1-14-13 Alliance's 30th Anniversary Was "Like Déjà Vu All Over Again.”

You likely read it here first, 3:01 am: U.S. Sen. Lisa Murkowski (NGP Photo), today announced personnel changes on her Senate Energy and Natural Resources Committee staff. McKie Campbell (NGP Photo) will be departing as the committee’s staff director on Jan. 25. Karen Billups, currently the committee’s chief counsel, will be promoted to staff director. Pat McCormick (NGP Photo-below, Alliance conference), currently committee special counsel, will be promoted to chief counsel. -dh

Fairbanks News Miner. As part of Gov. Sean Parnell’s plan to help get a North Slope gas plant built, the state asked for letters of interest a month ago. Sixteen entities responded with a mixture of general statements and The Golden Valley Electric Association, Fairbanks Natural Gas and a company headed by Ray Latchem, who built Fairbanks Natural Gas, are among the companies that submitted plans. The new Fairbanks municipal gas utility said it does not plan to compete to build the plant, but it could be a partner or become involved in some way.

Realism Collided with Optimism at Friday’s Alaska Support Industry Alliance Annual Conference (PART I)

Dave Harbour

Alaska Support Industry Alliance president Doug Smith (NGP Photo-R) kicked off his organization’s 30th Anniversary ‘Meet Alaska’ conference last Friday with a quote from baseball great Yogi Berra. “It’s like déjà vu all over again,” Smith said–not referring to a repeat baseball play but to Alaska’s seemingly endless, decades old battle between advocates for high and moderate state oil taxes. He said that today’s Alliance mission is the same as it was at the first Meet Alaska conference in 1984 facilitated by then President Milton Byrd (NGP Photo-upper L).

Smith also quoted Senator Ted Stevens (NGP Photo-L), a participant in the first 1984 conference. "With regard to Outer Continental Shelf development Uncle Ted said, ‘An accommodation between the various groups that have a stake in the OCS leasing debate can be worked out. I believe that OCS revenue sharing would facilitate such an accommodation’.”

Anchorage Mayor Dan Sullivan (NGP Photo-R) welcomed the group and congratulated it on three decades of service to the State. He emphasized the value of the Alliance membership in assuring that the state creates a sustainable spending policy and a realistic oil tax regime.

ALERT – ALERT – ALERT – ALERT – ALERT

We have given our dear readers a running commentary and analysis on the White House effort to bypass Congress and create a "Zoning of the Oceans" . This initiative could only have the effect of restricting current activity in our oceans and on our coasts as well as on lands bordering the Great Lakes and all waterways leading into the oceans. Since 3/4 of America’s coastline surrounds Alaska, it seems particularly well suited to enhance federal efforts to shut down resource development in the resource wealth mecca of America.

To date, the White House has ordered federal departments to use funds authorized by Congress for other purposes to finance the ocean zoning project. Drue Pearce, President of the Senate, Alaska, Federal Coordinator, Photo by Dave Harbour

Now, the White House, under cover of aid for Sandy’s storm victims, has put an earmark into that legislation which reader Drue Pearce (NGP Photo) reminds us may be acted on this very week, according to the National Ocean Policy Council.

As the House of Representatives prepares to bring the Disaster Relief Appropriations Act of 2013 to the floor for debate and an anticipated vote next week, a $33 billion amendment has been offered that includes a provision directing funds to NOAA’s Regional Ocean Partnership grant program.

The provision at issue, which has already received media attention, would direct $150 million for Regional Ocean Partnership grants. It would enable EXECUTION of the White House’s unauthorized ocean policy plans.

NOAA has noted that the Regional Ocean Partnership grant program “was developed to advance effective coastal and ocean management through regional ocean governance, including the goals for national ocean policy and comprehensive ocean planning set out in the president’s Final Recommendations of the Interagency Ocean Policy Task Force, July 19, 2010.”

In response to the inclusion of the Regional Ocean Partnership funding provision in the amendment, Congressman Bill Flores of Texas has filed an amendment that would remove the language at issue.

In order to ensure that federal funds are not used as a mechanism to fund National Ocean Policy activities that Congress has not authorized and previously voted to suspend, we strongly encourage readers to contact Members of Congress and urge them to support the efforts being led by Congressman Flores to remove the Regional Ocean Partnership funding provision.

Action on the House floor could take place as early as Tuesday, January 15.

Smith then introduced former Arco Alaska Inc. president, Harold Heinze (NGP Photo), the first speaker at the original event 35 years ago. Heinze said he valued the role the Alliance had played in moderating legislation and that, "You played a key role in making sure Alaska didn’t defeat itself".

First National Bank’s Dave Lawer (NGP Photo-R) introduced Trond-Erik Johansen (NGP Photo-Lower R), president of ConocoPhillips Alaska (COP-A) whose employees occupy the former Arco Tower across the street from the Convention Center.

Johansen began by focusing on what he called the company’s, "Spirit Values": Safety, People, Integrity, Responsibility, Innovation and Teamwork. "It is the foundation for how we move forward," he said.

He then carefully portrayed Alaska’s unattractive competitive position. He described the company’s 2012 investment in Texas’ Eagle Ford at $2.5 billion, COP’s North Dakota Bakkan investment of $.6 billion compared with Alaska’s $1.1 billion budget, largely devoted to maintenance, OCS exploration preparation and modest development activity.

Johansen pointed out that the reason for his company’s declining investment in Alaska can be traced to Alaska’s production tax that produced $51 per barrel in 2011 for the state and half that amount for COP. The progressive nature of Alaska’s production tax significantly diminishes the profit incentive from Alaska investments compared with attractive investment opportunities the company finds elsewhere in the U.S. and internationally.

While Johansen seemed optimistic about the possibility of monetizing Alaska North Slope (ANS) gas someday, he cautioned the audience. He said that when the gas consortium begins pre-engineering a gas pipeline later this year, that is still two years before sanctioning can occur and a half dozen years later when operations could begin.

Summing up his oil tax message, he said, "Oil tax reform is required to stimulate legacy field production. Let’s work together and make some changes this year."

We also remember that for over a decade producers have reasonably advised all concerned that before a gas pipeline can be financed, investors must be assured of fiscal certainty in Alaska. Our readers know that tax reform is needed to improve the investment climate, leading to greater oil production. They also know that tax reform is essential if fiscal certainty is to come within reach and before the market would finance a gas pipeline.

Here is Johansen’s presentation.

Alliance Board Member Reed Christensen (NGP Photo-L) , with Dowland-Bach, introduced Baker Hughes’ US Marketing and Business Development Director. Ahmed Mousbah (NGP Photo-R).

Mousbah said his company consolidates active and inactive rig data every Friday afternoon in order to maintain a current rig count for clients. He emphasized that the rig count is one of the leading indicators of the U.S. economy’s health. He made sure the audience was aware that due to the technology of horizontal and pad drilling, fewer rigs are needed to drill more holes with faster turn-around than ever before. He urged rig count followers, "not to panic", when they see a trend of lower active rig counts when pad drilling could provide an easy explanation.

Alliance Director Emeritus Mary Shields (NGP Photo-R) welcomed Northwest Mining Association (NMA) Executive Director, Laura Skaer (NGP Photo-Lower R) to the podium. Skaer gave a useful, forensic analysis of natural resource issues before Congress and the Administration. The positions she took on federal overreaching jurisdiction pretty much reflected the views and editorial history of our work here.

She began by inventorying the political ‘clout’ her organization enjoys, among governors, state legislatures and the Congress, saying NMA endeavored to be the "National voice for hardrock prospecting, exploration and development."

She said that on at least one issue of overreaching jurisdiction the EPA has responded, "If you have an SIC Code, we have jurisdiction." She then emphasized the importance of all natural resource industries sticking together to face the common challenge of federal overreach. "This is all about control," she said. "If you control financial assurances, you control permitting. Hardrock mining is the first targeted." But mining will be followed by forestry, refining, oil and gas, etc., she said. On the matter of Superfund insurance rules, she said that if the EPA has its way and is able to apply requirements retroactively, "the sound you hear will be the giant sucking sound caused by all of the companies and investment leaving the United States."

Skaer suggested an ‘offensive strategy’ which seeks to:

reduce permitting delay
reduce reliance on foreign sources of minerals
revitalize the mining belt supply chain
incentivize investment and job creation

She said that while the U.S. is tied with Papua, New Guinea for the length of time it takes to permit a mine (7-10 years), in Australia and Canada permitting takes only 2-3 years. She cautioned the audience about China’s worldwide mission of acquiring rights to strategic minerals. She said that "Oil is a small part of America’s import security risks," noting the importance of passing HR 4402, the National Critical and Strategic Minerals Production Act of 2012.

Skaer addressed the effort of the Administration to use the Endangered Species Act to ‘lock up’ vast expanses of land. Regarding the effort to put acreage off limits in support of habitat for the sage grouse, she said, "the enemy of sage grouse is not human activity; the real problem is fire and invasive species."

The president’s Job Council, she noted, said that mining, oil and gas, is the only industry that has produced an increase in jobs during the recession. Mining has always led the nation out of a recession," she said, "and that doesn’t require deficit spending or cost taxpayers a dime."

Here is Laura Skaer’s Presentation

Phil Cochrane (NGP Photo-R) spoke for BP-Alaska following an introduction by Alliance Board Member, Matt Melton (NGP Photo-Lower R).

Cochrane moved right into the oil tax conversation, saying that, "BP’s capital spending is half what it was projected to be before ACES." (Note: ACES is An acronym for Alaska’s progressive production tax). He said that Alaska was taking a short term approach rather than developing a long term, sustainable business tax policy. He added that the company cannot justify investment based on a "what if" policy when commitment is based on "what is".

He said the company is "carefully evaluating" facilities to determine which ones to keep and which ones can be shut down. He said BP is stopping its investment in heavy oil for the time being. He reminded the audience that the only way to have a successful heavy oil business is to have a successful light oil production from legacy fields. "Our current business is not sustainable," he concluded.

In the spirit that a glass may be half full, Cochrane said that, "It doesn’t have to be this way," and that tax reform could allow the company to refocus on exploration for new oil and gas reserves.

Like COP’s Trond-Erik Johansen before him, Cochrane affirmed the natural gas pipeline consortium is, "making good progress", but added that a gas line is a form of investment that also depends on a healthy oil business.

Next came Alliance Board Member Eric Dompeling (NGP Photo), introducing ExxonMobil’s Steve Butt (NGP Photo), who mostly focused on the company’s Point Thomson development.

…this report and comment will continue in tomorrow’s posting. -dh

(Note: As always, we strive for accuracy and if our readers send us additions/corrections they will be immediately considered. -dh)

Other participants included:

Kimberley Fox