Legislature(2011 - 2012)HOUSE FINANCE 519

04/24/2012 01:00 PM RESOURCES


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01:27:30 PM Start
01:27:48 PM HB3001
05:19:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
In Participation with House ENE
+= HB3001 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
Presentation by PFC Energy: Global Strategy &
Portfolio Overviews of Major Alaska Producers
               HB 3001-OIL AND GAS PRODUCTION TAX                                                                           
                                                                                                                                
1:27:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON announced  that the only order  of business would                                                               
be a  presentation by the PFC  Energy on Global Strategy  and the                                                               
Portfolio Overview of Major Alaska Producers.                                                                                   
                                                                                                                                
1:29:04 PM                                                                                                                    
                                                                                                                                
TONY REINSCH, Senior Director, Upstream  & Gas PFC Energy, stated                                                               
he  will  review  the  global   portfolios  of  the  three  major                                                               
producers  in  Alaska:    BP   Exploration  (Alaska)  Inc.  (BP),                                                               
ConocoPhillips,  and  ExxonMobil  Corporation (ExxonMobil).    He                                                               
said  all  three  companies  are  in  the  midst  of  substantial                                                               
strategy  changes  which  impact   their  global  operations  and                                                               
portfolios.   He characterized this  as an unusual  happening for                                                               
companies  of  this  size  in  the oil  and  gas  sector.    This                                                               
committee and  Alaska have  been examining  how Alaska  fits into                                                               
the  rapidly  changing  and unusually  dynamic  global  portfolio                                                               
situation for  these companies  as they  move forward  to achieve                                                               
their target  strategies and objectives.   Further, the committee                                                               
will consider  how Alaska can position  itself to be part  of the                                                               
solution rather than potentially becoming part of the problem.                                                                  
                                                                                                                                
MR.  REINSCH   began  his  PowerPoint  presentation   on  "Global                                                               
Strategy  &  Portfolio Overview  of  Major  Alaska Producers"  by                                                               
reviewing  BP [slide  25].    He stated  that  BP  is the  second                                                               
largest  global  oil  company  in   the  world,  second  only  to                                                               
ExxonMobil in  terms of  annual production.   BP  secures roughly                                                               
half of  its global production  from Russia and Central  Asia, in                                                               
particular, in  Russia with its  joint venture with TNK-BP.   The                                                               
signature event for BP in the  past few years was the Macondo oil                                                               
spill in  the Gulf  of Mexico.   This event  has resulted  in the                                                               
company restructuring  its portfolio, divesting over  $30 billion                                                               
in assets -  upstream, midstream, and downstream -  with the vast                                                               
majority  of   its  divestiture   being  upstream  assets.     He                                                               
highlighted that  BP acquired  roughly $28  billion in  assets in                                                               
other jurisdictions  and arenas.   He concluded that  the company                                                               
took  advantage  of  this  signature  event  to  restructure  its                                                               
portfolio,  which would  ordinarily  have drawn  a very  negative                                                               
response from  analysts and  investors.  He  pointed out  that BP                                                               
has  been  able  to  pare  down  the  non-core  elements  of  its                                                               
portfolio,  yet  still  maintain  all  on-going  and  prospective                                                               
capital  projects  during  its  geographic  divestiture.    As  a                                                               
result,  BP has  been able  to dedicate  its production  from the                                                               
Macondo  oil spill  to the  fund  oil spill  reparations for  the                                                               
damages incurred.                                                                                                               
                                                                                                                                
1:35:19 PM                                                                                                                    
                                                                                                                                
MR. REINSCH  summarized that BP has  pared down, in terms  of the                                                               
number of  companies and projects;  however, it has bulked  up in                                                               
terms of its  future growth.  He outlined BP  has been focused on                                                               
three  activities:    deepwater   development,  global  gas,  and                                                               
developing giant  oil fields  in Russia, Iraq,  and Alaska.   The                                                               
company  has committed  $20 billion  in net  investments into  16                                                               
projects in the past two years.   This type of aggressive capital                                                               
spending will likely impact BP's  return on capital employed in a                                                               
negative  fashion;   however,  it   will  provide  them   with  a                                                               
competitive growth  rate in  terms of their  peers.   He reviewed                                                               
BP's overview figures:   2011 reserves of  17,330 million barrels                                                               
of oil  equivalent (mmboe); 2011  production at 3,400  barrels of                                                               
oil   equivalent   per   day    (mboe/d);   April   2012   market                                                               
capitalization  cap at  $133 billion;  April 2012  price earnings                                                               
ratio of 6.15;  2011 corporate revenue at $375  billion; and 2011                                                               
upstream capital, which is estimated at $17 billion.                                                                            
                                                                                                                                
1:36:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  asked  for  an  estimate  of  the  restructured                                                               
company's ability to expand investment in Alaska.                                                                               
                                                                                                                                
MR.  REINSCH explained  his presentation  would cover  an initial                                                               
broad overview of each company -  identify the drivers - and then                                                               
hone  in  on  the  Alaska   assets  and  identify  four  or  five                                                               
challenges each  company faces that  could affect  development in                                                               
the state.                                                                                                                      
                                                                                                                                
MR. REINSCH turned  to a map titled "BP Global  Areas of Upstream                                                               
Operations"  that  visually   identifies  BP's  global  ventures,                                                               
including  production in  16  of  26 Countries,  in  which BP  is                                                               
currently  involved [slide  26].   He described  the core  as new                                                               
venture, focus, harvest, and exit  areas.  He highlighted that BP                                                               
has divested  Pakistan and  Chilean assets, and  BP has  tried to                                                               
divest Argentina through the sale  of BP's joint venture interest                                                               
in  Pan America  Energy  (PAE) and  it would  like  to divest  in                                                               
Argentina.   He  pointed  out the  areas on  the  slide that  are                                                               
depicted  in yellow,  represent the  majority of  company growth.                                                               
He stated  that a number  of harvest areas  exist in which  BP is                                                               
managing  mature  portfolios or  mature  field  declines -  which                                                               
would be the case in Alaska.   The United Kingdom (UK) would be a                                                               
matter  of  a  mature  portfolio  decline,  which  is  much  more                                                               
widespread.                                                                                                                     
                                                                                                                                
1:39:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  for  a definition  of core  versus                                                               
focus.                                                                                                                          
                                                                                                                                
MR.  REINSCH answered  that  core would  represent  the areas  of                                                               
current material  production, or areas  in which the  majority of                                                               
the production  occurs versus focus  areas, which are  areas that                                                               
are  receiving a  considerable amount  of capital  injection with                                                               
the objective of building core areas into focus areas.                                                                          
                                                                                                                                
MR.  REINSCH  moved  to  a   map  titled  "BP  Global  Production                                                               
Portfolio  -  2010" [slide  27]  with  bubbles of  various  sizes                                                               
representing  production  levels.     He  noted  each  circle  is                                                               
segmented  by asset  type  which  includes conventional  onshore,                                                               
conventional   shallow,   deepwater,   oil  sands,   other,   and                                                               
unconventional production.   For example, in  Trinidad and Tobago                                                               
100  percent of  BP's  production has  been conventional  shallow                                                               
production  whereas   100  percent  of  Russia's   production  is                                                               
conventional onshore  production.   He highlighted  a few  of the                                                               
major production  areas, noting  the U.S.  is the  second largest                                                               
producing country, being driven  by deepwater developments in the                                                               
Gulf of  Mexico.   He pointed  out that BP  is a  significant gas                                                               
producer  in  the onshore  Lower  48,  with  a growing  focus  on                                                               
unconventional  production  as  is  the   case  for  all  of  the                                                               
countries with  significant acreage in  the Lower 48 basins.   He                                                               
predicted that  the potential  in Alaska is  tied to  Prudhoe Bay                                                               
resources  and  to gas  commercialization  at  some point.    The                                                               
largest  producing   country  for  BP  is   Russia,  representing                                                               
approximately a  quarter of  BP's output  with the  potential for                                                               
development  of  mature  fields and  strong  interest  in  Arctic                                                               
expansion.                                                                                                                      
                                                                                                                                
1:43:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER   asked  Mr.   Reinsch  to   discuss  the                                                               
limitations  arising from  the TNK-BP  joint venture  and whether                                                               
the company is a Russian national company.                                                                                      
                                                                                                                                
MR. REINSCH said  TNK-BP is a joint venture, which  is how BP was                                                               
able to  enter Russia.   BP has only  been allowed to  operate in                                                               
Russia with TNK-BP  as a partner.  He recalled  that about a year                                                               
ago BP  attempted to execute a  joint venture with Rosneft  - the                                                               
biggest  Russian oil  company  - which  was  stopped by  TNK-BP's                                                               
threat of  court action.   He indicated  that the purpose  of the                                                               
proposed joint venture was to  position BP for Arctic development                                                               
in  the Kara  Sea.   He  concluded by  reporting that  ExxonMobil                                                               
secured  the joint  venture with  Rosneft in  November 2011.   In                                                               
further response  to Representative Gardner, responded  that TNK-                                                               
BP is a private venture.                                                                                                        
                                                                                                                                
1:44:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK related  his  understanding that  BP may  be                                                               
leaving Russia.                                                                                                                 
                                                                                                                                
MR.  REINSCH  answered that  BP  wanted  the joint  venture  with                                                               
Rosneft.   Clearly, not  being able to  secure the  joint venture                                                               
will constrain  BP, but the  company has no intention  of leaving                                                               
Russia.   In fact,  Russia has  begun to  generate good  net cash                                                               
flow for  BP, returns on the  investments have been made,  and BP                                                               
is  moving forward  in a  more comfortable  manner despite  these                                                               
restrictions.                                                                                                                   
                                                                                                                                
1:46:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  asked whether any other  company could have                                                               
survived the financial  problems that resulted from  BP's Gulf of                                                               
Mexico Macondo event.                                                                                                           
                                                                                                                                
MR. REINSCH indicated  that perhaps four or  five companies could                                                               
have survived  the $40 billion  hit on their  portfolios; however                                                               
BP has  handled it  in an  artful manner.   He suggested  that if                                                               
analysts had been  polled six months after the  Macondo oil spill                                                               
they would have predicted the  company would have been sold since                                                               
the share price had dramatically dropped.                                                                                       
                                                                                                                                
1:47:45 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH reported  that an  interesting development  has been                                                               
BP's 2011  joint venture  with Reliance Energy,  LLC -  a private                                                               
corporation in India  - in the deepwater offshore  project on the                                                               
east coast of India, which is  expected to hold a significant gas                                                               
resource  that it  hopes to  market to  India.   He characterized                                                               
India as one of the fastest  growing energy markets in the world.                                                               
This  joint  venture  illustrates  how BP  has  restructured  its                                                               
company.                                                                                                                        
                                                                                                                                
1:49:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK asked  for examples  of projects  that would                                                               
fit into  the "Other" asset  types.   He added none  were listed;                                                               
however  he indicated  Mr. Reinsch  does not  need to  answer the                                                               
question at this time.                                                                                                          
                                                                                                                                
1:49:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether any  non-Chinese companies                                                               
are producing oil and gas in China.                                                                                             
                                                                                                                                
MR.  REINSCH responded  that ExxonMobil,  Shell Western  E&P Inc.                                                               
(Shell), and BP  are all hoping to position  themselves in China.                                                               
He pointed out that BP has  tried on two occasions to establish a                                                               
joint   venture  in   China,   with   China  National   Petroleum                                                               
Corporation   (CNPC)  or   the   China   National  Offshore   Oil                                                               
Corporation (CNOOC)  - their deepwater  company - similar  to the                                                               
one  it has  in  Russia; however,  BP  encountered difficulty  in                                                               
using the  same approach.  He  suggested that BP is  at the point                                                               
of strategizing  for entry and growth,  but all of the  major oil                                                               
companies  have  an interest  in  supplying  energy to  China  or                                                               
engaging in  the basins.   He  related that  Shell is  likely the                                                               
most advanced at this point.                                                                                                    
                                                                                                                                
1:50:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  noted that the  high growth in  Angola is                                                               
now challenged with startup of several unsanctioned projects.                                                                   
                                                                                                                                
MR. REINSCH  answered that BP's  West Africa portfolio  has moved                                                               
into an  almost "treadmill" stage  since BP must add  new volumes                                                               
and projects simply to keep up  with the decline in the deepwater                                                               
projects  under  production.     He  explained  the  unsanctioned                                                               
projects represent projects that  BP could bring into production,                                                               
but have not  yet; however, he anticipated the  projects would be                                                               
sequenced in and would effectively hold BP's production flat.                                                                   
                                                                                                                                
REPRESENTATIVE  GARDNER asked  whether  there  are any  parallels                                                               
with Alaska in that framework.                                                                                                  
                                                                                                                                
MR.  REINSCH   responded  that  there   certainly  will   be  the                                                               
possibility  since  the African  deepwater  assets  will go  into                                                               
rapid decline.   He  noted the  projects are  built to  have very                                                               
short  peak  periods  to  keep  the  net  present  value  figures                                                               
competitive  in BP's  portfolio.   In response  to Representative                                                               
Tuck, Mr. Reinsch confirmed that  BP's global production includes                                                               
oil and gas.                                                                                                                    
                                                                                                                                
1:54:04 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  referred  to  a   chart,  titled  "Total  Portfolio                                                               
Evolution:    BP  vis-à-vis  the Competition"  [slide  28].    He                                                               
related that this slide represents  BP's peer group - it compares                                                               
the annual production on the vertical  axis and the blue lines on                                                               
the  graph  show   the  movement  over  time   for  each  company                                                               
indicated.     He  noted  that  BP   and  ConocoPhillips  Company                                                               
(ConocoPhillips) are the  only two companies who  are forecast to                                                               
deliver production  declines between now  and 2015, while  all of                                                               
the other companies  are predicted to deliver volume  growth.  He                                                               
highlighted  the  analysis covers  two  periods:   2000-2010  and                                                               
2010-2015.   He explained that  during the first period,  BP grew                                                               
through Russia, Trinidad and Tobago,  liquefied natural gas (LNG)                                                               
development, and  Angola deepwater  development.   This expansion                                                               
has  been offset  by  declines  in Europe  -  600,000 barrels  of                                                               
production loss - and in  North America during 2000-2010 with the                                                               
Lower 48 onshore declines and  Alaska's Prudhoe Bay declines.  He                                                               
predicted that  BP will  decline in  the short  run due  to post-                                                               
Macondo asset  divestiture combined  with curbed activity  in the                                                               
Gulf of Mexico's deepwater.                                                                                                     
                                                                                                                                
MR. REINSCH predicted the net effect  will be that BP will shrink                                                               
over the  next few  years.   He discussed  how BP's  portfolio is                                                               
financed [slide  29].   He described  the chart,  noting anything                                                               
above the line  represents a cash deficit and  anything below the                                                               
line represents a cash surplus.   He highlighted this illustrates                                                               
that the  U.S. has been a  leading generator of cash  flow for BP                                                               
during 2000-2010.    The region that has moved  most from deficit                                                               
to surplus has been the  West Africa portfolio, which generated a                                                               
significant  amount of  cash flow  as the  deepwater developments                                                               
moved  into production.   He  reported  on the  evolution of  the                                                               
portfolio, which  depicts anticipated  future growth  [slide 30].                                                               
He  stated this  chart examines  seven major  regions from  2001-                                                               
2020,  with the  dotted line  at 2012.   He  referred to  Europe,                                                               
noting the  initial core for  BP has  been in steady  decline for                                                               
the  last decade.   He  summarized that  BP has  been fighting  a                                                               
decline   rate  where   stability  in   production  would   be  a                                                               
significant  achievement;   however,  the   fight  can   only  be                                                               
maintained for a short period of  time.  He emphasized that North                                                               
America,  Russia  and  Central  Asia   are  the  major  areas  of                                                               
production for BP.   He noted that Sub-Saharan  Africa and Angola                                                               
projects have been  substantial in adding to BP's  cash flow, but                                                               
these projects are still a  relatively small part of their global                                                               
portfolio.                                                                                                                      
                                                                                                                                
2:00:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK  asked for clarification  on whether  this is                                                               
based on millions of barrels of oil per day equivalent (mboe/d).                                                                
                                                                                                                                
MR. REINSCH answered that it is  based on thousands of barrels of                                                               
oil  per  day  equivalent  (mboe/d).    In  further  response  to                                                               
Representative  Tuck, Mr.  Reinsch answered  that natural  gas is                                                               
included  in the  oil equivalent  and the  analysis includes  all                                                               
liquids and gas production, including  natural gas liquids, crude                                                               
oil, and  condensate.  He indicated  that gas is converted  to an                                                               
oil equivalent in all  of PFC Energy's work to a ratio  of 6 to 1                                                               
- 6,000 thousand cubic feet (MCF) of gas to one barrel of oil.                                                                  
                                                                                                                                
REPRESENTATIVE TUCK  commented that Alaska's tax  structure has a                                                               
barrel of oil  equivalency for natural gas, which  he thought was                                                               
unique to Alaska.                                                                                                               
                                                                                                                                
MR.  REINSCH  explained  that some  companies  may  use  slightly                                                               
different conversion  rates, such  as 6.2 or  6.3 to  1; however,                                                               
these conversation rates will be  stipulated if they deviate from                                                               
the standard industry rate of 6 to 1.                                                                                           
                                                                                                                                
2:01:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRUITT  referred  to Sub-Saharan  Africa  on  the                                                               
prior slide represents  a substantial amount of  their cash flow;                                                               
however, he  said that  slide 30  seems to  indicate it  does not                                                               
represent a substantial amount, which seems incongruous.                                                                        
                                                                                                                                
MR. REINSCH said  that the Angola venture has  been well invested                                                               
over  the  years  to  create   an  infrastructure  for  deepwater                                                               
development.   He stated  that the fields  are now  producing and                                                               
Angola  operates   under  production   sharing  contracts.     As                                                               
production  begins, the  amount the  company receives  would cost                                                               
back at  an accelerated rate,  ranging from  60 to 80  percent of                                                               
the revenue, which is effectively  a ceiling on capital recovery.                                                               
The remaining 20-40 percent is  split between the company and the                                                               
government on the basis of  the fiscal terms for revenue sharing.                                                               
Thus  during   the  early   years  of   production  there   is  a                                                               
dramatically  disproportionate  share  of cash  directed  to  the                                                               
companies  as  a  means  for them  to  recover  their  investment                                                               
capital.  He  acknowledged that these projects look  bad on paper                                                               
until  production.   He highlighted  that  from the  government's                                                               
perspective as production  comes on the oil  companies take 70-90                                                               
percent  of  the revenue  being  generated  while the  government                                                               
receives a  relatively small amount; however  the government does                                                               
not take  any risk  in the  development.   He concluded  that the                                                               
companies take  the risk so  they get  paid back first,  which is                                                               
why  it seems  as though  an inordinate  amount of  cash flow  is                                                               
coming  out   of  Angola  for   a  relatively  small   amount  of                                                               
production.                                                                                                                     
                                                                                                                                
2:05:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  how  the tax  regimes will  change                                                               
over the life cycle of a region.   He referred to West Africa and                                                               
the  tax system  in place  at the  start of  the development  and                                                               
asked  whether  the  tax  regime   investment  would  "chase  the                                                               
profitability."                                                                                                                 
                                                                                                                                
MR.  REINSCH  responded  that an  imbalance  exists  between  the                                                               
institutional capacity of the  governments in Africa, Sub-Saharan                                                               
Africa, and  parts of South America.   He emphasized that  he has                                                               
not found any oil and gas  company who would not prefer stability                                                               
and a  competent partner to  instability and a less  competent or                                                               
sophisticated  partner when  developing a  basin or  oil and  gas                                                               
resources.   However, many of  these companies have no  idea what                                                               
they  are getting  into so  frequently a  government will  sign a                                                               
production  contract for  development  with an  expectation of  a                                                               
certain  number of  barrels of  resource.   Later on  governments                                                               
often will  adjust or reallocate  the contract if  the production                                                               
reaches  unexpected success.   He  emphasized  that stability  in                                                               
fiscal  terms  is  important,  as the  changes  will  impact  the                                                               
developers and financiers.                                                                                                      
                                                                                                                                
2:09:15 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  discussed  "Global   Production:    Country  Growth                                                               
Project Analysis" [slide  31].  He explained  this chart predicts                                                               
the  number  of projects  in  2015  which  are anticipated  in  a                                                               
specific  jurisdiction.    He  pointed   out  the  vertical  axis                                                               
indicates  the thousands  of barrels  of oil  equivalent per  day                                                               
(mboe/d)  in 2015  and the  horizontal axis  lists the  number of                                                               
projects.   He summarized  that this chart  looks at  new sources                                                               
and ventures being entered into by  BP including oil and gas.  He                                                               
identified  the circles  or bubbles  on the  chart that  indicate                                                               
crude oil versus gas or liquids  versus gas.  A bright red bubble                                                               
would represent 100 percent gas and  a dark green bubble would be                                                               
100 percent oil.   He reported that Azerbaijan's  project is BP's                                                               
Azeri-Chirag-Guneshli's  (ACG) oil  project in  the Caspian  Sea;                                                               
Russia is  a mix;  and the Asia-Pacific  Region consists  of more                                                               
gas development.   He  stated in  the U.S.  that 11  projects are                                                               
anticipated:    nine  deepwater   and  two  in  Alaska;  however,                                                               
hundreds  of  various  wells  are not  shown  in  this  analysis,                                                               
instead,  this  slide  represents   the  discrete  major  capital                                                               
projects.   He said that  PFC Energy sees the  unconventional gas                                                               
and  oil  sands delivering  materiality  for  BP in  a  post-2020                                                               
timeframe  versus being  current  drivers of  BP's portfolio  and                                                               
growth.                                                                                                                         
                                                                                                                                
2:12:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FEIGE  inquired  as  to  what  is  meant  by  AGS                                                               
weighted.                                                                                                                       
                                                                                                                                
MR. REINSCH  explained it is  a typo  which should read  "AGS gas                                                               
weighted."   In response to  Representative Gardner,  Mr. Reinsch                                                               
explained that zero percent oil  is depicted with red circles and                                                               
100 percent oil depicted by dark green circles or bubbles.                                                                      
                                                                                                                                
2:13:16 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH discussed  the  BP in  Alaska map  [slide  32].   He                                                               
explained  that  the purple  areas  on  the slide  represent  BP-                                                               
operated  blocks  and  the blue  ones  represent  BP-non-operated                                                               
licenses or areas.   He related that overlaid on  the map are the                                                               
major fields  or horizons  being developed  with green  being oil                                                               
and red being gas.                                                                                                              
                                                                                                                                
CO-CHAIR SEATON  asked to  have the colors  on the  slide defined                                                               
for those who are looking at charts without colors.                                                                             
                                                                                                                                
MR.  REINSCH pointed  out the  locations on  the North  Slope and                                                               
explained the  operations, including  North Star,  Liberty, Point                                                               
Thomson, and  Prudhoe Bay.   He summarized "BP Alaska  Activity &                                                               
PFC Energy  Assessment" [slide 33].   He highlighted  the greater                                                               
Prudhoe  Bay area,  comprised of  a 26  percent working  interest                                                               
operated  by  BP, and  Point  Thomson,  which  is 32  percent  BP                                                               
working interest  and is  a non-operated  project.   He described                                                               
Alaska during  the 2010  timeframe, as  referenced in  the slide,                                                               
noting  that  BP  produced  about 173  thousand  barrels  of  oil                                                               
equivalent per day (mboe/d), which  represents 17 percent of BP's                                                               
total U.S. production and 5  percent of their global production -                                                               
all oil, all  gas, all liquids on a global  basis.  He reiterated                                                               
that  Alaska  within  BP's global  portfolio  only  represents  5                                                               
percent and  that figure is  currently declining.   He contrasted                                                               
this  with  ConocoPhillips  Alaska, Inc.  (ConocoPhillips)  whose                                                               
2010  production  of  244,000 mboe/d  represents  36  percent  of                                                               
ConocoPhillips  U.S. production  and  about 14  percent of  their                                                               
global   production.  He   predicted   that  the   ConocoPhillips                                                               
production will  rise as  a share of  their global  production as                                                               
the  ConocoPhillips portfolio  becomes  more focused.   He  noted                                                               
ExxonMobil  - the  smallest of  the three  producers in  Alaska -                                                               
produced  117,000  mboe/d  or 14  percent  of  ExxonMobil's  U.S.                                                               
production in  2010.  He predicted  this will be a  smaller share                                                               
in  2011 as  the  XTO Energy  Inc. acquisition  takes  hold.   He                                                               
related, in  terms of materiality,  the overall  global resources                                                               
represent three percent for ExxonMobil,  five percent for BP, and                                                               
14  percent   for  ConocoPhillips.     In  further   response  to                                                               
questions,  he reiterated  that ConocoPhillips's  2010 production                                                               
was 244,000 thousand  barrels of oil equivalent  per day (mboe/d)                                                               
and BP's Alaska percentage was 17 percent.                                                                                      
                                                                                                                                
2:18:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether that  information will  be                                                               
provided in a chart.                                                                                                            
                                                                                                                                
MR. REINSCH offered to provide it.                                                                                              
                                                                                                                                
2:19:27 PM                                                                                                                    
                                                                                                                                
MR. REINSCH  identified the challenges  that BP is faced  with in                                                               
order   to  achieve   the  company's   objectives  and   exercise                                                               
strategies [slide 34].   He pointed out six core  issues.  First,                                                               
BP  must   re-establish  its  operator  profile   in  the  global                                                               
deepwater  arena.   Clearly, BP  suffered as  a global  deepwater                                                               
operator.    He  stated  that BP  acquired  the  deepwater  Devon                                                               
development in  Brazil, prior to  the Macondo  incident; however,                                                               
Brazil  substantially  delayed  the   approval  of  the  project.                                                               
Despite the  Macondo incident, BP has  greater deepwater exposure                                                               
than  any of  its peers.    He offered  his belief  that BP  will                                                               
continue to rely on deepwater as  one of its core growth drivers.                                                               
Secondly, BP  will need to  resolve the  shareholder relationship                                                               
issues within the  TNK-BP Joint Venture.  This  joint venture has                                                               
constrained  BP's ability  to grow  in  Russia.   Third, BP  must                                                               
complete the  portfolio rationalization  process.  At  some point                                                               
BP  must  start growing  again  and  exploit  the assets  it  has                                                               
accumulated.   Fourth, BP  must determine a  path forward  in the                                                               
Brazil deepwater.  One of  the major resource discoveries are the                                                               
"pre-salt"  fields in  the Santos  and Campos  basins, which  has                                                               
been unfolding  in the energy sector,  yet it is one  of the most                                                               
technically  challenging  to develop.    He  noted that  Brazil's                                                               
state owned company, Petrobras,  has been awarded operatorship of                                                               
all  pre-salt  developments  in  the  area.   Thus  BP  has  been                                                               
examining  how it  can grow  since it  cannot operate  in Brazil.                                                               
Fifth,   BP  must   accelerate   development   of  U.S.   onshore                                                               
unconventional gas resources.   BP sold its  entire Permian Basin                                                               
and  Western  Canada  assets   to  Apache  Corporation  (Apache),                                                               
thereby downsizing its  conventional oil and gas  position in the                                                               
U.S.  at a  very high  value;  however BP  still has  substantial                                                               
resources  -  10  trillion  cubic   feet  (TCF)  of  resources  -                                                               
remaining  in  the Shell  gas  plays  to accelerate  development.                                                               
Finally, BP must accelerate development  of its oil sands leases.                                                               
He noted  BP has significant lease  holdings in the oil  sands in                                                               
Canada.   These are asset developments  that make a lot  of sense                                                               
for  their portfolio,  which would  provide a  stable asset  over                                                               
long  periods   of  time  to  offset   their  substantial  global                                                               
portfolio   comprised   of   deepwater  development   with   high                                                               
production rates and steep declines.   He emphasized that it will                                                               
be important  for BP to have  this balance in their  portfolio as                                                               
they continue to expose themselves to deepwater development.                                                                    
                                                                                                                                
2:24:46 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  asked  for the  analyst's  perspective  on  the                                                               
challenges.   He asked how much  of an effect a  tax change would                                                               
mean for  the company  in the  next 3-5 years  and if  tax regime                                                               
changes would be the driving determination for BP.                                                                              
                                                                                                                                
MR.  REINSCH   answered  that  is   a  simple  question   with  a                                                               
complicated  nuanced set  of answers.   First,  Alaska has  three                                                               
assets types:  the legacy fields,  the new developments  of lower                                                               
quality  crude oil,  and  natural  gas.   He  suggested that  any                                                               
company would need  to consider these areas  separately each with                                                               
a set of unique  values.  He said he has been a  fan of tools and                                                               
targets in  the realm  of fiscal regimes.   He  acknowledged that                                                               
incentives are necessary to accelerate  production in a legacy or                                                               
mature field in  decline.  He predicted that a  change in the tax                                                               
royalty regime  will impact the  economics of  those developments                                                               
and to  the extent  it could enhance  the competitiveness  of the                                                               
returns of  the projects, it  should attract  incremental capital                                                               
from the  corporate budget.   He pointed  out that  all companies                                                               
look  to  maximize the  efficient  use  and allocation  of  their                                                               
available capital  resources, which  represents the  dialogue and                                                               
discussion in  the business  and corporate  level.   Certainly, a                                                               
tax change  would improve the  climate, but  it is unknown  as to                                                               
whether it would attract the capital investment.                                                                                
                                                                                                                                
2:29:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON reiterated  that it would be good  to have advice                                                               
about  each company  on the  probability  of what  would tip  the                                                               
scales.                                                                                                                         
                                                                                                                                
MR.  REINSCH  said  that  part  of  the  challenge  will  be  the                                                               
particular joint  venture is  operating agreement's  structure in                                                               
Alaska with respect  to the large assets.   He noted it  is not a                                                               
majority  rules   decision  on   whether  to   undertake  capital                                                               
expenditure programs, but unanimity.    Alaska would need to look                                                               
for the  weakest link.   He identified ExxonMobil as  the weakest                                                               
link, in terms of for whom  Alaska is the least relevant in terms                                                               
of the current production as part  of their global portfolio.  He                                                               
also  suggested that  in terms  of natural  gas assets,  it could                                                               
also  be ExxonMobil,  as well.   When  considering field-by-field                                                               
within portfolios,  attracting capital  to a  project development                                                               
must be  agreed upon by  all parties  involved.  He  reviewed the                                                               
post-Macondo actions.   He said  PFC Energy thought it  was clear                                                               
that BP  would need to  divest a large  part of its  portfolio in                                                               
order to move  forward.  In that regard,  Alaska absolutely stood                                                               
out, since Alaska would have a lot  of value for a company who is                                                               
an advanced oil  recovery specialist.  He  briefly discussed that                                                               
BP divested  its Forties  Field -  its crown  jewel asset  in the                                                               
North  Sea  -  years  ago  to Apache,  since  the  company  is  a                                                               
specialist in recovering  any last bit of value out  of an asset.                                                               
He  stated that  an enhanced  recovery specialist  would want  to                                                               
operate  wherever the  company puts  its capital.   He  described                                                               
getting  into  this  specific  joint  operating  agreement  as  a                                                               
difficult the  environment, plus it  wasn't likely BP  would want                                                               
to leave, but they may  have been interested in divesting certain                                                               
assets  that  were  less  suitable  than  the  direction  BP  was                                                               
heading.   He  was  uncertain about  what conversations  actually                                                               
took place.   He acknowledged  he is merely sharing  PFC Energy's                                                               
external thought  processes.  He  recapped that it  represents an                                                               
environment that doesn't lend itself  to what normally would take                                                               
place, which  is asset churn  in and out  of the portfolios  on a                                                               
field-by-field basis.   He related the dialogue  is different and                                                               
it makes Co-Chair  Seaton's question more difficult  to answer in                                                               
a definitive, objective way.                                                                                                    
                                                                                                                                
2:33:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON acknowledged  it  is a  difficult question  that                                                               
requires speculation  to answer.   He said one of  the underlying                                                               
assumptions  is  this  will  make a  difference  with  all  three                                                               
parties in  the field in  [Prudhoe] Bay.   He reiterated  that if                                                               
all  the companies  must  agree  to changes  it  is important  to                                                               
understand the  various and significant  pulls for  the companies                                                               
with  respect  to their  portfolios.    He recalled  Mr.  Reinsch                                                               
mentioned the  UK's Forties  Field in  the North  Sea.   He asked                                                               
when it  was divested, since that  project is as an  example of a                                                               
mature basin  that experienced an  increase, following a  rate of                                                               
decline due to the Apache Corporation's (Apache) technologies.                                                                  
                                                                                                                                
MR. REINSCH  answered that Apache  bought the Forties  Field from                                                               
BP based on an agreement on  the remaining reserves.  He recalled                                                               
that about  ten years ago  Apache produced the reserves,  yet the                                                               
remaining reserves  are larger than  they were when it  was taken                                                               
over.   He did not  attribute this additional resource  to magic,                                                               
but rather  that Apache's management  and focused ability  on the                                                               
further  development   of  a  field  differs   from  BP's  global                                                               
portfolio interests.   He speculated  that it was  more important                                                               
for BP to put their  management towards Russia and deepwater Gulf                                                               
of Mexico  productions.   He likened Apache's  work as  a classic                                                               
example  of what  enhanced recovery  and focused  development can                                                               
mean to a large mature asset.                                                                                                   
                                                                                                                                
2:36:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRUITT queried  whether BP has had  the ability to                                                               
spend what is needed to  maintain its investments, and whether it                                                               
will impact  Alaska's investments if  BP does not have  the funds                                                               
to invest.                                                                                                                      
                                                                                                                                
MR. REINSCH answered the way BP executed its restructuring post-                                                                
Macondo  has allowed  BP  to  enter areas  in  earlier stages  of                                                               
development and  move forward without  the financial  stress that                                                               
had been  anticipated.  He  pointed out  BP is involved  in high-                                                               
cost frontier developments in the lower tertiary - ultra-                                                                       
deepwater  -  the  Brazil deepwater,  noting  the  TNK-BP  Russia                                                               
venture is also  cash generating.  He returned to  the chart "How                                                               
the  Portfolio is  Financed:   Sources and  Uses of  Cash" [slide                                                               
29].   He stated  that what  is saving  companies is  the current                                                               
$100  plus per  barrel price  of oil  that has  shifted the  line                                                               
between cash deficit and cash surplus.   The vast majority of the                                                               
BP portfolio has  been in a cash  surplus.  He stated  that BP is                                                               
not stressed  from a  financial or  a debt  perspective; however,                                                               
the dividend  and share buyback  policies impacted  the company's                                                               
treasury and  cash flow.   All of these companies  create capital                                                               
discipline through hurdle rates  that basically have dividend and                                                               
share buyback as  the opportunity cost of each  dollar of capital                                                               
invested.   The  company  reaches  a point  at  which either  the                                                               
internal rate of return or the  net present value accruing to the                                                               
capital  investment cannot  compete  with the  value the  company                                                               
gets  from dividend  or buying  back shares  and the  impact that                                                               
will  have  on  the  share  price.    He  pointed  out  that  the                                                               
treasury's function is set the  criteria and identify the capital                                                               
BP has available and to inform the  units it may not have all the                                                               
free cash flow  and capital at its disposal for  upstream oil and                                                               
gas development.   Within that context Alaska is no  more or less                                                               
competitive.   He said that BP  did sell off a  certain amount of                                                               
producing  properties  and has  seen  its  production decline  so                                                               
producing assets  have value and while  no one is looking  to get                                                               
rid  of producing  assets,  the  state will  still  compete.   He                                                               
concluded that BP is not capital constrained.                                                                                   
                                                                                                                                
REPRESENTATIVE PRUITT  questioned why BP  did not get rid  of the                                                               
Alaskan assets when BP was divesting its assets.                                                                                
                                                                                                                                
MR.  REINSCH cautioned  that  PFC  Energy was  not  party to  the                                                               
discussion;  however   he  would  have   expected  it  to   be  a                                                               
consideration.   Still, the Alaskan  assets may not have  been on                                                               
the table due  the structure of the joint  operating agreement in                                                               
Alaska.    He  highlighted  that   the  operating  agreement  was                                                               
structured  to keep  the  three core  companies  in place,  which                                                               
might have  been a  blocking factor.   Alaska has  benefited over                                                               
the decades  from the agreement,  but it also makes  it difficult                                                               
for other companies to enter.                                                                                                   
                                                                                                                                
REPRESENTATIVE PRUITT  and how  many companies  can step  in with                                                               
that structure in place that would have the capital to invest.                                                                  
                                                                                                                                
MR.  REINSCH  answered it  would  be  a  small set,  likely  8-10                                                               
companies, but there are options.                                                                                               
                                                                                                                                
2:43:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked   whether  the  complex  ownership                                                               
situation in Alaska is unique and if it should be simplified.                                                                   
                                                                                                                                
MR. REINSCH responded  that the joint operating  agreement is not                                                               
unique and  is quite common  in global portfolios.   He explained                                                               
it would not be common  for smaller field developments or bidding                                                               
on leases,  but in a  large field  like Alaska this  structure is                                                               
often seen.   He could  not comment on the  complicated unwinding                                                               
that would be necessary.                                                                                                        
                                                                                                                                
CO-CHAIR  SEATON related  his understanding  that only  one other                                                               
agreement has the veto power by the participating owners.                                                                       
                                                                                                                                
MR. REINSCH noted the unanimity aspect is somewhat unique.                                                                      
                                                                                                                                
2:46:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER inquired  as  to whether  over time  some                                                               
companies will  migrate towards natural  gas fields  while others                                                               
will migrate towards oil development.                                                                                           
                                                                                                                                
MR. REINSCH asked for clarification  on whether he is speaking to                                                               
these three companies or to other companies.                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER answered that he is interested in both.                                                                  
                                                                                                                                
MR. REINSCH responded that the book  of how basins mature and how                                                               
competitor  landscapes  changes  over  time  is  currently  being                                                               
played  out  in  both  West  Texas and  Alberta  in  the  western                                                               
sedimentary  basin.   Again, he  noted those  are onshore  basins                                                               
with multiple play types and multiple  field sizes.  He said that                                                               
Alaska and the MacKenzie Delta  regions are somewhat unique since                                                               
they are very  large field developments with a very  high cost of                                                               
capital expenditures.   He did not think a  small startup company                                                               
would  move  assets  to  production, nor  does  Alaska  have  the                                                               
existence of  thousands of fields  of varying sizes  with onshore                                                               
asset churn.   He  suggested that isn't  even the  environment in                                                               
the North  Sea, which arguably could  be a closer analogy.   Even                                                               
in the  North Sea  large numbers of  fields consist  of different                                                               
sizes.     Additionally,  technology   ranges  from   shallow  to                                                               
deepwater  development, which  has  become  much more  widespread                                                               
among  the service  sector and  oil and  gas companies  that have                                                               
enriched the  competitor landscape.   However, the  25-26 largest                                                               
publically  traded   E&P  companies  or  upstream   oil  and  gas                                                               
companies  account  for  over  80 percent  -  moving  towards  90                                                               
percent  - of  the  North Sea  production,  including Norway  and                                                               
Norwegian shelf,  the UK and  North Sea combined.   He summarized                                                               
that  the number  of companies  is a  relatively small  number of                                                               
very sophisticated players.                                                                                                     
                                                                                                                                
REPRESENTATIVE  SADDLER said  he  is not  advocating breaking  up                                                               
ownership.                                                                                                                      
                                                                                                                                
2:49:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE referred to the  slide 29 chart titled, "How                                                               
the Portfolio is Financed:  Sources  and Uses of Cash."  He asked                                                               
what price the dotted black line represents.                                                                                    
                                                                                                                                
MR. REINSCH answered  that the dotted line  reflects the movement                                                               
of prices  over time and clearly  these are data points  over the                                                               
last decade.   He related  that is a creation  of a line  of cash                                                               
flow equal  to capital  expenditures.  He  explained that  if all                                                               
else is  equal when  the oil  prices increase  the line  tends to                                                               
shift  up so  for  the  same amount  of  capital expenditure  the                                                               
company  would have  an  increased  cash flow.    In response  to                                                               
Representative Feige,  he agreed  if the  price dropped  the line                                                               
would go down  and regions in cash surplus would  shift into cash                                                               
deficit.                                                                                                                        
                                                                                                                                
REPRESENTATIVE FEIGE  then referred  to the  operating agreements                                                               
in Prudhoe  Bay and  said that it  seems unlikely  an independent                                                               
company such  as Apache would  come in  and function on  its own.                                                               
He asked whether  any of the three big producers  could afford to                                                               
give up the cash flow in Prudhoe Bay.                                                                                           
                                                                                                                                
MR.  REINSCH  responded  that  it a  qualitative  question.    He                                                               
referred to the materiality numbers  for Alaska within the global                                                               
portfolios.   Clearly, ConocoPhillips  would be the  company that                                                               
would  be most  reluctant to  do so.   Additionally,  he said  he                                                               
would argue  that Alaska is  core to ConocoPhillips,  rather than                                                               
being in  a harvest status,  since Alaska  is a material  part of                                                               
this company's global portfolio to  a greater degree than for the                                                               
other  companies.   None of  the  companies have  an interest  in                                                               
moving  away  from the  prospectivity  and  the opportunities  in                                                               
Alaska, nor has  he heard any of the companies  make a suggestion                                                               
they wish to exit.  However,  he has heard the companies say they                                                               
have opportunities and  need to attract capital.   He pointed out                                                               
that  different  kinds  of   opportunities  attract  capital  and                                                               
competition within  different parts of each  company's portfolio.                                                               
He suggested the  dialogue is likely that they  need to structure                                                               
to be  robust across a range  of prices to move  forward and will                                                               
see  what  they can  accomplish  rather  than  to say  if  Alaska                                                               
doesn't do what they say they'll leave.                                                                                         
                                                                                                                                
2:53:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GARDNER  recalled   other   BP  lawsuit   issues                                                               
including  misadventures on  the North  Slope, and  asked whether                                                               
some companies  would be reluctant to  move forward with BP  as a                                                               
partner.                                                                                                                        
                                                                                                                                
MR.  REINSCH said  that  BP is  considered  a competent  partner,                                                               
although a  series of red flags  have been raised.   Even so, the                                                               
company has  addressed the issues,  and restructured to  focus on                                                               
efficiency  and  capabilities  versus  financial  and  corrective                                                               
actions have been taken.                                                                                                        
                                                                                                                                
REPRESENTATIVE GARDNER  pointed out  BP has had  issues including                                                               
fines for sacrificing pipeline  maintenance for dividend payments                                                               
and the threat  of a lawsuit with the TNK-BP  group.  She pointed                                                               
out that BP  is an operator on the North  Slope and asked whether                                                               
these   problems  have   made   other   companies  question   the                                                               
partnership agreement.                                                                                                          
                                                                                                                                
MR. REINSCH answered he would be  surprised if that were the case                                                               
since  BP  is  well  regarded  as  a  competent  technically-able                                                               
competitor.  He suggested that  a series of incidents have raised                                                               
red flags;  however, BP  has responded  by changing  its internal                                                               
processes,  management  structures,  and  putting  into  place  a                                                               
different  type  of  internal   decision-making  process  with  a                                                               
greater  focus on  efficiency and  technical  capabilities and  a                                                               
lesser focus  on financial enhancements.   He reiterated  that BP                                                               
has  recognized deficiencies  and  has taken  actions to  address                                                               
them.    In  further  response   to  Representative  Gardner,  he                                                               
answered that  the global  players and  larger players  prefer to                                                               
have control over  their assets; however, the reality  is that no                                                               
individual  company,  including  ExxonMobil  has  the  personnel,                                                               
managerial  project   management,  or  technical   capability  to                                                               
operate everything in  their portfolios.  He pointed  out that is                                                               
the  reason operator/non-operator  positions are  a part  of this                                                               
business.   He said  it is  better for  companies to  focus their                                                               
energies on  the parts  they operate and  to monitor  their joint                                                               
operator closely.  He noted  non-operators must shadow everything                                                               
the other  companies are  doing.   He concluded  that one  of the                                                               
unique  aspects of  the  arrangement is  the  companies can  make                                                               
their opinion known and can stop things.                                                                                        
                                                                                                                                
2:58:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK recalled Mr.  Reinsch's earlier discussion on                                                               
striving to make the legacy  fields economically competitive.  He                                                               
further recalled he  had pointed out that BP is  not a specialist                                                               
in getting  the last  oil out of  an area.   He asked  whether it                                                               
would be  beneficial for  Alaska to ensure  that tax  credits are                                                               
invested in  Alaska.   He clarified that  the state  doesn't know                                                               
the company's desire to develop  assets elsewhere or if any other                                                               
obligations  exist.   He asked  for the  best way  to ensure  the                                                               
investments happen in Alaska.                                                                                                   
                                                                                                                                
MR.  REINSCH  responded  that  question relates  to  one  of  his                                                               
colleague's   area  of   expertise;   however   he  related   his                                                               
understanding   that   Alaska's   short   term   two-to-four-year                                                               
requirement is to  obtain an increase in production  so tools and                                                               
targets suggest that the focus  should be to reward any increment                                                               
to production  as directly as  possible and implement  any fiscal                                                               
changes to  do so.  He  cautioned that the farther  away from the                                                               
targeted activity,  the less likely  it is that the  outcome will                                                               
be the one anticipated.                                                                                                         
                                                                                                                                
3:00:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON noted that 70  percent of BP's stock is held                                                               
in pension  plans in the  UK and U.S.  and for that  reason alone                                                               
the governments have  not been taking any action  likely to force                                                               
the  company  into  bankruptcy.     Additionally,  Alaska  has  a                                                               
significant amount  of stock in the  Public Employees' Retirement                                                               
System  (PERS), the  Teachers' Retirement  System (TRS),  and the                                                               
Alaska Permanent Fund.  Thus everyone  in the room has a piece of                                                               
BP.  He reiterated that everyone wants to work with them.                                                                       
                                                                                                                                
3:01:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  asked to focus on  the job of incentives  of tax                                                               
changes  to increase  production.   He returned  to Mr.  Barron's                                                               
chart on  the Forties Field.   He related his  understanding that                                                               
the production turned  around when BP sold their  interest in the                                                               
Forties Field to an operator  with enhanced oil recovery ability.                                                               
He  asked why  the state  would expect  a tax  regime to  have an                                                               
effect on  BP since this  is the same  operator who spun  off the                                                               
Forties Field when BP could not turnaround the decline.                                                                         
                                                                                                                                
MR. REINSCH  answered that  the core  of the  answer goes  to the                                                               
question of  materiality.   When BP made  the decision  to divest                                                               
the Forties  Field, the field had  declined to the point  that it                                                               
was a  fairly small  producing asset in  a large  asset portfolio                                                               
and  BP was  in the  process -  as does  each company  - of  high                                                               
grading its portfolio.   He surmised BP assessed  where to direct                                                               
its  management expertise  although  he acknowledged  BP had  the                                                               
technical ability  to focus on  the Forties Field.   However, the                                                               
Forties Field  became Apache's  number one  or number  two global                                                               
asset.   Thus transiting the  asset to  a smaller company  it now                                                               
became Apache's  core within their worldwide  operations, whereas                                                               
it had ceased to  be that for BP.  He  emphasized that at 166,000                                                               
barrels per day  Alaska is very material for BP.   He offered his                                                               
belief that these  volumes are important to  these companies, the                                                               
legacy fields  are a transition  asset, the companies  prefer not                                                               
to  divest,  and  all  three have  the  capabilities  to  attract                                                               
capital and conduct enhanced recovery.                                                                                          
                                                                                                                                
REPRESENTATIVE GARDNER  commented that  there may be  elements of                                                               
the decision-making process  not related to the  internal rate of                                                               
return  or net  present value  and possibly  elements exist  over                                                               
which Alaska  has no control of  whatsoever.  She said  there may                                                               
not be tools  in Alaska's tool box that the  state hasn't dreamed                                                               
of yet.                                                                                                                         
                                                                                                                                
3:06:39 PM                                                                                                                    
                                                                                                                                
MR. REINSCH  turned to ConocoPhillips  Alaska, Inc., to  review a                                                               
similar set  of charts.   He described  the company  overview and                                                               
substantive restructuring  it underwent  from 2010-2012  which he                                                               
characterized  as   remarkable  [slide  35].     In  March  2010,                                                               
ConocoPhillips  faced  declining  production, a  declining  share                                                               
price,  and lagging  financials so  it announced  a pathway  that                                                               
some termed  a shrinking-to-grow  strategy.   The company  took a                                                               
hard look at their portfolio  and divested the elements that were                                                               
not going to  move the company forward.   ConocoPhillips targeted                                                               
a $15  billion asset  reduction and  focused largely  on upstream                                                               
assets,  but  also some  refining  and  downstream assets.    The                                                               
company  took returns  and paid  down debt,  issued dividends  to                                                               
shareholders to  retain their loyalty, and  positioned itself for                                                               
future growth  from a smaller,  but higher value  asset portfolio                                                               
on a  global basis.   In July 2011,  ConocoPhillips de-integrated                                                               
itself from  an upstream, pure  exploration and  production (E&P)                                                               
company and took its downstream  and product assets to a separate                                                               
stand-alone  company called  Phillips 66.   He  characterized the                                                               
company  in 2006  as one  too large  to compete  with independent                                                               
companies  such  as  Apache and  Anadarko  Petroleum  Corporation                                                               
(Anadarko), but too small to  compete with ExxonMobil Corporation                                                               
(ExxonMobil)   and  Shell   Global  (Shell)   on  the   basis  of                                                               
efficiency, since ConocoPhillips was  not involved in big capital                                                               
projects that  would have  given it  row (c)  efficiency numbers.                                                               
In 2006, ConocoPhillips bought  Burlington Resources, Inc., which                                                               
has  headed   off  growing  production  and   reserves;  however,                                                               
unfortunately, months before  the peak of U.S. gas  prices.  Thus                                                               
ConocoPhillips bought a very large  conventional gas portfolio in                                                               
the U.S. and  has been fighting that ever since.   He pointed out                                                               
their reserves indicate the company  is exactly where it was five                                                               
years earlier  so in many  respects they have "returned  to where                                                               
they came from."                                                                                                                
                                                                                                                                
3:13:18 PM                                                                                                                    
                                                                                                                                
MR. REINSCH offered  his belief that ConocoPhillips  is still too                                                               
large to compete  with the independents and too  small to compete                                                               
on efficiency  with the global  players.   He said their  new CEO                                                               
has  been charged  with charting  a new  strategic path  forward.                                                               
ConocoPhillips's  portfolio  has  been built  on  global  gas,  a                                                               
liquid  natural  gas  (LNG)  portfolio,   a  maturing  oil  sands                                                               
portfolio  in Canada  built around  in-situ development  based on                                                               
steam-assisted  gravity techniques  - underground  as opposed  to                                                               
the big mining  operations other companies have pursued  - and on                                                               
unconventional  resources,  including  shale gas  and  shale  oil                                                               
plays.   Currently, of the  three companies being  reviewed today                                                               
within   that  portfolio,   Alaska  is   the  most   material  to                                                               
ConocoPhillips.  He  characterized Alaska as an  obvious role for                                                               
ConocoPhillips's portfolio.   He pointed out that  at $93 billion                                                               
ConocoPhillips is smaller than BP  and ExxonMobil.  He emphasized                                                               
that the startling  impact of the rationalization  program is the                                                               
very large  negative compound average  growth rate over  the last                                                               
three years of  negative 30.68 percent.  He  explained the result                                                               
has been to enhance the  importance of Alaska in ConocoPhillips's                                                               
global portfolio.                                                                                                               
                                                                                                                                
3:12:45 PM                                                                                                                    
                                                                                                                                
MR. REINSCH provided a map  titled "ConocoPhillips:  Global Areas                                                               
of  Upstream   Operations"  [slide  37].     This  map  indicates                                                               
ConocoPhillips's  portfolio, including  that it  is active  in 22                                                               
countries, with  production in 15,  and North  America, including                                                               
Alaska  as its  core.   He said  one of  ConocoPhillips's calling                                                               
cards,  is  -   uniquely  amongst  its  peer   companies  -  that                                                               
ConocoPhillips  derives over  75 percent  of its  production from                                                               
Organisation  for Economic  Co-operation  and Development  (OECD)                                                               
countries.   The benefits  of that  are stability,  security, and                                                               
protection; however, they are involved  in largely mature basins,                                                               
which have high costs.                                                                                                          
                                                                                                                                
3:13:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK recalled him  defining the difference between                                                               
core  and harvest.   He  noted  what may  be a  harvest for  some                                                               
companies may be a  core for another.  He assumed  that it may be                                                               
the attitude held  by the company which determines  whether it is                                                               
a core or  harvest mode.  He  recalled the core area  as the area                                                               
of material  current production  and the harvest  area as  one to                                                               
derive  capital to  move  into  the core  areas.    He asked  for                                                               
further clarification.                                                                                                          
                                                                                                                                
MR. REINSCH  replied that the  allocation of countries  or basins                                                               
into these  categories requires a bit  of art.  Part  of what PFC                                                               
Energy would provide  is the role of assets  within the different                                                               
portfolios.   He related from  an external,  objective standpoint                                                               
or perspective  and assessment of ConocoPhillips,  Alaska is core                                                               
and material to  this company and this assessment  is expected to                                                               
remain  so into  the  future  - both  for  its current  producing                                                               
assets  and  for  the growth  opportunities  that  ConocoPhillips                                                               
seeks.   Additionally, it  has become even  more material  due to                                                               
the downsizing of ConocoPhillips global  portfolio.  He turned to                                                               
BP and  ExxonMobil, in  particular, and  said that  setting aside                                                               
the  gas, Alaska  represents  a relatively  small  part of  their                                                               
portfolio.  He  pointed out these companies have  been managing a                                                               
decline  as   efficiently  as   possible,  which   has  generated                                                               
significant cash  flow.  He  pointed out  that part of  that cash                                                               
flow has been put towards  other opportunities in their portfolio                                                               
-  just as  Alaska  was  built from  free  cash  flow from  other                                                               
producing jurisdictions.   The  PFC Energy  sees a  difference in                                                               
Alaska's role within the three portfolios.                                                                                      
                                                                                                                                
3:17:17 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON recalled that Alaska  represents about 36 percent                                                               
of ConocoPhillips's U.S. production,  but Alaska represents about                                                               
two-thirds  of their  liquid  production since  U.S.  gas is  not                                                               
valuable.  He asked how  that affects their materiality with such                                                               
a high percentage of liquids rests in Alaska.                                                                                   
                                                                                                                                
MR. REINSCH  acknowledged the absolute  number is  important, but                                                               
the fact  that ConocoPhillips is  liquids-focused in  the current                                                               
market environment  makes it even  more important.   He suggested                                                               
that comparing  the numbers  three or four  years ago  might have                                                               
changed  the  opinion -  when  Henry  Hub  was $8-9  per  barrel,                                                               
heading to $12 per  barrel and in a high gas  future forever.  He                                                               
pointed  out the  industry responded  by producing  a lot  of gas                                                               
while consumers have been using a  lot less, too.  He predicted a                                                               
time will  come in which crude  oil prices are in  the $40-60 per                                                               
barrel range  and "much hand wringing"  will be made of  the fact                                                               
that this  is a  liquids-rich environment where  companies should                                                               
be producing gas.   He characterized this as a  reality of market                                                               
movement; however,  certainly the  crude oil intensive  nature of                                                               
production to date in Alaska  is absolutely a "checkmark" for the                                                               
importance of  these assets within the  ConocoPhillips portfolio.                                                               
He said, "There's no question about it."                                                                                        
                                                                                                                                
3:19:15 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH turned  to a  slide  titled, "ConocoPhillips  Global                                                               
Production  Portfolio  - 2010"  [side  37],  which indicates  the                                                               
magnitude  of  the  portfolio  and the  asset  types  within  the                                                               
portfolio.   He said what  jumps out  immediately is the  size of                                                               
the  circles or  bubbles in  Canada,  the U.S.,  UK, and  Norway.                                                               
Clearly,  this  represents  the strength  of  the  ConocoPhillips                                                               
portfolio,    which    is    strengthened   even    further    by                                                               
ConocoPhillips's  decision  to  divest  its  equity  interest  in                                                               
LUKOIL Oil Company - the Russian oil  and gas company .  This has                                                               
reduced its remaining  exposure to the Russian  upstream to about                                                               
three  percent of  its total  portfolio in  2011, versus  over 20                                                               
percent just  two years prior.   He  characterized ConocoPhillips                                                               
today as a much smaller player with much less exposure.                                                                         
                                                                                                                                
3:20:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FEIGE   asked  what  happened  with   LUKOIL  and                                                               
ConocoPhillips.                                                                                                                 
                                                                                                                                
MR. REINSCH  explained the relationship  was an  equity ownership                                                               
as  opposed to  a joint  venture.   The value  proposition behind                                                               
their   initial  positioning   was   that   by  combining   these                                                               
portfolios, ConocoPhillips  would be exposed to  new developments                                                               
in  Russia  and  LUKOIL  would be  exposed  to  new  developments                                                               
outside  Russia  through  its  affiliation  with  ConocoPhillips.                                                               
However,  in  2010,  the  value  proposition  had  not  yet  been                                                               
realized.  ConocoPhillips had better  places to put its funds and                                                               
LUKOIL  had not  really  made any  inroads  in the  international                                                               
arena and more  importantly, the areas they wanted  to go weren't                                                               
necessarily  areas  in  which ConocoPhillips  was  active.    The                                                               
decision  to divest  the equity  position  was part  of a  larger                                                               
portfolio rationalization activity.                                                                                             
                                                                                                                                
3:22:21 PM                                                                                                                    
                                                                                                                                
MR.   REINSCH   discussed   the   "Total   Portfolio   Evolution:                                                               
ConocoPhillips  vis-à-vis  the  Competition"   [slide  38].    He                                                               
projected ConocoPhillips's production in  2015 was below the 2010                                                               
production.    He  pointed out  the  Burlington  acquisition  was                                                               
important  as  was   the  20  percent  stake  in   LUKOIL.    The                                                               
restructuring  and significant  divestment  in  assets and  joint                                                               
venture  exposure  was  expanded   from  $15  billion  to  $20-25                                                               
billion, which has shrunk the  ConocoPhillips portfolio to a much                                                               
smaller level than  in 2010.  He highlighted  that selling assets                                                               
and  giving   dividends  to  shareholders  is   not  a  long-term                                                               
strategy.   The  industry and  analysts are  keenly awaiting  the                                                               
direction  the new  executive management  team and  board of  the                                                               
newly created independent exploration and production (E&P).                                                                     
                                                                                                                                
3:24:15 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH discussed  the slide  titled "How  the Portfolio  is                                                               
Financed:  Sources and Uses of  Cash" [slide 39].  He stated that                                                               
unlike the  equivalent chart for  BP, this slide  illustrates how                                                               
much longer a  number of the ConocoPhillips  operating areas were                                                               
in cash deficit  positions.  He highlighted  that the improvement                                                               
in crude prices has definitely  helped this portfolio move into a                                                               
cash surplus situation.  He related  that the U.S. and Canada, in                                                               
particular, have been contributing  cash flow in 2009-2010, after                                                               
spending   most   of  the   decade   in   a  deficit   situation.                                                               
ConocoPhillips  has been  using its  UK and  North Sea  portfolio                                                               
position as  a "cash  cow" for  financing operations  and capital                                                               
investments elsewhere.                                                                                                          
                                                                                                                                
3:25:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK  noted the values  are different than  the BP                                                               
chart.   He  related  the  angle between  cash  deficit and  cash                                                               
surplus  seem to  be  1:1  ratio.   He  asked  whether the  money                                                               
ConocoPhillips invests has been a better return on investment.                                                                  
                                                                                                                                
MR. REINSCH  answered no, that the  scales on the two  charts are                                                               
different since the capital expenditure  on the BP chart peaks at                                                               
$12  billion   and  this  chart   peaks  at  $20   billion  since                                                               
ConocoPhillips had  the big  acquisition of  Burlington Resources                                                               
in 2006.  Thus the capital  is skewed and was accommodated by the                                                               
value changes  on the  vertical axis.   He  pointed out  the zero                                                               
line is still  1:1 ratio.  In further  response to Representative                                                               
Tuck, Mr. Reinsch said it's deceptive.                                                                                          
                                                                                                                                
3:27:37 PM                                                                                                                    
                                                                                                                                
MR. REINSCH provided  the evolution of the  portfolio [slide 40].                                                               
He recalled that this underscores  the dominance of North America                                                               
and the important  role of the OECD's  basins in ConocoPhillips's                                                               
portfolio.   He pointed out  that Sub-Saharan Africa,  Russia and                                                               
Central Asia,  and Latin America  have almost nothing in  the way                                                               
of  material  production  in  any   of  the  jurisdictions.    He                                                               
concluded  ConocoPhillips is  still a  global player,  but has  a                                                               
much more  consolidated or narrowly-focused global  portfolio and                                                               
growth portfolio than BP's portfolio.                                                                                           
                                                                                                                                
3:29:43 PM                                                                                                                    
                                                                                                                                
MR. REINSCH explained the country  growth project analysis [slide                                                               
41].   He  referred  to the  red  single project  in  Qatar.   He                                                               
explained  that  ConocoPhillips  has  been  involved  in  an  LNG                                                               
development  in  Qatar  -  the last  project  that  country  will                                                               
develop  under   its  current  and  ongoing   moratorium  on  gas                                                               
development.     He  predicted  the   project  will   reach  peak                                                               
production in 2012.  He referred  to slide 40, to the Middle East                                                               
and North  Africa region, noting  the orange bar  represents that                                                               
project.  He  highlighted this as ConocoPhillips's  one major gas                                                               
development, which is more of  a manufacturing development, while                                                               
the majority  of its  other large-scale  projects are  very oily.                                                               
He pointed out  that the shale gas and liquids  production in the                                                               
Eagle Ford  basin is largely an  oil or liquids play,  as opposed                                                               
to a gas play.                                                                                                                  
                                                                                                                                
3:30:53 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  projected   that  the  ConocoPhillips  Asia-Pacific                                                               
deepwater projects  will be a  significant producer.   He related                                                               
the oil sands joint venture  with Canadian Cenovus Energy, Inc. -                                                               
the  spinoff   company  from  EnCana  Corporation   -  when  they                                                               
separated  those two  companies from  a  gas play  and oil  sands                                                               
entity.  He  shifted to the Alaska-North Slope  slide [slide 42].                                                               
He  described the  portfolio  as a  somewhat  larger portfolio  -                                                               
arguably  a  more  exploration-oriented portfolio  -  with  large                                                               
lease  holdings in  the Chukchi  Sea and  the National  Petroleum                                                               
Reserve  -   Alaska  (NPRA),   as  well   as  the   core  assets.                                                               
Interestingly,  ConocoPhillips   executed  some   creative  asset                                                               
swapping with Statoil - Norwegian  oil company - to introduce its                                                               
deepwater  expertise   into  Alaska   in  exchange   for  further                                                               
positioning ConocoPhillips in  the Gulf of Mexico  deepwater.  He                                                               
suggested  that  marrying  these two  companies  will  strengthen                                                               
their interests.  Additionally,  ConocoPhillips has both operated                                                               
and non-operated assets in the  Cook Inlet area [slide 43].                                                                     
                                                                                                                                
3:32:05 PM                                                                                                                    
                                                                                                                                
MR. REINSCH  discussed the "ConocoPhillips Alaska  Activity & PFC                                                               
Energy   Assessment"  [slide   44].     ConocoPhillips's  largest                                                               
producing   area  has   been  the   greater  Prudhoe   Bay  area.                                                               
ConocoPhillips and BP had been  proposing the Alaska Gas Pipeline                                                               
or Denali Pipeline  for commercialization of the  Prudhoe Bay gas                                                               
resources,  but  that  proposal has  officially  been  withdrawn.                                                               
This places  uncertainty around the  gas portfolio,  but releases                                                               
the  resource   for  consideration  in  competing   or  alternate                                                               
commercialization prospects.                                                                                                    
                                                                                                                                
3:33:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  read  from the  discussion  page,  which                                                               
read, "Production from material  mature Alaska portfolio has been                                                               
in  slow  decline since  2004."    She  asked  why the  date  was                                                               
selected since  the field  has been in  decline longer  than that                                                               
date.                                                                                                                           
                                                                                                                                
MR. REINSCH offered to provide a clarification at a later date.                                                                 
                                                                                                                                
3:34:04 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  turned to  the  slide,  titled, "PFC  -  Identified                                                               
Challenges"  [slide   46].    He  outlined   the  challenges  for                                                               
ConocoPhillips.   First,  ConocoPhillips  needs to  compete as  a                                                               
"pure  play"  upstream  exploration  and  production  company  as                                                               
rather than being  an integrated major.   He  was uncertain as to                                                               
whether ConocoPhillips would return to  a competitor space in the                                                               
mid-2000s and if it is  not successful, whether it would survive.                                                               
He  pointed out  that $93  billion is  still a  big company,  but                                                               
questions   remain  about   ConocoPhillips's  future.     Second,                                                               
ConocoPhillips  must  re-establish  a value  proposition  through                                                               
this  fairly   significant  change  in  strategy   direction  and                                                               
restructuring - one  that can compete with peer  group members in                                                               
light  of continuing  challenges of  production costs,  operating                                                               
costs.   The  flipside of  this is  the OECD  intensive portfolio                                                               
consists of a lot of mature  basin operations and the impact that                                                               
will have  on their  costs.   Third, ConocoPhillips  must improve                                                               
their   operational  performance.     ConocoPhillips   has  shown                                                               
improvements in funding development  costs, but continues to rank                                                               
near the bottom  of its peer group in some  pretty key areas such                                                               
as net  income for  BOE, production costs  for BOE,  and upstream                                                               
return on  capital employed.  He  highlighted that ConocoPhillips                                                               
has a reasonable  portfolio of major capital projects  that it is                                                               
currently   executing   on.      As  those   projects   move   to                                                               
commercialization  and  begin  to  generate  production,  volumes                                                               
should  boost their  operational  metrics and  return on  capital                                                               
employed  figures.   He  reiterated that  one  of the  challenges                                                               
ConocoPhillips  currently faces  is  it is  in transition,  which                                                               
means  all   aspects  of  their  operation   are  in  transition,                                                               
including the  performance metrics.   Finally, this  company must                                                               
show  it  can  deliver  volume  growth  on  a  consistent  basis,                                                               
relative to its  peers - arguably a smaller  set of aggressively-                                                               
growing independents  - such as  Apache Corporation  and Anadarko                                                               
Petroleum  Corporation.    Certainly, ConocoPhillips  appears  to                                                               
have a portfolio of significant assets  to develop.  It boasts 10                                                               
billion barrels  of oil  equivalent (BOE)  resource to  move from                                                               
resource to  reserves and reserves to  production through further                                                               
appraisal  and project  development.   Again, ConocoPhillips  has                                                               
been promising strong organic growth  and the question is whether                                                               
it can  deliver.  He suggested  that ConocoPhillips's performance                                                               
in  Eagle  Ford   basin  will  be  a   good  indicator;  however,                                                               
ConocoPhillips  needs to  be growing  production  to continue  to                                                               
please their  investors and analysts  that the company  is moving                                                               
forward.                                                                                                                        
                                                                                                                                
3:38:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  stated  that ConocoPhillips  has  a  rich                                                               
history  in Alaska  and  has provided  many  things, including  a                                                               
cancer center.   He asked  him to  grade their road  map forward.                                                               
In response to  a question, he clarified that if  the snapshot is                                                               
an A, B, or C.   He asked whether this is a good  plan or an okay                                                               
plan.                                                                                                                           
                                                                                                                                
MR. REINSCH  responded he is  suggesting that if Alaska  wants to                                                               
be  part of  the solution  the  state must  understand that  what                                                               
ConocoPhillips wants is  growth.  The more Alaska  and the Alaska                                                               
portfolio  can  deliver  in near-term  and  long-term  production                                                               
gains, the  greater Alaska's role  will grow  in ConocoPhillips's                                                               
portfolio  in  terms  of significant  relevance  and  materiality                                                               
relative  to its  peers.    He said  if  someone  had asked  that                                                               
question  24 months  ago, he  would have  given ConocoPhillips  a                                                               
grade of  troubled; however, today  the assessment would  be that                                                               
ConocoPhillips's  position  has   significantly  improved.    One                                                               
significant weakness  in the ConocoPhillips's portfolio  has been                                                               
that it  divested in  companies; however,  this has  become their                                                               
strength due  to the  portfolio churn  previously mentioned.   It                                                               
has  left ConocoPhillips  with a  narrower,  better focused,  and                                                               
arguably  stronger portfolio  to deliver  growth moving  forward.                                                               
He emphasized the question of  whether ConocoPhillips can deliver                                                               
a two-percent production  growth number.  This would  be a pretty                                                               
good  performance  relative  to  the  integrated  majors  and  be                                                               
benchmarked  against  them or  ConocoPhillips  will  be asked  to                                                               
deliver five to  seven percent growth and  be benchmarked against                                                               
a  smaller  more  agile  set of  independents  such  as  Anadarko                                                               
Petroleum  Corporation  -  which  has been  moving  towards  a  1                                                               
million barrel per  day mark - at a time  when ConocoPhillips has                                                               
been  dropping  back and  is  now  repositioning to  grow  again.                                                               
These  are the  great uncertainties  that the  company faces  and                                                               
investors will determine.                                                                                                       
                                                                                                                                
3:42:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  asked whether the  challenges, such  as reliance                                                               
on  profit  generation  from  Alaska,  includes  the  ability  to                                                               
further concentrate  the company's profitability in  Alaska or if                                                               
ConocoPhillips would have  a liability - structurally  - with too                                                               
much focus in one region.  He  said he's trying to figure out the                                                               
relationships   of  the   three  players   and  whether   massive                                                               
reinvestment would happen with a major tax regime change.                                                                       
                                                                                                                                
MR.  REINSCH  offered  his  belief that  Alaska  and  the  Alaska                                                               
portfolio is the heart of  the wheelhouse for ConocoPhillips.  It                                                               
is  branding  itself  as  a  company  with  substantial  material                                                               
assets,  in safe  haven operating  environments,  close to  major                                                               
markets.   He  said, "That's  Alaska."    He  stated that  if the                                                               
question is whether the company  is overexposed to shutdown, that                                                               
question  is  a  technical  issue   he  would  expect  any  board                                                               
conversation to  discuss how  to ensure  that doesn't  happen and                                                               
keep the  pipeline operating.   Similarly,  he would  expect more                                                               
attention  will be  focused on  how  to grow  more production  in                                                               
Alaska  because  of  materiality  and the  core  nature  of  this                                                               
portfolio to ConocoPhillips.  He  said if the question is whether                                                               
ConocoPhillips   is  too   heavily   leveraged   in  Alaska   and                                                               
ConocoPhillips should  be looking elsewhere he  would answer that                                                               
would appear to be counter to the company's strategy.                                                                           
                                                                                                                                
CO-CHAIR  SEATON  queried  whether   there  is  anything  in  the                                                               
ConocoPhillips's structure that would give  Alaska pause in terms                                                               
of ConocoPhillips's  perspective on  massive reinvestment  in the                                                               
Prudhoe Bay  and Kuparuk  reservoirs that  is different  from the                                                               
other two companies.                                                                                                            
                                                                                                                                
MR.  REINSCH  reiterated that  the  Alaskan  assets are  of  more                                                               
importance  to   ConocoPhillips's  global  portfolio   and  would                                                               
attract more attention  and if necessary, some  type of strategic                                                               
premium within the  overall portfolio that isn't  seen within the                                                               
other two.                                                                                                                      
                                                                                                                                
3:47:52 PM                                                                                                                    
                                                                                                                                
The committee recessed from 3:47 p.m. to 4:05 p.m.                                                                              
                                                                                                                                
4:09:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   SEATON  reconvened   the  meeting.     He   recognized                                                               
Representatives Johnson, Doogan, and Fairclough in the audience.                                                                
                                                                                                                                
4:10:06 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  turned  to  the   final  company  to  be  reviewed,                                                               
ExxonMobil  Corporation  (ExxonMobil).   He  said  he  previously                                                               
mentioned all three companies have  been in a state of transition                                                               
and crossroads in  terms of their strategies,  which is certainly                                                               
true for  ExxonMobil.  He  pointed out  that most people  find it                                                               
difficult  to fathom  a company  of this  size could  ever be  in                                                               
trouble or  have a strategy crisis.   However, that was  the case                                                               
for  ExxonMobil 12-18  months  ago.   ExxonMobil  is the  largest                                                               
global, integrated  oil and gas  company outside of  the national                                                               
oil companies.   ExxonMobil's average production in  2011 was 4.5                                                               
million  barrels per  day oil  equivalent (mmboe/d).   Its  gross                                                               
strategy has been based on  scale - basin dominance and execution                                                               
excellence.   He related  that ExxonMobil moves  in a  large way,                                                               
dominates  the area  and prides  themselves on  their ability  to                                                               
develop and  produce assets.   The flip  side is  that ExxonMobil                                                               
must   continually  look   for   and   secure  opportunities   of                                                               
significant  materiality.    The  company had  been  driving  its                                                               
global volume  growth through  the commissioning  of a  series of                                                               
large  scale  liquefied  natural  gas  (LNG)  projects  in  Qatar                                                               
exploiting  the North  field -  a gas  field offshore  in shallow                                                               
water that  is the largest  single gas field  on the face  of the                                                               
earth.  However,  in the middle of the last  decade, Qatar placed                                                               
a moratorium  on the project since  it struggled with what  to do                                                               
with the  revenue the  field generated.   That  moratorium exists                                                               
today and Qatar represents ExxonMobil's  growth engine.  In 2010-                                                               
2011 ExxonMobil  commissioned the  last pieces of  that portfolio                                                               
so while  production continues from  Qatar new  source production                                                               
does not.                                                                                                                       
                                                                                                                                
4:13:23 PM                                                                                                                    
                                                                                                                                
MR. REINSCH said  at the same time its European  and Asia Pacific                                                               
portfolios were  drifting away  as the  mature assets  moved into                                                               
decline.   The company  was also positioned  to venture  into the                                                               
extra heavy  oil development in  Venezuela, but  unilateral terms                                                               
by the  government as well  as the  requirement that PDVSA  - the                                                               
national oil  company -  take a  60-percent ownership  were terms                                                               
that were not acceptable to  ExxonMobil.  Other areas of interest                                                               
to  ExxonMobil Corporation  include Brazil  pre-salts development                                                               
of significant  scale, but with Petrobras  receiving a legislated                                                               
requirement  to  operate  all pre-salts  development,  ExxonMobil                                                               
questioned  its  role  in  the   venture.    He  summarized  that                                                               
ExxonMobil doesn't want to invest a  lot of capital in a basin in                                                               
which it won't  be the operator.   Additionally, ExxonMobil tried                                                               
to position itself in the  offshore West Africa Equatorial Margin                                                               
Côte d'Ivoire-Ghana, but was rebuffed by the government.                                                                        
                                                                                                                                
4:15:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER   asked  about   the  use  of   the  term                                                               
"materiality."                                                                                                                  
                                                                                                                                
MR.  REINSCH   answered  that  "materiality"  is   defined  as  a                                                               
significant absolute volume volumetric  - a meaningful percentage                                                               
of resource base or a meaningful percentage of total production.                                                                
                                                                                                                                
4:15:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE queried about the term "pre-salt."                                                                         
                                                                                                                                
MR. REINSCH described  "pre-salts."  He explained  that in Brazil                                                               
they  found  significant  accumulations   of  high  quality  oils                                                               
positioned  below  very thick  salt  depositions.   In  order  to                                                               
access the resource,  the drilling occurs in  deepwater depths of                                                               
3,000-5,000  feet, but  requires  drilling through  a thick  salt                                                               
layer to  get into the producing  horizons.  He pointed  out that                                                               
drilling  through the  salt  layers makes  it  very difficult  to                                                               
image what  is below.   Thus standard  seismic techniques  do not                                                               
happen as efficiently and if  anything untoward happens - such as                                                               
a blowout  or a leak  - it can  represent a difficult  and unique                                                               
environment.   Some companies produce through  salt formations in                                                               
the Gulf  of Mexico, but  nothing on  the scale and  magnitude of                                                               
the  multi-billion  barrel  fields  discovered  in  Brazil.    He                                                               
described  the deepwater  sites as  technically challenging,  big                                                               
investment,  and big  production volumes,  which are  tailor made                                                               
for  ExxonMobil.   He speculated  if PDVSA  had not  been granted                                                               
operatorship  over the  developments that  ExxonMobil would  have                                                               
been one  of two or three  companies Brazil would have  turned to                                                               
in developing its resource.                                                                                                     
                                                                                                                                
MR. REINSCH continued to explain  how ExxonMobil emerged from the                                                               
problems it had been facing,  which involved taking an aggressive                                                               
move  into unconventional  shale  gas  exploitation.   ExxonMobil                                                               
made two  commitments.   First, ExxonMobil  made a  commitment to                                                               
immediate  growth, which  happened  with the  acquisition of  XTO                                                               
Energy, Inc.  (XTO) - a  multi-billion dollar acquisition  - that                                                               
brought ExxonMobil  into shale  gas and coal  bed methane  it had                                                               
not previously  had exposure to.    He characterized this  as the                                                               
materiality move  ExxonMobil is known  for, but the  surprise was                                                               
that  ExxonMobil   moved  into  unconventional  resources.     He                                                               
highlighted  that  ExxonMobil  is  known  for  big  field,  major                                                               
capital project  developments.   He related that  XTO has  been a                                                               
separate company  within ExxonMobil,  which is  absolutely unique                                                               
in the  history of the company.   This means ExxonMobil  not only                                                               
envisions a  U.S. onshore  resource play,  but a  global resource                                                               
play.   It could mean  ExxonMobil will  be leading the  charge to                                                               
access hundreds of  trillion cubic feet (TCF) of gas  on a global                                                               
basis.  Another  recent move was a joint venture  with Rosneft in                                                               
Russian Kara Sea  in the Russian Arctic.  He  described this as a                                                               
place-holder  in the  emerging Arctic  region portfolio  in which                                                               
Alaska clearly  has a role to  play.  He predicted  this is where                                                               
Alaska  fits into  ExxonMobil.   He  reported  the 2011  reserves                                                               
production  market  capital figures  are  over  the $400  billion                                                               
mark,   whereas   ConocoPhillips  is   at   $93   billion.     He                                                               
characterized ExxonMobil  as a company  of a different  scale and                                                               
magnitude.   He also reported  ExxonMobil's corporate  revenue at                                                               
$343 billion.                                                                                                                   
                                                                                                                                
4:22:16 PM                                                                                                                    
                                                                                                                                
MR. REINSCH provided a map  to indicate ExxonMobil's global areas                                                               
of upstream  operations [slide 48].   The corporation  has global                                                               
reach  with operations  in 41  countries and  production from  21                                                               
countries.   The  core  projects  are in  the  U.S., Canada,  the                                                               
Netherlands, Norway, Nigeria, and Qatar.   He reviewed the global                                                               
portfolio in terms  of the relative size of  production and asset                                                               
type [slide 49].   He pointed out the very  large bubbles for the                                                               
U.S.  and  Qatar.    The  U.S. bubble  has  grown  with  the  XTO                                                               
acquisition.      He   highlighted   that   three   small   scale                                                               
unconventional  acquisitions  have   occurred  since  XTO,  which                                                               
represent the cornerstone for growth  for ExxonMobil.  He pointed                                                               
out that  Qatar represents  20 percent of  global output  in 2010                                                               
and while  the commissioning of  new liquefied natural  gas (LNG)                                                               
capacity has come  to a temporary end due to  the moratorium, the                                                               
level of production will continue  for some years into the future                                                               
delivering  significant cash  flow  to the  company  as it  moves                                                               
forward.   The  UK and  North  Sea represent  a mature  declining                                                               
asset  portfolio.     He  related  that   ExxonMobil  divested  a                                                               
significant  number of  its UK  assets  to Apache  recently.   In                                                               
Russia, ExxonMobil has  been primarily an east  coast player with                                                               
the   LNG  natural   gas  developments   in  Sakhalin;   however,                                                               
ExxonMobil  is also  positioned  to consider  development in  the                                                               
northern Arctic region.                                                                                                         
                                                                                                                                
4:24:43 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  viewed the  chart  on  production growth  and  said                                                               
ExxonMobil Corporation is the leader  [slide 50].  He stated that                                                               
BP was  poised to take the  lead, but fell back  with the Macondo                                                               
event  and divestiture.   ExxonMobil  has  not been  in a  growth                                                               
stance,  but its  dominant metrics  have been  shareholder return                                                               
through  dividends and  buyback  programs and  return on  capital                                                               
employed.   ExxonMobil  continues to  lead  its peer  group by  a                                                               
significant  margin.   However,  in 2011  the  return on  capital                                                               
employed figures slipped back for  ExxonMobil as the XTO business                                                               
model begins to take a  more prominent position within the global                                                               
portfolio, which  will bring  a new mix.   He  highlighted modest                                                               
growth  projections of  $4.5 mboe/d  in 2015,  which is  not much                                                               
different from 2010; however, the  company has been guarded as to                                                               
how quickly  it plans to grow  the XTO portfolio.   He related it                                                               
is U.S.  gas market dominated and  while it can focus  on liquids                                                               
rich shale gas clays, ExxonMobil has  the option to slow down the                                                               
development  of that  resource base  given the  other assets  and                                                               
elements within  its global portfolio.   The PFC  Energy predicts                                                               
fairly  slow  growth in  the  XTO  portfolio, but  if  ExxonMobil                                                               
changes its plan the growth figures could move very quickly.                                                                    
                                                                                                                                
4:27:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN asked whether part  of the slow growth is                                                               
due to  the abundance of shale  gas which has caused  the cost of                                                               
gas falling below the cost of production.                                                                                       
                                                                                                                                
MR. REINSCH  responded that  all companies  involved in  Lower 48                                                               
gas production  are considering  the situation  and strategizing.                                                               
Some  companies are  diverting upstream  capital programs  to the                                                               
liquids  rich  shale gas  developments.    Further, a  number  of                                                               
companies are  involved in  "cash and  carry" joint  ventures, in                                                               
which a total  has been brought in as a  partner, and the company                                                               
has been  paying $.50 on  the dollar for subsequent  drilling and                                                               
activity  until the  remainder of  the purchase  price is  worked                                                               
off.   He  said  these  ventures are  still  in  place and  allow                                                               
companies to  be less sensitive to  the gas prices.   He reported                                                               
that the  majority of the deals  are unwound this year,  and next                                                               
year  and  he anticipated  another  ratcheting  down of  upstream                                                               
activity if  low prices continue.   He concluded  that ExxonMobil                                                               
has  the ability  to  slow down  and wait  for  market prices  to                                                               
correct.                                                                                                                        
                                                                                                                                
4:29:56 PM                                                                                                                    
                                                                                                                                
MR. REINSCH discussed  the slide "How the  Portfolio is Financed:                                                               
Sources and Uses  of Cash" [slide 51].  He  acknowledged that the                                                               
chart could have  been adjusted from $10 billion  to $60 billion,                                                               
but that  would have flattened  out the  dotted line.   He stated                                                               
that the  U.S. capital expenditure  (U.S. Capex) was  $60 billion                                                               
in 2010, mostly  related to the XTO acquisition.   He highlighted                                                               
that virtually all of the areas  except for the U.S. in 2010 have                                                               
been in  cash surplus situations,  in particular, the  Africa and                                                               
Europe portfolios,  which have  been generating  significant cash                                                               
flow  volumes for  an extended  period of  time.   He noted  that                                                               
ExxonMobil was one  of the first to venture into  the West Africa                                                               
deepwater  projects.   He  stated  that  Canada/South America  is                                                               
really  Canada   and  reflects  the  significant   investment  in                                                               
Canadian  oil sands  development,  in particular,  and the  Kearl                                                               
integrated  sands or  Syncrude  Canada,  Ltd. (Syncrude)  capital                                                               
expenditures.   He pointed  out that as  this project  comes into                                                               
production  it will  represent  a  significant and  long-standing                                                               
cash flow generator for the company.                                                                                            
                                                                                                                                
4:31:45 PM                                                                                                                    
                                                                                                                                
MR.   REINSCH  reviewed   the   ExxonMobil  "Global   Production:                                                               
Evolution  of  the   Portfolio"  [slide  52].     He  noted  that                                                               
ExxonMobil is  not present in Latin  America.  It is  unclear how                                                               
ExxonMobil will move  forward, but Latin America  plays a minimal                                                               
role.   He pointed out the  emerging shale gas play  in Argentina                                                               
and it  is not  clear whether ExxonMobil  will decide  to proceed                                                               
there.   The Middle East and  Africa will be ramping  up in 2011-                                                               
2012 and represent the Qatar LNG  portfolio - 1 mboe/d which will                                                               
generate cash flow  for years.  In North  America the significant                                                               
impact that  XTO has had  on ExxonMobil's portfolio  represents a                                                               
shift in materiality.                                                                                                           
                                                                                                                                
4:33:36 PM                                                                                                                    
                                                                                                                                
MR. REINSCH turned to new  source production, "Global Production:                                                               
Country Growth Project  Analysis" [slide 53].  He  said that 2011                                                               
will be the last year ExxonMobil  will show new source growth out                                                               
of  Qatar,  with  a  large  number  of  discrete  projects  being                                                               
developed in  the U.S. for growth  into 2015, as well  as a large                                                               
number  of smaller  - 100-150  mboe/d  - oily  projects in  Iraq,                                                               
Angola, Nigeria, and Canada.                                                                                                    
                                                                                                                                
4:34:26 PM                                                                                                                    
                                                                                                                                
MR. REINSCH reviewed "ExxonMobil in  Alaska - North Slope" [slide                                                               
54].   He  suggested ExxonMobil's  portfolio is  similar to  BP's                                                               
portfolio on the North Slope,  including greater Kuparuk, Greater                                                               
Point  McIntyre,  Greater  Prudhoe  Bay, and  the  Point  Thomson                                                               
development,  which forms  the heart  of ExxonMobil's  portfolio.                                                               
ExxonMobil  has  been  the  largest   holder  of  discovered  gas                                                               
resources  on  the  North  Slope,  and  long-term  potential  for                                                               
ExxonMobil in Alaska  which also fits their global  strategy - in                                                               
terms of  a potential for  a material  development in an  area of                                                               
LNG [slide  55].  He emphasized  that gas development is  an area                                                               
of ExxonMobil's competence and leadership on a global basis.                                                                    
                                                                                                                                
4:35:43 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH   moved  to  the   final  presentation   slide,  the                                                               
challenges  faced by  ExxonMobil [slide  56].   First, ExxonMobil                                                               
has made  a significant bet  on unconventional resource  plays on                                                               
shale  gas  and  oil  development   in  the  U.S.  and  globally.                                                               
ExxonMobil's  move to  unconventional  resource  goes counter  to                                                               
ExxonMobil's  historic growth  through organic  development.   It                                                               
was  formulated  on  a  major   acquisition  of  a  company  that                                                               
ExxonMobil has  been allowing to  operate essentially  outside of                                                               
itself - looking  to leverage what it does well  - to the benefit                                                               
of  the larger  company.   However, with  the continued  weak gas                                                               
environment in the  U.S. and substantive concerns  over shale gas                                                               
exploitation outside of  the U.S. and with  moratoriums in France                                                               
in South  Africa, delivering on  this is  far from a  sure thing.                                                               
Second, the company  has been involved in a  suite of significant                                                               
Asia-Pacific LNG  projects - the  largest is Gorgon  LNG operated                                                               
by  Chevron, and  Papua New  Guinea (PNG)  LNG and  the potential                                                               
Scarborough field in the Carnarvon  Basin.  All of these projects                                                               
sell gas  into the  energy hungry Asia  markets of  China, Japan,                                                               
and  Korea.    He  pointed   out  with  Qatar  at  a  standstill,                                                               
ExxonMobil needs  to move forward  on the LNG portfolio.   Third,                                                               
ExxonMobil  must  maintain  leadership   in  share  buy-back  and                                                               
dividend  performance.   The company  has spent  just under  $115                                                               
billion on  share repurchase during  2006 to 2010.   However, the                                                               
question  has been  raised whether  ExxonMobil  can maintain  its                                                               
leadership   position  given   its  emphasis   on  unconventional                                                               
resource play, which has been a  different type of model from the                                                               
large  Capex and  cash flow  projects that  the company  has been                                                               
involved  in.   Finally,  ExxonMobil must  replace volume  growth                                                               
from   Qatar  North   Field  in   commercialization  within   its                                                               
portfolio.   He  stated Qatar  contains significant  captured gas                                                               
resource  that  remains  stranded.    The  Mackenzie  Valley  gas                                                               
pipeline project was finally approved  in 2011, after 24 years of                                                               
constant regulatory processes, at a  time when it isn't desirable                                                               
to move  the gas  to the Lower  48.  He  characterized this  as a                                                               
lesson in how  not to conduct business and a  lesson the Canadian                                                               
government is taking  to heart as it looks  to other developments                                                               
such as the Gateway oil pipeline to the West Coast.                                                                             
                                                                                                                                
4:40:12 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  pointed  out  that the  stranded  aspect  of  these                                                               
various  gas resources  has rekindled  interest  in Alaska's  LNG                                                               
expansion.   He reiterated that  Alaska is the  only jurisdiction                                                               
for whom  recovery and Henry  Hub gas  prices would not  have any                                                               
impact  on a  LNG  development  moving volumes  to  the Asia  gas                                                               
market.  He  characterized it as an absolute  decision as opposed                                                               
to a  relevant one.   ExxonMobil has significant reserves  in the                                                               
Caspian  region  that  it  has   attempted  to  move  forward  to                                                               
development,  but  has  faced   aboveground  risks  and  resource                                                               
nationalism  challenges.    While ExxonMobil  was  successful  in                                                               
securing  the West  Qurna-1 development  project in  Iraq, it  is                                                               
also  having challenges  in  moving the  project  forward due  to                                                               
obstacles in  terms of takeaway  infrastructure capacity  and the                                                               
development of  a project of that  size in Iraq.   He pointed out                                                               
that ExxonMobil made an aggressive  move into Kurdistan, securing                                                               
six exploration blocks  in late 2011, which appears  to have cost                                                               
them a spot  in Iraq's fourth licensing round.   He characterized                                                               
this as a volatile area and it  is not clear this is the position                                                               
ExxonMobil thought it would have at the onset of the Iraq war.                                                                  
                                                                                                                                
4:42:35 PM                                                                                                                    
                                                                                                                                
MR.  REINSCH  summarized ExxonMobil  by  referring  to slide  47,                                                               
titled "ExxonMobil:   Company Overview."   He  suggested that two                                                               
stories are  similar for ExxonMobil  and BP, in terms  of placing                                                               
Alaska   within    global   portfolios.      He    related   that                                                               
ConocoPhillips,  is  very  different.     He  explained  that  in                                                               
reviewing the  portfolios and the  trends, all else  being equal,                                                               
production  from Alaska  will  become less  material  for BP  and                                                               
ExxonMobil, and  could become more important  for ConocoPhillips,                                                               
depending  on how  successful the  company is  in restarting  its                                                               
growth engine after  two years of asset  sales, divestitures, and                                                               
shrinkage in their upstream.                                                                                                    
                                                                                                                                
4:43:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  asked,  given  the  challenges  and  structural                                                               
differences  for  ExxonMobil  in  the  declining  legacy  fields,                                                               
whether a  change in  the tax regime  would affect  ExxonMobil in                                                               
other ways than it would BP and ConocoPhillips.                                                                                 
                                                                                                                                
MR.  REINSCH  said that  addressing  the  decline in  the  legacy                                                               
fields of Alaska  is a competition for  capital within ExxonMobil                                                               
Corporation  as everywhere  else.   However,  ExxonMobil has  the                                                               
greatest strategic  interest in  gas commercialization  - through                                                               
LNG - of  these three companies.  He suggested  that it should be                                                               
of more  interest to ExxonMobil  than building a pipeline  to the                                                               
Lower 48.   With the pipeline set aside, this  project could be a                                                               
"dial  turner" for  them.   He  said one  of ExxonMobil's  unique                                                               
operating practices is  that once a project or  resource has been                                                               
approved  and  sanctioned for  development  one  team of  workers                                                               
takes  over from  the  other and  it is  efficient  in that  way.                                                               
Additionally, ExxonMobil Corporation may  be the most disciplined                                                               
corporations to  avoid capital  destruction since  every monetary                                                               
aspect is considered for its highest value use.                                                                                 
                                                                                                                                
4:48:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  indicated  that other  consultants  have                                                               
expressed  surprise   at  the  limited  information   Alaska  has                                                               
available   about  the   industry,  in   terms  of   confidential                                                               
information.    She  described   the  difficulties  in  obtaining                                                               
information, besides  financial information, which  companies are                                                               
not required  to furnish to  the legislature.   She asked  him to                                                               
speak to this.                                                                                                                  
                                                                                                                                
MR. REINSCH  answered that  the sophistication  on behalf  of the                                                               
government  doesn't necessarily  guarantee smart  decisions.   He                                                               
pointed  out the  UK sometimes  stumbles  and they  are the  most                                                               
interventionist, fiscal policy  player in the energy  matrix.  He                                                               
characterized the  UK as trying to  fine tune projects.   He said                                                               
the  Alberta government  engages the  industry, still,  they have                                                               
stumbled and the speed of  policy decisions is often overtaken by                                                               
events.   Having said  that, he  related there is  a time  in the                                                               
life of  a basin development,  particularly one of  Prudhoe Bay's                                                               
magnitude -  whose largess was  almost unimaginable and  the flow                                                               
and return to the government was  so substantial - that there was                                                               
less of a  need early on for a true,  sophisticated dialogue with                                                               
the companies.   He suggested this  is a different time  now, and                                                               
while it does  not mean that what happened earlier  was faulty or                                                               
incorrect,  these discussions  have brought  into focus  that the                                                               
Alaska upstream is getting increasingly  complicated.  The mix of                                                               
assets  should  not  be  treated  or  examined  as  single-basin,                                                               
single-asset decisions.   The dialogue  has been changing  and is                                                               
becoming more  sophisticated so the dialogue  with companies must                                                               
get more sophisticated.  He  stressed that Alaska will need tools                                                               
to engage in  that dialogue.  He suggested using  models with the                                                               
same  output  and  assumptions   helps,  as  does  a  continually                                                               
improving understanding of the technical  aspects of the industry                                                               
that the  companies must confront.   Thus  when one hears  that a                                                               
company is not an oil-producing  company, but is a water-handling                                                               
company,  it could  improve the  conversation if  the legislature                                                               
understands  the  terminology.   He  summarized  by stating  that                                                               
better  data,  better  integrated-data,  and  more  sophisticated                                                               
technical-analysis  modeling will  improve the  dialogue and  the                                                               
decision-making.     He  emphasized   the  expertise   needed  is                                                               
internalized expertise rather than external expertise.                                                                          
                                                                                                                                
4:54:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE said  the state is trying to  extend out the                                                               
years that the  state can enjoy revenue from oil.   He asked what                                                               
factors will be the most significant  ones for the state to focus                                                               
on to try to improve oil production.                                                                                            
                                                                                                                                
MR. REINSCH responded  that there are three issues  on the table.                                                               
First, how  does Alaska  extend the asset  life of  its producing                                                               
legacy  fields  and  stem  the  decline  or  reverse  it  through                                                               
aggressive exploitation  of the fields.   The second  issue would                                                               
be explore for and or  commercialize new field developments.  The                                                               
third issue would  be natural gas commercialization.   He focused                                                               
on the first,  and said Alaska needs to address  the decline rate                                                               
and  improve   production.     The  target   for  that   in  many                                                               
jurisdictions  is   to  negotiate   a  decline   and  incentivize                                                               
incremental  production.   He said  it  is not  unusual and  many                                                               
companies deal with this using  a tried and true method; however,                                                               
it is  necessary to incentivize  the incremental production.   At                                                               
the end of  the day it is critical how  a government is perceived                                                               
to have secured a  fair deal for the people of  the state, but it                                                               
is  equally  or  more  important  that the  flow  continue.    He                                                               
emphasized that he  would focus the attention on this  issue.  He                                                               
emphasized the need  for a balance which must be  struck in order                                                               
to make this decision.                                                                                                          
                                                                                                                                
4:57:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE asked whether he  could cite examples by any                                                               
other  countries  where  a  negotiation on  a  decline  rate  and                                                               
incentives to spur production have occurred.                                                                                    
                                                                                                                                
MR.  REINSCH referred  to Shell's  Mukhaizna field,  which was  a                                                               
field  that  produced  15-20,000  barrels per  day.    Occidental                                                               
through  negotiations  on the  decline  rate  agreed to  increase                                                               
production  to  150,000  barrels  per  day  within  a  three-year                                                               
period, which  they did.   He  pointed out a  long list  of these                                                               
types of  projects exist, but  they are project specific  and not                                                               
basin development projects.                                                                                                     
                                                                                                                                
5:00:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FEIGE  asked  whether the  negotiations  for  the                                                               
decline rate were contentious.                                                                                                  
                                                                                                                                
MR. REINSCH responded that the  nice thing about the negotiations                                                               
is the  history, so looking  at the last  three to five  years to                                                               
determine the rate.   The argument by the company  has to be that                                                               
all  capital  they have  been  investing  is commercial  capital.                                                               
Companies  don't   willingly  engage  in  value   destruction  so                                                               
whatever the company has invested  to impact the decline has been                                                               
invested  in  competition  with global  portfolio  opportunities.                                                               
That  process would  provide  the state  with  historic data  and                                                               
evidence.  He  stated that it appears to be  a situation in which                                                               
an avenues exists.   He concluded by stating  that companies will                                                               
know.                                                                                                                           
                                                                                                                                
5:01:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON related  that Alaska's  tax regime  is based  on                                                               
individual  companies.   He  asked  whether  a basin  or  project                                                               
decline rate would be external to the existing tax.                                                                             
                                                                                                                                
MR. REINSCH  answered that the mechanics  would involve isolating                                                               
the fields in question and carving  them out to create a separate                                                               
set  of  arrangements, similar  to  how  the state  currently  is                                                               
incentivizing exploration  activity separate from  other activity                                                               
in the  basin.  He suggested  that a special set  of criteria and                                                               
fiscal terms  for the legacy fields  would need to be  defined in                                                               
this context.   He deferred  to his  colleague to answer  in more                                                               
detail.                                                                                                                         
                                                                                                                                
CO-CHAIR SEATON asked for a  response in writing of any examples,                                                               
which would be helpful to the committee.                                                                                        
                                                                                                                                
5:03:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked  for an opinion on the  bill that is                                                               
before the committee and whether it is an effective tool.                                                                       
                                                                                                                                
MR. REINSCH  deferred to his  colleague.   He did not  think this                                                               
was his area of expertise.                                                                                                      
                                                                                                                                
5:04:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DICK suggested  Mr. Reinsch  has a  sense of  the                                                               
pulse  of  the companies.    He  related his  understanding  that                                                               
currently a window  of opportunity exists.  He  asked whether Mr.                                                               
Reinsch  could estimate  and quantify  the window  of opportunity                                                               
and if it is two to three years.                                                                                                
                                                                                                                                
MR. REINSCH  related that he  has heard  a number of  opinions on                                                               
the  state of  the Trans-Alaska  Pipeline System  (TAPS) and  its                                                               
ability  to  manage  lower  flows.   He  stated  that  he  is  an                                                               
economist  and  is  not  qualified to  assess  which  opinion  is                                                               
correct; however,  he offered his  belief that the window  is the                                                               
length  of time  that reliable  production can  flow through  the                                                               
pipeline and at what volume.  He  viewed the decision as a set of                                                               
developments and not just  one.  He said there is  not any end to                                                               
the dialogue  since the considerations consist  of short, medium,                                                               
and long-range considerations, which will  develop over time.  He                                                               
suggested that  the legislature will  not likely make  a decision                                                               
and see what  happens, that it is more likely  to be incremental.                                                               
Clearly, the  focus needs  to be  on the one  to three  year time                                                               
frame.   He  cautioned against  fixing something  that will  take                                                               
another two to three years to  assess the impact.  He also stated                                                               
that if  the decline  is irreversible, decisions  on the  size of                                                               
government can be made.                                                                                                         
                                                                                                                                
5:08:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN returned to  the point of negotiating the                                                               
decline, and asked how it works.                                                                                                
                                                                                                                                
MR. REINSCH explained how the  decline rate can be projected into                                                               
the future.   He said  that the  negotiation is around  a decline                                                               
rate.  The  historical data is present and can  be projected into                                                               
the future.   That  volume of  production would  be taxed  at one                                                               
rate  while every  barrel  incremental to  the  decline would  be                                                               
taxed differently - in a lighter  manner.  The incentive would be                                                               
to  increase the  production as  far as  possible.   He suggested                                                               
avoiding negotiating  something different in the  future than has                                                               
not historically been  seen since the discussion  can unravel and                                                               
lead  to  reservoir mechanics  and  rock  fluid properties.    He                                                               
predicted that the state is interested in more production.                                                                      
                                                                                                                                
REPRESENTATIVE  PETERSEN stated  that since  there are  different                                                               
companies with different leases  for each field, the negotiations                                                               
will need  to occur  with each  company separately;  however, one                                                               
tax rate  could apply  to all current  production.   Another rate                                                               
could  apply to  production past  a certain  level of  cumulative                                                               
volumes, which  is the  structure and formulation  or the  art of                                                               
putting the policy together.                                                                                                    
                                                                                                                                
MR. REINSCH answered  that the mechanics would apply  the same to                                                               
each company.   The structure and formulation  approach would not                                                               
change.  He  related that different negotiations  would occur for                                                               
new fields  or exploratory areas,  a different  negotiation would                                                               
occur.                                                                                                                          
                                                                                                                                
5:13:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON questioned  whether it is appropriate to                                                               
increase taxes if the decline continues.                                                                                        
                                                                                                                                
MR. REINSCH emphasized it does not  make any economic sense for a                                                               
company  to withhold  capital  that would  create  value for  the                                                               
company.   Therefore to penalize  companies for doing  that would                                                               
not make any sense.  He  said the state wants to incentivize them                                                               
to drive costs  down or change the field  development metrics for                                                               
the incremental barrels  in a way that will attract  capital.  He                                                               
apologized to  keep returning to  this, but this is  how business                                                               
is conducted.   He predicted if a  company is left on  its own to                                                               
decide there will be a pay  set in which production will continue                                                               
given  the current  fiscal system.   He  sensed the  committee is                                                               
reluctant to  give oil  companies more  money and  hope something                                                               
happens.   However, if  the state could  change the  economics to                                                               
change the  commercial comparisons of the  investment activity in                                                               
this activity  versus somewhere else  in the portfolio  it should                                                               
elicit a  response, and if it  doesn't then nothing existed.   He                                                               
suggested  that   this  would   lead  to   a  different   set  of                                                               
conversations.                                                                                                                  
                                                                                                                                
5:15:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRUITT  related his  understanding that  a company                                                               
would not  withhold profit.   He asked  whether there  any reason                                                               
why the three companies on the  North Slope would not produce the                                                               
resource that exists.                                                                                                           
                                                                                                                                
MR. REINSCH  responded that a  more likely scenario would  be the                                                               
company would  decide there was nothing  more for them to  do for                                                               
the legacy fields since the  company did not have the capability,                                                               
management focus,  or technical teams  to bring to  bear relative                                                               
to other opportunities  in its portfolio.  The  logical next step                                                               
would  be to  consider divesting  the  assets.   He said,  "These                                                               
assets have value.  I mean,  there's lots of resource left."  The                                                               
only reason to not to produce  it would be if the company reached                                                               
a decision that it would be  worth much more if it were monetized                                                               
today  or else  a company  thinks  it could  obtain a  reasonable                                                               
share of the  net present value through divestiture.   He pointed                                                               
out  what  is tricky  with  this  particular arrangement  is  the                                                               
unanimity issue and to make  this an interesting acquisition from                                                               
an  enhanced oil  recovery specialist  viewpoint.   He  suggested                                                               
that due  to the infrastructure, it  would be hard to  unwind and                                                               
could become a complicated and  messy situation.  However, he has                                                               
never heard of any company who  was willing to leave value in the                                                               
ground.   At the  end of  the day, companies  must answer  to the                                                               
shareholders and board  of directors.  They  cannot destroy value                                                               
and  capital since  they  have a  fiduciary  responsibility.   He                                                               
concluded that his answer would be no.                                                                                          
                                                                                                                                
CO-CHAIR  SEATON   summarized  this  goes  back   to  an  earlier                                                               
conversation,  which  recognizes  that different  companies  have                                                               
hurdle rates and may make  different decisions, but the companies                                                               
will not destroy  value.  He highlighted that  companies may have                                                               
strategic  reasons for  their  decisions.   He  did  not want  to                                                               
suggest  that  companies  are destroying  value  when  they  make                                                               
economic  decisions.   He  said  the  state  may decide  to  make                                                               
changes  to  the  tax  system  to make  it  more  economical  for                                                               
companies,  which, in  turn, could  affect their  decisions.   He                                                               
concluded by stating  that is what we are all  talking about here                                                               
today.                                                                                                                          
                                                                                                                                
[HB 3001 was held over.]                                                                                                        

Document Name Date/Time Subjects
HRES PFC PResentation 4.21.12.pdf HRES 4/24/2012 1:00:00 PM
HB3001