Legislature(2013 - 2014)HOUSE FINANCE 519
03/25/2014 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Black & Veatch - Memorandum of Understanding, "transcanada Participation in Aklng Project" | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 25, 2014
1:34 p.m.
1:34:29 PM
CALL TO ORDER
Co-Chair Austerman called the House Finance Committee
meeting to order at 1:34 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Deepa Poduval, Principal Consultant, Consulting Division,
Black & Veatch Management; Peter Abt, Managing Director,
Consulting Division, Black & Veatch Management.
PRESENT VIA TELECONFERENCE
Jason De Stigter, Senior Consultant, Consulting Division,
Black & Veatch Management.
SUMMARY
PRESENTATION: BLACK & VEATCH - MEMORANDUM OF UNDERSTANDING
"TRANSCANADA PARTICIPATION IN AKLNG PROJECT"
1:35:48 PM
^PRESENTATION: BLACK & VEATCH - MEMORANDUM OF
UNDERSTANDING, "TRANSCANADA PARTICIPATION IN AKLNG PROJECT"
DEEPA PODUVAL, PRINCIPAL CONSULTANT, CONSULTING DIVISION,
BLACK & VEATCH MANAGEMENT, introduced herself. She stated
that she was working with Department of Natural Resources
(DNR) to develop economic analysis and commercial support
for the Alaska (AK) Liquid Natural Gas (LNG) Project.
PETER ABT, MANAGING DIRECTOR, CONSULTING DIVISION, BLACK &
VEATCH MANAGEMENT, introduced himself.
Ms. Poduval discussed the PowerPoint presentation,
"TransCanada Participation in AK LNG Project; Presentation
to House Finance Committee" (copy on file).
Ms. Poduval looked at slide 3, "Memorandum of Understanding
- Highlights of the Deal on the Table."
TransCanada Holds the State's Equity Share in GTP+Pipe
SOA Option to Buy Back 40 percent of TC's Share at
~FEED
State Commits to 25 Year Transportation Agreement with
TransCanada
Agreement Commits TC to a WACC of 6.75 percent
Various Milestones & Off Ramps for SOA and TransCanada
Ms. Poduval highlighted slide 4, "Options Identified by
State for Equity Participation." She stated that the slide
represented a picture of TransCanada's participation in the
project. There were three different options represented:
The first option was the State of Alaska (SOA) Alone. This
option did not partner with TransCanada. With a 25 percent
state equity participation would mean that the state held a
25 percent in the GTP. 25 percent in the pipeline; and a 25
percent stake in the LNG plant. The second option was SOA
plus TransCanada (TC) with no buyback. This option
contemplates that TC held and invested an equivalent to the
state's interest in the GTP and pipeline, therefore TC
would hold 25 percent of the GTP, 25 percent in the
pipeline, and the state would retain 25 percent in the LNG
plant. The third option was SOA plus TC with the buyback
option. In this scenario, TC would initially have the SOA
25 percent interest through the GTP and pipeline, but SOA
would be able to exercise an option where it purchases back
up to 40 percent of TC's share. Therefore, 40 percent of
the 25 percent share, would result in a 10 percent SOA
holding through the GTP and pipeline; TC would hold the
remaining 15 percent through the GTP and pipeline; and SOA
would continue to have 25 percent ownership in the LNG
plant. The state would continue hold 25 percent stake in
the LNG plant through each option. She stressed that that
option that involves TC revolved around optimizing the
state's ownership of the GTP and pipeline.
1:42:28 PM
Ms. Poduval discussed slide 5, "Implications of Options and
Potential Off Ramps." She explained that the Pre-FEED stage
would be from 2014 to 2015. During that stage, the
engineering and technical aspects of the project would be
worked out between the different parties. The stage was not
a very expensive stage of the project's development, but
only involved technical analysis and studies that helped to
narrow the range of the project's capital costs. The next
stage would be the FEED, from 2016 to 2018, which was the
front-end engineering and design. She remarked that the SOA
go it alone option on the slide showed that the dollar was
greatly increased as the project advanced through each
stage. She remarked that there were some important aspects
that would be worked through during the FEED stage, such as
the technical analysis and cost estimates. She stated that
commercial agreements and terms of sale would be made in
the FEED stage. The financing would also be sorted during
the FEED stage. With all of the decisions and analysis in
the FEED stage, the FID would occur, where the decision to
proceed with the project takes place. The last phase of the
project was construction, which was slated to take place
from 2019 to 2023. If the state were to embark on the
project without TC, it would be $108 in pre-FEED, $450
million in FEED, and $13.2 billion in construction. If the
state partnered with TC with no buyback, the state would
pay $43 million in pre-FEED, $180 million in FEED, and $6.7
billion in construction. If the state partnered with TC
with a 40 percent buyback it would invest $43 million in
pre-FEED, $360 million in FEED, and $9.3 billion in
construction.
1:47:52 PM
Co-Chair Austerman asked that the acronyms be specified.
Ms. Poduval replied that AFUDC stood for "Allowance for
funds during construction."
Ms. Poduval displayed slide 6, "Key Questions in Looking at
Value of TransCanada's Participation."
Economic impact to the state from TransCanada?
Can the state go it alone?
Is TransCanada a good partner?
Does TransCanada bear any financial risk?
Ms. Poduval addressed slide 7, "What is the Economic Impact
to State from TransCanada's Participation?"
During project development and construction, TC pays
60 to 100 percent of state's up front capital cost for
GTP and pipeline
Once project is operational, state pays TC a
negotiated tariff for 60 to 100 percent of GTP and
pipeline capacity used to move state gas
Economic analysis examines the net impact of reduced
upfront payments and tariff expenses over 25 year
period of operation
Ms. Poduval looked at slide 8, "TransCanada's Participation
Impacts SOA Up Front Cash Calls and Revenues from Project."
TransCanada's participation reduces the state's up-
front cash calls by $1.4 to 2.2 billion, assuming a
70-30 debt equity
TransCanada's participation reduces the state's
revenues by $200 to $360 million per year
1:53:31 PM
Ms. Poduval highlighted slide 9, "What is the Economic
Impact to State from TransCanada's Participation?"
TransCanada participation reduces the state's total
cash flows with buy back option
Minimal impact on the state on an NPV basis with
TransCanada participation
Ms. Poduval discussed slide 10, "Can the State go it
Alone?"
What are the capital cost and investment implications
of going it alone?
What are the debt implications of going it alone?
Ms. Poduval addressed slide 11, "SOA Upfront Capital Coast
Exposure is Reduced Through TransCanada Participation."
Highest risk exposure is prior to project start when
cash calls are not supported by project revenues
TransCanada ("TC") participation allows State to
retain 20 percent-25 percent of gas share while being
responsible for only 13 percent-18 percent of the
upfront costs
This is especially important if cost overruns occur on
project
1:57:56 PM
Ms. Poduval looked at slide 12, "SOA Upfront Capital Coast
Exposure is Reduced Through TransCanada Participation." She
stated that the left side represented a $45 billion
project, which was the base cost assumption. A partnership
with TC would reduce the state's investment by
approximately $3 billion. If there was a cost overrun of 20
percent with a $54 billion project, a TC partnership would
reduce the state's potential investment by approximately $4
billion.
Ms. Poduval discussed slide 13, "SOA Investment for a 25
Percent Ownership with TransCanada is Expected to be $1.3
to $4 billion Lower than for a 20 percent Ownership Going
Alone" and slide 14, "SOA Revenue for a 25 Percent
Ownership with TransCanada are Expected to be $0.4 to $0.5
billion per Year Higher Than for a 20 percent Ownership
Going Alone." The slides compared scenario where the state
went alone, with a 25 percent equity in the project and a
scenario that partnered with TC. The slides showed that the
state's resources are finite. She stressed that the
analysis focused on a way for the state to get a greater
cash share by partnering with TC. The three alternatives
that were represented were 20 percent equity alternative
with SOA go it alone at $11 billion; 25 percent equity
alternative with SOA and TV with no buy back at $9.7
billion; and 25 percent equity alternative with SOA and TC
with buy back at $7 billion.
Ms. Poduval discussed slide 15, "25 Percent Ownership with
TransCanada Increases State of Alaska NPV by $2 billion
Compared to a 20 percent Ownership Going Alone." The slide
showed that the state would have approximately $2 billion
less in NPV going it alone with a 20 percent equity share
than it could by taking a 25 percent equity share by
partnering with TC.
Ms. Poduval addressed slide 16, "Can the State Go it Alone?
- State's Debt Capacity."
Financing the State's share of the AKLNG Project on
the State's balance sheet - key issues:
At what cost of debt?
Debt servicing as what percent of general fund
unrestricted revenue?
Scenario 1 (lower interest)
SOA Debt at 4.6 percent
Debt Service limited to 3 percent of general fund
unrestricted revenue (GFUR)
Scenario 2
SOA Debt at 4.9 percent
Debt Service limited to 5 percent of GFUR
Scenario 3 (higher interest)
SOA Debt at 5.6 percent
Debt Service limited to 6 percent of GFUR
2:04:44 PM
Ms. Poduval looked at slide 17, "The Amount of Cheap Debt
Available to the State Could be Limited."
Indicative Levels of Debt for State to Finance 20
Percent Equity Stake in AKLNG Project
Analysis based on high level, indicative
assumptions based on input from Department of
Revenue. Financing arrangements for the AKLNG
project will become clearer further into the
development process.
2:10:49 PM
Ms. Poduval looked back at slide 16. She remarked that when
the second and third scenarios were considered, there is a
consideration of a 5 to 6 percentage of the GFUR. She
stated that the treasury had a guidance that the total debt
servicing for the state should not exceed more than 8
percent of GFUR. If the state tried to finance a
significant portion of the AK LNG project, the state would
use up the state's debt servicing capacity and only
allowing 2 to 3 percent of GFUR to serve all of the state's
debt.
Ms. Poduval highlighted slide 18, "Is TransCanada a Good
Partner for the State of Alaska in the AKLNG Project?"
Extensive experience in building, owning and operating
northern pipelines
Long history of interest in Alaska Pipeline
Retains momentum in the project
Facilitates expansion
2:16:59 PM
Ms. Poduval discussed slide 19, "Retaining Momentum on
Project Could be More valuable than Securing Better
Commercial Terms."
State of Alaska NPV:
Debt/Equity percentage
Each 5 percent decrease in equity ratio is
equivalent to $200MM in additional NPV to State
ROE
Each 1 percent decrease in ROE is equivalent to
$100MM in additional NPV to State
Project Delay
Each 1 percent decrease in ROE is equivalent to
$100MM in additional NPV to State
Ms. Poduval highlighted slide 20, "Does TransCanada Bear
any Financial Risk?"
TransCanada has committed to the following terms for
providing treating and transportation services to the
State
D/E split of 75 percent/25 percent
Return on equity of 12 percent; Cost of debt of 5
percent
Given the scale of this project and the uncertainties
associated with it, financing remains a significant
risk
Locking in this capital structure before actual
financing arrangements have been made for the project
places a risk on TransCanada of under-earning its
expected return on equity and eroding its expected NPV
from the project
2:24:42 PM
Ms. Poduval addressed slide 21, "Does TransCanada Bear any
Financial Risk?" She stated that TC carried the risk of
achieving a lower ROE if it is unable to finance the
project at the contractual rate of 5 percent. She pointed
out that if the two triggers were moved slightly, TC would
commit to using a 5 percent cost of debt. Regardless of
what TC was actually able to borrow the money for, the
tariff that the state would pay to TC would assume that
their cost of debt was not more than 5 percent. If TC had
to borrow at 6 or 7 percent, their absorbed the difference
in the cost of debt. She stressed that this TC debt would
not be carried over to the state.
Ms. Poduval displayed slide 22, "Does TransCanada Bear any
Financial Risk?" She stated that the state's NPV to the
project was approximately $13 billion, and TC's NPV to the
project was approximately $150 to 200 million, depending on
the equity share for the state and the buyback option.
TransCanada had a very small portion of the project's total
cash flow.
looked at slide 23, "Summary on Four Key Questions."
Economic impact to the state from TransCanada?
Total cash flows reduced by $4 billion; NPV
impact is marginal
Can the state go it alone?
TC can reduce SOA investment by $4 billion-$7
billion
SOA may hit debt limits going alone
Is TransCanada a good partner?
Experience
Momentum
Expansion
Does TransCanada bear any financial risk?
Change in financing could materially lower
TransCanada's ROE and NPV
2:31:28 PM
Co-Chair Austerman queried the time frame of the debt. Ms.
Poduval replied that the time frame looked at a 25 year
loan.
Co-Chair Austerman stressed that the state's major asset
was the Permanent Fund, and wondered how that asset was
considered when deciding how much debt could occur. Ms.
Poduval replied that there was no assumption that the
Permanent Fund would be invested in the project. She
furthered that the fund could be used as collateral against
what could be borrowed. She deferred further inquiries to
the Treasury Division.
Co-Chair Austerman felt that there was potential for other
structures of debt, rather than what was presented. Ms.
Poduval agreed, and furthered that it was too early to go
to the markets with a clear representation of what the
project will look like. She felt that there would be more
financial discoveries as the details on the project
emerged.
Co-Chair Austerman recalled some conversations regarding
incorporating the long-term debt into the long-term sales.
Ms. Poduval stated that the sales agreements must be
finalized before the financing could be secured.
Co-Chair Austerman wondered if the current debt was
considered, when the total debt was joined with the GFUR.
Ms. Poduval replied that the presentation only analyzed the
AK LNG project, and not consider any other debt obligation
to the state. She was attempting to highlight that the AK
LNG project alone could absorb between 5 and 6 percent of
the GFUR.
Representative Wilson looked at slide 4, and wondered if
the agreement with TransCanada would cost the state money
to exit the obligation with TransCanada. Ms. Poduval
deferred to DNR.
Representative Wilson remarked that if the state was
partnered with TC, it narrowed the state's options. She
wondered if the buyback option was too limiting for the
state. Ms. Poduval deferred to DNR for the cost of AGIA.
She announced that the perspective was based on a
standalone agreement, and not taking into consideration any
other TC agreements.
2:37:31 PM
Representative Wilson stressed that there must be
determination whether or not the legislature wants to
partner with TransCanada based on the HOA. She stressed
that she would like to understand what would occur if the
state wanted to sever ties with TransCanada.
Representative Holmes looked slide 17, and she understood
why the state was partnering with TransCanada. If there was
an analysis of what the state could afford, she queried the
importance of the percentage split. She wondered if the
state or any of the other partners cared about the
percentage split. She asked for more explanation regarding
the relative debt equity structure for the state, and how
that might affect the state or other's interests in the
project. Ms. Poduval replied that the capital structure,
debt equity mix, and the return on equity was most
impactful when there was a tariff attached to the project.
If the state invested in the project, the focus would not
be on the state's shipment of gas. There would be an
expectation of the subsidiary to earn a return on its
equity. The focus became relevant when contemplating an
expansion of the project, and creating access in the
project. There should be an competitive tariff offered for
the subsidiaries that may use the project for undiscovered
gas. She stressed that there should be a return on equity
in the state's investment to facilitate the expansion. The
state would be acting as a third party pipeline owner and
offering commercial terms.
Representative Holmes queried how the expansion would be
contemplated. Ms. Poduval responded that the HOA embraced a
"pipe within a pipe", which allowed each of the parties to
initiate an expansion. The provision would allow the
combination of the state and TC to expand the project. The
state would look like the equivalent of TC, as a pipeline
owner, which offered a service for other producers on the
North Slope to use the GTP pipeline and LNG capacity in
return for a service fee. The state would have a
competitive tariff to earn a return on the state's
investment for the expansion. There would be a negotiation
with the state for the capacity, so the state would be
encouraged to facilitate the expansion.
2:43:36 PM
Representative Holmes wondered if the debt equity ratio was
important in the build out, without looking at expansion
Ms. Poduval replied that the debt equity ratio was
important, even without expansion, because the state's
funds were limited. She stressed that there was some
analysis of the GFUR, which was around $4 to $5 billion to
the state, annually. When that was put with the peak of $2
billion annually to the project, the state would be
strained if it was only financed through equity. She
stressed that the project should be financed with debt in
order to retain the current revenues to fund other state
project.
2:45:13 PM
Representative Gara felt that the state was being slightly
leveraged by TransCanada. He referred to testimony from DNR
which claimed that TC did not have an AGIA claim against
the state, because this project took its place. He surmised
that the state would be required to pay TC all of the TC
investments, if the state refused to sanction the project
at that phase. Ms. Poduval replied with slide 5, and agreed
with Representative Gara's assumption. She stated that the
state would be required to pay back approximately $230 and
$390 million, depending on whether the state exercised its
buyback option before FEED.
Representative Gara stressed that it was a substantial cost
to the state, and wondered why that would be considered a
good option. Ms. Poduval replied that there could be a
focus on the AFUDC numbers, and consider those costs as
incremental with TC. She stressed that the state would
still be required to make payments to the development costs
with or without a TC partnership. The additional expenses
was the interest on the TC money, which was slightly over 7
percent. If the state were to look for a partner who would
provide a service as an expert to watch over the project,
she wondered if the state would be able to find someone
with the same expertise as TC.
Co-Chair Austerman handed the gavel to Vice-Chair Neuman.
Representative Gara expressed concern about whether there
could be a better deal with a different partner. He
wondered if there was a bid for partnership, or if TC was
the only partner considered. Ms. Poduval replied that there
was no bid for partnership, but rather a negotiated deal
with TC. She stated that there was an analysis regarding a
commercial bid that would provide value to the state, and
the potential downside from losing momentum on the project.
She stressed that the AGIA bidding process took
approximately two years to complete.
Representative Gara looked at page 11, and remarked that
the state got a royalty and production tax without the
pipeline. He noted that the cost to the state would be $7
to $10 billion to be an owner of certain components of the
line, just for the privilege of not receiving any tax. He
felt that there was no discussion of taxing like a
sovereign, and not paying the $ 7 to $10 million
investment. He queried the benefit of that structure. Ms.
Poduval replied that the question was not related to the
deal with TC. She stated that there had been discussion
regarding that issue, especially around the commercial
attractiveness of the project without the state's
investment. She stated that the analysis with the royalty
showed that the AK LNG project was complex and expensive,
and would likely need some changes to compete in the
market. She shared that there was an examination of
maintaining the royalty and tax regime, and reducing the
tax rate to improve the attractiveness of the project. She
stated that the results showed very little change in
revenue, because there was a $45 million up front
investment in the project. The initial investment did not
impact the producer returns on the project. She furthered
that, by reducing royalty and tax, there was value being
transferred from the state to the producers. She stated
that it could be effective, if it benefitted the producers
enough to make the project commercially attractive. Her
analysis showed that it did not change the scenario enough
to make it commercially attractive for the producers, which
initiated considerations of other options to provide value
to the producers without the state losing its value.
Vice-Chair Neuman handed the gavel to Co-Chair Austerman.
Representative Gara asked how meetings with Black and
Veatch could be scheduled. Co-Chair Austerman replied that
meetings could be scheduled through DNR.
2:55:34 PM
Vice-Chair Neuman was attempting to measure the value of
the dollars. He wondered if the wall street was assumed as
the "market." Ms. Poduval replied that her reference to
"market" pertained to two aspects: 1) the LNG market; and
2) the financial market.
Vice-Chair Neuman stated that his inquiries would reference
the financial market. He believed that the state already
paid TC $300 million, with a cap of $500 million in AGIA.
He wondered if there was a discussion regarding how the
money would be used, if TC's exclusive license was revoked.
Ms. Poduval deferred to the administration.
Vice-Chair Neuman wondered the total value and total cost
of the pipeline. Ms. Poduval replied that the total cost of
the project was $45 billion.
Vice-Chair Neuman remarked that the financial market was
approximately at 3 or 3.5 percent. He felt that the market
had a substantial effect on the interest rate. Ms. Poduval
responded that the different scenarios reflected a
sensitivity to what the possible cost of debt could be.
3:00:01 PM
Vice-Chair Neuman announced that he was trying to measure
the risk of the project. Ms. Poduval replied that the two
most important risks were price and capital costs. She
stressed that the price was the most impactful risk to the
project.
Vice-Chair Neuman surmised that the project would not be
sanctioned. Ms. Poduval agreed that the project would not
be sanctioned.
Vice-Chair Neuman stressed that there should be
consideration of the differentials related to the
availability of oil and gas in the global market.
Representative Munoz looked at the proposal on slide 11,
and remarked that TransCanada 25 percent ownership of the
GTP and pipeline; and the state had 25 percent ownership of
the LNG plant and 25 percent of the gas share. She also
addressed slide 8 related to revenue, with $4 billion in
revenue. She queried the split in revenue between
TransCanada and state once the project was complete. Ms.
Poduval deferred to Mr. De Stigter.
JASON DE STIGTER, SENIOR CONSULTANT, CONSULTING DIVISION,
BLACK & VEATCH MANAGEMENT (via teleconference), stated that
the state's revenues would be approximately $4 billion per
year, beginning in 2024. TransCanada's revenues would be
approximately $400 million per year.
Ms. Poduval asked if the TC revenue was the return on
investment component. Mr. De Stigter replied that it was
the net cash flow after taxes.
Representative Munoz looked at slide 21, and wondered if
there was a point at which the project became uneconomic
for TC as the cost of debt increased by 6 and 7 percent.
Ms. Poduval replied that there could be a point at which
the project was uneconomic for TC, as the cost of debt was
6 or 7 percent. She stressed that the key factor was about
what would increase the cost of debt. The market movement
would keep the rate tracker intact, but if it was based on
a change on TC's financial health and assumptions, the
project would be uneconomic.
3:05:16 PM
Representative Costello queried what would happen with the
damages issue with AGIA. Ms. Poduval deferred to the
Department of Law (DOL).
Representative Costello wondered if TC would be someone
that the state could depend on, in terms of brining the gas
to market. Mr. Abt replied that TransCanada was not an
active participant in the LNG market, but TransCanada was
only a transporter of gas. Ms. Poduval furthered that the
arrangement was that the HOA included intent by the
producers to market a proportionate share of the state's
gas. Rather than competing with the producers, the state
would obtain a percentage of the gas market.
Representative Costello asked if TC had the same
opportunity to extricate itself from the project. Ms.
Poduval responded that TC probably had that option, but
deferred to the DOL.
Representative Costello looked at slide 20, and noted that
TransCanada had determined certain terms: the debt equity
ratio and return on equity of 12 percent. She surmised that
the terms could change, if the underlying market changed.
She queried who would make the determination that the
underlying market would change. Ms. Poduval responded that
the MOU included the concept of the rate tracker, which
would measure the difference in the 30-year treasury rate
between when the transportation service was signed between
the state and TC and when the project went to FID. The
number would be available at the market, so there would be
no dispute.
Representative Costello queried the latest date to
determine the market change. Ms. Poduval replied that the
date would be at FID, because the rate tracker would show
the four or five years of movement in the market.
3:10:01 PM
Representative Costello queried the risk to the state as
the market was determined. Ms. Poduval responded that there
was a general expectation that rates with increase. She
opined that the rate tracker would most likely be positive.
Representative Guttenberg surmised that the project would
not be feasible without the state's participation. He
wondered if the project was feasible, because the value of
the gas would be transferred to the producers. Ms. Poduval
replied that there was no clear definition of "uneconomic"
versus "economic." The global LNG market was very dynamic,
so the supply curve was examined for the LNG market to see
where Alaska fell in the supply curve. She stated that
Alaska was out of the money relative to the band of demand
that one would expect to see in the market between now and
2030. She emphasized that it was not a static picture,
because all of the different projects would be attempting
to look competitive. Therefore, there was not a projected
point at which the project would become economic. The focus
was on decreasing project costs and increase the returns
for the producers, so the project could be more attractive.
The state's equity investment in the project would reduce
the producer's upfront investment needs.
3:14:50 PM
Representative Guttenberg surmised that the alignment was
not realistic. He felt that the competition was merely more
blurred. He remarked that the transfer of value to the
producers was considered the state's full value and moving
it downstream to processing. He stressed that there was an
issue of the difference between tariffs and wellhead price,
and this deal would force the state to pay TC to ship the
gas. He queried the place of the state in the negotiations.
Ms. Poduval responded that the state's equity participation
in the project provided each party an equivalent portion of
gas and an equivalent equity ownership through the project.
3:18:03 PM
Representative Guttenberg wondered if the state should take
the gas as far downstream as possible or take the gas at
the wellhead. Ms. Poduval replied that the state would be
receiving its gas at the wellhead, and own a path through
the project to move the gas through the LNG plant at the
very least.
Representative Guttenberg remarked that he knew what the
pipe feels like when it is cold and empty versus when it's
full. He understood each step of manipulation of the gas.
He felt that there should be a careful consideration of
each step of the process.
Representative Edgmon looked at slide 19, and asked for
more information regarding the net present value and the
cost of capital price. He specifically queried what the
state would lose in the project. Ms. Poduval responded that
the "do not delay" path showed the project operational in
2024, and followed the presented timeline with a five- year
construction period. The one- and two-year delays moved the
project back a couple of years, but the early investments
could grow and continue to be invested. She stressed that
there would be a cost to the state with each delay at an
estimated $800 billion per year. She stressed that there
could be a consideration of sensitivity on prices, which
would result in a similar projection of costs. She did not
believe that the price would offset the effects of the
relative impacts of the commercial terms that the equity
structure versus the impact of a project delay.
Co-Chair Austerman handed the gavel to Vice-Chair Neuman.
Representative Edgmon understood the urgency of the
project, and would ask his questions off the record.
Vice-Chair Neuman handed the gavel to Co-Chair Austerman.
3:23:24 PM
Representative Thompson wondered if there would be an issue
with TransCanada, if the Keystone project was not complete.
Ms. Poduval deferred to TransCanada.
Representative Thompson felt that simultaneous projects
might put a strain on the pipe building capacity, and
sacrifice the integrity of the project. Ms. Poduval agreed
that it would be a factor, and stressed that the LNG market
was highly competitive.
Co-Chair Austerman looked at slide 5, and remarked that the
range was total cost $45 billion- $55 billion. He stated
that Alaska had historically been a tax-based state, and
would change to a profit-based state. He wondered if that
was a fair assessment. Ms. Poduval replied that his
summation would be accurate.
Co-Chair Austerman wondered how much involvement there
should be with the citizens regarding this "leap of faith."
Representative Gara surmised that there was a total state
cost of $7 to $10 billion, which did not include the costs
of the producers' reimbursements of construction costs and
the cost of other forms of shipping infrastructure like
roads. Ms. Poduval agreed that the proposal did not include
those costs.
Representative Gara wondered if deductions were included in
the cost to the state. Ms. Poduval asked what deductions
Representative Gara was referring.
Representative Gara understood that Exxon, ConocoPhilips,
and BP could deduct certain upstream costs before
production from their oil taxes. He queried the total cost
of the project plus the cost of infrastructure and
deductions. Ms. Poduval replied that the cost of deductions
that were available for upstream infrastructure was not
shown in the cost picture for the AK LNG project. Those
costs were, however, incorporated when examining the impact
of the state's revenue. The net of any costs on the oil
site from Pt. Thompson's upstream costs allowed as a
deductions.
ADJOURNMENT
3:29:33 PM
The meeting was adjourned at 3:29 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 3.25.14 HFIN BV Presentation - TC.pdf |
HFIN 3/25/2014 1:30:00 PM |
AKLNG |