Norway can teach us to control resources

I was privileged to participate with the legislators and community leaders from Kotzebue, Nome, Bethel, Dillingham, Southeast, Kenai, Kodiak, Wasilla, Fairbanks and Anchorage who met with ambassadors and top-level government and industry officials to learn about the Norway "model" of government-owned and developed oil and gas resources. Having traveled with the late Gov. Hickel to China in 2008, I know he would have been the first to enlist for the Norway trip, keeping with us even on the 18-hour days visiting industry headquarters and facilities across Norway.

Norway directly participates in the development of its resources. Norway and Alaska got into the energy game about the same time with big finds in the 1960s. Norway, however, has maximized its opportunities -- in contrast to the Alaska experience. Major oil companies explored for and developed Norway's first oil and gas fields but the government soon began to play a dominant role.

In 1972, the Norwegian State Oil Co., Statoil, was formed. Today, Statoil is one of the world's largest suppliers of oil and gas, operating in more than 30 countries, and the majority of its shares are owned by the Norwegian government.

Norway also instituted its State's Direct Financial Interest (SDFI) in petroleum operations. Through the SDFI, the government owns an interest in numerous oil and gas fields, pipelines and onshore facilities. As a stakeholder, the government pays its share of investments and costs while also reaping a corresponding share of the profits. This investment gives the government a head seat at the table as a decision maker with full access to all information.

Norway does not give development incentives/tax credits, which are another form of investment but on that return no direct revenue. The government's direct investment in the fields and share in the risk and revenues has not deterred participation, as evidenced by the 60-plus companies holding licenses in its oil and gas fields.

One example of the government's participation is its ownership of 46 percent of the country's nearly 8,000 kilometers of gas pipelines. A separate government entity operates the pipeline system. As we learned from Ole Anders Lindseth, director general of Norway's Petroleum and Energy Department, "Norway doesn't view its gas pipelines as profit centers for its resources." The regulated investment return on the pipelines is limited to 7 percent and therefore, the owners include, in addition to Norway, various pension funds, insurance companies and other entities that are satisfied with a 7 percent return -- which is wholly insufficient for leaseholders such as Exxon Mobil.

By comparison, should the state of Alaska embark on the All-Alaska Gasline/LNG project by taking ownership of the 800-mile gas line as infrastructure, the state would likely receive a federal regulated return of 12 percent -- a solid return for the state but not for the North Slope leaseholders who must appease stockholders with higher returns.

The Norway model is not a perfect fit for Alaska. But perhaps the most valuable lesson can be learned from Norway's refusal to allow the leaseholders to determine where and when its resources go to market.

Alaska must adopt this same approach. While our gas remains idle on the North Slope, multibillion-dollar long-term contracts in the Asian markets are announced weekly for LNG projects involving the very same leaseholders currently on the North Slope re-injecting our gas. That is wrong. But as long as we remain complacent, Alaska's ability to monetize its gas, deliver low-cost energy to Alaskans and increase oil production will be stifled.

In the same vein as Hickel's famous pronouncement, "You drill or I will," it is time for Alaska to step into its ownership role and proclaim, "We can. And we will."

Bill Walker ran for governor in the 2010 Republican primary. He is the owner of an Anchorage law firm that specializes in oil and gas and municipal law and serves as the general counsel for the Alaska Gasline Port Authority.