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Northern Gas Pipelines is your public service 1-stop-shop for Alaska and Canadian Arctic energy commentary, news, history, projects and people. It is informal and rich with new information, updated daily. Here is the most timely and complete Arctic gas pipeline and northern energy archive available anywhere—used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to suggest others existing before 2001.  -dh

 

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6-18-15 Why Shale Critics Have It Wrong

18 June 2015 4:21am

Oil Tax Commentary

 

WSJ.  Video interview, "Why shale critics are wrong."


Calgary Herald by Stephen Ewart.  With the NDP government’s first throne speech Monday, Premier Rachel Notley began disappointing the party’s core supporters in the environmental community by championing exports of Alberta oil to global markets as part of a Canadian energy strategy.

Recently, we commented on the onerous similarities between oil tax perspectives of Governors Kasich of Ohio and Palin of Alaska.  

Alaska has just now, after nearly a decade of economic downturn, managed to repeal and overcome some of the damage done by Palin's populist, anti-oil tax policy.  But Kasich would apparently prefer to learn about taxation principles from personal experience and the hard knocks school rather than history.

Today, our mid-Atlantic energy analyst friend updates us on the Kasich oil tax probe.
 
He wrote us that: " Governor Kasich’s effort to ram through an onerous and massively flawed severance tax through by wrapping it inside the state budget was pushed aside, thanks to the stalwart efforts of House Republicans."
 
"The statement by Senate President Faber that “we have never had everybody in the same room together” gets to the heart of a major impediment  to resolving this issue for over four years. Until now, there have been major players who saw this issue as a potential source of a “win” for political gain, rather than trying to find common ground for both the volume level and application of tax revenues.  
 
"The Ohio Oil and Gas Association (OOGA} has shown it is ready to work with both the Administration and the House and Senate to develop a plan that is fair to the people of Ohio, while providing adequate incentives to properly develop Ohio’s natural resources."  (Reference)
 
We note that elected leaders of both parties are tempted, during trying economic times, to unreasonably tax the few to benefit the many voters (i.e. Kasich and Palin are both republicans).  Though this practice can violate Economics 101 and damage citizens and their economies in the long run, it often benefits populist politicians in the short run.  It is the modern version of, "Lynch Mob Mentality", whose psychology or lack thereof discourages critical thinking.   -dh

 

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6-17-15

17 June 2015 3:05pm

Casey Sullivan, Caelus Energy, Alaska North Slope, Tulimaniq Leases, Smith Bay, Nordaq, Photo by Dave HarbourCaelus Energy Alaska, LLC's Casey Sullivan (NGP Photo) reports the company has acquired a 75 percent working-interest ownership in NordAq Energy Inc.’s Tulimaniq leases located in Smith Bay on the North Slope of Alaska.

Smith Bay is approximately 150 miles west of Prudhoe Bay and is well documented for its extensive hydrocarbon potential. Slightly more than 117,000 acres (gross), the 26 leases were assigned to Caelus Energy Alaska Smith Bay, LLC a wholly owned subsidiary of Caelus. As a result, Caelus becomes the operator and will lead the exploration drilling program this winter season.

The agreement was set to be finalized on June 18, 2015, follows on the heels of other recent announcements from Caelus including the sanction of its onshore oil development project Nuna, and the acquisition of 323,000 acres in the State of Alaska’s fall lease sale.

Caelus President and CEO James Musselman commented on Caelus’ newest addition to its Alaska portfolio: “We’re extremely excited. The NordAq Energy team has done a great job of defining the geologic potential in Smith Bay. Our team is ready to take the helm and get to work on exploring and appraising the Tulimaniq play. What we see in this region has us all pretty motivated.”

“Our winter exploration operation planning is underway", Musselman said, "Caelus looks forward to continuing our strong working relationships with the local communities of the North Slope, the North Slope Borough, as well as our state and federal regulatory partners to ensure a smooth transition. We’re also extremely fortunate to be supported in our efforts by North Slope veterans Doyon Drilling and Cruz Construction. The winter exploration operation will require upwards of 400 personnel to drill 1-2 exploration/appraisal wells – it’s a large-scale program.”

Musselman emphasized that Alaska’s current oil fiscal system, including its exploration incentive credits, attracted Caelus to Alaska in 2013 and has been a key component in the company’s recent business decisions.

“We have a lot of work to do in Alaska", he said. "Having a stable policy that encourages finding and producing more oil for Alaska, including credits, will be pivotal in future investments decisions.“

NordAq Energy chief executive officer, Paul L. Devine, said his company is encouraged by Caelus’ commitment to Alaska and the experience they bring to the project. “NordAq is very grateful to have a partner of their caliber to operate on our behalf, and commit the energy and capital to a significant play like Tulimaniq,” he said.  “We are also very grateful to CIRI Energy, NordAq’s secured lender, for the role it played in facilitating this important transaction.”

Caelus Energy Alaska, LLC is a privately held, independent exploration and production company that currently operates the Oooguruk unit on the North Slope of Alaska.

Caelus specializes in exploration, development, and production of oil and gas and is currently focused on the pursuit, identification, and development of strategic opportunities across Alaska.

Headquartered in Dallas, with an office and operations in Alaska, the team at Caelus has earned a reputation of integrity and innovation, and is a leader in developing world-class operations.

NordAq Energy Inc. (NordAq) is an independent oil and gas company based in Anchorage, Alaska. The company was established by the present Board and management team in 2008 to explore, appraise and develop hydrocarbon reserves in the State of Alaska. Its portfolio includes prospects and resources in Cook Inlet on the Kenai Peninsula and Smith Bay on the North Slope.

6-16-15 Is Alaska's Governor Seeking Control Of The Ak LNG Project; Or, A Governent Owned Project?

16 June 2015 1:11pm

Alaska Governor Bill Walker's June 8 Letter To AK LNG Participants Doesn't Exactly Radiate Cooperation 

by

Dave Harbour

(In fairness, we wish to provide this comment from an anonymous reader.  -dh)

Bill Walker, AK LNG, Governor, Alaska, 49th State, oil taxes, fiscal certainty, Photo by Dave HarbourToday, we ask if Alaska Governor Bill Walker (NGP Photo) is seeking cooperation with participants in the AK LNG project, or is he seeking to control those free market participants, or is he angling toward a separate, government owned project?  

Here is a letter Walker sent yesterday to House and Senate resource committee leaders which included the copy of a letter he dispatched back on June 8 to producer leaders of the AK LNG project. 

We hate to be judgmental; after all, we all have our own ways of doing business.  And, we should grant the Governor some leeway for lack of experience in dealing in the world of business and free enterprise.

If it were our call, we'd have met with Ak LNG on a regular basis to resolve ongoing issues; after all, there will be plenty more hurdles for participants to cooperatively overcome over the years if the project goes.  

In meeting with participants regularly, we'd have engineered a process like the governor "proposes/unilaterally mandates" in this correspondence, sought concurrence among the parties and made a joint announcement on how the project will proceed.  "Peace to all in an atmosphere of cooperation"....

Instead of a cooperative joint announcement, we now have a Governor presuming to call the shots, dictate the process.

In less formal circumstances, we would likely ask, "who in the blazes does this guy think he is?"

Readers will find one of the dictated matters occurring in the Governor's correspondence, item #3.  In it he acknowledges that one of the big issues to be resolved is "fiscal stability" (See our 4-part series).

Government bullying can turn a reasonably profitable project into a loser.  

The bigger the investment, the more need there is for assurance that property will not be expropriated by fiat, as in the case of Argentina, or more indirectly taken by predatory taxation occurring after investments have been made.  

Just think about this: if an investment goes south on a manufacturing plant or commercial fishing boat, there are often plenty of potential buyers.  But when you bury a pipeline into the earth and the investment goes south, statutes require you spend billions more dismantling and removing the asset, and restoring the right of way.

In our opinion, the AK LNG investors have no choice but to seek full fiscal certainty on all of their oil and gas assets in return for the big gas transportation system investment.

If the Governor wishes not to use his bully pulpit supporting that need with the Legislature and the citizenry, we think it obvious that he either does not believe that full fiscal certainty is needed or he holds back on offering fiscal certainty knowing participants will have a difficult time justifying the investment.

This does not mean "fiscal stability" of the oil companies.  It means, basically, that if the investors pour $45-$60 billion into the state of Alaska to build a gas pipeline/LNG project, they need to know that they will not be treated here like Repsol was treated in Argentina less than a decade ago.

Alaska has demonstrated in the past that in the 49th state, "A Deal Is Not Necessarily A Deal".  Readers can explore the link for background.  Basically, Alaska's elected officials have taught investors that they don't mind raising taxes after an investment decision is made and they don't mind doing it RETROACTIVELY.

Being hopeful, but not stupid, Alaska's oil industry has said for a generation that when and if a gas transportation project is built, the state will have to guarantee fiscal stability of the project.

In the June 8 letter, Walker, agrees that fiscal stability should be part of the process, but that it will exclude oil.

In other words, he is saying, "I'll agree to not tax gas after the investment is made but you'll get no guarantee from me regarding the oil."

So if one is trusting enough in Alaska's state government to invest scores of billions in a gas pipeline, one is not concerned that oil taxes will be raised after the gas project is built?

We have talked to no one about this correspondence, either in the Administration, Legislature or oil industry.  If we had, we'd have undoubtedly been smarter.

But we are compelled based on an independent reading of the correspondence to conclude that the Governor thinks he can charm or coerce industry into investing billions into a gas transportation project by providing only half a loaf of fiscal stability.  Either that, or he is trying to infiltrate so many skunks into the gasline parade that any rational investor would say, "Sorry, not today".  By multiple skunks, I refer to but do not have space to explore other troubling provisions of the correspondence, including gas marketing, government ownership and pipe routing issues.  

If you are an investor hoping for a cooperative government partner, read the June 8 letter and weep.

The June 8 letter, causes one to wonder if the Governor -- a lawyer who spent a undistinguished, quixotic career advocating a government owned LNG project -- will finally get his wish to be Master and Commander of some imagined, but not yet real, government-owned, Alaska LNG project.

We hope this is not Walker's motivation for the June 8 letter, nor his pipe dream.

If it were, we fear that to the innocent citizens of Alaska the dream will morph into a pipemare.

-30-

 

See reader comments below with my responses in red....

If I were an alien drop kicked to this planet; my main takeaway of a cursory reading through is that the author implicitly dislikes the Governor. I am unable to discern the GOA's motives.  I do not dislike the governor and am as 'charmed' by him as the next citizen; but my role here is to draw logical conclusions from actions.  If that discipline is judged to be personal or subjective, so be it.
 
Is he trying to dictate the process, or is this type of simpleton action an honest outworking of his character; further evidence of an acute lack of understanding/experience in matters of import.
 
By being public, should his motive be to blow up the JV, it may grant a certain cover for future unilateral actions by the administration undoubtedly. But as to his motive, I cannot speak. 
 
As to the point of oil tax stability vs. a single specific large scale activity and tax implications; I don't think it is appropriate to expect similar treatment. For the SOA to execute an agreement on fiscal terms for a specific project over a specific time period would be a difference of kind rather than degree in relation to oil taxation.  Nevertheless, stability for an oil and gas producer's gas and not his oil is no stability at all.
 
As a sovereign we do not execute contracts on projects or with companies, we have a broad base tax system and the premise that it would remain unchanged over a period of decades is untenable. Alaska better question its premises if it wants a gas project, particularly with the competition it faces and with its unreliable, predatory tax history.  Current activity in the oil patch is resplendent with renegotiations due to a changing market dynamic, but those center around specific contracts i.e. shipments of LNG pricing being renegotiated due to market conditions in the same manner service companies have renegotiated to maintain a position with producer companies. In fact, Apache reports their earnings are now greater at $60 bbl than previously under $90 bbl pricing. Both they and their service providers are profiting.   Perhaps Alaska should re-explore the idea of a Constitutional amendment to permit a fiscal stability 'contract' under certain conditions.
 
Ideally, the SOA would develop a taxing scheme that would be appropriate and applicable over wide market dynamic, lasting for decades; that would be a challenge, but perhaps ELF was a good example. When Frank gained office, pundits claimed that ELF was broken. I would posit it as being outdated under the conditions at that time. Even oil companies expected changes to be made. 
 

 

 


(Note: Editors are welcome to reprint our opinion pieces; attribution should occur and we would appreciate being sent a link.  Readers may send any thoughtfully written responses to this address and we will reprint them alongside this editorial for the Archives.)

Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC).  He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC).  Harbour is past Chairman of the Alaska Council on Economic Education, former Chairman of the Anchorage Chamber of Commerce, and past President of the American Bald Eagle Foundation and the Alaska Press Club.  He is Chairman Emeritus of the Alaska Oil & Gas Congress.


Opinions or viewpoints expressed in this webpage or in our email alerts are solely those of the publisher and in no way reflect the opinion(s) of any affiliated company, person, employer or other organization.

 

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6-15-15

15 June 2015 8:48am

Petroleum News.  Oil Patch Bits: Bell acquires operations manager - 06/14/2015 (Login to read Full story) F. Robert Bell and Associates announced that Frank Thomas “FT” Bell has returned to the firm and will fill the new position of operations manager to further develop company goals. He will help Bell and Associates run more efficiently and grow as much as possible. In addition, he hopes Bell and Assoc....

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6-14-15 Government Gas Distribution System Update

15 June 2015 8:44am

Petroleum News.  Request for proposals for Interior Gas Project due Aug. 3 - 06/14/2015 (Login to read Full story) The Alaska Industrial Development Export Authority has issued a request for proposals for the Interior Energy Project, with proposals due Aug. 3, the first step in what the agency describes as a two-step public process. The goal of the Interior Energy Project is to provide low-cost energy to Interi....

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6-13-15 EPA Retreats On Fracking

15 June 2015 8:41am

Petroleum News: EPA: No widespread harm from fracking - 06/14/2015 (Login to read Full story) Hydraulic fracturing to drill for oil and natural gas has not caused widespread harm to drinking water in the United States, the Environmental Protection Agency said June 4 in a report that also warned of potential contamination of water supplies if safeguards are not maintained. A draft study issu....

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