Legislature(1995 - 1996)

04/10/1996 03:16 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                          
                         April 10, 1996                                        
                           3:16 p.m.                                           
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Pete Kott, Chairman                                            
 Representative Norman Rokeberg, Vice Chairman                                 
 Representative Kim Elton                                                      
 Representative Jerry Sanders                                                  
 Representative Brian Porter                                                   
 Representative Beverly Masek                                                  
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 Representative Gene Kubina                                                    
                                                                               
 OTHER HOUSE MEMBERS PRESENT                                                   
                                                                               
 Representative Joe Green                                                      
 Representative Jeannette James                                                
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 Presentation by British Petroleum Out-Sourcing                                
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 No previous action to record                                                  
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 JOHN MORGAN, President                                                        
 BP Exploration (Alaska), Inc.                                                 
 P.O. Box 196612                                                               
 Anchorage, Alaska  99519-6612                                                 
 POSITION STATEMENT:  Gave Presentation on Out-Sourcing by BP                  
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 96-34, SIDE A                                                            
 Number 001                                                                    
                                                                               
 The House Labor and Commerce Standing Committee was called to order           
 by CHAIRMAN PETE KOTT at 3:16 p.m.  Members present at the call to            
 order were Representatives Kott, Elton, Porter, Sanders, Rokeberg             
 and Masek.  Members absent were Representative Gene Kubina.  A                
 quorum was present to conduct business.                                       
                                                                               
 CHAIRMAN KOTT announced the calendar for the meeting was a                    
 presentation by British Petroleum on out-sourcing.  He said there             
 have been a number of concerns expressed regarding some of the                
 problems perceived by the public on out-sourcing.  In an effort to            
 clarify some of the issues, Chairman Kott felt it would be helpful            
 to get the information directly from the source.                              
                                                                               
 Number 112                                                                    
                                                                               
 MR. MORGAN thanked the committee for giving him the opportunity to            
 talk on the topic of out-sourcing.  He, too was aware of the                  
 concerns and perceptions of difficulties regarding this issue.  He            
 prefaced his remarks by saying he was prepared to discuss what he             
 means by out-sourcing which is the way in which BP organizes their            
 work in order to be as effective and efficient as possible in their           
 relationships with parties to provide them with services and                  
 manpower.  In his mind, there are two other topics that are                   
 separate, but related.  Those two are not what he primarily                   
 intended to address; however, if the committee had issues that                
 overlapped in those areas, he was prepared to answer questions.               
 The first of the two additional areas goes under the general                  
 heading of Alaska hire which is clearly related to the number of              
 people working for British Petroleum and their contractors, who are           
 resident in the state of Alaska.  British Petroleum and ARCO,                 
 together with a number of contracting companies, have been                    
 addressing this issue recently and had presented a set of                     
 recommendations to the Administration.  He didn't intend to                   
 directly address that issue unless the committee had questions.               
 Mr. Morgan said the other area was generally under the heading of             
 the purchasing of goods and the proportion of their spend in                  
 purchasing goods that come into Alaska.  This again is an area                
 where he thought there had been some difficulty or concern                    
 expressed recently.  In his mind, it is separate from the issue of            
 out-sourcing; however, he knew there were some overlaps in people's           
 minds so he was prepared to answer questions from the committee.              
                                                                               
 Number 309                                                                    
                                                                               
 MR. MORGAN remarked he would like to spend a few minutes discussing           
 the background in the sense of the way he perceived the economic              
 and commercial challenges that the people in the oil industry were            
 trying to deal with to remain competitive in Alaska.  This, in a              
 sense, is certainly background to all three of the areas he had               
 mentioned.  The Prudhoe Bay field has been in decline since about             
 1988 or 1989.  Despite that decline, Prudhoe Bay clearly still                
 dominates production from the North Slope and it's likely to                  
 continue to do that for a long time to come.  At the same time, the           
 other large fields on the North Slope, fields like Kaparuk and                
 Endicott, are struggling to hold off decline at this stage in their           
 life cycle.  In the longer term, they obviously hope to see major             
 new developments able to take place in the Alaska National Wildlife           
 Refuge (ANWR) and through the development of the gas project.  At             
 best, those kinds of developments are 10 years away and remain, at            
 this stage, somewhat uncertain.  In the meantime, in BP's view                
 there is a great deal of potential on the North Slope.  British               
 Petroleum has estimated there is as much as five billion barrels of           
 potential new production available.  It is made up of a whole range           
 of different opportunities of satellites to existing fields,                  
 extensions to existing fields, enhanced oil recovery in existing              
 fields, heavy oil and new smaller fields like Northstar; fields               
 probably in the 100 to 200 million barrel range that so far have              
 not been able to be produced economically in Alaska.  All of that             
 potential - that in existing fields and that in new opportunities             
 like smaller fields - of course requires investment to make it come           
 to fruition.  Many of those opportunities may well be attractive              
 investment opportunities in their own right while others will be              
 relatively marginal opportunities.                                            
                                                                               
 MR. MORGAN felt it was important to understand that in making those           
 investment decisions, it isn't just the individual project that               
 matters, but it's the overall business context that exists in                 
 Alaska.  There may be attractive investment opportunities, but if             
 they sit within an overall context that is looking increasingly               
 unprofitable, then it will make it more difficult to attract those            
 investment funds here into the state.  That's why in his view it              
 was so important to maintain the health of the base business in               
 Alaska which is a tough challenge.  Prudhoe Bay does dominate that            
 base activity and Prudhoe Bay is currently declining at about 15              
 percent a year.  He said if they can continue to invest in Prudhoe,           
 then by the end of the decade he believed that decline would level            
 off and a new plateau on Prudhoe would emerge perhaps around                  
 500,000 barrels a day which is capable of being sustained for some            
 considerable time.  But clearly in moving down that decline curve,            
 they obviously have the challenge of adjusting their costs to try             
 to retain profitability in Prudhoe and in the underlying base                 
 business and by doing that, to keep an attractive climate to                  
 attract new investment funds for new opportunities.  Therefore, in            
 his discussion on out-sourcing, he would be mostly focusing on the            
 way in which they are trying to manage that base business; the way            
 in which they are trying to keep it efficient and keep it                     
 competitive over time.                                                        
                                                                               
 MR. MORGAN stated out-sourcing or contracting with third parties to           
 provide them with services and manpower skills is nothing new in              
 the oil industry either in Alaska or elsewhere.  Traditionally, oil           
 companies have relied on contractors to provide a wide range of               
 special skills and to help them accommodate variations in workload            
 over time.  The kinds of services that are really very                        
 conventionally handled in this way are catering services, security            
 services, seismic, drilling and well services, project engineering,           
 construction, et cetera.  Here in Alaska over the years, the two              
 operators, BP and ARCO relied on a number of Alaskan contractors;             
 well known companies like VECO, APC, Doyon, NANA, Lynden and others           
 to provide a whole range of maintenance general services including            
 maintenance support, project design and construction, support for             
 operational activity, drilling activity, housekeeping, catering and           
 general administration.  Of course, over time the market moves.               
 The existing contractors themselves develop new skills in their               
 organizations, new contractors emerge in new areas of activity and            
 new technology develops which creates new opportunities both for              
 existing contractors and for new companies.  Examples of areas                
 where new companies or new skills have been emerging and where a              
 person would be led to look at those organizations in terms of                
 taking on activities that have conventionally been carried out                
 inside their own company, include computing, telecommunications and           
 accounting services.  In all these cases, the companies that                  
 specialize in providing these kinds of services which for them                
 represent their core business, can offer a number of particular               
 advantages to a company like BP:  They can offer economies of scale           
 because they are providing that service not just to a single                  
 business, but to a whole range of other companies; they can provide           
 specific management expertise in that area of their specialization            
 at the level which is beyond that that's available inside the oil             
 company; they have ready access to technology; they find it easier            
 to maintain links perhaps with smaller companies who are at the               
 forefront of developing technology improvements in their area;                
 they are able to provide a flexible response to changing workloads            
 as projects come and go; and they can offer to their own staff                
 greater development opportunities within that core business of                
 their own, than a company like BP could offer to them working in              
 what is simply one peripheral component of BP's overall business              
 activity.  He noted those are some of the key benefits that can               
 exist in terms of having a company provide an oil company a set of            
 services on a specialist basis.                                               
                                                                               
 Number 781                                                                    
                                                                               
 MR. MORGAN further stated that here in Alaska and elsewhere in BP's           
 business, when they have contracted out an area in this way, quite            
 often they have formed what has become known as an "alliance"                 
 between themselves and that contractor which carries with it the              
 sense of a long term relationship.  A relationship in which the               
 business goals of the two companies are aligned together where the            
 outside company is operating to help BP achieve their objectives              
 and are measured on that performance and where their reward is                
 actually aligned to the delivery of that performance and the                  
 delivery of BP's own objectives.  Usually in those cases, although            
 the intent is to have a long term relationship, there will be                 
 regular performance reviews or approaches to bench marking to                 
 ensure the competitive performance continues to be delivered.  He             
 thought that was a fairly general statement about the nature of               
 BP's view of out-sourcing.                                                    
                                                                               
 Number 837                                                                    
                                                                               
 MR. MORGAN went on to discuss some of the activity currently going            
 on in relation to out-sourcing inside British Petroleum.  He                  
 thought that some of this activity may have been the cause of some            
 of the concern.  There were two broad areas that he would discuss.            
 Firstly, in relation to activity on the North Slope itself and then           
 a second area in relation to their accounting activities and the              
 out-sourcing of those which has been going on in the recent past.             
                                                                               
 Number 866                                                                    
                                                                               
 MR. MORGAN said firstly, on the North Slope they are currently                
 looking at out-sourcing four broad areas which would together                 
 include some 23 BP employees.  The first of those areas is telecoms           
 which is by far the largest.  There are 15 BP employees involved in           
 a potential out-sourcing of telecoms; however, they have not taken            
 a position at this point to out-source telecoms.  BP has a study              
 currently going on to examine whether this would be the right                 
 approach to developing a new out-sourcing relationship and he                 
 believed that study would be concluded around the middle of May.              
 He said in the event they do go forward with out-sourcing in this             
 area, probably either GCI or AT&T Alascom would be the company they           
 would likely contract with.  He reiterated there is no decision at            
 this time, but there is a study going forward at this stage.                  
                                                                               
 Number 934                                                                    
                                                                               
 MR. MORGAN continued that the next three areas are areas where BP             
 has basically taken a decision to out-source, but it is still                 
 subject to the conclusion of a satisfactory contractual                       
 relationship with the out-sourcing company.  The first is the tool            
 room area in which there are two BP employees involved and the out-           
 source company would be a company called Fairmont.  Fairmont is a             
 company that BP has recently brought in to take over their                    
 warehouse activities on the Slope.  Fairmont has a lot of                     
 experience and skills in managing warehousing and materials                   
 activities and to expand their warehouse activity to include the              
 tool room seems to be a natural outgrowth which offers particular             
 elements of efficiency by putting those two areas together.                   
                                                                               
 Number 980                                                                    
                                                                               
 MR. MORGAN noted the other two areas are the welding shop where               
 there are four BP employees involved and the painting and carpentry           
 shop where there are two BP employees involved.  British Petroleum            
 is looking to out-source both of those areas to VECO.  He said BP             
 believes the benefit of out-sourcing to VECO is that they can                 
 provide a more efficient operation by centralizing those activities           
 in their own pre-existing workshop that exists in Deadhorse.  That            
 is the current extent of BP's out-sourcing consideration and                  
 activity on the North Slope.                                                  
                                                                               
 Number 1053                                                                   
 MR. MORGAN said he would now discuss what may be behind some of the           
 concern expressed by constituents of committee members.  He said to           
 some extent this is speculation on his part, but it is clear that             
 we are now working within a union environment in Prudhoe Bay.  The            
 Oil, Chemical and Atomic Workers union gained a bargaining unit at            
 Prudhoe Bay at the beginning of 1995.  During the summer of 1995,             
 BP was in a long process of negotiating the contract with the                 
 bargaining unit at Prudhoe Bay.  A contractual agreement was                  
 reached during the fall of last year and in the course of pursuing            
 that agreement, it was important to BP to maintain the flexibility            
 to manage their business at Prudhoe Bay.  A contract was achieved             
 whereby BP was allowed to maintain that basic flexibility.  In a              
 sense, these out-sourcing activities he described are the first               
 such activities to develop since the conclusion of that contract              
 and they do, in fact, involve people who are part of the Prudhoe              
 Bay bargaining unit.  He believed that may explain some of the                
 sensitivity of the union members in Prudhoe Bay and may account for           
 some of the correspondence directed to the committee.                         
                                                                               
 Number 1127                                                                   
                                                                               
 MR. MORGAN said the other current area is the out-sourcing of BP's            
 accounting activity to Anderson.  Anderson is perhaps not very well           
 known to a lot of people, but it is one of the largest accounting             
 firms in the world.  He wasn't sure if it was a big four or a big             
 six these days, but certainly Anderson is one of the very top                 
 companies.  An off-shoot of Anderson Accounting is Anderson                   
 Consulting and BP has recently entered into an out-sourcing                   
 arrangement with them.  The history to this is that some years ago,           
 BP entered into an arrangement with the same company in the North             
 Sea for their North Sea operations accounting activities.  That has           
 three or four years of history and has actually been a very                   
 successful operation.  He thought it was viewed as quite a high               
 risk in the first instance when BP made that decision in Aberdeen,            
 but it has worked very well.  What happened earlier last year, was            
 there was a move on the part of the BP group to out-source the                
 accounting activities of all the BP businesses in North America;              
 primarily those in Alaska, an exploration activity based in Houston           
 for the Gulf of Mexico and downstream oil and chemicals business              
 activities centered in Cleveland but with a number of operating               
 areas around the Lower 48.  It was fairly clear there was a                   
 significant potential price to BP in doing this.  There were                  
 discussions with a number of companies and Anderson Consulting                
 emerged as the front runner for this activity.  He was a little               
 alarmed when he first became involved in this process because it              
 became clear to him that Anderson envisioned setting up a single              
 processing center in Houston to deal with all of this activity.               
 There were a number of meetings with Anderson and with BP's                   
 colleagues in the Lower 48 to explain the needs of BP's operation             
 in Alaska.  As a result of that, instead of seeing all that                   
 activity disappear to the Lower 48, Anderson agreed to set up a               
 branch of their activity here in Alaska which preserved about 60              
 percent of the jobs previously providing this service for BP here.            
 He thought this was an extremely valuable thing to do rather than             
 see those jobs disappear into the Lower 48.  The transition process           
 is underway currently and he thought there were about 59 people               
 involved overall, both in BP and NANA Corporate Services, who                 
 contracted their services to BP in this area, and about 35 of those           
 people will continue to have jobs in Alaska serving BP through the            
 Anderson organization.  Of the balance, more than half have decided           
 to accept jobs with Anderson in Houston and the balance either                
 redeployed to other jobs in BP or in a very few cases, elected to             
 leave the company at this stage.  He remarked that's a living                 
 example of where BP is on that particular issue.  He said there is            
 no doubt the savings to the BP Group from that out-sourcing                   
 activity will be really quite considerable.                                   
                                                                               
 Number 1347                                                                   
                                                                               
 MR. MORGAN explained that BP has no other specific plans for out-             
 sourcing on their books but as he said earlier, this is an issue              
 that revolves around movement in the market and the opportunities             
 that contracting companies create to do business with them.                   
 Therefore, BP will continue to examine all areas of their business            
 because they are clearly concerned about reducing their costs and             
 to increase their activity, to remain competitive, to keep that               
 base of their business competitive so they can continue to attract            
 investment funds here.  He believed it is likely that in the course           
 of time, BP will see other areas they will want to contract out.              
 He thought it would be a constant process as other organizations              
 seek to develop further core skills which they could sell and                 
 persuade BP they could perform more effectively than what BP could            
 perform within their own organization.  In the first instance, BP             
 would always aim to use an Alaskan company when contracting out               
 these activities.  The vast amount of the activity that is out-               
 sourced is out-sourced to an Alaskan company.  But where that isn't           
 the case and as was the case in the Anderson arrangement, BP would            
 work very hard to ensure that the contractor became established in            
 Alaska and operated to the same standards as BP themselves wish to            
 in terms of the hiring of Alaskan residents.  He didn't actually              
 think there was any direct overlap between the issue of Alaska hire           
 and the issue of out-sourcing.  There is no reason why out-sourcing           
 their activities should not continue to provide at least as high a            
 proportion of jobs in Alaska as the industry has currently.  Mr.              
 Morgan invited questions from the committee.                                  
                                                                               
 Number 1448                                                                   
                                                                               
 CHAIRMAN KOTT referred to the half dozen areas that BP is currently           
 either proposing or has already out-sourced and asked Mr. Morgan              
 what the time line was and what kind of considerations are entered            
 into the equation as to whether or not out-sourcing was going to              
 become a reality.                                                             
                                                                               
 MR. MORGAN said it's all the things that would be looked at in                
 terms of a normal commercial business decision.  Obviously, cost is           
 a key factor and what they look at is whether the third party                 
 company can provide that service over a period of time in a way               
 that will provide cost savings to BP over continuing to provide the           
 service within their own organization.  He believed that was the              
 essential driving element.  He had stated earlier, what's driving             
 BP overall is the need to reduce costs and retain efficiency in               
 order to remain competitive in attracting new investment into the             
 state.  He said they clearly have to be very conscious of the                 
 personal implications of these kinds of decisions; the implications           
 for the people who are involved.  He thought there had been times             
 in the past when BP had probably managed some of these activities             
 less professionally in terms of managing the people issues than               
 they would have liked, but believed BP has become much more                   
 conscious of that.  For example, while most of the people involved            
 in the accounting out-sourcing may not be very comfortable with               
 what happened, Mr. Morgan thought they would believe they'd been              
 treated with fairness and respect in the course of the                        
 implementation of that decision.  Clearly, that is one of the                 
 concerns that has to be taken into account.  But underneath that,             
 clearly the decision is primarily a commercial cost based decision.           
                                                                               
 Number 1557                                                                   
                                                                               
 CHAIRMAN KOTT asked about the time line involved from the initial             
 idea to the time it's actually put into action.                               
                                                                               
 MR. MORGAN said it varies.  If you think of something like                    
 transferring welding shop activities on the North Slope into VECO's           
 existing activities in Deadhorse, that ought to be something that             
 could be handled in a very short time frame.  On the other hand,              
 something like the Anderson out-sourcing arrangement which is on a            
 much bigger scale, probably has taken 12 months from inception to             
 implementation and perhaps longer than 12 months by the time it's             
 finally implemented.                                                          
                                                                               
 Number 1596                                                                   
                                                                               
 CHAIRMAN KOTT said even though there's only a half dozen areas                
 being looked at by BP to out-source, theoretically there could be             
 another area identified next week.                                            
                                                                               
 MR. MORGAN said that was correct because it is a constant process             
 and analysis of these kinds of issues is ongoing.                             
                                                                               
 Number 1613                                                                   
                                                                               
 CHAIRMAN KOTT recalled a newspaper article regarding out-sourcing             
 to a company in Utah and asked if BP Exploration (Alaska), Inc. was           
 involved with that.                                                           
                                                                               
 MR. MORGAN thought this was one of the areas of overlap and                   
 confusion he had alluded to earlier.  He wasn't quite sure of the             
 relationship with Price Utah, but he thought it dealt with an area            
 that concerns BP's policy in relation to the procurement of goods             
 and the spending of their funds to buy the goods needed for their             
 operations in Alaska.  He stated this was a whole different policy            
 area in a sense.  Some activity has been out-sourced to a very                
 successful out-of-state company called Fairmont who is a major                
 procurement contractor in the Lower 48.  They provide to BP a range           
 of procurement services including the information technology                  
 services to support BP's procurement activity and a range of                  
 information services that go along with that.  Also, Fairmont                 
 supplies BP with goods for a specific area of their purchasing                
 requirements and those goods are largely being sourced from                   
 Fairmont's existing supply sources in the Lower 48.  He thought the           
 company referred to by Chairman Kott was probably one of those                
 existing supply sources.                                                      
                                                                               
 Number 1700                                                                   
                                                                               
 CHAIRMAN KOTT asked what BP does with employees that lose their               
 positions due to out-sourcing?                                                
                                                                               
 MR. MORGAN said whenever they see a redundancy situation arise,               
 they have a range of policies in place to support the people who              
 are involved.  They have out placement services, general counseling           
 services and rather generous redundancy terms that are available.             
 For those people who are members of a union, obviously the                    
 arrangements are governed by BP's contractual relationship with the           
 union.                                                                        
                                                                               
 Number 1732                                                                   
                                                                               
 REPRESENTATIVE BRIAN PORTER said the first time he was told that BP           
 was out-sourcing, it struck him as a natural conclusion that a                
 company that size would be able to out-source other companies;                
 however, at that time he didn't know what out-sourcing meant.                 
 After reading a few articles he now understood it and suggested               
 that for general public appreciation, the term "contracting out"              
 might be better understood.                                                   
                                                                               
 MR. MORGAN responded that "out-sourcing" was a word that had become           
 current in the business vocabulary; however, it is effectively                
 contracting out.  Because it does impact people in the way it does,           
 there is an emotional level of involvement surrounding it.                    
                                                                               
 Number 1780                                                                   
                                                                               
 REPRESENTATIVE PORTER commented that having been on both sides of             
 the table, the discussions that go on about contracting are                   
 interesting at the very least.  He presumed that BP Exploration had           
 a contract in place that allows contracting out within that union's           
 work.                                                                         
                                                                               
 MR. MORGAN replied yes, and added that was what he was referring to           
 when he had stated it is a key priority for them to retain                    
 management flexibility to make those kinds of changes as part of              
 their contract arrangements with the union.                                   
                                                                               
 Number 1810                                                                   
                                                                               
 REPRESENTATIVE PORTER said generally for a whole lot of reasons,              
 not the least of which is good company policy, it seems to him that           
 the kinds of things BP did in the process of out-sourcing the                 
 accounting activities provides about as much protection as                    
 employees can expect.  With the exception of three or four                    
 employees, they all either stayed in Alaska doing the same job for            
 another employer, stayed within the company or got an opportunity             
 to relocate.  He asked if it was a fair assumption that the other             
 23 people who may be out-sourced would have the same kinds of                 
 opportunities?                                                                
                                                                               
 MR. MORGAN believed that was right.  It is their hope those people            
 would be prepared to transfer to the contractual organization and             
 use their skills within the more efficient context of that                    
 organization.  It is clear that one of the issues here is that the            
 contractual organization's pay rates are lower than BP's pay rates.           
 He didn't believe that in the vast majority of cases the motivation           
 for a contracting out decision of that kind can and should be                 
 driven purely by lower wage rates.  It needs to be driven by a                
 broader business logic of efficiency.  In the cases previously                
 discussed, that efficiency would come from centralizing activities            
 within a pre-existing single work shop rather than having                     
 duplicated work shops.  In the case of telecoms for example, it               
 would come from the development of a much more specialized body of            
 knowledge around this area and the fact that this is now the core             
 skill for some third party organization.  In a world of fast moving           
 technology, it makes sense to use that third party organization to            
 manage that activity because they have access to a much broader               
 skill base.                                                                   
                                                                               
 Number 1915                                                                   
                                                                               
 REPRESENTATIVE NORMAN ROKEBERG said he would like to further delve            
 into the relationship between BP and the Fairmont Company to gain             
 a better understanding.  Some of the major concerns expressed by              
 many of the vendors in the state is they are fearful of BP's                  
 relationship with Fairmont in that it will have a negative impact             
 on their ability to do business in the state.  Also, the concern is           
 that the relationships they've had with BP and other members of the           
 petroleum industry will be jeopardized because of that particular             
 contract.  He asked Mr. Morgan to describe the scope of services              
 covered in BP's contract with Fairmont.                                       
 MR. MORGAN commented he would like to take a moment to discuss                
 their policy for the procurement of goods.  He felt it was only by            
 explaining it that the committee could understand fully what the              
 nature of their relationship is with Fairmont.                                
                                                                               
 Number 1965                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG interjected that he wanted committee                  
 members to understand the distinction between contractors and                 
 vendors.                                                                      
                                                                               
 MR. MORGAN said what had been discussed in relation to out-sourcing           
 was contracting with third parties for the provision of services;             
 the provision of a welding shop, provision of the service of                  
 managing their telecommunications, managing their accounting                  
 activity and the provision of skilled manpower to go with that                
 service.  That is what he had been discussing under the general               
 heading of "out-sourcing."  Essentially, what he's talking about              
 now is the way in which BP goes about acquiring the goods actually            
 needed as inputs for their business in Alaska.  He noted that BP              
 would establish a direct relationship with a Lower 48 supplier for            
 items like valves and things of that nature because those items are           
 not directly available to them in Alaska.  However, in looking at             
 the goods that are essentially available in Alaska through Alaskan            
 suppliers, we're talking about an overall group of goods with a               
 value of about $32 million.  In their minds, BP has divided those             
 goods into two categories.  One is the category referred to as                
 general industrial goods which is sometimes called "rope, soap and            
 dope."   That group of goods has a value of about $5 million to               
 $5.5 million.  The balance of approximately $26 million is a group            
 of 8 or 10 broad categories of goods that are more homogenous                 
 groups than the general industrial goods group.  The contract                 
 entered into with Fairmont about 15 months ago, had really two                
 parts to it.  One was Fairmont was going to provide BP with general           
 support services for their procurement activities including                   
 information technology support services; actually managing BP's               
 transactions through electronic data management across all their              
 procurement activities.  Also, BP agreed that Fairmont could                  
 provide to them, as the prime supplier, the general industrial                
 goods area.  The reason for that decision was that BP's analysis              
 suggested that Fairmont had a competitive advantage over that range           
 of goods of about 22 percent over the suppliers that exist in                 
 Alaska.  He said that is actually a range that runs from probably             
 minus 6 percent up to plus 70 percent in terms of the value                   
 differential.  It's a significantly wide range but averages about             
 22 percent.                                                                   
                                                                               
 Number 2112                                                                   
                                                                               
 MR. MORGAN said in reality in 1995, roughly $3 million of that                
 business transferred from Alaskan vendors to go through Fairmont              
 and clearly that represented a loss of business to a number of                
 small vendors in Alaska.  In that general area of BP's business, it           
 was costing them about 75 cents to administer their procurement for           
 every dollar spent; clearly this arrangement very substantially               
 reduces that overhead burden.                                                 
                                                                               
 Number 2139                                                                   
                                                                               
 MR. MORGAN stated that BP's overall policy in terms of this                   
 procurement is very clearly to increase the level of their spend in           
 Alaska and what they are very close to doing and will be moving               
 towards in the course of the next couple of weeks, is going out to            
 bid for the 8 or 10 bundles of goods beyond this general industrial           
 goods group.  They will be going out to bid purely to Alaskan                 
 suppliers on that group of goods which means they expect to bring             
 about $6 million to $7 million worth of value that is currently               
 spent in the Lower 48 to Alaska as a result of those contract                 
 awards.  That should be fully in effect before the end of this                
 year.  Mr. Morgan stated, "What we have said to the suppliers at              
 the smaller end of the spectrum, the general industrial goods end             
 of the spectrum, is that having examined that bundle -- when we               
 took our decision with Fairmont, we simply looked at that overall             
 bundle of goods and could see that 22 percent differential and that           
 was why we put that package through to Fairmont.  Having looked at            
 it more carefully, we have seen there is one area within there that           
 actually may have a competitive benefit or certainly be competitive           
 in Alaska and that is the area of electrical goods.  What we have             
 told those suppliers is that providing we can agree to a                      
 contractual amendment with Fairmont - and I believe we will be able           
 to - we will be prepared to offer those electrical goods for                  
 bidding purely to Alaskan contractors, so that piece of it should             
 come back into the state.  We've also told those suppliers that if            
 they can approach us and convince us that in some way they can                
 create a structural change to overcome that competitive                       
 disadvantage that exists in the other areas, then we would again be           
 prepared to approach Fairmont within the terms of our existing                
 contract with them and seek another contract variation in order to            
 bid that particular area again to Alaskan suppliers.  But we would            
 need to be convinced that there was a genuine ability to be                   
 competitive in Alaska in order to do that."                                   
                                                                               
 Number 2242                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked if there was a provision in the                 
 contract with Fairmont that they locate any premises in the state             
 of Alaska?                                                                    
                                                                               
 MR. MORGAN didn't believe so.                                                 
                                                                               
 REPRESENTATIVE ROKEBERG asked if they were located in Price, Utah             
 or somewhere in Utah?                                                         
                                                                               
 MR. MORGAN believed that was correct.                                         
 REPRESENTATIVE ROKEBERG commented that Fairmont was actually                  
 conducting a good deal of this business in accumulating the general           
 commodity merchandise...                                                      
                                                                               
 MR. MORGAN said this has been their business for many years in the            
 Lower 48 and they are one of the two or three leading operators in            
 the general procurement and supply area.                                      
                                                                               
 Number 2279                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked, "Did your accounting department or             
 administrative people make an analysis of the number of vendors               
 that you were able to delete off the 75 percent high overhead costs           
 to go to one vendor versus how many other vendors?"                           
                                                                               
 MR. MORGAN responded he was absolutely sure they did, but he                  
 couldn't give the exact number.  He added it was a very significant           
 reduction in the size of the overhead.                                        
                                                                               
 REPRESENTATIVE ROKEBERG asked if BP had re-openers in their                   
 contract with Fairmont?                                                       
                                                                               
 MR. MORGAN said no, they didn't but the contract with Fairmont had            
 another three years to run.  He thought Fairmont was sensitive to             
 wanting to achieve the same outcomes as BP.  He thought that BP has           
 indicated that in a couple of areas they have found a better way to           
 put into effect the policy they've always had.  Their policy is               
 clearly to balance on the one hand the achievement of the possible            
 cost for these materials and efficiency in delivering them with               
 properly looking to do the maximum amount of that business they can           
 legally do in Alaska.  And by looking inside that bundle rather               
 than treating it as a whole, at this stage BP has said there is one           
 area - the electrical group area - which they believe could be                
 competitive in Alaska and they are prepared, subject to Fairmont              
 agreeing to modify the contract, to put that out to bid to Alaskan            
 vendors.                                                                      
                                                                               
 Number 2350                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG questioned if at the time BP entered into             
 the contract with Fairmont, there were any Alaskan vendors that               
 could meet the specifications of the scope of work that BP                    
 contracted Fairmont to do.                                                    
                                                                               
 MR. MORGAN responded no.                                                      
                                                                               
 REPRESENTATIVE ROKEBERG commented that basically they were limited            
 in the choice of people who provide that service.                             
                                                                               
 Number 2363                                                                   
                                                                               
 REPRESENTATIVE JERRY SANDERS expressed his appreciation to BP for             
 their existence in Alaska and all the things they've have done                
 cooperatively.                                                                
                                                                               
 MR. MORGAN said they intended to be in the state for a long time to           
 come.                                                                         
                                                                               
 REPRESENTATIVE SANDERS commented that the Governor in support of              
 concessions on Northstar made the statement that if we're going to            
 share in the rewards, we have to share in the risks.  When the                
 Governor talked of sharing the rewards, in Representative Sanders'            
 mind, one of the biggest rewards that could be shared in is good              
 paying, meaningful jobs for Alaskan people.  To him, jobs are as              
 important or more important than profits and dollars that go into             
 the state coffers that can be spent for welfare, unemployment or              
 government jobs.  He likes good private sector jobs, which BP can             
 supply.  He asked Mr. Morgan what percentage of BP employees were             
 Alaskans?                                                                     
                                                                               
 MR. MORGAN said the definition of Alaskans is tricky, but by BP's             
 calculation 85 percent of BP employees are resident in Alaska.  He            
 admitted there is an issue regarding measurement in this area.  He            
 believed the state's official measurement numbers are geared to               
 people who are recipients of the permanent fund dividend check and            
 of course, there is a significant residency permit for that and               
 some of his colleagues who come from abroad and live in Alaska for            
 three or four years may never qualify for the dividend, as he may             
 never qualify.  Yet he is here in Alaska, spending his money in               
 Alaska and thinks of himself clearly as an Alaskan resident while             
 he's here, which he hopes will be for a long time.                            
                                                                               
 Number 2459                                                                   
                                                                               
 REPRESENTATIVE SANDERS asked if the 23 people who will be displaced           
 with the current out-sourcing program are Alaskan employees?                  
                                                                               
 MR. MORGAN didn't have the answer to that question, but added he              
 could get the answer for Representative Sanders.                              
                                                                               
 TAPE 96-34, SIDE B                                                            
 Number 008                                                                    
                                                                               
 REPRESENTATIVE SANDERS... 5 percent like yours is?                            
                                                                               
 MR. MORGAN said he hesitated to use the word "control" for all                
 sorts of reasons; however, he thought BP could have lots of                   
 discussions and influence in their relationships with their                   
 contracting companies.  He said he liked to preface these kinds of            
 comments by saying, "The oil and gas industry has by far the best             
 record of any industry in Alaska in terms of the employment of                
 Alaskan residents."  Having said that, it is clear the proportion             
 has been falling for not just the operators, but the contractors in           
 the course of the last couple of years.  As a result of that, BP              
 and ARCO as the two operating companies came together with about 20           
 of their contracting companies earlier this year to work a set of             
 issues between them as to how the level of Alaskan employment could           
 be enhanced and produced a report with a set of recommendations               
 which has been presented to the Administration and which they                 
 intend to follow through very carefully.  The recommendations in              
 that report are under three broad headings.  First, in relation to            
 training, having some good forecasts about what their labor                   
 requirements will be, looking at what is available in the state and           
 making sure training programs are available to have Alaskans                  
 available for those jobs in the future.  The second set of                    
 recommendations are under the general heading of hire.  Here there            
 are some really quite simple issues.  Sometimes, the jobs have not            
 been widely advertised in Alaska.  The third area is that of                  
 measurement and he personally believes that if these areas of focus           
 are properly measured, then things will be done to change them.  He           
 thought all companies involved in those discussions have agreed               
 individually to set themselves a goal for improvement and to                  
 measure their performance against that goal and to make that                  
 information available.  He thought there were some very good signs            
 out of that activity including individual commitments from the main           
 contractual organizations and he believed that genuinely would have           
 an effect.  He added that it's not something that happens in five             
 minutes but he thought that over a period of 18-24 months, a                  
 positive effect will be seen from those actions.                              
                                                                               
 Number 121                                                                    
                                                                               
 REPRESENTATIVE BEVERLY MASEK said during the course of Mr. Morgan's           
 testimony she had been of thinking about what's been going on with            
 Alaska's economy and the oil companies and noted that ARCO had done           
 some downsizing in the past.  She thought that according to ARCO's            
 testimony before the Joint House/Senate meeting on April 2, 1996,             
 they had asked each of their departments to meet or beat bids from            
 outside companies for functions like accounting and maintenance.              
 She asked Mr. Morgan if BP Exploration (Alaska), Inc., planned                
 to do that also or what their plans were for the future relating to           
 downsizing.                                                                   
                                                                               
 MR. MORGAN said there are no specific plans beyond those that he              
 spoke about in his earlier testimony for the out-sourcing of                  
 further work from BP.  However, there is a constant evaluation                
 process going on so there is no great master plan of any kind that            
 he could tell committee members about.  He could say that all the             
 areas of their organization, both on the North Slope and in                   
 Anchorage, understand the context of their business activity.  He             
 believed that only if all their employees understand the business             
 context they operate within, can they properly make their maximum             
 contribution to the enterprise.  Therefore, BP takes a lot of time            
 and a lot of trouble to try to keep all their employees involved              
 and fully informed on that context.  That means that in all those             
 areas, people are engaged in looking for ways to reduce costs.                
 They are looking at ways to do that in terms of internal spending             
 in the organization, the way overheads are set up internally;                 
 looking at it in terms of how they manage their external spending,            
 their relationship with all their contractors, which includes the             
 possibility of changing the boundaries of those relationships and             
 putting some more activities into the contractual (indisc.-                   
 coughing) that are currently in BP; it involves looking at                    
 transportation costs, both through the work that Alyeska is doing             
 and the work that BP's shipping organization based in Cleveland is            
 doing to try to ensure they are operating effectively while                   
 obviously maintaining the safety and environmental standards.  He             
 said that all of these areas of focus exist in their organization             
 and they will be constant changing.  However, it's not organized in           
 some totally controlling way from the top or a small group of                 
 managers; it's one where the whole organization is engaged in                 
 trying to create that greater efficiency needed to maintain the               
 competitive position.  He commented that people do understand there           
 is a real opportunity to new investment.  There are some really               
 good opportunities that exist on the North Slope today, but if BP             
 is going to compete inside the organization for the investment                
 funds to do that, they must keep the whole organization                       
 competitive.                                                                  
                                                                               
 Number 266                                                                    
                                                                               
 REPRESENTATIVE MASEK asked Mr. Morgan what BP's plans were for                
 getting more Alaskan hire on the North Slope?  She didn't think               
 that Representative Sanders' question had been completely answered            
 regarding the percentage of Alaska hire versus BP's total North               
 Slope employees.  She asked if BP had any plans to implement a                
 tracking system to determine exactly how many of those employees              
 were truly Alaskan residents?  Also, she thought the Department of            
 Labor should look at the criteria for determining residency for               
 individuals working on the North Slope.  Many of her constituents             
 have expressed concern about individuals working on the North Slope           
 and although they actually live in the Lower 48, they still collect           
 the permanent fund dividend.                                                  
                                                                               
 Number 373                                                                    
                                                                               
 MR. MORGAN commented the questions raised by Representative Masek             
 were certainly broad.  With respect to what may amount to potential           
 fraud in relation to the dividend checks, that goes beyond what he            
 is prepared to address.  He is conscious that a number of the                 
 addresses that BP and their contractors have for employees are post           
 office boxes and perhaps they need to be a little more careful in             
 understanding whether those really do represent residential                   
 addresses in Alaska or not.  That is one of the things they have              
 identified as needing to get a better understanding of.  With                 
 regard to setting targets and objectives, Mr. Morgan said the work            
 that BP, ARCO and their contractors have just done, does include a            
 recommendation that all of the companies involved should set                  
 targets themselves individually.  He thought it was likely illegal            
 for BP to seek to set targets for its contractual organizations.              
 It is absolutely fine if those organizations wish to set targets              
 for themselves.  He didn't think it would be sensible to try to set           
 a single target that all companies should aspire to; they do have             
 different situations.  Some of the contractors are really quite               
 low, perhaps even 50 percent in terms of Alaska residents employed            
 while others are 75 percent and above.  He said, "One might look to           
 those at the lower end, perhaps not to achieve 75 percent in six              
 months, but certainly to see some earlier and fairly rapid                    
 improvement.  Those at 75 percent clearly are not going to be able            
 to see enormous gains on where they are now.  So, a different                 
 target would be appropriate for them."  He commented that BP has              
 not yet themselves set their target against the 85 percent number             
 but there is a group working on these issues and what actions                 
 should be taken internally to try to improve their position.  He              
 was very confident that some improvement would be seen, but                   
 hastened to add the oil and gas industry is very, very                        
 substantially the best performer in this area and other Alaskan               
 industries should no doubt be receiving some attention on this                
 issue, also.                                                                  
                                                                               
 Number 496                                                                    
                                                                               
 MR. MORGAN said in response to the issue of timing of tours on the            
 North Slope, there has been increasing flexibility in timing                  
 between the one/one schedule and the two/two schedule for BP                  
 employees and they have a fair degree of choice available.  He                
 noted that one thing they could do is try to move all their staff             
 on a one/one schedule which would make it much more difficult to              
 live in the Lower 48.  He thought that might raise some significant           
 difficulties with the union and it certainly would be a negotiable            
 item as far as the union was concerned.  Also, he had been told it            
 would be a difficult issue as far as some of the Native staff with            
 respect to travel to and from the villages.  He remarked these were           
 not simple issues.  To some extent, they also have an aging work              
 force and as some of those people have gotten older and have to               
 begun to think about their retirement possibilities, surprising as            
 it may be, some of them obviously don't anticipate spending all               
 their declining years in Alaska and have decided to set up a home             
 out of state.  Therefore, some of those things are structural                 
 issues that are difficult to deal with and maintain a real sense of           
 fairness in the way BP treats their people.                                   
                                                                               
 Number 569                                                                    
                                                                               
 REPRESENTATIVE MASEK asked what the future was as far as BP working           
 with Alaskan companies that could provide contract work?  Also, she           
 asked if Mr. Morgan had a listing of all the companies BP deals               
 with and what was involved in the decision making process to bring            
 in out-of-state companies for services such as maintenance,                   
 welding, etc.                                                                 
                                                                               
 MR. MORGAN said the vast majority of the companies that BP deals              
 with providing those kinds of services are Alaskan companies.  He             
 thought perhaps the issue more properly is how does a company like            
 VECO or APC go about recruitment when it needs additional skilled             
 staff.  As he stated earlier, if BP does find themselves wanting to           
 contract with a company from outside the state because they offer             
 the quality of service that BP feels they need for that particular            
 activity, BP would then strongly encourage them to move their                 
 operating base into Alaska and to operate to the standards of                 
 Alaska hire as BP themselves do.  He thought that is broadly what             
 happened in the Anderson arrangement.  He commented that in the               
 last few weeks, he had talked to a number of legislators about                
 Northstar and he believed this is a terrific opportunity to start             
 moving on a new generation of smaller oil fields which do represent           
 part of the future in Alaska and indeed move into the offshore                
 area, which introduces its own set of issues and problems                     
 particularly for the residents of the North Slope.  It will create            
 real jobs throughout the state for Alaskans and it will create real           
 new business opportunities, particularly in building some of the              
 larger modules for Sealift up to the North Slope that have always             
 been built in the Lower 48 previously.  He knew there was a lot of            
 interest and discussion around the agreement between BP and the               
 Department of Natural Resources on Northstar.  He urged committee             
 members to familiarize themselves with the agreement and to use               
 their judgment as to whether this is a good and favorable deal for            
 the state of Alaska.  He truly believed it is and will help create            
 the future discussed.                                                         
                                                                               
 Number 718                                                                    
                                                                               
 REPRESENTATIVE KOTT noted that if an individual is living out of              
 state and receiving a dividend check, it is in fact a violation and           
 it's fraudulent activity.  He asked Mr. Morgan if his assessment              
 was correct in that 85 percent of the work force is made up of                
 Alaskan residents and the other 15 percent are those individuals on           
 the two-week rotation.                                                        
                                                                               
 MR. MORGAN said some employees may manage to do this on a one-week            
 rotation if they live in Seattle for example, but he thought most             
 of them would be on the two-week rotation.  He commended the report           
 produced by BP, ARCO and their contractors on this issue and                  
 offered to make it available to the committee.                                
                                                                               
 Number 792                                                                    
                                                                               
 REPRESENTATIVE KOTT said that committee members had received the              
 report the previous week at the joint hearing.  He thought it was             
 difficult to address out-sourcing without addressing Alaska hire              
 and believed what Representative Masek was getting at was the                 
 Department of Labor's annual report which indicated that about $106           
 million was earned by non-Alaskans within the oil and gas industry.           
 Thus, while the oil and gas industry has the highest employment               
 rate of residents, there's also the highest amount of dollars                 
 leaving the state from nonresidents.                                          
                                                                               
 Number 820                                                                    
                                                                               
 REPRESENTATIVE KIM ELTON asked what the scope was in terms of                 
 vendors?  He could understand electrical supplies, but what about             
 office supplies?  Did BP go down the street and buy office supplies           
 or was that part of the vendor contract?                                      
                                                                               
 MR. MORGAN replied he couldn't answer that specifically, but he               
 thought that was precisely the kind of supplies - it is very much             
 the small end of things.  Protective gloves and those types of                
 things would be included in the general industrial goods group that           
 he discussed earlier.                                                         
                                                                               
 Number 884                                                                    
                                                                               
 REPRESENTATIVE ELTON surmised that some of the concerns that had              
 been expressed were from smaller suppliers who would like to have             
 an opportunity to provide some of the smaller items.  He commented            
 that the scope then does go down quite far; in other words it's not           
 just major procurement but general office procurement, also.                  
                                                                               
 MR. MORGAN responded yes, and added this area of general industrial           
 goods is the area in which BP was paying literally 75 cents in                
 overhead for every dollar they spent.  Not only did they have that            
 overhead, but overall they could see there was a 22 percent average           
 competitive disadvantage to buying those goods in Alaska versus               
 what they were available through the Fairmont supply arrangement.             
 Those two components together make that a very attractive                     
 proposition.  What is does, of course, is have a relatively                   
 disproportionate impact on quite a number of Alaskan suppliers,               
 which he understood.  As he indicated earlier, BP is always trying            
 to strike a balance between managing themselves in a cost effective           
 and efficient way and doing all they can to properly maximize the             
 amount of their spend in Alaska.  With regard to the other $26                
 million worth of goods, it is clear that BP will do everything they           
 can to do that business in Alaska.  They will bid it only to                  
 Alaskan companies; however, they do expect to have a conversation             
 on competitive performance within that framework, but he thought              
 they would be bringing roughly $6 million worth of business into              
 the state which has previously been in the Lower 48.  In doing                
 that, there will be a consolidation, so there will undoubtedly be             
 some winners and some losers in the process.  He thought that was             
 the nature of trying to do this work more efficiently; it's tough             
 to do that and keep everybody happy.                                          
                                                                               
 Number 995                                                                    
 REPRESENTATIVE ELTON agreed with Mr. Morgan and said oftentimes               
 some of the concern is that a company may not have the contract to            
 supply a certain item, but if they have the notion they won't have            
 an opportunity to get it in the future, it's obviously going to               
 create concern.  Representative Elton mentioned the fishing and               
 tourism industry as specific examples of industries that don't have           
 the Alaska hire record that the oil and gas industry has.  Alaskans           
 don't want a lot of those jobs either, but they probably covet the            
 jobs in the oil and gas industry.  He thought one of the ways the             
 oil and gas industry could help would be to suggest what the state            
 needs to do in some of these cases.  For example, with the                    
 construction of the modules in Alaska, if that's possible and if              
 Northstar is developed, they may need to know what infrastructure             
 the state or the city of Anchorage for example, is needed to make             
 that possible.  It may even be down to the level of what university           
 programs are needed or what the vocational education programs need            
 to be.  He hoped the dialogue could continue between the state and            
 the oil and gas industry.                                                     
                                                                               
 MR. MORGAN said he appreciated Representative Elton's comments and            
 added there are some real practical issues.  For example, he was              
 aware that conversations had taken place with the Department of               
 Transportation in terms of weight limits on roads for transporting            
 modules.  Those limits can be varied to make it possible to do more           
 in the state.                                                                 
                                                                               
 Number 1141                                                                   
                                                                               
 REPRESENTATIVE JOE GREEN said that Mr. Morgan had indicated in the            
 Resources Committee hearing earlier in the day there was some $380            
 million to be spent of which all but about $140 million would be              
 spent in state and of the $140 million roughly $100 million would             
 be on materials that weren't available within the state.  If that's           
 the case, he wondered if BP planned to use in-state suppliers of              
 equipment like truck tires for example, that aren't made in Alaska            
 but could be procured through vendors in the state and would that             
 be considered part of the in-state or part of the $100 million?               
                                                                               
 MR. MORGAN said, "Well, I think what I would say is that the policy           
 that I've just been describing for procurement which is for most of           
 those areas and I would imagine -- I can't -- I'd have to confirm             
 this, but that things like tires and transport materials would be             
 one of those 8 or 10 categories that I'm talking about being bid              
 out, that that would basically play by the same rules that our                
 chosen supplier under those bidding arrangements to Alaskan                   
 companies would be the supply source that the project would use."             
                                                                               
                                                                               
 Number 1226                                                                   
                                                                               
 REPRESENTATIVE GREEN asked if Fairmont would be considered the                
 procurement decider or would it be done within BP?                            
 MR. MORGAN responded all of those areas that will be bid out,                 
 including the electrical goods area subject to the contract change            
 that he discussed earlier, will be bid out by BP; the contracts               
 will be directly with BP; and the business relationship will be               
 managed by BP.  Fairmont would still provide the underlying                   
 information and technology services to support BP's supply                    
 management systems, but the business relationship would be with BP.           
                                                                               
 Number 1273                                                                   
                                                                               
 REPRESENTATIVE GREEN asked in the categorization of in-state versus           
 out-of-state, would a company like Fairmont be considered in-state            
 or out-of-state.                                                              
                                                                               
 MR. MORGAN said he thought a company needed an office address in              
 the state and an Alaskan business license to be an in-state company           
 legally.  He was sure that Fairmont and any other Lower 48 company            
 could achieve that.  One of the things BP is considering internally           
 is whether, within the framework of the law, they can try to define           
 a somewhat more substantial Alaskan presence in terms of what they            
 mean by an Alaskan contractor.  He didn't know what would be                  
 legally possible, but clearly it would be quite helpful if they               
 were able to create some broader definition that required a more              
 substantial presence in the state.                                            
                                                                               
 Number 1391                                                                   
                                                                               
 REPRESENTATIVE GREEN said he was thinking in terms of more than the           
 legal requirement or a post office box; he surmised that it would             
 be regulated by whether or not they meet the requirement legally.             
                                                                               
 MR. MORGAN remarked what he was saying was he thought that would be           
 the legal definition of an Alaskan company.  What he had indicated            
 earlier is when BP enters into a relationship with a company from             
 outside the state, they would encourage the company to have that              
 direct presence in the state and to apply the same standards in               
 relation to hiring employees as BP themselves would apply.  He                
 further stated that BP was investigating whether it's possible,               
 within a legal sense, to have some tighter specification regarding            
 an Alaskan company than the minimal legal requirement and he didn't           
 know the answer at this point.                                                
                                                                               
 Number 1410                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked how committed BP is at this time to             
 construction of the largest modules in the Port of Anchorage?                 
                                                                               
 MR. MORGAN asked if that question was in relation to Northstar?               
                                                                               
 REPRESENTATIVE ROKEBERG affirmed that.                                        
                                                                               
 MR. MORGAN reiterated that BP has said for the Northstar project,             
 they are committed to hiring Alaskans, committed to work with                 
 Alaskan contractors, and committed to build modules in Alaska                 
 including the largest modules for Sealift provided the facilities             
 are available.  He said they aren't in the business of investing in           
 those facilities; this is an issue that must fall therefore with              
 the main fabrication contractors that exist like APC and VECO, both           
 of whom are alliance partners with BP on the Northstar project.  He           
 further stated that BP will do everything possible to work with               
 those contractors to figure out how to make those facilities                  
 available.  Also, there was testimony in the House Resources                  
 Committee earlier that there is likely to be some premium involved            
 in building those modules here at this time and that's something BP           
 has accepted in going forward with that proposal.  He is                      
 increasingly confident from conversations he's had that it will be            
 possible to build those modules here, find a way to assemble them             
 and load them out in the port of Anchorage area.                              
                                                                               
 Number 1513                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked if Mr. Morgan knew how many                     
 foreigners or non-United Kingdom residents worked for BP in the               
 North Sea?                                                                    
                                                                               
 MR. MORGAN said there was quite a lot.  He didn't have the exact              
 number, but offered to furnish the information to the committee at            
 a later date.  He added the North Sea work force is a pretty                  
 cosmopolitan work force.                                                      
                                                                               
 REPRESENTATIVE ROKEBERG said his point was that BP has this type of           
 issue; e.g., local hire, in other parts of the World.                         
                                                                               
 MR. MORGAN thought it was a natural and proper conversation and               
 added BP's policy is to hire Alaskans and to do business in Alaska            
 to the maximum extent possible, clearly always respecting the law.            
 He noted that when he was working in Aberdeen, they had many                  
 similar conversations about, in particular, support of local                  
 business in the area.  He thought the difference was that there's             
 a deeper infrastructure supporting the oil industry around Aberdeen           
 as there is in Houston.  He thought the problem in Alaska is that             
 many of the companies who operate in Alaska actually still have               
 their head offices somewhere in the Lower 48.  There are not that             
 many Alaskan companies that have grown up, so it's a much thinner             
 group of companies in Alaska than the deeper infrastructure that              
 exists in other major oil operating centers.                                  
                                                                               
 Number 1651                                                                   
                                                                               
 REPRESENTATIVE PORTER thanked Mr. Morgan for addressing the                   
 committee.  He thought Mr. Morgan had adequately addressed the                
 concerns he had heard.                                                        
                                                                               
 Number 1679                                                                   
                                                                               
 REPRESENTATIVE GREEN commented that BP probably hadn't come to a              
 selection site but once the Northstar project was sanctioned and              
 had been given the go-ahead, he wondered how long it would take BP            
 to determine that large modules could be built in Anchorage so the            
 port could prepare for that eventuality.                                      
                                                                               
 MR. MORGAN thought it was the other way around.  He said BP would             
 need to know with a pretty high degree of confidence by the middle            
 of summer this year, that the appropriate facilities can be                   
 provided of the right quality, at the right time in order to decide           
 how to fully implement the design of the project and begin to                 
 contemplate where to place the orders for the modules.  He noted              
 this would be a very intensive piece of activity for the project              
 team in the course of the next couple of months.                              
                                                                               
 REPRESENTATIVE GREEN asked if the port of Anchorage was involved in           
 that loop?                                                                    
                                                                               
 MR. MORGAN thought the port of Anchorage as well as the city of               
 Anchorage was involved.                                                       
                                                                               
 Number 1777                                                                   
                                                                               
 CHAIRMAN KOTT asked if there were additional questions for Mr.                
 Morgan.  Hearing none, on behalf of the House Labor and Commerce              
 Committee he thanked Mr. Morgan for his testimony and for                     
 clarifying the confusing term known as "out-sourcing."                        
                                                                               
 ADJOURNMENT                                                                   
                                                                               
 Number 1832                                                                   
                                                                               
 There being no further business to come before the House Labor and            
 Commerce Committee, CHAIRMAN KOTT adjourned the meeting at 4:40               
 p.m.                                                                          
                                                                               

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