Andrew Jensen

AJOC EDITORIAL: Tax credit program would benefit from transparency

When the Legislature finally adjourned after a second special session to pass a budget this past spring, about 20 percent of the approximately $3.5 billion deficit was related to payments from the state’s oil and gas tax credit program. Unlike deductions, which the large producers use on a per-barrel basis to reduce their tax liabilities, the credits are direct payments from the state to mostly independent companies exploring for oil and gas in Cook Inlet and the North Slope. Gov. Bill Walker roiled the industry and lending circles with his move in late June to use his line item veto authority to reduce a $700 million appropriation for the credits by $200 million, deferring the payments to future fiscal years. The short-term effect was a credit freeze between lenders and explorers that required damage control by the state Revenue Commissioner Randall Hoffbeck to assure financial institutions and private equity firms that Alaska would make good on the payments owed. That’s according to the report released Dec. 1 by the Senate Oil and Gas Tax Credit Working Group formed among members of the Senate Majority and Minority member Sen. Bill Wielechowski, D-Anchorage. The report was short on recommendations to actually reduce the annual outlays and focused more on going slow with any changes so as not to disrupt projects in the development stage, protecting the state’s interests should a company go into bankruptcy as Buccaneer Energy and Cook Inlet Energy have, and firming up the tax “floor” on production taxes so companies cannot use a net operating loss, or NOL, deduction to reduce their liability to less than 4 percent. Cementing the tax floor seems to be a no-brainer and should be an easy fix by requiring companies to spread the NOL out over multiple years if necessary to ensure a minimum production tax is received. Ultimately, though, there is no silver bullet to fix Alaska’s revenue problem at the current oil prices under any current or prior tax system. Without question the oil and gas credits, or rebates, require examination along with every expenditure the state is making. There is also no question that the state’s oil and gas credit system has major successes to tout. The Cook Inlet gas supply resurgence led by Hilcorp would not have happened absent the credit system, nor would the recent start of gas production by Furie Operating Alaska that is now delivering gas to Homer Electric Association at a lesser price than some of Hilcorp’s customers from the first new production platform seen in Cook Inlet in more than three decades.  Looking to the North Slope, the independent Caelus is currently developing the Nuna prospect it acquired from Pioneer Natural Resources in 2014, and is scheduled for production in 2017. Hilcorp has entered also the fray by purchasing some smaller BP assets and has now submitted a development plan for the Liberty offshore field that could produce 60,000 to 70,000 barrels per day by 2020. The majors are also spending money on the Slope despite the price crash. ConocoPhillips has spent $1.5 billion developing Drillsite 2S in Kuparuk and the CD-5 field in the National Petroleum Reserve-Alaska. It also just sanctioned a billion-dollar project at Greater Moose’s Tooth-1, also in the NPR-A. When companies continue to spend money in the current price environment and bid on acreage as many independents did at the recent state Slope lease sale, something is working. While we can piece together a rough picture of how credits may be benefitting the state economy, the credit program needs to be more transparent. The public has a right to know how much in credits is being paid out and for what projects. That is the only way to tell if the state is getting something back for what it is spending. The working group reached a rather strange conclusion in its recommendations to disclose the amount of credits paid by project, but not the recipient of the credits. It is hard to understand what difference it would make to withhold the recipient of the credit while disclosing the project for which it was paid. Under the since-discontinued film tax credit program, the public was able to see the project, the recipient, the amount of the credit and the qualifying expenditures that led to the credit. If the oil and gas industry really wants to see this program continue, they should be disclosing how much they’re spending, what they’re spending it on, and how many people in Alaska are being hired as a result. A simple return on investment analysis of credits relative to production taxes does not capture things like local wages, their multiplier effects or the economic impact of ratepayers in Homer or elsewhere benefitting from lower utility costs. The best way to ensure a stable credit system continues — and it must continue — is to make it more transparent.

Alaska, BC sign transboundary MOU

This story has been updated with clarification and a comment from Seabridge Gold Inc. Vice President of Environmental Affairs R. Brent Murphy. Gov. Bill Walker and British Columbia Premier Christy Clark signed a Memorandum of Understanding Wednesday morning committing to cooperation on transboundary issues, particularly related to concerns in Southeast over mines on the Canadian side of the border. The MOU will create a Bilateral Working Group on the Protection of Transboundary Waters that will facilitate the exchange of best practices, marine safety, workforce development, transportation links and joint visitor industry promotion. It will also explore other areas for cooperation such as natural resource development, fisheries, trade and investment and climate change adaptation. The neighboring U.S. state and Canadian province will work together on water quality monitoring, scientific information exchanges, resource sharing and facilitating access to information and soliciting input from First Nations, Alaska Native Tribes, and other stakeholders. Lt. Gov. Byron Mallott will lead the Alaska side of the working group and the Minister of Environment and Minister of Energy and Mines will lead the BC side. “As our next door neighbor, Canada plays a significant role in many Alaska industries, including trade, transportation, and tourism,” Walker said. “This MOU underscores that connection, and I thank British Columbia Premier Clark for her support and cooperation in advancing this important relationship “As we work to improve our state’s economy, it is important that we actively reach out and foster good relationships with our trading partners and neighbors with whom we share so much in common.” In an interview with the Journal, British Columbia Minister of Energy and Mines Bill Bennett said the MOU signifies a “change in how we do business” between Alaska and BC. “How we were doing business was the state and province cooperated on mine approvals and permitting that takes place in British Columbia that has potential to impact Alaska,” he said. “But there wasn’t very much public awareness of that relationship and it was incredibly difficult for Tribes and conservation groups and fishing groups to get information on our processes. “We realized that was a shortcoming of our approach and Alaska realized they needed to communicate more with Alaskans on the opportunities the state has to be involved in our process. It’s a matter of opening our doors to acquiring information and making it easier. We’re adding to the opportunities for them to be involved. “This is sealing the deal by having the two leaders sign a deal that says ‘we’re going to do a better job on issues between the jurisdictions.’” There was initially some confusion among the Southeast stakeholders who have been pushing for action on transboundary issues. They had been presented the draft of a statement of cooperation on Nov. 16 by Mallott and told they had two weeks to provide comments to the state. After the announcement, Salmon Beyond Borders, a coalition of Southeast stakeholders representing Tribes, fishing and conservation groups, released statements blasting the timing of the signing and the nonbinding nature of the agreement. A spokesperson from the governor’s office clarified to the Journal that the MOU signed Wednesday was not the one presented to the stakeholders for comment Nov. 16, and that the comment period has been extended to Dec. 11. The MOU signed Wednesday is the “umbrella agreement,” Bennett said, which creates the working group that will facilitate the access and cooperation between the two jurisdictions. Southeast stakeholders have repeatedly called for the involvement of the International Joint Commission, which regulates disputes under the Boundary Waters Treaty of 1909. “Since day one, the fishing industry has called on the state and Congress to secure legally binding agreements between the U.S. and Canada with substantial habitat protection and mitigation requirements to ensure the state’s interests are protected,” said Dale Kelley, Executive Director of the Alaska Trollers Association, in the Salmon Beyond Borders press release. “Alaska has instead signed non-binding agreements with British Columbia that offer no visible means of holding Canada, or the mining companies, accountable for mitigating our losses should accidents like the one at Mt. Polley occur in the region.” Kelley was referring to the Mount Polley mine tailings disaster on Aug. 4, 2014, that spilled millions of gallons of mine waste into the Cariboo region of British Columbia, polluting several lakes and watersheds. Concerns over mine waste polluting Alaska watersheds have been elevated by several proposed cross-border mines, particularly the proposed KSM mine near the Unuk River watershed that will also require a large tailings dam structure; there is also ongoing acid rock drainage flowing into a tributary of the Taku River from the abandoned Talsequah Chief Mine. From R. Brent Murphy, Seabridge: “Seabridge wants to clarify that our proposed TMF (tailings mine facility) associated with the KSM Project is not situated in the Unuk watershed  or a watershed that drains into Alaska, contrary to the assertions of those who are the most vocal with regards to transboundary development.  Our TMF will be situated within the Nass watershed, a watershed that drains entirely into Canadian waters. "We also want to highlight that the water quality within the Unuk River is currently being impacted by naturally occurring acid rock drainage originating from the exposure of the Mitchell Deposit within the head waters of Mitchell Creek (which is a tributary of the Unuk River). This naturally occurring acid rock drainage results in naturally elevated concentrations of many metals within the river, including copper, iron and zinc. These elevated concentrations have been identified during our extensive baseline sampling of the Upper Unuk River  and associated watersheds, which has been ongoing since 2008.” After Bennett visited the Talsequah site in August, government agencies issued a letter to the owners of the mine Nov. 10 that they have 90 days to come up with a plan to stop the acid rock drainage. Although the drainage has been ongoing for years, tests by several government agencies have found that fish in the Tulsequah River are not being affected by the discharge. Regarding the Tulsequah mine, Bennett said the company has told the province it will have a plan to improve the site but that it will stop short of reopening the water treatment plant because the small exploration company doesn’t have the financing. “We think we have some opportunities here to have the company improve the site,” he said. “The best thing would be to develop the site, create cash flow for the company that can open the treatment plant, operate the mine, then close the site, remediate the site, and stop the leaching. That would all be paid for by company as opposed to the public. “That’s what BC has been trying to see happen for 20 years.” He said the fact no harmful effects have been measured by agencies on either side of the border affects how the province is approaching the mine, but that could change if damage was being done. “If the scientists in Alaska and British Columbia were saying that the drainage was harming the water, harming the fish, we’d obviously have a different reaction,” he said. “I think we should do more study, more monitoring, to make sure about the impacts. “If it was determined that there is a negative impact, I think BC would have to take more dramatic action and we’d be responsible for that site. The government would probably have to take it over. I don’t see it happening any time soon, but I acknowledge that it’s a possibility in the future.” Bennett also said there is a “fundamental misunderstanding” of what role the International Joint Commission, or IJC, could play on Alaska-BC transboundary issues. As sub-national jurisdictions, Alaska and BC cannot sign legally binding documents, and the IJC could only get involved if both the U.S. and Canada agreed to it, and if there was a complete breakdown in communications between the nations. He noted that there is a “tremendous amount of pressure on both jurisdictions” related to preserving watersheds from mining impacts and the signing of the MOU is a strong public commitment to working together. “It’s there for the world to see,” he said. “It’s shortsighted to say it won’t impact BC or Alaska.” Andrew Jensen can be reached at [email protected]

Walker shakes up AGDC board again, adds Hopkins, Luiken

Alaska Gov. Bill Walker, who replaced two members of the Alaska Gasline Development Corp. board of directors shortly after taking office this past January, has shaken up the board again by dismissing board Chair John Burns and swapping one of his cabinet appointments. Walker replaced Burns with former Fairbanks Mayor Luke Hopkins, who served on the board of directors of the Alaska Gasline Port Authority, which Walker led and represented as general counsel since its creation in 1999. The move comes a day before the AGDC board is to meet in Anchorage to finalize the state’s buy out of TransCanada’s interest in the Alaska LNG Project, the $45-$65 billion gas project in which the state is partnering with the three major North Slope producers ExxonMobil, BP and ConocoPhillips. “As the state transitions to play a larger role in the Alaska LNG project, it is absolutely critical that we have strong leadership in place to guide our endeavors,” Walker said in a statement. “I also plan to work on direct communication between the Governor’s office and the legislature, and I will continue to look for opportunities to include them in discussions about the project. I look forward to working with the AGDC Board and the legislature in the coming months and years as we work to bring Alaska’s natural gas to the world market.” It’s the second appointment Walker has made to the board with ties to the AGPA. Rick Halford of Dillingham, who worked as a lobbyist in 2005 for AGPA and was paid more than $100,000 by the entity, was appointed to the board in January. Two days before a scheduled AGDC board meeting in January, the governor dismissed former state legislator Drue Pearce, Al Bolea, a retired BP manager, and Richard Ranibow, a former ExxonMobil pipeline project manager, from the board. Walker replaced them with Halford, Joe Paskvan of Fairbanks and Hugh Short of Anchorage. Halford and Short were confirmed by the Legislature while Paskvan, who served in the state Senate from 2009-12, was rejected. At the time Walker said he wanted a transparent board and ordered new members from his administration — Department of Labor Commissioner Heidi Drygas, and Acting Commerce Commissioner Fred Parady — not to sign confidentiality agreements. He retained public members Dave Cruz, owner of Cruz Construction Inc., and Burns. Walker eventually appointed Chris Hladick as Commerce Commissioner, replacing Parady, and has now replaced him with Department of Transportation Commissioner Marc Luiken. Walker has loaded the AGDC board and his staff with former associates from the Alaska Gasline Port Authority, which was formed to build, or cause to be built, an Alaska gasline. Among Walker’s staff are former AGPA Executive Director Jim Whitaker, now Walker’s chief of staff; former law partner and current Attorney General Craig Richards; Halford; and former authority consultants Rigdon Boykin and Radoslav Shipkoff. Boykin and Shipkoff have drawn attention for contracts paying them more than $100,000 per month, and Boykin, who was the third lead negotiator Walker has chosen in less than a year in office, was recently sent home to South Carolina by Walker for time off. Walker has since said he’d like to find another role for Boykin in the project. The seven-member board also includes Joey Merrick of Anchorage and Department of Labor and Workforce Development Commissioner Heidi Drygas.

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