Confidentiality regs get pushback from producers, AGDC

  • Alaska Gasline Development Corp. CEO Dan Fauske told his board of directors Nov. 12 that the schedule is slipping on AK LNG milestones, but that it is still possible to begin the full engineering process no later than mid-2017. Photo/File/AP

Who can see, and say, what has become a contentious issue as the Alaska LNG Project moves toward some key milestones.

The state’s partners in the $45 billion-plus North Slope liquefied natural gas pipeline project, the Alaska Support Industry Alliance and Alaska Gasline Development Corp. leaders have all taken positions against draft regulations that would make public the contracts the state enters related to the project.

The Alliance is a trade association that represents about 500 businesses that work in the state’s oil and gas and mining industries.

The proposed confidentiality regulations, first presented at AGDC’s Aug. 13 board meeting, would keep financial reports, business plans and other proprietary information of partner companies private. However, contracts AGDC could enter into would be made public at least 10 days prior to the board meeting at which they would be considered.

AGDC President Dan Fauske said in an interview that he takes issue with making contract terms public because the producer partners — BP, ConocoPhillips and ExxonMobil — do.

The regulations are a “speed bump” that the project won’t be able to get over as they are currently written, Fauske said.

“I just want agreements that enhance the development of this project — that the state’s happy and the producers are happy (with),” he said.

The regulations were drafted primarily by the Attorney General’s office, in coordination with AGDC legal counsel, according to corporation spokesman Miles Baker.

They are very similar to the confidentiality rules followed by the Alaska Industrial Development and Export Authority, which makes its contracts public. AIDEA typically acts as a state lender to private business, but has delved directly into smaller oil and gas business deals in recent years in Cook Inlet and on the North Slope.

However, AIDEA often holds much of the leverage in its partnerships with smaller companies as the primary financer of a project, as opposed to AGDC through the State of Alaska, which just acquired 25 percent of the immense project.

There is no timeline for the AGDC regulations to be adopted.

AGDC board chair John Burns said at a Nov. 12 meeting that a committee consisting of board members Rick Halford, Dave Cruz, Joey Merrick and corporation attorney Ken Vassar would take up the regulations.

“We are very cognizant of the (regulations) issue,” Burns said.

All three producers submitted questions and comments expressing concern over how the draft confidentiality regulations would affect the progress of the Alaska LNG Project during a public comment period that closed Oct. 21.

ExxonMobil Commercial Advisor Bill McMahon submitted a letter that states the producer is troubled by the proposed confidentiality guidelines and it believes they would prohibit AGDC from continuing in the project if they are adopted.

“Disclosure of the commercial terms relating to the AK LNG Project would not only be to the competitive detriment of the AK LNG Project, but also would put the AK LNG participants at a significant disadvantage in commercial negotiations with potential LNG buyers, potential contractors, suppliers and vendors to the project and potential lenders,” McMahon stated.

He added that the Legislature has already given AGDC authority to enter confidentiality agreements necessary for the project under House Bill 4 and Senate Bill 138, the legislation that formed AGDC and outlined the project process, respectively.

ConocoPhillips Senior Lead Negotiator Patrick Flood noted in eight pages of formal comments that state participation in a competitive gas project is unique in the United States and echoed that the Legislature provided AGDC with broad powers to participate in the project.

BP contends the proposed regulations would allow for information previously considered confidential to be released to the public without consent. The company signed a confidentiality agreement with AGDC May 9, 2014, according to its comments.

“Public disclosure of this information could jeopardize the competitiveness of the Alaska LNG Project,” BP stated. “It would also deter third parties form disclosing their confidential information to all the Alaska LNG Project participants and impair the ability of the project participants to share technical and commercially sensitive information with each other.”

Fauske, the former head of the Alaska Housing Finance Corp., and AGDC Vice President of Commercial Operations Joe Dubler, who served as AHFC’s chief financial officer before moving to the gasline project, both likened making AGDC’s contracts public with making public the mortgage term sheets AHFC has agreed to with thousands of Alaskans. Under AHFC regulations that information is kept private.

“I think what’s being missed here in this whole thing is in a lot of cases it’s in the state’s best interest not to disclose that (confidential) information,” Dubler said. “When you’re talking about information your customers can use to determine what it cost you to produce the gas — when you sit down and negotiate with them — if they know what it cost to produce the gas, guess what they’re going to offer your for that gas: it’s not going to be a whole lot more than what it’s costing you.”

According to a description of the draft regulations provided by AGDC, the corporation would continue to honor all third-party confidential agreements made prior to April 1, 2015. The regulations state that no contract the corporation enters after Dec. 1 to protect the confidentiality of information shall itself be treated as confidential.

The confidentiality issue is festering as the state looks to secure financial agreements with the producers that will need to be in place before a constitutional amendment needed for the project can be approved by the Legislature. The Legislature needs to have the amendment wrapped up and ready for the fall election ballot by June 24 to meet statutory requirements or the whole timeline could be delayed two years.

At the same time, the project is moving towards the end of the pre-front end engineering and design, or pre-FEED, stage later next year — the end of which will require significant decisions by all parties as to whether or not the project should continue.

Fauske said the challenge with not signing strong confidentiality agreements is that what is deemed confidential by one party could be debated by another, slowing the whole process down.

Currently, two AGDC board members, board chair Burns and Cruz, have signed confidentiality agreements. They signed the agreement that all corporation employees and board members signed prior to Gov. Bill Walker’s administration, according to AGDC’s Baker. That agreement binds those who have signed it to any confidentiality agreement the corporation enters into with third parties.

In January, Walker fired three AGDC board members and ordered new board members not to sign the confidentiality agreement. Around the same time, Attorney General Craig Richards said in an interview with the Journal that the current requirement, which is still in place, keeps too much information from the public and that a new policy could be expected that would allow more open discussion of Alaska LNG Project issues while protecting certain private information.

Walker has not signed a confidentiality agreement relating to the Alaska LNG Project, however he can review the same information that is available to the CEOs of the three producers, according to his spokeswoman Katie Marquette.

Fauske said the Legislature appropriates all the money AGDC spends and what it will be spent on is vetted in committee hearings.

“You trust the system that you have in place to work,” he said.

“We’ve got to start acting more like business partners instead of regulators.”

Elwood Brehmer can be reached at [email protected].

11/18/2015 - 3:39pm