"Alaska is Unsustainable" an Interview with Robin O. Brena - TAS #9

The Alaska Show

This episode will make you mad and will open your eyes. Anchorage attorney and real estate investor Robin O. Brena is spearheading the Fair Share Act on the ballot in November to raise production taxes on Alaska's most established and profitable oil fields. He clearly lays out the flaws in Senate Bill 21 in 2013 that let oil companies obscure their profits and evade production taxes, explains why the Alaskan economy was still in recession when oil was at $70 a barrel recently (hint: we aren't getting our fair share) and how this state's dividend and essential services are flat out unsustainable if Alaskans let oil companies buy their votes this November. We also discuss his major litigation wins (fighting on behalf of AND against oil companies), his pro-business approach, and commercial real estate in Anchorage.

Interview starts right away - no timestamps!

Links

https://voteyesforalaskasfairshare.com/

https://rsd-properties.com/ - developing coworking space in Anchorage

www.TheAKShow.com

Interview Notes

Robin O. Brena is the founding partner of Brena, Bell and Walker law office in Anchorage. He is a commercial real estate investor, born and raised in Skagway and is one of the three sponsors of Fair Share Act.

Fair Share Act:

Robin has skin in the game - he’s spent $100,000+ of his own money

It’s not anti-business - it supports some oil fields and not others

He has a long history of fighting big oil on behalf of Alaskans and independent producers.

The Fair Share Act is on the general election ballot in November. It raises the production taxes on our three largest and most profitable fields in a transparent way. One of the most important pieces is it requires the production tax returns associated with Prudhoe, Alpine, and Kuparuk to be transparent. Their production tax files will be public. That’s critical because it’s our oil on our land and we’re in partnership with these companies and have no clue what their revenues, costs, and profits are in the three major fields. It’s hard to be a proper steward of this resource when we have no access to this information. The administration and legislature doesn’t have this information.

How did we get into the situation with no transparency? It was a process of political influence over years chipping away at the reporting. We used to have this information years ago and we don’t have it anymore. People are passing oil policies in Juneau and they don’t know how the fields are performing.

Has it always been like this? Robin doesn’t think people understand how important it is that they stay informed and engaged. We’ve reached a point where we’re getting very little for our oil. Robin thinks one of the most important things the Fair Share Act does is allow Alaskans and the industry to sit down and determine what is fair based on knowing something.

Under normal circumstances it would raise about a billion dollars a year. Even with that it will be lower than the average production tax in the past three decades. That money will help fund essential services, Permanent Fund, and PFDs, and hopefully we will get a capital budget back to do construction which we haven’t had since Senate Bill 21 passed in 2013 lowering these taxes.

Alex thinks something has to give. We need money from somewhere.

Governor Hammond said if you don’t have enough money to run the government here you should first look at oil and make sure we’re getting our fair share. He was right. $1 billion is a lot of money - that’s 10,000 jobs at $100k a year. We need to keep more oil revenue in Alaska to create and save jobs in Alaska. Right now it’s all leaving the state. Alaska doesn’t work if you give away your oil.

All resource-rich countries deal with this problem. Alaska is doing the worst of all of them. If you look at our production tax and royalties we’re doing worse than any other resource owner in the world - less than Brazil, Nigeria, Iraq, Norway, even Iran is doing better than us. There’s an inherent tension between resource owners and producers. We’re doing the worst job of any resource owner in the world as a result of Senate Bill 21. They produce oil throughout the w2orld for $2-5 a barrel. In 2018 they made between $25-30 a barrel of oil in Alaska.

There’s no way to have a fair conversation about oil in this state except for popular initiative. There are too many ways for oil to influence the legislature and the political process. You have to get it done through the initiative.

SB-21 does a bad job at low, middle, and high oil prices. So nothing has changed even though oil prices have crashed. There aren’t any major resource owners taking the kind of commodity risk Alaska is. When oil goes down, our production taxes go down faster than that. In fact they go down almost twice as fast as the price of oil. So when the price of oil goes down the pie gets smaller, but Senate Bill 21 gives away that even smaller share to international producers.

Why did you spearhead this initiative? SB21 went into effect in 2014, was passed in 2013. It got through the senate by 1 vote and there were two ConocoPhillips employees that voted for it. Robin doesn’t think it passed in a fair way. On appeal they spent $15 million dollars telling Alaskans if they lower production taxes the companies will invest more in jobs and production, but all they’ve done since then is lay people off and reduce production. That was BEFORE Coronavirus. We got less investment, less jobs, less production, and a whole bunch less revenue. We gave up $1.5B a year and we got less of everything they promised.

Robin is a conservative businessman by nature - this is just a matter of getting fair value of what you own. If you’re going to sell your house, your car, or oil, you have to sit down and get a fair deal. He doesn’t view it as a flawed economic theory as much as poor negotiating. We’re in a partnership - the Fair Share Act isn’t even about taxes it’s about getting a fair cut of revenue.

What’s Robin’s feeling on public sentiment around this act? His polling suggests people strongly support the Fair Share Act and transparency. Alaskans are tired of learning how their oil fields are performing secondhand and through partial information. People know we’re not doing well in Alaska and know that we gave SB21 a chance after they spent $30m to convince us to try it, and it’s failed miserably on every promise that was made. This is our time to revisit it and change it.

What was Skagway like in the 60s and 70s when he grew up? It was a beautiful place to grow up - Robin still loves Skagway and Southeast Alaska. Their family ran the oldest bar in Alaska that started in the gold rush days. When it came time to go to college Robin worked the railroads and did every job there.

Was there still a lot of gold business there? Tourism started picking up then. They had the railroad from Whitehorse to Skagway so the industry cut back and tourism picked it up and it’s a spectacular example of turn-of-the-century architecture and Klondike gold rush vibe. Tourism is how it survives now.

A lot of Robin’s friends worked on the pipeline and Robin got three graduate degrees. His mother was a teacher and so was his grandmother - so he grew up in a living room full of books. Robin thought, when he went to school at 17, that he would be a teacher. But when he saw the $17,000 starting salary and his friends making six figures working on the pipeline he gave that up and followed his passion. He has an MBA, a Law Degree, and a Masters in Law in Real Estate Finance. He took a year off between his MBA and law degree because the family bar business fell on hard times and his dad had passed and mom was running the business. He took that year to put together a historic restoration of the building so his mom and sister could have income for their life.

Robin’s father passed when he was 12. Soon after his brother became married and moved out, so Robin took on the responsibilities of the household. When he was 17 he started working to support the family filling vacancies at the railroad roundhouse. He was going to high school then working 3-11pm after school at the railroad yards.

When he got to college he signed up for 25 academic hours. They said freshmen can’t sign up for more than 15 hours without special permission. He went to the dean and said “this is just 25 hours a week” because he’d been working 40 hours at the railroad, and night janitor at the school, and going to school during the day so he thought it was ridiculous he could only take 15 hours. Robin talked him into 18. Robin always took a lot of classes and did really well, he was in National Honors’ Society.

Robin always wanted to come back to Alaska - it was home. When he finished his graduate degrees he had opportunities on the east coast to develop real estate and to teach law at Hastings Law School, but he couldn’t leave Alaska. If there was a job for him here that’s where he wanted to be. He came back and went to work at a law firm Atkinson, Conway and Gagnon. Bruce Gagnon was his mentor, one of the best attorneys he knew.

After three and a half years there Robin had the opportunity to start his own firm. Two other attorneys told him to talk to them if he started a new firm, and he partnered with them in business. They’ve been in an office share or the same law firm since 1988 and there hasn’t been a raised voice in the office since then.

Three and a half years is pretty quick, no? Robin says it was the right timing for him. He has 110 open cases when he left the firm he was with. He took every one of them with him with the firm’s blessing. That was the first of major cases he worked on with the Trans-Alaska Pipeline. It makes more sense to build your firm when you manage major cases so you can focus the firm resources on those cases rather than being at the bottom of the totem pole.

Did you feel there were more entrepreneurial opportunities in Alaska as opposed to an established place like DC? It’s home for Robin, it wasn’t a choice made on opportunity alone. Something about Alaska drew him back - it’s home. In terms of entrepreneurial opportunities though, his law firm has been involved in multiple cases with hundreds of millions of dollars at stake and they’ve prosecuted successful cases with billions of dollars at stake. The opportunities he had were rare. It was a tremendous opportunity.

Did he have that same idealism then? Robin always took cases that if he won Alaska would be better off for it. That’s one of the criteria he applies.

Most of the success he’s had is for smaller oil companies against major oil companies. He’s advocated on behalf of the industry to get a fair deal even then. On behalf of Anadarko and Tesoro he fought to get fair rates on Trans-Alaska Pipeline (TAPs) for independents. At that time TAPS was making 130% per year return on capital. That was when Conoco left Alaska because they couldn’t make money because of the price of oil transportation. They didn’t come back until the folks that controlled the infrastructure to the north slope took lower returns. Robin fought to get their transportation rates down and reduced those rates substantially and in doing that added tons of value to Alaskans. The ROIC after was 9.5%. It saved the state of Alaska half a billion dollars a year.

Robin isn’t anti-business, he’s a fiscally conservative, pro-oil businessman and attorney. He’s been fighting for fair deals in the oil and gas space. He’s also fought for municipalities to get fair deals. TAPs were taking a position that it was worth less than 10% than it really was. And so they paid really low property taxes. Robin battled them 17 different times in 17 different forms to get them to pay fair property taxes for TAPs to municipalities. Robin prevailed in those cases. They were getting 130% returns from independents and paying 10% of the property taxes. Someone needed to litigate those areas of investment and return and stand up on Alaska’s behalf and that’s what the Fair Share Act does.

Robin owns 9 office buildings in Anchorage. That’s a real investment in an area over a long time horizon. What’s stood out to him? It remains to be seen whether this was a good investment decision and the future makes him smarter or dumber, and it’s hard to say which it will do. But Alaska is Robin’s home and he’s invested heavily in it and he will continue to invest heavily in it. Even in the middle of Coronavirus he’s doing $2 million in projects to increase energy efficiency in his buildings and build out a quality co-working space for Alaskans so they have more flexibility in their options. Aside from that he’s a businessman as the law firm is a business.

Robin saw opportunity in co-working because they suggest these “flexible workspaces” will grow in the future. The challenge is in a typical lease you can come in and negotiate so many square feet for so long. But your needs change - they ramp up or down - particularly for smaller companies but often for big ones as well. A 5-10 year lease doesn’t work for some people. In his buildings he wants to bring in anyone who wants to rent by the month or wants to rent a classroom or wants to have a community where people can share ideas and have high-speed internet.

People have these internet businesses, but just sitting at their home is sort of isolating. So the co-working space is where they can work with other entrepreneurs. It’s kind of like a health club membership - there’s a flat rate then an upcharge for the pool or for the tennis courts or to get a massage based on their needs. It gives people a community of like-minded people and the flexibility to change as their needs change.

As people work more remotely, especially as people learn they can work remotely through Covid, I think it will drive people to places like Alaska where they can live and work somewhere more beautiful and remote instead of paying $2200 a month for a studio in San Francisco. Robin plans to have the highest-speed internet possible there. He’s setting this up to be a very flexible space. It’s challenging in the midst of a pandemic to be in a community, but that comes and goes and shows the need for flexibility.

What was it like in 1984 and 1985 during the oil price crash and the huge exodus of people leaving Alaska? Is this similar? Robin says we bounced out of that low oil price relatively quickly and went on to have several years of sustained growth in part because we got a fair share of our oil revenues. We’re in a situation now where, for example, if you compare us to North Dakota pre-Covid, they had the lowest unemployment in the US. Alaska has the highest. Both are huge oil states. One of the real challenges here is when the oil price came back it used to save us because we weren’t giving away our share. When oil was $70 a barrel a couple years ago we were losing jobs and in a recession. Why? Because SB21 gave away our share. Why do two oil states have such different outcomes? We’re going through some hardship and so it feels the same as back in the day because of that. What Robin knows the price of oil doesn’t save us now - because in Senate Bill 21 these companies can avoid these production taxes in a number of ways.

In 2018 we gave $744 million in tax credits in Prudhoe Bay. When it was built out oil was, in modern terms, $21 a barrel. It’s the largest, most profitable conventional oil field in North America and possibly the world. In SB21 we gave them three quarters of a billion dollars a year to produce oil that was already profitable. They took tax breaks from where it was needed and gave it to where it wasn’t needed. Why are we giving that money away when production is going down and investment is going down and it’s been operating without any incentive for over 3 decades? Why did we decide they needed that money now? Most of the money the Fair SHare Act raises is just being fair to Prudhoe. If Alaskans don’t get Prudhoe Bay right, we’ve got it all wrong. Prudhoe has been in harvest mode for more than a decade.

So two things - we’re giving away our oil and price doesn’t save us and the oil fields don’t need it.

We’re staring down the barrel of the gun of a perpetual decline in revenues. Since SB21 we’ve spent $18 billion in savings, our PFDs have been cut in half and might not be able to continue, our capital budget is ⅓ of what it used to be, construction is minimally funded, investment and jobs have declined. Why in the world are we giving away our oil? A billion and a half dollars a year in breaks to get less…

What feels different to Robin this time than last time is we saw prices go up to $70 two years ago and Alaska didn’t recover because SB21 eliminated progressivity so when it goes up Alaskans don’t get more.

So, most importantly vote in November. The oil companies are going to outspend us. We were outspent over 25-to-1 to repeal SB21. They will spend tens of millions of dollars again because there’s a billion dollars a year at stake, but Robin knows in his gut that Alaskans know they’re being taken advantage of. It doesn’t matter what the price of oil does, we’re not getting much. Our spending and dividends are not sustainable or possible without this.

This state is being taken advantage of and it requires Alaskans to step up.