The Morning Headlamp—Budget reactions

December 11, 2015 | Posted in : News

Prepare for changes. According to Alaska Dispatch News coverage, Alaska industries’ response to Gov. Bill Walker’s proposal for averting a fiscal crisis ranged from condemning the plan’s industry-specific taxes to willingly making concessions — provided other industries would be required to do the same. While no one wants the state budget deficit to send the state into economic freefall, industry groups are, predictably, staking out positions that best protect their interests. “We just have a responsibility to let policy makers and Alaskans know that changing the tax policy will change investment decisions,” said Kara Moriarty, president and CEO of the Alaska Oil and Gas Association. “We believe the status quo is working.”

Lawmakers in the House and Senate majorities were quick to say their focus during the legislative session, which begins in January, would still be on budget cuts. Walker’s plan would cut the state’s $4 billion agency operating budget by about $100 million, or 2.5 percent. But Senate President Kevin Meyer, R-Anchorage, said his caucus is contemplating cuts as large as $700 million. “We want to lead with reductions and not with taxes,” he said in a phone interview. Those cuts, he added, could come from areas like the state’s oil tax credit program, the criminal justice system and Medicaid, which costs the state more than a half-billion dollars each year to provide health care for low-income Alaskans.

Headlamp is also of the mindset that the Walker administration should reign in such a tax-heavy budget proposal until they make significant reductions to the budget.   Incentivizing business to remain committed to Alaska should be at the forefront of any fiscal policy.

                                                                                                                                 

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First Reads

Business groups prepare to reshape details of Walker’s budget plan
Alaska Dispatch News, Jeannette Lee Falsey, December 10, 2015

Gov. Walker plants budget flag, but will legislators climb the hill?
Alaska Dispatch News, Nathaniel Herz, December 10, 2015

 

Alaska Energy News

Two Interior Energy Project proposals under consideration
Alaska Public Radio News, Dan Bross, December 10, 2015

Oil’s reckoning invites a U.S. mega-deal
Reuters, Kevin Allison, December 10, 2015

The Oil-Patch Bust
Wall Street Journal, December 10, 2015

Negotiations ‘very fluid’ over energy trade in spending bill
Wall Street Journal, John Siciliano, December 10, 2015

 

 

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An agreement on an agreement

December 10, 2015 | Posted in : News

Governor Bill Walker recently released a signed gas availability agreement his administration had long been pushing for from AKLNG partners BP, ConocoPhillips, and ExxonMobil. Walker praised the agreement as a “project milestone” that “ensures that there will be gas for a gasline if either partner withdraws from the project.”

A gas withdrawal agreement has been a goal of the Walker administration since October’s special session, even using it as leverage against the controversial gas reserves tax. The Walker administration should therefore be pleased that two out of three megaproject partners agreed to terms…if there were any terms truly agreed upon.

After looking into the language of the actual gas availability agreement, it becomes clear that partners BP and ConocoPhillips made no gas withdrawal promises. The language of the agreement only specifies that BP, ConocoPhillips, and the Department of Natural Resources will…

…continue to use reasonable efforts and negotiate in good faith for the purpose of entering into a bilateral agreement with the State or its designee on mutually agreed commercially reasonable terms with such commercial reasonableness to be determined by each Party at the sole discretion of such Party, regarding the availability of natural gas from oil and gas leases in the Prudhoe Bay Unit and the Point Thomson Unit…

After dissecting the legal jargon, it’s clear that BP and ConocoPhillips agreed to work toward an agreement. The agreement makes no guarantees, no promises, just establishes an understanding that all parties will pursue an amicable, commercial agreement. On a positive note, while these agreements do not provide any firm commitments they do at least memorialize the producer’s willingness to sell their gas to the AK LNG project or another gas export project if they determine the current AK LNG project does not meet their individual investment requirements.

However, the fervor with which the Governor has advertised the agreement’s signing has already caused some to misinterpret, what was actually agreed upon. According to recent Energywire coverage, the agreement indicates that “each company promises to sell its North Slope natural gas reserves to the Alaska LNG project if it withdraws from the partnership. Walker said the pact guarantees that the natural gas venture could continue even if either one of the oil giants drops out of the partnership.” As we mentioned above, the partner companies made no such guarantee.

So, before the Governor continues to tout the arrangement, Headlamp would recommend clarity on what really was agreed upon.

 

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Gov. Walker’s budget has arrived—The Morning Headlamp

December 10, 2015 | Posted in : News

The Budget Is Here: After weeks of rumors and speculation, Governor Bill Walker finally released his budget plan proposal yesterday. The plan aims to close deficit spending by 2018. Walker’s proposal would dispense with the current formula for Permanent Fund dividends, based on a five-year average of investment returns. The new dividend program as proposed by Walker would be managed by the Alaska Department of Revenue and would be based on the royalties the state receives from natural resource development on state land – rather than money earned from investments by the Permanent Fund Corporation.  As the Governor was revealing his plan to cap the dividend, ISER economist Scott Goldsmith was presenting “A Game Plan for Meeting Alaska’s Fiscal Challenge” to the House Special Committee on Economic Development.  Mr. Goldsmith’s plan utilizes the earnings reserve from the Permanent Fund but does NOT cap the dividend.

Changes Would Impact ALL Alaskans. The proposal will mean big changes for the livelihoods of all Alaskans. Walker’s proposal includes the return of a personal income tax after a 35-year hiatus — of 6 percent of federal taxes, or an average of 1.5 percent of total income, which would raise a projected $200 million this year. It would cut $400 million from the state’s $500 million oil-tax credit program and replace it with a loan fund.  Another $45 million would come from an increased fuel tax; $72 million from mining, fishing, and alcohol. Finally, restructuring of the Permanent Fund to help close the budget shortfall would slice dividend checks, to $1,000 from this year’s $2,072, with the potential for them to fall even lower in the future.  Headlamp notes that implementing an income tax will require an increase in state government and take several years to realize revenue.

Increased Oil Taxes.  In addition to replacing the current oil and gas tax credit system with a new loan program, the plan would raise the minimum production tax on oil to 5% from 4%, which would raise another estimated $100 million for the state.

Reactions are pouring in. Various components of Walker’s plan have already been rejected by lawmakers and the public over the past two decades, and some legislators were quick to condemn them this time. “I’ll certainly give credit for trying,” said Sen. Bill Wielechowski, D-Anchorage. “But, I mean, does he really think he’s going to get this past the Legislature? Anchorage Rep. Charisse Millett, the leader of the Republican-led House Majority, said Walker was approaching the state’s budget problem “in reverse” by proposing new revenues instead of deeper spending reductions. “He’s throwing up the white flag of surrender on cutting the budget,” she said in a phone interview.

Before taxing Alaskans and increasing taxes on Alaskan industry, Governor Walker should focus on budget savings, efficiencies and reductions and projects that generate revenue like oil production and AKLNG. Headlamp hopes that lawmakers share this sentiment and work to create a better budget proposal.

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First Reads

Alaska Governor Calls for State’s First Income Tax in Nearly Four Decades
Wall Street Journal, Jim Carlton, December 9, 2015

Gov. Walker proposes to fix budget deficit with income tax, PFD cut
Alaska Dispatch News, Nathaniel Herz, December 9, 2015

Walker proposes Alaska income tax, $1,000 dividends to plug budget gap
KTUU, Austin Baird, December 9, 2015

Governor eyes ‘major paradigm shift’ in budget ruled by oil
Energywire, Margaret Kriz Hobson, December 10, 2015

Gov calls for permanent fund overhaul, income tax, cuts to PFD
Alaska Public Radio News, Rachel Waldholz, December 9, 2015

Alaska governor proposes income tax, PFD changes to offset budget gap
Fairbanks Daily News Miner, Matt Buxton, December 9, 2015

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The Morning Headlamp: 40 days until Juneau…ominous forecast out of dept. of revenue…Wheel of Fortune in Juneau…the Walker administration’s fiscal belt may be the one in need of tightening

December 9, 2015 | Posted in : News

An ominous prediction. According to Alaska Dispatch News and Associated Press coverage, a recently released forecast from the revenue department suggests that Alaska will see even less natural resource revenue in the coming fiscal year. If the prediction holds, Alaska will bring in just over $1 billion in unrestricted petroleum revenue and $1.6 billion in total unrestricted revenue — down from the $2.2 billion projected for the same period in the previous revenue forecast in April. The state took in $2.3 billion in unrestricted revenue last year and $5.4 billion the year before that. The revenue forecast is based on an annual average North Slope oil price of about $50 a barrel for the current fiscal year. Alaska crude closed just over $38 a barrel on Monday. Revenue Commissioner Randy Hoffbeck didn’t immediately respond to a request for comment about Tuesday’s forecast.

No time for games. According to Alaska Public Radio News coverage, state budget director Pat Pitney has spent the past six months leading fiscal dialogues in communities throughout Alaska. And on Thursday, she brought her talking points to Sitka, along with a wooden scale to illustrate the state budget crisis. Before a crowd of 50 Sitkans, Representative Jonathan Kreiss-Tomkins played Pat Sajak. He stood a spinning wheel, which represents the price of oil, and explained, “We live on risk in Alaska. Because we don’t know what the price of oil is going to be next year and so it’s literally a game show that we’re playing.” Pitney argued if legislators don’t break the oil habit now, Alaska could drain its savings and potentially hurt its credit score. Pitney tentatively calls the strategy the “sovereign wealth model.” If the state can agree to funnel all new resource revenue – from oil royalties to petroleum production taxes – into the permanent fund, it can become a renewable pool of money to run the state. Headlamp agrees in balancing the state’s budget, but is concerned that the administration’s fiscal plan will rely on new revenue from taxes on industry that could damage our economy in the long run.

In an op-ed published by the Alaska Dispatch News, Governor Bill Walker stressed the need for “belt tightening” with regards to state spending. According to Walker, his team is “looking at everything – the way we purchase supplies, plane tickets and software, for example. We’re getting smarter about technology — eliminating paper checks for child support, and doing more videoconferencing and less travel.” Walker also confirmed that despite all efforts to minimize the pain of budget cuts, it’s impossible to cut $1 billion in a single year without some impacts to public services.

As Headlamp awaits the Governor’s budget proposal, we can’t help but think about all the times the Walker administration ignored the advice it opined. From hundreds of thousands of dollars wasted on negotiators, to a special session that burned through millions, the Walker administration has not exactly practiced the “belt tightening” it preaches over the past year As Headlamp is still waiting on the full extent of the spending, we can only assume there will be more fiscal surprises ahead.

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First Reads

State revenue forecast projects even less oil money this year
Alaska Dispatch News, Nathaniel Herz, December 8, 2015

Gov. Bill Walker: Alaska’s budget challenge, tightening our belts
Alaska Dispatch News, Governor Bill Walker, December 8, 2015

Continued low oil prices factor in sharp drop in Alaska revenue forecast
Associated Press, Becky Bohrer, December 8, 2015

Budget director uses money game to illustrate state’s plight
Alaska Public Radio News, Emily Kwong, December 8, 2015

 

Alaska Energy News

Economics, not just regulation, sidelined Shell’s offshore Alaska drilling plans
Alaska Dispatch News, Dermot Cole, December 8, 2015

Alaska coal has a vital role to play in the production of cleaner energy
Alaska Dispatch News, Tim Bradner, December 8, 2015

 

 

 

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How will oil and gas tax credits fare in the Governor’s Budget?

December 8, 2015 | Posted in : News

It’s no secret that the current administration is looking at oil and gas tax credits as part of the solution to the state’s large budget shortfall.  When Governor Walker introduces his budget tomorrow- Headlamp expects that a reduction or elimination of credits will be a key component.

The chart below shows some of the items the administration has considered and what the impact might be on the state budget:

 

Target

Savings Target

Notes

Exploration Credits to sunset on 7/1/16  

$0

 

Cook Inlet Drilling Credits

$150m-$200m 

Repurchase Limits

$150m-$200m

Payment Deferred, not eliminated

Interest Rate Increase

$25m

 

* These savings are targets, not hard numbers, and are assessed only on their potential savings in the state budget.  The impacts on industry investment, production, private sector jobs and the Alaskan economy have not been considered. 

When the budget details are released, Headlamp will assess what has been done with tax credits and how it might impact Alaska’ economy.

 

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The Morning Headlamp: 41 days until Juneau…quite the bill for AK’s special session…AK industry continues to look for solutions

December 8, 2015 | Posted in : News

The bill has arrived. According to KTUU coverage, October’s special legislative session cost Alaskan tax payers roughly $1.5 million. While Alaska’s part-time Legislature typically gathers in Juneau for 90 days, the regular session was extended eight days, and three special sessions were called. The first two lasted a combined 46 days and dealt primarily with crafting the operating budget, costing the state $441,724 and $454,543 respectively. A third special session that started in October lasted 13 days and ended with the state buying TransCanada’s stake in the Alaska LNG Project. Some receipts have not yet been tallied, but $567,527 has already been accounted for. Approximately $153,000 of that total comes from per diem, lodging and travel for legislative staffers.

Business group forms around fiscal deficit.  Alaska telecom company GCI has launched a new nonprofit project, OneAlaska, to rally Alaskans and their lawmakers behind a solution to the state’s fiscal crisis. The group says a major financial collapse caused by unresolved deficits poses a grave threat to GCI’s business model and the broader state economy.  Headlamp applauds OneAlaska for their recognition of the problem and looks forward to more detail about their plans. 

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First Reads

Alaska legislators spent $1.5 million on special lawmaking sessions
KTUU, Austin Baird, December 7, 2015

GCI recruiting allies as it ramps up campaign to tackle Alaska’s fiscal crisis
Alaska Dispatch News, Nathaniel Herz, December 7, 2015

 

Alaska Energy News

Cheap oil a good news-bad news situation
AP, December 8, 2015

Fuel-rich states face falling revenue, uncertain future
AP, December 7, 2015

Tanacross hydropower project nets $500K federal grant
Alaska Public Radio News, Robert Hannon, December 7, 2015

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The Morning Headlamp: 42 days until Juneau…Gov. Walker points finger at AKLNG partner…$850,000 for Boykin

December 7, 2015 | Posted in : News

Patience is a virtue. Covered by the Fairbanks Daily News Miner and the Associated Press, Governor Bill Walker said Friday that he didn’t want to hold up a vote to continue work on the AKLNG megaproject project while still seeking a commitment from ExxonMobil that he got from two other project partners. An Exxon spokeswoman, Kim Jordan, said by email that the company has been working to find mutually acceptable terms to advance the project and remains committed to doing so. “We, and many others, have communicated to the state, these agreements take time to negotiate and complete,” Jordan wrote. Walker seems to be pointing his finger at ExxonMobil, but the commitment he got from other partners appears to be an agreement to negotiate an agreement? The very fact that ExxonMobil and others voted for the 2016 plan is indicative of their commitment.

$850,000 for what? Rigdon Boykin, a commercial attorney, who earned more than $850,000 working as a negotiator for the state before his contract with the Alaska Gasline Development Corp. was terminated Nov. 30. Walker wouldn’t rule out bringing Boykin back to the project at some point. But for now, he said, “I don’t really see a role, necessarily, for him.” Asked about what Boykin had accomplished, Walker maintained the state got “its money’s worth Alaskans should be given the details of what work product we got for this money. 

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First Reads

$850,000 later, state ends contract with gas line consultant
Alaska Dispatch News, Nathaniel Herz, December 4, 2015

Wheels keep turning on gas line: State moving forward with LNG commitment; North Pole kicks off holiday celebration
Fairbanks Daily News Miner, December 4, 2015

Walker didn’t want to delay while seeking Exxon pledge
Associated Press, Becky Bohrer, December 6, 2015

 

Alaska Energy News

National Petroleum Reserve Issues First Permit for Oil and Gas Development
Heartland Institute, Alyssa Carducci, December 7, 2015

State, utilities prepping for Interior Energy Project
Fairbanks Daily News Miner, Matt Buxton, December 7, 2015

Democrats might give Big Oil a big win in Congress
Politico, Elana Schor, December 7, 2015

 

 

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The Morning Headlamp, 45 days until Juneau: AGDC votes Yes on AKLNG project

December 4, 2015 | Posted in : News

YES! After reports that a unanimous vote of approval was not guaranteed and with so much at stake, the AGDC board members and the state’s industry partners all voted to advance the proposed Alaska gas line project by approving a $230 million budget for 2016.

Thursday’s decisions allow the project to progress through another year of preliminary engineering and design work, which will cost an estimated $700 million by the time it’s done. A decision to begin final engineering and design is expected in 2017.

The specific details beyond the simple “Yes” vote get fairly complicated, but as always, Headlamp is here to help. For more information on what the vote actually means, check out the Headlamp’s summary:

  • $68 455,000 to acquire the interest held by TransCanada in AKLNG
  • $75,600,000 for the state’s share of preliminary front-end engineering and design work for AKLNG
  • $10,100,00 to the Department of Law for law firms to assist the Department of natural Resources draft and review contracts related to AKLNG
  • $1,849,500 to the Department of Natural Resources for a marketing lead position, a marketing analyst position, work related to FERC, facilities review, commercial analysis and audits associated with the termination of Trans Canada.
  • $1,045,500 to the Department of Revenue for work on financial analysis, project financing, governance, the revenue aspects of marketing and taxes, travel, contractual review and other costs related to AKLNG.

Headlamp applauds AGDC board members, BP, ConocoPhillips, and ExxonMobil for their collective decision to approve the budget and work plan for AKLNG in 2015. The work is far from over, and we hope the administration can continue on the right path toward becoming the responsible business partner it claims to be.

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First Reads

State, oil companies give gas pipeline project another year of funding
Alaska Dispatch News, Nathaniel Herz, December 3, 2015

Alaska gas line board votes to approve project work plan
Associated Press, Becky Bohrer, December 4, 2015

State, oil companies vote to keep Alaska’s natural gas pipeline project alive
KTVA, Liz Raines, December 3, 2015

Fairbanks Natural Gas customers’ rates will decrease starting Jan. 1
Fairbanks Daily News-Miner, Matt Buxton, December 3, 2015

Murkowski and other Alaskans lament ‘broken’ promises of 1980 land law
Alaska Dispatch News, Erica Martinson, December 3, 2015

Alaska Energy News

Interior gas project finalists narrowed to two: one from Slope, one from Inlet
Alaska Dispatch News, Elwood Brehmer, December 3, 2015

Two firms now vying for state support in Fairbanks natural gas project
Alaska Dispatch News, Alex DeMarban, December 3, 2015

Alaska Legislature News

Micciche focuses on revenue sources
Peninsula Clarion, Elizabeth Earl, December 3, 2015

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What does a “yes” vote mean for state departments working on AKLNG?

December 4, 2015 | Posted in : News

During the special session, the legislature appropriated money in the following manner:

  • $68 455,000 to acquire the interest held by TransCanada in AKLNG
  • $75,600,000 for the state’s share of preliminary front-end engineering and design work for AKLNG
  • $10,100,00 to the Department of Law for law firms to assist the Department of natural Resources draft and review contracts related to AKLNG
  • $1,849,500 to the Department of Natural Resources for a marketing lead position, a marketing analyst position, work related to FERC, facilities review, commercial analysis and audits associated with the termination of Trans Canada.
  • $1,045,500 to the Department of Revenue for work on financial analysis, project financing, governance, the revenue aspects of marketing and taxes, travel, contractual review and other costs related to AKLNG.

These appropriations were made, contingent on adoption of a work program and budget for AKLNG**, for calendar year 2016.

 

**The money to acquire the Trans Canada interest was not contingent on the work plan approval. 

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The Morning Headlamp, 46 days until Juneau: AGDC vote on AKLNG today at 1pm

December 3, 2015 | Posted in : News

A piece of Alaska light up DC’s holiday season. After a long journey, the 74-foot Lutz spruce tree from the Chugach National Forest was finally lit on the steps of the U.S. Capitol building. The ceremony included lawmakers from across the country such as Governor Bill Walker, Senators Dan Sullivan and Lisa Murkowski, and Speaker of the House Paul Ryan. True to form, the event drew a solid crowd of Alaskans, easily identifiable by a shortage of umbrellas in the misty rain, with a temperature in the 50s that more than one person noted is a bit closer to an Alaska summer day.

The day has arrived. The long-awaited AGDC board meeting to vote on progressing with the AKLNG work plan has finally arrived. The board of the state-owned corporation is scheduled to meet this afternoon with an agenda that includes whether to authorize paying the state’s quarter share of next year’s $225 million project budget. If the project continues in 2016, the full budget would be split with ExxonMobil, BP and ConocoPhillips, the three oil company partners of the state in the pipeline. The AGDC meeting will be followed by a Thursday afternoon closed-door session of all four partners in which each will have to approve the project budget.

In a prepared statement Wednesday, Walker’s spokeswoman, Katie Marquette, said negotiations over those guarantees were “still ongoing.” But in an interview Wednesday, Dave Cruz, AGDC’s acting chair, said the budget would be approved in Thursday morning’s board meeting. “We are moving forward with that,” Cruz said. He said he couldn’t, however, confirm whether Walker’s administration had received the written commitments of gas. None of the three oil companies would, either.

Meanwhile, Arctic Slope Regional Corp., which is doing some preliminary environmental work on the pipeline, has been running a radio ad since Monday. It urges listeners to call Walker and his board appointees to ask them to approve the project’s budget “for our economic future.” Asked how confident the corporation was that the budget would be approved, a spokesman, Ty Hardt, responded in an email: “The word is ‘hopeful’…But I’m not sure it’s close to unanimous at this stage.”

Headlamp would like to thank ASRC for their radio campaign encouraging a “yes” vote! 

 

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First Reads

State gas line official says project will continue, despite uncertainty
Alaska Dispatch News, Nathaniel Herz, December 2, 2015

Alaskan Christmas tree lights up the lawn of the U.S. Capitol building
Alaska Dispatch News, Erica Martinson, December 2, 2015

 

Alaska Legislature News

Senate group recommends prudence on tax credits
Alaska Journal of Commerce, Elwood Brehmer, December 2, 2015

 

Alaska Energy News

Senate Democrats renew battle lines over drilling on ANWR coastal plain
Alaska Dispatch News, Erica Martinson, December 2, 2015

Citing new projects, explorers urge preservation of tax credits
Alaska Journal of Commerce, Tim Bradner, December 2, 2015

 

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