More on AGIA - Responding to Trip1050

A little over a week ago, Trip1050 responded to my post AGIA (Alaska Gasline Incentive Inducement Act)- The Cliff Notes.

I responded to his comments and then he wrote back. Here's a link to the three comments.
Many Alaskans live in very separate worlds. I thought his second comment might be a serious attempt at dialogue. I didn't respond right away because I wanted to think about it, and then other things got in the way. Now, I think this is worthy of a whole new post, not just a comment on a post most people won't ever read again. I hope I haven't waited so long that Trip1050 doesn't see this response. Here's Trip's second comment before I give my response.

Trip1050 said...

It appeared to me that the tone of the article was very much against "Big Oil". However, If I have misinterpreted your context I apologize. I am, in fact, an employee of a major producer here in Alaska. I withheld that information because, in today’s society especially, I do not want to create a situation where my company is held liable for my opinions or statements. Its not that I am trying to be cagey, I just am trying to avoid any legal conflicts in the future.

Several comments you made seemed to imply that companies involved with the Denali project cannot be trusted. That is a very bold statement to make about major corporations that have invested billions of dollars in the state of Alaska to set the standard of environmental practices, safe operating, and community assistance. At no point have any of the companies tried to “hide who is behind the project”. When you are dealing with a joint venture of this size, a very smart business move is to spin the project off into its own entity in order to ensure it gets the resources and focus it deserves. I don’t believe that its intent was to hide anything at all.

As to your analogy about the house, how would you feel about the deal if the attorney and real estate expert told you that the final price of the house could be plus or minus $50,000; but you won’t know until you sign the deal? I wouldn’t sign that. With no tax structure in place, the oil companies have no idea what to expect once they access the reserves. The government could raise the tax at any point, ruining the economics of the project. As with any business venture, you need to fully understand your costs before you embark on a project. My final comment, business is business, these companies exist to turn a profit. However, not at the expense of the community they operate in. These companies have formed great relationships with cities around the world and have operated respectfully for many, many years. I would caution you in your trust of the government, maybe I am a cynic, but I feel that this administration will try to do what makes them look best, not necessarily what is best.

To you sir..

Fri Jun 20, 03:50:00 PM AKDT

Trip, sorry it's taken so long to respond. I wanted to wait a bit, and then other things got in the way. We come to this topic from very different places and it’s easy to have knee jerk reactions. You read my tone, perhaps, more than my words the first time. The second time it sounded like you had engaged what I said more. I’m trying to do the same.

As I read your words I hear, “why are you so suspicious of the big oil companies?” with a hint that I’m naively trustful of government. You tell me

That is a very bold statement [oil companies can’t be trusted] to make about major corporations that have invested billions of dollars in the state of Alaska to set the standard of environmental practices, safe operating, and community assistance.

At this point some of my blogger friends would laugh and say that you are in the pocket of the oil companies, how could you be so naive? I’m trying to understand your position. I see two possibilities:

1. This is a totally cynical piece of oil company propaganda and you aren't here to seriously engage me; or
2. You really believe this.
   

I’m going to assume the second option and try to respond

• first why
  
• a) I don’t trust the oil companies and
  
• b) why I’m skeptical about what good citizens the oil companies are;
• second, to your response to my comments about the oil companies hiding behind the name Denali; (this really is a minor topic, but I don't want you to think I'm dodging);
  
• third, your comments on my faith in government and your high praise of oil companies;
• fourth, your response to the house buying analogy.
  

First, Trusting Oil Companies
a) My skepticism about oil companies' altruism - or any large company - comes from reading about business, history, and personal experience.

Starting with The Prize a Pulitzer Prize winning book that is an incredibly detailed history of oil starting about 1850, and going through a slew of books and articles including Confessions of an Economic Hit Man, there is a lot of evidence that oil companies (and other multinationals) have a lot of power and they use it primarily to their own benefit. And they’ve been led by men who had had their countries start wars if necessary to protect their interests.

And I know that oil companies take very good care of their employees - as long as the employees follow the written and unwritten rules and until they are no longer needed. Sohio employees were rudely shown this when Sohio made quick and paltry (by oil standards) severances before leaving. I've also watched friends of mine get their salaries doubled and tripled when they moved from government positions into oil industry related positions. I see it this way:

1. Oil companies pay so much above the local market that it is hard for their employees to match their income and corporate life style in other jobs except in other similar large multi-national corporations.
   
2. So it is in the employees’ best interests to be good corporate employees and good for their consciences to believe that their companies are wonderful and benign.
   
3. Now, it’s in every organization’s best interests to have loyal employees who identify strongly with them.
   
4. But oil companies have the money, unlike government agencies, to be more effective at this.
   (I know that this could push your buttons, but tell me specifically what is untrue in what I’ve said. Go sentence by sentence (1-4 above) and tell me why it is false.)

I also listened carefully to the oil company threats last year that the window was closing on the gas pipeline if we didn't go with the deal that Murkowski had worked out. And now, suddenly, that window seems to be wide open again. Explain to me once more why you think the oil companies have the welfare of the people of Alaska in mind? Actually, you asserted it as if it were an undisputed given, but you didn't explain why they are or demonstrate it.

I sat through the political corruption trials last year - all three of them - and listened to the tapes, watched the videos, and heard the witnesses. It was made very clear that Bill Allen was doing everything he could to impact the legislature - through means legal and illegal - to vote in ways that would be in the best interest of the oil companies. There is no reason for Allen and Smith to have made guilty pleas if they were not guilty. Each received $500,000 for legal fees as part of the sale of VECO. And each has many millions on their own. It was equally clear from those trials that the oil company executives were either aware of what he was doing specifically, or knew generally and were careful not to know specifically.

b) You write, "major corporations that have invested billions of dollars in the state of Alaska to set the standard of environmental practices, safe operating, and community assistance.",

Yes, oil companies make billion dollar investments because their projects bring them even more billions in return. And they make what appear to be large contributions to the community. But these are not out of the goodness of their hearts. I'm sure the various executives who decide where to give the money are happy to be able to help the opera or the university. And I'm sure the organizations treat them very well. But it isn't their money. And the gifts always come with the company’s name prominently attached.

These are corporations whose purpose is to make profits for their shareholders. Their job is NOT to give away money, UNLESS that charity is an investment in greater profits for their shareholders. It pays to make people in a community feel that the company is a generous, responsible corporate citizen. But a $10,000 donation to the Anchorage Opera by Exxon (based on their 2007 profits) would be the same as if a person earning $100,000 before taxes donated two and half cents! So these can sound like staggering amounts of charity, but they really are nothing in Exxon’s big picture. If I sent the Opera three cents, they would laugh at me. When Exxon does the equivalent the Opera publicly salutes them. You can say, but Exxon gives money to different organizations. So do I, but not three cents per organization. I won’t get into the oil spill settlement because I really don’t believe that punitive damages should go to the plaintiffs or their attorneys anyway; they already should have gotten compensated in the original payments. (Though I’m not sure they were, simply because proving much of the damage was not necessarily easy.)

The oil companies fought hard against the environmental standards that the environmental lobby forced on them before the pipeline could be built. Now they embrace them and write about protecting the environment in their ads as if they invented the environment. But despite, BP's green logo and environmental ads, we’ve now been told that BP refused requests for money to protect their pipes from corrosion leading to a significant spill not long ago.

And what oil companies are doing in Nigeria, Burma, or Central Asia where they haven’t been forced to maintain US level environmental or social standards seems to me to be in stark contrast to your statement that

These companies have formed great relationships with cities around the world and have operated respectfully for many, many years.

Well, I'm sure that the organizations that receive the oil companies largesse have good things to say. I'm sure the leaders of Burma and Nigeria have high praise for their international oil partners. But few in Alaska today think that Exxon was respectful of the community.


Second, your response to my comments about oil companies hiding behind the name Denali.
You write

At no point have any of the companies tried to “hide who is behind the [Denali] project

OK, I can see how you read this. That was part of my response to the oil companies taking an Alaskan icon - Denali - and making it the name of their plan AND then trademarking that name. By calling it Denali, it sounds like an Alaskan plan, not the plan of companies headquartered in Texas and London.

I wasn't trying to say that they literally were concealing who was behind the plan. Anyone who pays attention should be expected to know who is promoting this. But most Alaskans, or other US citizens, are not keeping close track of what’s happening. When they see “Denali Plan” they don’t instantly go, “Oh yes, that’s the Conoco-Phillips/BP plan.” It would have been more honest to call it the CP/BP plan. That was the sense I intended when I said they were hiding. (And I've heard critics of the Trans Canada Alaska proposal who said that by referring to it as TC Alaska, the State wasn't simply trying to make it easier to write and say, but trying to hide the Canadian link. That may be true, but it's not nearly as blatant as taking the name Denali.)

This may seem trivial to someone like you who would not for a moment mistake the supporters of the Denali plan, but for people who aren't close to this project, it isn't nearly that obvious. And I can't imagine that the people who named the plan Denali didn't think it through very carefully. I would be surprised if they didn't test it in focus groups even.

Third, my faith in government.
You write:

I would caution you in your trust of the government, maybe I am a cynic, but I feel that this administration will try to do what makes them look best, not necessarily what is best.

If you've read other parts of this blog, you'd know I don't blindly put my faith in government. Whether Republican or Democrat, the politicians have many interests to balance and I have to look closely to determine to what extent one option looks better than another. I look at the people who are doing particular things and evaluate who is likely to be most trustworthy.

Sometimes the choices are pretty grim. But in this case, the State team has offered us an enormous amount of data they’ve developed with the help of hired experts. The history that I know of the State people tells me that their honesty and dedication to the people of Alaska are as good as the oil companies’ executives dedication to their shareholders’ interests. In fact, the original post had a fairly long section on that.

While there are things the Palin administration has done that raise giant question marks in my mind, there is nothing to point out that the Governor would sell out the people of Alaska to maker herself look good. Whether she's making the right judgment is another issue. But my leaning toward TC Alaska is based on Tom Irwin's staff and experts, not on the governor's judgment of this.

I can't help but find it ironic that you question MY faith in government at the end of a paragraph that basically says the oil companies would do absolutely no harm.

My final comment, business is business, these companies exist to turn a profit. However, not at the expense of the community they operate in. These companies have formed great relationships with cities around the world and have operated respectfully for many, many years.

I've addressed my reasons for not buying that in that in the first point above.

Fourth, the house buying analogy.

You write:

As to your analogy about the house, how would you feel about the deal if the attorney and real estate expert told you that the final price of the house could be plus or minus $50,000; but you won’t know until you sign the deal? I wouldn’t sign that. With no tax structure in place, the oil companies have no idea what to expect once they access the reserves. The government could raise the tax at any point, ruining the economics of the project. As with any business venture, you need to fully understand your costs before you embark on a project.

My response:

• When we buy a house, we know the exact price because this is a relatively simple exchange - a house for a sum of money. The parties agree, and you make the exchange. But few brokers are able to foretell the political, natural, or economic events ahead. They won’t tell me whether future zoning changes, or highway construction, or mortgage scandals are going to lower my future property value. Nor will they likely tell me a wetland nearby is going to flood my basement. We go into all business deals with a certain level or risk.

• Like most metaphors, my house buying one, works at one level, but not at all levels. The issue of whether I should trust my broker or the seller’s broker has relevance in both the house buying situation and the public policy decision. Sure, I have to consider that the more I pay, the more commission my broker gets. And I have to be sure that my government representatives aren't taking bribes, and that they are smart and powerful enough to make the best deal.
  
  But comparing the uncertainty one faces in buying a house and the uncertainty faced in building a multi-billion, multi-year, international pipeline is not a good analogy. The political, economic, and technical uncertainties in such a pipeline are infinitely greater than those in buying a house.
  
  And because of the many uncertainties, the larger and longer term the project, the less likely a company can “fully understand your costs before you embark on a project.” But they do make best and worst case forecasts and decide the probability of each, and then decide whether to take the risk.

• But you also change the actor in the same line. In answer to the question of whether I would take a deal with a $100,000 (plus or minus $50,000) uncertainty, you write

  I wouldn’t sign that. With no tax structure in place, the oil companies have no idea what to expect once they access the reserves.

  “I wouldn’t sign” that, relates to what you were saying about trusting MY experts with that much uncertainty. But then you go on to say the oil companies shouldn’t sign an uncertain agreement either. But in this case, the people they would have to trust are the other party. Of course, they should listen to their own counselors. If they don't like the conditions the State is offering, well, they don’t have to sign on.
  
  As I understand it, Conoco and BP haven't signed. They are proposing to build their own pipeline. Trans Canada decided the state's deal was worth the risk. All the producers really have to do is decide whether to put gas into the pipeline. They don't have to build a pipeline. If they need to transport the gas one day, well then TC is going to build a pipeline. While there is economic risk still there, I see this more as a power play. If it were economically infeasible to use the gas, then why offer the Denali Plan? It sounds to me that when they didn’t submit a proposal, they really didn’t expect anyone else would submit a credible proposal. But TC Alaska did. And now they are trying to get back into the game. There are lots of reasons that owning the pipeline, on their own terms, would give the producers lots of benefits.
  

At least that's how I understand things. The point of posting this on the blog is NOT to convince others, but to have others point out where my reasoning and/or facts are flawed.

I don’t have a vested interest in either TC Alaska or the oil producers. I never heard of TC Alaska until a few weeks ago. I’m just an Alaskan who is trying to figure out what the best deal is for the state. I could be totally wrong, but this is my way of seeing it.

I’m sure, Trip, that nothing I’ve written here has changed your mind in any way. But I’ve addressed your questions in detail. Tell me where my facts and/or assumptions are wrong. And give me your evidence and reasoning to support your contentions.

Or anyone else out there.