Legislature(2017 - 2018)ADAMS ROOM 519

04/11/2018 05:00 PM FINANCE

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Audio Topic
05:08:41 PM Start
05:09:58 PM HB411
06:03:13 PM Invited Testimony
08:44:42 PM HB339
08:48:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 411 OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only - 10 min. limit> --
+ Industry Presentation: Rich Ruggerio, In3Energy TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 339 INCREASE BASE STUDENT ALLOCATION TELECONFERENCED
Moved HB 339 Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 11, 2018                                                                                            
                         5:08 p.m.                                                                                              
                                                                                                                                
5:08:41 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 5:08 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Rich   Ruggiero,   Consultant,  In3nergy;   Kara   Moriarty,                                                                    
President/CEO, Alaska Oil and  Gas Association; Dan Seckers,                                                                    
Tax Counsel, ExxonMobil; Representative Andy Josephson.                                                                         
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Carl Giesler,  Glacier Oil and  Gas, Houston;  Scott Jepsen,                                                                    
Vice President, External  Affairs and Transportation, Conoco                                                                    
Phillips,   Anchorage;   Paul    Rusch,   Conoco   Phillips,                                                                    
Anchorage;  Doug Chapados,  President  and  CEO, Petro  Star                                                                    
Inc.; Kate  Blair, Andeavor;  Damien Bilbao,  BP, Anchorage;                                                                    
Lewis Westwick, Vice President of Finance, BP Alaska.                                                                           
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 339    INCREASE BASE STUDENT ALLOCATION                                                                                      
                                                                                                                                
          HB 339  was REPORTED out  of committee with  a "do                                                                    
          pass"  recommendation  and with  three  previously                                                                    
          published fiscal notes; one  zero impact note: FN1                                                                    
          (EED); and two fiscal  impact notes: FN2 (EED) and                                                                    
          FN3 (EED - Fund Cap).                                                                                                 
                                                                                                                                
HB 411    OIL and GAS PRODUCTION TAX;PAYMENTS;CREDITS                                                                           
                                                                                                                                
          HB 411 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
HOUSE BILL NO. 411                                                                                                            
                                                                                                                                
     "An Act relating to the oil and gas production tax,                                                                        
     tax payments, and credits; and providing for an                                                                            
     effective date."                                                                                                           
                                                                                                                                
5:09:58 PM                                                                                                                    
                                                                                                                                
RICH  RUGGIERO,  CONSULTANT,  IN3NERGY, asked  that  members                                                                    
hold  their   questions  to  the  end.   He  introduced  the                                                                    
PowerPoint presentation:  "HB 411, House  Finance Committee,                                                                    
April 11, 2018" (copy on file).                                                                                                 
                                                                                                                                
Mr. Ruggiero began with slide 2, "Testimony Scope":                                                                             
                                                                                                                                
     HB 411                                                                                                                     
                                                                                                                                
          ? High level review                                                                                                   
                                                                                                                                
          ? Concept discussion as opposed to specific bill                                                                      
          language                                                                                                              
                                                                                                                                
          ? Observations and comments                                                                                           
                                                                                                                                
Mr.   Ruggiero   turned   to   slide   3,   "Fiscal   Design                                                                    
Considerations, What are Your Drivers?":                                                                                        
                                                                                                                                
     ? Alaska is very dependent on energy revenues                                                                              
                                                                                                                                
          ? Many other regimes are in a similar position                                                                        
          ? Savings  account balance is low,  budget deficit                                                                    
          high  ?  Nothing  in energy  developments  happens                                                                    
          quickly in Alaska                                                                                                     
                                                                                                                                
    ? Legislative action must balance competing forces                                                                          
                                                                                                                                
          ? How  to keep the lights  on??Without killing the                                                                    
          "Goose that laid the golden eggs"                                                                                     
          ?  Short-term  needs/reactions versus  longer-term                                                                    
          strategic success                                                                                                     
                                                                                                                                
     ? Fiscal design drivers                                                                                                    
                                                                                                                                
          ?  Fill the  pipe    extending  legacy field  life                                                                    
          worth billions                                                                                                        
          ? Encourage new players  competition, new ideas                                                                       
          ? Get our fair share  how? timing?                                                                                    
                                                                                                                                
Mr. Ruggiero advanced to slide 4, "Fiscal Design                                                                                
Considerations, From Fiscal Design 102":                                                                                        
                                                                                                                                
     ? Sometimes the timing of the government take is more                                                                      
     impactful on investment decisions than the size of the                                                                     
     take                                                                                                                       
                                                                                                                                
5:15:55 PM                                                                                                                    
                                                                                                                                
Mr. Ruggiero continued to slide 5, "Fiscal Design                                                                               
Considerations, Fill the Pipe":                                                                                                 
                                                                                                                                
    ? Keeping TAPS flowing should be priority number 1                                                                          
                                                                                                                                
          ? Need to  ensure that short term  needs and their                                                                    
          corresponding    actions    do   not    jeopardize                                                                    
          attainment of the goal                                                                                                
          ? Projects  have long lead  times   thus,  we must                                                                    
          not stall  progress towards  commercialization and                                                                    
          first oil                                                                                                             
                                                                                                                                
Mr.   Ruggiero   moved   to    slide   6,   "Fiscal   Design                                                                    
Considerations, Making LNG Happen":                                                                                             
                                                                                                                                
     ? For Alaska LNG to become a reality, it will require                                                                      
     a high degree of fiscal certainty                                                                                          
                                                                                                                                
          ? Current  AGDC timing appears to  target 2019 for                                                                    
          signing detailed commitment level agreements                                                                          
          ? Entities  willing to invest over  $40Bn will, in                                                                    
          order to  make it  a reality,  demand a  number of                                                                    
          conditions precedent    and  one or more  of those                                                                    
          will be  related to  Alaska fiscal  structures for                                                                    
          both upstream and midstream assets                                                                                    
          ? The  state's track  record for  petroleum fiscal                                                                    
          changes will shape investor  opinions on what they                                                                    
          likely  will require,  i.e. fairly  high level  of                                                                    
          certainty or some form of fiscal stabilization                                                                        
                                                                                                                                
     ? Are the contemplated changes in HB411 in line with                                                                       
     the long term strategic goals of filling TAPS and                                                                          
     making Alaska LNG a reality?                                                                                               
                                                                                                                                
5:20:37 PM                                                                                                                    
                                                                                                                                
Mr.   Ruggiero    discussed   slide   7,    "Fiscal   Design                                                                    
Considerations, Change is the Only Constant":                                                                                   
                                                                                                                                
     ? Alaska always has and always will be competing for                                                                       
     investment capital                                                                                                         
                                                                                                                                
          ? Versus the Lower 48/unconventional                                                                                  
          ? Versus the rest of the world                                                                                        
          ? You have good "Rocks"  but also a very high cost                                                                    
          structure                                                                                                             
                                                                                                                                
     ? One of the best 'windows' into the thinking of an                                                                        
     oil company are its analyst presentations, for                                                                             
     example:                                                                                                                   
                                                                                                                                
          ?   Not  too   many  years   ago  Alaska   figured                                                                    
          prominently in  analyst presentations for  all the                                                                    
          legacy players; BP, CP and XOM                                                                                        
                                                                                                                                
          ? In 2018 analyst and investor presentations:                                                                         
                                                                                                                                
               ? COP AK still figures prominently                                                                               
               ? BP and XOM brief references, not listed as                                                                     
               growth area                                                                                                      
               ? All 3 have an LNG segment focus                                                                                
                                                                                                                                
     ? How do you encourage a refocus on Alaska                                                                                 
     developments?                                                                                                              
                                                                                                                                
Mr. Ruggiero spoke to Alaska's complexity in terms of doing                                                                     
business on slide 8, "Fiscal Design Considerations, Time                                                                        
for Change":                                                                                                                    
                                                                                                                                
     ? Alaska has a very complex fiscal system                                                                                  
                                                                                                                                
          ? Hard to administer                                                                                                  
          ? Costly to administer                                                                                                
                                                                                                                                
     ?  Contrary to  other  opinions  expressed regarding  a                                                                    
     roughly  2 year  timeframe to  address Alaska's  fiscal                                                                    
     system                                                                                                                     
                                                                                                                                
          ? It need not take more than a few months to put                                                                      
          together a comprehensive new plan to present to                                                                       
          the legislature                                                                                                       
                                                                                                                                
               ? Get the right people in the room, give                                                                         
               them a (realistic) deadline, expect results                                                                      
                                                                                                                                
          ? You already know generally where you stand                                                                          
          competitively                                                                                                         
                                                                                                                                
               ? Any number of consultants or committees                                                                        
               have   put   those   reviews   together   and                                                                    
               presented them to you                                                                                            
               ? Creating a new fiscal structure is more a                                                                      
               subjective   exercise   than   an   objective                                                                    
               exercise                                                                                                         
                                                                                                                                
     ? "Fixing" pieces is how the  system got to where it is                                                                    
     now                                                                                                                        
                                                                                                                                
5:26:12 PM                                                                                                                    
                                                                                                                                
Mr. Ruggiero scrolled to slide 9, "Fiscal Design                                                                                
Considerations, Costs Change with Oil Price"                                                                                    
                                                                                                                                
      ? As  oil prices go up  and down, overall costs  go up                                                                    
     and down as well                                                                                                           
                                                                                                                                
     ?  One  major  misleading  aspect of  many  reviews  of                                                                    
     proposed  tax  changes  is   the  failure  to  properly                                                                    
     account  for those  cost changes  providing unrealistic                                                                    
     comparisons  at  much  higher   or  lower  prices  than                                                                    
     current:                                                                                                                   
                                                                                                                                
     ? Past costs (from DOR prior presentation) exemplify                                                                       
     this concept                                                                                                               
                                                                                                                                
Mr.  Ruggiero   explained  slide   10,  "Costs   Held  Flat,                                                                    
Correcting for  the Real World."  He stated that  the yellow                                                                    
line was the  current status quo, and the blue  line was the                                                                    
suggested changes in  the bill. He noted that  the shapes of                                                                    
the  curves  were  similar  to the  curves  from  the  night                                                                    
before. He  noted that  the curves  from the  previous night                                                                    
had a  cut from 40 to  120. He noted that  the current slide                                                                    
went down to 20  and up to 200 to show  the effect. He noted                                                                    
that the green bars represented  either the gain or the loss                                                                    
between the two  curves. He stated that when  the green bars                                                                    
were above the zero line, the  blue [HB 411] was higher than                                                                    
the  status quo.  He stated  that the  crossover was  around                                                                    
$140 per barrel, keeping the cost constant.                                                                                     
                                                                                                                                
Mr.  Ruggiero  moved to  slide  11,  "Costs Proportional  to                                                                    
Price, Correcting  for the  Real World."  He noted  that the                                                                    
crossover point  occurred around $125 per  barrel. He stated                                                                    
that  above  $125 HB  411  fell  below  the status  quo.  He                                                                    
stressed that it  was because HB 411 was tied  to the profit                                                                    
per barrel (PPB),  whereas the barrel credits  in the status                                                                    
quo were tied to the  price irrespective of the profit level                                                                    
or taxable income at that point in time.                                                                                        
                                                                                                                                
5:30:23 PM                                                                                                                    
                                                                                                                                
Mr. Ruggiero continued to slide  12, "HB 411, Our High Level                                                                    
Views":                                                                                                                         
                                                                                                                                
     ? Alaska State Perspective                                                                                                 
                                                                                                                                
          ? Closes the gap on the 2/3 1/3 share split                                                                           
          target                                                                                                                
          ? Reduces competitiveness                                                                                             
          ? Provides near term tax revenue                                                                                      
                                                                                                                                
     ? Legacy Players Perspective                                                                                               
                                                                                                                                
          ? It's a tax increase                                                                                                 
          ? State will pay a larger share of future                                                                             
          investments                                                                                                           
          ? New administrative nightmare                                                                                        
                                                                                                                                
     ? New Players Perspective                                                                                                  
                                                                                                                                
          ? Raises the hurdle  (likely a 16+ percent royalty                                                                    
          and a 25 percent petroleum  tax) for being able to                                                                    
          generate investment level economics                                                                                   
          ?  Another change  that could  spook investors  as                                                                    
          very  few  companies  have the  balance  sheet  to                                                                    
          carry a project on their own                                                                                          
                                                                                                                                
Mr. Ruggiero advanced  to slide 13, "HB 411,  Our High Level                                                                    
Recommendations":                                                                                                               
                                                                                                                                
     ? Overall thoughts                                                                                                         
                                                                                                                                
          ? Focus  on what is  necessary to bring on  new NS                                                                    
          developments                                                                                                          
          ? Make the low lower?. 10 percent base                                                                                
          ? ?.and the highs higher (i.e. more steps)                                                                            
          ? "Windfall"  and high tax  rates will  only occur                                                                    
          with short duration price spikes                                                                                      
          ?   Since   costs   rise  with   sustained   price                                                                    
          increases, this  lowers anticipated  PTV/bbl which                                                                    
          pushes a 'windfall' to an ever higher price point                                                                     
          ? With LNG  coming soon, the time  to put together                                                                    
          a comprehensive  new fiscal system is  before next                                                                    
          January                                                                                                               
                                                                                                                                
5:35:03 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara that there may  be an increase, but remarked                                                                    
that  the original  was not  necessarily  fair. He  remarked                                                                    
that the  gross value reduction (GVR)  fields paid basically                                                                    
no production  tax for seven  years. The legacy  fields paid                                                                    
the minimum gross  tax up to $60 per  barrel. Therefore, any                                                                    
change would  increase those rates. He  wondered whether the                                                                    
current  rates were  fair to  the  people of  the state  and                                                                    
served all  interests well, when considering  the public and                                                                    
the desire for long-term revenue and investment.                                                                                
                                                                                                                                
Mr.  Ruggiero replied  that the  legislature must  determine                                                                    
fairness. He stressed that  his recommendations were focused                                                                    
on  the impact  of  the  major projects  that  needed to  be                                                                    
brought  on. He  remarked  that there  should  be a  balance                                                                    
about fairness and stifling other production.                                                                                   
                                                                                                                                
Vice-Chair Gara  remarked that a  number of  consultants had                                                                    
asserted  that   the  two  most  unstable   tax  regimes  in                                                                    
democracies were too high and too low.                                                                                          
                                                                                                                                
Mr.  Ruggiero  agreed. He  remarked  that  there must  be  a                                                                    
balance to please both the companies and the government.                                                                        
                                                                                                                                
5:38:49 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  remarked  that  there  would  be                                                                    
supposed encouraging of development  and production. He felt                                                                    
that there  were different levels  and needs, so  he queried                                                                    
the efforts to balance. He  remarked that the ability of the                                                                    
state  to  see the  results  of  changes was  difficult.  He                                                                    
queried a comprehensive  possible to put people  at ease and                                                                    
trust that would yield results.                                                                                                 
                                                                                                                                
Mr. Ruggiero replied that there  was an initial focus on the                                                                    
expected  projects and  developers.  He  stressed that  some                                                                    
countries would only target the  "super majors." He remarked                                                                    
that  countries had  small independents  and large  offshore                                                                    
operations. He shared that Alaska  had a limited possibility                                                                    
for  a subset  of players.  He stressed  that the  system in                                                                    
Alaska was  designing for companies of  substantial size. He                                                                    
remarked that those  companies would be listed  in the stock                                                                    
exchange, and  understand the  requirements and  pressure in                                                                    
those companies. He stated that  the types of companies help                                                                    
to  influence the  determination  of the  types of  projects                                                                    
that may develop on the North Slope.                                                                                            
                                                                                                                                
5:43:32 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg remarked  that the  credits would                                                                    
transfer  to people  who were  interested in  a segment.  He                                                                    
queried a way to only encourage exploration by itself.                                                                          
                                                                                                                                
Mr. Ruggiero responded  that the credits that  were in place                                                                    
in  2007 and  2008, which  had lead  to the  credits on  the                                                                    
balance on the  pay. He noted that there  were a significant                                                                    
number  of wells  drilled, and  a quantity  of seismic  with                                                                    
potential discoveries.  He understood  that the  state would                                                                    
not continue to pay those  credits, but that was the process                                                                    
that encouraged  exploration. He noted that  there should be                                                                    
a similar  approach with  transferability to  other players.                                                                    
He stressed  that some were  known as explorers,  who prefer                                                                    
not to  develop. He stated  that others were  harvesters. He                                                                    
remarked  that there  were  different  roles with  different                                                                    
players.                                                                                                                        
                                                                                                                                
Representative Grenn asked if he  was aware of anyone in the                                                                    
lower 48 contemplating a tax restructure like Alaska.                                                                           
                                                                                                                                
Mr. Ruggiero  was not aware  of anyone  in the lower  48 who                                                                    
had a tax restructure like Alaska.                                                                                              
                                                                                                                                
Representative Grenn  thought Mr. Ruggiero was  aware of the                                                                    
potential growth in  Alaska. He asked what  Mr. Ruggiero was                                                                    
hearing about in his circle.                                                                                                    
                                                                                                                                
Mr. Ruggiero could  speak firsthand to his  question. He had                                                                    
had  the opportunity  to talk  to private  equity investors.                                                                    
Almost every  one of  them he  had talked  to was  that they                                                                    
would have to  have much more certainty  before investing in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Co-Chair  Seaton noted  that  on  slide 8,  and  asked if  a                                                                    
portion of  the number was  a sliding scale. He  wondered if                                                                    
he would recommend a sliding scale.                                                                                             
                                                                                                                                
Mr.  Ruggiero would  not suggest  tying a  sliding scale  to                                                                    
price, because he would tie it to profit.                                                                                       
                                                                                                                                
Co-Chair Seaton  wondered whether  the tax structure  in the                                                                    
bill was self-correcting for cost  structure, because it was                                                                    
based on  a percentage of  production tax value by  field or                                                                    
company and their tax structure.                                                                                                
                                                                                                                                
Mr. Ruggiero responded in the affirmative.                                                                                      
                                                                                                                                
5:50:10 PM                                                                                                                    
                                                                                                                                
Representative Pruitt looked at page  4, and remarked on the                                                                    
examples of  what might  turn a doable  project into  a "no-                                                                    
go", because  of a lower  internal rate of return  (IRR). He                                                                    
noted  that  the  presentation from  Department  of  Revenue                                                                    
(DOR)  used a  hypothetical example  of a  new field  of 750                                                                    
million  barrels, with  approximately 120  barrels a  day of                                                                    
peak  production.  He remarked  that  there  was already  an                                                                    
active  similar  field.  He stated  that  the  example  gave                                                                    
several  prices of  oil, and  the IRR  in that  scenario. He                                                                    
stated that  changing to  the new system  would result  in a                                                                    
7.4 percent IRR. He wondered who  had the ability to play in                                                                    
a scenario where  there may be an IRR of  a 6 percent, which                                                                    
would  be considered  a "no  go." He  queried the  companies                                                                    
that would  invest in fields  that could potentially  be 750                                                                    
million barrels at 120 barrels per day.                                                                                         
                                                                                                                                
Mr. Ruggiero replied  that switching between the  IRR of 7.4                                                                    
percent and 7.9 percent was  not a small change. He stressed                                                                    
that  thirty to  forty year  projects could  show a  loss of                                                                    
hundreds of millions or billions  of dollars that would make                                                                    
up  that  0.5  percent  IRR  difference.  He  remarked  that                                                                    
revenues in the future were  discounted coming back to a net                                                                    
present value,  so it took  a lot  in year thirty  to impact                                                                    
the numbers in  the present day. He stated  that there would                                                                    
be no investors  at the presented level of  return. He noted                                                                    
that  there  may  be  added   value  in  consideration  when                                                                    
determining  investment. He  stated that  some companies  my                                                                    
want to  keep Trans-Alaska  Pipeline System (TAPS)  open for                                                                    
added  three to  four  years. He  stressed  that there  were                                                                    
several different considerations for companies.                                                                                 
                                                                                                                                
5:51:40 PM                                                                                                                    
                                                                                                                                
Representative Wilson wondered what  would occur that if the                                                                    
legislature passed a bill to  "take care of the credit." She                                                                    
asked specifically about trust.                                                                                                 
                                                                                                                                
Mr. Ruggiero  responded there  would be  many considerations                                                                    
and questions  to determine whether  it would  happen again.                                                                    
He stressed  that there would  be care before  investing the                                                                    
billions of dollars to develop new North Slope fields.                                                                          
                                                                                                                                
Representative  Wilson   asked  about  attempting   to  make                                                                    
changes and how it would reflect on a project.                                                                                  
                                                                                                                                
Mr.  Ruggiero replied  that one  of the  countries that  had                                                                    
changed their  fiscal system more  than most was  the United                                                                    
Kingdom, yet they were deemed  one of the most stable places                                                                    
to do work.  He stressed that the United  Kingdom changed to                                                                    
higher taxes when profits increased,  and removed the higher                                                                    
taxes  and go  to  lower taxes  when  profits decreased.  He                                                                    
asserted that an  investor would not whether  the changes in                                                                    
the  state of  Alaska were  in the  right direction  for the                                                                    
time period.                                                                                                                    
                                                                                                                                
Representative  Wilson  spoke  about a  level  people  would                                                                    
invest in.  She wondered if  he had been speaking  about the                                                                    
current  structure  or  the proposed  structure.  She  asked                                                                    
about the impact of the proposed bill.                                                                                          
                                                                                                                                
Mr. Ruggiero responded that his  answer was more generically                                                                    
about an IRR and the  impact on investment. He stressed that                                                                    
it was irrespective of fiscal system.                                                                                           
                                                                                                                                
5:58:57 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  how  long a  project could  be                                                                    
delayed if the numbers were wrong.                                                                                              
                                                                                                                                
Mr.  Ruggiero answered  that there  were  many factors  that                                                                    
impacted investment.                                                                                                            
                                                                                                                                
Representative Wilson referred to  his example of the United                                                                    
Kingdom. She asked if the oil was similar to Alaska.                                                                            
                                                                                                                                
Mr. Ruggiero replied that he  had been stationed in the U.K.                                                                    
for six years.                                                                                                                  
                                                                                                                                
6:02:10 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
6:02:30 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
^INVITED TESTIMONY                                                                                                            
                                                                                                                                
6:03:13 PM                                                                                                                    
                                                                                                                                
KARA   MORIARTY,   PRESIDENT/CEO,   ALASKA   OIL   AND   GAS                                                                    
ASSOCIATION,   read  from   a   prepared  statement,   "AOGA                                                                    
Testimony HB 411    House Finance Committee  April 11, 2018"                                                                    
(copy on file):                                                                                                                 
                                                                                                                                
     First, rhetoric. I  hear time and time  again, that the                                                                    
     oil  companies  asked  for and  supported  all  of  the                                                                    
     changes since 2005. The reality  is, that is simply not                                                                    
     true. As  you can see, we  have opposed all but  two of                                                                    
     the   previous   changes.   No   other   industry   has                                                                    
     experienced  as many  changes to  its fiscal  structure                                                                    
     than  Alaska's oil  and gas  industry, even  though our                                                                    
     industry  still   accounts  for   77  percent   of  the                                                                    
     unrestricted  revenue.    In  fact,  petroleum  revenue                                                                    
     doubled from  FY 17 to  FY 18. Other industries  do not                                                                    
     even contribute  enough to the state  treasury to cover                                                                    
     the costs  to regulate  them. The  constant bombardment                                                                    
     of  proposed tax  increases we  see  introduced by  the                                                                    
     House, does  instill uncertainty among  already nervous                                                                    
     investors.   Yes,  just   discussing  taxes   makes  us                                                                    
     nervous.  Look at  what happened  to  the stock  market                                                                    
     when  the   federal  tax  bill  was   being  discussed.                                                                    
     Investors react to talk, not just action.                                                                                  
                                                                                                                                
      Another  thing we  hear is  about  how new  production                                                                    
     won't  pay  taxes  for  7  years.  Let's  put  that  in                                                                    
     context.  First, the  lack of  payment illustrates  how                                                                    
     long  it  takes   to  start  making  money   on  a  new                                                                    
     development.  And,  as  the  Administration  said  last                                                                    
     night, this  provision in  the tax  law was  a specific                                                                    
     policy  measure built  to  encourage  new companies  to                                                                    
     Alaska.   It  basically only  applies to  new companies                                                                    
     with new production. So what  portion of this provision                                                                    
     applies  to  current   production?  Roughly  about  7-8                                                                    
     percent. The  way some are  talking it would  appear to                                                                    
     the  public  that  all new  production  would  not  pay                                                                    
     production tax.  Not true.  And even  if it  were true,                                                                    
     that new production would  be paying royalty, corporate                                                                    
     income tax, and property  tax, not to mention providing                                                                    
     jobs  and  economic  benefit  to Alaska.    HB  411  is                                                                    
     designed  to collect  more revenue  for  Alaska. It  is                                                                    
     clearly  not designed  to attract  more investment  and                                                                    
     production  to the  state, which  is  a shame,  because                                                                    
     Alaska  continues  to  fall  behind  the  rest  of  the                                                                    
     country   in  terms   of  investment   and  production.                                                                    
     According   to  this   chart,  you   can  see   capital                                                                    
     investment for the last decade  for Alaska and the rest                                                                    
     of the US, as it  corresponded to oil price. The bottom                                                                    
     line  is what  Alaskans should  care about:  This year,                                                                    
     2018, energy  companies plan to invest  $120 billion in                                                                    
     capital  projects  in  the United  States  alone.  What                                                                    
     portion is coming to Alaska?  Less than 2 percent.  Why                                                                    
     would  that be?  We have  the "rocks"    in  fact, one-                                                                    
     third of the  nation's reserves are here  in Alaska. We                                                                    
     have a well-trained work force,  and according to some,                                                                    
     one of the  lowest tax rates in the  country at current                                                                    
     prices.?   And at  the beginning  of this  session, the                                                                    
     legislature's    consultant,   in3energy,    shared   a                                                                    
     presentation  outlining that  at  $60  oil, an  Alaskan                                                                    
     producer's  net is  $12/barrel  for  legacy fields  and                                                                    
     $1.50/barrel  for  new   fields.  Meanwhile,  companies                                                                    
     operating  in West  Texas  net  $31/barrel  Texas  many                                                                    
     have a  higher minimum production tax  at these prices,                                                                    
     but even  with a higher  tax rate, due to  Texas's cost                                                                    
     structure and overall fiscal  policy, oil companies can                                                                    
     earn a lot more per barrel.  And at the end of the day,                                                                    
     companies  invest where  they can  make money.  Perhaps                                                                    
     that's  why  business  is  booming   in  Texas.    With                                                                    
     investment dismal compared to  the rest of the country,                                                                    
     and companies  being able  to net  three times  or more                                                                    
     compared  with their  investments elsewhere,  it should                                                                    
     be no secret  that even though we  had slight increases                                                                    
     in  Alaska production  the past  two years,  Alaska has                                                                    
     recently slipped to 5th in  the nation.  When I started                                                                    
     working at AOGA 13 years ago, we were 2nd.                                                                                 
                                                                                                                                
     Speaking  of   production  tax  rates,  Rep.   Gara  is                                                                    
     correct. At these lower prices  in 2016, we do have one                                                                    
     of the lowest production  tax rates. Our current system                                                                    
     is  designed   that  way  because  of   the  high  cost                                                                    
     environment.  But  if you  look  at  our tax  structure                                                                    
     holistically, and not  in a vacuum looking  only at one                                                                    
     component, you  will see that according  to this recent                                                                    
     report,  our effective  tax rate,  at lower  prices, is                                                                    
     one of the  highest in the nation.  HB  411 makes three                                                                    
     significant changes that  completely alters the current                                                                    
     tax  structure:   it  would  lower  the   current  base                                                                    
     production  tax  rate  from   35  percent  down  to  25                                                                    
     percent,  eliminate the  sliding-scale  per barrel  tax                                                                    
     credits on  legacy production and eliminate  the $5 per                                                                    
     barrel tax  credits on new  production. The  bill would                                                                    
     also  create three  compounding  levels of  progressive                                                                    
     higher  tax brackets,  beginning when  the "production"                                                                    
     taxable  value exceeds  $40  per barrel.  Additionally,                                                                    
     the  structure  of  AS  43.55.011(g)  as  it  reads  in                                                                    
     Section  2 of  the bill  looks to  us like  a means  to                                                                    
     establish a framework for more  extreme versions in the                                                                    
     new progressivity  tax in the future.    To us,  HB 411                                                                    
     is merely  an attempt  to roll back  the voter-ratified                                                                    
     reforms under  "SB 21"  in 2013, in  favor of  the "bad                                                                    
     old days" of  progressivity.   I think  it is important                                                                    
     for  the  committee  to  recognize   that  due  to  the                                                                    
     complexity  in  how  the  bill   was  written  and  the                                                                    
     effective dates  of these  new progressivity  rates, it                                                                    
     is conceivable  that the  "progressive" rates  could be                                                                    
     amended  to have  different  rates  for production  tax                                                                    
     values  above the  respective thresholds,  or different                                                                    
     thresholds for the period before  2022 and the one that                                                                    
     follows. In  regards to the sliding-scale  tax credits,                                                                    
     your    own    legislative    consultants    and    the                                                                    
     Administration  warned  against lowering  or  repealing                                                                    
     the sliding-scale  tax credits as those  "credits" were                                                                    
     essential   to    keeping   Alaska's    fiscal   regime                                                                    
     competitive.        On  July   17,  2015,   legislative                                                                    
     consultants,  Enalytica,   described  the   per  barrel                                                                    
     credit  as a  "misnomer."  They testified  that -  "The                                                                    
     credit  against  the production  tax  is  not really  a                                                                    
     credit; it has an  explicit tax-rate-setting goal."  On                                                                    
     that same  day, the  DOR Tax Director  acknowledged the                                                                    
     importance  of   the  sliding-scale  tax   credits  for                                                                    
     keeping  Alaska's overall  production tax  competitive.                                                                    
     He  said: "With  SB 21  the (per-barrel)  credit is  an                                                                    
     offset  to  the  tax  and   is  designed  to  create  a                                                                    
     progressive  element, a  little bit  lower tax  rate at                                                                    
     lower  prices,  a higher tax rate at  higher prices, so                                                                    
     it's  hard to  really  consider them  a  credit in  the                                                                    
     context  of  an inducement to doing work.   It's really                                                                    
   what we are calling an integral part of the system."                                                                         
                                                                                                                                
     About  two years  later,  Legislative consultant  Roger                                                                    
     Marks said  that the sliding-scale tax  credits were an                                                                    
     "important feature" of the current  tax structure as an                                                                    
     "adjustment  of  effective  tax  rate  to  offset  high                                                                    
     royalty at low prices.    Adopting House Bill 411's new                                                                    
     tax rate, turning the  "progressivity" section back on,                                                                    
     and removing  the sliding-scale per barrel  tax credits                                                                    
     would in effect  revert the current tax  structure to a                                                                    
     modified ACES type  of tax structure    a tax structure                                                                    
     which  would   raise  industry  taxes   by  significant                                                                    
     amounts at low prices much  as ACES did at high prices.                                                                    
     Constant  discussions and  changes to  tax policy  does                                                                    
     not impart confidence  that Alaska is a  good place for                                                                    
     oil  and  gas investment.  Instead,  HB  411 is  simply                                                                    
     another  attempt to  take more  from  the one  industry                                                                    
     that pays more than its way  in Alaska. HB 411 will not                                                                    
     increase  production.  It  does not  simplify  the  tax                                                                    
     structure.  It  will  not  incentivize  investment.  In                                                                    
     closing, what  is most troubling  and concerning  to my                                                                    
     member  companies  is  the   constant  barrage  of  tax                                                                    
     increase  proposals  we  have seen  introduced  in  the                                                                    
     House  this   legislative  session,  even   though  the                                                                    
     Speaker of the House  when  speaking on January 4, 2018                                                                    
     about broad based taxes and  the potential for industry                                                                    
     taxes, he said,  "I don't see that  (industry taxes) on                                                                    
     the table."  But here we  are, on  the 86th day  of the                                                                    
     Session with  a bill  that would  triple our  taxes. HB                                                                    
     411  is  before  us   despite  your  leader's  comment,                                                                    
     despite  the Administration  not supporting  this bill,                                                                    
     despite  the Administration  not supporting  changes to                                                                    
     the oil  tax system at  this time, and despite  all the                                                                    
     statements that the Working Group  was to be the entity                                                                    
     to vet and consider changes  to policy. It surprises me                                                                    
     that  the Finance  Committee did  not  take this  draft                                                                    
     bill  to the  co-chairs of  the Working  Group and  ask                                                                    
     them and the legislature's  consultants to consider the                                                                    
     impacts  of this  bill and  all  the others  introduced                                                                    
     this session.   We  have not seen  this type  of impact                                                                    
     since ACES, which  on a scale of  1 to 10 for  us was a                                                                    
     10,  which puts  this bill  at least  a 9.5.  My member                                                                    
     companies  respectfully ask,  when will  it be  enough?                                                                    
     When will the constant discussions  end?  Thank you for                                                                    
     the  opportunity to  testify and  I'm happy  to address                                                                    
     any questions.                                                                                                             
                                                                                                                                
6:05:21 PM                                                                                                                    
                                                                                                                                
Ms.  Moriarty discussed  the presentation,  "Alaska Oil  and                                                                    
Gas Association, HB 411 -  Oil and Gas Production Tax" (copy                                                                    
on  file).  She began  with  slide  5,  "FY 19  North  Slope                                                                    
Production."                                                                                                                    
                                                                                                                                
Ms. Moriarty looked at slide 6, "Alaska Needs Investment":                                                                      
                                                                                                                                
     Today, Alaska  is only capturing  1.7 percent  of total                                                                    
    U.S. investment, or around $1.9 billion in capital.                                                                         
                                                                                                                                
     Recent  history  shows  Alaska   needs  at  least  $3.6                                                                    
     billion of investment capital to grow production.                                                                          
                                                                                                                                
     How  does Alaska  compete  for  the investment  capital                                                                    
     necessary to grow production beyond 2018?                                                                                  
                                                                                                                                
Ms. Moriarty turned to slide 8, "Alaska is Falling Behind":                                                                     
                                                                                                                                
     Texas: 3.89 million                                                                                                        
     North Dakota: 1.15 million                                                                                                 
     New Mexico: 540,000                                                                                                        
     Oklahoma: 528,000                                                                                                          
     Alaska: 508,000                                                                                                            
                                                                                                                                
    Alaska now ranks 5th among U.S oil producing states                                                                         
                                                                                                                                
Ms. Moriarty discussed slide 9, "Fact: Alaska's tax rate                                                                        
exceeds U.S. average":                                                                                                          
                                                                                                                                
     Investment decisions are based on all tax rates.                                                                           
                                                                                                                                
6:10:14 PM                                                                                                                    
                                                                                                                                
Ms. Moriarty turned to slide 10, "HB 411 Major Policy                                                                           
Changes":                                                                                                                       
                                                                                                                                
     ?Changes base rate from 35 percent to 25 percent                                                                           
                                                                                                                                
     ?Eliminates sliding scale per-barrel credit                                                                                
                                                                                                                                
     ?Eliminates   $5  per   barrel  tax   credits  on   new                                                                    
     production                                                                                                                 
                                                                                                                                
     ? Creates  3 compounding  levels of  progressivity when                                                                    
     taxable value exceeds $40/barrel                                                                                           
                                                                                                                                
     All changes  combined triple production tax  at current                                                                    
     prices                                                                                                                     
                                                                                                                                
Ms. Moriarty continued to slide 11, "Per Barrel Credits                                                                         
'Integral'":                                                                                                                    
                                                                                                                                
      "The credit  against the production tax  is not really                                                                    
     a credit; it has an explicit tax-rate-setting goal."                                                                       
     -Enalytica, Legislative Consultant June 17, 2015                                                                           
                                                                                                                                
     "With SB  21 the  (per barrel) credit  is an  offset to                                                                    
     the  tax  and  is  designed  to  create  a  progressive                                                                    
     element, a little  bit lower tax rate  at lower prices,                                                                    
     a higher  tax rate  at higher prices,  so it's  hard to                                                                    
     really  consider them  a credit  in the  context of  an                                                                    
     inducement  to doing  work.   It's really  what we  are                                                                    
     calling an integral part of the system."                                                                                   
     -DOR Tax Division Director June 17, 2015                                                                                   
                                                                                                                                
     "(per barrel credit) is an  adjustment of effective tax                                                                    
     rate to offset high royalty at low prices.                                                                                 
   -Roger Marks, Legislative Consultant, April 15, 2017                                                                         
                                                                                                                                
Ms. Moriarty turned to slide 12, "Speaker Edgmon on                                                                             
Industry Taxes":                                                                                                                
                                                                                                                                
     Speaking  about  broad-based   and  the  potential  for                                                                    
     industry taxes:  "I don't see that  (industry taxes) on                                                                    
     the table."                                                                                                                
                                                                                                                                
          -Speaker of the House Bryce Edgmon Resource                                                                           
          Development Council Breakfast Forum January 4,                                                                        
          2018                                                                                                                  
                                                                                                                                
                                                                                                                                
Ms. Moriarty turned to slide  13, "The Walker Administration                                                                    
Opposes HB 411":                                                                                                                
                                                                                                                                
     "The  Administration does  not  support  this bill  (HB                                                                    
     411) and we do not  support changing the oil tax system                                                                    
     at  this  time."  -Commissioner  Sheldon  Fisher  House                                                                    
     Finance Committee April 10, 2018                                                                                           
                                                                                                                                
6:14:56 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara   stressed  that   Representative  Edgmon's                                                                    
comments were general,  and not intended to  address the oil                                                                    
industry.                                                                                                                       
                                                                                                                                
Ms. Moriarty  stated that  the comments  from Representative                                                                    
Edgmon included all  of industry, and she felt  that the oil                                                                    
and gas industry was part of all industry.                                                                                      
                                                                                                                                
Vice-Chair Gara  felt that there was  some wrong information                                                                    
in the presentation.                                                                                                            
                                                                                                                                
Ms.  Moriarty replied  that the  information  came from  the                                                                    
legislature's oil consultant's presentation.                                                                                    
                                                                                                                                
Vice-Chair Gara asked Ms. Moriarty  to return to slide 9. He                                                                    
asked about the  chart on the right. He relayed  that a much                                                                    
larger royalty to the private sector.                                                                                           
                                                                                                                                
Ms. Moriarty agreed to provide that information.                                                                                
                                                                                                                                
Vice-Chair Gara felt the chart would be vastly different.                                                                       
                                                                                                                                
Ms. Moriarty would provide the chart.                                                                                           
                                                                                                                                
Vice-Chair Gara  stated that it  was his  job to be  fair to                                                                    
Alaskans but not necessarily her job.                                                                                           
                                                                                                                                
Ms. Moriarty took  exception with her job not  being fair to                                                                    
Alaskans.  The question  was whether  the legislature  would                                                                    
provide  an incentive  to  new producers  to  invest in  the                                                                    
state.                                                                                                                          
                                                                                                                                
Vice-Chair Gara  did not think  anyone wanted to  have their                                                                    
words twisted. He asked her if it was fair to Alaska.                                                                           
                                                                                                                                
Ms.  Moriarty suggested  that was  the legislature's  policy                                                                    
call.                                                                                                                           
                                                                                                                                
Representative Grenn  asked Ms.  Moriarty if  her membership                                                                    
looked at  the tax changes  - he  asked for an  adjective to                                                                    
describe the feeling of members.                                                                                                
                                                                                                                                
Ms. Moriarty responded, "schizophrenic and exhausting."                                                                         
                                                                                                                                
Representative Grenn asked about the chart on slide 6.                                                                          
                                                                                                                                
Ms. Moriarty  pointed to the  bottom line on the  graph, and                                                                    
asserted  that  if the  state  were  to  get back  to  those                                                                    
prices, the state had to figure out how to compete.                                                                             
                                                                                                                                
6:25:08 PM                                                                                                                    
                                                                                                                                
Representative Grenn thought it was  difficult to see on the                                                                    
graph,  but felt  that it  appeared that  the state  was the                                                                    
lowest in the graph that it had been.                                                                                           
                                                                                                                                
Representative Wilson  thought profit was a  good thing. She                                                                    
asked how companies viewed a profit.                                                                                            
                                                                                                                                
Ms. Moriarty  responded that  different companies  looked at                                                                    
the meaning differently for different companies.                                                                                
                                                                                                                                
Representative Pruitt asked when she was aware of the bill.                                                                     
                                                                                                                                
Ms. Moriarty  stated she had  heard rumor but was  not aware                                                                    
of it until it was read across the floor.                                                                                       
                                                                                                                                
Representative Pruitt  asked if she had  been notified prior                                                                    
to the bill being read across the floor for feedback.                                                                           
                                                                                                                                
Ms. Moriarty responded in the negative.                                                                                         
                                                                                                                                
Vice-Chair Gara referred to page  3, and felt that there had                                                                    
been no tax increases since  2008. He wondered whether SB 21                                                                    
was seen as a tax increase or decrease.                                                                                         
                                                                                                                                
Ms. Moriarty responded that SB  21 did both: increased taxes                                                                    
at low oil price and decreased at high oil price.                                                                               
                                                                                                                                
Representative Grenn  noted that Ms. Moriarty  had mentioned                                                                    
the working  group. He asked  that if it would  have changed                                                                    
the climate  if the  group had  met regarding  HB 411  or HB                                                                    
399.                                                                                                                            
                                                                                                                                
Ms. Moriarty responded that the  point of having the working                                                                    
group when legislators offered a  bill without running it by                                                                    
the working group.                                                                                                              
                                                                                                                                
Co-Chair   Foster   indicated   there   were   6   remaining                                                                    
testifiers.                                                                                                                     
                                                                                                                                
6:32:43 PM                                                                                                                    
                                                                                                                                
CARL   GIESLER,   GLACIER   OIL  AND   GAS,   HOUSTON   (via                                                                    
teleconference),  stated that  even  the  discussion of  the                                                                    
bill created  instability. He remarked that  his company was                                                                    
a  small operation  in  Alaska. He  stressed  that the  bill                                                                    
would almost  triple the tax  burden to almost  $800 million                                                                    
on the still  recovering oil and gas industry  in Alaska. He                                                                    
felt that  passage of the  bill would deter  investment, and                                                                    
therefore employment.                                                                                                           
                                                                                                                                
6:36:34 PM                                                                                                                    
                                                                                                                                
SCOTT   JEPSEN,  VICE   PRESIDENT,   EXTERNAL  AFFAIRS   AND                                                                    
TRANSPORTATION,    CONOCO     PHILLIPS,    ANCHORAGE    (via                                                                    
teleconference), introduced himself.                                                                                            
                                                                                                                                
PAUL    RUSCH,     CONOCO    PHILLIPS,     ANCHORAGE    (via                                                                    
teleconference), introduced himself.                                                                                            
                                                                                                                                
Mr.  Jepsen  discussed   the  presentation,  "House  Finance                                                                    
Committee HB 411" (copy on file).                                                                                               
                                                                                                                                
Mr.  Jepsen turned  to slide  2,  "Cautionary Statement  and                                                                    
Safe Harbor":                                                                                                                   
                                                                                                                                
     The  following  presentation  includes  forward-looking                                                                    
     statements. These  statements relate to  future events,                                                                    
     such  as   anticipated  revenues,   earnings,  business                                                                    
     strategies,  competitive position  or other  aspects of                                                                    
     our operations, operating results  or the industries or                                                                    
     markets in which we operate  or participate in general.                                                                    
     Actual outcomes and results  may differ materially from                                                                    
     what is  expressed or forecast in  such forward looking                                                                    
     statements.  These  statements  are not  guarantees  of                                                                    
     future   performance   and   involve   certain   risks,                                                                    
     uncertainties  and assumptions  that  may  prove to  be                                                                    
     incorrect and are difficult to  predict such as oil and                                                                    
     gas  prices; operational  hazards  and drilling  risks;                                                                    
     potential failure  to achieve, and potential  delays in                                                                    
     achieving expected  reserves or production  levels from                                                                    
     existing and  future oil and gas  development projects;                                                                    
     unsuccessful  exploratory  activities; unexpected  cost                                                                    
     increases  or technical  difficulties in  constructing,                                                                    
     maintaining    or    modifying   company    facilities;                                                                    
     international   monetary    conditions   and   exchange                                                                    
     controls;  potential  liability  for  remedial  actions                                                                    
     under existing  or future environmental  regulations or                                                                    
     from pending  or future  litigation; limited  access to                                                                    
     capital  or   significantly  higher  cost   of  capital                                                                    
     related to  illiquidity or uncertainty in  the domestic                                                                    
     or  international financial  markets; general  domestic                                                                    
     and  international economic  and political  conditions,                                                                    
     as  well as  changes  in tax,  environmental and  other                                                                    
     laws applicable  to ConocoPhillips' business  and other                                                                    
     economic,   business,  competitive   and/or  regulatory                                                                    
     factors  affecting  ConocoPhillips' business  generally                                                                    
     as  set  forth  in  ConocoPhillips'  filings  with  the                                                                    
     Securities  and Exchange  Commission (SEC).  We caution                                                                    
     you not to place  undue reliance on our forward-looking                                                                    
     statements,  which are  only  as of  the  date of  this                                                                    
     presentation   or  as   otherwise  indicated,   and  we                                                                    
     expressly  disclaim  any  responsibility  for  updating                                                                    
     such information.                                                                                                          
                                                                                                                                
     Use   of   non-GAAP   financial  information       This                                                                    
     presentation may  include non-GAAP  financial measures,                                                                    
     which help  facilitate comparison of  company operating                                                                    
     performance  across periods  and  with peer  companies.                                                                    
     Any   non-GAAP  measures   included   herein  will   be                                                                    
     accompanied   by  a   reconciliation  to   the  nearest                                                                    
     corresponding   GAAP   measure   on  our   website   at                                                                    
     www.conocophillips.com/nongaap.                                                                                            
                                                                                                                                
     Cautionary  Note to  U.S. Investors    The  SEC permits                                                                    
     oil and gas  companies, in their filings  with the SEC,                                                                    
     to   disclose  only   proved,  probable   and  possible                                                                    
     reserves.   We  use   the  term   "resource"  in   this                                                                    
     presentation  that  the  SEC's guidelines  prohibit  us                                                                    
     from including in filings with  the SEC. U.S. investors                                                                    
     are  urged   to  consider  closely  the   oil  and  gas                                                                    
     disclosures  in our  Form 10-K  and  other reports  and                                                                    
     filings  with the  SEC. Copies  are available  from the                                                                    
     SEC and from the ConocoPhillips website.                                                                                   
                                                                                                                                
MR. Jepsen spoke on slide 3, "Pipeline of Projects on the                                                                       
Western North Slope":                                                                                                           
                                                                                                                                
     GMT1                                                                                                                       
          ?~ 25,000-30,000 BOPD*                                                                                                
          ?First oil planned late 2018                                                                                          
          ?~700 construction jobs                                                                                               
          ?~$1 billion gross                                                                                                    
     GMT2                                                                                                                       
          ?25,000-30,000 BOPD*                                                                                                  
          ?First oil planned late 2021                                                                                          
          ?~700 construction jobs                                                                                               
          ?~$1.5 billion gross                                                                                                  
     Fiord West                                                                                                                 
          ?20,000 BOPD*                                                                                                         
          ?First oil planned Aug 2020                                                                                           
     Willow Discovery                                                                                                           
          ?100,000 BOPD*                                                                                                        
          ?First oil possible as soon as 2023                                                                                   
          ?Multi-billion dollar investment                                                                                      
          ?Potential for hundreds of direct jobs, thousands                                                                     
          of construction jobs                                                                                                  
                                                                                                                                
6:41:19 PM                                                                                                                    
                                                                                                                                
Mr. Jepsen spoke about slide 4, "2018 Exploration - Three                                                                       
Rig Program":                                                                                                                   
                                                                                                                                
     ConocoPhillips NPRA acreage                                                                                                
          ? 594,972 gross acres acquired in late 2016                                                                           
          ? 79,998 gross acres acquired in late 2017                                                                            
          ? 1,000,000+ gross acres in NPRA                                                                                      
     Willow appraisal and exploration                                                                                           
          ? 3 wells: T7, T8 and West Willow 1 (WW1)                                                                             
          ? 3 potential well tests (T6, T7, T8)                                                                                 
          ? 37+ miles of ice road and 5 ice pads                                                                                
          ? Drilling rig - Doyon 141                                                                                            
     Stony Hill (SH1) exploration                                                                                               
          ? 1 well: 1 slant + 1 vertical                                                                                        
          ? 1 potential well test                                                                                               
          ? 17+ miles of ice road and 1 ice pad ? Drilling                                                                      
          rig - Arctic Fox                                                                                                      
     Putu (P2) exploration (state land)                                                                                         
          ? 1 well: 1 slant + 1 vertical                                                                                        
          ? 1 potential well test                                                                                               
          ? 1 mile of ice road and 1 ice pad ? Drilling rig                                                                     
          - Kuukpik 5                                                                                                           
                                                                                                                                
Mr. Jepsen moved to slide  5, "Robust North Slope Investment                                                                    
Outlook."  The slide  showed the  projects that  were either                                                                    
underway  or in  the permitting  phase. He  stated that  the                                                                    
projects  were  actively  being  pursued.  He  detailed  the                                                                    
contents of the slide.                                                                                                          
                                                                                                                                
6:45:17 PM                                                                                                                    
                                                                                                                                
Mr. Rusch  moved to slide 6,  "Unconventional North American                                                                    
Fields are Alaska's Competition":                                                                                               
                                                                                                                                
     ? Enormous resource potential                                                                                              
     ? Tens of thousands of drilling opportunities                                                                              
     ? Lower cost of supply                                                                                                     
     ? Closer to market                                                                                                         
     ? Easier to permit                                                                                                         
     ? Stable fiscal policies                                                                                                   
                                                                                                                                
6:52:32 PM                                                                                                                    
                                                                                                                                
Mr.  Rusch moved  to slide  7, "Increase  in Production  Tax                                                                    
from HB  411." He remarked  that the bill was  a significant                                                                    
tax increase.                                                                                                                   
                                                                                                                                
Mr. Rusch  advanced to slide 8,  "FY 2018 State/Fed/Producer                                                                    
Share vs  ANS WC -  Fall 2017 RSB Assumptions."  He remarked                                                                    
that the  slide initially presented  the slide to  the House                                                                    
Resources Committee.                                                                                                            
                                                                                                                                
6:59:46 PM                                                                                                                    
                                                                                                                                
Mr. Jepsen turned to slide 9, "HB 411":                                                                                         
                                                                                                                                
     ? Costs matter: Taxes and royalties are only part of                                                                       
     the equation. Total cost drives competitiveness.                                                                           
                                                                                                                                
     ? Bill raises taxes at lower prices                                                                                        
          ? 100 percent+ increase in tax at $50/bbl; 220                                                                        
          percent increase at $66/bbl                                                                                           
          ? Will likely cause reduced investment at times                                                                       
          when economy and North Slope needs more                                                                               
          investment, not less                                                                                                  
                                                                                                                                
     ? Alaska still competes because:                                                                                           
          ? Focus on cost reduction and efficiencies                                                                            
          ? Core SB21 structure unchanged in 4+ years                                                                           
                                                                                                                                
     ? Oil and gas investment leads to more jobs and state                                                                      
     revenue  key part of the solution to the State's                                                                           
     fiscal gap                                                                                                                 
                                                                                                                                
     ? The North Slope is on the cusp of significant                                                                            
     spending for new fields                                                                                                    
          ? Maintaining SB21 competitive fiscal framework                                                                       
          will encourage investment                                                                                             
                                                                                                                                
     ? Recommend AGAINST passage of HB 411                                                                                      
                                                                                                                                
Vice-Chair  Gara   appreciated  the  presentation   and  the                                                                    
civility  of  the  presentation .He  asked  about  CD5,  and                                                                    
whether CD5 was and anchor field.                                                                                               
                                                                                                                                
Mr.  Jepsen responded  that CD  5  was an  extension of  the                                                                    
Alpine Field.                                                                                                                   
                                                                                                                                
7:06:05 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Gara  commented   that  the   civil  tone   was                                                                    
appreciated.  He spoke  to the  losses in  the lower  48 and                                                                    
Canada versus Alaska over the previous three years.                                                                             
                                                                                                                                
Mr.  Rusch  replied  that  he did  not  have  the  financial                                                                    
reports. He  asserted that  in 2016 the  lower 48  lost $1.9                                                                    
billion, and  Alaska had positive earnings  of $233 million.                                                                    
He stated  that the depreciation  expense in 2016  for lower                                                                    
48 was $4.2  billion, and in Alaska it was  $867 million. He                                                                    
shared that,  on a cash  flow basis, there was  $1.1 billion                                                                    
for  Alaska and  $2.3 billion  for the  lower 48.  He stated                                                                    
that there were the same drivers.                                                                                               
                                                                                                                                
Vice-Chair  Gara  remarked  that   investment  costs  had  a                                                                    
bearing on  profit. He  wondered whether  the gross  tax had                                                                    
any impact on investment costs.                                                                                                 
                                                                                                                                
Mr. Jepsen  answered with slide  8, and remarked  that there                                                                    
was the  same effect  on both  Alaska and  the lower  48. He                                                                    
stressed  that  the only  difference  was  that the  overall                                                                    
costs in the lower 48 were lower than Alaska.                                                                                   
                                                                                                                                
7:09:47 PM                                                                                                                    
                                                                                                                                
Representative Grenn looked  at slide 9, second  to the last                                                                    
bullet  point and  slide 4  related to  construction of  ice                                                                    
road. He asked for the cost of the ice road.                                                                                    
                                                                                                                                
Mr.  Jepsen  answered  that  typical  costs  were  about  $1                                                                    
million per mile, and the road was about 140 miles.                                                                             
                                                                                                                                
Representative Grenn  asked for verification that  the roads                                                                    
melt.                                                                                                                           
                                                                                                                                
Mr. Jepsen answered in the affirmative.                                                                                         
                                                                                                                                
Representative Grenn  asked for verification that  the state                                                                    
did not need ice roads.                                                                                                         
                                                                                                                                
Mr. Jepsen answered in the affirmative.                                                                                         
                                                                                                                                
7:12:51 PM                                                                                                                    
                                                                                                                                
Representative Grenn  asked what the immediate  impact would                                                                    
be if HB 411 was signed into law.                                                                                               
                                                                                                                                
Mr. Jepsen  answered that  the question  came up  every time                                                                    
there was a  proposal to increase taxes. The  impact was not                                                                    
positive; the impacts would be negative.                                                                                        
                                                                                                                                
Representative  Ortiz  asked  about slide  8  pertaining  to                                                                    
factors  that increased  producers'  share.  He asked  about                                                                    
what   factors  allowed   the   company   to  achieve   cost                                                                    
reductions.                                                                                                                     
                                                                                                                                
Mr. Rusch  replied there should  be an arrangement  that was                                                                    
suitable for both parties.                                                                                                      
                                                                                                                                
Mr. Jepsen  elaborated that they  had tried to find  ways to                                                                    
reduce costs.                                                                                                                   
                                                                                                                                
Representative Ortiz asked if there  was a way of estimating                                                                    
how much of the reduction was driven by labor reductions.                                                                       
                                                                                                                                
Mr. Rusch answered that he did not have an answer for that.                                                                     
                                                                                                                                
7:17:37 PM                                                                                                                    
                                                                                                                                
DAN SECKERS,  TAX COUNSEL, EXXONMOBIL, read  from a prepared                                                                    
statement. The  must provide confidence that  the underlying                                                                    
rules would not be  changed. The company supported testimony                                                                    
by  Ms. Moriarty.  He  point  to two  of  the state's  major                                                                    
problems: reducing  the deficit and increasing  the economy.                                                                    
The  company  opposed the  bill;  it  was bad  for  Alaska's                                                                    
struggling  economy.  The bill  would  make  the state  less                                                                    
competitive. He remarked that  with the federal government's                                                                    
reopening of  Alaska National  Wildlife Refuge  (ANWR) there                                                                    
had been a growing interest  in the state; however, the bill                                                                    
would diminish the interest. Constant  changes or threats of                                                                    
changes were discouraging to investment.  He stated it was a                                                                    
significant tax increase. He spoke  to the need for a stable                                                                    
fiscal  policy.  The  production  increase  had  let  to  an                                                                    
improved  economy. Changing  the tax  structure again  would                                                                    
not help Alaskans weather the economic downturn.                                                                                
                                                                                                                                
7:23:00 PM                                                                                                                    
                                                                                                                                
Mr. Seckers  continued to speak  in opposition to  the bill.                                                                    
He  spoke about  the cost  of development,  total government                                                                    
take,  infrastructure  needs,  and other.  Alaska  was  less                                                                    
competitive than  other states  and regimes  in each  of the                                                                    
areas. The bill would increase  taxes, and would not lead to                                                                    
more  investment   or  production.  The   legislature's  tax                                                                    
consultants had  stated over the  years that  changes should                                                                    
be  carefully  considered.  He  spoke  about  the  bicameral                                                                    
bipartisan  working group  with the  purpose to  examine the                                                                    
state's  tax structure.  He wondered  why the  working group                                                                    
had not been consulted. He  stated that the company believed                                                                    
the bill  would reduce Alaska's overall  competitiveness and                                                                    
would  force companies  to reexamine  their investments.  He                                                                    
spoke  to the  need for  Alaska to  remain competitive.  The                                                                    
current  tax structure  was working  as intended  and if  it                                                                    
remained  it  would  continue  to  encourage  more  industry                                                                    
investment.  He announced  that the  bill would  be a  major                                                                    
step in the  wrong direction. He opposed the  passage of the                                                                    
bill.                                                                                                                           
                                                                                                                                
7:27:39 PM                                                                                                                    
                                                                                                                                
Representative  Wilson noted  Mr. Seckers  had spoken  about                                                                    
the working  group more than other  testifiers. She wondered                                                                    
whether a  necessary bill would  have come from  the working                                                                    
group.                                                                                                                          
                                                                                                                                
Mr.  Seckers  answered  in  the   affirmative;  it  was  the                                                                    
company's understanding of the  reason the working group had                                                                    
been  established. He  stated that  all  of the  committee's                                                                    
questions were  all good questions and  underscored the need                                                                    
for a  thorough vetting with consultants.  The working group                                                                    
was intended to provide the sound board.                                                                                        
                                                                                                                                
Representative Wilson asked when  the company was made aware                                                                    
of the bill.                                                                                                                    
                                                                                                                                
Mr. Seckers answered the prior Friday.                                                                                          
                                                                                                                                
Representative  Wilson wondered  if the  company would  have                                                                    
been  willing to  provide feedback  on  the bill  if it  had                                                                    
received it earlier.                                                                                                            
                                                                                                                                
Mr. Seckers answered it depended on various circumstances.                                                                      
                                                                                                                                
Representative  Wilson  asked  if  the  company  would  have                                                                    
representation at working group meetings.                                                                                       
                                                                                                                                
Mr.  Seckers answered  in the  affirmative if  meetings were                                                                    
public.                                                                                                                         
                                                                                                                                
7:30:36 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  thanked Mr. Seckers  for his  testimony. He                                                                    
remarked it  was effectively the  same bill  the legislature                                                                    
had  three weeks  of testimony  on the  previous legislative                                                                    
session.  He spoke  to  testimony from  the  prior year  and                                                                    
differences  in  the  bills.  He  understood  the  company's                                                                    
perspective but  repeated that the bill  was essentially the                                                                    
same  with  the  exception  of  the  smoother  progressivity                                                                    
feature.                                                                                                                        
                                                                                                                                
Mr. Seckers  replied that he understood  the point. However,                                                                    
the climate  had changed, and  the provision was not  in the                                                                    
bill  the previous  year.  The company  paid  taxes under  a                                                                    
different regime, and there  was significant complexity. The                                                                    
bill from  the previous year  had not passed and  he thought                                                                    
there must be a reason.                                                                                                         
                                                                                                                                
Vice-Chair Gara did not believe  there would ever be history                                                                    
that they  would have  the same view.  The oil  industry had                                                                    
changed  his mind  about a  gross tax.  He thought  a modest                                                                    
profit tax when making money made sense.                                                                                        
                                                                                                                                
Representative Wilson  asked when a  part of HB 111  did not                                                                    
pass if  the company  had made investment  decisions because                                                                    
of that.                                                                                                                        
                                                                                                                                
Mr.  Seckers answered  that he  believe  it negatively  risk                                                                    
weighted.                                                                                                                       
                                                                                                                                
Representative   Wilson  asked   how  much   ExxonMobil  had                                                                    
invested in Alaska.                                                                                                             
                                                                                                                                
Mr. Seckers answered it was  well into the upper billions of                                                                    
dollars. He did not have the number on hand.                                                                                    
                                                                                                                                
7:36:07 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  felt that  the working  group was                                                                    
dysfunctional.  He  did  not believe  that  the  legislature                                                                    
needed  to wait  for  the working  group recommendation.  He                                                                    
stressed   that   there    was   already   a   comprehensive                                                                    
understanding of  the problem. He felt  that the legislature                                                                    
could still act accordingly without the working group.                                                                          
                                                                                                                                
Mr.  Seckers  replied  that  there   had  been  very  little                                                                    
modeling for the  bill and it was the  86th legislative day.                                                                    
Parts  of the  bill  had  been vetted  and  disposed of  the                                                                    
previous  session.  He  did not  know  why  the  legislative                                                                    
working group  had not  met. To  fast track  a bill  for the                                                                    
sake of fast tracking a bill was very concerning.                                                                               
                                                                                                                                
Representative  Guttenberg understood  that the  company was                                                                    
constantly looking  at the environment in  Alaska. He stated                                                                    
it  was possible  to look  at  PowerPoint presentations  all                                                                    
day,  but stressed  the need  to have  a dialogue  to bounce                                                                    
something off of  was a piece of legislation.  He thought it                                                                    
was the legislature's  role to constantly be  looking at the                                                                    
changing structure.                                                                                                             
                                                                                                                                
Mr.  Seckers did  not  take exception  to  the comments.  He                                                                    
added that HB  411 would be a major tax  increase - doubling                                                                    
and tripling taxes. He stated  that a bill of that magnitude                                                                    
without more  consideration about what  it would do  to jobs                                                                    
and other was not positive.  He wondered how the legislature                                                                    
understood what it  would do to the  state's economy without                                                                    
a more thorough  analysis. He thought the time  line was too                                                                    
fast and problematic.                                                                                                           
                                                                                                                                
7:42:13 PM                                                                                                                    
                                                                                                                                
Representative Ortiz asked for Exxon's profits in 2017.                                                                         
                                                                                                                                
Mr.  Seckers  answered  that  he   could  not  provide  that                                                                    
information. The  company provided  the information  to DOR,                                                                    
but it was proprietary.                                                                                                         
                                                                                                                                
Representative  Ortiz  asked  if   he  could  not  find  the                                                                    
information anywhere.                                                                                                           
                                                                                                                                
Mr. Seckers answered  that he believed it  could probably be                                                                    
extrapolated, but it was not public information.                                                                                
                                                                                                                                
Representative  Ortiz stated  the industry's  responsibility                                                                    
was to drive the company's  best interest and to protect the                                                                    
competitive   business  environment   in   the  state.   The                                                                    
legislature's  job  was to  come  up  with the  best  fiscal                                                                    
solution.  The   legislature  had   not  made   progress  in                                                                    
establishing a  fiscal plan, and  the state was  running out                                                                    
of time.                                                                                                                        
                                                                                                                                
Mr.  Seckers answered  that  he could  not  address why  the                                                                    
legislature had  been unable to  come up with  a broad-based                                                                    
plan.  He stated  it was  up to  the legislature.  He stated                                                                    
that Alaskan  citizens would all  like to know why  a fiscal                                                                    
plan had not been developed.                                                                                                    
                                                                                                                                
7:47:33 PM                                                                                                                    
                                                                                                                                
Representative   Pruitt   stated   that  Mr.   Seckers   had                                                                    
highlighted  something  that  was not  really  recognized  -                                                                    
there  was an  effective  date  that would  occur  in a  few                                                                    
months. He noted  that the companies had  already made their                                                                    
budget plans for the year. He  asked if a knee jerk reaction                                                                    
- vis a vie the passage  of the bill would mean the industry                                                                    
would also have a knee jerk reaction regarding investment.                                                                      
                                                                                                                                
Mr.  Seckers answered  it would  be necessary  to put  a new                                                                    
system in  place, and  when the  state had  adopted mid-year                                                                    
tax regimes it had been an audit nightmare in the past.                                                                         
                                                                                                                                
Representative Pruitt  asked for his thoughts  on the issue.                                                                    
He asked how to respond to that.                                                                                                
                                                                                                                                
Mr.   Seckers  responded   that  the   company  had   always                                                                    
maintained that Alaska  had a lot of  potential. He stressed                                                                    
that   ExxonMobil   was   always   looking   for   potential                                                                    
investments.                                                                                                                    
                                                                                                                                
7:52:09 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton  indicated  that the  suggestion  for  July                                                                    
would be a  large plus to have the tax  changes effective in                                                                    
January 1  versus in July.  He asked  if he agreed  with Mr.                                                                    
Ruggiero's  analysis that  instead  of the  flat 25  percent                                                                    
proposal - profits tax rate -  then it was converted to a 35                                                                    
percent with a sliding scale.                                                                                                   
                                                                                                                                
Mr. Secker  responded that that  even if the  effective date                                                                    
was changed  to January 1  ExxonMobil would not  support the                                                                    
bill.                                                                                                                           
                                                                                                                                
Representative Grenn  queried the effect of  the instability                                                                    
of the credits.                                                                                                                 
                                                                                                                                
Mr.  Secker  responded that  Exon  had  never received  cash                                                                    
credits.  However,  from  his perspective,  it  had  left  a                                                                    
chilling effect  on the industry  members that  it affected.                                                                    
It sent a chilling reflection  to industry and on the state.                                                                    
It has caused some negative impact  to the state on its view                                                                    
of Alaska being competitive.                                                                                                    
                                                                                                                                
7:57:03 PM                                                                                                                    
                                                                                                                                
DOUG  CHAPADOS,  PRESIDENT AND  CEO,  PETRO  STAR INC.  (via                                                                    
teleconference), read from a prepared statement:                                                                                
                                                                                                                                
     For those  who may  not be  familiar with  our company,                                                                    
     Petro  Star is  engaged  in petroleum  refining at  its                                                                    
     Valdez  and  North   Pole  refineries.    Additionally,                                                                    
     through terminals  and distribution centers  located in                                                                    
     Fairbanks,  Anchorage,  Valdez, Kodiak,  and  Unalaska,                                                                    
     Petro Star  also provides fuel  and services to  a wide                                                                    
     range of Alaska consumers,  including home and business                                                                    
     owners,    fishing   fleets,    electrical   utilities,                                                                    
     commercial  airlines, and  Alaska's military  and coast                                                                    
     guard installations.                                                                                                       
                                                                                                                                
     Being  a  wholly  owned   subsidiary  of  Arctic  Slope                                                                    
     Regional  Corporation,  Petro  Star  is  Alaska's  only                                                                    
     locally  owned refiner  and, with  the  closure of  the                                                                    
     Flint  Hills  Resources  Refinery  in  2014,  the  last                                                                    
     operator  of refineries  that draw  crude oil  directly                                                                    
     from the  Trans-Alaska Pipeline System,  or TAPS  as it                                                                    
     is more commonly known.                                                                                                    
                                                                                                                                
     Given its reliance on TAPS  for crude oil supply, Petro                                                                    
     Star and  our parent  company ASRC  are opposed  to yet                                                                    
     another  attempt to  change Alaska's  existing oil  and                                                                    
     gas  tax policies.   It  is  especially troubling  that                                                                    
     this latest effort comes  despite two consecutive years                                                                    
     of   increased   North   Slope  production   and   TAPS                                                                    
     throughput, which  strongly suggests that  the existing                                                                    
     tax regime is working as intended.                                                                                         
                                                                                                                                
     After  many years  of  steady  decline, increased  TAPS                                                                    
     throughput  is something  of a  new  concept for  Petro                                                                    
     Star, but it is one we  are happy to embrace.  Just two                                                                    
     years ago, Petro Star was  engaged in negotiations with                                                                    
     the  Department of  Natural Resources  and Division  of                                                                    
     Oil and Gas  for the purchase of State  Royalty in Kind                                                                    
     (RIK) crude  oil.   Entering  these negotiations, Petro                                                                    
     Star  was  seeking to  secure  a  long term  supply  of                                                                    
     30,000 bbls/day  of RIK  crude oil.   However,  it soon                                                                    
     became evident that  DNR would be unable  to meet Petro                                                                    
     Star's  volume   request.      In   fact,  North  Slope                                                                    
     production  forecasts at  the time  predicted continued                                                                    
     steep,  year-over-year  declines, thus  limiting  DNR's                                                                    
     ability to supply RIK oil  in the quantities Petro Star                                                                    
     needed.                                                                                                                    
                                                                                                                                
     Ultimately,  Petro  Star  signed   two  RIK  crude  oil                                                                    
     contracts    together, these  cover a  five-year period                                                                    
     and  feature  a  sharp  ramp   down  in  sales  volume,                                                                    
     starting at  23,500 bbls/day  of supply  in Year  1 and                                                                    
     steadily  falling to  just 10,500  bbls/day in  Year 5.                                                                    
     This  real world  example helps  to illustrate  how far                                                                    
     Alaska has  come in  just two years'  time in  terms of                                                                    
     oil production  and I believe that  were we negotiating                                                                    
     contracts  today,  far  more  RIK  oil  would  be  made                                                                    
     available to Petro Star's needs.                                                                                           
                                                                                                                                
     ANS  crude  oil  is  Petro  Star's  lifeblood  and  the                                                                    
     potential   for   future   declines  in   North   Slope                                                                    
     production is  not a scenario  we care  to contemplate.                                                                    
     However,  legislation  like  HB411 has  the  very  real                                                                    
     potential to reverse recent  production gains and comes                                                                    
     at  a time  when the  industry appears  poised to  ship                                                                    
     even  more oil  on  TAPS  in the  coming  years.   This                                                                    
     renewed  vitality  is  one of  many  reasons  why  ASRC                                                                    
     elected to reinvest capital  in Petro Star's operations                                                                    
        most notably,  Petro Star  acquired a  fuel terminal                                                                    
     within  the Port  of Anchorage  last year  and recently                                                                    
     completed  expansion   of  its  North   Pole  Refinery,                                                                    
     restoring  both  asphalt  oil  production  to  Interior                                                                    
     Alaska and  a local source  of low-cost fuel  to Golden                                                                    
     Valley   Electric    Association's   power   generation                                                                    
     facilities.                                                                                                                
                                                                                                                                
     Investments such  as these are  far less likely  in the                                                                    
     event Petro Star cannot be  assured of an adequate long                                                                    
     term  supply of  crude oil.   HB411  creates additional                                                                    
     uncertainty  and  threatens potential  TAPS  throughput                                                                    
     growth and  sustainability and for these  reasons, both                                                                    
     Petro Star and ASRC oppose its passage.                                                                                    
                                                                                                                                
8:01:51 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  appreciated  all of  the  investment                                                                    
that had been  made. She remarked that Petro  Star saved her                                                                    
area from Flint Hills.                                                                                                          
                                                                                                                                
Mr. Chapados  responded that company  was the  sole supplier                                                                    
for  Ellison AFB.  The company  hoped to  be around  to meet                                                                    
that new demand.                                                                                                                
                                                                                                                                
Representative Wilson asked if  he thought the company would                                                                    
have  invested had  the  bill  been in  place  prior to  the                                                                    
laying of asphalt.                                                                                                              
                                                                                                                                
Mr.  Chapados could  not speak  emphatically about  what the                                                                    
company would have done.                                                                                                        
                                                                                                                                
Representative  Wilson remembered  sitting in  the committee                                                                    
room  while there  was  an  attempt to  keep  Petro Star  in                                                                    
business.                                                                                                                       
                                                                                                                                
Mr.   Chapados  thought   it  was   representative  of   the                                                                    
commitment of Petro Star.                                                                                                       
                                                                                                                                
Co-Chair  Foster  requested  that   Mr.  Chapados  send  his                                                                    
written testimony to the committee.                                                                                             
                                                                                                                                
Representative Thompson  asked if Petro Star  was still owed                                                                    
tax credits.                                                                                                                    
                                                                                                                                
Mr. Chapados  relayed that the  company had only  received a                                                                    
small amount that was owed by the state.                                                                                        
                                                                                                                                
8:05:56 PM                                                                                                                    
                                                                                                                                
Representative Grenn asked  if the company had  been paid in                                                                    
the prior year.                                                                                                                 
                                                                                                                                
Mr. Chapados  responded that  only a  small amount  had been                                                                    
paid.                                                                                                                           
                                                                                                                                
Representative  Grenn  wondered  whether the  nonpayment  of                                                                    
credits had an impact on future investment.                                                                                     
                                                                                                                                
Mr. Chapados  replied that it  made it difficult  to attract                                                                    
investors.                                                                                                                      
                                                                                                                                
Representative Thompson  thanked Petro  Star for  laying the                                                                    
asphalt and  making that investment.  He commented  that the                                                                    
company was saving the state millions but.                                                                                      
                                                                                                                                
8:08:45 PM                                                                                                                    
                                                                                                                                
KATE  BLAIR,  ANDEAVOR  (via teleconference),  read  from  a                                                                    
prepared statement:                                                                                                             
                                                                                                                                
     For the  record, my  name is  Kate Blair  and I  am the                                                                    
     Government  and Public  Affairs  Manager for  Andeavor,                                                                    
     formerly known as Tesoro Corporation.                                                                                      
                                                                                                                                
     Andeavor  operates ten  refineries  across the  western                                                                    
     United States,  have an extensive  logistics portfolio,                                                                    
     a  record of  solid performance,  and a  solid platform                                                                    
     for  growth for  years  to  come.   Although  we are  a                                                                    
     growing company,  Andeavor has  a proud  Alaska legacy,                                                                    
     with our  first refinery located in  Nikiski. We employ                                                                    
     approximately   270  family   wage  jobs   in  Nikiski,                                                                    
     Anchorage,  and  Fairbanks  and have  greater  than  97                                                                    
     percent Alaska hire rates.                                                                                                 
                                                                                                                                
     To  understand  why  we are  testifying  tonight,  it's                                                                    
     helpful to  understand our operations in  the state. In                                                                    
     addition  to  our  refinery, Andeavor's  Alaska  assets                                                                    
     include  marine assets  that  bring  North Slope  crude                                                                    
     from  TAPS  to  our  Nikiski refinery,  and  a  69-mile                                                                    
     common-carrier  pipeline   from  Nikiski  to   the  Ted                                                                    
     Stevens International Airport and  to our two terminals                                                                    
     at the Port  of Alaska, where refined  products such as                                                                    
     jet fuel,  ultra-low sulfur  diesel, and  gasoline, are                                                                    
     stored and  transported to  our terminals  in Fairbanks                                                                    
     and  throughout the  state. We  rely on  consistent in-                                                                    
     state  production  to  manufacture the  jet  fuel  that                                                                    
     flies cargo  jets out of the  Ted Stevens International                                                                    
     Airport, heat  homes in the  Interior, and to  fuel the                                                                    
     cars of  Alaskans from Homer  to Tok and  everywhere in                                                                    
     between.                                                                                                                   
                                                                                                                                
     We refine every drop of oil  that comes out of the Cook                                                                    
     Inlet  basin,   and  we  purchase  North   Slope  crude                                                                    
     straight   from   TAPS.      In   fact,   we   purchase                                                                    
     approximately  one-third of  TAPS throughput,  160,000-                                                                    
     170,000 barrels of North Slope  crude per day, shipping                                                                    
     it  from  Valdez for  refining  in  Nikiski or  to  our                                                                    
     refineries along the  west coast. In 2016,  we signed a                                                                    
     royalty oil contract  with the State that  allows us to                                                                    
     purchase 20,000- 25,000 barrels  per day of the State's                                                                    
     royalty share of oil, with  a benefit to Alaska of $45-                                                                    
     56 million.                                                                                                                
                                                                                                                                
     The  increased  investment  and  production  since  the                                                                    
     passage of  the Cook  Inlet Recovery  Act and  the More                                                                    
     Alaska  Production  Act  (SB 21)  have  resulted  in  a                                                                    
     stable, local  supply for most of  our crude. Declining                                                                    
     production in  either region would result  in our Kenai                                                                    
     refinery importing  more crude  to meet the  demands of                                                                    
     the market.  Every barrel of  oil that we buy  in state                                                                    
     is a barrel that we don't  need to import to supply the                                                                    
     state's  needs.   Importing  a  majority  of our  crude                                                                    
     supply  could make  local  refining  a less  economical                                                                    
     option  than shipping  in refined  products from  other                                                                    
     areas of the West Coast.                                                                                                   
                                                                                                                                
     As  you  assess   another  significant  production  tax                                                                    
     change, we ask that  you consider how the modifications                                                                    
     will  affect   production,  and   in  turn,   in  state                                                                    
     manufacturing.   If your goal  is to have  gasoline and                                                                    
     jet fuel  refined in-state, then  your focus  should be                                                                    
     in continuing  to mitigate production decline.  We urge                                                                    
     to maintain  policies that  support Alaska  crude being                                                                    
     refined  by Alaskans  for use  in  Alaska. The  current                                                                    
     policy supports  long-term in-state  refining.   We are                                                                    
     proud  to partner  with  the people  of  Alaska as  the                                                                    
     providers of reliable transportation  fuel, and hope to                                                                    
     continue to do so for years to come.                                                                                       
                                                                                                                                
     Thank you  for the  opportunity to speak  this evening,                                                                    
     and I  would be  happy to  answer any  questions either                                                                    
     now or after the hearing.                                                                                                  
                                                                                                                                
Representative Wilson asked which  part of the company would                                                                    
be affected by HB 411.                                                                                                          
                                                                                                                                
Ms. Blair responded that it would be the refinery portion.                                                                      
                                                                                                                                
8:13:47 PM                                                                                                                    
                                                                                                                                
DAMIEN   BILBAO,   BP,   ANCHORAGE   (via   teleconference),                                                                    
discussed the presentation, "BP  Testimony - House Bill 411"                                                                    
(copy on file).                                                                                                                 
                                                                                                                                
8:18:05 PM                                                                                                                    
                                                                                                                                
LEWIS WESTWICK,  VICE PRESIDENT OF  FINANCE, BP  ALASKA (via                                                                    
teleconference),  looked  at  slide  2, "How  would  BN  411                                                                    
impact BP Alaska?"                                                                                                              
                                                                                                                                
     ? HB 411 $200 million impact to BP Alaska                                                                                  
     ? Equivalent to 2 rigs at Prudhoe Bay and 1 new North                                                                      
     Slope pad                                                                                                                  
                                                                                                                                
Mr. Westwick addressed slide 3, "BP Alaska profit 2017":                                                                        
                                                                                                                                
     ? BP Alaska Profit in 2017 $118 million                                                                                    
     ? Reported Profit (annual report) excludes one off                                                                         
     items and Pipeline/Shipping costs                                                                                          
     ? BP Alaska total payments in 2017 to State of $543                                                                        
     million                                                                                                                    
                                                                                                                                
8:22:16 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  noted that there  was a mention  that there                                                                    
had been  a 6 percent  decline on  the North Slope,  but the                                                                    
projections at the  time was that there would  be a leveling                                                                    
out regardless of what there was  a change to the tax law to                                                                    
2  percent. He  felt that,  since then,  almost every  field                                                                    
that came online was invested prior to the tax change.                                                                          
                                                                                                                                
Representative Grenn asked about slide  2 and the impact and                                                                    
the  cost  of the  new  pad.  The  estimated cost  was  $120                                                                    
million.                                                                                                                        
                                                                                                                                
Mr.  Westwick reported  that typically  a pad  on the  North                                                                    
Slope cost $250 million depending on gravel requirements.                                                                       
                                                                                                                                
Representative  Grenn asked  about the  number of  jobs that                                                                    
would be impacted.                                                                                                              
                                                                                                                                
Mr. Westwick responded that he  did not have the figure, but                                                                    
it would be thousands of jobs.                                                                                                  
                                                                                                                                
8:26:57 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  thanked  the testifiers.  She  asked                                                                    
about how SB 21 had affected investment in Alaska.                                                                              
                                                                                                                                
Mr. Westwick  responded that in  the prior year  BP invested                                                                    
$1.5 billion in Alaska. He  noted that, looking forward, the                                                                    
predictability of  any production  tax impacted the  view on                                                                    
the competitiveness of future investments.                                                                                      
                                                                                                                                
Representative Wilson looked at page  2, and noted that they                                                                    
would  fit  into the  plan  as  long  as the  tax  structure                                                                    
remained the same.                                                                                                              
                                                                                                                                
Mr.  Westwick   replied  that  the  graphic   was  meant  to                                                                    
represent the magnitude  of the change in HB  411. He stated                                                                    
that the impact  of the bill to BP was  estimated to be $200                                                                    
million, which  equated to the current  spending in drilling                                                                    
in  Prudhoe  Bay.  He stressed  that  others  had  testified                                                                    
regarding  the  instability  and its  impact  on  investment                                                                    
decisions.                                                                                                                      
                                                                                                                                
Mr.  Bilbao   furthered  that  SB   21,  as  a   whole,  was                                                                    
fundamentally  transformational to  investment on  the North                                                                    
Slope across the value chain.                                                                                                   
                                                                                                                                
8:31:22 PM                                                                                                                    
                                                                                                                                
Representative Wilson  wondered whether  there was  a direct                                                                    
impact on the decrease in TAPS.                                                                                                 
                                                                                                                                
Mr. Bilbao  replied that there  was a direct  attribution to                                                                    
TAPS  and the  exploration, which  influenced confidence  in                                                                    
the industry.                                                                                                                   
                                                                                                                                
Representative   Wilson  thanked   him  for   all  of   BP's                                                                    
investment in Alaska.                                                                                                           
                                                                                                                                
Representative Pruitt asked why Janet Wise shaved her head.                                                                     
                                                                                                                                
Mr. Bilbao  explained that  she shaved  her head  because of                                                                    
flat production.                                                                                                                
                                                                                                                                
Representative Pruitt  thought to  get flat production  in a                                                                    
mature field,  spending of additional capital  was required.                                                                    
He commented that additional capital  had to be expended. He                                                                    
asked for the  amount of investment and  whether the company                                                                    
would have invested had HB 411 had passed.                                                                                      
                                                                                                                                
Mr.  Bilbao  responded  that investment  was  required,  and                                                                    
activity  was important.  He stated  that  BP moved  forward                                                                    
with  new  projects.  He asserted  that  BP  must  reexamine                                                                    
whether the activity levels were  adequate, should HB 411 be                                                                    
in place. He  stated that BP could be efficient  and use new                                                                    
technology.  He  stressed  that  the  state  controlled  the                                                                    
policy.                                                                                                                         
                                                                                                                                
8:35:21 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  pointed out that  the nonresident                                                                    
workforce was  approximately 37.1 percent, and  was expected                                                                    
to increase the  following year. He thanked  BP for donating                                                                    
to  the  completion  of  the  engineering  building  at  the                                                                    
University  of  Alaska  Fairbanks (UAF).  He  stressed  that                                                                    
there  were  many  Alaska residents  who  were  looking  for                                                                    
employment. He  asserted that  the nonresidents  were losing                                                                    
their jobs at a lower rate than the residents.                                                                                  
                                                                                                                                
Mr. Bilbao replied  that it was BP's preference  to hire and                                                                    
source  locally  when  available.  He  stated  that  BP  had                                                                    
tremendous success hiring out of UAF.                                                                                           
                                                                                                                                
Vice-Chair Gara  recognized that  the industry did  not want                                                                    
to contribute more  than the current rate.  He remarked that                                                                    
he was  confused, because the  industry did not want  HB 411                                                                    
as part of the fiscal plan.                                                                                                     
                                                                                                                                
Co-Chair Foster requested that all  testimony be supplied to                                                                    
the  committee.  He  also  reported  that  Caelus  would  be                                                                    
submitting testimony in written form.                                                                                           
                                                                                                                                
Representative Wilson  asked if  Cook Inlet was  included in                                                                    
the bill.                                                                                                                       
                                                                                                                                
Co-Chair Seaton  responded that  there was  a $1  per barrel                                                                    
tax.                                                                                                                            
                                                                                                                                
Representative Wilson  asked if something would  be supplied                                                                    
in writing from the other 2 consultants.                                                                                        
                                                                                                                                
Co-Chair Seaton responded  that the other two  sets were not                                                                    
utilized.                                                                                                                       
                                                                                                                                
8:40:58 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  if   the  legislature  had  a                                                                    
retainer on the other two consultants.                                                                                          
                                                                                                                                
Co-Chair Seaton  responded that there  was a  contract which                                                                    
was not being exercised monthly.                                                                                                
                                                                                                                                
HB  411  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
8:41:28 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:44:05 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 339                                                                                                            
                                                                                                                                
     "An Act relating to the base student allocation; and                                                                       
     providing for an effective date."                                                                                          
                                                                                                                                
8:44:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster asked  if Vice-Chair  Gara had  any further                                                                    
comments.                                                                                                                       
                                                                                                                                
REPRESENTATIVE LES  GARA, SPONSOR, did not  have any further                                                                    
comments.                                                                                                                       
                                                                                                                                
Co-Chair Seaton reviewed the fiscal notes.                                                                                      
                                                                                                                                
Co-Chair  Seaton MOVED  to REPORT  HB 339  out of  committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
notes.                                                                                                                          
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
HB  339 was  REPORTED  out  of committee  with  a "do  pass"                                                                    
recommendation  and with  three previously  published fiscal                                                                    
notes; one zero impact note: FN1 (EED); and two fiscal                                                                          
impact notes: FN2 (EED) and FN3 (EED - Fund Cap).                                                                               
                                                                                                                                
Co-Chair Foster reviewed the schedule for the following                                                                         
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
8:48:18 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 8:48 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
HB 411 H(FIN)_In3nergy_HB411 Presentation.pdf HFIN 4/11/2018 5:00:00 PM
HB 411
HB 411 BP Testimony 4.11.2018 HB 411_vFinal.pdf HFIN 4/11/2018 5:00:00 PM
HB 411
HB 411 ConocoPhillips .pdf HFIN 4/11/2018 5:00:00 PM
HB 411
HB 411 - AOGA Presentation to HFIN - 4.11.18.pdf HFIN 4/11/2018 5:00:00 PM
HB 411
HB411 BlueCrest Written testimony 04-11-2018.pdf HFIN 4/11/2018 5:00:00 PM
HB 411