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Alaska Gov. Sean Parnell: Unlocking Alaska’s Oil for Alaskans

Alaska Support Industry Alliance Meeting

Governor Sean Parnell
October 9, 2012

As your governor, I just want to say: Thank you for that warm welcome, and thank you for what you do here at the Alliance.

I want to recognize a couple of people. Is there anybody in this room, who is part of the industry, who worked in Cook Inlet or Kenai region before Prudhoe? Let’s give them a hand.

I need those guys to stay standing. Now, if you participated in building or in construction in Prudhoe Bay or the Pipeline System, would you stand up? Let’s give them a hand.

I just want you to know, as your governor, that we appreciate all you have done and the vision you have provided. Thank you for the time you have given us all these years. Thank you for growing opportunity for Alaska.

So, how is Alaska doing in the oil and gas sector?

Tom -- thank you for your service this last year. You’ve mentioned the attempts, the things we’ve worked on that we haven’t quite succeeded in yet, in terms of increasing production, but let me talk about a few things, where we’ve had some good news and made good progress this year:

We resolved long-standing litigation over Point Thomson. That created more jobs and opened opportunity for a large-diameter gas pipeline.

Liquids production from Point Thomson is about three years off. We moved the gas pipeline project off of high center, and that is very promising.

For the first time in Alaska’s history, the three producers are aligned with a pipeline company to move a gas pipeline project forward—an all Alaska LNG project.

They’ve met the benchmarks for progress I set in my State of the State speech, and they now have a team, a work plan, and a budget to advance the project.

That gas line, when completed, will have five off-take points for Alaskans. It bears repeating, so Alaskans directly benefit from our natural gas.

After taking care of Alaskans first, we then can sell massive amounts of surplus gas to places like Japan and Korea. That will create more jobs and state revenue here, more opportunity for Alaskans.

Recently, I travelled to meet with CEOs and senior executives of gas companies and utilities in Japan and Korea to prime the pump for Alaska’s gas line project. The week before, DNR Commissioner Dan Sullivan also went to these countries to speak at an LNG conference and host briefings for company representatives.

This coordinated effort put Alaska on the map again as being serious about bringing our gas to market.

We reinforced Alaska’s record of reliable delivery of LNG – thanks to companies like ConocoPhillips and Marathon, that have made consistent LNG deliveries to Asia for more than 40 years. Let’s give them a hand.

Reliability and stability is a big deal in the Pacific Rim.

The Japanese and Korean executives had also taken notice that all three CEOs had gathered here in Alaska at my invitation last January. They see that meeting as a strong signal of shared purpose around an Alaska gas line.

Besides our North Slope gas potential, Cook Inlet, right out our back door, is another bright spot for oil and gas. Cook Inlet’s uptick is being driven in large part by tax incentives and the tremendous resource potential still there. Cook Inlet is proof that taxes do matter, and tax reform makes a difference.

As for the federal government, you already know I’ll stand up and fight for Alaska when the federal government overreaches. We’ve stood against land lock-ups, permitting delays, ESA listings, ocean zoning, and the list goes on. You know, that where Interior or the EPA fail to follow their own rules or treat us unfairly, the State of Alaska steps up and fights for you.

As Alaskans, we are blessed with such a vast resource. Cook Inlet, the North Slope, all around the state. And, Alaskans cannot afford a “do nothing” policy that leaves our resources—our oil—locked in the ground.

Here’s what I mean: There are two very different economic views at work among legislators when it comes to our economy and our oil.

One group holds that Alaska’s economic pie is about as big as its going to get, and it’s shrinking. This group says that because Alaska’s economic pie is as big as it’s going to get, the government has to grasp more, to get all the money it can now. You know the senators I’m talking about: Senators French, Wielechowski, Paskavan and others like-minded senators, with just a different view of how it works.

Another group of legislators and I hold that Alaskans can grow our economy. That more capital will flow here from other areas, more oil production will result, and more jobs will be created for Alaska residents. We believe in growing the economic pie for all Alaskans.

I appreciate the work of the Alliance, and many of you have been to Juneau multiple times to make the case for economic growth. The Alliance, the Make Alaska Competitive Coalition, and every person and group or business that has worked to grow opportunity for Alaskans, I just want to say thank you. Your advocacy has been noticed. It’s made a difference and it will make a difference in the year ahead. You’ve worked with us on tax reform, regulatory reform, on better access to lands, and more.

You recognize that our future, and that of our children and grandchildren, depends on winning the economic argument for growth. Not passively accepting status quo decline.

You all know that to turn around Alaska’s oil production decline, we have to be more competitive than North Dakota and Texas, and many other places around this world.

These senators I mentioned, and those who think like them, have done nothing to turn around declining North Slope production. They’ve done nothing to grow Alaska’s economy. Instead, they protected status quo decline.

First, in 2011 these senators opposed growing oil production by saying, “We’re doing fine—see how those job numbers are increasing on the North Slope?”

Conveniently, they didn’t tell the public that the job numbers were up primarily due to maintenance work on an aging field—maintaining declining production—that shrinking pie.

Then they said, “New investment will happen without us lowering taxes.”

But in the legacy fields, the facts don’t support that argument. Company dollars are moving away from Alaska’s vast untapped viscous and heavy oil resources in our legacy fields. The companies will continue to harvest that lighter oil for years, but not the viscous or heavy oils.

What does this mean for Alaskans? It means Alaska’s viscous and heavy oil, which are more costly to produce, will remain in the ground at places like Prudhoe, Kuparuk, Nikaitchuq, and Milne Point.

Is that important? Yeah, you’re darned right. Those viscous and heavy oil reserves are estimated at about 30 billion barrels. Simple math tells us that senators with a “spine for decline” are costing Alaskans tens of billions of dollars in the long run.

The bottom line— “our oil” – Alaska’s viscous and heavy oil -- remains locked up – even while the price of oil is high. Alaskans cannot benefit from oil trapped in the ground— the result of doing nothing.

Next, in 2011, these same senators moved off the jobs and “everything’s ok” arguments and said, “We need to study this some more.” So they did, with legislative funding over a million dollars in contracts on oil tax consultants.

Then, when the consultants told them the same thing we’ve been saying, that Alaska wasn’t competitive at higher oil prices, these same senators again did… nothing.

They went on to argue, “We can’t lower taxes without guarantees.”

You can almost see the pie they are looking at—their pie is shrinking so they have the attitude of: “We better get all we can now.”

But history demonstrates the opposite works. When Alberta lowered government take, company investment returned.

Where more favorable tax terms are in place in North Dakota and Texas—our contractors have gone there for work.

When Alaska’s head tax was lowered, ships and passengers returned.

When more favorable tax terms were put in place at Cook Inlet, more aggressive company investment returned.

It’s clear that our administration’s policy is to lower taxes, to drive more investment, to drive more production, and create more jobs for Alaskans.

The less you tax something, the more of it you’ll get. Our experience demonstrates this, as does our neighbor’s.

On the other hand, the only guarantee Alaskans have now with higher taxes at high prices is decline. That is not in Alaska’s interest.

Opponents of tax reform talk about how they are concerned over a supposed “$2 billion giveaway.” This bumper sticker slogan goes in the category of, “if you say something false often enough, people will believe it.”

They fail to tell Alaskans that the “$2 billion” figure was from one scenario that assumed no new production would occur if tax reform passed as originally proposed.

Those same legislators heard company representatives commit to $14 billion in new investment if tax reform passed. Do we really believe that companies would invest over 14 billion dollars just because they like us? I think not. I think it’s because they would because they believe there’s new production to be had, where Alaska wins as well.

As justification for doing nothing, the opponents of tax reform also proudly claim, “It’s our oil.” And it is. It is our oil as Alaskans. Then why are they doing nothing to unlock our oil? Why are billions of barrels of Alaskans’ viscous and heavy oil locked up in the legacy fields while company investment flows to North Dakota, Texas and beyond?

If they really believe it’s our oil, then why are they satisfied with status quo decline? Why have they done nothing to get us new production now?

The notion that tax reform is a “giveaway” is classic “tax more, spend more” government thinking. It’s that Obama-like thought process that the pie is as big as it’s going to get and the government has to grasp everything it can.

Well, I say we need a different vision for Alaska’s future, one where we can grow this opportunity for Alaskans. We don’t need decline. We need increased production. We need a vision from our Legislature that unlocks Alaskans’ oil for Alaskans.

I say we reject the desperate mentality of clinging to decline. Let’s set the bar higher for our state. Let’s shoot for more production—a lot more production.

Together, we will do everything we can – and you have been working hard with me -- to unleash more production and unlock Alaska’s oil for Alaskans’ benefit.

More oil can flow through the pipeline.

More jobs can be created.

And more Alaskans can prosper.

That’s an economic future we can all stand for.

Thank you.

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