AD Main Menu

Parnell's long history with oil and gas

Craig Medred

Once more Sean Parnell finds himself in the mix of negotiations between the state of Alaska and the world's most powerful oil companies, but this time there is one big difference: No longer is Parnell a bit player.

Today, as he stands for election for the first time as Alaska's head of state, he finds himself an incumbent governor sitting on about $35 billion in what the 49th state calls the Permanent Fund, and holding in his hands the power to manipulate oil taxes that could be worth even more over the long term. Both could be key, or not, to finally getting work started on a long-anticipated gas pipeline from Alaska's North Slope to anywhere.

This is old, familiar territory for Gov. Sarah Palin's replacement. He has been involved with oil and gas issues in Alaska for decades now -- first as the co-chair of the state Senate Finance Committee and a member of the Energy Council, a coalition of elected representatives from 10 oil producing states; then as director of government relationships for ConocoPhllips, one of Alaska's biggest oil producers; then as deputy director of the state Division of Oil and Gas under Gov. Frank Murkowski; then as a partner in the global law firm Patton Boggs, which just happened to represent the Alaska interests of Exxon Mobil Corp., another big Alaska oil producer; and finally as the energy adviser to Palin, the anti-Murkowski.

Over the years, Parnell has jumped the fence between public and private oil interests more than a snowshoe hare being chased by a pack of Arctic foxes. Congressman Don Young once labeled Parnell "Captain Zero," but the better label might be "Captain Who."

Parnell talks little about his years spent working for the oil industry in Alaska. His campaign website makes no mention of his past associations with Big Oil.

Asked about his work history, Parnell answers that the best way to learn about the oil industry in Alaska is to work in the oil industry.

All he really cares about, he adds, is the best interests of Alaskans.

Friends and supporters echo this view. State Sen. Fred Dyson, R-Eagle River, who has known Parnell since the governor delivered newspapers as a kid in Anchorage, can't imagine Palin's replacement putting the interests of himself or the oil industry over those of average Alaskans.

"I reject the whole idea," Dyson said.

Parnell himself looks a reporter smack in the eye and says the reason people believe that is because "it's the truth."

Ties to Big Oil

Still, it is interesting to backtrack the trail that led Parnell into the governor's office. It is not the post to which he was elected four years ago. Parnell was elected instead lieutenant governor. He moved up when Palin abandoned the governor's job halfway through her first term to pursue national fame and fortune after her failed bid as a Republican vice presidential candidate.

Left in charge of the state was a man whose last private sector job catered to the needs of ExxonMobil, among others. In his role as partner in the Anchorage office of Patton Boggs, a global political powerhouse that touts itself as "among the first national law firms to recognize that all three branches of government could serve as forums in which to achieve client goals," Parnell helped Exxon deal with a state still angry at the company for smearing Prince William Sound with 11 million gallons of crude oil back in 1989.

For Parnell, being on the private side in the long-running, push-pull between the state of Alaska and the oil industry was nothing new. He went to Patton Boggs from the state Division of Oil and Gas where he arrived after leaving ConocoPhillips.

An attorney by training, Parnell was hired by ConocoPhillips as director of government relations after schooling himself in the oil and gas business as a state lawmaker. Parnell was a member of the national Energy Council and co-chairman of the state Senate Finance Committee in the late 1990s when Alaska was struggling through a major budget crisis.

Alaska state budgets are intimately linked to the oil industry. It pays for more than 85 percent of state government. Dealing with the budget means dealing with the oil business, and as the '90s drew to a close the oil business was in trouble -- not only in Alaska but worldwide.

Crude prices had tanked. Some were predicting they would stay low for a long time. Doug MacIntyre, a short-term oil market forecaster for the U.S. Energy Information Administration, in March 1999 told the Alaska Legislature to prepare for a long downturn, warning that "2000 should be better than 1999 (but) I don't want to speculate on 2005, 2010. These charts don't make it look too promising for Alaska."

The experts, of course, were wrong. By 2005, oil prices that had been projected to fluctuate in the range of $12 to $16 per barrel were up over $50 per barrel and headed skyward. As they climbed, then-Alaska Gov. Frank Murkowski started negotiations with ExxonMobil, ConocoPhillips and BP on how to jump-start construction on a long-proposed gas pipeline from the North Slope to the Lower 48.

Parnell was a player in those discussions.


He had deep connections to Murkowski. In 2002, Parnell volunteered to head the new governor's Department of Law Transition Team. A year later, when Murkowski Attorney General Gregg Renkes decided to do a full review of the functioning of the Department of Law, Parnell was one of three attorneys on the review team.

Parnell was at the time employed at ConocoPhillips. Why he subsequently left the company to take a mid-level manager's job as deputy director of the state Division of Oil and Gas in the Murkowksi administration is unclear.

Asked about Parnell's tenure at the oil company, ConocoPhillips spokeswoman Natalie Lowman e-mailed a message saying, "there isn't much we can tell you about Sean Parnell (due to employment/HR confidentiality) besides his start and end dates. He joined Phillips Petroleum Sept. 5, 2000 and ended his employment with ConocoPhillips on Nov. 30, 2003."

An addendum followed about an hour later. "And just to be clear," it said, "the start and end dates of employment are all we would provide for any past employee, not just this one."

Parnell's departure from ConocoPhillips in 2003 appears, however, to have gone unmentioned by the company at the time, as did his arrival at Oil and Gas, a division in the Department of Natural Resources.

"He was low key," said Bob Loeffler, who headed up DNR's Division of Mining, Land and Water. "He was really easy to talk to, easy to work with, smart."

"I liked Sean quite a bit," said Jim Clark, Murkowski's former chief of staff. Clark considered Parnell a good team player doing his best to help move an Alaska gas line forward. Parnell seemed in agreement with Murkowski's philosophy that "the most important thing was to get the infrastructure in the ground," Clark said.

Murkowski's plan was to do whatever necessary to get the pipeline built, and if the state thought later it had gotten a raw deal from the oil companies it could come back with new tax schemes to squeeze its fair share of money out of the industry.

The oil companies own more than 90 percent of the gas buried beneath Prudhoe Bay, and Murkowski had been lobbying for a line to move that safe, clean source of fuel to Lower 48 markets since his days in the U.S. Senate. Getting it built, he said as a senator in 2001, would almost certainly require the state to guarantee "long-term fiscal certainty. A project of this magnitude must have the certainty that the whims of the state's taxing authority are tied in real terms to the market price of gas." "Fiscal certainty" remains a topic of discussion whenever plans for the still unrealized gas line are discussed.

Pipedreams

Natural gas is Alaska's oldest pipe dream. Alaskans have been talking about natural gas development since before construction of the 800-mile trans-Alaska oil pipeline to move oil from Prudhoe Bay to Valdez in the 1970s.

Alaskans know the value of oil and gas. Pipeline construction, and later the revenues from taxes on the oil that flowed through the pipeline, transformed the frontier state's economy. It was only 40 years ago that the biggest store in Alaska was the J.C. Penney low-rise in downtown Anchorage. High rises, including the ConocoPhillips building, now tower over the downtown area.

Oil changed everything. Alaska grew from about 300,000 people before pipeline construction to nearly 400,000 after, while newfound state oil riches continued to fuel growth at the staggering rate of 30 percent for the another decade before the expansion finally began to slow. That was the end of the boom.

Gas was to be the next boom. Gas was the hope to keep the economy chugging along as oil flows slowed, as they are now, on the way toward the end of Prudhoe Bay oil production.

As a kid growing up in Anchorage in the 1970s, Parnell not only heard about Alaska's oil and gas dreams, he lived them. Sean's father was Kevin "Pat" Parnell, an Anchorage printer, assemblyman and later state representative. Pat moved his family north to Anchorage in 1973, just before pipeline construction transformed the state from quiet frontier to something more akin to Wild West.

When Sean was a kid growing up in the state's largest city, Anchorage was a magnet for pipeline workers with money to burn. Downtown was a hotspot of strip joints and bars where it was easy to score drugs on the street. Author Joe McGinniss, who is now living and writing in Wasilla where he has been accused by some of stalking next-door neighbor Palin, wrote a book about Alaska in the '70s aptly titled "Going to Extremes."

Many in Alaska were doing exactly that, but the Parnells weren't.

Kevin, who Parnell has described as the son of an abusive father who died on Skid Row in Seattle, kept Sean and his brother on a short leash.

"Growing up around the family dinner table," Sean told "Scene" magazine last year, "we basically talked about public service and theology."

"Scene" is the in-house publication of Pacific Lutheran University, which is where Sean went to study business immediately after graduation from East High School in 1980. He graduated in four years. Then came studies at the University of Puget Sound Law School. He finished that task on time, too.


By the start of the 1990s, he was back in Anchorage practicing law, then successfully launching in politics before the age of 30.

He won a seat in the state House at 29, and served two terms there before jumping to the Senate in 1996. There he worked hard, by all accounts, at becoming knowledgeable on oil and gas issues, and at getting ahead.

"Those (Parnell) kids grew up with expectations," said former Anchorage Assemblywoman Heather Flynn, who knew Sean's parents well. "They had a very structured upbringing. For a while he went to the Lutheran school."

Though Flynn differs with Sean on some policy issues -- she is more socially liberal than he -- she, like most others, is loath to say anything negative about him.

"I've known Sean since he was a kid," she said. "He was always polite, always greeted me by name. He's intelligent. He's well educated. He seems to think before he speaks."

Dyson seconds that. Parnell, he said, is only interested in the best interests of Alaska.

But in 2005, as Murkowski was nearing a gas deal aimed at securing the state's economic future, Parnell left public service to take a high-paying job as a partner with Patton Boggs. He took over the Anchorage office for the firm, which just happened to represent Exxon.

Parnell was at Patton Boggs when Murkowski's effort to broker a gas line deal blew up. Commissioner of Natural Resources Tom Irwin, then and now a Parnell associate, wrote a memorandum saying Murkowski and Clark were simply giving away too much to the oil companies to get the gas line built. After the memorandum hit the press, Murkowski fired the commissioner.

Five top members of the Department of Natural Resources -- including Mark Myers, Parnell's old boss as head of the Division of Oil and Gas -- promptly said they were leaving with Irwin. It was the beginning of the end for Murkowski, who has gone down in history as Alaska's most arrogant governor. And it was the start of what was to become the Sarah Palin phenomenon.

The Palin years

Between Murkowski's gas line storm and a drumbeat of news about an ongoing FBI investigation into how the oilfield services company VECO had used its money and influence to manipulate state government, upstart Susitna Valley political Palin, then a soft-spoken candidate who billed herself as a reform-minded consensus builder, found all the traction she needed to climb into the governor's office.

"The Palin folks were at that point ... really just saying, 'I'm the anti-Frank Murkowski,'" Clark said.

Parnell latched onto that theme and went along for the ride. He beat Jerry Ward, a former state senator tainted by his own scandals, in the Republican primary for lieutenant governor and quickly formed an alliance with Palin despite her dislike for Parnell's old mentor Murkowski.

"I never suspected any conspiracy," Clark said, but he does wonder now, as do some others, how Parnell and Palin became so tight so fast.

Within weeks of winning their primaries, the duo had co-authored a campaign "book" titled "New Energy for Alaska." Among other things, it called for a new gas line plan "best for ALL Alaskans." There was little detail, other than the promise to dump the Stranded Gas Development Act, under the terms of which Murkowski had tried to negotiate a deal with the gas producers. That Parnell had been a key player in helping to write the act was not mentioned.

The gas line pledge eventually developed into two pieces of legislation. One called ACES -- Alaska's Clear and Equitable Share -- increased oil taxes. The other called AGIA -- the Alaska Gasline Inducement Act -- set up a framework to try to manipulate gas line financing and thus spur construction.

Former state senator, onetime oil industry lobbyist and sitting lieutenant governor Parnell was given high marks for helping Palin move both acts through the Legislature. AGIA passed with only one dissenting vote, that of Fairbanks Republican Ralph Samuels, one of two men now challenging Parnell for the governor's job in the primary.

AGIA and ACES were strongly supported by liberal Democrats, leading a challenger to Palin from the 2006 governor's race to question the conservative credentials of both the governor and Parnell. Anchorage businessman Andrew Halcro said he was having an especially hard time figuring out just what it was Parnell represented. That would be a theme put in blunter terms by U.S. Rep. Don Young, R-Alaska, after Parnell unexpectedly challenged him, with Palin's blessing, in the 2008 Republican primary.

"Captain Zero" was the term Young used to define Parnell. Parnell's political and economic philosophy, Halcro added, appeared so pragmatic that by 2008 it was almost the exact opposite of what Parnell had advocated as a state senator a decade earlier. Both Halcro and Young questioned whether Parnell stood for anything. An Anchorage radio talk show host called Parnell "Mr. Oatmeal."

Parnell told the "Scene" magazine reporter he thought the "Captain Zero" and "Oatmeal" labels underscored his "quiet and deliberate leadership style. 'I take it as a compliment,' said Parnell."

The comments were not meant as compliments.

"During his term in Juneau, Parnell was a key legislator who participated in crafting the Stranded Gas Act," Halcro wrote on his blog. "He was always a small government guy whose belief rested in the fact that government didn't know best."

AGIA was, on the other hand, big government -- a $500 million scheme to attract an independent pipeline contractor -- in this case TransCanada -- to design a gas line plan able to attract the investment of gas producers ConocoPhillips, BP and Exxon with help from ACES in the background signaling Alaska's willingness to tax the life out of companies that didn't share state goals.

The strategy spawned some strange fallout. Exxon split from ConocoPhillips and BP to team up with TransCanada, which made Exxon a partner in the state's gas line.

ConocoPhillips and BP, meanwhile, formed a new company -- Denali -- which they said would begin looking at construction of its own pipeline.


Denali is now in the process of what is called "open season," a solicitation to gas producers to determine how much they'd be willing to pay and under what terms to move gas through a pipeline expected to cost $30 billion to $40 billion if it ever gets built. TransCanada has already completed an open season, but won't say what kind of bids it got from producers, which leaves one retired member of the Alaska Department of Revenue wondering how the state got itself into a situation where "Exxon knows the results and the state doesn't."

"AGIA is an absolute disaster," the former official added. "It makes no sense, and the state is bankrolling this thing."

Parnell, for his part, claims the state is making progress on the gas line, though it's unclear if the state knows what TransCanada learned during its open season. And if the state does know, it isn't sharing.

Bill Walker, another candidate challenging Parnell in the Republican primary, has repeatedly demanded all information under Freedom of Information Act rules. His request is still pending.

Parnell told a Rotary club luncheon in Anchorage late last week that gas bids submitted to TransCanada did come with "conditions" that are part of a "negotiation process now between TransCanada and the producers." He gave no hint of what those conditions might be. Almost everyone knowledgeable with the gas issue believes that old subject of "fiscal certainty" must still be dealt with and that will clearly require getting the state involved in negotiations.

Exxon Mobil seems to have positioned itself well. It's in business with TransCanada if that pipeline succeeds, and if Denali proves successful instead, as Halcro notes, the state is "on the hook for treble damages to TransCanada" and its partner Exxon.

With TransCanada's Alaska boss, Tony Palmer, agreeing "key conditions" need to be resolved before a pipeline can be built, it appears the state has gone forward to go back to 2005.

"They're going to be back to the deal they made with us," said Clark, who believes every delay in construction benefits the oil producers.

The flow of oil through the trans-Alaska pipeline is falling at the rate of 6 percent per year. State revenues are tracking that decline downward. Eventually, revenues will reach the point at which the state is in another budget crunch. Legislators will, at that point, become desperate to make a deal on a gas pipeline to try to prop up the economy, Clark said.

"The producers can just fold their arms and wait," he said.

Parnell seemed to agree with this view when he was a deputy director of Oil and Gas working for Murkowski. Then he left for Patton Boggs. Then he returned to government as a booster of AGIA. How and why the flip-flop?

"I don't know the answer to that," said Clark, who is mostly struck by how much 2010 looks like 2005.

Deja vu or deja new?

There is again talk of pipeline negotiations. Tom Irwin, the natural resources commissioner Murkowski sacked, is again leading the charge along with most of his old team. The pipeline remains a pipeline in dream only.

About the only real difference is that the man in charge now -- Parnell -- is the man who was a Murkowski understudy then, before he became Palin understudy later.

Deja vu or deja new?

And where is Patton Boggs in all of this? It isn't some Smith Jones law firm based in Podunk. It is a powerhouse that plays in the places big oil and big money play. On the company website, Thomas Hale Boggs Jr., chairman of Patton Boggs, recently bragged that he heads a "firm that has played a key role in every major piece of legislation and regulatory decision for nearly 50 years."

The Alaska gas pipeline would qualify as another such decision. Why would Parnell, a guy making big bucks at Patton Boggs and in a position to influence pipeline construction through his connections to the oil companies, leave a job there to run for lieutenant governor of the state of Alaska, one of the more meaningless jobs in the country? Alaska's lieutenant governor has only one job -- overseeing elections -- unless assigned some other role by the governor.

Parnell said he ran because public service is part of who he is.

Patton Boggs Alaska partner Walter Featherly did not return phone calls.

And, of course, Parnell couldn't have known how things would play out to make him governor. No one has ever accused him of clairvoyance. And most of those in the know express the belief that the relationships between Patton Boggs and Parnell, Palin and Parnell, Parnell and the Alaska Department of Natural Resources, and ConocoPhillips and Parnell are all just strange coincidence.

Alaska is a small state, said Dyson, who himself once worked for BP.

There are a lot of odd connections. The threads of Sean Parnell's life might look like plot lines for a John Grisham novel, but Grisham's books are fiction. This is reality.

"I'm sure Sean will be the most effective governor we ever had," Dyson said.

Contact Craig Medred at craig(at)alaskadispatch.com.