his former law partner and Attorney General Craig Richards had been signed to a $275-an-hour contract barely a month after he resigned citing personal reasons.
With his man Keith Meyer heading up the Alaska Gasline Development Corp., a compliant board of directors and a contracted legal hit team in place, Walker is ready to go it alone on the project and to war with the producers.
It is important to recall what Walker said while campaigning for the office about the Alaska LNG Project that was orchestrated under former Gov. Sean Parnell.
“I’ll follow the process in place now, you bet I will,” Walker said on Oct. 28, 2014, at an Anchorage Dowtown Rotary Club debate. “But at the first sign of delay, or someone says ‘we’re going to slow this down,’ that’s when the state needs to have a governor who understands what to do and has the guts to say, ‘we’re going to finish this project as Alaskans.’”
Having created the circumstances himself that threaten to delay the project, Walker now has what he planned for all along: a state takeover of AK LNG and a break with Alaska’s North Slope partners.
The shadowy effort to execute this plan began with Walker’s hiring of Jim Whitaker, the former executive director of the Alaska Gasline Port Authority, as chief of staff and Richards as his AG.
The AGPA was Walker’s effort to build a pipeline from the Slope to Valdez to export LNG, but it failed because the group never had access to any gas, which, ironically, is where the state finds itself once again.
In early January 2015, Walker unceremoniously sacked two members of the Alaska Gasline Development Corp. board of directors on the eve of a regular meeting. One of the members didn’t find out he’d been dismissed from the board until he got off the airplane in Anchorage.
Walker then instructed his new commissioners and new board appointments at AGDC to not sign confidentiality agreements, setting up his first of many unnecessary fights with the producer partners.
A month later, Walker wrote an op-ed in which he put forth a plan to create a parallel pipeline effort to AK LNG as a backup in case one or more of the producers pulled out of the project despite no evidence such a decision was even under consideration.
In June 2015, Walker sent a letter to the producers asking them to study a 48-inch pipeline rather than the standard 42-inch pipeline, which added additional time to the preliminary engineering process and cost $20 million. The study and expense ended up a total waste of time and money as the project team maintained the design at 42 inches.
Around that same time, Richards hired Mark Cotham, a Houston-based attorney who’d done contract work for the Port Authority and penned an op-ed in the Juneau Empire in 2005 that advocated threatening producers’ leases as a means to spur development of the Slope gas resource.
Also that month, Richards issued a legal opinion concluding that a constitutional amendment was needed to set fiscal terms for the state’s share of the gas over long-term contracts.
As it turns out, this legal opinion requiring a general election vote in 2016 on a constitutional amendment to keep the project on schedule was the most clever of all Walker’s strategies to drive a wedge between the state and the Slope producers. But we’ll come back around to that.
That September, Walker called a special session of the Legislature to buy out TransCanada’s share in the project and make the state responsible for 25 percent of the costs. Not only did Walker put the buyout on the call, but he also resurrected the gas reserves tax that his chief of staff Whitaker authored in 2005 that was voted down in 2006 by a 2-1 margin.
Much like his idea for a parallel pipeline effort, the idea was panned roundly by legislators and the producers as counterproductive and Walker — after his usual, doe-eyed, “What’s the big deal?” routine — ended up not even introducing a bill.
He did, however, later extort written statements from BP and ConocoPhillips that they would sell gas to the state if they chose to exit the project.
The Legislature then, rather gullibly, voted to give Walker the keys to the state portion of the project.
With the state’s 25 percent share acquired, Walker kept moving with his plan, declared that “We’re TransCanada now” and fired another two AGDC board members including chair John Burns and the CEO Dan Fauske.
Of course he wasn’t even close to done.
Two events then took place in January. Richards had Department of Natural Resources Commissioner Mark Myers send out a letter to all the unit operators in the state demanding detailed gas marketing information. Disguised by the apparent equal treatment of all operators was the true target: the Prudhoe Bay Unit operated by BP and the source for three-quarters of the gas for the AK LNG Project.
Walker then sent a detailed demand letter to the producer partners laying out a heavy schedule of commercial and gas balancing agreements he said were necessary to be completed by April in order to meet a June deadline to place a constitutional amendment on the November general election ballot.
Here is where the decision to require a constitutional amendment was the master stroke of the plan.
In February, Myers resigned as commissioner at DNR about a week after his Deputy Commissioner Marty Rutherford told Journal reporter Elwood Brehmer that agreements would not be complete in time for a November vote.
Securing fiscal terms is a critical component to moving to final engineering and design, and not getting it on the ballot — again, a situation created by Walker and Richards — achieved its purpose by throwing up a roadblock to the producers moving forward and gave Walker the opening to portray the companies as not committed to the project.
On the same day Myers’ resignation was announced and a week after the Journal story was published, Walker called what can only be described as a hostage video of a press conference on Feb. 17 dragging up BP Alaska President Janet Weiss and ConocoPhillips Alaska President Joe Maruschak to announce that progress had stalled on AK LNG.
By now, oil prices had dropped to less than $30 per barrel compared to the $80 range when Walker took office and started tearing down the project he inherited.
With the bonus of collapsing prices along with the artificial timeline of a constitutional amendment working as intended to derail negotiations — there was no reason talks couldn’t have continued absent a need to seal all the deals in time for a November vote — Walker instructed his team to break off discussions with the producers.
At this moment, Walker was pursuing Keith Meyer to take over AGDC, and he made his splash immediately after taking the job in mid-June by asserting the state could lead the project with or without producer participation, draw investors from around the world by selling off pieces of the project and do all of this with almost no risk to the state treasury.
Part of selling this idea to legislators required creating the perception that the producer partners were “shelving” the project and had no desire to go forward.
It didn’t take long for Meyer to keep putting words in their mouths before ExxonMobil fired back with a strongly worded response that Meyer was issuing “inaccuracies” and mischaracterizations about the company’s belief in AK LNG.
So here we find ourselves with the state’s best hope for future petroleum revenue drenched in uncertainty and Walker’s legal team preparing to litigate with the producers over unreasonable demands for confidential information tied to a unit that supplies half of Alaska’s unrestricted general funds and is still the largest field in North America.
Walker’s lack of transparency and honesty over his true intentions for the AK LNG Project have been borne out by his actions. He’s paid lip service to the project and our partners all the while taking every step possible to crater the effort.
What Walker wants is clear. What makes him think he’ll be successful other than a circle of like-minded people rooting him on is impossible to decipher.
This kind of litigation will take years upon years. Years the state doesn’t have to waste. Years that will extend well beyond one or two four-year terms for Walker.
Walker’s attempt to divorce the state from its partners and lead the way on a project that will cost $45 billion or more is doomed to fail, and will cost Alaska dearly.
The governor likes to say he ran to do the job, not to keep the job, but it’s questionable how many voters would give him the job again if they knew his ulterior motive was to blow up AK LNG and start a legal war with the Slope producers.
Alaska has a few brick-and-mortar testaments around the state to the government’s inability to execute mega projects, or even simple ones.
Walker’s Quixotic quest to build the gasline himself gives him a chance to be the state’s first living boondoggle.
Andrew Jensen can be reached at [email protected]