Legislature(2007 - 2008)BARNES 124

04/12/2007 01:00 PM RESOURCES


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01:02:58 PM Start
01:03:12 PM HB177
04:15:59 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 177 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 12, 2007                                                                                         
                           1:02 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Carl Gatto, Co-Chair                                                                                             
Representative Craig Johnson, Co-Chair                                                                                          
Representative Vic Kohring                                                                                                      
Representative Bob Roses                                                                                                        
Representative Paul Seaton                                                                                                      
Representative Peggy Wilson                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Anna Fairclough                                                                                                  
                                                                                                                                
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)       Heard & Held                                                                                           
03/28/07       (H)       MINUTE(O&G)                                                                                            
03/28/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/28/07       (H)       Heard & Held                                                                                           
03/28/07       (H)       MINUTE(O&G)                                                                                            
03/29/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/29/07       (H)       Heard & Held                                                                                           
03/29/07       (H)       MINUTE(O&G)                                                                                            
03/30/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/30/07       (H)       Heard & Held                                                                                           
03/30/07       (H)       MINUTE(O&G)                                                                                            
03/31/07       (H)       O&G AT 1:00 PM BARNES 124                                                                              
03/31/07       (H)       -- MEETING CANCELED --                                                                                 
04/02/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
04/02/07       (H)       Heard & Held                                                                                           
04/02/07       (H)       MINUTE(O&G)                                                                                            
04/03/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
04/03/07       (H)       Moved CSHB 177(O&G) Out of Committee                                                                   
04/03/07       (H)       MINUTE(O&G)                                                                                            
04/04/07       (H)       O&G RPT CS(O&G) NT 3DP 2NR 2AM                                                                         
04/04/07       (H)       DP: RAMRAS, DOOGAN, OLSON                                                                              
04/04/07       (H)       NR: SAMUELS, KAWASAKI                                                                                  
04/04/07       (H)       AM: DAHLSTROM, KOHRING                                                                                 
04/04/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
04/04/07       (H)       -- MEETING CANCELED --                                                                                 
04/05/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
04/05/07       (H)       -- MEETING CANCELED --                                                                                 
04/10/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/10/07       (H)       Heard & Held                                                                                           
04/10/07       (H)       MINUTE(RES)                                                                                            
04/11/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/11/07       (H)       Heard & Held                                                                                           
04/11/07       (H)       MINUTE(RES)                                                                                            
04/12/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MARTY MASSEY, U.S. Joint Interest Manager                                                                                       
Exxon Mobil Corporation ("ExxonMobil")                                                                                          
Houston, Texas                                                                                                                  
POSITION STATEMENT:   Presented testimony and  answered questions                                                               
regarding CSHB 177(O&G).                                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  CARL   GATTO  called   the  House   Resources  Standing                                                             
Committee  meeting  to  order at  1:02:58  PM.    Representatives                                                             
Gatto, Edgmon,  Kohring, Wilson,  Seaton, and Roses  were present                                                               
at the call  to order.  Representatives  Johnson, Guttenberg, and                                                               
Kawasaki arrived as the meeting  was in progress.  Representative                                                               
Fairclough was also in attendance.                                                                                              
                                                                                                                                
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
                                                                                                                                
1:03:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  announced that the  only 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."   [Before  the committee  was                                                               
CSHB 177(O&G).]                                                                                                                 
                                                                                                                                
1:04:03 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO stated  for the record that Mr. Massey  is able to                                                               
personally sign an agreement should  one be reached between Exxon                                                               
Mobil Corporation and the state.                                                                                                
                                                                                                                                
MARTY   MASSEY,  U.S.   Joint  Interest   Manager,  Exxon   Mobil                                                               
Corporation ("ExxonMobil"), said that this is correct.                                                                          
                                                                                                                                
1:04:52 PM                                                                                                                    
                                                                                                                                
MR. MASSEY  stated that he  has held  his position as  U.S. Joint                                                               
Interest Manager for  ExxonMobil since November 2001  and that he                                                               
is  responsible for  the  commercialization  of ExxonMobil's  gas                                                               
resources in Alaska.   He presented his testimony  from a written                                                               
statement [original punctuation provided]:                                                                                      
                                                                                                                                
     ExxonMobil has  been in  Alaska for  over 50  years and                                                                    
     has  been  a  key   player  in  Alaska's  oil  industry                                                                    
     development.   We hold the largest  working interest at                                                                    
     Prudhoe Bay  (36.4%) and our current  net production in                                                                    
     Alaska is approximately 150,000 barrels per day.                                                                           
                                                                                                                                
     We have benefited from our  involvement in the State of                                                                    
     Alaska, and  we believe that Alaska  has benefited from                                                                    
     this long-term relationship as well.                                                                                       
                                                                                                                                
1:05:39 PM                                                                                                                    
                                                                                                                                
     Commercializing Alaska's North Slope  gas will allow us                                                                    
     to continue  this mutually beneficial  relationship for                                                                    
     another  50  years or  more.    Let me  emphasize  that                                                                    
     ExxonMobil wants a successful  gas pipeline project and                                                                    
     we want to move it forward.                                                                                                
                                                                                                                                
     The  Alaska  Gas  Pipeline   project  is  important  to                                                                    
     Alaska, to our nation, and  to ExxonMobil.  The Project                                                                    
     has the  potential to generate  billions of  dollars in                                                                    
     revenues  for the  State of  Alaska,  the U.S.  federal                                                                    
     government, and Canada, and could  provide a stable and                                                                    
     secure  source of  clean energy  for  Alaska and  North                                                                    
     America  for  decades to  come.    For ExxonMobil,  the                                                                    
     project has the  potential to add over  1 billion cubic                                                                    
     feet per  day (EM share)  of gas sales, which  would be                                                                    
     more  than  a 10%  increase  to  our current  worldwide                                                                    
     daily  gas production.   Given  the significant  impact                                                                    
     this project  could have on  our business,  we strongly                                                                    
     support efforts  to advance a  pipeline project  and we                                                                    
     are ready to  work with Governor Palin  and her cabinet                                                                    
     and with the Legislature to move the project forward.                                                                      
                                                                                                                                
1:06:52 PM                                                                                                                    
                                                                                                                                
     As  an illustration  of our  commitment,  EM has  spent                                                                    
     more than  $180 million studying ways  to commercialize                                                                    
     Alaska gas.   Since the  1970's we have  evaluated LNG,                                                                    
     gas to  liquids and  gas pipeline alternatives.   Based                                                                    
     on  these studies  we have  determined that  a Producer                                                                    
     gas pipeline project will result  in the best value for                                                                    
     the  State,  the  Producers  and the  nation.    It  is                                                                    
     important for me to say  ExxonMobil is aligned with the                                                                    
     Governor,  the legislature  and  the  people of  Alaska                                                                    
     regarding  the overall  objective-we  are committed  to                                                                    
     moving the Alaska Gas pipeline project forward.                                                                            
                                                                                                                                
1:07:36 PM                                                                                                                    
                                                                                                                                
     ExxonMobil  embraces  the  concept of  competition  all                                                                    
     over the  world and is  ready to participate in  a fair                                                                    
     market   based    competition.   We    understand   the                                                                    
     overarching goal of [the  Alaska Gasline Inducement Act                                                                    
     (AGIA)] is  to create open  competition but due  to the                                                                    
     prescribed  conditions included  in  AGIA  it will  not                                                                    
     achieve this goal. A  prescriptive bidding process will                                                                    
     not  allow   the  flexibility  needed   for  individual                                                                    
     applicants  to weigh  the  risks  associated with  this                                                                    
     basin   opening  mega-project   and  propose   what  is                                                                    
     necessary to manage these risks.                                                                                           
                                                                                                                                
     It is  important that AGIA  allow applicants  to define                                                                    
     how they  could achieve  the State's  objectives rather                                                                    
     than  prescribing specific  requirements  that must  be                                                                    
     met. To  ensure the best result,  AGIA should establish                                                                    
     broad key  objectives and allow  applicants flexibility                                                                    
     in  meeting  those  objectives   and  in  defining  the                                                                    
     requirements  that are  necessary to  make the  project                                                                    
     commercially  viable.   If you  were to  amend AGIA  to                                                                    
     make it  objective driven, it  would result in  an open                                                                    
     competition,  maximizing the  number of  applicants and                                                                    
     allowing   those  applicants   to  propose   innovative                                                                    
     solutions.                                                                                                                 
                                                                                                                                
     As such,  we suggest AGIA  be modified to  establish an                                                                    
     objective  driven process  - define  the state's  broad                                                                    
     objectives,  request  proposals  as to  how  applicants                                                                    
     intend to  meet or not meet  those objectives, evaluate                                                                    
     the proposals and then select  the one that best serves                                                                    
     Alaska's  needs.   If  none  meet  the State's  overall                                                                    
     objectives then  you can always  reject them or  opt to                                                                    
     negotiate with  the party that most  closely meets your                                                                    
     needs.                                                                                                                     
                                                                                                                                
1:09:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked  what is the issue that  ExxonMobil has with                                                               
the 20 objectives that are included in AGIA.                                                                                    
                                                                                                                                
MR. MASSEY  advised that the  broad, key objectives  described by                                                               
AGIA should  relate to:   making sure  that the  project delivers                                                               
the most  value for the state;  making sure that gas  is provided                                                               
for  Alaskans; making  sure that  people can  access the  pipe so                                                               
that explorers  can get their  gas down the pipeline;  and making                                                               
sure that  Alaskans will have  the opportunity for the  jobs that                                                               
the  pipeline creates.    Then, he  continued,  the state  should                                                               
allow the  applicants to lay  out how  they intend to  meet those                                                               
objectives.                                                                                                                     
                                                                                                                                
1:10:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  surmised that  ExxonMobil would  like to  see the                                                               
remaining 15 objectives  deleted and that then it  would submit a                                                               
proposal.                                                                                                                       
                                                                                                                                
MR. MASSEY said yes.                                                                                                            
                                                                                                                                
1:11:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON stated  his  understanding  that there  is                                                               
nothing that  prevents ExxonMobil  from coming forward  right now                                                               
with a proposal  to build a pipeline under those  conditions.  He                                                               
asked why this has not happened.                                                                                                
                                                                                                                                
MR.  MASSEY   responded  that  ExxonMobil   has  been   asked  to                                                               
participate in an  open, competitive process which  has been laid                                                               
out in AGIA  and that ExxonMobil has not been  asked to provide a                                                               
proposal that  meets its needs.   He said that ExxonMobil  did do                                                               
that  once before  in  what  is referred  to  as  the old  fiscal                                                               
contract.   The process that  the administration has laid  out is                                                               
an  open, transparent,  competitive process  which ExxonMobil  is                                                               
ready to participate  in as long as it is  allowed to participate                                                               
in such a way that the  company can describe what is necessary to                                                               
make the  project commercially  viable, and  to meet  the state's                                                               
objectives.    Mr.  Massey  stated   that  it  would  not  be  in                                                               
ExxonMobil's  best interest  to participate  outside of  the open                                                               
competitive process when that is  the direction that the state is                                                               
trying to go.                                                                                                                   
                                                                                                                                
1:14:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  commented that  the AGIA  bill was  introduced on                                                               
April 4,  2007, and  that prior  to that  date anyone  could have                                                               
come forth with  a plan for moving gas.   He inquired whether the                                                               
introduction of  new gas is  somehow detrimental  to ExxonMobil's                                                               
ability  to sell  existing gas  in the  open market  at a  higher                                                               
price.   Is  it an  advantage or  disadvantage for  ExxonMobil to                                                               
move forward at this time, he queried.                                                                                          
                                                                                                                                
MR. MASSEY  responded that it  is an advantage for  ExxonMobil to                                                               
move the project forward when it is commercially viable.                                                                        
                                                                                                                                
1:15:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  at what  point would  ExxonMobil determine                                                               
whether it is commercially viable.                                                                                              
                                                                                                                                
MR.  MASSEY stated  that commercial  viability  is determined  by                                                               
looking at  a combination of  different factors:  the  ability to                                                               
execute the project, the ability  to mitigate the risk associated                                                               
with the  execution, and  the range of  project costs  versus the                                                               
anticipated  range of  future  gas  prices.   If  the project  is                                                               
judged to be viable, then the company would move forward.                                                                       
                                                                                                                                
1:17:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  inquired as  to who  gathers the  information and                                                               
makes  the decision  on  whether or  not to  move  forward -  the                                                               
corporation's board  of directors,  a group  of other  people, or                                                               
one person.                                                                                                                     
                                                                                                                                
MR.  MASSEY responded  that a  set of  people within  the company                                                               
would make  the decision together  after weighing  and discussing                                                               
the information  provided by all  of the  experts in each  of the                                                               
different aforementioned categories.                                                                                            
                                                                                                                                
1:18:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  acknowledged the  difficulty  in  making such  a                                                               
decision.                                                                                                                       
                                                                                                                                
1:18:46 PM                                                                                                                    
                                                                                                                                
MR. MASSEY continued with his presentation:                                                                                     
                                                                                                                                
     To  understand  why  it  is   important  to  use  broad                                                                    
     objectives   as   opposed   to   prescribing   specific                                                                    
     requirements it is helpful to  review project risks and                                                                    
     issues surrounding  its development  that will  have to                                                                    
     be addressed by an applicant.                                                                                              
                                                                                                                                
     Because there  is a perception  this is "simply"  a gas                                                                    
     treating /  gas pipeline  project, the  tendency exists                                                                    
     for  many to  underestimate  the  size, magnitude,  and                                                                    
     risks  associated with  this undertaking.   The  Alaska                                                                    
     Gas Pipeline Project is  a world-scale undertaking with                                                                    
     significant risks.   In fact, the Project  would be the                                                                    
     largest   private  investment   in   North  America   -                                                                    
     significantly  larger than  most "model"  worldwide oil                                                                    
     and gas "mega"  projects.  There is  not really another                                                                    
     project that compares.                                                                                                     
                                                                                                                                
     Because of  this size,  many factors  impact commercial                                                                    
     viability.                                                                                                                 
                                                                                                                                
                                                                                                                                
1:19:40 PM                                                                                                                    
                                                                                                                                
     First  there  is cost:  Our  previous  estimate of  $20                                                                    
     billion [in 2001 dollars]  is now substantially higher.                                                                    
     Since   2001,  steel   prices   have  nearly   doubled.                                                                    
     Industry and construction  labor costs are experiencing                                                                    
     hyperinflation.  In  addition, world-wide mega-projects                                                                    
     are  placing pressure  on pricing  and availability  of                                                                    
     global materials, and skilled manpower.                                                                                    
                                                                                                                                
     Next  there is  gas  price:  Despite recent  increases,                                                                    
     natural gas  prices remain highly volatile.   The price                                                                    
     of  natural gas  before  2000 was  less than  currently                                                                    
     estimated gas treating and transportation costs.                                                                           
                                                                                                                                
1:20:17 PM                                                                                                                    
                                                                                                                                
     Finally,  there are  many  other  risks: These  include                                                                    
     cost    overruns,    schedule   delays,    construction                                                                    
     conditions,   and    regulatory   and    State   fiscal                                                                    
     uncertainties.    It is  also  important  to note  that                                                                    
     project  investments  would  have  to be  made  over  a                                                                    
     period of  10 or more  years before gas flows  down the                                                                    
     pipeline and is sold at the marketplace.                                                                                   
                                                                                                                                
     With  size  comes  complexity,   and  an  even  greater                                                                    
     premium on getting the  design concept, contracting and                                                                    
     marketing  plans right…and  then executing  these plans                                                                    
     efficiently  and effectively.   Most  importantly, size                                                                    
     also amplifies the consequences  of poor execution.  If                                                                    
     a mistake is made on this  project it would cost us all                                                                    
     dearly.                                                                                                                    
                                                                                                                                
     The State  of Alaska  cannot anticipate  how individual                                                                    
     applicants  will  view  these  risks or  how  they  may                                                                    
     address them.   Establishing a set  of rigid prescribed                                                                    
     terms  will  not  allow   the  flexibility  needed  for                                                                    
     individual applicants to weigh and manage those risks.                                                                     
                                                                                                                                
1:21:16 PM                                                                                                                    
                                                                                                                                
     It is  also important  to understand how  pipelines are                                                                    
     financed which  is a key  reason why AGIA  should allow                                                                    
     flexibility     in     proposing    upstream     terms.                                                                    
     Commercially-sound  oil,  gas,  and  pipeline  projects                                                                    
     traditionally  have been  able to  obtain financing  if                                                                    
     they  have strong  sponsors with  proven track  records                                                                    
     and  the financial  strength  to  both provide  sponsor                                                                    
     equity and  to backstop  key project commitments.   For                                                                    
     the   Alaska   gas   pipeline  project,   key   project                                                                    
     commitments  take  the  form  of  firm,  long-term  gas                                                                    
     transportation   commitments.     Firm   transportation                                                                    
     commitments are  binding obligations made  by companies                                                                    
     to  pay for  the cost  of reserving  a quantity  of gas                                                                    
     capacity  as shippers  on a  pipeline over  a specified                                                                    
     period   of  time,   typically  many   years.     These                                                                    
     commitments are  made during  an "open  season", which,                                                                    
     according  to  FERC  Order  2005  for  the  Alaska  gas                                                                    
     pipeline, is a period of  at least 90 days during which                                                                    
     any and  all prospective gas shippers  can make binding                                                                    
     commitments  for a  specific  volume of  transportation                                                                    
     capacity.                                                                                                                  
                                                                                                                                
     Financial  institutions generally  require substantial,                                                                    
     long-term, firm  transportation commitments  to provide                                                                    
     funding for a gas  pipeline project.  These commitments                                                                    
     must  be provided  by creditworthy  shippers.   In this                                                                    
     case,  the   shippers  will  be  the   Producers,  and,                                                                    
     directly  or  indirectly,  the  State  or  the  State's                                                                    
     shipper.   These  firm  transportation commitments  are                                                                    
     substantial,  in the  tens of  billions of  dollars and                                                                    
     must  be   paid  whether   the  shipper   making  those                                                                    
     commitments   actually  transports   gas  through   its                                                                    
     reserved capacity. The shipper  is also required to pay                                                                    
     this commitment regardless  of the price of  gas in the                                                                    
     market place.                                                                                                              
                                                                                                                                
1:22:59 PM                                                                                                                    
                                                                                                                                
     Pipeline  investors   use  these   firm  transportation                                                                    
     commitments from  shippers to show creditors  they have                                                                    
     capacity  confirmed  over   a  sufficient  duration  to                                                                    
     secure  financing  and  must   rely  on  the  financial                                                                    
     strength  of the  companies backing  the transportation                                                                    
     commitments  to secure  project financing.   Thus,  the                                                                    
     development costs and the  associated over-run risk are                                                                    
     ultimately borne  by the  shipper via  this commitment.                                                                    
     In other  words, shippers must  make long-term  ship or                                                                    
     pay  transportation   commitments  and  agree   to  pay                                                                    
     transportation  and treating  rates that  are based  on                                                                    
     the  ultimate   cost  of  the  pipeline   and  treating                                                                    
     facilities.   The only information known  in advance of                                                                    
     making these commitments will be  a projection based on                                                                    
     each project entity's initial estimate of costs.                                                                           
                                                                                                                                
1:24:11 PM                                                                                                                    
                                                                                                                                
     For that reason,  the parties taking the  risks need to                                                                    
     be  able to  manage  those risks.    The Producers,  as                                                                    
     shippers, cannot  make firm  transportation commitments                                                                    
     during  an open  season unless  they are  confident the                                                                    
     gas pipeline project can be  built cost effectively and                                                                    
     operated  on a  long-term,  commercially viable  basis,                                                                    
     including being  competitive with other sources  of gas                                                                    
     supply. This is  especially true for a  project of this                                                                    
     magnitude.                                                                                                                 
                                                                                                                                
     The   existing   prescriptive   terms   will   preclude                                                                    
     leaseholders  from  being  able to  make  a  conforming                                                                    
     proposal which would deny the  state the opportunity to                                                                    
     even  consider  terms from  the  parties  who hold  the                                                                    
     largest stake in the project's successful development.                                                                     
                                                                                                                                
1:24:52 PM                                                                                                                    
                                                                                                                                
     Let  me  now talk  about  the  importance of  alignment                                                                    
     between the  State and the  Producers and  the benefits                                                                    
     of a Producer project.                                                                                                     
                                                                                                                                
     Maximizing the  value to  the State  of Alaska  and the                                                                    
     resource  holders  means  selecting  the  right  design                                                                    
     concept for  this mega-project  and then  executing the                                                                    
     project to deliver the lowest possible cost.                                                                               
                                                                                                                                
     On a  mega-project of this size  and magnitude, project                                                                    
     construction  and  operating  experience  should  be  a                                                                    
     significant consideration.   Only  a limited  number of                                                                    
     companies  have   demonstrated  the   capabilities  and                                                                    
     financial  strength to  effectively participate  in and                                                                    
     manage world-scale mega-projects.                                                                                          
                                                                                                                                
1:25:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO   inquired  whether  Mr.  Massey   believed  that                                                               
ExxonMobil is the only one in Alaska that can do this.                                                                          
                                                                                                                                
MR. MASSEY  noted that ExxonMobil  is a large resource  owner and                                                               
also holds the largest discovered gas  resource.  He said that he                                                               
thinks  the State  of  Alaska  is very  fortunate  because it  is                                                               
ExxonMobil  that will  put up  the necessary  firm transportation                                                               
commitment (FT) along with the  other large stakeholders, "BP and                                                               
ConocoPhillips".  He  said that ExxonMobil cannot  do the project                                                               
by itself, that it will take all three companies.                                                                               
                                                                                                                                
1:26:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked whether  ExxonMobil would  or could  do the                                                               
project independently.                                                                                                          
                                                                                                                                
MR.   MASSEY   stated  that   it   will   take  ExxonMobil,   BP,                                                               
ConocoPhillips,  and the  State of  Alaska.   "Until  we are  all                                                               
aligned on the project it just is not going to happen," he said.                                                                
                                                                                                                                
1:26:56 PM                                                                                                                    
                                                                                                                                
MR. MASSEY continued with his presentation:                                                                                     
                                                                                                                                
     The Producers have  mega-project experience on numerous                                                                    
     projects  world-wide and  have demonstrated  success in                                                                    
     meeting  project objectives.   For  example, ExxonMobil                                                                    
     operates in  nearly 200  countries and  territories and                                                                    
     on  every  continent except  Antarctica.    We are  the                                                                    
     world's  largest non-government  producer  of both  oil                                                                    
     and   natural  gas.      ExxonMobil's  global   project                                                                    
     development  company is  unique  within industry.  This                                                                    
     global  development  company   leads  the  industry  in                                                                    
     project cost  and schedule performance.   Nearly 90% of                                                                    
     ExxonMobil projects with costs  greater than $1 billion                                                                    
     are  delivered within  15% of  estimated  costs at  the                                                                    
     time of  project funding and  nearly 80% of  those were                                                                    
     delivered   within  15%   of   the  funding   schedule.                                                                    
     ExxonMobil's  superior  performance  was  independently                                                                    
     validated  in  a  report  (dated  September  21,  2005)                                                                    
     published  by Sanford  C.  Bernstein and  Co.   On  the                                                                    
     topic of project delays,  the report stated "ExxonMobil                                                                    
     came  out on  top  of this  analysis,  with the  lowest                                                                    
     slippage  rates,   despite  undertaking  some   of  the                                                                    
     largest  projects.   We  believe this  to  be a  direct                                                                    
     result  of its  highly  competent internal  development                                                                    
     company,   which   assumes  full   responsibility   for                                                                    
     monitoring  a   new  project  from  idea   to  profit."                                                                    
     Combining  our capability  with  BP and  ConocoPhillips                                                                    
     will   provide  the   best  chance   of  delivering   a                                                                    
     successful project.                                                                                                        
                                                                                                                                
1:28:16 PM                                                                                                                    
                                                                                                                                
     The  Producers also  have Arctic  experience in  Alaska                                                                    
     and   throughout  the   world.     ExxonMobil's  arctic                                                                    
     experience  is  extensive  -  over   40  years  -  with                                                                    
     developments in multiple  types of arctic environments.                                                                    
     Our Arctic  offshore activity started in  1966 with the                                                                    
     installation  of   the  ice  resistant   Granite  Point                                                                    
     platform  in  Alaska's  Cook   Inlet,  which  is  still                                                                    
     producing   oil.     In  the   1970's  we   provided  a                                                                    
     significant amount of research  and engineering for the                                                                    
     Prudhoe Bay  project, where our completion  designs for                                                                    
     permafrost were of  key importance to the  project.  We                                                                    
     also developed  the combined  hydraulic flow  model and                                                                    
     thermal  simulator  on which  the  design  of TAPS  was                                                                    
     based.    In 1984,  we  installed  the Concrete  Island                                                                    
     Drilling System  (CIDS) to  drill exploration  wells in                                                                    
     the Alaska  Beaufort Sea.   This  was the  first mobile                                                                    
     drilling platform to operate  in the ice covered waters                                                                    
     of the Beaufort.  In  addition to our Arctic experience                                                                    
     in  Alaska,   ExxonMobil  also  has   extensive  Arctic                                                                    
     experience  in  Canada,  developing  the  Norman  Wells                                                                    
     Field  in  the Mackenzie  River  area  near the  Arctic                                                                    
     Circle.    Offshore   Newfoundland,  we  completed  the                                                                    
     Hibernia   platform,  the   first   and  only   iceberg                                                                    
     resistant offshore structure in  the world.  In Russia,                                                                    
     we  recently  started  up the  Sakhalin  1  development                                                                    
     which  involved  an  offshore drilling  platform  where                                                                    
     CIDS  was reused  and renamed  Orlan, an  onshore drill                                                                    
     site  where  we  have  set   new  industry  limits  for                                                                    
     extended reach drilling, an onshore  oil, and gas plant                                                                    
     with  a  capacity  of  250,000  barrels  per  day,  and                                                                    
     purpose built  tankers which are used  year-round.  All                                                                    
     of  this   work  is  being   done  in  an   arctic  and                                                                    
     seismically-active area.  At  Sakhalin we are currently                                                                    
     producing 250,000 barrels  of oil per day.   I hope you                                                                    
     see  from  these  examples  that  large  projects  with                                                                    
     significant  complexity  are  what  we do  and  we  are                                                                    
     extremely qualified to take on this work.                                                                                  
                                                                                                                                
     These  successful efforts  were the  result of  a long-                                                                    
     term  commitment to  technology  development which  has                                                                    
     played an important role in  the advancement of oil and                                                                    
     gas  development   in  Alaska.     ExxonMobil  believes                                                                    
     innovation  is the  key to  meeting the  world's energy                                                                    
     challenges.    Technology  is   the  lifeblood  of  our                                                                    
     industry, and  it always has  been.  We are  the leader                                                                    
     in our  industry in technology  development.   In 2006,                                                                    
     we spent $730 million  on technology development and we                                                                    
     have spent more than $3 billion since 2002.                                                                                
                                                                                                                                
1:30:38 PM                                                                                                                    
                                                                                                                                
     In  addition, ExxonMobil  has demonstrated  world-class                                                                    
     leadership   in  safety,   health,  and   environmental                                                                    
     performance.    ExxonMobil  is a  leader  in  operating                                                                    
     efficiency and  a pacesetter  in operating  safety. Our                                                                    
     total  recordable  incident  rates  for  employees  and                                                                    
     contractors are  substantially below the average  of US                                                                    
     Petroleum Industry benchmark  of participating American                                                                    
     Petroleum Institute  companies. We believe  a company's                                                                    
     commitment to  the highest standards of  safety, health                                                                    
     and  environmental care  manifests  itself in  superior                                                                    
     performance in all aspects of its operations.                                                                              
                                                                                                                                
1:31:09 PM                                                                                                                    
                                                                                                                                
     In addition  to our operational  excellence, ExxonMobil                                                                    
     has the financial strength to  make this mega-project a                                                                    
     reality.   ExxonMobil  has consistently  maintained one                                                                    
     of the strongest financial positions  of any company in                                                                    
     the world.   We are one of just a  few public companies                                                                    
     to  maintain the  highest credit  rating from  Standard                                                                    
     and Poor's  (AAA) and Moody's  (Aaa), and we  have done                                                                    
     so  for each  of the  last 88  years. Our  unparalleled                                                                    
     access to financial resources  gives us the flexibility                                                                    
     to  pursue   opportunities  worldwide   throughout  the                                                                    
     economic  cycle with  the knowledge  that  they can  be                                                                    
     financed.   Host  governments  recognize this  strength                                                                    
     and  its  importance  as they  look  to  develop  their                                                                    
     resources  and  economies.    As  an  example  of  that                                                                    
     strength,  ExxonMobil's  project  financing  experience                                                                    
     exceeds  $30 billion  in value  for recently  completed                                                                    
     and ongoing  activities.   Our efficient  management of                                                                    
     large scale  project financings is a  critical piece in                                                                    
     the   overall    success   of    ExxonMobil's   project                                                                    
     implementation record.                                                                                                     
                                                                                                                                
1:32:12 PM                                                                                                                    
                                                                                                                                
     It  is  important  to  remember  that  the  Alaska  gas                                                                    
     pipeline project  is a basin-opening project  that will                                                                    
     benefit  the State  and  the oil  and  gas industry  in                                                                    
     Alaska.   Basin-opening  projects throughout  the world                                                                    
     have  progressed  and  been successful  when  there  is                                                                    
     alignment   between  the   host   government  and   the                                                                    
     leaseholders.  The Producers and  the State both want a                                                                    
     pipeline  project to  commercialize the  known ANS  gas                                                                    
     resources and  open the basin  to gas  exploration. So,                                                                    
     at a very high level we are aligned.                                                                                       
                                                                                                                                
     We believe a Producer  gas pipeline project will result                                                                    
     in maximum value  to the State and the  Producers.  The                                                                    
     reason  is the  Producers  and the  State have  maximum                                                                    
     incentive to control costs.   Low capital and operating                                                                    
     costs,   which    result   in   lower    treating   and                                                                    
     transportation  costs,  and  access to  premium  market                                                                    
     price,  result in  higher  netback value  on  gas.   It                                                                    
     should  be  noted  that  the  State  will  receive  the                                                                    
     majority of  its revenue  from the  value of  gas sales                                                                    
     via   revenue   received   under  its   lease   royalty                                                                    
     agreements and from production  taxes, which are valued                                                                    
     based on the netback received from the gas.                                                                                
                                                                                                                                
     Third-party owners do not share  the same incentives in                                                                    
     that  they  actually  benefit  from  increased  capital                                                                    
     costs.                                                                                                                     
                                                                                                                                
     Based on the demand for  workers that this project will                                                                    
     generate,  Alaskans  are  obviously key  to  successful                                                                    
     project execution.   Both the  State and  the Producers                                                                    
     want   Alaskans   to   benefit  from   the   many   job                                                                    
     opportunities  that  will  exist.   When  you  consider                                                                    
     carefully  the options  available, a  Producer pipeline                                                                    
     will provide maximum value to the State of Alaska.                                                                         
                                                                                                                                
     We believe that financial  strength, experience and the                                                                    
     ability  to  get  the  job   done  should  be  critical                                                                    
     components of any evaluation of proposals.                                                                                 
                                                                                                                                
1:34:03 PM                                                                                                                    
                                                                                                                                
     For  us  to  progress  the  project  and  mitigate  its                                                                    
     inherent  risks,  we will  need  some  things from  the                                                                    
     State.   Let me  discuss the importance  of predictable                                                                    
     and   durable    fiscal   terms   for    the   upstream                                                                    
     participants. Because  of the  nature and  magnitude of                                                                    
     the  risks  associated  with this  project  -  tens  of                                                                    
     billions   of   dollars   of   financial   commitments,                                                                    
     unprecedented   cost    and   scope,    potential   for                                                                    
     construction delays,  as well  as the  inevitable risks                                                                    
     associated  with the  commodity price  of gas  - fiscal                                                                    
     terms that  are predictable and durable  are necessary.                                                                    
     This is  a common  thread for  all of  our mega-project                                                                    
     investments  in basin  opening  developments.   In  all                                                                    
     such cases, we  are willing to take  geologic risks, we                                                                    
     are willing to  take cost risks, and we  are willing to                                                                    
     take  commodity price  risks, but  we  cannot take  the                                                                    
     risk of fiscal  terms changing.  Let me  expand on this                                                                    
     important  concept  further.    The  first  two  risks,                                                                    
     geologic  and cost  risk are  risks for  which we  have                                                                    
     developed  an  industry  leading expertise  to  manage.                                                                    
     This is  what we do day  after day at EM.   Market risk                                                                    
     is inevitable in  a commodity business such  as oil and                                                                    
     gas and we manage that  by attempting to ensure that we                                                                    
     deliver those  products into the highest  value market.                                                                    
     Fiscal  risk, however,  is  of  a completely  different                                                                    
     nature  and wholly  outside of  our control.   We  must                                                                    
     have  agreements that  will allow  us  to develop  this                                                                    
     mega-project  under predictable  and durable  terms, so                                                                    
     that we  can make  an adequate investment  decision. If                                                                    
     fiscal terms can be changed  in the future, then we are                                                                    
     not able to make a  well founded investment decision on                                                                    
     behalf of our shareholders.                                                                                                
                                                                                                                                
     The Alaska  Gas Pipeline  Project will  require massive                                                                    
     investments  to be  made over  a period  of many  years                                                                    
     before   any   revenue    is   generated   from   those                                                                    
     investments.   As a result,  increases in taxes  on oil                                                                    
     and  gas  related activities  during  the  life of  the                                                                    
     project  could  significantly   impact  the  commercial                                                                    
     viability  of the  project and  offset the  benefits of                                                                    
     taking on a project of  this magnitude.  Because fiscal                                                                    
     terms  could  be  modified   under  the  proposed  AGIA                                                                    
     legislation, it  does not provide the  fiscal stability                                                                    
     necessary to ensure a commercially viable project.                                                                         
                                                                                                                                
1:36:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  inquired whether  a legislated 10  year certainty                                                               
on tax  rates is sufficient  for ExxonMobil, provided that  it is                                                               
ruled legally permissible.                                                                                                      
                                                                                                                                
MR.  MASSEY said  that  his  understanding of  AGIA  is that  the                                                               
proposed 10  years is  on the  gas production  tax.   However, he                                                               
said, there are  more forms of "take" within the  State of Alaska                                                               
than just  the gas production tax.   Locking in one  piece of the                                                               
take while leaving  open all the other pieces of  take still does                                                               
not provide any  fiscal stability because it can  just be changed                                                               
in another  form of  the take.   There needs  to be  an agreement                                                               
between  the  state and  the  producers  as  to how  the  revenue                                                               
generated from  the project will be  shared over the life  of the                                                               
project.   Until  that is  known, ExxonMobil  cannot make  a good                                                               
investment decision.   Mr. Massey said that he does  not know how                                                               
to  run the  economics if  he does  not know  what the  terms are                                                               
going to be,  and that he will  have to assume that  they will go                                                               
up.   On a mega-project of  $20-30 billion in magnitude,  this is                                                               
too big of a risk to take, he said.                                                                                             
                                                                                                                                
1:38:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO requested  Mr. Massey  to give  some examples  of                                                               
other  jurisdictions  where  the  certainty  that  ExxonMobil  is                                                               
asking  for -  longer than  10 years  and maybe  the life  of the                                                               
project - already exists.                                                                                                       
                                                                                                                                
MR.  MASSEY  referred  Co-Chair  Gatto  to  ExxonMobil's  interim                                                               
fiscal  finding that  was  done  for the  previous  effort.   The                                                               
finding includes an analysis of  approximately 50 projects across                                                               
the  world where  these  types of  arrangements  have been  made.                                                               
Especially on  mega-projects of this  magnitude, he  stressed, it                                                               
is not  unusual to see terms  much longer than 35  years and none                                                               
of those projects really compare to this project.                                                                               
                                                                                                                                
1:39:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO stated that he  has seen the document and reviewed                                                               
the names of  the places where terms of  certainty were provided.                                                               
However, he noted, many of  these places are politically unstable                                                               
so  that any  [contractual] certainty  will only  last until  the                                                               
next military coup,  in which case the project  is jeopardized in                                                               
its entirety.   He requested examples of  long-term tax stability                                                               
agreements in  Europe and places that  are considered politically                                                               
stable.                                                                                                                         
                                                                                                                                
MR. MASSEY responded that whether  this project was in the United                                                               
Kingdom (UK) or  Texas, ExxonMobil would still  require this same                                                               
sort  of understanding  because  it is  a  $20-$30 billion  mega-                                                               
project, not  one well.   Additionally, he remarked, there  is no                                                               
project that is even comparable in the UK.                                                                                      
                                                                                                                                
1:40:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  commented that there  would seem to be  a benefit                                                               
to knowing that the reserves are proven.                                                                                        
                                                                                                                                
MR.  MASSEY  acknowledged  that   this  obviously  helps  a  lot.                                                               
However, he  argued, the estimated  35 trillion cubic  feet (tcf)                                                               
of discovered  resource is not  enough.  He  said that 50  tcf is                                                               
needed because of the 35-year period  of the project.  While this                                                               
is not of too much concern  based on the estimates of North Slope                                                               
gas,  finding more  gas to  keep the  pipeline full  is still  an                                                               
issue.                                                                                                                          
                                                                                                                                
1:42:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  if   the  concern  about  the  gas                                                               
production  tax  exemption,  as  written   on  page  21  of  CSHB                                                               
177(O&G), is that the tax will  be increased between the time the                                                               
license  is issued  and the  open  season.   He inquired  whether                                                               
ExxonMobil would be more comfortable  with fixing the rate at the                                                               
time of  licensing and having  this rate continue until  10 years                                                               
after the  open season.  Is  it this certainty that  you want, he                                                               
asked, or is it a negotiation on rate that you are wanting.                                                                     
                                                                                                                                
MR. MASSEY  acknowledged that the  words "lock in the  rate" make                                                               
some people nervous.   Whether it is income  tax, production tax,                                                               
or property tax,  he said, the rate can change  over time as long                                                               
as ExxonMobil  knows what the  rate will be  at the start  of the                                                               
project.  The rate can be  flat, declining, or increasing as long                                                               
as  the  agreed-upon  rate  results   in  a  commercially  viable                                                               
project.   He  reiterated that  he cannot  run the  economics and                                                               
make  a sound  decision today  because the  rates on  all of  the                                                               
taxes can change.                                                                                                               
                                                                                                                                
1:44:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON inquired if  he is correct in understanding                                                               
that Mr. Massey's  answer means that ExxonMobil's  needs would be                                                               
satisfied  if the  tax section  on page  21 were  to provide  the                                                               
certainty  of a  tax rate  that will  continue from  the time  of                                                               
licensing, the  3 years  between licensing  and open  season, and                                                               
then for 10 years after the close of the open season.                                                                           
                                                                                                                                
MR. MASSEY replied  that 10 years is inadequate for  a project of                                                               
this  magnitude, that  the  term  must be  for  the  life of  the                                                               
project so that ExxonMobil can  run the economics.  He reiterated                                                               
that the production tax  rate is only one form of  take.  If this                                                               
is the  model for the  system that is to  be used, then  the take                                                               
for income, property, and other  taxes must also be defined under                                                               
this model so that he can run the economics.                                                                                    
                                                                                                                                
1:47:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked if what  Mr. Massey is saying is that                                                               
ExxonMobil will  not participate  in building  the pipeline  as a                                                               
producer if locking in the tax  rates for the life of the project                                                               
is ruled unconstitutional.                                                                                                      
                                                                                                                                
MR.  MASSEY offered  his opinion  that there  is little  question                                                               
that the  constitutionality issue will ultimately  be resolved in                                                               
court.   He  pointed out  that the  Stranded Gas  Development Act                                                               
(SGDA)  had   a  35-year   term  in  the   belief  that   it  was                                                               
constitutional  based   upon  legal  opinions  received   by  two                                                               
administrations.  He said that  ExxonMobil's view is that it will                                                               
be ruled  constitutional to  agree on what  the revenue  share is                                                               
going to  be over  the term of  the project.   However, if  it is                                                               
ruled unconstitutional the  court can be asked  to provide advice                                                               
in its  ruling as to what  needs to be  done to make it  work and                                                               
adjustments can be made that are based upon the advice.                                                                         
                                                                                                                                
1:49:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES voiced  his  concern about  going to  court                                                               
over  the  constitutionality  issue   because  it  will  cause  a                                                               
substantial time  delay during which  nothing moves forward.   He                                                               
suggested that a  way around the tax rate issue  might be for the                                                               
state  to receive  a percentage  share in  the volume  of product                                                               
instead of charging  a tax.  He asked whether  this could be used                                                               
as a measurable quantity for  determining the financial viability                                                               
of the project.                                                                                                                 
                                                                                                                                
MR.  MASSEY  pointed   out  that  in  its   contract  [under  the                                                               
previously proposed  SGDA] ExxonMobil  had committed  to continue                                                               
the project up  to a certain level of spending  even if there was                                                               
a judicial  challenge, although he  could not recall  the amount.                                                               
He stressed that  ExxonMobil was ready to risk  a significant sum                                                               
of money  while that judicial  challenge was going on  because of                                                               
its belief that  the tax rate would be ruled  constitutional.  He                                                               
said that in his view, Representative  Roses is right in terms of                                                               
a way  to share the risk  because if the state  takes its revenue                                                               
in a share  of the gas, then  that eliminates a lot  of the other                                                               
issues.                                                                                                                         
                                                                                                                                
1:52:01 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
REPRESENTATIVE   GUTTENBERG   asked  whether   ExxonMobil   would                                                               
withdraw  from the  contract should  the 10  year production  tax                                                               
exemption be found unconstitutional.                                                                                            
                                                                                                                                
MR.  MASSEY  replied that  if  the  courts  decide that  the  tax                                                               
structure of  AGIA is not  constitutional, ExxonMobil  would have                                                               
to re-visit  the issue to  determine if  it would be  possible to                                                               
craft a constitutional  tax provision.  "We would not  be able to                                                               
go forward until we understand what the deal is," he said.                                                                      
                                                                                                                                
1:53:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  if these  were conditions  that                                                               
ExxonMobil would like built into the contract.                                                                                  
                                                                                                                                
MR. MASSEY answered yes.                                                                                                        
                                                                                                                                
1:53:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked what  would happen if  the state                                                               
was unable  to provide a  level of fiscal  certainty satisfactory                                                               
to ExxonMobil.                                                                                                                  
                                                                                                                                
MR. MASSEY  responded that  he believes  the court  would provide                                                               
guidance  as to  how to  make it  constitutional.   He reiterated                                                               
that he  believes the tax  exemption provision  is constitutional                                                               
and that ExxonMobil  will be ready to spend funds  and go forward                                                               
during any constitutional challenge.                                                                                            
                                                                                                                                
1:54:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  read, in response  to a prior comment,  the names                                                               
of  countries,  and  noted  that  he did  not  see  any  European                                                               
countries on the  list.  He opined that no  countries on the list                                                               
were equivalent to a United States or Alaskan operation.                                                                        
                                                                                                                                
1:55:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES requested  further detail  on the  need for                                                               
fiscal  certainty, noting  that in  business lenders  may require                                                               
that a lease exceed the life of a loan.                                                                                         
                                                                                                                                
MR. MASSEY responded that lenders  will closely examine any deal,                                                               
but  noted  that in  a  "deal  of  this magnitude"  lenders  will                                                               
require the full backing of  ExxonMobil, whether the gas flows or                                                               
not.   He  opined  that  a consideration  should  be whether  the                                                               
company has the financial strength to provide that backing.                                                                     
                                                                                                                                
1:57:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked whether  there  had  been any  prior                                                               
discussion of an equity split based on the volume of the gas.                                                                   
                                                                                                                                
MR. MASSEY replied that is "exactly  what we did for the majority                                                               
of  the take."   The  prior approach  had the  state take  and be                                                               
responsible for its share of the  royalty and tax gas.  The state                                                               
would then  receive the benefits  from the  sale of that  gas, he                                                               
explained.                                                                                                                      
                                                                                                                                
1:58:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked if "you inked your name on that agreement."                                                                
                                                                                                                                
MR. MASSEY answered that ExxonMobil had been ready to do so.                                                                    
                                                                                                                                
1:58:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO put forth for consideration:                                                                                     
                                                                                                                                
          If we looked today at the value of the gas,                                                                           
     almost $8 and  the tax at 22 and  one-half percent, and                                                                    
     the  royalty,  and figured  out  that  that equaled  25                                                                    
     percent of the value of the  gas and said tell you what                                                                    
     --  Why don't  we become  a one-quarter,  three quarter                                                                    
     partner.  That's  as simple a contract  as anyone could                                                                    
     come up  with.  It  would end  taxes, it would  end all                                                                    
     the  uncertainty  except for  the  price,  but then  we                                                                    
     would all suffer equally or be blessed equally.                                                                            
                                                                                                                                
He  asked  whether  the  aforementioned  scenario  was  something                                                               
ExxonMobil would consider.                                                                                                      
                                                                                                                                
MR. MASSEY said "where  do we sign?"  He went on  to say that the                                                               
actual  percentage share  in  any  partnership arrangement  would                                                               
need  to  be  considered.   He  opined  that  the  aforementioned                                                               
concept is one that would allow  the state and ExxonMobil to work                                                               
together to minimize the risk associated with the project.                                                                      
                                                                                                                                
1:59:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  clarified that  he  does  not support  the                                                               
state owning a part of the  pipeline.  Instead, he suggested that                                                               
it might be possible to  establish fiscal certainty downstream if                                                               
the state took its share of the  gas in-kind.  He did not suggest                                                               
that the state share the expense of building the pipeline.                                                                      
                                                                                                                                
2:00:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  commented  that   the  tariff  is  an  extremely                                                               
important  part of  the value  of the  gas.   He opined  that the                                                               
state may want  to own a piece  of the pipeline.   He offered his                                                               
belief that  the tariff provides  consistent income,  whereas the                                                               
income from the gas varies depending on the price of gas.                                                                       
                                                                                                                                
2:01:15 PM                                                                                                                    
                                                                                                                                
MR. MASSEY responded  to a question about the  $500 million state                                                               
contribution proposed in AGIA by  stating that he approves of the                                                               
amendments  made to  allow individual  applicants to  propose how                                                               
they would  propose to use the  $500 million.  He  described that                                                               
change as  consistent with  his belief that  AGIA should  be made                                                               
less  prescriptive so  that the  applicants have  more leeway  to                                                               
describe  how  they  propose  to  address  different  aspects  of                                                               
commercial viability.   He said that  the $500 million "is  not a                                                               
big deal"  to ExxonMobil and offered  that if the state  is going                                                               
to put  money into the project,  it should be a  participant.  He                                                               
advocated that joint ownership may  align the partners to execute                                                               
the project.                                                                                                                    
                                                                                                                                
2:04:54 PM                                                                                                                    
                                                                                                                                
MR. MASSEY continued with his presentation:                                                                                     
                                                                                                                                
                                                                                                                                
     Development  of   a  predictable  and   durable  fiscal                                                                    
     framework  means  that  the terms  agreed  between  the                                                                    
     Producers  and the  State recognize  the magnitude  and                                                                    
     risks associated  with the  project; balance  State and                                                                    
     Producer  needs; and  provide  for  the calculation  of                                                                    
     total  State  take  in a  transparent  and  predictable                                                                    
     manner.                                                                                                                    
                                                                                                                                
2:05:42 PM                                                                                                                    
                                                                                                                                
     AGIA should  allow market  participants to  put forward                                                                    
     their best  proposal on  what is  required to  make the                                                                    
     project viable, thereby  creating a competitive process                                                                    
     that will  allow the State the  opportunity to consider                                                                    
     those proposals  that have the best  chance of actually                                                                    
     delivering on the promise of an Alaska gas pipeline.                                                                       
                                                                                                                                
     I  would like  to now  give some  specific feedback  on                                                                    
     AGIA which  is based on the  conclusions and principles                                                                    
     I've mentioned.   I will  also outline  some additional                                                                    
     thoughts on how AGIA should  be modified to provide the                                                                    
     best  chance  of a  successful  result.   For  example,                                                                    
     alignment  between the  State and  the leaseholders  is                                                                    
     essential   to  a   basin  opening   project  of   this                                                                    
     magnitude.  Therefore,  establishing the right approach                                                                    
     going forward  is the most  important activity  for the                                                                    
     project at this time.   It is important that AGIA bring                                                                    
     together  the upstream  and the  midstream and  provide                                                                    
     for  an integrated  proposal.   Let me  expand on  this                                                                    
     point.   The upstream  and midstream  at some  point in                                                                    
     time will have to come  together.  The reason is simple                                                                    
     -  the upstream  pays for  the midstream.   When  I say                                                                    
     upstream I mean the revenue  generated from sale of the                                                                    
     gas and liquids from the  pipeline project.  To be able                                                                    
     to  calculate the  revenue from  the  upstream we  must                                                                    
     have clarity on the taxes  and royalty from our oil and                                                                    
     gas operations and the taxes  and royalties must be set                                                                    
     at a level that makes the  project viable.  In order to                                                                    
     ensure  a viable  project from  the outset,  we believe                                                                    
     this must be  done at the beginning. At  a minimum, any                                                                    
     proposal  should  demonstrate  how  a  successful  open                                                                    
     season would be achieved.                                                                                                  
                                                                                                                                
2:06:58 PM                                                                                                                    
                                                                                                                                
     As  I discussed  previously,  with  regard to  upstream                                                                    
     terms, the proposed  upstream inducements would require                                                                    
     significant  modification  to   ensure  a  commercially                                                                    
     viable  project is  obtained.   It would  be better  to                                                                    
     leave that  issue open for  now and allow  an applicant                                                                    
     to make a proposal to address those terms.                                                                                 
                                                                                                                                
     AGIA also prescribes activities  that must be completed                                                                    
     within a  specific timeframe or date  certain.  Setting                                                                    
     arbitrary  target dates  is  not  consistent with  good                                                                    
     project management practices.   Further, milestones are                                                                    
     not necessary  if the  project is  commercially viable.                                                                    
     The  Producers' builder  will progress  the project  at                                                                    
     the maximum prudent pace,  consistent with the industry                                                                    
     proven "gate" process for project development.                                                                             
                                                                                                                                
2:07:39 PM                                                                                                                    
                                                                                                                                
     In general,  AGIA lacks specifics  on key  fiscal terms                                                                    
     and other  requirements.  To  address these  gaps, AGIA                                                                    
     gives   commissioners   broad    authority   to   adopt                                                                    
     additional  requirements   and  establish  regulations.                                                                    
     Not  knowing the  requirements now  creates significant                                                                    
     uncertainty.                                                                                                               
                                                                                                                                
     Finally, because of the  complexity and risk associated                                                                    
     with this  project, the parties must  have an efficient                                                                    
     and  impartial  means  of handling  disagreements  when                                                                    
     they  arise.   We  believe  project related  agreements                                                                    
     should provide  for binding neutral arbitration  as the                                                                    
     mechanism  for  resolving  disputes.   Binding  neutral                                                                    
     arbitration   is   widely    utilized   in   U.S.   and                                                                    
     international commercial  agreements and  is not  a new                                                                    
     concept with the  State of Alaska.   Arbitration is the                                                                    
     method  used  to  resolve disputes  under  the  State's                                                                    
     Royalty  Settlement Agreements.    In addition,  Alaska                                                                    
     courts have recognized a strong  public policy in favor                                                                    
     of arbitration.                                                                                                            
                                                                                                                                
2:08:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO said that in his experience, arbitration can be a                                                                
slow process.  He asked whether binding arbitration would apply                                                                 
to project labor agreements.                                                                                                    
                                                                                                                                
MR. MASSEY replied that ExxonMobil  proposes that binding neutral                                                               
arbitration apply  to the relationship between  the producers and                                                               
the  state.   In  response  to a  question,  he  agreed that  the                                                               
arbitration   proposed  by   ExxonMobil  would   follow  commonly                                                               
accepted procedures  whereby each  side picks an  arbitrator, and                                                               
the two arbitrators pick a third arbitrator.                                                                                    
                                                                                                                                
2:09:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  if  the  producers use  binding                                                               
arbitration for disputes between themselves.                                                                                    
                                                                                                                                
MR. MASSEY  replied that the  "our agreements govern how  we make                                                               
decisions," such as  voting.  He said the producers  have not had                                                               
a dispute which has required legal  or other proceedings.  He put                                                               
forth  that  the parties  have  agreed  that  they need  to  work                                                               
towards arbitration  should there  be a major  disagreement among                                                               
themselves.   He responded to a  question by stating that  in the                                                               
past  30  years,  the  producers  have  been  able  to  work  out                                                               
disputes.                                                                                                                       
                                                                                                                                
2:10:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked what type  of arbitration was  in existence                                                               
at the time of the Exxon Valdez tanker incident [1989].                                                                         
                                                                                                                                
MR.  MASSEY opined  the  issues there  were  handled through  the                                                               
courts.                                                                                                                         
                                                                                                                                
CO-CHAIR  GATTO  noted  that the  aforementioned  litigation  has                                                               
"taken a lifetime," and opined  that binding arbitration may be a                                                               
much quicker dispute resolution procedure.                                                                                      
                                                                                                                                
MR. MASSEY  agreed that binding  arbitration is a  more efficient                                                               
process for handling disputes.                                                                                                  
                                                                                                                                
2:11:23 PM                                                                                                                    
                                                                                                                                
MR. MASSEY continued with his presentation:                                                                                     
                                                                                                                                
                                                                                                                                
     We also  note that  the House Oil  & Gas  Committee and                                                                    
     the  Senate  Resources  Committee   made  a  number  of                                                                    
     amendments to  AGIA.  While  substantial work  needs to                                                                    
     be done  to make AGIA  truly objective, several  of the                                                                    
     proposed   changes  moved   in  the   right  direction,                                                                    
     including   making    the   state's    entire   capital                                                                    
     contribution  a  bid  variable, beefing  up  evaluation                                                                    
     criteria, recognizing  the need  to include terms  in a                                                                    
     contract  and  requiring  legislative approval  of  any                                                                    
     license award.   Unfortunately,  steps were  also taken                                                                    
     that will likely limit the  number of potential bidders                                                                    
     by  eliminating any  confidentiality  protection for  a                                                                    
     licensee's  proprietary  and   trade  secret  data  and                                                                    
     imposing new  prescriptive terms such as  requiring any                                                                    
     bidder  to  forego its  legal  rights  to challenge  an                                                                    
     improper award.  What we have  at this stage is an AGIA                                                                    
     bill  that  remains  too prescriptive  to  solicit  the                                                                    
     quality  market  based  bids   necessary  to  move  the                                                                    
     project forward.                                                                                                           
                                                                                                                                
2:12:28 PM                                                                                                                    
                                                                                                                                
     In closing,  I would like to  reiterate that ExxonMobil                                                                    
     is  committed  to  moving   the  gas  pipeline  project                                                                    
     forward.  Our company  possesses the financial strength                                                                    
     and project experience required  to make this project a                                                                    
     success.  We are ready  to work with the Administration                                                                    
     and  the  Legislature  to establish  a  framework  that                                                                    
     recognizes  the integrated  nature of  the project  and                                                                    
     mitigates  the  risks  I've   discussed  to  allow  the                                                                    
     project to progress.  We  would suggest AGIA be amended                                                                    
     to  include a  broad  objective  driven framework  that                                                                    
     sets out what  the State wants to  achieve. AGIA should                                                                    
     allow each applicant to propose  how best to meet those                                                                    
     objectives and  to identify what  is required  from the                                                                    
     State  to  advance  the project.    This  process  will                                                                    
     secure   more   viable    applications,   create   more                                                                    
     competition  and afford  the State  the opportunity  to                                                                    
     secure the most  value. We are ready  to participate in                                                                    
     a competitive, open, and  transparent process under the                                                                    
     approach I've outlined.                                                                                                    
                                                                                                                                
     Thank you  for your  attention and for  the opportunity                                                                    
     to address this important topic  today.  I look forward                                                                    
     to addressing your questions.                                                                                              
                                                                                                                                
2:13:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES   asked  for  more  clarification   of  the                                                               
"objective driven"  concepts referred to above,  noting that many                                                               
issues  discussed appeared  to be  objective.   He asked  whether                                                               
compliance   with   Regulatory   Commission   of   Alaska   (RCA)                                                               
requirements is an objective issue.                                                                                             
                                                                                                                                
MR. MASSEY replied  that ExxonMobil believes the  project will be                                                               
regulated by FERC and RCA will not have a role.                                                                                 
                                                                                                                                
2:14:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked whether  "access to  market capacity"                                                               
is  an issue  in terms  of the  desire for  an "objective  driven                                                               
document."                                                                                                                      
                                                                                                                                
MR.  MASSEY suggested  that the  applicant should  be allowed  to                                                               
decide how  it will  assess market capacity.   He  suggested that                                                               
the applicant may be able to  come up with an approach preferable                                                               
to a mandated biennial review of market issues.                                                                                 
                                                                                                                                
2:15:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  asked whether ExxonMobil  would object  to review                                                               
of market  factors such  as cost  and demand  every two  years to                                                               
possibly make adjustments so that as  much gas can be produced as                                                               
is reasonable under the circumstances.                                                                                          
                                                                                                                                
MR. MASSEY responded that pipelines  are expanded frequently, and                                                               
that  pipeline   companies  work  with  suppliers   and  shippers                                                               
regarding  expansion  mechanics and  funding.    He reminded  the                                                               
committee that  FERC oversight applies  in these  situations, and                                                               
that any  parties can go  to FERC.  He  opined that the  issue of                                                               
expansion  should be  left to  the  applicant to  provide in  its                                                               
proposal.    The state  could  then  review  that aspect  of  the                                                               
proposal just like other terms.                                                                                                 
                                                                                                                                
2:18:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON said  he is trying to  ascertain the answer                                                               
-- Is  ExxonMobil willing to  have an assessment every  two years                                                               
of whether there are other parties  who want to ship gas down the                                                               
pipeline?                                                                                                                       
                                                                                                                                
MR. MASSEY  asked that  his comment not  be misinterpreted.   His                                                               
suggestion is that the applicant  be allowed to make its proposal                                                               
in  this area.    He noted  that an  applicant  may propose  that                                                               
market factors  are reviewed far  more frequently than  every two                                                               
years.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  SEATON  noted  that  currently  AGIA  proposes  a                                                               
review "at least" every two years" [AS 43.90.130(5)].                                                                           
                                                                                                                                
2:20:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES reiterated  his desire  to determine  which                                                               
application factors are  objective driven and which are  not.  He                                                               
offered his belief that a  requirement for review every two years                                                               
is  objective driven,  regardless  of whether  two  years is  the                                                               
appropriate number or not.                                                                                                      
                                                                                                                                
MR. MASSEY replied that the objective  for the state is to ensure                                                               
that the  pipeline could be expanded.   It should be  left to the                                                               
applicants  to  describe  the  process  they  propose  to  ensure                                                               
expansion, he suggested.                                                                                                        
                                                                                                                                
2:21:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  noted  that  requirement  number  six  [AS                                                               
43.90.130(6)]  requires the  applicant  to commit  to expand  the                                                               
proposed  project  in   reasonable  engineering  increments  with                                                               
commercially reasonable  terms.   He asked whether  it is  in the                                                               
best  interests of  the  pipeline  owner to  always  build in  an                                                               
expansion capability,  therefore that  term does  not need  to be                                                               
legislated.                                                                                                                     
                                                                                                                                
MR.   MASSEY  stated   he   believes   that  the   aforementioned                                                               
characterization is correct.                                                                                                    
                                                                                                                                
2:22:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether the  witness considered  the                                                               
terms [regarding pipeline expansion] to be objective driven.                                                                    
                                                                                                                                
MR. MASSEY replied no.                                                                                                          
                                                                                                                                
2:22:3 PM                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROSES  asked about AS 43.90.130(7)  which requires                                                               
an  applicant  to commit  to  "propose  and support  recovery  of                                                               
mainline  capacity expansion  costs," which  he characterized  as                                                               
limiting the  roll-in costs to  not exceed 15 percent  "above the                                                               
initial  maximum  recourse rates  from  the  North Slope  to  the                                                               
project's downstream terminus ..."   He asked whether the witness                                                               
considered this "an objective driven statement."                                                                                
                                                                                                                                
MR. MASSEY replied that he does not.                                                                                            
                                                                                                                                
2:23:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES asked whether  this requirement could be re-                                                               
structured to be "objective driven."                                                                                            
                                                                                                                                
MR. MASSEY responded that obviously  it is very important for the                                                               
state  to understand  how each  applicant would  propose to  deal                                                               
with pipeline expansion.  However,  he stated his confidence that                                                               
the business community  "knows how to do these things."   He said                                                               
that given  the state's  interest in  this area,  every applicant                                                               
should  be required  to describe  in  detail how  it proposes  to                                                               
treat issues related to future expansion.                                                                                       
                                                                                                                                
2:24:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  whether  it  is  a  reasonable                                                               
choice  for the  state to  require applicants  to describe  their                                                               
plans for future expansion and exploration.                                                                                     
                                                                                                                                
MR.  MASSEY said  he did  not intend  to imply  that the  state's                                                               
interest in  this area was  unreasonable.  However  he reiterated                                                               
his  preference that  the applicant  be allowed  to describe  its                                                               
approach  to future  expansion and  exploration.   He went  on to                                                               
opine that under  the Alaska Natural Gas  Pipeline Act ("ANGPA"),                                                               
the  United States  Congress struck  what it  determined was  the                                                               
proper  balance   between  encouraging  initial   investment  and                                                               
encouraging  exploration and  future  expansion.   He  emphasized                                                               
that basin  opening projects require alignment  between the state                                                               
and the producers.   He opined it most likely  that the producers                                                               
will  build  the  project  because  that  approach  will  provide                                                               
maximum benefit  to the state.   He said that Congress  gave FERC                                                               
unprecedented abilities  to mandate a FERC-mandated  expansion to                                                               
benefit  explorers.   Therefore, to  some extent  this issue  has                                                               
been dealt with and delegated to the right agency, he opined.                                                                   
                                                                                                                                
2:2707 PM                                                                                                                     
                                                                                                                                
CO-CHAIR GATTO noted  that exploration for gas may  allow for the                                                               
discovery of  additional oil resources,  which would  benefit the                                                               
state.   He  sought  clarification as  to  whether FERC  mandates                                                               
future expansion, or  whether it is simply the  decision maker in                                                               
this area.                                                                                                                      
                                                                                                                                
MR.  MASSEY  replied  that  "you   will  not  have  any  trouble"                                                               
attracting  additional  explorers once  the  gas  pipeline is  in                                                               
operation,  and indicated  ExxonMobil would  "be a  part of  that                                                               
effort."   He  emphasized that  under federal  law, FERC  has the                                                               
unprecedented  right   to  "mandate   an  expansion   to  benefit                                                               
explorers."                                                                                                                     
                                                                                                                                
2:28:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked  whether ExxonMobil was currently                                                               
in litigation with FERC regarding  provisions which would mandate                                                               
design changes to meet open seasons.                                                                                            
                                                                                                                                
MR. MASSEY  reminded the  committee that  ANGPA was  effective in                                                               
2004.   The issue of  FERC's ability  to mandate a  design change                                                               
after the  pipeline builder has planned  and invested substantial                                                               
sums  is  currently  in  litigation,   he  explained.    He  said                                                               
ExxonMobil  has  no problem  with  FERC  mandated expansion,  but                                                               
would like some clarity on the design change issue.                                                                             
                                                                                                                                
2:30:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON   asked  for   clarification  as   to  why                                                               
ExxonMobil objects to  the inclusion of items  in the application                                                               
that  the   witness  has  indicated   will  be  covered   by  the                                                               
applicants, such as the commitment to expand the pipeline.                                                                      
                                                                                                                                
MR. MASSEY  suggested that applicants  be allowed to  propose how                                                               
they intend to  deal with expansion rather than  describing it in                                                               
legislation.    He  indicated  that   some  items  should  be  in                                                               
legislation,  but  others should  be  left  to the  applicant  to                                                               
propose.    He  suggested  that the  state  simply  describe  its                                                               
requirement that explorers  need access to the  pipeline, and let                                                               
the applicants propose how they would meet that requirement.                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON expressed  some uncertainty  regarding the                                                               
aforementioned answer.                                                                                                          
                                                                                                                                
2:33:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES sought  to clarify  matters by  summarizing                                                               
the witness'  point as stating  it would  be in the  state's best                                                               
interest  if AGIA  was not  as prescriptive  regarding issues  of                                                               
expansion, but rather allowed the  applicants more flexibility to                                                               
describe their plans for pipeline expansion.                                                                                    
                                                                                                                                
MR. MASSEY agreed with the aforementioned summarization.                                                                        
                                                                                                                                
2:35:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   WILSON   noted   her  question   concerned   the                                                               
requirements in proposed AS 43.90.130(5) and (6).                                                                               
                                                                                                                                
2:35:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  referred  to  AS  43.90.130(7)  and  asked                                                               
whether requirements regarding the  limitation of expansion costs                                                               
to no  more than  15 percent above  the initial  maximum recourse                                                               
rates is an encumbrance to applicants.                                                                                          
                                                                                                                                
MR.  MASSEY replied  yes.    The issue  of  how potential  future                                                               
shippers  may  access  initial   capacity  and  future  expansion                                                               
capacity should be  administered by FERC for all  elements of the                                                               
project  in  the United  States.    He  offered his  belief  that                                                               
shippers,  being  the  producers,   should  not  be  required  to                                                               
subsidize other  expansion gas-holders at 115  percent of initial                                                               
maximum  rates.   He described  this as  potentially costing  the                                                               
initial shippers an  additional $500 to $800 million a  year.  He                                                               
characterized this  as a  subsidy to  the expansion  shipper, and                                                               
claimed that  ExxonMobil "is not  in the business  of subsidizing                                                               
our creditors."   He suggested that the applicants  be allowed to                                                               
suggest what is necessary to achieve an acceptable expansion.                                                                   
                                                                                                                                
2:37:16 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  referenced the possibility that  ExxonMobil could                                                               
be  the  primary   beneficiary  of  a  rolled-in   rate  in  some                                                               
situations.    Additionally,   rolled-in  rates  initially  "drop                                                               
everybody's  rates,"  he  said.    He asked  whether  it  was  to                                                               
ExxonMobil's  advantage  to  incorporate "these  rules  that  say                                                               
rolled-in rates are really good things."                                                                                        
                                                                                                                                
MR. MASSEY replied that ExxonMobil  proposes removing any sort of                                                               
mandates  regarding  expansion  costs   and  suggested  that  the                                                               
businesses resolve  these issues at  the time.   He characterized                                                               
incremental  rates  as  rolled-in   rates.    He  cautioned  that                                                               
mandates could harm the future  economic benefits to the parties.                                                               
He emphasized  that the parties  should be  allowed to come  to a                                                               
business arrangement, and  that one party not  have more leverage                                                               
than another.   He  offered that  FERC would  be able  to resolve                                                               
disputes should the parties not come to an agreement.                                                                           
                                                                                                                                
The committee took an at ease from 2:40:55 PM to 2:49:48 PM.                                                                
                                                                                                                                
2:50:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  questioned how  the state's  setting forth                                                               
minimum requirements  regarding certain  aspects of  the pipeline                                                               
constrains applicants  from putting  forth a  better offer  to be                                                               
evaluated by the state under the six different criteria in AGIA.                                                                
                                                                                                                                
MR. MASSEY responded that what  ExxonMobil is proposing that AGIA                                                               
be  amended to  remove  prescriptive provisions,  and to  instead                                                               
describe the state's broad objectives.   The applicants will then                                                               
propose how they will meet the broad objectives.                                                                                
                                                                                                                                
REPRESENTATIVE  SEATON  noted that  the  state  may have  certain                                                               
minimum requirements, and suggested it  is important to set forth                                                               
minimum requirements  so applicants have some  notice and clarity                                                               
regarding what must be addressed.                                                                                               
                                                                                                                                
2:54:30 PM                                                                                                                    
                                                                                                                                
MR.  MASSEY said  that the  "must-haves" set  forth in  AGIA give                                                               
potential applicants an  indication of what the  state would like                                                               
addressed.   He  opined that  it  is difficult  to discuss  these                                                               
requirements  in   isolation,  but  offered  that   a  preferable                                                               
approach would allow  more flexibility as applicants  may want to                                                               
propose terms more beneficial in  one area, but will be penalized                                                               
or  rejected if  they do  not  meet the  requirements in  another                                                               
area.   An overly prescriptive  approach may foreclose  the state                                                               
from considering  options that  actually have  more value  to the                                                               
state,  he opined.   He  offered that  AGIA has  provided helpful                                                               
information  to   potential  applicants  regarding   the  state's                                                               
objectives,  but that  a more  flexible approach  will allow  the                                                               
state to receive maximum benefits.                                                                                              
                                                                                                                                
                                                                                                                                
2:56:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  noted that  applicants could  propose more                                                               
generous terms.   He  asked whether the  state should  make clear                                                               
that there may be certain  minimum requirements, such as a review                                                               
of  market capacity  and  queried as  to  whether the  applicants                                                               
would like knowledge of those minimums.                                                                                         
                                                                                                                                
MR. MASSEY noted that it  can be difficult to assess hypothetical                                                               
situations, but agreed that they  offer some guidance for purpose                                                               
of discussion.  He offered that  they can be used to describe the                                                               
difficulties of a prescriptive approach.                                                                                        
                                                                                                                                
2:57:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  reminded members  that AGIA  is currently  just a                                                               
proposal, and the stakeholders may  have the ability to influence                                                               
its final provisions.                                                                                                           
                                                                                                                                
MR. MASSEY  responded that if  the administration was  willing to                                                               
seriously consider and  discuss what is necessary  to go forward,                                                               
ExxonMobil would be willing  to do so.  He stated  that as of now                                                               
the  administration  has  set forth  a  particular  process  that                                                               
requires  amendments before  ExxonMobil could  make a  conforming                                                               
bid.  He  said that as currently written AGIA  does not result in                                                               
a  commercially viable  project, therefore  ExxonMobil could  not                                                               
make a conforming bid.                                                                                                          
                                                                                                                                
2:59:10 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  opined that committee  members are  interested in                                                               
determining  possible necessary  amendments.   He suggested  that                                                               
ExxonMobil  has  the ability  to  put  forth suggestions  to  the                                                               
administration.                                                                                                                 
                                                                                                                                
MR.  MASSEY replied  that if  the administration  was willing  to                                                               
consider a proposal,  ExxonMobil would provide one.   However, he                                                               
said that it "is not the approach they have taken."                                                                             
                                                                                                                                
3:00:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   ROSES  asked   about  whether   AS  43.90.130(8)                                                               
regarding a North  Slope gas treatment plant (GTP)  sets forth an                                                               
objective driven criteria.                                                                                                      
                                                                                                                                
MR. MASSEY  replied that a  gas treatment  plant has to  be dealt                                                               
with  and  should  be  part  of  an  applicant's  proposal.    He                                                               
suggested  that   provisions  regarding  valuation   of  existing                                                               
facilities  should be  left to  the  applicant to  describe.   He                                                               
responded to further inquiry by  indicating that although the GTP                                                               
could  be considered  an integral  part  of the  project, he  has                                                               
concerns about the provisions establishing  the rate and net book                                                               
value of the GTP.                                                                                                               
                                                                                                                                
3:02:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked about  possible changes to  this part                                                               
of AGIA.                                                                                                                        
                                                                                                                                
MR. MASSEY  replied the applicant  should be allowed  to describe                                                               
how it intends  to roll-in assets to determine net  book value of                                                               
the GTP.                                                                                                                        
                                                                                                                                
3:03:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES asked whether  AS 43.90.130(9) regarding the                                                               
percentage and  dollar amount that  will define the level  of the                                                               
state's contribution is an objective driven criteria.                                                                           
                                                                                                                                
MR.  MASSEY  responded  that  the  state  contribution  provision                                                               
should be  left entirely up  to the applicant to  propose, noting                                                               
that the applicant may not even  want a contribution, or may like                                                               
to see some state ownership.                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  asked if  amending  the  language to  read  "the                                                               
applicant  shall determine  the  extent to  which  the state  may                                                               
contribute   a  percentage   of  the   project  cost"   would  be                                                               
preferable.                                                                                                                     
                                                                                                                                
MR. MASSEY responded that such a change would be reasonable.                                                                    
                                                                                                                                
3:05:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether  AS 43.90.130(10)  regarding                                                               
rates  for  the  project  and  the GTP  is  an  objective  driven                                                               
criteria.                                                                                                                       
                                                                                                                                
MR.  MASSEY replied  that  the applicant  should  propose how  it                                                               
proposes to  structure the tariff, but  he expressed disagreement                                                               
with AGIA's  mandate of not less  than 70 percent debt.   He said                                                               
that the  applicant should be able  to determine how it  wants to                                                               
propose the rate structure.   He indicated he understands that as                                                               
proposed the capital structure must  be "not less than 70 percent                                                               
debt," but suggested that although  an applicant could "not do it                                                               
unless  it is  60,  but they  give you  something  else that  you                                                               
value, therefore you ... would want to hear that."                                                                              
                                                                                                                                
3:06:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  suggested  that   the  administration  put  that                                                               
provision in  to help  control the  cost of  the pipeline  and to                                                               
keep the tariff at a rate  where everyone is "making good money."                                                               
He suggested  that the 70  to 30 ratio  is designed to  meet that                                                               
goal, and that the administration  may be unwilling to alter this                                                               
proportion.   He  asked whether  the  witness would  characterize                                                               
this requirement as a "deal killer."                                                                                            
                                                                                                                                
MR. MASSEY responded that in  its last proposal, ExxonMobil hoped                                                               
to  achieve  an  80  percent  debt ratio.    He  reiterated  that                                                               
applicants should have flexibility  to determine how they propose                                                               
to meet the state's objectives.   He suggested that by picking 70                                                               
percent,  the state  may miss  an opportunity  to "get  something                                                               
that works better for you."                                                                                                     
                                                                                                                                
3:07:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  referred to  a chart and  offered that  the three                                                               
North Slope producers have a  higher rate of return in activities                                                               
that  do  not  involve  pipeline construction.    Based  on  this                                                               
history, he asked why the producers  would want to hold more than                                                               
30 percent of a pipeline as it may reduce their rate of return.                                                                 
                                                                                                                                
MR.  MASSEY  responded that  ExxonMobil  would  like to  own  the                                                               
percent of the  project that matches its percent  of the through-                                                               
put so that  "the amount of gas we have  going through equals the                                                               
amount of  pipe."   He went  on to  say that  in a  basin opening                                                               
project,  the  resource  owner  and the  lease  holders  must  be                                                               
aligned  before  the   project  goes  forward.     He  said  that                                                               
worldwide,  the lease  holders  take the  lead  in basin  opening                                                               
projects because the leaseholder is the main beneficiary.                                                                       
                                                                                                                                
3:10:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether  AS 43.90.130(11)  regarding                                                               
the management of cost overruns is an objective driven criteria.                                                                
                                                                                                                                
MR. MASSEY responded yes.                                                                                                       
                                                                                                                                
3:10:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked whether AS 43.90.130(12)  requiring a                                                               
minimum of five delivery points is an objective driven criteria.                                                                
                                                                                                                                
MR. MASSEY suggested  the applicant be allowed to  propose how it                                                               
plans to propose access to the pipeline for in-state deliveries.                                                                
                                                                                                                                
CO-CHAIR  GATTO suggested  that this  requirement is  a political                                                               
problem,  not  a  monetary problem,  as  state  residents  desire                                                               
natural gas for in-state delivery.                                                                                              
                                                                                                                                
MR. MASSEY  reiterated that  this requirement  should be  left to                                                               
the applicant to  describe how it intends to  handle in-state gas                                                               
access.                                                                                                                         
                                                                                                                                
3:12:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES suggested  it is important for  the state to                                                               
specify some minimums to avoid costly change orders.                                                                            
                                                                                                                                
MR. MASSEY said that off-take points  do not cost a lot of money,                                                               
but  if the  state  absolutely has  to have  five,  it should  so                                                               
state.                                                                                                                          
                                                                                                                                
3:14:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  for the  witness' opinion  as to  AS                                                               
43.90.130(13) regarding in-state transportation services.                                                                       
                                                                                                                                
MR.  MASSEY opined  that how  to  manage in-state  transportation                                                               
services should be part of the applicant's proposal.                                                                            
                                                                                                                                
3:14:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked  about  AS  43.90.130(14)  regarding                                                               
local headquarters.                                                                                                             
                                                                                                                                
MR.  MASSEY  replied that  the  applicant  should be  allowed  to                                                               
explain  how  it  will  manage   the  project,  and  opined  that                                                               
obviously there will be Alaska offices to manage the project.                                                                   
                                                                                                                                
3:15:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether  AS 43.90.130(15)  regarding                                                               
local hire would be considered an objective driven criteria.                                                                    
                                                                                                                                
MR.  MASSEY  suggested that  the  state  should propose  a  broad                                                               
objective to allow an applicant to  explain how it intends to use                                                               
Alaskans on the pipeline project.   He suggested that state would                                                               
like  to see  more than  a commitment  to local  hire, and  would                                                               
benefit from a fuller explanation of employment issues.                                                                         
                                                                                                                                
3:16:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether there  was concern  over the                                                               
possibility  that AS  43.90.130(15) could  limit the  applicant's                                                               
ability to hire workers if it  could not find in-state workers at                                                               
a reasonable cost.                                                                                                              
                                                                                                                                
MR. MASSEY  replied that obviously  the project is going  to have                                                               
to  be   cost  competitive.    Furthermore,   employees  must  be                                                               
qualified to meet  the needs of the project.   He noted that this                                                               
project will  provide excellent  opportunities for  Alaskans, and                                                               
that  the language  should  be broadened  so  that the  applicant                                                               
provides more details as to how it intends to hire Alaskans.                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  summarized that  the witness  is suggesting                                                               
the  applicants  be  required  to  provide  a  general  statement                                                               
regarding local hire qualifications and implementation.                                                                         
                                                                                                                                
MR. MASSEY agreed with the aforementioned summarization.                                                                        
                                                                                                                                
3:19:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked about AS 43.90.130(16)  regarding the                                                               
waiver of the right to appeal.                                                                                                  
                                                                                                                                
3:19:55 PM                                                                                                                    
                                                                                                                                
MR. MASSEY  said that section  16 removes an  applicant's ability                                                               
to challenge  whether the  award was done  correctly.   He opined                                                               
that would  limit the number  of applicants rather than  open the                                                               
process up to great competition.                                                                                                
                                                                                                                                
CO-CHAIR GATTO  asked whether  the limitation  on the  ability to                                                               
appeal would keep ExxonMobil from submitting an application.                                                                    
                                                                                                                                
3:20:53 PM                                                                                                                    
                                                                                                                                
MR. MASSEY replied  that ExxonMobil will consider  the total AGIA                                                               
bill once it  is "all put together" to determine  how to proceed.                                                               
For this particular item, he indicated  he would prefer it not be                                                               
in the bill.   He went on  to say that ExxonMobil  will likely be                                                               
able to put  a competitive bid forward, and is  supportive of the                                                               
competitive process.   He  offered his opinion  that AGIA  in its                                                               
current form "does not deliver  a commercially viable project, so                                                               
I can't play today the way it is written."                                                                                      
                                                                                                                                
3:21:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES stated  that if  the open  season was  held                                                               
first, the state  would know how much gas the  producers would be                                                               
wiling to  commit to the  project so  that the pipeline  could be                                                               
sized to  the project.  He  expressed concern that if  the appeal                                                               
process was  closed out, the state  would lose the ability  to go                                                               
back and review  applications should the pipeline have  to be re-                                                               
designed depending on  the result of open season.   He also noted                                                               
that  there is  a  benefit to  the  winner to  not  have its  bid                                                               
challenged.                                                                                                                     
                                                                                                                                
3:24:43 PM                                                                                                                    
                                                                                                                                
MR.  MASSEY responded  to a  question  by explaining  that as  he                                                               
understands  the appeal  provision,  there  is no  administrative                                                               
appeal   available   to   an  aggrieved   applicant   since   the                                                               
commissioners  are  making  the  decision.     As  a  result,  an                                                               
applicant would  have to appeal  to the court system,  he opined.                                                               
He went on  to explain that one appeals a  decision to the person                                                               
above the decision  maker so that person can  review the decision                                                               
and review new information.                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON referenced  the  delay  of litigation  and                                                               
asked whether there  was any benefit to  constraining the ability                                                               
of an applicant to go to court to protest the bid award.                                                                        
                                                                                                                                
MR. MASSEY  replied that he  "would make that  available," noting                                                               
that  an  applicant  could  continue   with  the  project  during                                                               
litigation and could  describe how it intends to  proceed in such                                                               
a situation.                                                                                                                    
                                                                                                                                
3:28:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON noted  that  under AGIA  a single  license                                                               
will  be issued  and  asked whether  the  licensee would  proceed                                                               
despite  a possible  restraining  order limiting  the ability  to                                                               
proceed with the project.                                                                                                       
                                                                                                                                
MR.   MASSEY  reminded   the   committee   that  "we're   talking                                                               
hypotheticals," and that a restraining order would be a problem.                                                                
                                                                                                                                
3:30:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  asked about AS 43.90.130  (17) requiring an                                                               
applicant to commit to a project labor agreement.                                                                               
                                                                                                                                
MR. MASSEY said the applicant  should be required to describe how                                                               
it  intends to  require labor  for the  pipeline and  described a                                                               
requirement for  a project  labor agreement  as too  specific and                                                               
premature.                                                                                                                      
                                                                                                                                
CO-CHAIR  GATTO referenced  the costly  nature of  a strike.   He                                                               
asked about  the significance  of the labor  costs for  a project                                                               
like this.                                                                                                                      
                                                                                                                                
MR.  MASSEY responded  that  labor will  be a  big  part, but  he                                                               
cannot recall  the actual  amount of predicted  labor costs.   He                                                               
suggested  that  the  labor environment  could  be  flexible  and                                                               
include union and non-union labor.                                                                                              
                                                                                                                                
CO-CHAIR GATTO opined that project  labor agreements are valuable                                                               
to avoid delays due to labor issues.                                                                                            
                                                                                                                                
3:33:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether  AS 43.90.130(18)  requiring                                                               
exclusion of  the state's contribution  from an  applicant's rate                                                               
base is an objective driven criteria.                                                                                           
                                                                                                                                
MR. MASSEY  replied that in his  opinion it is not,  and expanded                                                               
by stating that  the applicant should be allowed  to describe how                                                               
it would characterize any state contribution amounts.                                                                           
                                                                                                                                
3:34:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  relayed that a  major goal is to  keep the                                                               
tariff  low,  and  that  section   18  provides  that  any  state                                                               
contribution  amount  will  not  be  considered  in  raising  the                                                               
tariff.   He characterized the witness's  position as potentially                                                               
allowing the state's contribution amount  to be considered in the                                                               
tariff  calculation, therefore  potentially raising  the tariffs,                                                               
and violating  one of  the state's main  objectives -  low tariff                                                               
rates.                                                                                                                          
                                                                                                                                
MR. MASSEY  replied that an  applicant may actually  propose that                                                               
the state's  $500 million  contribution be  rolled into  the rate                                                               
base.   Another  applicant  may propose  a  lower tariff  without                                                               
having  taken  any state  contribution  amount,  or suggest  some                                                               
other  arrangement that  would  still result  in  a lower  tariff                                                               
rate.   He suggested that if  the objective is to  get the lowest                                                               
tariff, the  state should allow  the applicant to propose  how it                                                               
intends to structure the tariff.                                                                                                
                                                                                                                                
3:36:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  noted that the  aforementioned possibility                                                               
is in  the evaluation criteria,  and asked  whether consideration                                                               
of this issue is objectionable as part of the evaluation.                                                                       
                                                                                                                                
MR. MASSEY indicated that it is not objectionable.                                                                              
                                                                                                                                
REPRESENTATIVE  ROSES  characterized AS  43.90.130(19)  regarding                                                               
applicant information as requesting fairly specific criteria.                                                                   
                                                                                                                                
MR. MASSEY agreed with the above characterization.                                                                              
                                                                                                                                
3:37:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  characterized AS  43.90.130(20)  regarding                                                               
the  applicant's  readiness  and  ability  as  requesting  fairly                                                               
specific criteria.                                                                                                              
                                                                                                                                
MR. MASSEY agreed section 20 was objective.                                                                                     
                                                                                                                                
3:38:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON referred  to page  6 of  HB 177  and asked                                                               
whether  the  original  pipe  size  should  be  included  in  the                                                               
application.                                                                                                                    
                                                                                                                                
3:39:24 PM                                                                                                                    
                                                                                                                                
MR.  MASSEY  reiterated  that ExxonMobil  position  is  that  the                                                               
requirements  set  forth  in  AGIA  would be  set  forth  in  the                                                               
applicant's proposal.   He did note  that Representative Seaton's                                                               
query put  the interpretation of  AS 43.90.130(6)(B)  somewhat at                                                               
issue,  as it  could be  interpreted to  mean one  would have  to                                                               
build a "whole new pipe."                                                                                                       
                                                                                                                                
REPRESENTATIVE    SEATON    indicated    agreement    with    the                                                               
aforementioned interpretation.                                                                                                  
                                                                                                                                
CO-CHAIR  GATTO noted  that section  (6)(B) uses  the word  "or",                                                               
allowing  for  compression  or new  construction  to  accommodate                                                               
additional capacity.                                                                                                            
                                                                                                                                
3:40:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  whether  the  15  percent  cap  on                                                               
rolled-in rates was  really a substantial issue  since it applies                                                               
to  initial maximum  recourse rates  not adjusted  for inflation.                                                               
He  noted   that  initial  expansion  would   likely  be  through                                                               
compression,  and that  it  would only  be  later that  expansion                                                               
would  be  through  looping.   Based  on  those  assumptions,  he                                                               
queried as to the significance of the 15 percent limitation.                                                                    
                                                                                                                                
3:41:18 PM                                                                                                                    
                                                                                                                                
MR. MASSEY responded that 15 percent is  huge and is too big of a                                                               
risk to take at any time.                                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON  sought confirmation that the  witness also                                                               
meant 15 percent of the original rate structure.                                                                                
                                                                                                                                
MR. MASSEY replied "at any time."                                                                                               
                                                                                                                                
3:41:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether  there is  a rate  increase                                                               
limitation figure which his company would not object to.                                                                        
                                                                                                                                
MR.  MASSEY  answered  that  ExxonMobil  would  prefer  that  the                                                               
applicant  be  allowed   to  propose  how  it   would  deal  with                                                               
expansion, rolled-in  rates, and incremental  rates.  He  said he                                                               
understands  what the  state has  suggested, and  opined that  if                                                               
ExxonMobil wants  to win the  bid it will  need to deal  with the                                                               
issue in a very positive way for the state.                                                                                     
                                                                                                                                
3:42:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  whether it  would be  fair to  establish a                                                               
tariff  whereby  ExxonMobil would  not  receive  the benefits  of                                                               
lowered  rates, yet  would also  not bear  the cost  of increased                                                               
rates.                                                                                                                          
                                                                                                                                
MR. MASSEY  said he  has not  really considered  this and  is not                                                               
able to answer that  question at this time.  He  did say that the                                                               
items  reviewed  with  Representative Roses  were  the  "pipeline                                                               
side" which  he characterized as  the easy part of  this project.                                                               
However, it  is the  upstream side  which will  determine whether                                                               
the  project is  commercially  viable.   He  emphasized that  the                                                               
applicants  should  be  allowed  to propose  the  upstream  terms                                                               
required to make the project viable.                                                                                            
                                                                                                                                
3:44:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked   whether  ExxonMobil  has  the                                                               
ability  to  put   forward  to  FERC  a   pipeline  project  plan                                                               
regardless of AGIA.                                                                                                             
                                                                                                                                
MR. MASSEY responded  that if ExxonMobil thought  the project was                                                               
commercially viable under the current  terms, it could go to FERC                                                               
and  apply for  a  certificate.   However,  he  opined that  with                                                               
respect to the  upstream portions, the project at  present is not                                                               
commercially  viable.   He stated  that  uncertainty over  future                                                               
terms does not allow ExxonMobil  to determine whether the project                                                               
is  viable   over  the  long-term.     In  response   to  further                                                               
questioning,  he  relayed  that  a  determination  of  commercial                                                               
viability  regarding a  project of  this size  is not  so much  a                                                               
matter of  trust as of  "understanding what  the deal is."   This                                                               
requires a determination  of the terms between the  state and the                                                               
pipeline developer, he  explained.  He agreed that  the state and                                                               
the producers have  a long history, but reiterated  that for this                                                               
"mega-project"   the  terms   and   conditions   must  be   fully                                                               
understood.  He  opined that worldwide, projects  that go forward                                                               
are those  where the resource  owner and the developer  have come                                                               
to an arrangement regarding how the  revenue will be shared.  The                                                               
project  will  not  progress  until that  point  is  reached,  he                                                               
concluded.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GUTTENBERG noted  that Alaska  provides a  stable                                                               
political environment and  it is looking for  an open competitive                                                               
process.   He implied  that the  state's position  may not  be in                                                               
alignment with that of ExxonMobil's.                                                                                            
                                                                                                                                
3:49:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  characterized   AGIA  as  a  "mid-stream"                                                               
proposal,  while the  witness was  referring  to upstream  issues                                                               
which are of  interest only to the producers.   He suggested that                                                               
the witness was referring to  a closed process with the producers                                                               
receiving upstream  concessions to make  the project viable.   He                                                               
opined that "we  tried that route and it didn't  work."  However,                                                               
the approach  of AGIA  is to  focus on  a competitive  process to                                                               
develop a  pipeline.  He  asked whether the producers  would sell                                                               
their gas regardless of ownership in the pipeline.                                                                              
                                                                                                                                
3:51:19 PM                                                                                                                    
                                                                                                                                
MR. MASSEY again emphasized that  the upstream pays for the "cost                                                               
of the pipe" he  said.  He expressed his opinion  that in a basin                                                               
opening  project,  the  gas  will  pay  for  the  infrastructure.                                                               
Therefore, there will  not be a project until  the upstream terms                                                               
are  dealt  with  to  the  satisfaction of  the  producers.    He                                                               
suggested  that the  upstream applicants  be  allowed to  propose                                                               
their  needs  for  the  project   to  proceed.    He  once  again                                                               
emphasized that in  his opinion AGIA as proposed does  not make a                                                               
commercially viable project, therefore  his company cannot make a                                                               
conforming bid.   He reminded the committee the  state can accept                                                               
ExxonMobil's  terms,  reject them,  or  enter  negotiations.   He                                                               
opined it is difficult to do this through legislation.                                                                          
                                                                                                                                
3:53:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON  asked  whether  ExxonMobil would  bid  on  the                                                               
project if AGIA were to pass today.                                                                                             
                                                                                                                                
MR.  MASSEY answered  that the  way  AGIA is  written today,  the                                                               
project is not viable, so ExxonMobil cannot make a bid.                                                                         
                                                                                                                                
CO-CHAIR JOHNSON  asked about  the process  of examining  AGIA to                                                               
develop a bid.                                                                                                                  
                                                                                                                                
MR. MASSEY  said ExxonMobil is going  to try to win  the bid, and                                                               
the items  set forth in AGIA  give a good indication  of what the                                                               
state wants in  the project.  He explained  that ExxonMobil would                                                               
look at the state's objectives,  and could come up with something                                                               
more favorable to the state than is proposed in AGIA.                                                                           
                                                                                                                                
3:55:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO indicated that the  above comment is why the state                                                               
has proposed that applicants not be allowed to appeal the award.                                                                
                                                                                                                                
MR. MASSEY  responded that  appeal concerns are  a reason  to not                                                               
put so  many prescriptive  criteria in AGIA,  but to  instead put                                                               
forth broad objectives.   He suggested this  broad approach would                                                               
make it less likely for an unsuccessful applicant to appeal.                                                                    
                                                                                                                                
CO-CHAIR GATTO opined there will likely be an appeal.                                                                           
                                                                                                                                
MR. MASSEY agreed, and pointed out  that he believes that AGIA as                                                               
written does not  set forth a competitive process.   He said that                                                               
ExxonMobil,  despite being  a major  player on  the North  Slope,                                                               
"can't play."  He suggested  that the legislature should consider                                                               
whether it  wants ExxonMobil to  participate.  He  clarified that                                                               
the state owns the resource, but ExxonMobil is a lease holder.                                                                  
                                                                                                                                
3:57:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether ExxonMobil  has participated                                                               
in competitive requests for proposals (RFPs).                                                                                   
                                                                                                                                
MR.  MASSEY explained  that normally  RFPs are  done when  one is                                                               
trying to access  land or a resource.  He  noted that here Alaska                                                               
already  has much  of the  gas leased,  which makes  RFP in  this                                                               
situation  more complicated.   He  opined that  once the  land is                                                               
leased, the resource owner needs to  work with the lessee to make                                                               
the project go forward.                                                                                                         
                                                                                                                                
3:59:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  summarized  that  typically  RFPs  include                                                               
lease negotiations.   However, since in this  instance the leases                                                               
have already  been issued, the  applicants have nothing  to trade                                                               
off except the value of the  product and would therefore prefer a                                                               
more flexible process.                                                                                                          
                                                                                                                                
MR. MASSEY characterized the aforementioned summary as fair.                                                                    
                                                                                                                                
4:00:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  about  the effect  on  the  tariff                                                               
should  ExxonMobil   be  required  to  purchase   carbon  dioxide                                                               
emissions credits.                                                                                                              
                                                                                                                                
MR. MASSEY said that issue has not yet been considered.                                                                         
                                                                                                                                
REPRESENTATIVE SEATON asked about  the possible effect of federal                                                               
law regarding  carbon dioxide emissions  and the  possible effect                                                               
on tariffs should  a portion of the carbon dioxide  be able to be                                                               
monetized by the pipeline operator.                                                                                             
                                                                                                                                
MR. MASSEY  replied that the  policy should be that  the pipeline                                                               
owner receives  a fair  return on  its investment.   If  they are                                                               
able  to lower  their expenses,  it should  carry through  to the                                                               
tariff, he said.                                                                                                                
                                                                                                                                
REPRESENTATIVE SEATON opined that this  is a significant issue as                                                               
there  may be  federal  legislation to  pre-allow certain  carbon                                                               
dioxide emissions and that this may be a significant factor.                                                                    
                                                                                                                                
MR. MASSEY answered he has not looked at this issue yet.                                                                        
                                                                                                                                
4:03:59 PM                                                                                                                    
                                                                                                                                
MR.   MASSEY  responded   to   a   question  regarding   possible                                                               
negotiations with the administration  by explaining that he would                                                               
like total  flexibility in that regard  and is not wedded  to any                                                               
prior  agreement.   He  suggested that  the  parties could  first                                                               
agree on  common objectives,  then could  consider how  to assign                                                               
responsibility to accomplish those objectives.                                                                                  
                                                                                                                                
4:05:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON asked about how  more fiscal certainty regarding                                                               
taxation  would  affect  the  likelihood  that  ExxonMobil  would                                                               
participate in the process.                                                                                                     
                                                                                                                                
MR.  MASSEY  stated  that  "we're  going to  have  to  deal  with                                                               
predictable  and durable  fiscal terms"  for all  aspects of  the                                                               
project.  He said he "does not know  how we can deal with that in                                                               
a piece of legislation," noting  that prior negotiations resulted                                                               
in a  400 page document.   Due to the difficulty  of establishing                                                               
fiscal certainty,  he suggested  that the  better approach  is to                                                               
allow the applicants  to describe what they need.   The state can                                                               
then determine whether it wants to accept the proposals.                                                                        
                                                                                                                                
4:07:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   ROSES  observed   that  "you've   made  it   ...                                                               
abundantly clear  that as this bill  currently exists" ExxonMobil                                                               
may not bid on  this project.  He asked whether  this was true of                                                               
other producers as well.                                                                                                        
                                                                                                                                
MR. MASSEY said he could not speak for the other producers.                                                                     
                                                                                                                                
4:08:49 PM                                                                                                                    
                                                                                                                                
MR. MASSEY  responded to a  question as  to how he  would present                                                               
the status  of this  project to  his company  by stating  that he                                                               
would indicate  "we gotta keep working  at it."  He  reminded the                                                               
committee that his company is committed  to finding a way to make                                                               
this  important project  go forward.   He  indicated that  if the                                                               
state  and  the producers  can  agree  on  how to  structure  the                                                               
upstream, this project will go forward.                                                                                         
                                                                                                                                
4:10:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO suggested  that the  long-term forecast  supports                                                               
development of this  project.  He asked  about communication with                                                               
the administration.                                                                                                             
                                                                                                                                
MR.  MASSEY said  the  governor has  made  herself available  for                                                               
conversation with  ExxonMobil management.  He  offered his belief                                                               
that the commissioners  have decided on their  approach and "they                                                               
don't want to negotiate with us."                                                                                               
                                                                                                                                
4:12:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether  the open  season should  be                                                               
held before or after the issuance of the license.                                                                               
                                                                                                                                
MR.  MASSEY  replied that  he  has  not pondered  that  question,                                                               
although he understands the point.   He restated that his concern                                                               
is "what the deal is" prior to proceeding with the project.                                                                     
                                                                                                                                
CO-CHAIR  GATTO reminded  the  committee  that previous  pipeline                                                               
negotiations had very little public discussion.                                                                                 
                                                                                                                                
4:15:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG read from a  letter by a consultant who                                                               
worked on  prior pipeline negotiations  which concluded  that the                                                               
state  has never  developed fiscal  terms  that are  unreasonable                                                               
compared to international  practices.  The letter  put forth that                                                               
the state  has "been a  reliable business partner," and  there is                                                               
no need  to "treat Alaska as  banana republic in order  to secure                                                               
the gas line."                                                                                                                  
                                                                                                                                
[HB 177 was held in committee.]                                                                                                 
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 4:17 p.m.                                                                 

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