Olson skeptical of oil tax bill

Soldotna Republican’s view of resource development as Labor & Commerce chair and Resources member examines breadth, depth of issues

STEVE QUINN

For Petroleum News

House Rep Kurt Olson is getting an earful on oil and gas issues be it on the Labor and Commerce Committee he chairs, the House Resource Committee hearing Gov. Bill Walker’s oil tax credit bills or various subcommittees hearing from the Department of Revenue’s Tax Division and Labor Commissioner Heidi Drygas.

The Soldotna Republican says he believes the AKLNG project will continue to make progress but maybe not as fast as some would like. But as the state “has never been this close,” Olson remains optimistic about the prospects.

Olson spoke to Petroleum News on pending issues ranging from AKLNG to prospective changes to the state’s oil tax code being debated in the Resources Committee.

Petroleum News: You’ve been getting some updates on oil tax payment audits from the Tax Division. Revenue has 2008 done and 2009 should be announced soon, and now they are doing two years simultaneously. What’s your take on these developments?

Olson: The best guess I’ve heard and we are waiting for confirmation from the department is there is something between $1.25 billion outstanding and $1.75 to $2 billion, which is pretty significant when you consider they only had four audit masters and they are down to three right now. And they aren’t recruiting. It appears we are not moving as fast as we can. It appears we have money out there that won’t be available for several years. We are looking at a number of things to help them become more efficient.

Petroleum News: By we, do you mean Resources, Labor and Commerce, the Legislature as a whole?

Olson: Several people in the House. There is a whole bunch of people in the loop on it.

Petroleum News: There was talk in Resources about going outside for help on the audits. Why go outside?

Olson: It’s my understanding that there are people who do this on a regular basis in other states. We are not far enough along right now to really name off any specifics, but I suspect they are out of Houston.

Petroleum News: As you look at the oil tax credit bill, the audit provisions are just a small part, what would you like to see done with the oil tax credit bill?

Olson: When you have one entity of the state that was once responsible for 90 percent of the state’s revenues, you don’t kill the golden goose. And you don’t cook it after you’ve killed it. I think we are at that point if we implement it as it’s drawn up now.

Petroleum News: What provisions of the bill give you heartache?

Olson: I’d rather not say. I’m going to meet with (Finance co-chair and Revenue subcommittee chair Steve Thompson) first and share them with him. The biggest dog I have in the race is making sure that we don’t run them out the state.

Petroleum News: If you’re not ready to discuss your thoughts, how would you characterize these hearings?

Olson: Contentious and defensive. I don’t think anybody should be taking it personal, the Legislature or the administration, or even the producers. All of us want to find that sweet spot.

Petroleum News: In the end, don’t you want something in place the state can afford?

Olson: It depends at what price.

Petroleum News: You’ve got through quite a few changes since 2006.

Olson: The mantra was fiscal certainty. Now it’s fiscal stability. If it’s changing every four or five years, there’s not a lot of inducement for spending a lot of money. I’m amazed ConocoPhillips is progressing with a pretty aggressive program on the North Slope - and Exxon for that matter to a lesser degree at Point Thomson. If you look around the world, there are projects that we were competing with on the gas line that are no longer on the table.

There’s exploration that’s being pushed back. When you’re looking 50 or 60 years into the future to develop any place around the world, and we have difficulty doing a budget for more than one year, who do you think is in a better position to be in the driver’s seat?

One of the producers was asked several years ago if you have a map on the wall with different colored push pins for the years that assets will start being developed, the company said they can’t give us exact figures but it’s in excess of 60 years.

Petroleum News: Let’s talk about your role as chair for Labor and Commerce, is there anything during the session you want to hear from the Labor Commissioner (Heidi Drygas)?

Olson: I’m also on that subcommittee. I was impressed with the cuts Commissioner Drygas made in her first year. I’m also impressed with what she’s doing this year. I don’t believe we should be cutting a lot of training programs. The one I’m most familiar with is AVTEC. We’ve had pretty good success with that.

I think if we are going to have a lot of Alaskans working on the job, we are going to have to train a lot of them. Because the generation that built the TAPS line are my age or older and are retiring or in management positions.

We are having some real difficulty with the new work forces coming in. A lot of them aren’t passing UAs (urine analyses). Even though marijuana has been legalized, alcohol has been legal and if it shows up in your blood, you don’t pass. I’ve got younger friends working on the slope and they are seeing a number of people failing because of marijuana. It stays in your system for 30 days whereas alcohol will metabolize in three or four days.

We’re having issues with getting the word out to the workforce that they are subject to this and there is zero tolerance. Maybe it’s not a Labor and Commerce Committee issue, but it is an issue for the Department of Labor and Workforce Development.

How do we make sure we have an adequately trained workforce, not only for the gas line but also jobs on the North Slope? Why are the jobs going outside? I think we both know the answer to that. They don’t have enough trained people.

Petroleum News: What would you like to see done on that front? If the project advances, you’re about five to seven years out from construction.

Olson: I think we take advantage of the in-state training programs and specifically address the issue of chemical and alcohol abuse.

Petroleum News: On to Resources, you folks also received a briefing from AKLNG partners a few weeks ago. What were your major takeaways?

Olson: The thing that I found out that was particularly interesting was we were able to pin them down on what’s been invested so far in the difference between the 42-inch and 48-inch lines in addition to eight months or nine months of time. It will be approximately $30 million. We also found out nobody in the country can make it. At this time there are three or four facilities primarily in the Far East who can make it. The second thing they pinned down for us is they can only haul two joints of pipe per trailer instead of three. What that does is it takes the number of trips taking pipe up north from 100,000 to 150,000. I have no idea what the cost is on that or the cost on the pipe itself. To me it looks like an exercise in futility.

Petroleum News: To study it?

Olson: Yes.

Petroleum News: Now (ExxonMobil’s) Steve Butt says if there was a time to review the line sizes, it would be now.

Olson: Well, it did slow things down, maybe not materially: seven or eight months. We should have some final work product in the next month or so, if I’m not mistaken. Oh, the increase in volume between the two lines is 1.1 billion cubic feet a day. That’s about the offtake at Point Thomson approved by AOGCC so it appears to me that we would have to find another Point Thomson size field that we could tie into the line to use up that capacity or a whole bunch of smaller ones. We can do it by different compressors with the 42-inch line.

Petroleum News: One of the concerns about the smaller line is that it would discourage independent exploration.

Olson: Well, I’ve been hearing that on various lines all along, but right now we don’t have the demand for the capacity for a 48-inch line. Again, we can compress it with the 42-inch line and do some looping too. We can bring more capacity on as we need it. The question is do we need to build a Cadillac when a smaller sized vehicle will be adequate. A whole bunch of people may disagree with me.

Petroleum News: So was it wasted money looking into the line or does it fortify your position a little bit more?

Olson: I think both. I was surprised that there weren’t a lot of positive things about it. Number one, the 48-inch is going to be difficult to use across Cook Inlet because of the weight. The 42-inch is considerably lighter and will lay on the bottom better apparently and that was addressed at length. It just doesn’t rest well on the bottom. Having not been to the bottom of Cook Inlet, I don’t know what it looks like, but I’ve come to the conclusion that it’s not flat.

Petroleum News: There was an earthquake recently that hit the Kenai Peninsula. Does that factor into your considerations about a line as discussions progress?

Olson: First off, the fault runs off the other side of the inlet. We had no damage in Nikiski. It was at least 10 miles below the gas fields, the original gas fields. Having been out to the site in Nikiski and having seen presentations they put on to the general public as well, they’ve spent a tremendous amount of time on that as they are with the siting of the new LNG plant out there. It’s basically for that reason. They’ve been looking for proper gravel. The weight of the structure itself is tremendous. They have to do it right and part of it is will it take the stress for earthquakes. The difference is, I don’t think there is coal clay like there is at the end of Turnagain on the Spenard side. But really the only road damage we had was about 10 to 15 miles from Nikiski.

Petroleum News: Also, closer to home, what are you seeing with the land purchases by the AKLNG partners. Is it where it needs to be?

Olson: One of the first things I did was ask to see if they were trying to exercise eminent domain on some of the purchases. They have essentially been consensual. I personally hear of one person who was upset (with the offer on the land) but that was rectified. It’s not my district. It’s Speaker Chenault’s district. But probably over half the people who work there live in my district. Half the people in his district shop in mine. It’s one extremely close area; the communities really blend together. We are seeing lots of expansion out there.

I know one of the concerns of the Kenai Peninsula Borough is how the PILT turns out because it will have some real impact not only on the roads and the traffic flow during the construction phases, but also the number of workers we’ll have living down there. It’s not the first time because we had it when the Tesoro plant was built and then when all of the platforms were going up, so we know what we’re getting into.

Petroleum News: Are you keeping an eye how this is playing out?

Olson: I talk to (borough Mayor) Mike Navarre and (assistant) Larry Persily on a regular basis.

Petroleum News: What concerns do you have? Is it the amount of money? Is it how it’s going to be paid out?

Olson: How it’s going to be divvied up. We hear Fairbanks has 2 miles of pipe and is considering going into annex unincorporated areas. I hear they are making some pretty creative demands. I think we can back up all of our positions. I would like to think Fairbanks can as well. Things were different when TAPS was built and there was a lot more going on in Fairbanks than going on at this time, even though it will be a hub. We’ll see how it plays out. That’s why we have a group of mayors that are negotiating on it because they are much closer to it than we are.

Petroleum News: Does it help to have a mayor (Navarre, a former member of the Legislature) who has been in these halls, even if he’s in his last term?

Olson: Tremendously, yeah. He’s got Larry Persily and Paul Ostrander, both for us are real good to work with. Mike is knowledgeable and I think he’s doing a good job. I should add I voted for him during his first race for the House in 1984.

Petroleum News: So, still on AKLNG, was there anything else that stood out for you? Did you have any concerns about the letter the governor wrote?

Olson: I did when I first read it, but after I talked to some people, I learned this has been going on for quite a while. We’ll see how this plays out. I’m not going to lose any sleep over it.

Petroleum News: What concerns go you have about the project?

Olson: My biggest concern is the AGDC board is pretty loaded up with former Port Authority people.

Petroleum News: Does that surprise you to know that a governor has the prerogative to make these changes?

Olson: I don’t think I’ve seen it done to this degree. With two previous governors we saw an effort to go out and get the best. Oftentimes it wasn’t people from the same party as the governor, either.

Petroleum News: Speaking of AGDC there are bills out there to add two members of the Legislature on the board. How do you feel about that, putting two more people on the board?

Olson: I think it might give it a little more balance than it’s had. I certainly don’t have a problem with it.

Petroleum News: Do you see it as a response to Walker’s assembly of the board?

Olson: I think every bill before us is a response to something. Actually, I think we are hearing several of the governor’s bills (in Labor and Commerce).

Petroleum News: So what gives you optimism that the project is moving forward?

Olson: We’ve never been this far. I am cautiously optimistic that we will hit FEED (front end engineering and design) hopefully sooner rather than later. That’s when we get past our first giant hurdle. Pre-FEED is a big step, but this is when we start talking about real money.

If you look at the three major producers who are involved, all of them have other ventures around the world. I think all three of them had ventures that shut down that started out roughly the same time as ours - or at least temporarily shelved.

You know, I was glad to see TransCanada out of it. I had mixed feelings on it originally but the further we got into it, I became OK with it. I didn’t like them there in the first place. I think that they were the only ones in the position to bid at the time (during AGIA). There were at least two or three other companies from the U.S. or Canada who could have done as good a job and could have been more competitive. Other than that, I’m still an optimist.

Petroleum News: The producers still have to do one thing that’s out of control of the Legislature and that’s the gas balancing?

Olson: One of the most honest quotes I heard the last five to seven years in this building when somebody from TransCanada (former CEO Hal Kvisle) was asked when do you know it will be time to build the pipeline and his answer was it will be time when Exxon says it will be time. That was one of the most honest answers on that issue all along. He was spot on and I believe that’s the way he felt. It certainly resonated.

Petroleum News: What would you like to hear that the project is moving forward?

Olson: Whatever I hear I would hope it’s not followed by a letter to the contrary. I would like to see everybody working together a little bit better. We get our hackles up. The governor gets his hackles up. If everybody is not on the same page, it’s not going to happen. I thought we were there a few months ago. I guess we were still there but not to the degree we were. Everybody was speaking with one tongue. They would look around the room and everybody was nodding their head. Nobody is going to get their way on every issue.