Head of conference committee says Hilcorp helped influence failure of Alaska LNG bill

The chair of a legislative conference committee that released a proposal for a compromise Alaska LNG bill that failed to pass Thursday said the project developer withdrew its support for the measure after oil and gas producer Hilcorp reached out to “twist” the company’s arm.

But the version of events laid out by Rep. Calvin Schrage in an interview Friday was challenged somewhat by a lobbyist for Glenfarne, who said that while Glenfarne changed its position on the bill, it did so without pressure from Hilcorp. One factor for Glenfarne, however, was how the bill would affect Hilcorp and potentially lead to downstream cost increases for the Alaska LNG project, the lobbyist said.

A spokesperson for Glenfarne also had a different take in a text, saying it was “misleading and incorrect” of the lawmaker to say the company had ever supported the bill.

A Hilcorp spokesperson declined to provide comment for this article.

Schrage, an independent lawmaker from Anchorage, chaired the six-member committee that created the compromise bill that ultimately failed on Thursday.

The committee advanced the bill 4-2 early Thursday with Schrage’s support, leading to the floor votes where the bill was approved in the Senate and died on a tie vote in the House.

The bill contained a provision that would expand the state’s corporate income tax to include Hilcorp and other oil and gas companies that are S corporations or limited liability companies, while exempting the Alaska LNG project itself from the income tax.

Gov. Mike Dunleavy, an opponent of the corporate income tax expansion, on Thursday called a third special session on the topic starting July 27, so the Legislature can again consider a multibillion-dollar property tax break to help the project win financing.

Schrage: Glenfarne got ‘cold feet’

On Wednesday, Schrage said he spoke with Adam Prestidge, president of Glenfarne Alaska LNG, who has represented the company in Juneau as lawmakers pursued a bill that could support the project.

Schrage said he understood that Glenfarne, based in New York, supported the bill that had been developed by the conference committee.

Glenfarne ”didn’t ask for the S-corp (provision) to be in it,” Schrage said. “They didn’t particularly want it in there, but it didn’t impact them. And the bill met their needs and would allow them to have a good chance of moving forward with the project.”

Glenfarne had said it would issue a statement supporting the bill, once the conference committee released it publicly Thursday and moved it to the full Legislature for votes, according to Schrage.

“I told (Glenfarne) everything that was in there, and anything that was new from the prior committee substitute version (of the bill),” Schrage said. “They were pleased with the changes. Their top concerns were addressed. Again, they felt that the bill was viable, and once we made it public, (they) were willing to make a public statement in support of the bill.”

But early Thursday, Schrage said he reached out to Glenfarne lobbyist Wendy Chamberlain to confirm that the company still planned to express public support for the bill.

“That was when I got the first indication that they had gotten cold feet,” Schrage said. “The statement I got was that they were trying to get ahold of me. They needed to talk to me about that.”

With only days before the end of the special session Sunday, Schrage said the committee had to move ahead with the meeting to get the bill to the full Legislature, with its proposed corporate income tax expansion and the project exemption.

Applying the corporate income tax to pass-through entities in the oil and gas industry has been a major demand by the 14-person Senate majority, in part to make up for a portion of lost income to the state under the agreed-upon tax break for the project.

Hilcorp, which operates the state’s largest oil field and holds much of the gas that could be provided to the project, if it is built, has been viewed as the main target of the proposed corporate income tax expansion.

Critics of the expansion, including members of the House minority, have said that it did not belong in the bill, and that it could hurt the gas line‘s viability and threaten valuable oil and gas production in Alaska if Hilcorp and other producers and explorers with similar corporate structures are forced to pay more.

Schrage said that after the committee approved the bill, “Glenfarne got ahold of me and told me privately that they, regrettably, despite their support for the bill, had had their arm twisted by Hilcorp and were no longer able to support the bill,” he said. “That if they did so publicly, that Hilcorp would make all of their contracts that they would need to enter into in the future nearly impossible to negotiate, and for that reason they would be unable to support the bill and would have to insist on a clean version of the bill according to them.”

The message from Hilcorp was that they did not support the income tax measure, Schrage said.

“It’s frustrating, it’s disappointing. We had a real opportunity to move this gas line legislation forward, give this project a fighting chance, and a Texas billionaire decided to shut the whole thing down because he didn’t want to pay a tax” even though the company once told lawmakers Hilcorp would pay it if required, Schrage said. He was referring to Jeffery Hildebrand, founder of Hilcorp Energy, the large, Houston-based, privately held oil and gas company.

Chamberlain: ‘Financial pressure’ was the issue

Wendy Chamberlain, a lobbyist for Glenfarne, said in an interview Friday that there was no arm-twisting by Hilcorp.

Hilcorp has “been very, very clear” about its opposition to the corporate income tax expansion, and Glenfarne has long been aware of that, she said.

“We did change our mind, you know, absolutely did,” she said of Glenfarne. “We’ll go with that, right? We told Calvin that we’d support it.”

But there was not pressure from Hilcorp, she said.

The change came because Glenfarne learned on Wednesday that the corporate income tax expansion would be part of the bill, something the company had not expected the conference committee would include, she said.

When Glenfarne realized it would be included, it changed its position on the bill after exploring the potential impact of the tax, she said.

The company communicated about it with Hilcorp, which would be one of the project’s largest suppliers of natural gas and operating fields that supply the gas for the pipeline, she said.

A corporate income tax on Hilcorp could lead the company to pass along its increased costs, in the price of gas that the Alaska LNG project would buy from Hilcorp, she said.

That could affect the project’s financial numbers “dramatically,” she said.

The potential impact was uncertain, she said, adding another complication with the bill. One unknown in the bill was whether or not natural gas from Hilcorp would be considered part of the project and therefore exempt from the corporate income tax, or not, she said.

In addition, Glenfarne faces a cap on the price of gas it can sell to utilities in Alaska, at $16 per MMBTu and rising with inflation. That was included in the conference committee bill, and it is a measure sought by Alaska lawmakers seeking to protect Alaska ratepayers, and one that Glenfarne has accepted, Chamberlain said.

With expectations for higher gas prices on the front end, and with the price cap, Glenfarne could not support the corporate income tax provision, Chamberlain said.

“When we say we’re feeling pressure, we need to clarify we, Glenfarne, we’re feeling pressure and it’s financial pressure,” Chamberlain said, not pressure from Hilcorp.

Chamberlain said she understands Schrage’s displeasure.

“To be honest, I get the representative,” Chamberlain said. “We did say we’d support it, and then when he told us (about the income tax provision), we said we wouldn’t.”

“We couldn’t do it, and so you can see the problem,” she said. “He’s disappointed. We’re disappointed. He’s a good guy.”

“You know, to be honest, I felt really bad we had to go back,” she said. “He did a tremendous job for us.”

Tim Fitzpatrick, a spokesperson with Glenfarne, said in a text on Friday responding to Schrage’s allegation that the company did not take a position on the bill.

“This is misleading and incorrect,” Fitzpatrick said in an email. “Glenfarne didn’t take a position on a bill we hadn’t seen, and once we saw the bill we immediately opposed it because of the S Corp income tax increase, which we have consistently opposed. This tax increases commercial and economic uncertainty in Alaska for the whole industry working together to support this project and bring energy relief. With a $16 project energy price cap, it makes project economics challenging and will result in higher energy costs for Alaskans.”