Throughput committee focused on oil

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Governor’s oil tax bill has 1st hearing in committee co-chaired by Peter Micciche, who’s looking for more production from tax changes

Steve Quinn

For Petroleum News

Sen. Peter Micciche has been in office just a few weeks and he’s quickly immersed himself in the heavy-hitting items facing the Legislature the next two years: oil and gas tax reform, and advancing a natural gas pipeline project. Micciche, a Soldotna Republican, sits on the Senate Resources Committee and the Special Committee on In-State Energy. He also co-chairs the Special Committee on TAPS Throughput. This committee quickly began holding hearings on Gov. Sean Parnell’s oil tax reform bill, SB 21.

He’s not new to public service. Before coming to Juneau, he served as Soldotna’s mayor for five years; he also held a city council seat before that. Micciche also found himself on the hot seat from reporters for prospective conflict of interests. Micciche works for ConocoPhillips, which stands to benefit from any tax reduction he backs. Micciche, also a commercial fisherman with a drift gillnet permit, never ducked the questions and confidently defended his committee assignments and positions on statewide resource development in an interview with Petroleum News.

You’ve already received pushback on possible conflict of interest. How do you respond to the criticism?

Micciche: if you go back to the forefathers of the United States, the folks who wrote the Constitution, the folks who served in early Congress, they were all in agriculture and in similar industries and they regulated agriculture and similar industries. Now, if you walk forward to almost 60 years ago in Alaska, the primary industries in those days had excellent representation in the Legislature. They were fishermen, they were miners, they were loggers who represented our primary industries. Oil and gas is just another primary industry in Alaska. Looking today there are people in the Legislature that are in many industries the Legislature deals with: attorneys who deal with labor issues, union issues in their day job, if you will; we’ve got educators someone could view as the fox in the henhouse for PERS and TERS issues; and we’ve got oil and gas people. I frankly would like to see legislators who have it going on; they’ve got a background in these industries and they understand some of the details of issues facing the Legislature. I listed those examples, not because they are in conflict of serving, but for all of us conflicts will arise. What’s imperative is that we are transparent about conflicts when they occur and we get a review by ethics and we make sure the public is aware of any potential conflicts and we move forward. Every member of this body will likely be declaring.

Petroleum News: So you knew what you were going to face this sooner rather than later?

Micciche: I did. I’m proud to be here. I’m proud of the industry. I’m proud of the industry’s place in Alaska’s community. Clearly, as we’ve seen in the last few weeks, it’s beneficial for the people of Alaska to have someone that intimately understands these issues for the people of Alaska. I’m here as an Alaskan elected by my constituents who were aware of where I partially earn my living. I say partially because I’m also a commercial fisherman in Cook Inlet. Although there were one or two bad apples in the past that in my view when you compromise the public’s trust should spend a long time in a small room with no windows, we can’t include the other people who serve honorably. If there is a problem, I want the public to contact me or our office anywhere along the way in my career, which I expect will be a long one, to talk about any issues where they believe there is a potential conflict. I’m not here as an oil and gas employee; I’m here as a concerned Alaskan. One of the primary reasons I’m here is I see us moving away from providing opportunities we had as young people and I think I have the tools to help.

Petroleum News: What is the purpose of that committee (Senate Special Committee on TAPS Throughput) and what are your priorities?

Micciche: The purpose of that committee is to reverse decline. We can talk about oil taxes, but it’s not an oil tax committee. We are the first to be given SB 21, the governor’s oil and gas tax proposal, however our primary focus is to look at the operational permitting, leasing and conditional issues for discovered oil to become produced oil — to decrease the decline in throughput of TAPS. We recognize that if there is an oil tax change, folks are concerned about lost revenue. I’m one of those people. However the biggest threat to Alaska’s revenue stream — that 92 percent revenue stream — is the decline of production that produces that revenue of for the state. Our goal is to flatten that decline. Our ultimate goal is to increase production to Trans Alaska Pipeline System.

Petroleum News: How can the committee pave the way for that?

Micciche: We specifically are going to be looking at things like water and gas handling limits or bottlenecks to production; access to existing production and future exploration production locations; efficient permitting; we’re as concerned as anyone with protecting the environment, but we want to eliminate any waste and redundancy in the permitting process; the Alaska lease program; tariff issues; leveling the Arctic environment and conditional challenges; limited available equipment, workforce and support industries; limited and aging infrastructure; state and federal regulatory hurdles; environmental litigation, specifically looking to narrow lead time; understanding global competition for industry investment capital; understanding the effects of past incentives and the potential for increasing Alaska hire; the effects of decoupling viscous oil and natural gas from traditional North Slope oil production; incentivizing specifically for new oil in middle earth exploration development, so south of 68 and north of Cook Inlet; and investigating transition zone incentives for greater percentage of (Outer Continental Shelf) revenues.

Petroleum News: Was the committee your idea?

Micciche: The committee was the idea collectively of the Senate majority, realizing that simply reducing oil taxes was not going to magically increase throughput. It’s going to help, but there are many factors that need to be considered.

Micciche: It isn’t at all. Resources is going to have a significant load this year. The reason for these two committees — there is the TAPS throughput committee and the In-state Energy Committee — is to preprocess bills that are destined for Resources. They are temporary committees if you will. I imagine if they are successful in improving the outlook in Alaska’s revenue stream, they may end up being something that stands. The idea right now is we feel we are at a critical intersection if you will of Alaska’s revenue history. We want to give it an extra effort, bringing in the right people to make some productive policy decisions to flatten the decline of TAPS throughput. If you look at the makeup of all three committees there are common members. My primary expertise is natural gas processing and liquefied natural gas. I see natural gas and LNG as becoming our No. 2 industry the moment we open the valve on a natural gas pipeline. Alaskans are struggling, so our primary focus is natural gas energy for Alaskans through the spine of densely populated areas of the state, potentially some secondary products would offset the cost of energy in rural areas, hopefully a project that’s designed for excess natural gas for export.

Petroleum News: What are your thoughts on the governor’s oil tax bill and what have you learned?

Micciche It’s doubtful from my perspective that it’s going to remain unchanged, but it’s a good start. It’s a good place to begin some negotiations and a good way to bring more support from the Legislature and the people of Alaska while understanding the value of becoming competitive without giving away Alaska’s fair share.

There are a lot of levers in oil tax policy that can affect throughput; remember I’ve got a pair of glasses on that looks at throughput. We haven’t spent enough time with the bill to know if this is the right answer or perhaps if adjusting existing legislation is the right answer. What I can say is that my philosophy is that I don’t believe in regressive tax structure. I believe there should be an element of progressivity that at least keeps the proportion of revenue flat through the various price ranges. I agree with eliminating credits that don’t lead to increased production, but I would like to see the various committees process potential credits that do lead to increased production. The prime example in the past that doesn’t lead to production: paving runways doesn’t lead production.

So I agree with the governor’s concept of eliminating non productive credits, however we do want to incentivize additional investment and we especially want to incentivize future investment in areas we may not know today contain considerable reserves of North Slope oil.

The realities of any adjustments to taxes in Alaska is that it’s not a party issue. Our committee is committed to hearing concerns of all sides of the issue to make sure any reductions in revenue ties directly to companies investing back in Alaska. It’s a legitimate concern and it’s one that we want a loud message to producers on the North Slope that our only two reasons for a more competitive regime is to encourage those dollars to be invested in this state and to draw quality companies to expand their operations in Alaska.

Petroleum News: On the issue of the natural gas pipeline, what are your views of the status of things, whether it’s an LNG export operation or a bullet line?

Micciche: My focus is on energy for Alaskans. Coming right up behind it includes employment, revenue benefits of a larger line. If we cover the part about energy for Alaskans, think about potential for Alaska’s young people with the work that could be created from industries that are marginally using diesel as a fuel source and become attractive with lower cost natural gas energy. I envision mines that are marginal today could become more attractive processing facilities. The reduction in cost of operating things like universities and schools and all things that come along with it, that incremental cost reduction of energy, are dollars that can be spent on employing people for more effective education and ultimately more revenue for the state. When we talk about going to a larger diameter line, again, it’s a No. 2 product for the state of Alaska immediately that would employ thousands and put us back in the global market place for distributing LNG throughout the Pacific Rim.

Petroleum News: Do you think Alaska is a good export option separate from the Lower 48?

Micciche: Whatever the decisions are about exporting from the Lower 48, it’s imperative that Alaska is not included in an export moratorium. Looking at the value of natural gas we do not compete with Henry Hub pricing. We do not affect the gas available to the Lower 48. Restricting exports from Alaska would be an unfair regulatory taking from the people of Alaska.

Micciche: Do you have any final thoughts to offer?

I always have a focus on quality of life issues. I believe in taking care of the folks who need us most: kids, seniors, veterans and the disadvantaged. I absolutely believe that quality education for our young people is key: it must be adequately funded. All of those issues are dependent on a healthy revenue stream.

My top three priorities are: reasonable amount of spending in both the operating and capital budgets; increasing throughput in TAPS; and a statewide energy plan that focuses on rural as well as urban areas with a primary focus on bringing North Slope natural gas to Alaskans first and a global market place second.

I have a pretty incredible life. I have a great family and I enjoy my job as producing LNG. The reason I’m here specifically is to help create opportunities that I enjoyed as a young man. I feel policy issues the last few years essentially stymied what our future can look like for our kids and grandkids.

An important thing to me — and we’ve been meeting with a lot of groups — what I promise people not only who were here today, but others is that I’m looking to ensure employment for our best and brightest for generations. Without processing these three priorities, the opportunities for these young people, our best and brightest will be working somewhere else.