Legislature(1995 - 1996)
04/10/1996 08:07 AM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE April 10, 1996 8:07 a.m. MEMBERS PRESENT Representative Joe Green, Co-Chairman Representative William K. "Bill" Williams, Co-Chairman Representative Scott Ogan, Vice Chairman Representative Alan Austerman Representative Ramona Barnes Representative John Davies Representative Pete Kott Representative Don Long MEMBERS ABSENT Representative Irene Nicholia COMMITTEE CALENDAR HOUSE BILL NO. 344 "An Act authorizing the commissioner of the Department of Natural Resources to negotiate and enter into timber sale contracts that provide for local manufacture of high value-added wood products; and establishing an Alaska Forest Products Research and Marketing Program within the Department of Commerce and Economic Development." - MOVED CSHB 344 (RES) OUT OF COMMITTEE HOUSE BILL NO. 548 "An Act authorizing, approving, and ratifying the amendment of Northstar Unit oil and gas leases between the State of Alaska and BP Exploration (Alaska) Inc.; and providing for an effective date." - HEARD AND HELD PREVIOUS ACTION BILL: HB 344 SHORT TITLE: VALUE-ADDED TIMBER SALES; MARKETING SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 05/10/95 2085 (H) READ THE FIRST TIME - REFERRAL(S) 05/10/95 2085 (H) RESOURCES, FINANCE 05/10/95 2085 (H) FISCAL NOTE (DNR) 05/10/95 2085 (H) 3 ZERO FNS (DCED, CRA, UA) 05/10/95 2085 (H) GOVERNOR'S TRANSMITTAL LETTER 09/19/95 (H) RES AT 9:00 AM 02/21/96 (H) RES AT 8:00 AM CAPITOL 124 02/21/96 (H) MINUTE(RES) 02/28/96 (H) RES AT 8:00 AM CAPITOL 124 02/28/96 (H) MINUTE(RES) 04/10/96 3673 (H) RES RPT CS(RES) NT 7DP BILL: HB 548 SHORT TITLE: NORTH STAR OIL & GAS LEASE PAYMENT SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 03/28/96 3434 (H) READ THE FIRST TIME - REFERRAL(S) 03/28/96 3434 (H) RESOURCES, FINANCE 03/28/96 3434 (H) FISCAL NOTE (DNR) 03/28/96 3435 (H) GOVERNOR'S TRANSMITTAL LETTER 03/28/96 3436 (H) ATTACHMENT 04/03/96 (H) RES AT 8:00 AM CAPITOL 124 04/03/96 (H) RES(MINUTE) 04/10/96 (H) RES AT 8:00 AM CAPITOL 124 WITNESS REGISTER JOHN T. SHIVELY, Commissioner Office of the Commissioner Department of Natural Resources 400 Willoughby Avenue Juneau, Alaska 99801-1724 POSITION STATEMENT: Testified in support of HB 548 JOHN MORGAN, President BP Exploration (Alaska), Incorporated P.O. Box 196612 Anchorage, Alaska 99519 Telephone: (907) 564-5429 POSITION STATEMENT: Testified in support of HB 548 BILL CHEEK, Vice-President and General Manager Alaska Petroleum Contractors, Incorporated (APC) 6700 Arctic Spur Road Anchorage, Alaska 99518-1550 Telephone: (907) 344-6400 POSITION STATEMENT: Testified in support of HB 548 RANDY RUEDRICH, General Manager Doyon Drilling, Incorporated 101 West Benson Road, Suite 503 Anchorage, Alaska 99501 Telephone: (907) 563-5530 POSITION STATEMENT: Testified in support of HB 548 DAVID GINNETT, President Quality Fabrication, Incorporated 360 East 100th Street Anchorage, Alaska 99515 Telephone: (907) 344-4526 POSITION STATEMENT: Testified in support of HB 548 JAMES UDELHOVEN, President and Chairman Board Udelhoven Oilfield Systems Services; Board Member, Alliance Board Member 11401 Olive Lane Anchorage, Alaska 99515 Telephone: (907) 344-1577 POSITION STATEMENT: Testified in support of HB 548 SMOKEY NORTON, Equipment Manager Peak Oilfield Service 5061 Buckingham Way Anchorage, Alaska 99501 Telephone: (907) 561-8844 POSITION STATEMENT: Testified in support of HB 548 TOM REDMOND, Human Resources Manager Camco Products and Services Company 4831 Old Seward Highway Anchorage, Alaska 99503 Telephone: (907) 562-2132 POSITION STATEMENT: Testified in support of HB 548 JED WHITTAKER P.O. Box 1093 Unalaska, Alaska 99685 POSITION STATEMENT: Testified against HB 548 CHUCK SULLIVAN, General Manager Parker Drilling Member of the Alliance 10560 Old Seward Highway Anchorage, Alaska 99503 Telephone: (907) 563-2226 POSITION STATEMENT: Testified in support of HB 548 DAVE HAUGEN, Vice-President Lynden, Incorporated 1029 West 3rd Avenue, Suite 150 Anchorage, Alaska 99501-1981 Telephone: (907) 279-7501 POSITION STATEMENT: Testified in support of HB 548 BILL ALLEN, Chairman of the Board VECO Corporation 813 Northern Lights Boulevard Anchorage, Alaska 99501 Telephone: (907) 277-5309 POSITION STATEMENT: Testified in support of HB 548 ACTION NARRATIVE TAPE 96-52, SIDE A Number 000 CO-CHAIR BILL WILLIAMS called the House Resources Committee meeting to order at 8:07 a.m. Members present at the call to order were Representatives Green, Williams, Ogan, Austerman, Davies, Kott and Long. This meeting was teleconferenced to Anchorage and Fairbanks on an observation basis only. A quorum was present. CO-CHAIR WILLIAMS said the agenda included CSHB 344 (RES) and HB 548. HB 344 - VALUE-ADDED TIMBER SALES; MARKETING Number 0049 CO-CHAIR WILLIAMS announced the agenda was CSHB 344 (RES), dated February 19, 1996. He said CSHB 344 (RES) was supported by industry in the interior as well as in other parts of the state. Number 0115 REPRESENTATIVE SCOTT OGAN made a motion to move CSHB 344 (RES) from the committee with individual recommendations and the attached fiscal note. Hearing no objection CSHB 344 (RES) was moved from the House Standing Committee on Resources. HB 548 - NORTH STAR OIL & GAS LEASE PAYMENT Number 0236 CO-CHAIR GREEN announced that the next item on the agenda was HB 548, an act authorizing, approving, and ratifying the amendment of Northstar Unit oil and gas leases between the State of Alaska and BP Exploration (Alaska) Inc.; and providing for an effective date. JOHN T. SHIVELY, Commissioner, Office of the Commissioner, Department of Natural Resources (DNR), was first to testify on HB 548. He said he would give a brief overview, explain the history behind the leases, some rational for why the Administration is making the changes in the royalty and answer questions. He mentioned the other people who wished to testify and said he could be available for questions at a later date. Number 0299 COMMISSIONER SHIVELY said Northstar is an oil field located offshore in Northern Alaska. He said the original state leases were leased in 1979, along with two federal leases in a federal offshore lease sale. He said the provisions in the four leases, in 1979, provided for a 20 percent base royalty with a bid variable listed as net profits. He said the average net profits on those leases were 89 percent net profit. In addition, in 1983, another lease was issued at a 12.5 percent base royalty with a 40 percent set net profit with a bonus bid of 72,000 for the state. He clarified that there are five leases being discussed in conjunction with the Northstar Unit. Number 0364 COMMISSIONER SHIVELY said, in 1979, everyone was predicting that oil prices would continue to increase from $30 per barrel, in 1979, to $60 to $100 per barrel in 1996. He said the leases were bought by a consortium headed by Amerada Hess. He said the prospect for these leases initially looked good and it was believed that there might be over a billion barrels of oil, but Amerada Hess found there was less than 130 million to 160 million recoverable barrels of oil. Number 0422 COMMISSIONER SHIVELY said in 1993, the Department of Energy did a study which included Northstar. The study's conclusion was that Northstar was uneconomic largely due to the net profit provision. He said Amerada Hess, ultimately, came to the same conclusion because of the amount of oil and the fact that they were projecting a development cost of $1.4 billion. He said, close to the end of the lease term, Amerada Hess offered the leases up for public sale and had two bidders at the sale. He said BP Exploration bought the leases and in January of 1995 the leases were transferred. In April of 1995, BP began a three year development plan which was approved by the DNR. Number 0474 COMMISSIONER SHIVELY said BP began discussing the net profits issue with DNR last spring when HB 207 was being debated. He said, at that time, BP suggested that the net profits be included as part of HB 207. He said, because of the contention surrounding HB 207, the Administration did not feel that it was a good thing to add yet one more thing to the bill. He said DNR was sympathetic to the fact that there was a very high net profit take on the leases and said he would talk with BP as the company developed their economics. From the beginning of these discussions, he indicated to BP that he did not have the authority to do this, as commissioner, and that any agreement would have to come before the legislature for approval. He said he believed this interpretation of this decision was correct and pointed to the Attorney General's opinion regarding this issue. He said, because of the ramifications of this agreement, it is important to give the agreement public review through the legislative hearings. Number 0559 COMMISSIONER SHIVELY said that one of the reasons the discussions began so late, in October and November, was the time it took to develop the economic model and agreeing to its assumptions. He said the state does not have the resources that BP has, but that there was, ultimately, an agreement which provides a 20 percent base royalty for all five leases. He said this 20 percent remains on the four leases and is raised on the lease that was at 12.5 percent. He said another part of the agreement is that BP cannot come in and ask for changes in the future. He said the Administration substituted, what is being termed, a supplemental royalty for the net profit provision. He said the supplemental royalty is based on oil prices which starts at a floor of $17.35 Arctic North Slope (ANS) price and is adjusted upward for inflation at half the producer price index and caps out at an additional 7.5 percent. He said if prices go up considerably the state could be taking a 27.5 percent royalty from these leases. Number 0650 COMMISSIONER SHIVELY said two other things are important to discuss which are outside the economics of the situation, one is that this is a "use it or lose deal." If the project is not sanctioned by the BP Board a year from now, the state gets the leases back and can offer them out for bid. He said the other thing to consider is that net profit leases are a declining asset for the state because these leases contain a development account. He said all of the costs that an oil company expends while exploring and developing the lease goes into this development account. He said this account earns interest at prime over time. He said as a result of the lawsuit, which the state lost, the development account goes to the company which currently has the lease, rather than to the company which spent the money. He said BP inherited a sizeable development account of over $200 million when they bought these leases and is currently earning interest at prime. He said the longer it takes to develop these leases, the less net profits the state will receive. Number 0720 COMMISSIONER SHIVELY said BP is currently in a three year development plan which the state has approved. The earliest the state could order BP into production would be April of 1998, if the state chooses to do so and added that this has never been done. He said, if this happens, BP could agree and go ahead, BP could drop the leases and they could go out for rebid or BP could sue the state. He said all three of those scenarios could cause economic problems for the state. He said the "use it or lose it" provision in the agreement increases the certainty of what is going to happen on those leases. Number 0780 COMMISSIONER SHIVELY said the Administration has strengthened the local hire and contracting language and added that there is a difference between what can be done legally and what BP will commit to morally. He said the moral commitment is more important because constitutional constraints do not allow DNR to say that all Alaskans are going to be hired. He said the Administration can put pressure on BP to do so with the assistance of the legislative leadership. Number 0813 COMMISSIONER SHIVELY said DNR has developed a fairly complex economic model which can be run in a variety of schemes such as money of the day, 1996 dollars or net present value. He said he choose to look at 1996 dollars as it was easiest to understand, but said other analysis could be provided. He said, based on the Department of Revenue (DOR) mid-case price scenario, the supplemental royalty will net the state about $37 million over the life of the project. He said the total state take, with taxes and royalties, is about $435 million. He said, using the same assumptions, if the leases were to be developed today, under net profits, the state would net about $85 million which is a significant difference if you believe that the leases would be developed today. He said, in order for the state to develop HB 548, the state had to believe that BP would not develop today. Number 0924 COMMISSIONER SHIVELY said looking at the net profit royalty over time assuming that the state got through the development plan and ordered BP into production, BP would come into production around the year 2002. He said the net profits would provide $41 million for the state if development began in 2002. He said this shows how the net profits decline over time due to the development account. Number 0973 CO-CHAIR GREEN asked if the $4 million difference was on a discounted basis. Number 0981 COMMISSIONER SHIVELY said all the numbers are on 1996 dollars and said if you use discounted dollars it would be less. He said there are other positive things that can be presented regarding this agreement, but said he could not give any economic details. He said developing Northstar and putting more oil into the pipeline drives down the tariff for all of the North Slope oil. He said there are additional (indiscernible) taxes for the North Slope Borough, some of which comes to the state. He referred to an offshore oil lease sale occurring in a couple of years and said if development could occur with an undersea buried pipeline it would increase the lease sale bid. Number 1038 COMMISSIONER SHIVELY said HB 548 is in the state's best interest, but it is a subject worthy of discussion as it is the first time the state has considered changing a bid variable. He said royalties were changed before, but not the bid variable. He said there are short term and long term ramifications for the state and that public review is important. He said the Administration will provide information, but added that certain pieces will have to be given under confidentiality. He said DNR will try to minimize those aspects and the time needed to be spent in executive session will be very short. Number 1107 REPRESENTATIVE JOHN DAVIES said he would like an opportunity, at some point, to have a longer session in a working group or an executive session to look at the economic model, the sensitivities and the various assumptions. Number 1127 COMMISSIONER SHIVELY said the Administration is prepared to run the model publicly, but there are certain assumptions that DNR uses that are confidential. He added that there are comparable assumptions that could be used in the model which are publicly available. Number 1152 CO-CHAIR GREEN said future meetings would be held on HB 548, probably in the evening. Number 1154 REPRESENTATIVE DAVIES asked that those future meetings focus on the public model. Number 1216 JOHN MORGAN, President, BP Exploration (Alaska), Incorporated, was next to testify. He said the original leases were awarded to Amerada Hess and Shell, who discovered 130 million barrels of recoverable oil. He said, in 1991, Amerada Hess and Shell made an evaluation of the likely development costs in conjunction with a major engineering contractor and determined that the cost would be $1.5 billion and decided that this was not an economic development proposition for them. He said those companies put the leases on the market in 1994, with the eventual sale to BP in 1995. He said this was an open bid sale for the leases which means that there was a market test in relation to these leases. Number 1278 MR. MORGAN said when BP acquired these leases they understood the nature of the net profit interest, that it would be a barrier to developing the leases. He said BP felt there would be an opportunity to have discussions with the state to try and find an alternative arrangement. Number 1297 MR. MORGAN said BP was interested in acquiring those leases because, over a period of time, BP has been looking at ways to reduce the costs of some of the smaller scale developments, an important part of the economic future of oil development in Alaska. He said, as a result of those studies, BP felt there was a possibility of developing Northstar at the cost, in the range, of $350 million to $400 million. He said, at that cost, there was value in developing Northstar, this was the basis for BP's belief that they would be able to enter into an negotiation with the state. Number 1335 MR. MORGAN discussed the problem of the high net profit, averaging 89 percent, over these leases. He said BP has never said that developing these leases would be uneconomic under the current arrangement. He said, in terms of the kind of value or rate or return that would be available, developing these leases would be economic. He said the basic problem, with the net profit interest arrangement, is that it creates a fundamental misalignment between the oil companies and the state. He said the most obvious evidence of this is that when, eventually, the net profit interest cuts in. He said the net profit begins after the recovery of the accumulated development costs plus accumulated interest. He said, when the net profit interest cuts in, the income available to the producer disappears to almost nothing. He said the profit would be less than 50 cents per barrel. MR. MORGAN said net income per barrel is one of the key competitive indicators in the oil and gas industry and BP would not, as a matter of policy, enter into a situation and go on producing when BP was obtaining a net profit at that level. He said, at that net profit, a company would contemplate an oil field shut down on an oil field that was still capable of producing. Number 1423 MR. MORGAN said other ways that a net profit arrangement creates a misalignment is that the lower BP is able to drive the development costs, through staff creativity and technological development, the greater the penalty as the development account is decreased. He added that it also speeds the time the field reaches the point where the net profit interest would cut in. Number 1450 MR. MORGAN said in almost all cases when you develop an oil field, you keep working on it after the development has taken place. You're looking for ways to bring further technology to bear in it to try to increase the level of recovery from the reservoir. He said when all the benefit of an expansion is going to go to the state, there is very little incentive to put resources to work to improve the recovery level. He said this is another way that net profit creates a misalignment. Number 1489 MR. MORGAN said there are some 40 odd leases that exist with net profit interest terms some of which are producing, some of which are partially explored, but Northstar is the only one that has a development prospect. He said the reason why those other oil leases do not create a misalignment is that the cost of development is so high that the prospect of the net profit interest cutting in is pushed way out into the future. He said, if the net profit interest cuts in as it might do, these examples are isolated leases within a whole set of leases that make up the field. He said all the leases are going to be combined and a dramatic economic affect is not going to be felt as it would with the Northstar project. Number 1551 MR. MORGAN said BP has accepted the "use it or lose it" provision which basically says that the Board of BP must fully approve the financing of this development a year from the time it is approved by the state. He added that he hopes the board will approve it ahead of this time, perhaps in the fall of 1996. He said BP is currently in the process of an environmental impact statement as well as doing the detailed engineering work. He said HB 548 is not any type of concession or give away on the part of the state, but was a carefully and professionally negotiated arrangement to remove a barrier to the early development of an oil field for the benefit of the state. Number 1551 MR. MORGAN said the field has about 130 million barrels of recoverable reserves and a development cost at approximately $380 million. It will gear production toward the beginning of 1999 with the plateau production of 50,000 barrels of oil per day. He said the benefit to the state would be made up of revenue, BP's expended capital and the BP operating costs. He said this amounts to a benefit of $1 billion. He said BP believes that there are a great deal of resources to be developed on the North Slope which are known and available. He said the estimated amount is about 5 billion barrels thorough heavy oil prospects, through developed satellites around existing fields, enhanced oil recovery in existing fields and through these smaller oil fields which have between 100 million to 200 million barrels of reserves. He said Northstar would be the first of these developed smaller fields and the first developed offshore fields utilizing new technology, for Alaska, regarding a buried subsea pipeline. Number 1715 MR. MORGAN said BP is committed to hiring Alaskans to work on the project, to use Alaskan contractors and to build the facilities to the maximum extent in Alaska. He said the oil industry has the best history of hiring Alaskans in Alaska by a long way. He said there has been a downward trend in the number of Alaskan residents hired by operators and contracting companies. He said BP, ARCO and a number of contractors have been working to put together a set of plans addressing the issue of Alaska hire to improve this record. He said the industry is committed to working on those issues and plans have been presented, quite recently, to the Administration. Number 1740 MR. MORGAN said, over the peak construction period, Northstar would directly employ some 450 to 520 people. In the operating mode, Northstar would have some 50 permanent jobs. He mentioned the multiplier effect which is for each direct job created one additional job is created in the community. He said Alaskan contractors will do the vast majority of the work on Northstar and BP has been working, since the beginning, on an alliance contract. This contract has the contractors working alongside BP in developing their approach. He said the alliance includes AIC a subsidiary of Cook Inlet Region, Incorporated(CIRI) who will work on Gravel Island, Houston Contracting a subsidiary of Natchiq, Incorporated who will be involved with pipeline installation, VECO Corporation and Alaska Petroleum Company (APC) who will be involved with facilities, fabrication and installation. He said contracts would be awarded in the areas of trucking and pipeline fabrication, et cetera. Number 1763 MR. MORGAN said the overall cost is around $380 million, $140 million of which is likely to be spent out of state. He said $100 million of that is for equipment which cannot be acquired in the state such as valves and tubulars. He said BP will spend between $200 million and $250 million in the state, assuming that BP will be able to purchase things in the state such as fabrication. Number 1810 MR. MORGAN said the cost of fabrication would be about $60 million of the $380 million overall development cost. He said if you look at that based on what can be done in the state and on a commercial decision process, probably $10 million would be spent in the state. He said the contractors in the state have become competitive with in the manufacture of smaller, truckable modules used in Niakuk and Milne Point. He said the contractors have not ever been able to tackle the larger, more complex modules. He said BP will seek to put an additional $30 million to $40 million of fabrication work into Alaska. MR. MORGAN said BP is willing to accept some additional cost, compared to buying from the Lower 48 states, to try to bring these larger, more complex modules here in the state. He said BP is also trying to build the modules in a way that allows them to be preassembled, put on to barges, and then sea lifted up to the North Slope. He said this is business, in the past, that has always gone to the Lower 48 states. He said BP is committed to work with VECO and APC to create a new business opportunity for the state. Number 1892 MR. MORGAN said HB 548 involves other things besides the economics of replacing net profit interest with a new approach. He said the state has been very flexible and innovative in going forward with that notion. He said this notion is quite profit related, if you think of the oil prices as a proxy for profit, when prices are up and profits are higher the state would then take a higher share. He said it also creates a strongly aligned interest between BP and the state with an arrangement that would share the benefits of any improvements. He said this, plus the smaller offshore oil possibilities, created jobs, revenues and business opportunities which makes HB 548 an exciting deal for BP and the for the state of Alaska. Number 1949 REPRESENTATIVE DAVIES expressed concern regarding hiring local people and asked what is being done to promote jobs for Alaskans across the state. Number 2004 MR. MORGAN mentioned a number of contractors that have been working with BP on the Northstar project including AIC and Houston Contracting Company Alaska Limited (HCC) which have strong records of Alaska hire and strong records of Fairbanks hire. He said Fairbanks companies will be in contention for the upcoming contracts. Number 2030 MR. MORGAN said on the more general issue of jobs, BP and ARCO brought together a large number, roughly 20, contractor companies into a conversation to see what could be done about this situation. The contractors got engaged, a number of work groups were held and a number of recommendations were made. He said these recommendations fall under three broad headings including: Training, to understand what the demand for labor in the state is going to be and insuring that an Alaskan work force is being adequately trained to meet that demand; hire, where the industry acknowledges that they have not done everything they could to insure that jobs are being advertised properly to hire Alaskans as a first priority; and the third area was on measurement, if things are measured and data is created it promotes a route to improvement. He said all the involved companies have agreed to measure and make available their individual data and most companies have agreed to set targets, make them available and measure performance against those targets. He said there is a detailed report available and said it would be made available to the legislature. Number 2136 REPRESENTATIVE DAVIES asked if project labor agreements were considered and added that these type of agreements achieve the highest possible Alaska labor hire and assist with the training issue. Number 2158 MR. MORGAN said he would like to see the unions come in alongside the contractors and accept the same kind of program that the contractors are now talking about. He said there is no simple Alaska hire definition or issue because it depends on where you stand. He said you can talk about the numbers of hire at the level of the state, but said if he goes and stand in Barrow then it sounds more like an issue of Native hire or if he stood in Fairbanks it could sound like union hire or skilled non-union people. He said he did not see how a project labor agreement would be the solution to this issue, but said he would like to see the unions adopt the same type of program. He said the challenge is to find the right skills in the work place to deliver the quality of work that is needed and balance that within the community. Number 2222 CO-CHAIR GREEN referred to the outsourcing issue in the paper where contracts were awarded to companies in Denver and clarified that 60, 65 to 70 percent of development costs might be spent in Alaska. He asked what sort of local program is being developed which would help local contractors, both labor and fabricators, to know what sort of things are going to need to be built. Number 2256 MR. MORGAN said BP has been talking with the contracting community to discuss the needs of this project. He said the biggest area of change is in module fabrication. He said the other aspects of the project are not unusual or difficult in terms of the capabilities of existing companies within the state. He said the two fabrication companies, in Anchorage, would be full with the Northstar modules if the larger modules can be brought into the state. He said if there is any other business to be done, then those companies would need to be increased, either in Anchorage or in some other part of the state. Number 2301 MR. MORGAN said the more challenging piece is a need for a facility which would allow the assembly of those modules in a way which allowed them to be put on a barge with an eventual sea lift up to the North Slope. He said BP knows that there will be some premium in having that construction in the state due to productivity issues, partly because of wage rates. He said BP is willing to cover these additional costs, but added some offset would occur if the modules could be barged to the North Slope from Alaska. Number 2294 MR. MORGAN said BP is willing to work with contractors and anyone else that might be appropriate such as the municipality of Anchorage, the state, to see if, by the summer of 1996, those facilities are made available on the right time scale and the right quality. He said he is optimistic that this can occur. Number 2352 CO-CHAIR GREEN asked if sanctioning had begun. Number 2355 MR. MORGAN said, no, at this stage there is only a conceptual engineering plan. He said to go to sanctioning would require a detailed engineering process which BP is beginning. He said BP has probably spent around $25 million, since acquiring these leases, on this engineering work. Number 2374 MR. MORGAN said the other issue involves the environmental impact assessment with the Core of Engineers. He said, because this is an offshore development, it raises a number of environmentally and culture challenges. He said these challenges are being taken seriously and if they can be addressed cooperatively, especially with the residents of the North Slope, BP will overcome them. Number 2397 MR. MORGAN said BP is confident about the technology and the ability to deal with ice scouring. He said BP hopes, by the fall, to understand any major issue which might arise from that environmental assessment. He said major uncertainties would delay the sanctioning of the project. He said the Board would want to know if the key risks were manageable and under control. Number 2419 CO-CHAIR GREEN said BP is working with VECO, ACI and HCC and asked if contracts were going to be bid among local contractors such as labor suppliers and fabricators or whether BP was limited to the point where those were the only ones available. Number 2434 MR. MORGAN said the alliance concept limits the choices. He said the nature of the concept is to allow the contractors to work alongside BP from the beginning of the project, working as a team to develop a contract which will "incentivize" the contractors to work together to deliver the best possible outcome for this project. TAPE 96-52, SIDE B Number 0000 MR. MORGAN said the contractors will have to decide whether it is better to bid or whether they feel one of the existing alliance partners has the right qualities and skills to come into the agreement. Number 0021 REPRESENTATIVE DON LONG expressed concern regarding ice scouring, and said Nuiqsut is also concerned. He said HB 548 was described as not being a giveaway, but a carefully orchestrated agreement between BP and the state of Alaska and asked if BP would provide a model to allow the Legislators to show their constituents that HB 548 is not a give away. Number 0046 MR. MORGAN said Commissioner Shively talked about the economic model earlier and said this is part of the answer. He said the other part of the answer is somewhat less quantifiable, the answer is around the issue of development opportunities for the state regarding creating employment and business opportunities. He said there would be some approaches to valuation regarding the creation of jobs, but it would be more difficult to quantify this type of situation. He said if Alaska can move ahead and develop a business opportunity regarding the modules, not only will Alaska businesses develop modules for work done in Alaska, but they might be able to provide modules for the Far East markets. Number 0105 REPRESENTATIVE OGAN asked if a precedent was being set that a lease could be renegotiated that would compromise the established bidding process. Number 0153 MR. MORGAN said HB 548 does not set a precedent as there are prior precedents. He referred to a situation in 1991, the Thetis Island leases, where a net profit lease was amended to delete the net profit interest and insert a modification in royalty. Number 0179 MR. MORGAN said Northstar was the only lease around which had net profit interest was used as the bid variable. He said there were other bid rounds where net profit interests were incorporated, but the state pre-set the level of net profit interest, normally between 30 percent and 40 percent. He said the state no longer used this approach to leasing after 1984 and he said he believed the reason for this was because net profit lease creates misalignments between the state and the industry. He said the agreement also had to do with the fact that oil prices have not increased as was predicted. He added that HB 207 allows DNR to make amendments to lease terms surrounding the royalty arrangements which would allow marginal fields to be developed. He said there would be changes made to taxes and regulations over the years. Number 0240 MR. MORGAN said the judgement regarding the changes made to the lease seems to be a proper one and asked the committee if it made sense to not change it and delay the development of this field. He said this open legislative process allows for concerns to be brought forth, and that a determination will be made that the benefits and the scrutiny have been proper. Number 0277 REPRESENTATIVE DAVIES said some concern has been expressed by the legislature that HB 548 will either pass or fail without allowing any changes to be made in the agreement. He said he could understand the difficulty of negotiating with 61 people, but said that the Legislature is being asked to look at a complicated arrangement and it is conceivable that some facet has been overlooked in the discussions. He said if this arises, then there is no mechanism for a member of the legislature to affect a change and asked if there could be a mechanism for dealing with this situation. Number 0336 MR. MORGAN said DNR made it clear to BP that any agreement would need to come before the legislature for approval. He said it was understood that HB 548 would be treated like some of the royalty sale arrangements, as a lease amendment to be voted on. He said negotiating with the entire legislative body would not be practical, but added that BP would want an open agreement to show that it was fair and satisfactory to everyone. Number 0418 REPRESENTATIVE ALAN AUSTERMAN referred to the net profit interest and asked if HB 548 leaves the net profit interest in the lease agreement or if it is eliminated totally. Number 0438 MR. MORGAN said it eliminates it totally, so that the development fund has no relevance anymore. He said the over $200 million of accumulated cost in the development funds is eliminated. He said it is a complex structure, like the tax framework, requiring detailed accounting as there are specified rules about the definition of net profit. He said all of the net profit is removed and now the lease term would have the basic 20 percent royalty and a supplemental royalty which goes up to a maximum of 27.5 percent. Number 0486 REPRESENTATIVE AUSTERMAN asked if there was discussions of lowering the net profit percentage, rather than just eliminating it. Number 0495 MR. MORGAN said he did not conduct the negotiations, but said his sense was that the discussions were around the misalignment concept and the elimination of the net profit concept with the idea that something could be found to replace it. He said there might have been some discussion regarding a lowering of the net profit percentage. Number 0528 CO-CHAIR GREEN said there was an estimate of recoverable reserves based on a few wells and asked a hypothetical question regarding additional oil reserves. Number 0550 MR. MORGAN said BP could answer that hypothetical questions, but said that it involved the economic modeling issues and the assumptions surrounding it. He said this assumption certainly includes the 130 million barrels of recoverable reserves, which has a range around it as does the $380 million development cost. He said BP has assumed some additional recovery mechanisms, included in the development scheme, which would get to the 130 million number. He said other options could increase that number. MR. MORGAN said, aside from the discovery well, five other appraisal wells were drilled on this reservoir. He said there is a pretty good understanding of the reservoir and the sense is that there is not a vast range of uncertainty. He said the oil quality is exceptionally good in these wells, the highest quality of oil on the North Slope. He said other assumptions could be made, but it would result in two models and create additional confusion. Number 0612 CO-CHAIR GREEN asked if these hypothetical scenarios had been run through the model. Number 0621 MR. MORGAN said the DNR has run a number of sensitivities in the course of the negotiation, as did BP. Number 0627 CO-CHAIR GREEN, "the question was more of directionally do you have a view as to what would happen if one of those cases were to ...you have come through with a ...some sort of a super duper terciary recovery and you increase recovery and set a course with 42 gravity oil, that's a..." Number 0642 MR. MORGAN said it is nice to concentrate on the up side of a situation, but declined to answer the question. He mentioned the possible down side of a situation. Number 0658 CO-CHAIR GREEN said the Attorney General's opinion, of how you handle net profits compared to conventional royalty, indicated that net profits can be considered as a royalty and asked if HB 548 was considered as a part of HB 207. Number 0692 MR. MORGAN said he could not answer this question, and added that there is a range of opinion on what the commissioner's authority is. He said there has been some discussion on what that authority might be, but BP has never been uncomfortable that HB 548 should come to the legislature rather than just being signed off by the commissioner. Number 0748 BILL CHEEK, Vice-President and General Manager, Alaska Petroleum Contractors (APC), was next to testify. He said APC is the largest subsidiary of Arctic Slope Regional Corporation (ASRC). He said he is showing support of Northstar from a contractors point of view and added that APC is one of the largest alliance partners in this development from the construction, engineering point of view. He said APC is excited about the possibilities that this project brings for the whole Alaskan community such as increasing Alaskan employment and gives Alaska the opportunity to compete in an international market with mega module fabrication. Number 0792 MR. CHEEK said in 1988, APC began fabrication of mini-modules in Alaska. He said APC was able to competitively bid to build mini- modules and was able to be successful in competing with contractors outside Alaska. Number 0814 MR. CHEEK said, in 1996, all mini-modules are built in the state of Alaska. He said the industry views these mega-modules as the same type of opportunity. He said to build mega modules in the state requires some type of premium and said perhaps it is true in the up front planning portion. He said given time and ways to improve the way business is conducted in Alaska, these costs will be reduced to allow for competitiveness in the same manner that the mini-modules are competitive. Number 0843 MR. CHEEK said the Northstar project is important in terms of smoothing out upcoming construction projects for 1997 as it is forecasted to be a down year in the oil patch, in terms of projects. He said if Northstar will not be developed in 1997 there is a strong possibility that a later development will interfere with other projects slated for the North Slope such as ARCO's Coleville project. He said if both of those projects hit in the same year, there will be problems for the construction industry to handle that type of fabrication and construction work in Alaska. Number 0875 MR. CHEEK said BP is sincere regarding the promises they have made regarding the utilization of local contractors and local hire. He said, in working with the project development team on the Northstar project, the alliance is actively pursuing the identification of skills needed to do this project. He said the alliance is also identifying their data bases of local skills and matching those with the identified skills. He said BP has made a commitment to utilize local contractors to perform the mega-module fabrication and overall industry is excited about the possibilities that this project will bring and are proud to be an alliance partner with BP. Number 0925 REPRESENTATIVE DAVIES asked him to list the possibilities and the considerations that are being considered to improve the rate of Alaska hire such as the amount of subcontracting that will be made available for Alaskans. Number 0966 MR. CHEEK said the subcontracting for the Northstar project has not been identified yet and will be a function of the overall management team. He said this team will identify the types of things which can't be performed by the alliance partners. He said APC was one of the companies that participated in the competitive Alaska hire workshops in developing a plan to improve overall Alaska hire. Number 1020 MR. CHEEK said APC, looking at the Department of Labor 1994 numbers, averaged about 1,500 employees with an Alaska hire percentage of 74 percent. He said this was as good as, or better than, any other contractor in the state. He said APC is interested in improving this number by doing more recruitment in the interior, such as non-union personnel in Fairbanks. He said, in 1995, APC averaged about 1,800 employees and maintained the 75 percent Alaska hire rate. He said there are some skilled workers, such as electricians and pipe welders, which are more difficult to retain in this state. He said APC would be interested in developing training opportunities in this state or developing opportunities for people with those types of skills to relocate to this state. Number 1049 REPRESENTATIVE DAVIES asked if the hiring of non-union people was because there were already avenues to hire union people or whether APC did not want to hire union people. Number 1062 MR. CHEEK said APC's sister company, Houston Contracting Company Alaska Limited (HCC), is a union contractor and they employee everyone that can provided out of Fairbanks local. He said APC, being non-union, does not recruit union personnel out of Fairbanks. Number 1081 REPRESENTATIVE RAMONA BARNES asked what the ratio of Natives to Non-Natives is since APC is a wholly owned subsidiary of the North Slope Borough. Number 1093 MR. CHEEK said, last year, APC employed an average of 110 North Slope Borough resident Natives with a peak of 135 employees which is a little under 10 percent of the total number of employees. He said APC is working closely with the Arctic Sivunmum Ilisagvik College in Barrow for vocational technical training programs to increase the skill levels of the shareholders in Barrow. He said, being owned by Arctic Slope Regional Corporation, APC is monitored very closely in terms of Native hire from the North Slope Borough. He said when skilled local Natives are not available, other skilled Alaskan Natives are hired and then lastly skilled Alaskans. REPRESENTATIVE BARNES asked the overall ratio of Native to Non- Natives employees. MR. CHEEK said he did not have that overall ratio with him and said he could send it. Number 1130 REPRESENTATIVE BARNES said she was troubled by the fact that APC does not hire union personnel and then asked him about his comment there was a lack of trained electrical workers. She said she did not believe that there was this lack as there is a school operated by the International Brotherhood of Electrical Workers (IBEW). She said there needs to be a way to utilize people trained in Alaska in the field of electrical work. REPRESENTATIVE BARNES asked if APC was utilizing skilled workers from the Kotzebue Technical Center. Number 1187 MR. CHEEK said he was not familiar with the Kotzebue Technical Center. Number 1193 CO-CHAIR GREEN referred to the technical school in Seward and asked if there was a shortage of vocational technical training which would prevent APC from moving the employment rate up to 85 percent Alaska hire. Number 1208 MR. CHEEK said a subcommittee was formed from the Alaska Hire Group, comprised of the 20 contractors, which visited several training facilities. He said this group evaluated each training center to determine the availability of the skills, what is working and not working, in order to develop an action plan on training in Alaska. Number 1234 REPRESENTATIVE BARNES asked how the working group was chosen. Number 1245 MR. CHEEK said, a few months ago, BP and ARCO sponsored a workshop for Alaska contractors on how to improve Alaska hire. He said volunteers were taken from these workshops to form committees which would present the plan, complete with action items, to the Governor and to the state. He said this group is comprised of union, non- union and oil company personnel. Number 1296 REPRESENTATIVE BARNES asked, in that group, how many are Non-Native owned companies. Number 1302 MR. CHEEK said he did not know, but would provide a list of the companies. REPRESENTATIVE BARNES said she would also like to know the ownership of those companies. Number 1310 RANDY RUEDRICH, General Manager, Doyon Drilling, Incorporated, was next to testify. He said he is president of the Alaska Chapter of the Independent Association of Drilling Contractors and had been chairman of the Alaska Section of the Society of Petroleum Engineers. He said Doyon has grown from one oil rig to five oil rigs on the North Slope. He said 88 percent of Doyon employees live in Alaska and 41 percent of them are Alaska Natives. He said an internal training program has occurred consisting of 13 classes. He said the people who graduated from those classes have been offered jobs by Doyon. He said a few of those graduates have gone on to work for produces, in other service companies, on the North Slope, but the vast majority have stayed with Doyon. He said six employees are drillers on Doyon rigs, responsible for the crew for 12 hours per day on an approximate $15 million to $25 million asset. He said he sees this as an issue of Alaskan long term employment rather than an issue of Alaska hire. MR. RUEDRICH said this scenario can only continue if there is work and said Northstar provides the drilling industry and the service industry several years worth of work for a single rig. He said this, in combination with existing work such as new well drilling, side tracks and work overs, will provide for a long term stable employment which will benefit employees and shareholders who are Alaskans. MR. RUEDRICH said a rig generates a payroll of about $4 million in direct labor of approximately 50 people with another 50 jobs to keep a rig operating. He said the drilling business is a large industry and done at a cost between 20 percent and 40 percent of the total project budget. Number 1510 MR. RUEDRICH said the majority of the employees of Doyon live in interior Alaska. He said Doyon is a for profit enterprise and the profits go to Doyon Unlimited which has a history of paying half of its annual profits to the shareholders, so that money is also going to interior Alaska. Number 1552 MR. RUEDRICH said Doyon Universal provides jobs, direct payroll income, and dividends to Alaska and to the people of the interior. He said Alaska's drilling operators and related service providers fully support the continuing orderly development of the North Slope, including projects such as Northstar. He said it is good business for the drilling industry and for many individuals in Anchorage and the interior. Number 1586 REPRESENTATIVE DAVIES said he understood that the aspects regarding the drilling contracts were not determined and asked if Doyon was hoping to receive those contracts. Number 1611 MR. RUEDRICH said there are a limited number of rigs on the North Slope and any type of work is good for the industry. Number 1623 REPRESENTATIVE BARNES asked if Doyon was the only drilling company with rigs presently on the North Slope. Number 1633 MR. RUEDRICH said there are five contracting companies on the North Slope today. These contractors include Doyon and Nabors. He said the membership of the International Association of Drilling Contractors (IADC) has decreased. REPRESENTATIVE BARNES asked if the contractors were presently drilling anywhere. Number 1654 MR. RUEDRICH said Doyon has five rigs on the North Slope, three of which are presently active. Nabors Drilling has six rigs that are active on the North Slope, Parker Drilling has a rig active on the North Slope, Rubicon Drilling does not have any rigs presently active on the North Slope and Nordic Calista Services Number 1 has one rig running on the North Slope today. Number 1715 DAVID GINNETT, President, Quality Fabrication, Incorporated (QFI), was next to testify. He passed around a handout titled, "Steel Fabrication in Alaska." He said QFI is a steel fabricator which builds structural frameworks for commercial buildings to oil field modules. He said, over the past several years, QFI has done signature projects including the structural framework for the Alyeska Prince Hotel, the Bradley Lake Power Plant as well as many of the frameworks for truckable modules used on the North Slope. He said the work for the North Slope also includes the construction of above ground pipeline support members, pipe saddles, various types of platforms and a multiple of structural components which are required. Number 1817 MR. GINNETT said QFI was started 13 years ago at a point in time where there was a downturn in the state's economy. He said the company where he had previously worked, a steel fabricator in the state, had closed. He said, at that time, several other steel fabricators had gone into insolvency and closed. He said the QFI concept was to tap some of the fabricating market, which at the time was a $30 million to $70 million per year market. He said it was felt that fabricating work should be done in Alaska. He said in 1983 there were two people employed and currently there is almost 100 Alaskan employees. Number 1941 MR. GINNETT said the market which the business is built on is a highly competitive market which competes against companies from the Lower 48 states. He said, his vision for the future, is to see construction work begin again on the North Slope on a smaller scale, as compared to the Prudhoe Bay work. He said QFI began to do this when they did a majority of the work on the Niakuk project, the Milne Point, the large scale enhanced oil recovery project for ARCO and are currently completing the BP Cascade development. Number 2030 MR. GINNETT said the potential in enhanced oil recovery or marginal field projects is great as they have components which have been labeled as a "new era of design." He said this is an era of building industry in Alaska which previously did not exist. He said these are smaller scale projects which are funded to the level of $50 million to $400 million. He said a significant amount of that development cost can and will be spent in Alaska. Number 2126 MR. GINNETT said, in a busy year, QFI does $10 million worth of work. He found QFI does work with 269 Alaskan companies throughout Alaska. He said small businesses have benefits from smaller field development. He said over the past few years the work force has increased, skills have improved, as well as improvements to the facility and the machinery. Number 2204 MR. GINNETT said the Northstar project is critical to this momentum and without it the same economic situation would happen as occurred in 1981 with the decreased stability in business. He said the current projects are technically related projects and take advantage of the program and skills available in Alaska. He said working closely with the producers and developers in the state is helpful. He concluded that QFI, from a small business standpoint, supports the Northstar project and sees it as an important step to maintaining momentum. Number 2309 REPRESENTATIVE DAVIES asked what the mix of skills the employees of QFI have and asked what considerations QFI had in terms of finding trained personnel. Number 2344 MR. GINNETT said QFI has some internal training programs. He said the skill level runs from general laborer to certified and journeyman type of welders, painting personnel, blasting cleaning personnel, the fitters which read the blue print to construct the components, project management personnel, purchasing personnel, accounting, and quality control, safety and monitoring personnel. He said QFI will look for personnel in any agency in Alaska from the vocational technical school in Seward, the Testing Institute of Alaska and the labor departments. Number 2455 JAMES UDELHOVEN, President and Chairman of the Board, Udelhoven Oilfield Systems Services, Incorporated, Alliance Board Member, Arctic Power Board Member, Washington Institute for Public Policy Board Member, Board of Regent Member for Charter College, was next to testify. TAPE 96-53, SIDE A Number 0000 MR. UDELHOVEN said his company has put together a federally approved apprenticeship program for the plumbing and the electrical trade. He said his company works closely with the apprenticeship program which is occurring in the Kenai School District. He said his company works in the area of skilled trades. In the oil industry the company provides inspection and does start up services for the large facilities before they go into production. He said other work has been done in other industries such as Trident Fisheries. Number 0241 MR. UDELHOVEN said the Northstar project will change the curve of the decline. He said if we continue to do business with the oil companies, as the state did in the 1980s, the state will drive the oil industry away. He referred to the time line, cost factors presented by BP and said BP is taking a substantial risk as the cost is never determined until the project is completed. He said there are many factors in a project such as material and labor cost, delays caused by environment, weather and scheduling. He urged the committee to consider HB 548 in terms of the future rather on than the details of the bill. Number 0368 SMOKEY NORTON, Equipment Manager, Peak Oilfield Service, was next to testify. He said his company believes that Northstar is a good deal. He said his company employs many truck drivers, mechanics and said HB 548 is a jobs issue. He said HB 548 is a deal that is good enough. Number 0469 REPRESENTATIVE BARNES asked if Peak Oilfield Service was a totally owned subsidiary of CIRI. MR. NORTON said the ownership of Peak is 50 percent CIRI and 50 percent by Nabors Drilling. Number 0534 TOM REDMOND, Human Resources Manager, Camco Products and Services, was next to testify. He said Camco provides wire line and coiled tubing services in Prudhoe Bay for BP as well as other oilfield products. He said Camco employs about 140 people, 86 percent of which are Alaskan residents who live in the Anchorage, Eagle River, Palmer and Wasilla area. Number 0621 MR. REDMOND said businesses are trying to deal with the health, safety and the environment and maintaining jobs. He said encouraging these peripheral wells, such as Northstar, is to the benefit of everyone. Number 0675 REPRESENTATIVE BARNES asked if outsourcing has affected his company. MR. REDMOND said it had not affected his company yet. Number 0697 JED WHITTAKER said he was representing himself and others, whom he did not specify. He said profitability was not mentioned, but said the existing net profit sharing agreement in the lease provides a profitable development for BP. He said because that lease is profitable, it is inappropriate to change the rules of the game. He said the oil companies have spent a lot of time telling the state they should not change the rules of the game. Mr. Whittaker said HB 548 is changing the rules of the game. Number 0813 MR. WHITTAKER said the oil companies tell everyone what they want to hear. In Fairbanks the oil companies talk about local hire, but said Alaska hire provisions are unconstitutional. He said the public is not getting the whole picture, there have been some omissions. He said integrity dictates that a deal is a deal and when BP bought that lease from Amerada Hess they knew the deal. Number 0872 MR. WHITTAKER said he strongly objected to bringing this type of special interest legislation half way through the session and doing a rush job on it. He said HB 548 may be unconstitutional because of that special interest and said there are ethical considerations regarding the speed of the legislation. Number 0947 MR. WHITTAKER said the price of oil is going to go up as the demand increases. He said it is important to get the maximum benefit for the welfare of the people for the natural resources as is stated in the constitution. He said he was a litigant in the last Supreme Court case, which opened up the Alaska primary, and said his faith was renewed in the Alaska court system. He said, if the Legislature or the Governor will not uphold the constitution, he would consider taking this matter to court on the constitutional issue. Number 0979 MR. WHITTAKER said he is opposed to HB 548 and told the committee that they took an oath to uphold the constitution and reject this inside deal. Number 0994 REPRESENTATIVE LONG said under the lease agreement, signed by Amerada Hess, it states that the lease or any undivided interest may be approved by the state be a signed sublet or otherwise transfer of the entire lease area. He said this is all HB 548 is trying to do, asking the state to approve the assignment of this lease. Number 1021 MR. WHITTAKER said this would be true if it was an agreement on the existing lease, but BP is asking for modifications of that lease including a reduction in the amount of money that the state of Alaska will get. He corrected a statement that Mr. Morgan had made in the Senate Resources Committee and said it should be 93 percent net profit sharing, not 89 percent. CO-CHAIR GREEN said the 89 percent figure was an based on an average. Number 1048 REPRESENTATIVE DAVIES asked him to define the constitutional issue that he was referring to. Number 1057 MR. WHITTAKER said there are two issues that he was aware of and there may be others. The first being special interest legislation and the second is that the state of Alaska shall get maximum benefit for the welfare of the people from the natural resources. Number 1096 REPRESENTATIVE DAVIES said those are two important issues and that the committee will consider those concerns. Number 1108 MR. WHITTAKER said the committee should also consider the litigation of this issue and that development would not occur before the year 2002, given our court system. Number 1120 REPRESENTATIVE BARNES said she has always upheld her constitutional oath of office. She said the correct reading of the constitution is, "the legislature has the right to control every resource belonging to the state be it land, water, fish, game, whatever and we also have the right to vote on contracts, it has happened time and time again." Number 1216 CHUCK SULLIVAN, General Manager, Parker Drilling, but said he was representing the Alliance. He referred to a letter from the Alliance dated April 8, 1996, and read it into the record, "Dear Representative Green, The Alaska Support Industry Alliance would like to convey their support of the recently negotiated agreement with BP Exploration (Alaska) regarding the Northstar oil field in the Beaufort Sea. "The development of the North Slope oil field will create 500 construction jobs and more than $4000 million in revenue into the state treasure along with extending the life of the Trans-Alaska Pipeline System. "An Important part of this development is the expansion of oil fields module assembly operations in Alaska. BP has agreed to hire Alaskans, to fabricate facilities such as modules in Alaska and work to develop a new industry in Alaska, the manufacture of sea lift modules. "Once Northstar is brought into production, and its pipeline is delivering oil to the Trans-Alaska Pipeline System, other known oil fields and prospects in the area will become more attractive. With the expansion of Infrastructure, it is possible that the development of Northstar will lead to other development opportunities. "With the 19th legislative session rapidly coming to a close, it is important that lawmakers take appropriate steps to consider and vote on the Northstar proposal. "A positive vote on the Northstar proposal is strongly encouraged by the members of the Alaska Support Industry Alliance. Sincerely, Keith D. Burke" Number 1336 MR. SULLIVAN said HB 548 is a nice piece of business and said the alliance thinks this is good for Alaska and for Alaska business. He said BP has left the deal open for scrutiny. Number 1405 DAVE HAUGEN, Vice-President, Lynden, Incorporated, was next to testify. He read a letter written by the chief executive officer of Lynden, Jim Jansen, dated April 5, 1996, into the record, "Lynden Incorporated and its operating companies are firmly committed to BP's efforts to develop the Northstar project. With the potential recovery of 130 million barrels of oil, the Northstar project has a potential of being very beneficial for the state of Alaska and its citizens. The Northstar development will provide many positive benefits for Alaskans and Alaskan companies. The project capital spending estimate is over $250 million, most of which will be spent in Alaska. BP is also committing to launching a new Alaskan industry, fabrication and assembling of large oil field modules in-state. The oil and gas industry has always been an important part of Lynden's business going back to the days of the development of the Swanson River field on the Kenai Peninsula. Lynden Transport, Lynden Air Freight, Alaska West Express/Frontier Transportation, Bering Marine and Lynden Logistics are just some of the Lynden companies that have been and continue to be directly involved in the oil and gas industry. Please consider Lynden to be unequivocally in support of BP's efforts to develop the Northstar project." MR. HAUGEN said he would be available to answer any questions. Number 1497 BILL ALLEN, Chairman and Chairman of the Board, VECO Corporation, was next to testify. He said VECO was started in 1969 and is one of the largest service companies doing engineering, construction, and maintenance. He said he supports Northstar and said the development was attempted in 1984. He said BP is committed to building the sea lift modules if the facilities can be provided and a new industry will be created in Alaska which can possibly lead to an international industry. Number 1609 MR. ALLEN said the truckable modules have been produced in Alaska and said VECO was the first to compete with the Lower 48 states. He said Northstar will help keep oil coming down the pipeline. He said the longer the pipeline can be kept, the better it will be for the state. He concluded that he is in support of Northstar. Number 1702 REPRESENTATIVE BARNES asked how many VECO employees there were. MR. ALLEN said there were about 3,000. Number 1709 REPRESENTATIVE BARNES asked if VECO was still the largest contractor in the state. Number 1712 MR. ALLEN said Arctic Slope is probably bigger than VECO as far as work in Alaska. REPRESENTATIVE BARNES said VECO was the largest, wholly owned industry in Alaska and the only international company. She said they should be commended for the work they have provided to the state. Number 1754 CO-CHAIR GREEN thanked everyone for testifying. He said if the state can get going on Northstar, Alaska will become a staging area of Asia. He said there is a bright future for oil, fabrication, labor forces, engineering which is the whole gamut in the Asian market. ADJOURNMENT There being no further business to come before the House Standing Committee on Resources, the meeting was adjourned at 10:12 a.m.