Legislature(2007 - 2008)CAPITOL 106

03/28/2007 07:30 AM OIL & GAS

Download Mp3. <- Right click and save file as

Audio Topic
07:34:42 AM Start
07:35:08 AM HB177
01:16:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed until After Session --
-- Continued from 03/27/07 --
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         March 28, 2007                                                                                         
                           7:34 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Vic Kohring, Chair                                                                                               
Representative Kurt Olson, Vice Chair                                                                                           
Representative Nancy Dahlstrom                                                                                                  
Representative Jay Ramras                                                                                                       
Representative Ralph Samuels                                                                                                    
Representative Mike Doogan                                                                                                      
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Carl Gatto                                                                                                       
Representative John Coghill                                                                                                     
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 177                                                                                                              
"An  Act   relating  to  the   Alaska  Gasline   Inducement  Act;                                                               
establishing   the  Alaska   Gasline   Inducement  Act   matching                                                               
contribution  fund; providing  for an  Alaska Gasline  Inducement                                                               
Act coordinator; making conforming  amendments; and providing for                                                               
an effective date."                                                                                                             
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 177                                                                                                                  
SHORT TITLE: NATURAL GAS PIPELINE PROJECT                                                                                       
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
03/05/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/05/07       (H)       O&G, RES, FIN                                                                                          
03/06/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/06/07       (H)       -- MEETING CANCELED --                                                                                 
03/08/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/08/07       (H)       -- MEETING CANCELED --                                                                                 
03/13/07       (H)       O&G AT 3:30 PM HOUSE FINANCE 519                                                                       
03/13/07       (H)       Heard & Held                                                                                           
03/13/07       (H)       MINUTE(O&G)                                                                                            
03/15/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/15/07       (H)       Heard & Held                                                                                           
03/15/07       (H)       MINUTE(O&G)                                                                                            
03/19/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/19/07       (H)       Heard & Held                                                                                           
03/19/07       (H)       MINUTE(O&G)                                                                                            
03/20/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/20/07       (H)       Heard & Held                                                                                           
03/20/07       (H)       MINUTE(O&G)                                                                                            
03/21/07       (H)       O&G AT 5:30 PM SENATE FINANCE 532                                                                      
03/21/07       (H)       Heard & Held                                                                                           
03/21/07       (H)       MINUTE(O&G)                                                                                            
03/22/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/22/07       (H)       Heard & Held                                                                                           
03/22/07       (H)       MINUTE(O&G)                                                                                            
03/23/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/23/07       (H)       Heard & Held                                                                                           
03/23/07       (H)       MINUTE(O&G)                                                                                            
03/24/07       (H)       O&G AT 1:00 PM SENATE FINANCE 532                                                                      
03/24/07       (H)       -- Public Testimony --                                                                                 
03/26/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/26/07       (H)       Heard & Held                                                                                           
03/26/07       (H)       MINUTE(O&G)                                                                                            
03/27/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/28/07       (H)       O&G AT 7:30 AM CAPITOL 106                                                                             
03/28/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
WITNESS REGISTER                                                                                                              
RON BRINTNELL, Director                                                                                                         
Gas Development                                                                                                                 
Enbridge, Inc.                                                                                                                  
Calgary, Alberta                                                                                                                
POSITION STATEMENT: Testified at the hearing on HB 177.                                                                         
WENDY D. KING, Manager                                                                                                          
Alaska North Slope Gas Development                                                                                              
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified at the hearing on HB 177.                                                                        
MARK HANLEY, Manager                                                                                                            
Alaska Public Affairs                                                                                                           
Anadarko Petroleum Corporation                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Testified at the hearing on HB 177.                                                                       
ACTION NARRATIVE                                                                                                              
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas  meeting, which  recessed on  3/27/07 at  5:51 p.m.,  back to                                                               
order at  7:34:42 AM.  Representatives  Ramras, Doogan, Kawasaki,                                                             
Dahlstrom, Samuels, and Kohring were  present at the call back to                                                               
order.    Representative Olson  arrived  as  the meeting  was  in                                                               
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
7:35:08 AM                                                                                                                    
CHAIR KOHRING  announced that the  first order of  business would                                                               
be HOUSE  BILL NO. 177,  "An Act  relating to the  Alaska Gasline                                                               
Inducement Act;  establishing the  Alaska Gasline  Inducement Act                                                               
matching  contribution  fund;  providing for  an  Alaska  Gasline                                                               
Inducement  Act coordinator;  making  conforming amendments;  and                                                               
providing for an effective date."                                                                                               
7:35:45 AM                                                                                                                    
RON  BRINTNELL,  Manager,  Alaska   Gas  Project,  Enbridge  Inc.                                                               
(Enbridge),  informed   the  committee   that  he   will  present                                                               
Enbridge's  candid  views on  the  Alaska  gas pipeline  project.                                                               
Enbridge, he said, wants to see  the project go ahead because the                                                               
gas  supply is  desperately needed.    He continued  to say  that                                                               
Enbridge maintains a  network of pipelines supplying  oil and gas                                                               
throughout  North  America  and abroad,  including  the  Alliance                                                               
line, which is very similar  to the proposed Alaska gas pipeline.                                                               
Enbridge  also   owns  Canada's   largest  utility   company,  is                                                               
knowledgeable  regarding  the  supply  of  natural  gas,  and  is                                                               
experienced  regarding   the  construction  and   maintenance  of                                                               
facilities in northern climates.                                                                                                
7:39:38 AM                                                                                                                    
REPRESENTATIVE RAMRAS asked  for Enbridge's market capitalization                                                               
MR.  BRINTNELL answered  that Enbridge's  value is  approximately                                                               
US$15 billion  and its stock is  traded on the U.  S. and Toronto                                                               
stock exchanges.                                                                                                                
REPRESENTATIVE RAMRAS further asked  for Enbridge's balance sheet                                                               
debt level.                                                                                                                     
7:40:41 AM                                                                                                                    
MR. BRINTNELL responded that its  debt equity ratio is 65 percent                                                               
to 35 percent.                                                                                                                  
REPRESENTATIVE RAMRAS then asked how  Enbridge would bond the gas                                                               
pipeline project.                                                                                                               
MR. BRINTNELL  explained that  the project  would be  financed by                                                               
shipping commitments.                                                                                                           
7:41:32 AM                                                                                                                    
REPRESENTATIVE  RAMRAS  observed  that  Enbridge  would  leverage                                                               
financing back from the customer to the project source.                                                                         
7:41:42 AM                                                                                                                    
MR. BRINTNELL explained  that, directly or indirectly,  it is the                                                               
strength  of the  shipping commitments,  the  producers, and  the                                                               
state that will be the basis  of obtaining credit.  Mr. Brintnell                                                               
continued  his  presentation  by   noting  that  during  previous                                                               
projects Enbridge  has gained significant experience  in terms of                                                               
ordering  steel and  dealing with  the  tight labor  market.   He                                                               
added that  Enbridge is  ready to train  Alaskan workers  who are                                                               
interested  in   working  on  Canadian  projects   now;  however,                                                               
Enbridge's current projects  will be near completion  by the time                                                               
construction begins on the Alaska gas pipeline.                                                                                 
7:42:51 AM                                                                                                                    
MR. BRINTNELL told the committee  that Enbridge believes that the                                                               
pipeline  can not  be built  without the  producers as  shippers.                                                               
The North Slope producers and the  state are in the best position                                                               
to  make shipping  commitments.   His concern,  he said,  is that                                                               
delay in  the construction of  the gas pipeline will  cause other                                                               
sources of energy  to be developed because the  market for energy                                                               
is high.   Mr. Brintnell  encouraged the state and  the producers                                                               
to re-establish  negotiations.  He  said Enbridge feels  that gas                                                               
pipeline  development  through   the  Federal  Energy  Regulatory                                                               
Commission (FERC)  process is  a well  defined and  sound process                                                               
for Alaska.                                                                                                                     
7:46:38 AM                                                                                                                    
MR. BRINTNELL  said that Enbridge  is encouraged to see  that the                                                               
state has  placed a priority on  the gas pipeline;   however, the                                                               
Alaska Gasline Inducement  Act (AGIA) is insufficient  due to its                                                               
focus  on the  pipeline and  not  on the  producers and  shipping                                                               
7:47:30 AM                                                                                                                    
CHAIR  KOHRING asked  for suggestions  on how  to accomplish  the                                                               
goal  of  obtaining  commitments   from  the  producers  and  the                                                               
7:47:45 AM                                                                                                                    
MR. BRINTNELL suggested that the  state and the producers begin a                                                               
flexible and  open dialog.   He  said that  he believes  that the                                                               
producers want the gas pipeline to be constructed.                                                                              
REPRESENTATIVE  DOOGAN  asked   for  confirmation  that  Enbridge                                                               
believes that  the economics are  such that a commitment  for gas                                                               
will result in viable project.                                                                                                  
7:49:50 AM                                                                                                                    
MR.  BRINTNELL   assured  the  committee  that   the  project  is                                                               
commercially viable,  but not  without risk, due  to the  cost of                                                               
the project and the unstable market price of gas.                                                                               
7:50:36 AM                                                                                                                    
REPRESENTATIVE RAMRAS  commented that the  price of gas  today is                                                               
$7.20 according to the Henry Hub natural gas index.                                                                             
7:50:50 AM                                                                                                                    
MR. BRINTNELL  pointed out that  gas prices have ranged  from $15                                                               
million  cubic feet  (Mmcf) to  $4  Mmcf, due  to storms,  warmer                                                               
winter temperatures, and the availability of gas reserves.                                                                      
7:51:31 AM                                                                                                                    
REPRESENTATIVE DOOGAN asked what the  state could do to lower the                                                               
project risk and gain commitments from the producers.                                                                           
MR. BRINTNELL  responded that the  risk is not just  the pipeline                                                               
cost but also the future  market price and, most importantly, the                                                               
uncertainty of tax rates.                                                                                                       
7:54:31 AM                                                                                                                    
REPRESENTATIVE  DOOGAN   asked  whether  Enbridge  has   built  a                                                               
pipeline that,  after construction, became uneconomic  by changes                                                               
in the tax regime.                                                                                                              
7:55:16 AM                                                                                                                    
MR. BRINTNELL  recalled that, typically, pipeline  companies will                                                               
pass increases in  tax rates to the shippers.   He explained that                                                               
the pipeline company takes its  risk in controlling operating and                                                               
construction costs.                                                                                                             
7:56:40 AM                                                                                                                    
REPRESENTATIVE DOOGAN  re-stated his  question by  asking whether                                                               
Enbridge is  aware of a project  that became uneconomic due  to a                                                               
tax rate change assessed to the producers.                                                                                      
7:57:31 AM                                                                                                                    
MR. BRINTNELL  answered no; however,  as a shipper,  the pipeline                                                               
company would not be impacted unless  the tax rate is so high the                                                               
producers can not ship their product.                                                                                           
7:59:32 AM                                                                                                                    
REPRESENTATIVE  SAMUELS  requested  clarification  on  Enbridge's                                                               
need to  be part of a  consortium in order to  participate in the                                                               
gas pipeline project.                                                                                                           
8:00:16 AM                                                                                                                    
MR. BRINTNELL  explained that, to  participate, his  company will                                                               
require shipping commitments prior to developing the project.                                                                   
Enbridge will not  hold an open season unless it  is confident of                                                               
a successful  outcome.  Typically,  non-binding open  seasons can                                                               
be held  at a lower cost  and garner many responses.   Enbridge's                                                               
job,  he said,  is  to  develop pipeline  concepts,  look at  the                                                               
fundamentals, and  propose a project  through a  non-binding open                                                               
season  or   through  direct  dialog  with   producers.    Before                                                               
proceeding to a binding open  season, Enbridge will have shipping                                                               
commitments in place.                                                                                                           
8:02:29 AM                                                                                                                    
CHAIR  KOHRING asked  whether  rights of  way  and permitting  in                                                               
Canada will pose problems.                                                                                                      
8:03:08 AM                                                                                                                    
MR.  BRINTNELL replied  that permits  on the  Canadian side  will                                                               
fall in place  in a timely fashion.  The  Canadian government, he                                                               
said,  knows the  importance of  this  project.   He assured  the                                                               
committee  that TransCanada  Corporation  (TransCanada) does  not                                                               
have  exclusive rights  to  build  the pipeline.    In fact,  the                                                               
Canadian  government  has announced  that  its  priorities for  a                                                               
northern  gas  pipeline are  to  let  the  market decide  on  the                                                               
builders,   to  establish   a  regulatory   regime,  to   support                                                               
Aboriginal  economic  development,  and to  retain  benefits  for                                                               
Canadians.    Mr.  Brintnell  continued   to  say  that  creating                                                               
alignment  with   the  producers   is  important  due   to  their                                                               
experience, financial resources, and  the fact that the producers                                                               
will  bear  the  largest  risk  during  the  development  of  the                                                               
8:10:36 AM                                                                                                                    
REPRESENTATIVE  DOOGAN requested  a  description  of the  project                                                               
Enbridge is proposing.                                                                                                          
8:10:57 AM                                                                                                                    
MR.   BRINTNELL  replied   that  his   company  anticipates   the                                                               
construction  of  a  gas  pipeline to  Alberta,  Canada.    After                                                               
reaching  Alberta,  there  is  sufficient  capacity  in  existing                                                               
pipelines to  reach the U.  S. markets.  Mr.  Brintnell cautioned                                                               
that the existing pipelines, however,  may not be the best choice                                                               
for shipping  the gas.   He also  warned the committee  that they                                                               
should  be  concerned about  the  possibility  of a  failed  open                                                               
season due to  the high cost of the project  and the unbalance of                                                               
the risks involved.                                                                                                             
8:14:24 AM                                                                                                                    
CHAIR  KOHRING asked  whether the  $500 million  is a  sufficient                                                               
inducement to prospective applicants.                                                                                           
8:14:43 AM                                                                                                                    
MR. BRINTNELL, replied that the  grant is a favorable factor, but                                                               
it is unnecessary.                                                                                                              
CHAIR  KOHRING asked  for Enbridge's  opinion  of the  evaluation                                                               
criteria established in AGIA.                                                                                                   
8:15:56 AM                                                                                                                    
MR. BRINTNELL  informed the  committee that  the AGIA  process is                                                               
unnecessary.  He expressed his  belief that negotiations with the                                                               
producers are most important for the project to proceed.                                                                        
8:17:11 AM                                                                                                                    
REPRESENTATIVE DOOGAN  asked for  more information  regarding the                                                               
value of the $500 million grant.                                                                                                
MR. BRINTNELL  answered that the  real issue is the  longer risk,                                                               
not  the  initial   cost.    He  pointed  out   that  during  the                                                               
construction of  the first  gas pipeline  in Alberta,  the future                                                               
growth of the market was unknown.                                                                                               
8:20:36 AM                                                                                                                    
MR. BRINTNELL  observed that  at this time  it is  unrealistic to                                                               
expect  builders  to  make an  unconditional  commitment  to  the                                                               
project due to uncertainties  related to permitting, regulations,                                                               
market price,  and the  labor market.   Mr. Brintnell  added that                                                               
completing  FERC  and  [Canadian] Northern  Economic  Development                                                               
(NED)  applications requires  spending  hundreds  of millions  of                                                               
dollars  that  Enbridge  cannot spend  without  commitments  from                                                               
shippers.   He  concluded his  presentation by  saying that  AGIA                                                               
does  not  address  the  tax  concerns  of  the  producers.    He                                                               
expressed  his belief  that the  terms  of AGIA  are weighted  in                                                               
favor  of  the   pipeline  companies  and  do   not  resolve  the                                                               
producer's  issues;  therefore,  AGIA   will  not  attract  their                                                               
support.   In  addition, government  financial assistance  is not                                                               
essential,  and the  additional  regulatory  process outlined  by                                                               
AGIA  is unnecessary.   Finally,  Mr.  Brintnell emphasized  that                                                               
Enbridge  believes  in the  future  demand  for natural  gas  and                                                               
desires  a  role  in  the   construction  and  operation  of  the                                                               
8:28:33 AM                                                                                                                    
REPRESENTATIVE SAMUELS asked how long  it would take for Enbridge                                                               
to develop a consortium in order to participate in the project.                                                                 
8:29:23 AM                                                                                                                    
MR. BRINTNELL  opined that  the first step  would be  to complete                                                               
fiscal arrangements  with the producers.   After that, agreements                                                               
between partners will be completed within months.                                                                               
8:29:51 AM                                                                                                                    
REPRESENTATIVE SAMUELS then asked how  long it would take for the                                                               
consortium to prepare for open season.                                                                                          
8:30:08 AM                                                                                                                    
MR.  BRINTNELL told  the committee  that  a reasonable  estimated                                                               
timeline is two to three years.                                                                                                 
8:30:54 AM                                                                                                                    
REPRESENTATIVE SAMUELS  asked for Mr. Brintnell's  opinion of the                                                               
15 percent limit [on a tariff increase].                                                                                        
8:31:27 AM                                                                                                                    
MR. BRINTNELL  replied that rolled-in  rates (RIR) are  a concern                                                               
for Enbridge for  the reason that, as a potential  shipper, it is                                                               
required  to  get  permission  for  its  shipping  rates  from  a                                                               
regulatory   body.     Thus,   subsequent   rate  increases   are                                                               
8:34:17 AM                                                                                                                    
REPRESENTATIVE SAMUELS remarked:                                                                                                
     What percentage  of the  gas that  you haul  in Canada,                                                                    
     where they have the  presumption of rolled-in rates, is                                                                    
     negotiated?   And what  part of  it is  just rolled-in,                                                                    
     that's  because the  government  says  that that's  the                                                                    
     policy of the country?                                                                                                     
8:34:45 AM                                                                                                                    
MR. BRINTNELL replied  that the Alliance pipeline  has rates that                                                               
were  negotiated   with  the  shippers  prior   to  construction;                                                               
recently constructed  pipelines in Canada  and the U. S.  tend to                                                               
have negotiated rates.                                                                                                          
8:37:03 AM                                                                                                                    
MR. BRINTNELL,  responding to a question,  informed the committee                                                               
that  Canada's  energy regulatory  body  is  the National  Energy                                                               
Board (NBA).                                                                                                                    
8:37:50 AM                                                                                                                    
CHAIR KOHRING announced that the  next order of business would be                                                               
testimony by ConocoPhillips Alaska, Inc.                                                                                        
8:39:18 AM                                                                                                                    
WENDY  D.  KING, Manager,  Alaska  North  Slope Gas  Development,                                                               
ConocoPhillips   Alaska,  Inc.,   informed  the   committee  that                                                               
ConocoPhillips  Alaska, Inc.,  (ConocoPhillips),  is the  state's                                                               
largest  producer  of  oil  and   gas  and  has  completed  1,200                                                               
uninterrupted liquefied  natural gas (LNG) shipments  since 1969.                                                               
Ms.  King continued  to say  that ConocoPhillips  is the  largest                                                               
acreage holder  on federal  and state lands  on the  North Slope,                                                               
has drilled 60 exploration wells  since 1969, and that 13 percent                                                               
of its production is based  in Alaska.  The construction timeline                                                               
of the  natural gas pipeline  is critical, and  ConocoPhillips is                                                               
committed to  development of the  North Slope gas resource.   She                                                               
noted  that  the  midstream  part of  the  project  includes  the                                                               
transmission  lines to  transport the  gas to  the gas  treatment                                                               
plant  (GTP) and  the  large  pipeline to  take  gas to  Alberta,                                                               
Canada.   Ms.  King  explained  that the  resource  terms of  the                                                               
project are  related to the gas  itself or to the  holders of the                                                               
firm transportation  (FT) commitments.   She compared  the Alaska                                                               
gas pipeline to previous North  American projects and pointed out                                                               
its large size and estimated cost.                                                                                              
8:47:15 AM                                                                                                                    
REPRESENTATIVE  DOOGAN  confirmed that  ConocoPhillips's  project                                                               
cost estimate is for a gas pipeline to Alberta.                                                                                 
8:48:02 AM                                                                                                                    
MS. KING clarified that the 2001  cost estimate of $20 billion is                                                               
for a pipeline terminating in  Chicago.  She added that questions                                                               
concerning the  costs of  the Alberta to  Chicago portion  of the                                                               
pipeline  depend  on  the  future capacity,  cost  of  fuel,  and                                                               
tariffs on  existing pipelines.   Ms. King continued to  say that                                                               
another  key  unknown   to  the  cost  of  the   project  is  the                                                               
instability of  the market price  for natural  gas.  There  is no                                                               
question, she  said, that U. S.  markets need a long  term source                                                               
of  gas;  however,  industry market  predictions  of  prices  are                                                               
unreliable.  She affirmed that  ConocoPhillips wants to work with                                                               
the administration  and the legislature  on a  balanced framework                                                               
that will advance  the project.  Ms. King  informed the committee                                                               
that ConocoPhillips  has artic experience and  financial strength                                                               
to bring to the project.                                                                                                        
8:51:03 AM                                                                                                                    
REPRESENTATIVE RAMRAS commented that  the "Predicting Natural Gas                                                               
Prices" chart  provided to the  committee by ConocoPhillips  is a                                                               
distortion and asked for the source of the information.                                                                         
8:54:19 AM                                                                                                                    
MS.  KING  assured the  committee  that  she  would be  happy  to                                                               
provide  the   details  and  specifics  that   support  the  data                                                               
8:55:11 AM                                                                                                                    
REPRESENTATIVE  RAMRAS  reiterated  his  concern  that  the  data                                                               
presented not  an accurate  presentation of  the movement  in the                                                               
price of natural gas.                                                                                                           
8:55:47 AM                                                                                                                    
MS. KING  continued her testimony  by saying  that ConocoPhillips                                                               
has already spent  millions of dollars to advance  the Alaska gas                                                               
pipeline project.   She said that  her company is in  the process                                                               
of  reviewing the  terms of  AGIA, and  is interested  in working                                                               
with the legislature  to address the resources  needed to support                                                               
the long  term shipping  commitments.  Ms.  King pointed  out the                                                               
imbalance  of  the  risk  factors  regarding  the  midstream  and                                                               
upstream  portions of  the project.   ConocoPhillips's  review of                                                               
AGIA reveals that the initial, and  greater, risk is borne by the                                                               
producers.   The  first area  of ConocoPhillips's  is concern  is                                                               
exclusivity, and  it asks why  the state would  block alternative                                                               
projects and discourage the free market process.                                                                                
8:59:04 AM                                                                                                                    
MS. KING referred to AS 43.90.340 and remarked:                                                                                 
     I'll  read   from  these   sections  here,   except  as                                                                    
     otherwise  provided in  this chapter,  I'm  on line  23                                                                    
     now, "The  state grants a licensee  assurances that the                                                                    
     licensee  has exclusive  enjoyment  of the  inducements                                                                    
     provided under this  chapter.  If the  state extends to                                                                    
     another person  preferential royalty, tax,  or monetary                                                                    
     treatment   for  the   purpose   of  facilitating   the                                                                    
     construction  of  a   competing  natural  gas  pipeline                                                                    
     project  in  this state,  and  if  the licensee  is  in                                                                    
     compliance  with the  requirements of  the license  and                                                                    
     with  the requirements  of state  and federal  statutes                                                                    
     and regulations  relevant to the project,  the licensee                                                                    
     is  entitled to  payment from  the state  of an  amount                                                                    
     equal to three times the  total of the reasonable costs                                                                    
     that  the  licensee  has  incurred  in  developing  the                                                                    
     licensee's project as of the  date that the state first                                                                    
     extended  preferential  treatment to  another  person."                                                                    
     ...   Why  wouldn't   state  offer   the  benefits   of                                                                    
     streamlined coordination to any  project?  That was how                                                                    
     the federal process was set up.                                                                                            
MS. KING further  noted that the inducements  provided in section                                                               
340(b)  will only  apply to  the  licensed project  and could  be                                                               
interpreted to  mean that  state agencies  have the  authority to                                                               
burden   competing   projects    by   withholding   permits   and                                                               
9:01:15 AM                                                                                                                    
REPRESENTATIVE DOOGAN urged Ms. King  to explain the existence of                                                               
a competing project.                                                                                                            
9:01:32 AM                                                                                                                    
MS. KING expressed her belief  that one project will be developed                                                               
but  that there  may be  spur lines  and complimentary  projects.                                                               
What is  important, she  said, is  that multiple  projects should                                                               
advance to licensing.                                                                                                           
9:03:03 AM                                                                                                                    
REPRESENTATIVE DOOGAN said:                                                                                                     
     I  don't understand  how we  get  a competing  pipeline                                                                    
     project. ... I'm having a  hard time with the practical                                                                    
     problem that this represents.                                                                                              
MS. KING remarked:                                                                                                              
     If  somebody  has  some  good   ideas,  we  think  it's                                                                    
     important  that they  could be  able  to advance  their                                                                    
     project. ...  What if a  winner is chosen and  it's the                                                                    
     wrong winner?                                                                                                              
9:04:49 AM                                                                                                                    
REPRESENTATIVE  RAMRAS  noted  that,  after an  election,  it  is                                                               
incumbent  on everyone  to work  with  the successful  candidate.                                                               
For  this  reason,   he  suggested,  it  is   also  incumbent  on                                                               
ConocoPhillips to participate in  the legislation that passes and                                                               
to work with the state for the success of the project.                                                                          
9:06:42 AM                                                                                                                    
MS.  KING highlighted  that ConocoPhillips  is making  efforts to                                                               
assess the bill and make improvements.                                                                                          
9:07:32 AM                                                                                                                    
REPRESENTATIVE RAMRAS repeated his  belief that the producers can                                                               
suggest  improvements, but  ultimately they  need to  work within                                                               
the framework of AGIA.                                                                                                          
9:08:13 AM                                                                                                                    
REPRESENTATIVE  DOOGAN  stressed  that  the  inducements  are  an                                                               
integral  part  of AGIA  and  asked  what  progress can  be  made                                                               
without them.                                                                                                                   
9:10:17 AM                                                                                                                    
MS.  KING  advised  the  committee  that  ConocoPhillips  is  not                                                               
proposing  removing inducements,  but allowing  them to  apply to                                                               
other projects.                                                                                                                 
9:11:14 AM                                                                                                                    
REPRESENTATIVE DOOGAN reminded Ms.  King that inducements must be                                                               
exclusive to be meaningful.                                                                                                     
9:12:11 AM                                                                                                                    
MS.  KING pointed  out that  three  of the  four inducements  are                                                               
exclusive and those  are of concern to ConocoPhillips.   The $500                                                               
million grant is acceptable, she said.                                                                                          
9:14:16 AM                                                                                                                    
REPRESENTATIVE     DAHLSTROM    requested     clarification    of                                                               
ConocoPhillips objections to AS 43.90.330.                                                                                      
9:15:30 AM                                                                                                                    
MS.  KING  responded  that  the company  is  concerned  that  the                                                               
language  will  allow roadblocks  to  be  put  in  the way  of  a                                                               
competing project.                                                                                                              
9:16:45 AM                                                                                                                    
REPRESENTATIVE  DAHLSTROM expressed  her  understanding that  the                                                               
position  of  an Alaska  Gasline  Inducement  Act coordinator  is                                                               
meant to be a help, not a  roadblock.  She said she will research                                                               
the intent of the creation of this position.                                                                                    
9:17:33 AM                                                                                                                    
MS.  KING  continued her  testimony  by  calling the  committee's                                                               
attention  to the  16 application  requirements  described in  AS                                                               
43.90.140.   She  surmised  that  rejection of  one  item on  the                                                               
application would result in a non-conforming bid.                                                                               
REPRESENTATIVE  RAMRAS   assumed  that  the  committee   will  be                                                               
addressing this situation through an amendment.                                                                                 
9:19:32 AM                                                                                                                    
REPRESENTATIVE DAHLSTROM  agreed with Representative  Ramras, and                                                               
she then added  that the bill also allows an  opportunity for the                                                               
applicant to complete an incomplete application.                                                                                
9:20:33 AM                                                                                                                    
MS.  KING   offered  an  example  to   illustrate  ConocoPhillips                                                               
objections.  She  told the committee that AGIA  requires a number                                                               
of fixed  deadlines, and that  the industry's experience  is that                                                               
with  a   project  this  size,  flexible   and  alternative  work                                                               
commitments are vital.                                                                                                          
9:22:11 AM                                                                                                                    
REPRESENTATIVE RAMRAS requested  the location in the  bill of the                                                               
dates to which she was referring.                                                                                               
9:22:19 AM                                                                                                                    
MS. KING answered:                                                                                                              
     Conclude by  a date certain,  it's ... page 5,  line 17                                                                    
     through 30, there's three dates  in there.  There's the                                                                    
     [indisc.]  pre  filing,  the   applying  for  the  FERC                                                                    
     certificate and for concluding an  open season. ... And                                                                    
     page 4, ...  line 19, receipt and  delivery points, and                                                                    
     the size  and design  capacity of the  proposed natural                                                                    
     gas  pipeline  at  the proposed  receipt  and  delivery                                                                    
     points.  That is what an open season is for.                                                                               
9:24:04 AM                                                                                                                    
REPRESENTATIVE  RAMRAS   expressed  his  desire  to   remind  the                                                               
producers that  AGIA'S timeline  is its best  feature.   The bill                                                               
requires  only the  outline of  a project  and an  expedited open                                                               
season will accelerate the process.                                                                                             
9:26:44 AM                                                                                                                    
MS. KING  assured the  committee that  ConocoPhillips understands                                                               
work commitments.   However, she noted  that conceptually million                                                               
of dollars  can be saved by  proper planning in the  early stages                                                               
of a  project.  ConocoPhillips  wants to find  creative solutions                                                               
to  the challenge  of building  the  best project  at the  lowest                                                               
9:28:21 AM                                                                                                                    
REPRESENTATIVE  RAMRAS   remarked  that  the   administration  is                                                               
sensitive to the need to keep tariffs low.                                                                                      
9:28:54 AM                                                                                                                    
MS.  KING explained  that  tariff prices  are  determined by  the                                                               
capital  cost   of  project.     ConocoPhillips  is   focused  on                                                               
maintaining a  low capital  cost project.   She then  returned to                                                               
the  subject of  bid  requirements and  said that  ConocoPhillips                                                               
estimates a cost  of $400 million to $500 million  to conclude an                                                               
open  season.    Bid  requirements specify  that  the  successful                                                               
applicant would  take a portion  of the $500 million  grant prior                                                               
to the  open season.   In fact, ConocoPhillips feels  this should                                                               
be  a  variable   and  should  be  determined   by  the  company.                                                               
Unfortunately, another concern resulting  from the exclusivity of                                                               
the  state's   evaluation  process  is  the   possibility  of  an                                                               
applicant submitting empty promises and phony estimates.                                                                        
9:31:46 AM                                                                                                                    
MS.  KING  further  said  that  ConocoPhillips  believes  it  has                                                               
creative solutions to these questions.   Granted, the state wants                                                               
must- haves  included in  this project,  and the  applicants, she                                                               
noted, can include  those items in the context  of bid variables.                                                               
She returned  to her  analysis of  AGIA and  said that  Article 3                                                               
relates to the resource owners and  that section 310 of Article 3                                                               
creates  the greatest  obstacle:  the state's  taxes and  royalty                                                               
terms.   The  importance  of  fiscal stability  is  noted by  the                                                               
administration, but the  bill is designed to make  changes to the                                                               
tax   structure   not   by  negotiation,   but   by   regulation.                                                               
ConocoPhillips will  be asked to sign  up for 15 year  to 25 year                                                               
shipping  commitments,   even though  royalty  in-kind (RIK)  and                                                               
royalty  in-value  (RIV) terms  can  change.   In  addition,  the                                                               
Production Profits  Tax is  stable, but  other taxes  may change.                                                               
ConocoPhillips  needs to  know what  the  resource package  looks                                                               
like, and  suggests that the  resource package be converted  to a                                                               
variable bid package.                                                                                                           
9:36:31 AM                                                                                                                    
REPRESENTATIVE RAMRAS asked:                                                                                                    
     If you  had a choice,  ... and you could  either change                                                                    
     one of these two  variables, either the time increments                                                                    
     that  are  prescribed  in the  bill,  or  the  resource                                                                    
     package.    Which  of  those  two  would  be  the  more                                                                    
     important variable change to you?                                                                                          
9:36:59 AM                                                                                                                    
MS. KING said:                                                                                                                  
      We put those both in the context of bid requirements                                                                      
     to bid variables, so we think by that solution we can                                                                      
     address both of those issues.                                                                                              
9:37:31 AM                                                                                                                    
REPRESENTATIVE RAMRAS asked:                                                                                                    
     If  we opened  it up  so  that it  can be  a much  more                                                                    
     interpretive  resource  package,  if you  will,  if  we                                                                    
     leave  the prescribed  time  requirements  in there  is                                                                    
     that  something that  is accommodative  to Conoco?  ...                                                                    
     Would you  rather keep the  time increment and  be able                                                                    
     to innovate your own resource package design?                                                                              
9:39:30 AM                                                                                                                    
MS. KING replied that ConocoPhillips  requires the flexibility to                                                               
provide suggestions regarding a  resource package and the ability                                                               
to offer  alternatives to time  management of the project.   Both                                                               
of these choices are critical, she said.                                                                                        
9:40:06 AM                                                                                                                    
REPRESENTATIVE  RAMRAS requested  an  answer to  his question  as                                                               
soon as possible.                                                                                                               
9:41:52 AM                                                                                                                    
MS.  KING  told  the  committee   that  she  will  be  submitting                                                               
recommendations for amendments to HB 177.                                                                                       
9:44:00 AM                                                                                                                    
REPRESENTATIVE SAMUELS expressed his  belief that the competition                                                               
to  build  the  pipeline  is  the   race  for  the  gas.    Thus,                                                               
ConocoPhillips has  an advantage because  they have the gas.   He                                                               
then said:                                                                                                                      
     If you  make everything  a bid  variable, if  you don't                                                                    
     have gas, are  you even going to come to  play? ... How                                                                    
     do you  find that  middle ground  there, ...  I believe                                                                    
     true competition is  ... is to let  everybody come back                                                                    
     with  their best  proposal. ...  But automatically  you                                                                    
     get  to attach  gas  to  yours so  you  have this  huge                                                                    
     advantage and  then nobody else plays,  and we're right                                                                    
     back  to where  we  started. ...  Going completely  the                                                                    
     other  way, making  everything  a  bid variable,  might                                                                    
     exclude all other players other than the producers.                                                                        
9:46:51 AM                                                                                                                    
MS. KING  commented that ConocoPhillips doesn't  want litigation.                                                               
She  also   reminded  the  committee   that  the   producers  are                                                               
independent   of  each   other.     The  prescriptive   lists  of                                                               
requirements in the bill remain a problem for ConocoPhillips.                                                                   
9:49:25 AM                                                                                                                    
REPRESENTATIVE SAMUELS  asked if ConocoPhillips is  authorized by                                                               
its  operating  agreements  to  ship  gas  independently  of  its                                                               
9:50:25 AM                                                                                                                    
MS. KING responded that the  operating agreements vary from field                                                               
to field.  This issue, she added,  will need to be addressed on a                                                               
case by case basis.                                                                                                             
9:51:00 AM                                                                                                                    
REPRESENTATIVE  SAMUELS asked  if  internal operating  agreements                                                               
are a matter of public record.                                                                                                  
9:51:28 AM                                                                                                                    
MS. KING expressed her understanding  that the administration has                                                               
access to  the operating agreements  for Prudhoe Bay.   She noted                                                               
that overall  oil production  in Prudhoe Bay  may be  affected by                                                               
one party taking off gas.                                                                                                       
9:52:33 AM                                                                                                                    
REPRESENTATIVE SAMUELS  further asked whether  ConocoPhillips, if                                                               
in a partnership with a pipeline  company, would be in a position                                                               
to spend $400 million in preparation for open season.                                                                           
9:53:41 AM                                                                                                                    
MS.  KING  replied  that   ConocoPhillips  would  participate  in                                                               
parallel  work activities  during  the preparation  for the  open                                                               
season.   The  concern is  that if  open season  is held  and the                                                               
technical  work  is  not  done   to  update  the  cost  estimate,                                                               
customers  will  not  trust  the   cost  estimates  and  will  be                                                               
reluctant to bid.   The three producer's  previous cost estimate,                                                               
she noted,  cost $125  million to complete  and she  estimated an                                                               
update would take six months at an unknown cost.                                                                                
9:55:55 AM                                                                                                                    
CHAIR KOHRING  recessed the meeting  until after the  House floor                                                               
11:21:30 AM                                                                                                                   
CHAIR KOHRING  adjourned the House  Special Committee on  Oil and                                                               
Gas meeting of  Tuesday, March 27, 2007, and called  to order the                                                               
meeting of  Wednesday, March 28,  2007.   Representatives Doogan,                                                               
Kawasaki,  Dahlstrom, Samuels,  and Kohring  were present  at the                                                               
call to  order.  Representatives  Olson and Ramras  arrived while                                                               
the meeting was in progress.                                                                                                    
CHAIR  KOHRING  announced  that   Wendy  King  of  ConocoPhillips                                                               
Alaska, Inc. will complete her testimony.                                                                                       
11:21:32 AM                                                                                                                   
MS. KING  answered a question Representative  Samuels asked prior                                                               
to  the  meeting's  recess.    She said  that  the  mandated  RIR                                                               
operating  agreements on  state approved  units are  a matter  of                                                               
public record.                                                                                                                  
11:23:07 AM                                                                                                                   
MS. KING  continued by saying that  ConocoPhillips's testimony on                                                               
HB 177  is focused  on eliminating  exclusivity and  changing bid                                                               
requirements to  bid variables.   The final item to  be addressed                                                               
regarding bid  variables is the question  of mandating expansions                                                               
and  rolled-in rates  (RIR).   ConocoPhillips operations  include                                                               
acreage in the  National Petroleum Reserve -  Alaska (NPRA) which                                                               
is known  to be gas  prone.   Mandated expansions and  RIR's mean                                                               
that the initial shippers will  be required to make firm shipping                                                               
commitments,  thereby  taking  on  more  risk  than  required  by                                                               
existing statutes  and regulations. She pointed  out that parties                                                               
can  wait until  after the  project is  built with  the knowledge                                                               
that  expansion will  occur  and the  tariffs  will be  mitigated                                                               
through  RIR subsidies.   ConocoPhillips  has been  working since                                                               
2001  to  advance the  pipeline  project  and has  already  spent                                                               
millions of  dollars.  She  asked why  a company would  drill now                                                               
when the state will provide  guaranteed subsidized rates to those                                                               
who defer drilling.                                                                                                             
11:24:41 AM                                                                                                                   
MS.  KING  asked  the   committee  to  consider  ConocoPhillips's                                                               
prospective of AGIA's project risk  allocation.  Initial shippers                                                               
are asked  to take risks,  beginning early in the  development of                                                               
the project  and with uncertainties  regarding the  future tolls.                                                               
In addition, the  initial shippers must prepare  for the delivery                                                               
of gas at the same time  as they are involved in the construction                                                               
of the pipeline.   In contrast, late shippers can  come in at the                                                               
time of expansion,  without the previous costs,  and with shorter                                                               
shipping commitments.  Ms. King  explained that this shorter time                                                               
commitment  also results  in less  state take.   Size,  duration,                                                               
scope,  and  project  delays are  additional  risks  for  initial                                                               
shippers.    Obtaining  shipping  commitments  from  creditworthy                                                               
parties  and  project delays  are  risks  faced by  the  pipeline                                                               
company; however,  the actual project  cost will be  passed along                                                               
to the initial shipper through the toll.                                                                                        
11:28:10 AM                                                                                                                   
MS. KING estimated that a toll of  $3.50 at 1Bcf per day for a 20                                                               
year initial  shipping commitment  will total  $25 billion.   The                                                               
financial  strength needed  to back  a commitment  of this  size,                                                               
with the  possibility of low  gas prices or  field deliverability                                                               
problems, is  enormous.  Ms.  King turned  to the subject  of the                                                               
ability of the non-owners to  access producers' facilities.   She                                                               
emphasized  that the  U. S.  Congress created  mandated expansion                                                               
provisions effective  only in  Alaska, and  the real  question is                                                               
not  access,  but  the  cost   of  the  access.    ConocoPhillips                                                               
encourages the formation of partnerships  to control costs and it                                                               
feels access should not be part of AGIA's requirements.                                                                         
11:32:46 AM                                                                                                                   
MS.  KING  stressed  that  ConocoPhillips  does  not  oppose  the                                                               
application of  RIR's for some,  not all, expansions and  that it                                                               
supports FERC  regulations that allow RIR's  for some expansions.                                                               
However,  one  reason  mandating   potential  expansions  is  not                                                               
acceptable is  due to the  effect of disparate shared  royalty on                                                               
lands.  If  new gas developments are discovered  on lands without                                                               
royalty,  the  state may  benefit  from  toll increases  by  FERC                                                               
regulation.   Moreover,  later expansions  may  result in  higher                                                               
tolls that  act as  a subsidy  for other  and perhaps  less well-                                                               
managed producers.                                                                                                              
11:37:23 AM                                                                                                                   
REPRESENTATIVE   SAMUELS  recalled   that  TransCanada   provided                                                               
estimates  on the  capacity  of  the gas  pipeline  that did  not                                                               
exceed the original maximum rate.                                                                                               
11:38:08 AM                                                                                                                   
MR. KING explained that some  expansions will not be full in-fill                                                               
compression.  The  cost of these expansions  for lower capacities                                                               
will  be  greater  than  estimated  and  will  bring  engineering                                                               
challenges.   Looping  expansions  are impacted  by  the need  to                                                               
predict the costs  of steel and fuel.  She  warned that expansion                                                               
costs  are difficult  to  estimate and  there  may be  situations                                                               
where incremental rate increases are desirable.                                                                                 
11:40:45 AM                                                                                                                   
REPRESENTATIVE SAMUELS  asked for the reason  that ConocoPhillips                                                               
and TransCanada have such different estimates and concerns.                                                                     
11:41:26 AM                                                                                                                   
MS.  KING  expressed  her belief  that  ConocoPhillips  sees  the                                                               
benefit of  RIR's in some  potential scenarios, but not  all, and                                                               
it encourages the state to allow FERC regulations to prevail.                                                                   
11:42:52 AM                                                                                                                   
REPRESENTATIVE SAMUELS asked  whether ConocoPhillips assumed RIRs                                                               
in  its Canadian  operations.   Some pipelines,  he noted,  cross                                                               
borders and may be subject to varying regulations.                                                                              
MS. KING  responded that she is  unfamiliar with ConocoPhillips's                                                               
Canadian  agreements; in  fact,  the  NEB has  a  bias for  RIRs.                                                               
However,  the Alaska  gas  pipeline, she  added,  travels a  long                                                               
distance  before  reaching  the  Canadian  border  and  continues                                                               
afterward into the Lower 48 to markets.                                                                                         
11:46:33 AM                                                                                                                   
REPRESENTATIVE  SAMUELS  surmised  that   one-third  of  the  gas                                                               
pipeline will  be regulated  by the  Canadian authority  and that                                                               
the RIR  issue covers  the distance between  the North  Slope and                                                               
the Canadian border.                                                                                                            
11:47:29 AM                                                                                                                   
MS. KING  expressed some  doubt about  the jurisdiction  over the                                                               
Alberta portion  of the  pipeline if  new, rather  than existing,                                                               
pipeline is used.                                                                                                               
REPRESENTATIVE  SAMUELS  further  asked whether  differing  rates                                                               
will impact expansions and tariffs.                                                                                             
MS. KING  assured the committee  that the  FERC and the  NEB have                                                               
previously regulated pipelines that  cross national borders.  She                                                               
said that  regardless of who owns  the pipeline, there will  be a                                                               
different entity in  Canada that will offer a toll  and that will                                                               
have an  open season.   The  Alaska entity  will conform  to FERC                                                               
regulation, she added.                                                                                                          
11:48:48 AM                                                                                                                   
MS. KING  continued her testimony  by describing an example  of a                                                               
pipeline  with an  expansion to  allow  a short  haul service  to                                                               
Fairbanks at  a certain  cost.   Then, 10 to  20 years  later, an                                                               
expansion of the other part  of the pipeline could raise consumer                                                               
prices even  though the  gas was initially  committed at  a lower                                                               
11:50:46 AM                                                                                                                   
REPRESENTATIVE DAHLSTROM  volunteered to  provide a copy  of FERC                                                               
order 5(a)  to committee members  for their reference.   She then                                                               
observed that  rate increases can  be compared to  discounts used                                                               
to attract new customers.                                                                                                       
11:51:47 AM                                                                                                                   
MS.  KING clarified  that  ConocoPhillips does  not  want to  pay                                                               
costs that are the result of someone else's action.                                                                             
11:52:08 AM                                                                                                                   
REPRESENTATIVE  DAHLSTROM further  noted  that ConocoPhillips  is                                                               
requesting the opportunity to negotiate for prices.                                                                             
11:52:28 AM                                                                                                                   
MS.  KING  reiterated  that ConocoPhillips  wants  the  right  to                                                               
debate its case before the FERC.                                                                                                
11:52:57 AM                                                                                                                   
REPRESENTATIVE DAHLSTROM questioned  whether ConocoPhillips wants                                                               
that right written in the bill.                                                                                                 
11:53:21 AM                                                                                                                   
MS. KING stated that this provision  does not have to be included                                                               
in the bill.                                                                                                                    
11:54:41 AM                                                                                                                   
MS. KING summarized that the  state has many inducements to offer                                                               
to  pipeline construction  applicants.   ConocoPhillips does  not                                                               
want  unknown  gas  prospects  that   are  ten  years  away  from                                                               
development  to determine  the success  of the  pipeline project.                                                               
She encouraged  the committee to consider  that ConocoPhillips is                                                               
ready to solve problems and  that efforts to resolve the resource                                                               
issues will  begin to move the  project to completion.   She said                                                               
that    the  Alaska  gas  pipeline is  a  difficult  project  and                                                               
compromise is necessary  to achieve the goals of a  new source of                                                               
revenue for  the state,  jobs for  Alaskans, and  new development                                                               
for the industry.                                                                                                               
11:56:28 AM                                                                                                                   
REPRESENTATIVE  SAMUELS   asked  how  long  would   it  take  for                                                               
ConocoPhillips  to  enter into  a  partnership  and apply  for  a                                                               
11:57:14 AM                                                                                                                   
MS.  KING replied  that  the timely  formation  of a  partnership                                                               
would depend  on the parties.   She  added that the  challenge of                                                               
the  project  is  to  balance the  partnership  between  the  two                                                               
distinct parts of upstream and midstream development.                                                                           
11:58:09 AM                                                                                                                   
REPRESENTATIVE  SAMUELS asked  how  long ConocoPhillips,  without                                                               
partners, would need to prepare for a successful open season.                                                                   
11:59:16 AM                                                                                                                   
MS. KING  responded that ConocoPhillips  has estimated  18 months                                                               
to 24 months to get to open season.                                                                                             
12:02:49 PM                                                                                                                   
REPRESENTATIVE SAMUELS remarked:                                                                                                
     Does ConocoPhillips  think that  the tax  debate should                                                                    
     happen  now,  before   the  application  process  moves                                                                    
     forward or do  you think that it would be  okay to have                                                                    
     the tax discussion,  as long as you have  it ... before                                                                    
     the open  season. ...  Do  you think having it  now ...                                                                    
     would  be   beneficial,  realizing   all  the   of  the                                                                    
     political ups and downs. ...                                                                                               
12:03:52 PM                                                                                                                   
MS. KING suggested that the committee  amend the bill to make the                                                               
resource  package variable,  due to  its complexity.   Then,  the                                                               
parties will be able to work together.                                                                                          
12:05:24 PM                                                                                                                   
The committee took an at-ease from 12:06 p.m. to 12:11 p.m.                                                                     
CHAIR KOHRING  announced that the  committee will  hear testimony                                                               
by Anadarko Petroleum Corporation.                                                                                              
12:12:15 PM                                                                                                                   
MARK HANLEY,  Manager, Alaska Public Affairs,  Anadarko Petroleum                                                               
Corporation (Anadarko),  informed the committee that  Anadarko is                                                               
an independent  company that  explores for  and produces  oil and                                                               
gas without  downstream operations.  Anadarko  has partnered with                                                               
the major oil  companies and has maintained  operations in Alaska                                                               
for  10 years.   Mr.  Hanley  said that  Anadarko maintains  good                                                               
relations  with ConocoPhillips  and  Atlantic Ritchfield  Company                                                               
(ARCO).    At  this  time,  Anadarko's  biggest  interest  is  in                                                               
beginning construction  of the Alaska  gas pipeline  project, and                                                               
it  is significantly  aligned with  its partners  on some  of the                                                               
issues involved.                                                                                                                
12:15:42 PM                                                                                                                   
MR. HANLEY  continued to  explain that  Anadarko holds  about 5.4                                                               
million acres of gross exploration  acreage and 1.8 million acres                                                               
of  net   exploration  acreage.    Anadarko's   partners  include                                                               
ConocoPhillips, BG  Group (BG), Artic Slope  Regional Corporation                                                               
(ASRC),  Petro-Canada.   He noted  that the  Foothills region  is                                                               
ready for exploration and Anadarko  has four prospects there that                                                               
are ready to drill.  Exploration,  given that the gas pipeline is                                                               
still uncertain,  is done to  meet the lease requirements  to the                                                               
state,  and to  prepare  for participation  in  the initial  open                                                               
season. However, the challenge is  to continue to prepare for the                                                               
production of gas while controlling  costs.  Mr. Hanley explained                                                               
that even if exploration drilling  in 2008 is promising, Anadarko                                                               
will not  be in a  position to go to  an open season  until after                                                               
delineation of  the field and  additional wells are drilled.   In                                                               
any case,  it will take three  to four years to  determine if the                                                               
economics  will support  a gas  commitment to  the gas  pipeline.                                                               
Furthermore,  Anadarko, he  said,  does not  think its  prospects                                                               
will be sufficient to underpin the gas pipeline.                                                                                
12:21:59 PM                                                                                                                   
REPRESENTATIVE SAMUELS  observed that the  time delay in  AGIA is                                                               
designed  to  give   the  explorers  time  to   prepare  for  gas                                                               
production.  He then remarked:                                                                                                  
     To me,  shortening the  timeline up to  as soon  as you                                                                    
     can have a  real open season with  real information ...                                                                    
     [so]  the people  who do  have gas  can decide  whether                                                                    
     they  want  to  come  or not,  makes  more  sense  than                                                                    
     waiting a  little bit longer  if you're not ...  if you                                                                    
     can't be  reasonably certain  that you  can come  to us                                                                    
     ... [and] participate.                                                                                                     
12:23:28 PM                                                                                                                   
MR. HANLEY expressed his belief  that Anadarko's policy decisions                                                               
will  be based  on the  earliest available  information. Anadarko                                                               
will  begin planning  before the  open  season, in  fact, if  the                                                               
pipeline  is  designed  for expansions  that  lower  the  tariff,                                                               
Anadarko will  want to participate in  the inexpensive expansion.                                                               
Anadarko may  be in a  position to  participate one or  two years                                                               
after the  initial open  season and  request an  expansion before                                                               
the  pipeline is  in service.    Mr. Hanley  said that  additions                                                               
during construction can be a part of the design of the pipeline.                                                                
12:25:57 PM                                                                                                                   
REPRESENTATIVE  SAMUELS  asked  whether  Anadarko  considers  the                                                               
benefit of the  tax freeze associated with the  first open season                                                               
to be unfair.                                                                                                                   
12:26:57 PM                                                                                                                   
MR.  HANLEY replied  that the  tax freeze  will be  a competitive                                                               
advantage.   Anadarko will not be  at the open season,  but feels                                                               
that any  company that makes  commitments to the  pipeline should                                                               
qualify for  tax certainty.  He  stressed that the more  that the                                                               
state can  do to improve  fiscal stability will also  improve the                                                               
economics of  the project  and reduce the  risk.   Anadarko would                                                               
not like to see competitive  disadvantages for the companies that                                                               
do not participate in the initial process.                                                                                      
12:29:01 PM                                                                                                                   
MR. HANLEY continued  his testimony on AGIA by  pointing out that                                                               
Anadarko  appreciates   the  opportunities  to  comment   on  the                                                               
legislation  now,  during the  public  comment  period after  the                                                               
applications  are   revealed,  and  during  the   review  of  the                                                               
successful application  by the legislature.   He agreed  that the                                                               
earliest  development  of  the  project  is  a  benefit  for  all                                                               
parties.   Mr.  Hanley  called the  committee's  attention to  AS                                                               
43.90.110 and stated that Anadarko  is not a pipeline company and                                                               
will  not   be  submitting  an   application  for   the  license.                                                               
Therefore, it feels that the  $500 million inducement will reduce                                                               
the tariff and that it is  a benefit.  Regarding the criteria for                                                               
the  application, Mr.  Hanley stated  that Anadarko  has concerns                                                               
about  the  sub-subparagraph  (ii) on  marine  transportation  of                                                               
liquefied natural  gas (LNG).   This item requires  a description                                                               
of  transportation services  and  a detailed  description of  all                                                               
access and tariff  terms on a marine route only.   Anadarko feels                                                               
that this language should apply to any proposed pipeline route.                                                                 
12:34:16 PM                                                                                                                   
MR.  HANLEY  suggested  that the  AGIA  application  should  also                                                               
require stating  the operating pressure  of the pipeline  as part                                                               
of   the  design   standards   and   gas  quality   requirements.                                                               
Additionally, Anadarko supports section  140, paragraph (5), that                                                               
requires  the   applicant  to  assess   the  market   demand  for                                                               
additional  pipeline capacity  at least  every two  years through                                                               
non-binding  solicitations,  and  paragraph  (6),  that  requires                                                               
expansions  to  encourage  exploration.    Mr.  Hanley  expressed                                                               
Anadarko's  concern  about  the  motivation  of  parties  in  the                                                               
industry who would influence the  process representing either the                                                               
owner of  the pipeline,  or the producers.   He  recalled earlier                                                               
testimony that the  bigger risk is borne by the  shippers and the                                                               
bigger  return will  be on  the  resource, not  on the  regulated                                                               
pipeline.   The large  producers, he  noted, will  represent both                                                               
roles,  that  of a  competitor  and  that  of  a partner  in  the                                                               
pipeline.   In fact, a  pipeline company  may propose a  RIR, or,                                                               
when  its  interest  as  a  shipper  dominates,  may  request  an                                                               
incremental rate.   The incentive  for a producer  owned pipeline                                                               
is often to request a high rate.                                                                                                
12:39:52 PM                                                                                                                   
MR.  HANLEY  added that  Anadarko  feels  that a  producer  owned                                                               
pipeline  should  be held  under  the  close scrutiny  that  AGIA                                                               
12:40:35 PM                                                                                                                   
REPRESENTATIVE  SAMUELS  requested   Anadarko's  opinion  of  the                                                               
producer's argument  that the scale  of the project and  the fact                                                               
that they will provide the gas  should put the pipeline under the                                                               
producer's control.  He asked:                                                                                                  
     What  would you  tell the  three people  with the  [gas                                                                    
     reserves] that  say, "If I'm  wrong about  building the                                                                    
     pipeline I'm  paying the  higher tariff  and my  gas is                                                                    
     not as  competitive.  If  I'm right, then my  costs are                                                                    
     less." ... How do you find the middle ground there?                                                                        
12:42:26 PM                                                                                                                   
MR.  HANLEY answered  that  Anadarko feels  that  the access  and                                                               
expansion provisions  in AIGA address  some of these issues  in a                                                               
reasonable manner.                                                                                                              
12:43:03 PM                                                                                                                   
REPRESENTATIVE SAMUELS  opined that, in this  case, Congressional                                                               
and FERC regulations are insufficient.                                                                                          
MR.  HANLEY stated  that some  of  the issues,  for example,  the                                                               
design  of  the  pipeline,  are  critical, and  have  yet  to  be                                                               
decided.   He  called the  committee's  attention to  a graph  of                                                               
Indicative  Expansion  Tariffs,  that  compares  the  incremental                                                               
tariff of $1.07 to a rolled-in  rate tariff of $1.47 at the first                                                               
expansion to 5.5 billion cubic feet  (Bcf) per day.  Anadarko, he                                                               
said, is  concerned that a 42-inch  pipe would need to  be looped                                                               
at the first expansion.   In that case, incremental tariffs would                                                               
make would  make any expansions  uneconomic.  Mr.  Hanley pointed                                                               
out  that  the  producers  are appealing  FERC  regulations  over                                                               
pipeline design.   If  FERC regulations  are overruled,  he said,                                                               
the  pipeline  could be  designed  to  effectively eliminate  the                                                               
possibility of future  low cost expansions.  Mr.  Hanley read the                                                               
FERC regulations that are under appeal.                                                                                         
12:49:13 PM                                                                                                                   
REPRESENTATIVE  DAHLSTROM  requested  clarification on  the  FERC                                                               
regulations under appeal.                                                                                                       
12:50:02 PM                                                                                                                   
REPRESENTATIVE  SAMUELS  said  that  his  reference  was  to  the                                                               
rebuttable presumption  of rolled-in  tariffs.  Congress  and the                                                               
FERC, he said, recognize the  presumption that the producer-owner                                                               
of the pipeline has an inherent conflict.                                                                                       
12:50:17 PM                                                                                                                   
MR. HANLEY  expressed his understanding  that the  presumption of                                                               
rolled-in  rates  applies  to  voluntary   expansions  only.    A                                                               
producer who  owns the pipeline  may refuse an  expansion request                                                               
and that would  force the issue to litigation.   In fact AGIA, he                                                               
said,  merely instructs  shippers to  ask FERC  for rolled-rates.                                                               
Mr. Hanley  returned to the tariff  graph and pointed out  that a                                                               
second expansion  to 6.5  Bcf per day  results in  an incremental                                                               
tariff of $1.73  and a rolled-in rate of $1.5l.   These rates are                                                               
less  than  the  initial  tariffs,  but  higher  than  the  first                                                               
expansion.  If Anadarko is  participating in the first expansion,                                                               
it  assumes the  risk of  paying a  higher rate  for a  rolled-in                                                               
tariff.  Mr. Hanley explained that  this is an acceptable risk in                                                               
order  to  proceed  with  the  project.    However,  designing  a                                                               
pipeline for expansion and setting  a limit on the expansion rate                                                               
are critical factors.                                                                                                           
12:56:12 PM                                                                                                                   
REPRESENTATIVE RAMRAS  asked for the  origin of the  tariff rates                                                               
reflected in the graph.                                                                                                         
12:56:43 PM                                                                                                                   
MR. HANLEY expressed  his belief that the rates  were provided by                                                               
the Department of Revenue.                                                                                                      
12:56:59 PM                                                                                                                   
REPRESENTATIVE  RAMRAS concluded  that the  rates are  "stylized"                                                               
12:57:27 PM                                                                                                                   
REPRESENTATIVE SAMUELS remarked:                                                                                                
       Realizing the example [on the graph] in the United                                                                       
      States does simply the marketplace take care of your                                                                      
     example  in expansion  number four,  eventually, nobody                                                                    
     is going to  bid $3.25 while somebody  is paying $1.50.                                                                    
     Or is that  the way in the United States  it works, ...                                                                    
     you've got various way to ship your gas.                                                                                   
12:58:14 PM                                                                                                                   
MR. HANLEY  reminded the committee  that the Alaska  gas pipeline                                                               
is a  monopoly and  in the  Lower 48 a  shipper would  have other                                                               
options  such as  building a  new pipeline.   Again,  the initial                                                               
design of the  pipeline is a critical factor in  the economics of                                                               
REPRESENTATIVE SAMUELS  observed that  Trans-Canada's estimations                                                               
remained under  the 15 percent  limit throughout the life  of the                                                               
12:59:25 PM                                                                                                                   
REPRESENTATIVE  DOOGAN  referred   to  the  Indicative  Expansion                                                               
Tariffs  graph  and   asked  whether  expansions  1   and  2  are                                                               
compression expansions, and whether expansion  3 is a looping, or                                                               
new construction, expansion.                                                                                                    
12:59:43 PM                                                                                                                   
MR. HANLEY answered yes.                                                                                                        
1:00:04 PM                                                                                                                    
REPRESENTATIVE  SAMUELS   asked  whether  tariffs   are  normally                                                               
increased to match the rate of inflation.                                                                                       
1:00:48 PM                                                                                                                    
MR. HANLEY said  he is unsure and will provide  an answer to that                                                               
question.  He continued his  testimony by saying that Anadarko is                                                               
supportive of  AGIA's requirements  regarding the debt  ratio and                                                               
the evaluation criteria.  Anadarko  would suggest the comment and                                                               
review period  in AS 43.90.180 be  amended to say "a  minimum 60-                                                               
day period."   Again, Anadarko  supports offering  inducements to                                                               
all parties  rather than creating competitive  advantages for the                                                               
successful applicant.                                                                                                           
1:02:45 PM                                                                                                                    
MR.  HANLEY  told  the  committee  that  Anadarko's  risk  during                                                               
upstream  development is  equal to  or greater  than that  of the                                                               
North Slope  producers.  In  fact, the  risk of gas  reserves and                                                               
deliverability  is   higher  due   to  the  uncertainty   of  gas                                                               
discovery.  This bill, he  said, creates benefits for the initial                                                               
shipper that are  not available to the late shipper,  such as the                                                               
certainty  on taxes.    Again,  Anadarko will  bear  the risk  of                                                               
increased tariffs  and the producers  have the ability  to manage                                                               
costs.    In  addition,  for   Anadarko  to  participate  in  the                                                               
pipeline,  it  will  need  to   ship  one-half  Bcf  per  day  in                                                               
1:08:31 PM                                                                                                                    
MR.  HANLEY concluded  by saying  that  Anadarko appreciates  the                                                               
opportunity to discuss the bill  with the committee.  He repeated                                                               
that the  issue of RIRs and  whether they can be  negotiated with                                                               
FERC remains  to be resolved.   In addition, he  recommended that                                                               
the state  include its must-haves  in the statute.   Anadarko, he                                                               
said is  also supportive of  the process established by  AGIA and                                                               
of the fact that AGIA addresses many issues for the explorers.                                                                  
REPRESENTATIVE DAHLSTROM  recalled an issue regarding  a previous                                                               
cross-border pipeline  wherein the exact transition  point was in                                                               
question.  She asked if this type of situation can occur again.                                                                 
1:13:58 PM                                                                                                                    
MR.  HANLEY  assured  the  committee  that  many  pipelines  have                                                               
successfully crossed the U. S. and Canada border.                                                                               
1:14:14 PM                                                                                                                    
REPRESENTATIVE  OLSON  recalled  Mr.  Hanley's  past  legislative                                                               
experience and asked for guidance.                                                                                              
1:14:52 PM                                                                                                                    
MR.  HANLEY advised  that committee  members should  not rush  to                                                               
judgment, but need to keep the  process moving forward.  He noted                                                               
that the  legislature has the  final review after the  license is                                                               
[HB 177 was held over.]                                                                                                         
1:16:37 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Special Committee on Oil and Gas meeting was adjourned at 1:16                                                                  

Document Name Date/Time Subjects