Legislature(1997 - 1998)
04/10/1997 08:05 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 10, 1997
8:05 a.m.
MEMBERS PRESENT
Representative Mark Hodgins, Chairman
Representative Scott Ogan
Representative Joe Ryan
Representative Tom Brice
Representative J. Allen Kemplen
MEMBERS ABSENT
Representative Norman Rokeberg
Representative Con Bunde
COMMITTEE CALENDAR
Trans-Alaska Gas Line Participants
Van Meurs Report - Suggested Legislative Action
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
WILSON L. CONDON, Commissioner
Department of Revenue
P.O. Box 110400
Juneau, Alaska 99811-0400
Telephone: (907) 465-2300
POSITION STATEMENT: Presented Administration's recommendations for
legislative action and time line for Trans-
Alaska Gas System (TAGS) line.
PAUL FUHS, Lobbyist
for Yukon Pacific Corporation
10652 Porter Lane
Juneau, Alaska 99801
Telephone: (907) 790-3030
POSITION STATEMENT: Gave presentation on behalf of Yukon Pacific
Corporation.
PETER DeMAY, Senior Vice President of Engineering
Engineering Department
Yukon Pacific Corporation
1049 West 5th Avenue
Anchorage, Alaska 99501
Telephone: (907) 265-3100
POSITION STATEMENT: Gave presentation on behalf of Yukon Pacific
Corporation.
MARK BENDERSKY, Commercial Manager for Gas
BP Exploration (Alaska) Incorporated
P.O. Box 100360
Anchorage, Alaska 99501
Telephone: (907) 263-4939
POSITION STATEMENT: Gave presentation on behalf of BP Exploration
(Alaska) Incorporated.
ACTION NARRATIVE
TAPE 97-16, SIDE A
Number 0001
CHAIRMAN MARK HODGINS called the House Special Committee on Oil and
Gas meeting to order at 8:05 a.m. Present at the call to order
were Representatives Hodgins, Ogan, Ryan and Kemplen; there was a
quorum. Representative Brice arrived at 8:32 a.m. Sites on
teleconference included Anchorage, Kenai, Houston, San Antonio,
Chicago and Calgary.
Trans-Alaska Gas Line Participants
Van Meurs Report - Suggested Legislative Action
Number 0090
CHAIRMAN HODGINS announced the committee would hear the
Administration's time line on the Alaska North Slope gas project.
He said they would be talking in generalities and looking at a plan
that may become a little more flexible. The committee had been
charged with being a facilitator to the producers, the
Administration and the people of Alaska who ultimately own 12-1/2
percent of the royalty oil on the North Slope.
CHAIRMAN HODGINS advised that first to speak would be Commissioner
Condon of the Department of Revenue, presenting the
administration's recommendations for legislative action and a time
line for the Trans-Alaska Gas System (TAGS) line. They would also
hear from some parties interested in participating in the project.
Number 0203
WILSON L. CONDON, Commissioner, Department of Revenue, testified
that he had been assigned by the Governor to spearhead the
Administration's efforts in looking at issues related to the
proposed project to market Alaska North Slope gas in the Far East.
He stated, "And what you have is a one-page paper which is our
proposed work plan to ... investigate matters which we believe we
ought to be looking at now, working towards the possibility of
making a proposal of a substantive nature to the legislature. And
if it makes sense to do that, this work plan would, we hope, put us
in a position to do that next year during the next legislative
session."
COMMISSIONER CONDON said this set of tasks stems from working from
Dr. Pedro van Meurs' report as a base. Questions include whether
there should be modifications to the fiscal regime that would be
imposed on the project today as a consequence of the state
contractual relationship with the producers; he mentioned the state
tax regime that would be imposed on the producers and the pipeline,
as well as local taxes that would be imposed on the producers, the
pipeline and liquefaction plant owners.
Number 0385
COMMISSIONER CONDON said "issue number one" is whether at this
juncture it makes sense to put enabling legislation in place to
facilitate moving forward over the next year to address the issues
that need addressed; whether the executive branch will propose such
legislation is still under consideration. The substantive issues
that then must be addressed are: Should there be modifications to
any of the tax and royalty arrangements currently in place? If
yes, how should they be changed? He stated, "And this sets out a
time line for considering those issues and for presenting them to
the legislature next year, if we can work our way through those
issues that quickly."
COMMISSIONER CONDON continued, "The next set of issues is: What
about dealing with the federal fiscal system? A point we try to
make over and over again is that if this project is constructed,
the major beneficiary fiscally, of all of the interested entities,
is going to be the United States Treasury. If this project is
built in the United States, it will supply a niche in the Far East
market, and the revenues that are achieved as a consequence of
marketing this gas in the Far East would inure to the producers of
the gas, the owners of the transportation facility, the state of
Alaska and the federal government."
COMMISSIONER CONDON continued, "If this project is not constructed,
it's not a project that's going to be constructed somewhere else in
the United States. There's not going to be an LNG facility in Coos
Bay, Oregon. If this project doesn't get a niche in the market,
that niche is going to be taken by someone producing gas in
Sakhalin or Indonesia or Abu Dhabi or Cotter. And in each and
every one of those instances, those projects would be configured
fiscally so the United States government didn't get a share, the
economic rent that would be created by the project."
Number 0580
COMMISSIONER CONDON continued, "So this is a win for the United
States if, in fact, the project is constructed. It's the better
part of $30 billion, in nominal dollars, for the federal treasury.
And, to make the project economic, in the range of project costs as
we've eyeballed them today, and in the marketing situation as it
exists today with energy price levels where they are, making this
project economic would be aided immensely if the federal government
were willing to make some modifications to their own fiscal system.
In fact, they could quite easily have a much bigger effect on the
economics of this project than state and local governments here in
Alaska. And they would be the big winners if they were to do that.
And so the question is: Is there a constructive way that we could
approach the federal government and persuade them to look at this
project and see it as the benefit that it would be to them?"
Number 0674
COMMISSIONER CONDON said the third set of issues relates to fiscal
certainty. If constructed, the project would likely require a
substantial portion of the life of the project, with earnings as
projected today, to be economic. Requiring a long pay-out, in
order to attract investors it might require them to believe there
will be a stable fiscal and tax system, without major changes in
tax rates.
COMMISSIONER CONDON said, "And the question is: Is there a way
that the state, under the constitutional arrangements that apply to
the taxing authority of the people of the state of Alaska as
expressed through their legislature, that ... some kind of fiscal
certainty can, in any way, be assured or guaranteed? We don't
believe that it's possible to provide an absolute guarantee. But
there may be some vehicles available which would make investors
feel comfortable that they'd made a deal with the state of Alaska
which would survive. So that's that set of issues, and those
issues would necessarily be addressed contemporaneously with a
review of ... the overall state and local fiscal system."
Number 0818
COMMISSIONER CONDON discussed "regulated industry issues" relating
to how the federal and state governments regulate pipelines as
franchised businesses, almost in some instances as utilities. He
said if constructed, the pipeline may be a common carrier. If so,
what kind of regulation would apply? And what kinds of changes
might be appropriate with respect to the possibility of new gas
being discovered and the producers of that gas displacing gas that
was committed to the Far East market through this project?
COMMISSIONER CONDON stated, "And, obviously, there's a very remote
chance that somebody's going to find another reservoir up there the
size of the Prudhoe Bay reservoir and bring it over and hook it up
to this project once constructed and say, `you know, since we have
the same amount of gas you do, we've got to split the capacity
fifty-fifty. And, you know, we're going to take our half to
California.' The constructors of this project have to believe that
the chances of something like that happening are zero in order to
put themselves in the position of committing the kind of resources
that this project would require. And so the whole set of issues
that pertain to the way the government, through the Public
Utilities Commission here in the state of Alaska and the Federal
Energy Regulatory Commission at the federal level, would
certificate and regulate the pipeline in terms of what we call
economic regulation."
Number 0960
COMMISSIONER CONDON discussed the next set of issues, particular
items the state must consider in terms of what it does with the
pipeline as it focuses on whether it ought to proceed, and if it
proceeds, with the kind of arrangements being discussed here.
First is a socioeconomic study. He stated, "Obviously, where
you're talking about possibly putting a fiscal system in place that
is back-end-loaded, that might alter the property tax and remove
that as a source of revenue for local governments during
construction, the question is going to arise: Well, if we do this
and all of the impacts that come with it in terms of social
displacement, need for additional schools and on and on, is it
worth it in terms of finding some way to endure that kind of
displacement and pay the social costs that go with it for the
public revenue and other economic benefits that would come with the
project? And that's a question that ought to be asked and answered
at this time."
COMMISSIONER CONDON suggested state participation should be looked
at during the next year. He said the question of taking in-kind
and in-value should be examined at the front end of this project.
He stated, "If the producers build a project and enter into
contracts to take 2 billion cubic feet of gas to the Far East and
find customers there who sign up for long-term contracts and make
those arrangements, and then a couple of years into the project the
state decides to take its one-eighth's share, 250 million cubic
feet a day, and market them in the Cook Inlet, then you will not
have a project sized to meet the customer demand that the project
was built for. And so the state, at the front end, is going to
have to figure out ... what it's going to do with its option. And
is it going to commit itself, rather than trying to keep its option
open as a means of providing the kind of certainty that this
project requires?"
Number 1133
COMMISSIONER CONDON said although legislation that requires Alaska
hire would not pass constitutional muster, there are many things
the state might do to facilitate Alaska hire on this project in
terms of training, recruiting, and so forth; those might be matters
to address legislatively at this time.
COMMISSIONER CONDON stated, "We put down `other important issues.'
If the form that this package took at its conclusion was a
contractual arrangement between the state, the producers and the
other owners of the pipeline, there's a lot of what we usually
refer to as boiler plate that does not/would not go to the heart of
the fiscal arrangements - royalty rates, tax rates, and so on - but
nevertheless are important. And those are matters ... which we
should take up sooner rather than later."
COMMISSIONER CONDON said finally, there is a question of how to
involve all the various interests that will want input. This is
something the public should care a lot about, and they need to stay
in touch with the public throughout the process. Local governments
have a special interest because any fiscal package to facilitate
this project would likely modify the state's ability to collect
revenues under the 20-mill property tax while the project is under
construction and perhaps during its ramp up.
COMMISSIONER CONDON concluded, "At the end of the day, doing
something like we are looking at doing here is a legislative policy
determination. And the legislature either will or will not enact
legislation that will accomplish this or put a package like this
into operation. And so, keeping the legislature informed and
involved, both while they're in session here and on an interim
basis, is something which it's going to be very important for us to
do." He offered to answer questions.
Number 1336
REPRESENTATIVE JOE RYAN expressed enthusiasm for this project.
However, concessions might be requested. He stated, "Dr. van
Meurs, in his report, talked about the difficulty of unitizing
these fields, that BP would lose approximately 400 million barrels
of oil which they wouldn't recover. Mr. Campbell, in an interview
the other day, was rather disparaging about ... the prospects of
this project. I hear a lot of `ifs' coming down as to what we're
going to do. And I'm willing to put a lot of work into this to
make this thing happen, but I'm not willing to waste my time if
it's already predetermined that it's not economically feasible,
that we don't have the ability to access this window, that the
Japanese markets are telling us in reports that we should have been
there already and we should have done the negotiations, that we're
a day late and a dollar short. And, you know, if there's the
enthusiasm behind this, and if this thing is going to really work
the way it is, why are we hearing a lot of these disparaging things
from people that make it look like the state of Alaska is going to
have to really make some big concessions to get this, and
therefore, everybody else's bottom line is going to go up a little
bit and we're going to accept the work of the (indisc.) and perhaps
not the revenues we should get?" Suggesting he was perhaps being
too cynical, he asked for the commissioner's opinion on his
comments.
Number 1426
COMMISSIONER CONDON replied that in a sense, legislators are paid
to be cynical in looking at projects such as this. If the state
makes concessions, they must ensure they are not hoodwinked. He
said even if they are able to put a package like this together, and
the legislature acts on it, it is possible that even with changes,
the project still won't be economic. He stated, "And we won't know
that until we do it and see what happens. It's going to be close.
We know that, and yet the potential benefits that are there, I
think, make it worth trying. But that's a judgment. I mean, there
are going be people who look at this and say, `When I see the kind
of changes we have to make, which is moving our revenue from the
front end to the back end and so on, it's just not worth it to me.'
And that will be a policy choice that everyone that's an important
actor in it will have to make as we work through the project. But
there are no guarantees now. There are no guarantees that we'll do
a good job. We'll pledge we'll try to do it, and I believe we
will. And there are no guarantees that if we do a good job, the
project will be built."
Number 1530
CHAIRMAN HODGINS commented that the committee, the state and the
producers are trying to determine whether this is feasible. He
stated, "And in this determination, we need to look at a lot of
different aspects that will possibly get the price of this gas line
and this project down 15 to 20 percent from what it's projected
right now. So we're looking at all of the ramifications that the
state, the federal [government], the producers and the technology
that's coming forward to build this line -- at this moment, I don't
believe we have a single customer for a single BTU of gas."
CHAIRMAN HODGINS continued, "What we have to do, and this is the
role of this committee, is to bring forward the issues and to bring
forward a single voice, a single protocol, ... as you'd mentioned
last time, Representative Ryan, to go forward to our customers with
one voice. And that's what we're trying to facilitate now. And
there's a lot of very deep questions that we're going to have to
ask, and this is a very appropriate time to ask them, to establish
whether we are actually going to go forward with this. I know that
the producers have formed a steering committee, and they're working
amongst themselves trying to figure out if this is even feasible
economically. We need to appreciate the fact that they need to
make a profit to make this happen. The state of Alaska needs to
get some revenue off this. The people of the state of Alaska need
to get some revenues off this. So we're all working the same
direction on that. It's just how we sort it out at this point.
And it's very important that we're all fairly vocal at this point
to establish our ground, our parameters for what's important for
our people, the state of Alaska, and the people that are going to
invest in this line."
Number 1623
REPRESENTATIVE J. ALLEN KEMPLEN said, "This took a lot of work.
Now we're doing the budget for next year, providing the resources
for the various agencies, an operating budget. And it's been my
experience that when you have a project, if you want to shorten the
time frame on that project, you can add additional resources in
order to get more work out of a limited period of time." Referring
to the chart provided by the commissioner, he asked whether there
were opportunities to shorten the time frame if additional
resources were provided to the Department of Revenue either for in-
house or contract work.
COMMISSIONER CONDON responded, "At some point along the way, I'm
sure that we will request funding for this effort. There is a
level of effort that is appropriate to getting this work done.
Throwing a lot more people into the effort above and beyond that,
I think, might actually slow it up rather than speed it up. And
so, the long and the short answer to your question is: We do need
some additional resources to be able to do this, but I caution
against throwing too much at it because I don't think the schedule
can be accelerated substantially by doubling up on the amount of
people you have working on it."
Number 1741
REPRESENTATIVE KEMPLEN asked, "What's your time line for a budget
for this project?"
COMMISSIONER CONDON said that is still under consideration by the
Governor.
Number 1761
REPRESENTATIVE SCOTT OGAN stated, "Our trade representatives in the
Pacific Rim that we contract with through the Department of
Commerce gave a presentation to us here a while back, and one of
the gentlemen that was speaking emphasized that we're perceived as
- not to use the word `dysfunctional,' but I think it's probably an
appropriate word as far as how we deal ... with the Pacific Rim.
... There's not one voice from producers or Yukon Pacific. And he
emphasized, very strongly, that that needs to happen this year, you
know, that the market window is 2005 and that there are other
people that are competing for this." He asked Commissioner Condon
to evaluate that statement.
COMMISSIONER CONDON said he agrees with the observation that the
trade representative made; having different entities from Alaska,
or associated with Alaska, talking about different proposals to
market North Slope gas in the Orient is confusing. He said the
executive and legislative branches of state government have made
major efforts towards going to the market with one voice. "We're
not there yet, but that still an objective that we'd like to
achieve," he added.
Number 1870
REPRESENTATIVE OGAN stated, "It was my perception that the
perception of the Pacific Rim was maybe further exacerbated by the
fact that during the MOU [memorandum of understanding] that the
parties that were signing the understanding to work together
wouldn't even sit down at the same table and sign the understanding
together. To me, and you don't have to answer this, but to me,
that's a statement that we need to work together." He said "we"
was the state, including the legislature and the Administration, as
well as the producers and the "pipeline people." He concluded,
"This is a little hard but it seems disingenuous to me."
COMMISSIONER CONDON commented, "The MOUs between the state and the
producers, and between the state and Yukon Pacific, are not quite
the same because they have somewhat different interests. Yukon
Pacific doesn't yet have any gas. And the producers obviously have
an interest in an enormous amount of gas and are affected
differently by the fiscal system." He said there was a signing
ceremony that included everybody. He suggested one could look at
the glass being 7/8 full or 1/8 empty; he would like to emphasize
the former.
Number 1950
REPRESENTATIVE OGAN concurred that much progress had been made in
the last year. He said, "And I'm looking forward to further
progress when everybody's sitting down at the same table and
everybody shows up at the same table in the market and says, `Okay,
we're ready for business.'" He said that was his point.
COMMISSIONER CONDON expressed understanding of that and said they
were working hard to "get the other eighth into the glass."
Number 1979
REPRESENTATIVE OGAN noted that there had been speculation lately on
the gas-to-liquids approach. He asked whether that is feasible
within the time frame of the market window at this point.
COMMISSIONER CONDON replied, "I don't know the answer to that
question for sure, and in some sense, nobody else does either. The
question of whether technology, technological advances, inventions,
if you will, are made that change how that process might work, ...
may or may not happen. Today, based on what's publicly available,
it looks like marketing this gas by taking it to tide water and
turning it into liquid methane and moving it to market to liquid
methane is the most economical thing to do. But we do see large
projects that look like they're going to be constructed where we're
turning methane, ethane, and propane into more complex hydrocarbon
molecules and making -- and those would be transportable through
the existing TAPS pipeline if you could make them economically on
the North Slope. And it would be silly for ... the interested
parties not to continue to look at that. If there is a huge
breakthrough, it would be marvelous for all of us. It hasn't
happened yet, but it could."
Number 2069
REPRESENTATIVE KEMPLEN asked how the time line put together by the
Administration matches up against those of the competition.
COMMISSIONER CONDON replied, "I don't know what the precise time
line is with respect to the other projects that we're really
competing head-to-head with, in terms of going through and doing
this sort of work. It is something that I could get for you. This
is really the best I think we can do right now in terms of what it
is going to take to just get the work done. And that's all we can
do, in terms of the competition here, is to do our best."
Number 2145
REPRESENTATIVE RYAN referred to Alaska hire and the inability to
directly legislate such practices. He said he represents a group
of people who desperately need work and who have, according to the
1990 census, the lowest household income in Anchorage. He stated,
"I plan on doing something about that. My personal feeling is that
we should have 80 to 85 - perhaps 90 - percent local hire by ...
contractual agreements similar to what we've done on Northstar.
And ... particular conditions can be made in contracts that can't
be made in statute. We know this from labor agreements. I realize
the need for multi-national companies to run their operations and
have people with particular knowledge and expertise that can't be
obtained locally, but I'm also interested in people in Alaska not
only receiving work but receiving job training so they can develop
skills, that after the oil fields are done, we do have in place a
skilled work force. And that's one of the things for which I will
be pressing very much as a contractual arrangement. You have had
some experience with this through the Northstar. What are your
thoughts?"
COMMISSIONER CONDON replied, "All I can do at this point is pledge
to do as much as possible to try to make sure that we have done all
we can to qualify Alaskans to be able to do this work, and then
once qualified, that we do everything we can to make sure they get
hired. We want to make sure we don't get ourselves into another
constitutional fight about all this, but there's a lot we can do
that is perfectly legal and that will give Alaskans the best chance
they can possibly have to get good jobs here."
Number 2249
REPRESENTATIVE OGAN asked whether Commissioner Condon believes it
would be helpful or appropriate at this time to work legislatively
on issues such as a tax deferral and a property tax deferral
scheme. He then asked whether it would be more helpful to wait and
do more of a comprehensive approach. He suggested if worked on
now, it could be rolled into more comprehensive legislation later.
He mentioned getting some of the issues on the table, especially
with local governments that will be affected by a tax deferral
scheme, for example.
COMMISSIONER CONDON responded, "I think that taking a comprehensive
approach to this makes the most sense right now."
Number 2288
CHAIRMAN HODGINS noted that the state, which will be a 12-1/2
percent owner of the gas through its royalty program, is one of the
players. He asked how the state negotiates with private enterprise
and how that has been done in the past. Referring to sensitive
areas, he asked whether those are negotiated in the open and how
the state should plan on negotiating as a player.
COMMISSIONER CONDON said it depends on how the state decides to
proceed. If it is going to take any of its royalty share of this
gas in kind and sell it, there are legislatively established
procedures for conduct of those negotiations, subsequent entering
into contracts and contract approvals. He noted that the
Department of Natural Resources (DNR) has statutory authority to
conduct those negotiations and explained, "They have the authority
to do that in a way that people generally negotiate commercial
deals, and that is, sit down and trade drafts and ideas. In some
instances, the state is required to conduct competitive sales. It
doesn't always have to do it if certain hurdles are met."
COMMISSIONER CONDON pointed out that the state can do it
competitively, in which case it offers and takes bids on a
contract. It can also do it noncompetitively; in that case, a set
of standards must be met, and noncompetitive contracts are
negotiated like any other contract. He stated, "There's a process
for public review, both at a board level - the Alaska Oil and Gas
Royalty Development Advisory Board - and then the statutes call for
legislative approval of those contracts. The question of whether
the legislature has the authority to compel that kind of review has
been something that the executive and legislative branches have
disagreed about in terms of what the legislature can make the
executive do; but the executive has always wanted to present those
contracts for legislative review in any event, in every instance.
And so that's the process."
TAPE 97-16, SIDE B
Number 0010
CHAIRMAN HODGINS asked, "If the state of Alaska becomes a partner
in the gas line or any of the infrastructure, is that a different
set of rules?"
COMMISSIONER CONDON said currently there is no explicit set of
rules that would apply, as there is with respect to royalty sales.
Number 0025
CHAIRMAN HODGINS thanked Commissioner Condon. He announced the
next segment of the hearing would include testimony, some via
teleconference, from Jeff Lowenfels of Yukon Pacific Corporation;
Beverly Mentzer of Exxon Company, U.S.A., from Houston; Mark
Bendersky of BP Exploration (Alaska) Incorporated in Anchorage; Jim
Johnson of Phillips, from Houston; and Ed Patton of Southwest
Research, from San Antonio. Others were listening on
teleconference. In addition, there was a letter from Mobil to this
committee that said they have an interest and would like to
establish that interest in the gas pipeline.
CHAIRMAN HODGINS emphasized that they are still trying to
facilitate this project, which is not a certainty at this point.
The project must have economic feasibility. They are in the
"finding stage to develop whether this project is going to be
economically feasible." He said there are competitors they will
have to bring together. The oil industry has fierce competitors,
and the federal government will compete with the state for tax
dollars, as will local governments. He stated, "So we're having a
very difficult and arduous process to go through to get everybody
talking one message."
CHAIRMAN HODGINS said he hopes everyone has sufficient patience to
see this through. It will be a long and expensive process to bring
competitors together from the oil industry, the taxation side and
the government side and to come forward with one unified message.
He stated, "And we must do that in order to satisfy our customers
in the Pacific Rim that will look with disfavor and some concern if
we don't have a unified voice. And that's the process that we need
to establish at this point. As I'd mentioned earlier, there is
quite a bit of activity on the steering committee level with BP,
Exxon, Arco and others that are going forward and trying to
determine whether this project is even feasible."
CHAIRMAN HODGINS continued, "It's my understanding that there has
to be a reduction in the cost of this of approximately 20 percent
from what is projected at this point. I am hoping that everybody
gets a real sharp pencil and takes a look at where they're sitting
and where we're going. And with that in context, it's our job as
a committee to facilitate the communications between all of these
individuals. And I hope that in our zeal to see this pipeline
constructed that we don't forget that we need to be patient and
this needs to be profitable. And the jobs that Representative Ryan
talked about are very, very forefront in the minds of all of us."
He said this is the "next gigantic project" that will put a lot of
Alaskans to work and bring a lot of revenues into the state's
coffers in order to fund the programs they would like to fund.
Number 0183
CHAIRMAN HODGINS called on Peter DeMay and Paul Fuhs to make a
presentation on behalf of Yukon Pacific Corporation.
Number 0193
PAUL FUHS, Lobbyist for Yukon Pacific Corporation, offered to
introduce Mr. DeMay. He reported that Jeff Lowenfels and Wayne
Lewis were in Asia collecting additional information from the
market; therefore, he and Mr. DeMay would make the presentation.
He said Mr. DeMay was the chief project manager for the Trans-
Alaska Oil Pipeline and worked for Exxon Corporation for 25 years.
When he left Exxon, he was in charge of half of their world-wide
projects. Mr. DeMay is currently Senior Vice President of
Engineering for Yukon Pacific Corporation on the gas line.
MR. FUHS said this project is critical to the future of Alaska. He
stated, "And I think you've all recognized that through the
resolutions that you've passed. And it's also recently been
recognized by the mayors of the pipeline corridor who met yesterday
in Fairbanks ... to form an organization called Trans-Alaska
Gasline Now - and these are the mayors from the North Slope to
Valdez - to help work on promoting this project. The benefits are
in jobs, state revenues and especially in-state use of the gas."
MR. FUHS continued, "This project could change Fairbanks and allow
them to use natural gas like Anchorage has enjoyed for many years.
I think the urgency of this was also reflected in the recent
objections that were filed to the Phillips Petroleum Kenai LNG plan
for the export license for exporting LNG from Kenai in the years
2004 to 2009. Apparently there is a question about how much gas
supply is available in Cook Inlet. So, even if it isn't that 2004-
to-2009 period, it's not much long after that where Southcentral
Alaska is going to need additional gas reserves in order to be able
to supply residential customers and industrial users."
Number 0274
MR. FUHS continued, "Mr. Chairman, today we're going to be
announcing some new initiatives that have not been put on the table
before that we hope will help move this project forward. We know
that there's a market for it; we've heard in our discussions, our
trips to Asia, and also in testimony that's come before this
committee." Referring to page 4 of a handout, he mentioned a
report in the Legislative Digest about the "representatives of OIT
that were here." He stated, "We also have heard from Pedro van
Meurs, who reported to you that this project could be nibbled to
death by other projects, and if that were to happen, that this
project might never occur. We also heard from Senator Ted Stevens,
who addressed a joint session of the legislature and reported that
after his visit to Sakhalin, that if we don't get our act together
and get going, that Sakhalin could displace the Alaska gas line
project."
MR. FUHS continued, "Yukon Pacific holds the major permits that are
necessary for this project. And those are listed on page 3. And,
Mr. Chairman, this project cannot proceed without these permits to
meet the time line of 2005 or any reasonable period after that. At
the same time, we realize that the project cannot go forward
without a gas supply and the cooperation of the producers on the
North Slope, in both the Prudhoe Bay units and the Point Thomson
units. In other words, we need each other to move this project
forward. It's going to take a lot of cooperation to put together
a $12-to-$15-billion project, which is the largest private project
in the history of North America."
MR. FUHS continued, "So, what are the next steps? What is the most
important next step to this? And we feel that is the formation of
an initial project structure for this. And that's how the Kenai
LNG plant was put together. That's how the Trans-Alaska oil
pipeline was put together. And, today, we are offering an
invitation to the oil producers to join with us to form this
initial project structure, to put together the funding to take the
next steps which will prepare us to go to the market. Everything
that we should be doing, we should be asking ourselves the
question: How does this move us closer to being [able] to make an
offer to the market? Until we do that, we won't know if we have a
project that's economically viable. We can do a lot of economic
analysis, but at some point we have to go to the market."
Number 0377
MR. FUHS continued, "As we would see this happening, the Yukon
Pacific would bring its permits to the project. We're not going to
charge for the permits, although the company has made a substantial
investment in those. Those would be brought to the project, just
as we would see ... some of the gas handling facilities on the
North Slope brought to the project, some of the facilities that
could be used in common on the Alyeska pipeline system brought to
the project to help make this happen in this initial structure."
MR. FUHS continued, "Now, the best case would be to have all the
oil companies involved in Prudhoe Bay and in Point Thomson, but if
for some reason some of those don't want to participate in the
pipeline, they can declare their intention to make their gas
available and the project can move forward. We form this initial
project structure. Then we've got a way for people to come into
it. We're aware of Japanese trading companies that want to invest
in this project, but there's no structure for them to do that."
Number 0417
MR. FUHS said although they have thus far called the project "TAGS"
for Trans-Alaska Gas System, that is a generic term for the
project. They foresee the formation of a new limited partnership
that would have a new name. He stated, "What Yukon Pacific would
see in that would be an investment by CSX Corporation in 10 to 25
percent of the equity of the investment in this project. In other
words, we would be a minority owner of the project. We would see
other equity investors as holding the majority of the equity
position in it, and then we go for the debt to make the loans to
put together the financing for the rest of the project. CSX has
the capability to make these kind of commitments. They recently
put together a $10 billion deal to purchase ConRail, to perform a
merger with ConRail. They own Sealand Corporation, Burlington
Northern. They're a big company that can make these kind of
commitments and are prepared to do that."
MR. FUHS continued, "As far as the question of whether this project
is economic, we believe that it is economic. We've read the Pedro
van Meurs report, and I would just say that we've also performed
our own economic analysis through a corporation called Credit Swiss
First Boston Bank." Referring to page 5 of the handout, which
lists some of the credentials of that company, he said, "The one
that stands out to me is this company is number one in capital
raising for the oil and gas industry in the world in 1995: $6.8
billion raised. This is a substantial company in the oil and gas
business, and we asked them to do an economic analysis and also to
help put together a financing plan for the project. And this is
the report that you have in front of you."
Number 0509
MR. FUHS referred to page 6 of the handout, which addresses
projected rates of return. He said, "And even on the right-hand
side of the chart, with an approximately 50-cents-per-1,000-cubic-
feet cost at the wellhead paid to the producers, for those who
don't want to participate in the pipeline project, which is a
number that meets with about what Pedro van Meurs put in his
report, this project is still profitable and economic with about a
14 percent rate of return on equity, which for our corporation is
enough for us to invest in this project. And I think it will be
for others also."
MR. FUHS asked, "Now, what's the difference between this study and
the Pedro van Meurs study? The main difference is in the ramp up.
Pedro van Meurs said 2.5 million tons a year from the first year
throughout. If we were to approach the project on that basis, we
would never build it, and we would never invest in a project that
only started out with 2.5 million tons a year. That's an
impossible theoretical projection of the economics of this project.
What our market information shows us is starting the project with
about 5 to 6 million tons a year and 2.5 to 3 million tons
additional in the years till you get up to about 15 million metric
tons. That makes the project work. And so that's the main
difference between the Pedro van Meurs study and our study on the
economics of this."
MR. FUHS continued, "Is this project competitive with other
projects? I'd like to ask you to turn to page 7 of this handout,
where you'll see a comparison of some of the other projects in
terms of the capital required to bring on a million tons per year
of these projects. And even TAGS at a $15 billion cost is equal to
Qatargas, which was the last project that was placed, at 6 million
metric tons, into the Asian market. And when you look at Natuna,
a project that's often stated as one of the competitions for an
Alaska natural gas project, it's about 50 percent more expensive
than the Alaska project."
Number 0608
MR. FUHS continued, "Well, why is that project being pushed? The
main reason is because if it's not developed, the leases are going
to be taken back. These leases were already taken back once from
Phillips in Indonesia when they didn't develop the project, and
they have a little bit different way of doing their leases there.
If you don't produce them, ... they take it back. So I think
that's partly what's driving that project. This idea that Alaska's
project is not competitive compared to these other projects is just
not true. The fact is, it's not that we're not competitive; we're
not competing. We're not going to the market with a unified
proposal."
MR. FUHS continued, "I also want to say that in addition to ...
just the straight costs of the project, there are some other
intangibles that help bring benefits to this project and help us
sell it. Balance of trade payments, stability and diversity of
supply in the Asian market is [sic] very important for these other
countries that are looking for a supply of their energy. The other
thing that I want to point out is that this project has the
capacity for total capacity of about 25 million tons per year. And
we're going to amortize this pipeline and the gas handling
facilities and the liquefaction plant on 14 or 15 million tons.
That next 10 million tons is going to be very economic. That will
be some of the most competitive gas in the world. It's at that
time also when state revenues substantially go up. The wellhead
goes up. The profits for the company go up. So, it's not just the
15-million-ton project. It's a potential 25-million-ton project."
Number 0677
MR. FUHS continued, "The last thing I want to address before I turn
it over to Peter on some of the engineering is the issue of taxes.
As Commissioner Condon said, we agree the largest beneficiary of
this entire project is the federal government, at $26 billion in
taxes on this. Now, they recently passed a tax bill to help bring
on line the deep water drilling in the frontier areas in the Gulf
of Mexico. And it would be similar-type legislation that would
allow us to ... improve the economics of this project.
Depreciation schedules, tax credits from federal corporate income
tax, those are the kind of things. And, Mr. Chairman, I hope that
this committee and the legislature will recommend to our
congressional delegation that they take up these actions in this
congressional session to help this project."
MR. FUHS continued, "In terms of the state, one of the most
important aspects to the construction of the pipeline are [sic] the
property taxes. And they're charged during the construction phase
before there's any revenue. If anything can be done there, that's
probably one of the most important. I think it's good for this
work to go ahead together and look at wellhead values and severance
and ad valorem and all of those. But I just want to caution you
that when you get into that, the same problems - because of
different ownership patterns on the North Slope, of the oil and the
gas - you're going to run into that again in the tax situation
there, and it's going to affect each company differently. That's
going to be a very difficult prospect to put together."
MR. FUHS continued, "And the last thing I want to say is I don't
think Alaska should be expected to give up all its benefits from
this project. We think the economics of the project are strong
enough that Alaska can get some tax benefits from this, and we're
going to need it because there are going to be some impacts from
this project that ... need to be dealt with. In any case, we don't
need to wait on going ahead with these others - the project
structure, the engineering work, ... preparing our proposal to the
market - while we look at the tax issue. Those should go on
concurrently. So, Mr. Chairman, I'd like to turn it over now to
Peter DeMay to discuss the next steps for engineering, and what
those costs would be, and what it's going to take us to get our
cost figure together to be able to go to the market and also the
kind of cooperation we're going to need with the producers in
analyzing those cost reductions."
Number 0792
PETER DeMAY, Senior Vice President of Engineering, Engineering
Department, Yukon Pacific Corporation, said they had been looking
at this project for a long time; he himself had worked on it for
seven years. They had prepared a work plan in comprehensive detail
that covers what is needed not only for engineering but also for
every aspect required to move the project forward, including
marketing, financing, permitting and legal aspects.
MR. DeMAY said, "And you might ask: Well, if you've got the work
plan, why haven't you used it? And why aren't you proceeding with
it? Well, the answer is very simple. It's that when we approach
the market, the market always comes back at us, and they talk about
what they call the LNG links, the chain, what it takes to bring a
project to fruition. And what they expect from people who are
discussing projects with them are to demonstrate that they have the
gas reserves and that they have ample gas reserves for a 20- or 25-
year contract term. They also request that we show that we have
the permits and we can build the project. They also want to be
sure that we have the approval of the government to export the gas
to the markets. And finally, they want to be sure that the
consortium has the financial resources to bring the finances to the
project."
MR. DeMAY continued, "Now in order to get into meaningful
discussions with them, that's what you have to start with. And we
weren't able to do that. ... In our work plan, really, before we
get into the phases that need to be followed, the first thing that
needs to be done is to bring the parties together to form this
consortium that could bring that strength to the project and to the
market. And so that's where I'll start, on the basis that the
first thing we do is form this consortium and bring these parties
together."
MR. DeMAY continued, "Once these parties are brought together, they
should all bring the results of their studies and their knowledge
of the project. We know that they've been studying the project.
We have been studying the project. So, there's an awful lot of
information to be brought together. And then we should digest that
information and optimize it and take the advantages of all of these
studies and anything that will reduce the cost of our project. For
instance, as regards the producers at the slope, they certainly are
more knowledgeable of what facilities are required to condition the
gas at the slope. It would be prudent on their part to do the
preliminary design of the facilities that are required there. In
fact, it would be better if they would go further and say that they
not only would design these facilities but they would operate and
maintain them. They have all of the operational and maintenance
facilities available at the slope. And we could even go so far as
to suggest that they actually own the facilities and sell
conditioned gas to the project. And that, I think, will even be
more economic for the project."
Number 0958
MR. DeMAY continued, "We should also be talking with Alyeska. As
far as Alyeska goes, we have an agreement with Alyeska to share
technical information. We have full access to all the geotechnical
data that they have, their source settlement test work, and
whatever other information that is available. And again, we should
go further. We should be talking to them about using their
infrastructure, using the access ways that they have and the work
paths and the Yukon River bridge and even their pump stations that
they're decommissioning, that they have decommissioned and will be
decommissioning over the next few years. So there presents a
number of opportunities to include these improvements in our
project."
MR. DeMAY continued, "And then also there have been technological
advances that have occurred since we suspended our activities.
These are related to the fact that there are in use today larger
gas turbines and gas compressors. Our design was based on the size
of equipment that was available at the time we were doing our
studies. Today, instead of building four 3.5-million-metric-tons-
a-year LNG plants to get 14 million metric tons, we know that we
can build three plants of 5 million metric tons each for 15 million
metric tons a year. That not only decreases costs, but it also
gives us another ton of LNG."
MR. DeMAY continued, "And, also, technical advances have been made
in pipeline materials. The steels are now stronger, higher
stresses. This will allow us to increase the pressure in the
pipeline. And there are current gas pipelines at higher pressures
than the one that we have included in our design. Our design is
for 2,200 pounds per square inch. Pipelines today are running at
3,000 pounds per square inch. If we can take advantage of that
technology, we could reduce the diameter [of the] pipeline and,
consequently, the cost as well. So there are all of these
opportunities to reduce the cost of the project, at least
initially, for the initial phase of our activities."
Number 1070
MR. DeMAY said the real thrust of what they call their phase one
activities was to confirm the project viability, getting the cost
down as much as they can. He stated, "And our goal would be to
obtain commitments from the consortium members and the market to
pursue the development of a financeable cost estimate, which is
required if there's going to be financing of the project from the
commercial community. So after these initial optimization studies
that we suggest, we would then agree on what is our plus-or-minus-
25-percent cost estimate. This is not a financeable quality
estimate, but it is the best estimate that can be produced on the
basis of the information that's available."
MR. DeMAY continued, "And then we should seek from the producers a
start date and their best guess of a net-back price for the gas
supply. And then, concurrently with all this activity, we should
be developing an LNG pricing strategy or a package with which to go
to the LNG buyers. And ultimately we hope to obtain from them
their best commitment, which would be a form of a letter of intent
or a letter of understanding, which would address the volumes of
LNG they will be buying, the start-up of when the LNG would be
required by the market, and the timing and the ramp-up rate. Now,
if that can all be accomplished, then we would have hard
information from the buyers as [to] what ... the start-up rates are
and the period of ramp up and many of the things that we find from
all the studies, the various studies; the various opinions that
people have would be meaningless because we would now have real,
hard information from the market."
Number 1179
MR. DeMAY continued, "Now, what would it take to do all of these
steps? We have concluded that this activity could be completed in
about a six-month period and at a cost of about $7 million. Now,
if we find out at the end of this study that there is no market,
then obviously you wouldn't go any further. But on the basis that
we get these letter of intent and letters of understanding from the
marketplace, we would then proceed to the next phase of our work
plan, and that would be to produce a financeable cost estimate and
to obtain commitments for the purchase of LNG from the buyers and
also get commitments from the companies that own the gas."
MR. DeMAY continued, "And the key steps here would be to complete
the preliminary engineering and a detailed execution plan for the
project, which really defines how the project is going to be
executed, and prepare a financeable estimate, and that is an
estimate that has an accuracy of plus-or-minus 15 percent. In our
business, that's traditional to have an estimate of that quality
and the need to complete the preliminary engineering."
MR. DeMAY continued, "In addition to doing the preliminary
engineering, in order to meet the target of 2005 for delivery, we
also believe that we need to do a bit of detailed accounting,
particularly for the long-delivery items, and also for the critical
contracts for the initial front-end activities of the project. We
know that the delivery of the main heat exchangers on the LNG
plants - we had actual quotes for these - are 40 months, 40 months
from the date of order. And we know that the LNG turbines and
compressors are of the same order of magnitude of delivery. So,
you're looking at ... three and a half years before that equipment
arrives on site."
MR. DeMAY continued, "The most critical path on our project will be
the terminal, the LNG marine terminal at Valdez. The problem here
is that the site must be prepared. And we will be moving 7 or 8
million cubic yards of material, not only once but perhaps twice.
And we have to get access to that site. We would have to design
the construction dock so that we could move equipment and people to
the site. And we also immediately have to start building temporary
facilities to house the employees and the support facilities for
all of that effort. It is a real difficult project. If you saw
the site, you'd really understand why it's critical. So -- and
then we would also have in place the draft contracts for the
engineering and procurement contractors. And the design for the
site preparation at the terminal would all have to be complete. So
in reality, we'll be doing more than just preliminary engineering.
We'd be doing a bit of detail design."
Number 1357
MR. DeMAY said during this phase the tax regime would have to be
finalized and the project labor agreement in place. There are
insurance matters to settle, and financing would have to start
being put into place. He said, "And we would also have to convert
our state right-of-way from a conditional status to a final status.
And then we would have to walk away and convert these buyers'
letters of intent to contracts for the gas purchase from the
producers as well as the LNG prices for the LNG in the marketplace.
Now, what would it take to do all this work? We have estimated
that it would take 24 months to complete this activity and that the
cost of this activity would be $80 million."
MR. DeMAY referred to the time line on page 2 of the handout; he
said although it is a simple schedule, it tells the story they want
to tell. Phase one, a six-month effort, would be completed by the
end of 1997. Phase two, the preliminary engineering and the
financeable quality estimate, would take 24 months, going to the
beginning of the year 2000. At that point in time, assuming they
were successful in negotiating all the contracts with the buyers
and sellers of the gas, they would initiate the detailed
engineering and construction. However, that absolutely would
require having the buyer and seller commitments. The phase three
chart shows that it takes five years to get to 2005, when the first
liquefied natural gas (LNG) deliveries would be made to the
marketplace.
MR. DeMAY stated, "Also you'll see on that line procurement and
long-delivery items and award of critical contracts. You see that
box. That means that we have to initially award all of those. And
if you look at that five-year period and consider it takes three
and a half years to get the delivery of those items, that only
allows a year and a half after we get the delivery to put that
equipment in operation. And that's a very short period of time."
MR. DeMAY noted that the bottom line shows a four-year ramp up.
However, if they have negotiated their contracts, they will know
the actual ramp-up period, which may be three years instead of
four, for example. This is their best schedule for this job to
meet the 2005 date. Any delay along the line can affect that date.
There is little slack in this schedule. It is extremely critical
from every aspect, particularly the equipment delivery aspect and
the initial activities that must occur at the terminal.
Number 1568
MR. FUHS stated, "Well, Mr. Chairman, I hope that answers your
questions from your letter. And I just want to say that we're
prepared to cooperate with the people who want to work together on
this. And we're ready to get to work."
REPRESENTATIVE RYAN indicated his desire to ask some of the
producers, as they testified, a "particular question about
unitizing that field."
Number 1640
REPRESENTATIVE KEMPLEN referred to the phase one design and said he
was comparing the chart produced by the commissioner to the
critical path chart put together by Yukon Pacific Corporation. He
noted that some critical issues must occur at the same time. In
addition, some fairly significant costs must be incurred by someone
before this project is nailed down in terms of a final commitment;
so there is an element of risk involved by whoever will absorb
those costs. He asked, "Could you explain to me how you see those
costs being paid? Who's going take the risks?"
Number 1708
MR. FUHS replied, "Through this consortium. And that's how all
these projects are put together. You get an initial consortium,
and they agree amongst themselves who's going to put up the money.
We're willing to put up part of the money with the consortium
members. And then those costs that are put in on the front end are
generally paid back to those people when the project goes through.
It's just part of the overall financing package, engineering and
all of that. So you get paid back eventually. But you're correct:
You do have to put some risk out on the front end. And we're
prepared to do that."
Number 1749
REPRESENTATIVE OGAN asked Mr. DeMay what areas are critical to
improve the relationship between Yukon Pacific Corporation and the
producers, to send a unified message. He asked what would greatly
facilitate that and is perhaps the first thing that could improve
in that area.
MR. DeMAY replied that they have been talking to the producers for
years. "All of us have," he added. He said all of those who are
aware of and willing to take the financial risk associated with
developing this project must come together and form an
organization; obviously, there will be different ownership
percentages for all the parties. He stated, "And I think once that
occurs, then an organizational structure will fall out of that.
And Yukon Pacific may not be the leader in that. I mean, whoever
is going to put up the most money will probably have the most
influence as to how that proceeds. And I see that's the only way
to get that together, to go to the market and say, `Hey, we're
together and we can do this project.'"
Number 1852
REPRESENTATIVE OGAN asked, "Would it be a fair characterization
that maybe we should use the term `fish or cut bait' right now or
cut a lot of bait, you know, and so maybe identify those players
that are willing, that are actually going to fish and then go from
there?"
MR. DeMAY said yes.
CHAIRMAN HODGINS thanked them for their presentation and called
upon Mark Bendersky.
Number 1931
MARK BENDERSKY, Commercial Manager for Gas, BP Exploration (Alaska)
Incorporated, testified via teleconference from Anchorage. He
stated, "BP is committed to work with the state towards a sound
energy future for Alaska. As Alaska's number one investor, we
continue to demonstrate this with our involvement in, for example,
Badami, Northstar and our ongoing successful exploration program.
While we are not the major owner of gas on the North Slope, we
recognize the desire of the state to develop these resources. We
believe that a North Slope LNG scheme is uneconomic currently. We
would like to emphasize that modifications to the state's fiscal
regime, by itself, is insufficient to make a North Slope LNG
project a reality, but it would be an important and significant
step. Potential modifications to the federal fiscal regime,
significant cost reductions, formation of a project structure and
favorable market conditions are all also required. Our signing of
the MOU last month set forth a framework for future discussions."
MR. BENDERSKY continued, "We need to ensure that the many
opportunities for gas usage on the North Slope are captured so as
to maximize liquids production from old and new fields, TAPS
throughput, and revenue generation today. For instance, BP is
continuing its work on gas-to-liquids research which could offer
interesting options for the future."
MR. BENDERSKY continued, "BP has worked with the state
Administration in developing the state's 1997-to-1998 target work
plan that Commissioner Condon has just discussed. We believe that
the state's plan has the appropriate scope of work, and we plan to
participate in these important discussions. The state's plan's
target time frames are very ambitious. You can see that there are
a large number of important issues that must be worked, discussed
and agreed."
MR. BENDERSKY continued, "BP views the word `contract,' as shown in
the plan, as a means to enhance fiscal certainty for potential
project sponsors. The contract would include changes to both the
state's tax and royalty structure to improve the economic
feasibility of a North Slope gas project and, to the fullest extent
permitted by the state's constitution, that the state be bound by
these contract terms. This contract would reduce the risk to an
investor that fiscal terms could change during the life of the
contract. As such, the contract sets a framework within which any
project ... could operate if it proceeds forward. We commit to
work with the state on defining fiscal terms to maximize the value
of North Slope gas and to that end support Commissioner Condon's
efforts."
Number 2183
CHAIRMAN HODGINS referred to Richard Campbell, President of BP
Exploration, recently quoted in the Anchorage Daily News as saying
this project was a bit of a dinosaur. Chairman Hodgins stated, "I
would sincerely hope that he was talking about where the oil
originally came from and he isn't talking about that this is a
project that isn't going to go forward. He mentioned that there
were small, low-cost projects that could possibly displace this.
And if that's the case, I would like to know from BP, concerning
that statement in the newspaper, what BP's intention is with this
project. Is it to sell their gas at wellhead, or is it to be an
actual participant in this? And I understand that ... these kind
of statements to the press ripple throughout the world to our
potential customers. And I find it very difficult to hear ...
these kinds of statements come out. And if you're going to be a
player, be a player. And if you're not, ... please don't send the
wrong message to our potential customers in the Orient. Would you
care to respond?" He then asked whether there were questions from
the committee while Mr. Bendersky thought about that.
Number 2311
REPRESENTATIVE RYAN referred to the Pedro van Meurs report and
unitization of the field; he said it showed that by selling the
gas, BP had a potential loss of 400 million barrels of oil. He
said, "And I'd like to know what value you put on the oil versus
the amount of gas you would get and whether this shows that you
folks are going to make or lose money on this project and whether
you think it's particularly feasible, that the oil is worth more
than the gas. And what would be your intentions in that respect?"
MR. BENDERSKY replied, "I believe the estimated figure of close to
400 million barrels of oil losses was from the field entirely. And
BP would have the largest share of that oil loss; it's about half.
Those oil losses ... would be small initially, and they would tend
to get larger in the later years of project life. And when we
pencil in the economics of those future oil losses against the more
near-term gas revenue, if there is an economic project, then the
near-term gas .... [Cut off mid-speech by end of tape]
TAPE 97-17, SIDE A
Number 0006
MR. BENDERSKY continued, " ... its future options with regard to
participation in an LNG option. It's also continuing to evaluate
how to get the maximum value of using gas on the North Slope in
enhanced oil recovery projects, producing natural gas liquids for
sale down TAPS and other new technologies. We're interested in
maximizing the value of gas on the North Slope, and we believe ...
our interests are aligned with the state in this regard. And we
are keeping are options open. And I hope you will view this as
good news in that we are not solely focused on one potential option
that has significant hurdles in its future, but we are trying to
find what's the best way to do it."
Number 0099
REPRESENTATIVE RYAN responded, "Well, I can understand that people
are evaluating options. And knowing the investment that the
producers have at present in the field and future investments that
will be required, I would think that somewhere along this line,
someone has made some evaluations. I can't imagine after all these
years up on the North Slope, and knowing the values and considering
that these will probably be future contracts and what the market
may bear, that there weren't some more concrete figures, that we're
still in the stage of evaluation at this point. It makes it very
difficult to imagine this project could go forward if the producers
haven't fairly well penciled in some rather firm ballpark figures.
I mean, are you still in the evaluation stage? And what period of
time do you think it's going to take you to come up with a ballpark
figure whether it's worth your while to participate in this
project?"
MR. BENDERSKY replied, "I don't have a good answer for that. The
world is constantly changing. We're constantly updating our
evaluations and strategy, and the project isn't yet economic. We
are working hard to make it so. We're looking at other options,
and it's just an ongoing process.
Number 0218
REPRESENTATIVE RYAN commented that people from the north of the
United Kingdom have a tradition of having a posture of a rather
dour nature. He said, "... you have to realize that statements
such as that press interview by Mr. Campbell have given some folks
here in the legislature thought as to whether we should revisit
some of the things that we previously have made some agreements
[on], because we thought we were operating in a good-faith nature,
and now we see that perhaps things aren't quite what we expected.
So I think you may pass that on. And perhaps a little caution in
the future would be appropriate."
Number 0290
CHAIRMAN HODGINS called an at-ease at 9:40 a.m. He called the
meeting back to order at 9:48 a.m.
CHAIRMAN HODGINS asked Mr. Bendersky whether he was ready to
respond.
Number 0333
MR. BENDERSKY stated, "I'd like to first explain what I think the
dinosaur comment was all about. It's not a point about the
dinosaurs being extinct. It's a point about large animals or large
amounts of gas being slow to move and very, very difficult to put
into the market. It's been our recent analysis that the smaller
projects are more attractive to the market. It's a smaller risk
for buyers to absorb those projects, and the buyers have told us
smaller is better. They use the words `more digestible.' I don't
think you should also believe that we're not optimistic. I think
you should look at our track record. The projects we are doing in
Alaska have always been in the state and legislature's best
interests, and we intend to try and maximize North Slope gas
resources. And to that end, I think we're working towards the same
goal."
Number 0452
REPRESENTATIVE OGAN, continuing his fishing analogy, said, "You
know we've been cutting a lot of bait, and we know the fish are
there, the fish being the market. And we know where they're going
be and when they're going to be there. ... And there's other people
that are participating in the fleet, that have their bait cut and
their hooks are baited and their lines are in the water. And we
haven't even put our lines in the water yet. Why don't we
participate in that, you know, get past the talking stage here a
little bit and be willing to let the market decide? I mean, I've
clearly heard that they're very interested in Alaska gas, not just
because the market is not too big for them, but they like to
diversify their market. And certainly the United States of America
is politically very stable. And, you know, let's let the market
decide that. But I just don't think we have any lines in the
water. Until we get lines in the water, ... we're not going to
hook any up."
MR. BENDERSKY replied, "BP has been working for several years now
on evaluations of this project, working very closely with Arco and
Exxon. We've maintained very close contact and continue to
[maintain] very close contact with the market. We intend to
continue our ... joint efforts with Arco and Exxon through the end
of this year. We have a detailed program of work through the end
of this year. And we're open-minded about how ... future efforts
may evolve."
Number 0598
REPRESENTATIVE OGAN said, "And I recognize that there's been a lot
of movement, and I don't want to discount that at all. And I
appreciate your comments. But I still feel that I guess I share
some of the chairman's concerns about comments like that in the
press."
MR. BENDERSKY replied, "I'd just like to say that some of the most
optimistic people I know come from the British Islands."
Number 0642
CHAIRMAN HODGINS announced they would adjourn the meeting for a
House floor session. He thanked participants and held the meeting
over until 8:00 a.m., Tuesday, April 15.
ADJOURNMENT
Number 0701
CHAIRMAN HODGINS adjourned the Special Committee on Oil and Gas
meeting at 9:53 a.m.
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