AJOC EDITORIAL: Walker completes transformation of AGDC to AGPA

Gov. Bill Walker likes to talk about his background in construction and how much he loves building things, but so far after a little more than 18 months in office his most successful project has been demolition.

The effort to undermine and eventually dismantle the Alaska LNG Project that began within days of Walker taking office in December 2014 culminated July 22 with the official announcement that his former law partner and Attorney General Craig Richards had been signed to a $275-an-hour contract barely a month after he resigned citing personal reasons.

With his man Keith Meyer heading up the Alaska Gasline Development Corp., a compliant board of directors and a contracted legal hit team in place, Walker is ready to go it alone on the project and to war with the producers.

It is important to recall what Walker said while campaigning for the office about the Alaska LNG Project that was orchestrated under former Gov. Sean Parnell.

“I’ll follow the process in place now, you bet I will,” Walker said on Oct. 28, 2014, at an Anchorage Dowtown Rotary Club debate. “But at the first sign of delay, or someone says ‘we’re going to slow this down,’ that’s when the state needs to have a governor who understands what to do and has the guts to say, ‘we’re going to finish this project as Alaskans.’”

Having created the circumstances himself that threaten to delay the project, Walker now has what he planned for all along: a state takeover of AK LNG and a break with Alaska’s North Slope partners.

The shadowy effort to execute this plan began with Walker’s hiring of Jim Whitaker, the former executive director of the Alaska Gasline Port Authority, as chief of staff and Richards as his AG.

The AGPA was Walker’s effort to build a pipeline from the Slope to Valdez to export LNG, but it failed because the group never had access to any gas, which, ironically, is where the state finds itself once again.

In early January 2015, Walker unceremoniously sacked two members of the Alaska Gasline Development Corp. board of directors on the eve of a regular meeting. One of the members didn’t find out he’d been dismissed from the board until he got off the airplane in Anchorage.

Walker then instructed his new commissioners and new board appointments at AGDC to not sign confidentiality agreements, setting up his first of many unnecessary fights with the producer partners.

A month later, Walker wrote an op-ed in which he put forth a plan to create a parallel pipeline effort to AK LNG as a backup in case one or more of the producers pulled out of the project despite no evidence such a decision was even under consideration.

In June 2015, Walker sent a letter to the producers asking them to study a 48-inch pipeline rather than the standard 42-inch pipeline, which added additional time to the preliminary engineering process and cost $20 million. The study and expense ended up a total waste of time and money as the project team maintained the design at 42 inches.

Around that same time, Richards hired Mark Cotham, a Houston-based attorney who’d done contract work for the Port Authority and penned an op-ed in the Juneau Empire in 2005 that advocated threatening producers’ leases as a means to spur development of the Slope gas resource.

Also that month, Richards issued a legal opinion concluding that a constitutional amendment was needed to set fiscal terms for the state’s share of the gas over long-term contracts.

As it turns out, this legal opinion requiring a general election vote in 2016 on a constitutional amendment to keep the project on schedule was the most clever of all Walker’s strategies to drive a wedge between the state and the Slope producers. But we’ll come back around to that.

That September, Walker called a special session of the Legislature to buy out TransCanada’s share in the project and make the state responsible for 25 percent of the costs. Not only did Walker put the buyout on the call, but he also resurrected the gas reserves tax that his chief of staff Whitaker authored in 2005 that was voted down in 2006 by a 2-1 margin.

Much like his idea for a parallel pipeline effort, the idea was panned roundly by legislators and the producers as counterproductive and Walker — after his usual, doe-eyed, “What’s the big deal?” routine — ended up not even introducing a bill.

He did, however, later extort written statements from BP and ConocoPhillips that they would sell gas to the state if they chose to exit the project.

The Legislature then, rather gullibly, voted to give Walker the keys to the state portion of the project.

With the state’s 25 percent share acquired, Walker kept moving with his plan, declared that “We’re TransCanada now” and fired another two AGDC board members including chair John Burns and the CEO Dan Fauske.

Of course he wasn’t even close to done.

Two events then took place in January. Richards had Department of Natural Resources Commissioner Mark Myers send out a letter to all the unit operators in the state demanding detailed gas marketing information. Disguised by the apparent equal treatment of all operators was the true target: the Prudhoe Bay Unit operated by BP and the source for three-quarters of the gas for the AK LNG Project.

Walker then sent a detailed demand letter to the producer partners laying out a heavy schedule of commercial and gas balancing agreements he said were necessary to be completed by April in order to meet a June deadline to place a constitutional amendment on the November general election ballot.

Here is where the decision to require a constitutional amendment was the master stroke of the plan.

In February, Myers resigned as commissioner at DNR about a week after his Deputy Commissioner Marty Rutherford told Journal reporter Elwood Brehmer that agreements would not be complete in time for a November vote.

Securing fiscal terms is a critical component to moving to final engineering and design, and not getting it on the ballot — again, a situation created by Walker and Richards — achieved its purpose by throwing up a roadblock to the producers moving forward and gave Walker the opening to portray the companies as not committed to the project.

On the same day Myers’ resignation was announced and a week after the Journal story was published, Walker called what can only be described as a hostage video of a press conference on Feb. 17 dragging up BP Alaska President Janet Weiss and ConocoPhillips Alaska President Joe Maruschak to announce that progress had stalled on AK LNG.

By now, oil prices had dropped to less than $30 per barrel compared to the $80 range when Walker took office and started tearing down the project he inherited.

With the bonus of collapsing prices along with the artificial timeline of a constitutional amendment working as intended to derail negotiations — there was no reason talks couldn’t have continued absent a need to seal all the deals in time for a November vote — Walker instructed his team to break off discussions with the producers.

At this moment, Walker was pursuing Keith Meyer to take over AGDC, and he made his splash immediately after taking the job in mid-June by asserting the state could lead the project with or without producer participation, draw investors from around the world by selling off pieces of the project and do all of this with almost no risk to the state treasury.

Part of selling this idea to legislators required creating the perception that the producer partners were “shelving” the project and had no desire to go forward.

It didn’t take long for Meyer to keep putting words in their mouths before ExxonMobil fired back with a strongly worded response that Meyer was issuing “inaccuracies” and mischaracterizations about the company’s belief in AK LNG.

So here we find ourselves with the state’s best hope for future petroleum revenue drenched in uncertainty and Walker’s legal team preparing to litigate with the producers over unreasonable demands for confidential information tied to a unit that supplies half of Alaska’s unrestricted general funds and is still the largest field in North America.

Walker’s lack of transparency and honesty over his true intentions for the AK LNG Project have been borne out by his actions. He’s paid lip service to the project and our partners all the while taking every step possible to crater the effort.

What Walker wants is clear. What makes him think he’ll be successful other than a circle of like-minded people rooting him on is impossible to decipher.

This kind of litigation will take years upon years. Years the state doesn’t have to waste. Years that will extend well beyond one or two four-year terms for Walker.

Walker’s attempt to divorce the state from its partners and lead the way on a project that will cost $45 billion or more is doomed to fail, and will cost Alaska dearly.

The governor likes to say he ran to do the job, not to keep the job, but it’s questionable how many voters would give him the job again if they knew his ulterior motive was to blow up AK LNG and start a legal war with the Slope producers.

Alaska has a few brick-and-mortar testaments around the state to the government’s inability to execute mega projects, or even simple ones.

Walker’s Quixotic quest to build the gasline himself gives him a chance to be the state’s first living boondoggle.

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.

 

Updated: 
07/27/2016 - 1:35pm

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