Sheldon Fisher: ‘We owe the credits’ to oil companies

By
Suzanne Downing
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GOVERNOR BILL WALKER BOWS TO CHINA PRESIDENT XI JINPING AS THE PRESIDENT’S CHINA AIR JET STOPS IN ANCHORAGE FOR REFUELING ON FRIDAY.

AND BY ‘OWE,’ HE MEANS …

For the past three years, the Walker Administration has paid only lip service to a huge debt owed to small oil explorers that came to Alaska to look for oil in Cook Inlet and the North Slope.

Instead of paying the credits owed, Gov. Bill Walker has stiffed the companies by paying only the required minimums.

The impact on Alaska’s reputation as a stable oil province has been felt around the world.

One company owed money by the State of Alaska has filed for bankruptcy, while others are getting nervous the State of Alaska could simply starve them to death.

Walker has another chance to get it right as he prepares his next budget for the Dec. 15 deadline. As he cuts a deal with China on the gasline this week, banks around the world are watching to see if he makes good on current promises. Bankers are waiting and growing impatient as they have to keep refinancing small oil companies who can’t make their own timely payments because of Walker’s actions.

A SHIFT IN APPROACH? 

Last week, a slight shift of message occurred during a Senate Finance Committee meeting, when Sen. Anna MacKinnon asked Commissioner of Revenue Sheldon Fisher whether the Walker Administration understands that the State actually is obligated to pay these bills.

In a week full of dramatic hearings on criminal justice reform and opening the Arctic National Wildlife Refuge Coastal Plain for oil development, the nuanced answer Fisher gave might have been lost in the din.

“Yes, we acknowledge we owe the credits,” Fisher said. “And the only question is what is the rate of which we are going to pay them off and something we need to work on.”

It signaled a change in the Walker Administration doctrine, which has developed a hostile stance with not only major multinationals like Exxon, but now with small independent oil companies.

Fisher and the Office of Management and Budget are in the final stages of budget preparation. Gov. Walker must present to the Legislature his FY19 budget by Dec. 15, a budget that will be debated and signed during his re-election cycle.

THE BLUE CREST CASE

For the past three years, Walker has vetoed payments due to small oil explorers like Caelus Energy, Glacier Oil and Gas, ASRC, and Blue Crest.

These are among the companies lured north by the State of Alaska with promises of certain tax credits to entice them to explore for oil in Alaska.  But, since the Walker Administration stopped paying those credits as soon as it took office, those small independent companies are having to explain to their own lenders why they are not getting paid the now-delinquent tax credits they were planning to use to service their bank debt.

In August of 2016, Blue Crest Energy of Fort Worth, Texas hit the pause button on its oil wells in Cook Inlet. It was getting ready to lay off 150 or more full-time workers. It could not afford to continue if the State was not going to pay it the money owed Blue Crest for getting the Cosmopolitan Unit into production.

“What (the governor’s action) did is create a tremendous distrust of the state’s integrity going into the future,” BlueCrest President J. Benjamin Johnson told Petroleum News in 2016. “Unless something is worked out to help the small oil companies work through the payment delay, this is going to have a long term negative impact to the state and will surely come into play as the state tries to obtain financing for new capital programs.”

 

HENDRIX

John Hendrix

At the time, the governor’s oil and gas adviser, John Hendrix, said the Administration needed to see some production from the field so the state could get some royalties. The problem was, Blue Crest was producing and needed cash to keep going and it needed the State to pay its bill.

But John Hendrix took a hard line on the small companies. He told the Alaska Dispatch News:” We want them to have success and they’ve been working hard, but we need to see some production also. Drill for oil, not tax credits.”
It was a slap in the face.
Earlier this year, BlueCrest planned to suspend development drilling at the Cosmopolitan unit, saying the $75 million to $100 million the State owes it are too big a concern to ignore.
The hard line that Walker has taken against the small explorers has many observers concerned. Hendrix not only implied that Blue Crest wasn’t producing out of Cosmopolitan (which it has been), but he’s been badmouthing Caelus Energy, too, dismissing their massive find at Smith Bay. Hendrix’s attitude toward the Smith Bay field is now lore being passed through industry representatives in Alaska whenever they gather to discuss the future of oil in Alaska.
Rep. Les Gara even brought it up during committee hearings last week, saying that Hendrix was not a fan of Smith Bay.
“I know Mr. Hendrix was around and he was not so happy about it being pitched as a find,” Gara said. “As he described it, it was maybe a couple of wells and nobody knew of whatever pools of oil they saw were blocked off by formations that would make the field too difficult to drill.”
No one knows why Hendrix turned from an advocate for the oil exploration sector to someone now viewed as an adversary. He was brought into the Governor’s Office to be a powerhouse and help the governor get his priorities right. He came directly from Apache Corporation, a company that took tax credits payments from the State of Alaska, produced nothing, and left the state. He has served on the board of the Alaska Oil and Gas Association.
WALKER IN CHINA MAKING NEW DEALS
This week, Gov. Bill Walker is in China trying to complete a deal for the gasline he imagines will be built across Alaska. But while he’s signing ink to a memorandum of understanding, Walker has a string of broken deals and broken companies behind him.
While he travels back to Alaska from China, his budget people may want to hammer out a plan for paying those delinquent tax credits, because the banks who would finance his gasline — Bank of America, Credit Suisse, ING — are watching to see if his administration is even credit-worthy in light of its lack of performance on current debts.
In the past, Walker has proposed ways to pay down the tax credit debt, but it’s always been a lever against oil companies: He won’t pay them unless there’s a broad-based tax, and a higher oil taxes. He’s always said he had to have his whole fiscal plan — all the marbles — before he’ll make good on his obligations.
“The policy gyrations have also not been lost on our banks, Glacier Oil & Gas CEO Carl Giesler told the Alaska Business Monthly. “Many of the banks we’ve talked to about a revolving credit facility literally end the conversation when we mention that our assets are in Alaska. The state’s oil and gas sector has relatively few operators. The current fiscal policy uncertainty compounds the difficulty banks have committing human and financial resources to a relatively small market for lending services. Also, some banks have been burned by making loans against earned cashable tax credits that have not been paid.”
The reputation problem Alaska has is real. Walker’s challenge now is to show that Alaska is open for business, not only to China, but to small American companies and the banking community.

5 COMMENTS

  2. Alaska does not owe credits to the oil explorers. If these companies cannot make it, then, they should declare bankruptcy.

    • The State of Alaska entered into contracts to encourage work in the Cook Inlet or on the North Slope. If the state walks off on its obligations (tax credits), should another company enter into a future contract with the State of Alaska?

      No successful business can engage in this straight forward illegal activity. Why sign a contract or even a MOU with a party that does not honor its side of the deal?

  3. Welch Walker strikes a deal? Somehow I foresee the people of Alaska and the people of China getting shafted by this “deal” – so far just an MOU (or is that MOU…SE). Walker gets the photo op, Trump did the deal.

  4. Sorry, I should be rejoicing foir the possible good this will do, but I will believe it when it happens.

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