Legislature(2007 - 2008)BARNES 124

04/16/2007 01:00 PM RESOURCES

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01:09:04 PM Start
01:09:13 PM HB177
06:27:04 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to After Session --
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 16, 2007                                                                                         
                           1:09 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Carl Gatto, Co-Chair                                                                                             
Representative Craig Johnson, Co-Chair                                                                                          
Representative Bob Roses                                                                                                        
Representative Paul Seaton                                                                                                      
Representative Peggy Wilson                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
Representative Vic Kohring                                                                                                      
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                                                                              
04/12/07       (H)       Heard & Held                                                                                           
04/12/07       (H)       MINUTE(RES)                                                                                            
04/13/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/13/07       (H)       Heard & Held                                                                                           
04/13/07       (H)       MINUTE(RES)                                                                                            
04/14/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/14/07       (H)       Heard & Held                                                                                           
04/14/07       (H)       MINUTE(RES)                                                                                            
04/16/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
WENDY KING, Manager                                                                                                             
ANS Gas Development Team                                                                                                        
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   During hearing on  CSHB 177(O&G), presented                                                               
information and answered questions.                                                                                             
ACTION NARRATIVE                                                                                                              
CO-CHAIR  CARL   GATTO  called   the  House   Resources  Standing                                                             
Committee  meeting  to  order at  1:09:04  PM.    Representatives                                                             
Gatto, Johnson, Edgmon, Kawasaki,  Wilson, Seaton, and Roses were                                                               
present at the call to  order.  Representative Guttenberg arrived                                                               
as the meeting was in progress.                                                                                                 
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
1:09:13 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).]                                                                                                                 
1:09:53 PM                                                                                                                    
WENDY  KING, Manager,  ANS Gas  Development Team,  ConocoPhillips                                                               
Alaska,  Inc.,  explained  that  ConocoPhillips  is  the  state's                                                               
largest oil  and gas producer.   In fact, ConocoPhillips  has had                                                               
1,200 liquefied natural  gas (LNG) shipments since  1969 from the                                                               
facility in  Kenai.  Furthermore,  ConocoPhillips has  drilled 60                                                               
exploration wells  in Alaska  since 1999,  including 16  wells in                                                               
National  Petroleum Reserve-Alaska  (NPR-A).   ConocoPhillips  is                                                               
the largest holder of acreage on  the Alaska North Slope (ANS) on                                                               
both  state  and federal  lands.    ConocoPhillips, the  Heritage                                                               
Company Phillips, was the first  oil company to establish offices                                                               
in Alaska.   Alaska  is a major  part of  ConocoPhillips's global                                                               
portfolio with 13 percent of  its 2006 production based in Alaska                                                               
and 19 percent of its 2006 reserves based in Alaska.                                                                            
MS.  KING   then  related  ConocoPhillips'  agreement   with  the                                                               
administration   that  timing   is   important,   which  is   why                                                               
ConocoPhillips is  present today and  committed to finding  a way                                                               
to develop the ANS gas  resource.  Furthermore, ConocoPhillips is                                                               
also willing  to consider  creative solutions  as there  are many                                                               
alternatives by which  a project can be moved forward.   She then                                                               
thanked the  members of  the House Special  Committee on  Oil and                                                               
Gas  for the  positive  changes  it made  that  bring the  Alaska                                                               
Gasline  Inducement  Act (AGIA)  closer  to  resulting in  a  gas                                                               
pipeline.    However,  she  opined  that  significant  additional                                                               
changes are necessary to AGIA.                                                                                                  
1:11:48 PM                                                                                                                    
MS. KING then turned the committee's  attention to slide 1 of the                                                               
PowerPoint presentation,  which relates that from  the 1970s into                                                               
2000, ConocoPhillips  worked on other technologies,  such as LNG,                                                               
gas-to-liquids  (GTL),  and   alternative  project  proposals  to                                                               
market  this ANS  gas.   The graph  illustrates that  starting in                                                               
2000   there  was   an   upturn  in   gas   prices  that   caused                                                               
ConocoPhillips  to  renew its  focus,  which  it did  by  working                                                               
jointly with BP and Exxon  Mobil Corporation (ExxonMobil) in 2001                                                               
and 2002.   In fact, ConocoPhillips spent  $125 million reviewing                                                               
technologies, environmental regulatory  work, and commercial work                                                               
that would be  necessary to advance a gas pipeline  project.  Ms.                                                               
King pointed  out that ConocoPhillips  has focused on  a southern                                                               
route  project   since  the  2002  study.     Through  2003-2004,                                                               
ConocoPhillips  worked hard  on  the  federal legislation,  which                                                               
resulted  in the  Alaska  Natural  Gas Pipeline  Act.   She  then                                                               
recalled  the   reauthorization  of   the  Alaska   Stranded  Gas                                                               
Development Act  (ASGDA) in 2003, and  noted that ConocoPhillips,                                                               
BP,  and ExxonMobil  submitted an  application  in January  2004.                                                               
Ms.  King  said that  ConocoPhillips  has  been actively  working                                                               
since 2000 to advance a gas pipeline project.                                                                                   
1:13:22 PM                                                                                                                    
CO-CHAIR GATTO  asked if  Ms. King was  part of  the negotiations                                                               
requiring a signed confidentiality statement.                                                                                   
MS.  KING  replied  yes,  and   noted  that  the  confidentiality                                                               
provisions were outlined in ASGDA.                                                                                              
1:13:52 PM                                                                                                                    
REPRESENTATIVE WILSON  inquired as  to which route  is considered                                                               
the southern route.                                                                                                             
MS.  KING clarified  that basically  [the  route] would  parallel                                                               
Fairbanks and would cross Alaska into Canada into Alberta.                                                                      
1:14:18 PM                                                                                                                    
MS.   KING   continued   her  presentation   by   relating   that                                                               
ConocoPhillips is  prepared to work  with Governor Palin  and the                                                               
Alaska State  Legislature in  order to  develop a  framework that                                                               
would  advance  the  project.   "We  believe  that  dialogue  and                                                               
balance [and]  accommodation of each other's  reasonable concerns                                                               
are essential  to create  the alignments  necessary to  move this                                                               
mega-project  forward,"   she  opined.    She   then  turned  the                                                               
committee's  attention to  slide 2,  which relates  that in  2001                                                               
dollars the estimate  of the cost of this project  all the way to                                                               
Chicago was about $20 billion.   Slide 2 points out that the next                                                               
largest  pipeline  is  the Rockies  Express  pipeline,  which  is                                                               
currently in  construction and estimated  to cost $4  billion and                                                               
cover approximately  1,300 miles.   The  planned capacity  of the                                                               
Rockies Express pipeline  is 1.5 billion cubic feet  (bcf) a day.                                                               
The next  largest project is  the Alliance project, a  1,800 mile                                                               
pipeline, with a  capacity of 1.3 bcf  a day and a  cost of about                                                               
$3.6  billion.   She explained  that the  McKenzie Delta  project                                                               
isn't on this  chart because it isn't in  construction.  However,                                                               
the  most  recently publicly  available  cost  estimates for  the                                                               
McKenzie Delta  project are $14  billion, including  the upstream                                                               
portions  of  the  project.     The  McKenzie  Delta  project  is                                                               
estimated to have a capacity of about 1.2 bcf a day.                                                                            
1:16:32 PM                                                                                                                    
MS.  KING, in  response  to Co-Chair  Gatto,  clarified that  the                                                               
chart  on slide  2 only  relates  to projects  that only  include                                                               
midstream  figures,  which  is why  the  McKenzie  Delta  project                                                               
numbers  aren't included.   Ms.  King then  highlighted that  the                                                               
2001 project cost estimate doesn't  include the upstream finding,                                                               
development, and  operating costs  that will  be incurred  to get                                                               
that gas ready  for production.  Therefore,  there are additional                                                               
costs associated with the project beyond  those on the chart.  In                                                               
further response to  Co-Chair Gatto, Ms. King  confirmed that the                                                               
cost of the gas treatment  plant, estimated to be $2.5-$3 billion                                                               
in  2001 dollars,  is  included.   Therefore,  the gas  treatment                                                               
plant  alone  is  a  mega-project.    In  fact,  each  individual                                                               
component of  the Alaska project  is a mega-project.   The Alaska                                                               
project, based on  volume and cost, is  significantly larger than                                                               
other interstate pipelines going forward in North America.                                                                      
1:18:05 PM                                                                                                                    
MS.  KING  moved on  to  slide  3,  titled "Alaska  Gas  Pipeline                                                               
Project Risks".   With regard to the costs, she  pointed out that                                                               
since 2001 steel prices have  nearly doubled.  Furthermore, labor                                                               
costs  continue to  rise.   Therefore, the  previous $20  billion                                                               
cost  estimate would  be significantly  higher today.   Moreover,                                                               
significant  regulatory, engineering,  and commercial  work would                                                               
be required to  obtain an updated cost estimate prior  to an open                                                               
season.   Ms. King then  highlighted that gas prices  continue to                                                               
remain volatile and  predicting natural gas prices over  a 20- to                                                               
40-year period  is a huge  challenge.   She noted that  the state                                                               
and  the lessees  are aligned  in that  both are  exposed to  the                                                               
natural gas price and cost  overrun risks through the royalty and                                                               
production taxes.                                                                                                               
1:20:13 PM                                                                                                                    
MS.  KING,  in  response  to Co-Chair  Gatto,  confirmed  that  a                                                               
pipeline owner with a firm  shipping commitment is indifferent to                                                               
what is occurring  with natural gas prices.  For  example, if the                                                               
toll was  $4 and  natural gas  prices for the  day or  month were                                                               
$3.50, the  pipeline owner  will still be  paid $4  while lessees                                                               
and  the state  will  receive less  value for  that  gas in  that                                                               
instance.   That's one area where  the lessees and the  state are                                                               
aligned, she noted.                                                                                                             
1:20:56 PM                                                                                                                    
MS.  KING  returned the  committee's  attention  to slide  3  and                                                               
pointed  out  that  there  are  other  risks  and  uncertainties.                                                               
Normally,  upstream  oil  and gas  projects  illicit  discussions                                                               
regarding cost, price, and reserves.   However, this mega-project                                                               
includes  other risks  and uncertainties  that must  be included.                                                               
She  emphasized that  the Alaska  project will  be a  world-scale                                                               
project  and  thus  there  will   be  world-scale  logistics  and                                                               
material procurement  that must  be addressed.   Furthermore, one                                                               
must ensure  that trained, qualified  workers are  available when                                                               
needed.  Weather impacts must also be managed, she pointed out.                                                                 
1:21:56 PM                                                                                                                    
CO-CHAIR GATTO inquired as to the number of employees required.                                                                 
MS. KING recalled that just for  the directed jobs, it would take                                                               
27,000-man years  in the construction  phase alone.   She offered                                                               
to  do  some  calculations  to  break it  down  further  for  the                                                               
CO-CHAIR GATTO commented on the difficulty of finding labor.                                                                    
MS. KING said  that she has additional data  regarding labor that                                                               
can  be supplied  to the  committee.   However, she  reminded the                                                               
committee that the data is based on a 2001-2002 study.                                                                          
CO-CHAIR  GATTO  commented  that  it would  be  helpful  for  the                                                               
committee  to review  what  the state's  schools  can produce  in                                                               
terms of vocational and technical  skills as well as the pipeline                                                               
quality personnel  that might be  available.   The aforementioned                                                               
would be  helpful in determining  what can  be done to  reach the                                                               
1:23:36 PM                                                                                                                    
REPRESENTATIVE WILSON expressed interest  in the number of people                                                               
that would be working.                                                                                                          
MS. KING  agreed to  provide the committee  with more  details on                                                               
the workforce  requirements of this  project.  She  recalled that                                                               
at  the federal  level,  $20 million  was  already allocated  for                                                               
training funds in  recognition of the significance  of having the                                                               
labor trained  and ready by  the time the construction  phases of                                                               
this project are reached.                                                                                                       
1:24:30 PM                                                                                                                    
MS.  KING continued  discussion of  the risks  and uncertainties,                                                               
including  how to  ensure the  right up-front  engineering.   She                                                               
explained  that the  processes  of  front-end engineering  design                                                               
(FEED) and front-end  loading (FEL) have been  developed in order                                                               
to help  those executing  a mega-project  spend dollars  up front                                                               
that will minimize risks and  uncertainties such as a significant                                                               
cost overrun risk later in the  project.  If a project is managed                                                               
correctly,  dollars spent  up front  can  save a  lot of  dollars                                                               
later.   With regard to  the risks and uncertainties  of reserves                                                               
and deliverability,  Ms. King  questioned where  the gas  will be                                                               
found.   She recalled that with  the base case about  50 trillion                                                               
cubic feet (tcf)  is necessary to have a 4.5  bcf a day pipeline.                                                               
Therefore, 15  tcf more  gas has  to be  found, which  causes the                                                               
following questions  to arise:   where will that gas  be located;                                                               
what  will   the  deliverability   of  it   be;  what   will  the                                                               
deliverability be;  what will the  cost of development;  will the                                                               
wells produce  as expected; and  will the compressors  perform as                                                               
expected.    Ms.  King  related  that  she  has  worked  on  many                                                               
production  assets  during  her  career,  and  pointed  out  that                                                               
[ConocoPhillips]  has had  difficulty predicting  production over                                                               
just one year.                                                                                                                  
1:26:10 PM                                                                                                                    
CO-CHAIR GATTO asked if ConocoPhillips  has a plan for finding 15                                                               
MS. KING stated that ConocoPhillips  has been an active explorer.                                                               
In fact,  ConocoPhillips is exploring  in a region in  NPR-A that                                                               
is known to  be gas prone.   If a gas pipeline  project is moving                                                               
forward, she anticipated that ConocoPhillips  would be one of the                                                               
companies actively pursuing exploration on the North Slope.                                                                     
1:26:38 PM                                                                                                                    
REPRESENTATIVE  SEATON returned  to  what he  characterized as  a                                                               
critical item, deliverability.   He expressed concern with regard                                                               
to where the producers have identified  the source of the [gas in                                                               
the  quantities necessary].   He  related his  understanding that                                                               
Point Thomson  actually has been  identified as an oil  field and                                                               
thus a  blow off of  gas from it might  be very problematic.   He                                                               
asked if  ConocoPhillips has  requested that  the Alaska  Oil and                                                               
Gas Conservation  Commission (AOGCC) reevaluate the  gas off-take                                                               
from Prudhoe Bay or Point Thomson.                                                                                              
MS. KING pointed out that  ConocoPhillips is a 36 percent working                                                               
interest  owner  in the  Prudhoe  Bay  field.   The  Prudhoe  Bay                                                               
working  interest owners  have been  working with  the AOGCC  for                                                               
over a year.  Prior to an  open season, it would seem prudent for                                                               
any  working interest  owner  to have  that  issue resolved,  she                                                               
opined.   Ms. King highlighted  that a shipping  commitment means                                                               
that there's a financial obligation  to pay a pipeline.  Although                                                               
one doesn't  necessarily have  to have gas  to back  the shipping                                                               
commitment, particularly  for a strong financial  company, it's a                                                               
fairly  risky prospect  to take  out  capacity on  "spec" from  a                                                               
pipeline of this  magnitude.  Ms. King said  she anticipated that                                                               
[ConocoPhillips]  will continue  to work  with AOGCC  regarding a                                                               
new approved  off-take rate  prior to an  open season.   However,                                                               
ConocoPhillips  would  need to  work  with  the working  interest                                                               
owners in  order to determine  the appropriate  investment level.                                                               
Furthermore,  there   will  have  to  be   discussions  with  DNR                                                               
regarding the plan of development.   Ms. King stated that nothing                                                               
in an open  season would foreclose others  from [being involved].                                                               
She noted  that ConocoPhillips has  a relatively  minor interest,                                                               
about 5  percent, in Point  Thomson.  Still,  ConocoPhillips, she                                                               
related,  is hopeful  that it  will  find additional  exploration                                                               
volumes so  that it can make  a nomination from other  volumes as                                                               
well.   All of the aforementioned  will come together at  an open                                                               
season, she said.                                                                                                               
1:30:31 PM                                                                                                                    
REPRESENTATIVE SEATON  highlighted that  the producers  have been                                                               
emphasizing the need  for certainty.  However,  they haven't even                                                               
determined how  much gas can be  taken off the two  major fields.                                                               
The study  from the  working interest  owners group  from Prudhoe                                                               
Bay hasn't  produced enough information  to reassess Rule 9.   As                                                               
to  whether there's  momentum  toward an  open  season, it  seems                                                               
questionable, he said.                                                                                                          
MS.  KING   said  that   ConocoPhillips  anticipates   that  upon                                                               
completion of the project planning  phase, which under AGIA would                                                               
be after a license is awarded,  there would be an open season for                                                               
18 months to 2 years.   ConocoPhillips, she opined, believes that                                                               
it can  do the appropriate  reservoir engineering  and subsurface                                                               
work to  have a  plan with  the AOGCC prior  to the  open season.                                                               
She related  her understanding that  the working  interest owners                                                               
are working on that and continuing  to do so.  The intention, she                                                               
noted,  of  ConocoPhillips is  to  continue  that work  with  the                                                               
Prudhoe Bay working interest owners.                                                                                            
1:32:41 PM                                                                                                                    
REPRESENTATIVE SEATON inquired  as to how a  pipeline company can                                                               
develop a  proposal based  on anticipated volumes  of gas  if the                                                               
producers  aren't going  to know,  until just  prior to  the open                                                               
season,  what  volumes  will potentially  be  nominated  for  the                                                               
people  to design  the pipeline  to place  a proposal  and tariff                                                               
forward.   He related his  understanding that  the aforementioned                                                               
must be in place prior to an open season.                                                                                       
MS.  KING said  that  she would  cover some  of  these issues  in                                                               
upcoming slides.                                                                                                                
1:33:45 PM                                                                                                                    
MS. KING returned  to the risk and  uncertainties and highlighted                                                               
the actual  cost to explore  and develop the known  gas resources                                                               
and future  gas resources.   She posed  a situation in  which the                                                               
pipeline project  is going  forward and  [a company  is spending]                                                               
tens of  billions of  dollars in the  construction phases  of the                                                               
project.   If [a company] is  also trying to prepare  Prudhoe Bay                                                               
for  gas   production,  there   will  be   additional  investment                                                               
associated.   Those  developments and  capital expenditures  will                                                               
proceed  concurrently  with   the  largest  private  construction                                                               
project  in North  America.   Therefore, within  the state  there                                                               
will be competition for goods and  services in order to ready the                                                               
assets  and the  pipeline.   When the  pipeline is  ready and  it                                                               
comes on  stream, she said she  wouldn't want to be  the upstream                                                               
person  who hasn't  "gotten the  upstream development  right" and                                                               
the  gas isn't  ready to  enter  the pipe.   There  will be  many                                                               
logistical challenges, she opined.                                                                                              
1:35:53 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  informed   the  committee  that  this                                                               
process is something  that he has been through  and the producers                                                               
on the North Slope do every  year.  Furthermore, many of the same                                                               
comments  being  made today  were  made  during the  Prudhoe  Bay                                                               
expansion  in the  mid 1970s.   Therefore,  the oil  industry has                                                               
much experience with these risks  and uncertainties.  With regard                                                               
to labor availability, Representative  Guttenberg said that labor                                                               
has been  driven away from the  North Slope as work  on the North                                                               
Slope has  become less  desirable than  it ever  was before.   He                                                               
then opined that  the industry has done little to  make the North                                                               
Slope  a place  that people  want to  work and  have a  long-term                                                               
MS. KING  said that she hasn't  worked on the North  Slope nor is                                                               
she an  expert on labor  as she has  focused entirely on  the gas                                                               
pipeline since  arriving in  Alaska.   However, she  related that                                                               
one of the challenges with which  she has been charged is to look                                                               
forward.   Therefore,  if  there is  going to  be  a large  labor                                                               
demand, she  expressed the need to  work with others to  have the                                                               
labor  ready.   The  timeframe between  now  and construction  is                                                               
critical to  try to have  the appropriate training  facilities in                                                               
place to ensure success in delivery of the project.                                                                             
1:39:59 PM                                                                                                                    
MS.  KING, continuing  with slide  3, reiterated  that predicting                                                               
over a 20- to 30-year timeframe  is difficult in terms of knowing                                                               
and/or guaranteeing the project economics.   With these risks and                                                               
uncertainties,  Ms. King  opined  that there's  no entity  that's                                                               
capable of guaranteeing an economic  return on this project.  She                                                               
highlighted   that  the   magnitude  of   the  initial   shipping                                                               
commitments are  staggering.  For  example, if the toll  is $3.50                                                               
and the  pipeline open season  proposed signing up for  a 20-year                                                               
shipping  commitment, that  could amount  to in  excess of  a $26                                                               
billion  financial  obligation  for  1 bcf  a  day,  which  would                                                               
roughly amount to ConocoPhillips' share.   For 4 [bcf a day] that                                                               
would amount to  over $100 billion in  financial obligations that                                                               
would  be  made to  a  pipeline  entity  for a  20-year  shipping                                                               
commitment.  Strong parties, she  emphasized, will be required to                                                               
have the financial  strength to sit behind  a shipping commitment                                                               
of that magnitude.                                                                                                              
1:41:39 PM                                                                                                                    
CO-CHAIR  GATTO asked  if there  is  insurance available  against                                                               
catastrophic losses.                                                                                                            
MS.  KING  said,  "I'm  not  aware  that  we  would  be  pursuing                                                               
something  like   this."    She   clarified  that  it   would  be                                                               
ConocoPhillips  that  would  be   sitting  behind  that  shipping                                                               
commitment and  guaranteeing the  pipeline company that  it would                                                               
pay  it.   The  pipeline  company and/or  the  banks will  assess                                                               
whether ConocoPhillips is strong enough to meet that obligation.                                                                
1:42:12 PM                                                                                                                    
REPRESENTATIVE SEATON  requested an  explanation as to  where the                                                               
80  percent   federal  guarantee   comes  in  if   firm  shipping                                                               
commitments for  100 percent of  the project are  being required.                                                               
Representative  Seaton  related  his understanding  that  if  the                                                               
markets have  full confidence in ExxonMobil,  ConocoPhillips, and                                                               
BP, the 80 percent [federal guarantee] seems to be meaningless.                                                                 
MS. KING related her understanding  that the pipeline entity will                                                               
hold an  open season  and specify  what size  it thinks  the pipe                                                               
will be,  how much the  costs would be, and  shipping commitments                                                               
will be  made.  She explained  that the shippers are  agreeing to                                                               
ship gas or pay demand charges  for a fixed term, as specified on                                                               
slide 4.   Those  shipping commitments  can then  be used  by the                                                               
pipeline company to repay its debt  and obtain a return on equity                                                               
on its  contribution.   Those commitments  allow the  pipeline to                                                               
obtain  the financing,  and furthermore  it serves  as collateral                                                               
for  that financing.   With  regard to  the loan  guarantees, she                                                               
opined that  there's a fair  amount left  to be determined  as to                                                               
how the  actual federal  loan guarantees  will actually  be used.                                                               
She related  her understanding that  the federal  loan guarantees                                                               
will only  step in after  the lenders  in the pipeline  have gone                                                               
back  to the  shippers.   Therefore, she  surmised that  the U.S.                                                               
Department  of  Energy,  in  reviewing the  impact  of  the  loan                                                               
guarantees,  will review  the likelihood  of the  pipeline entity                                                               
and/or  shippers will  default in  order to  determine where  the                                                               
federal loan  guarantees will  step in.   She  likened this  to a                                                               
third tier.   Still, more  work is  necessary with regard  to the                                                               
implementation  of  the  federal  loan guarantees.    In  further                                                               
response to Representative  Seaton, Ms. King said  that she would                                                               
follow up  on the  80 percent federal  guarantee.   She clarified                                                               
that she hasn't heard anyone say  that they could build a 4.5 bcf                                                               
a  day pipeline  and obtain  financing if  there was  only signed                                                               
shipping commitments  for 20 percent of  it.  In order  to obtain                                                               
financing,  firm shipping  commitments  for the  full volume  are                                                               
1:47:41 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG pointed  out  that  the lease  holders                                                               
don't necessarily have  to be the same people as  the shippers or                                                               
the pipeline entity.  He opined  that the pipeline won't be built                                                               
until the gas and the markets  are present.  Furthermore, and how                                                               
it lines  up will be  determined by who  has the ability  to take                                                               
the greatest advantage at the time.                                                                                             
[Co-Chair Gatto passed the gavel to Co-Chair Johnson.]                                                                          
MS. KING  clarified that the  pipeline entity will be  a separate                                                               
pipeline  entity that  will be  formed as  an affiliate,  even if                                                               
it's a  BP, ExxonMobil,  ConocoPhillips pipeline.   In  fact, the                                                               
model  discussed  before  was  a  limited  liability  corporation                                                               
within the Alaska  portions of the pipeline with  a different but                                                               
equivalent structure  for the Canadian portions  of the pipeline.                                                               
It's quite likely  that the gas treatment plant  (GTP) would also                                                               
be  owned by  the  same  pipeline entity  or  by  a separate  GTP                                                               
entity.  "The  lessee, when I talk about the  lessee, that's when                                                               
I'm talking  about when we're,  say for  example, as an  owner in                                                               
Prudhoe Bay and Prudhoe Bay  lessees will make decisions based as                                                               
a  working   interest  owner,"  she  explained.     However,  the                                                               
decisions  regarding the  shippers and  the shipping  commitments                                                               
will be made  by ConocoPhillips alone.   ConocoPhillips will make                                                               
an  independent  decision  on   a  shipping  commitment  to  that                                                               
project.   There's  no requirement  as to  specific amounts  from                                                               
specific  fields.   The timeframe,  in a  success-based schedule,                                                               
between an  open season and  first construction is  roughly eight                                                               
years and  ConocoPhillips might have  plans to  actively explore.                                                               
When  making   a  decision   regarding  a   shipping  commitment,                                                               
ConocoPhillips  will  review  whether   it  believes  the  market                                                               
supports  a  shipping commitment.    ConocoPhillips  will have  a                                                               
marketing  affiliate   that  will   review  and   make  decisions                                                               
regarding how to  market the gas.  Therefore, there  are a number                                                               
of affiliates available that are  regulated by the Federal Energy                                                               
Regulatory Commission (FERC).                                                                                                   
1:51:26 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG surmised then that when ConocoPhillips                                                                
has a specific  unit of gas available to it  in reserve, it might                                                               
use  smaller percentages  and look  for a  second open  season to                                                               
ship more if a larger market can be found.                                                                                      
MS. KING said this is entering  a really complex area because if,                                                               
for  example,  ConocoPhillips,  as   a  working  interest  owner,                                                               
decided  not to  take its  share of  gas in  a field  while other                                                               
parties did, the Gas Balancing  Agreements could be used in order                                                               
to  ensure  that  parties  produce consistently.    It  could  be                                                               
problematic if parties  get out of balance  and something happens                                                               
in  the reservoir.   If  ConocoPhillips wanted  to take  out some                                                               
capacity  on spec,  then it's  ConocoPhillips' obligation  to pay                                                               
the pipeline  company if the gas  wasn't found or try  to get its                                                               
exploration and  appraisal program in  place to deliver  the gas.                                                               
Again, it  would be an  independent decision  that ConocoPhillips                                                               
would make based on the risks  and uncertainties of the market as                                                               
well as the cost of the project at the time.                                                                                    
1:52:57 PM                                                                                                                    
MS.  KING  commented  that  ConocoPhillips  is  going  to  use  a                                                               
rigorous investment-making  process to assess making  those long-                                                               
term  shipping  commitments  on  the project  or  to  sanction  a                                                               
project.  ConocoPhillips will review  the risks and uncertainties                                                               
and won't  review a  single financial  metric.   On such  a large                                                               
project,  ConocoPhillips  will  review   a  number  of  financial                                                               
metrics  and  weigh the  risks  and  uncertainties against  those                                                               
metrics at the time the investment decision is made.                                                                            
1:53:44 PM                                                                                                                    
MS.  KING said  that ConocoPhillips  will establish  processes to                                                               
manage  those risks  and uncertainties  as  things move  forward.                                                               
She opined  that the  authors of AGIA  must have  recognized that                                                               
the project  sponsors could  see the  possibility of  the project                                                               
being unsuccessful in the future.                                                                                               
[Co-Chair Johnson returned the gavel to Co-Chair Gatto.]                                                                        
1:54:28 PM                                                                                                                    
MS.  KING reminded  the committee  that ConocoPhillips  has a  36                                                               
percent  working  interest  in   Prudhoe  Bay,  which  circulates                                                               
approximately  8  bcf  a  day  of  gas  into  the  producing  oil                                                               
reservoir.  That gas keeps the  reservoir pressure up in order to                                                               
get  more oil  out of  the ground  and to  convert to  a miscible                                                               
injectant that's  used to inject  in fields to also  produce more                                                               
oil.    Furthermore,  ConocoPhillips is  extracting  natural  gas                                                               
liquids and  placing them in  TAPS to  the extent possible.   The                                                               
gas in  Prudhoe Bay is currently  being used to produce  more oil                                                               
every  day.   The Prudhoe  Bay owners  have invested  billions of                                                               
dollars in Prudhoe Bay gas to  increase oil recoveries out of the                                                               
Prudhoe Bay  field.  She said  that Prudhoe Bay gas  continues to                                                               
work  hard to  produce  more  oil; the  gas  nor  the owners  are                                                               
sitting  idle.   Ms.  King  then  turned  to the  discussions  of                                                               
litigation,  which  she  characterized as  a  losing  proposition                                                               
because  while   litigation  occurs,  costs  could   continue  to                                                               
increase,  gas demand  could be  lost, and  progress toward  this                                                               
project could be stalled.                                                                                                       
1:56:04 PM                                                                                                                    
CO-CHAIR GATTO  said that in  the Prudhoe  Bay field there  is an                                                               
ideal amount  of gas  to reinject.   He asked  if it's  past that                                                               
MS. KING said  that although she's heard references  to that, she                                                               
doesn't understand that conclusion.   The gas is currently [being                                                               
injected] and more oil is being  produced.  There will be a point                                                               
at which all parties can agree  that it's appropriate to take gas                                                               
off.    Ms.  King  opined  that  currently  both  the  state  and                                                               
ConocoPhillips are the  beneficiaries of the amount  of oil being                                                               
produced out of Prudhoe Bay.  She  said that she isn't aware of a                                                               
particular crossover point by which gas has to be produced.                                                                     
CO-CHAIR GATTO  asked if there  is a point  at which it  could be                                                               
helpful to place more gas in the ground.                                                                                        
MS. KING  said the discussion  is moving  into a complex  area of                                                               
reservoir engineering.   She  further said that  there will  be a                                                               
lot of  work done on  Prudhoe Bay and in  fact, some of  the most                                                               
sophisticated models and engineering is  being done on that asset                                                               
on a  daily basis.   There  are ways to  mitigate any  impacts on                                                               
oil,  which  is  what  will   be  studied  along  with  the  cost                                                               
effectiveness of  those once  the process moves  to take  the gas                                                               
off.   However, when  the gas  is taken  off, that's  a different                                                               
production  mechanism  on the  Prudhoe  Bay  field.   In  further                                                               
response to  Co-Chair Gatto, Ms.  King clarified that  FERC's job                                                               
is in  relation to interstate  commerce.  The parties  that would                                                               
assess  engineering  solutions so  that  oil  isn't left  in  the                                                               
ground unnecessarily would be DNR and AOGCC.                                                                                    
1:59:15 PM                                                                                                                    
MS. KING  directed the committee's  attention to slide  5, titled                                                               
"Success Case Project  Timeline".  The timeline is  roughly a 10-                                                               
year period from  the project planning to the  actual delivery of                                                               
full  capacity.   She said  she  anticipated that  it would  take                                                               
approximately a year  from moving gas to the full  ramp up of all                                                               
compressors.   She  highlighted  the  permitting and  engineering                                                               
bars,  which  illustrate  that  the  "forward  plan"  requires  a                                                               
tremendous amount  of additional work  that would be  required on                                                               
the  project.   The hope  is that  the aforementioned  work would                                                               
reduce  the   uncertainties  and  risks  around   such  areas  as                                                               
materials  procurement and  engineering.   She estimated  that to                                                               
proceed  through the  project planning  in the  first four  years                                                               
would be a $1 billion  gross expenditure under the 2001 estimate.                                                               
Once the project  reaches the point of project  approvals and the                                                               
project  has  received  FERC  and  National  Energy  Board  (NEB)                                                               
certificates  and  completed  permitting and  right-of-ways,  the                                                               
project sanction decision  is at hand.  At that  point, under the                                                               
2001 study,  that's when  one would make  the decision  to invest                                                               
$19  billion-plus.   She pointed  out that  it will  cost roughly                                                               
$400-$500 million  to conclude  an open  season, which  would get                                                               
one through the first two years.                                                                                                
2:01:30 PM                                                                                                                    
MS. KING  moved on  to slide 6.   She explained  that in  the oil                                                               
industry, it's  been learned that  projects that  become schedule                                                               
driven usually  fail.  Therefore, ConocoPhillips  has established                                                               
a   "gated   decision-making   process"  by   which   risks   and                                                               
uncertainties can be managed and  reduced as more engineering and                                                               
environmental work  is performed.   In the  first two  years, the                                                               
feasibility phase,  she anticipated spending between  1-2 percent                                                               
of the total project costs.   The feasibility phase would be when                                                               
the preliminary design  basis and hopefully when  fatal risks are                                                               
identified.   The feasibility  phase is  the best  opportunity to                                                               
reduce risk  with the least amount  of cost and thus  it's a very                                                               
critical  part of  the  front-end  engineering design  timeframe.                                                               
The next phase,  referred to as the design phase,  would be after                                                               
an open  season and while the  permits are sitting with  FERC and                                                               
NEB.  She  anticipated spending 5-7 percent of  the total project                                                               
costs  during this  time.   The design  phase is  when the  major                                                               
permits  are obtained  and 10  percent  of the  detail design  is                                                               
completed.   Much design optimization  work is performed  at this                                                               
point,  she  said.    Furthermore,   risk  mitigation  plans  are                                                               
implemented  during  the design  phase.    After the  first  four                                                               
years,  the  project sanction  decision  would  be made  and  the                                                               
execution and  construction phase  of the project  would proceed.                                                               
Ms. King  commented that the execution  phase is by far  the most                                                               
expensive time to re-engineer the project.                                                                                      
2:05:25 PM                                                                                                                    
REPRESENTATIVE WILSON  returned to slide  5.  She inquired  as to                                                               
how  a company  can make  commitments in  an open  season without                                                               
having decided how everything fits together.                                                                                    
MS.  KING said  that the  tough question  is how  comfortable the                                                               
state  is in  making a  firm  shipping commitment  to a  pipeline                                                               
entity,  probably  eight years  in  advance,  with the  level  of                                                               
information  available at  the  time  of the  open  season.   She                                                               
reiterated that it's critically important  to determine as good a                                                               
cost estimate as possible going into  an open season.  One of the                                                               
scenarios of concern is that  an entity wouldn't expend very much                                                               
financially  prior to  an open  season, but  put forth  a project                                                               
estimate.  Ms.  King opined, "Sometimes when people  are going to                                                               
buy something,  those that  know the  most about  it may  be more                                                               
constrained in  their ranges, those  that maybe have  not studied                                                               
it as  much might ..."  say they can  deliver it for  a specified                                                               
amount.     Therefore,   it's  very   critical   for  the   right                                                               
engineering, permitting, and environmental  field data work to be                                                               
performed in parallel to an open  season process so that there is                                                               
an  understanding that  the shippers  can deliver  what was  said                                                               
during the open season.                                                                                                         
2:08:02 PM                                                                                                                    
REPRESENTATIVE ROSES  commented that  the aforementioned  is part                                                               
of his  concern as  well.   However, it would  be in  an entity's                                                               
best interest  to spend as little  as possible to reach  the open                                                               
season and then  spend as much as possible after  the open season                                                               
because  at  that  point  the state  will  potentially  spend  80                                                               
percent  up  to the  $500  million  rather  than the  50  percent                                                               
matching funds prior to the open season.                                                                                        
MS. KING said that by establishing  a system in which the state's                                                               
matching  is  different on  both  sides  of  the open  season  is                                                               
clearly an area  of concern because entities may  be motivated to                                                               
pursue  an open  season quickly,  which  places the  entity in  a                                                               
position  of receiving  the 80  percent matching  funds from  the                                                               
state.    The aforementioned  places  a  shipper in  a  difficult                                                               
position when  the licensee  has promised  something on  which it                                                               
can't deliver.   This proceeds  down the  losing path.   Ms. King                                                               
explained that her  hope with some of the  graphs she's presented                                                               
is to  highlight some  of the complexities  pointing to  the need                                                               
for a  clear, gated decision-making  process in order  to deliver                                                               
this project  in the most effective  manner.  No one  benefits if                                                               
the project  ultimately costs $40-$50  billion because  the state                                                               
will  receive less  royalty value  and tax  production value  and                                                               
less value is received from the  gas.  She acknowledged that some                                                               
have said  that if  the appropriate  engineering work  isn't done                                                               
initially,  one  could  argue  that some  of  the  costs  weren't                                                               
legitimate and shouldn't  be included in the toll.   However, she                                                               
opined that it's an incredibly  difficult argument to make before                                                               
FERC.  Therefore, [ConocoPhillips']  focus on work commitments is                                                               
how  to best  establish a  process by  which the  state can  gain                                                               
comfort  and that  there's a  clear commitment  to advancing  the                                                               
project while  providing [ConocoPhillips]  the ability  to manage                                                               
the project using a gated decision-making process.                                                                              
2:11:21 PM                                                                                                                    
REPRESENTATIVE  ROSES  recalled  that the  other  producers  have                                                               
concern  with regard  to waiving  the right  to an  appeal.   The                                                               
problem  is knowing  that the  up-front data  is really  the best                                                               
data so  that the  decisions being made  are the  best decisions.                                                               
He opined  that it seems  that [AGIA] establishes a  situation in                                                               
which an entity  would proceed to the point of  the [open season]                                                               
and the  80:20 match from the  state when it would  then call for                                                               
change orders.                                                                                                                  
MS. KING indicated her agreement.                                                                                               
2:14:08 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG surmised  that this  is a  negotiation                                                               
process for what goes into AGIA and what doesn't.                                                                               
MS. KING  said she will  try to  address those points  during her                                                               
2:15:37 PM                                                                                                                    
MS.  KING   related  ConocoPhillips'  agreement  that   a  public                                                               
transparent  process is  desirable.   Furthermore, ConocoPhillips                                                               
believes that  a balanced deal  is critical so that  all involved                                                               
share in  the rewards and  challenges.  She further  related that                                                               
ConocoPhillips believes it  can bring some value  to the project.                                                               
As  an owner,  ConocoPhillips can  bring financial  strength, its                                                               
Arctic and  Alaska experience,  project management  skills, mega-                                                               
project skills, as  well as much interest and  expertise in other                                                               
pipeline projects.   ConocoPhillips also views  itself as unique,                                                               
she said,  in that it's  a producer as well  as an explorer.   As                                                               
the  state's  largest  explorer, ConocoPhillips  is  disappointed                                                               
with  comments discounting  ConocoPhillips as  an explorer.   Ms.                                                               
King  said  that  ConocoPhillips   wants  to  work  through  some                                                               
critical  issues with  the  legislature  and the  administration.                                                               
She  emphasized that  ConocoPhillips  isn't locked  into the  old                                                               
proposal.  Ms. King said:                                                                                                       
     We  need  to  find   a  framework  that  addresses  the                                                                    
     critical  resource issues  that are  needed to  support                                                                    
     those  billion dollars  of shipping  commitments, those                                                                    
     long-term  shipping  commitments that  will  facilitate                                                                    
     the  construction  of  the  largest  project  in  North                                                                    
     America," she  opined.  My  primary focus today  ... is                                                                    
     to  convey  that  we  want   to  work  with  you  in  a                                                                    
     constructive way  and we believe changes  are needed to                                                                    
     AGIA  to deliver  a  successful  gas pipeline  project.                                                                    
     The risk-reward  balance is very different  between the                                                                    
     regulated  portions  of  the project,  particularly  if                                                                    
     they've   been   backed   by   strong   firm   shipping                                                                    
     commitments.  The majority of those risks pass through                                                                     
     to the initial shippers on this project.                                                                                   
2:18:15 PM                                                                                                                    
MS. KING then identified the  following areas of key questions of                                                               
concern related  to HB  177 as  specified on slide  7.   She said                                                               
that ConocoPhillips  believes that the current  structure of AGIA                                                               
hinders competition  and creative  alternatives.   She questioned                                                               
why the  state would  want to  block alternative  projects rather                                                               
than let the  free market work most efficiently.   The passage of                                                               
AGIA as  drafted seems to  make it very  difficult to see  how an                                                               
alternative project could be advanced  over the next decade.  She                                                               
drew attention to  the licensed project assurance  clause on page                                                               
23 of  CSHB 177(O&G).  This  provision, page 23, lines  16-22, is                                                               
problematic  because  parties  could   be  spending  hundreds  of                                                               
millions  of dollars  advancing  this project.   Therefore,  this                                                               
language  specifies that  the state  could be  exposed to  triple                                                               
damages, in the amount of  billions of dollars.  "This provision,                                                               
we  see, severely  constrains  the state's  right  to change  tax                                                               
terms  and royalty  terms, and  royalty terms  are a  contractual                                                               
arrangement, for a project other  than the licensed project, even                                                               
when the licensed  project is not moving forward or  is not fully                                                               
subscribed  for over  a decade,"  she highlighted.   Furthermore,                                                               
the state could  have litigation exposure as well  as billions of                                                               
dollars  in damages.   Drawing  upon her  experience, she  opined                                                               
that the term "preferential" can easily be disputed.                                                                            
2:20:42 PM                                                                                                                    
MS.  KING, in  response  to Co-Chair  Gatto,  questioned why  the                                                               
state would tie itself up for  over a decade and expose itself to                                                               
litigation and treble damages.                                                                                                  
2:22:30 PM                                                                                                                    
REPRESENTATIVE SEATON  opined that  competition is  being limited                                                               
because  there's  no  incentive  for   an  early  proposal  or  a                                                               
competitive proposal because there's no detriment.                                                                              
MS. KING commented that she  would hope that the common objective                                                               
is to  get the  gas pipeline  project regardless  of who  or how.                                                               
She expressed concern with a  situation in which the state awards                                                               
the   bid,  but   that  entity   can't  deliver   on  it.     The                                                               
aforementioned situation  places ConocoPhillips in a  position in                                                               
which it  couldn't discuss tax  and royalty terms with  the state                                                               
without  exposing  the  state to  litigation  and/or  the  triple                                                               
damages clause.   Ms. King then  pointed out that if  the project                                                               
was permitted outside of the  AGIA license, the language seems to                                                               
expose  the  state to  litigation  when  it  grants a  permit  to                                                               
perform environmental field work.                                                                                               
2:25:18 PM                                                                                                                    
CO-CHAIR   GATTO  opined   that  the   aforementioned  has   been                                                               
considered and  two commissioners  have been selected  with staff                                                               
to  select the  licensee.   He  related his  belief  that if  the                                                               
commissioners feel that  an entity has done  an inadequate amount                                                               
of work,  then no one  receives the  [bid] and the  process would                                                               
begin again.                                                                                                                    
2:26:07 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  directed  attention to  the  sentence                                                               
beginning on  page 23, line 16,  which seems to come  back to the                                                               
state.  He  opined that simply issuing a permit  to perform field                                                               
work  isn't preferential  treatment for  royalty tax  or monetary                                                               
treatment.   He further opined,  "In the  world of risk,  I think                                                               
these are the  things that everybody should be wanting  to see in                                                               
this contract, even  if you're the successful bidder  and even if                                                               
you're  just somebody  going  into this  process  because on  the                                                               
other hand, certainly  the three producers that  have come before                                                               
us have wanted all kinds of fixed resource issues."                                                                             
2:27:40 PM                                                                                                                    
MS. KING clarified that the  tie to the streamlined permitting is                                                               
on  page  23,  lines  13-16.   She  then  pointed  out  that  the                                                               
inducements referred  to in  that sentence  are the  $500 million                                                               
plus the benefits of the  AGIA coordinator.  The AGIA coordinator                                                               
was modeled  off the  federal legislation  in the  Alaska Natural                                                               
Gas Pipeline  Act, but the  federal [legislation]  specified that                                                               
it  would  apply to  any  Alaska  natural gas  pipeline  project.                                                               
Therefore, if a  winner was established and  the project stumbled                                                               
a few  years later,  it wouldn't  require an  act of  Congress to                                                               
have that process available to any  project.  With respect to the                                                               
upstream terms,  Ms. King noted  that the last  contract included                                                               
the upstream  model contract which  was designed such  that other                                                               
working  interest owners  in the  fields have  the same  resource                                                               
terms  if  they  were  willing   to  make  a  long-term  shipping                                                               
commitment.   She  explained  that  if one  entity  is trying  to                                                               
advance  something  in  NPR-A  but   that  entity  has  different                                                               
resource  terms  than  the  partner   in  the  field,  it's  very                                                               
difficult  for  that  initial entity  to  obtain  alignment  with                                                               
regard  to how  to  move forward  with  development.   Therefore,                                                               
ConocoPhillips   believes  it's   important  that   all  resource                                                               
provisions are  available to  all parties  that might  take long-                                                               
term shipping  commitments.   Ms. King then  pointed out  that AS                                                               
38.05.020(b)(9)  offers an  alternative  vehicle for  streamlined                                                               
permitting.     Although   there   are  benefits   to  the   AGIA                                                               
coordinator,  those  provisions  should   be  applicable  to  any                                                               
natural gas pipeline project that's moving forward.                                                                             
2:30:30 PM                                                                                                                    
MS.  KING  returned  to slide  7  and  addressed  ConocoPhillips'                                                               
second  concern, which  is the  prescriptive bid  requirements as                                                               
outlined on page  3, proposed AS 43.90.130.   The current version                                                               
of  HB  177  has  about   20  requirements.    In  addition,  the                                                               
legislation  provides that  future  preparation  of requests  for                                                               
applications  (RFA) could  establish  more requirements.   If  an                                                               
applicant   has   demonstrated   that    he/she   has   met   the                                                               
commissioner's satisfaction  for each  requirement, then  the bid                                                               
would be considered for public  and legislative review.  However,                                                               
an applicant  that doesn't  meet even  one of  those requirements                                                               
would be  rejected as a  nonconforming bid, although  there could                                                               
be scenarios under which the best  solution might be one of those                                                               
rejected bids.   For example,  ConocoPhillips may  have estimates                                                               
for  the project  size,  receipt, and  delivery  points since  it                                                               
knows that  those will change, which  is what the open  season is                                                               
supposed to address.   If ConocoPhillips said that  it projects a                                                               
4.5  bcf a  day pipeline,  ConocoPhillips and  Anadarko might  be                                                               
successful in  NPR-A and  may develop  a $500  million nomination                                                               
during open season and thus  the pipeline would need to determine                                                               
how to do a 5 bcf a day pipeline.                                                                                               
2:32:47 PM                                                                                                                    
REPRESENTATIVE  SEATON asked  if Ms.  King is  saying that  there                                                               
should be a proposal without any terms.                                                                                         
MS.  KING replied  no.    She clarified  that  under the  current                                                               
legislation,  a specific  set of  requirements must  be bid.   If                                                               
those requirements  needed to be  changed due to an  open season,                                                               
it's  left to  the  commissioners to  approve  or disapprove  the                                                               
change.  Ms.  King acknowledged that the state needs  to know the                                                               
route and  other such  particulars as  the current  design basis.                                                               
However, the  reality is that it  will change at an  open season.                                                               
Ms.  King  said  that  the  provision includes  quite  a  bit  of                                                               
prescription  that needs  to  reflect that  those  items will  be                                                               
updated as the project proceeds.                                                                                                
2:34:02 PM                                                                                                                    
REPRESENTATIVE  SEATON  asked  if  Ms.  King  is  saying  that  a                                                               
redesign should be allowed without commissioner approval.                                                                       
MS. KING acknowledged that the majority  of this would need to be                                                               
seen as a  bid requirement, but there are  some components within                                                               
the  proposed  provision,  AS  43.90.130(2),   that  seem  to  be                                                               
variable over time.   Some common language needs  to be developed                                                               
in  order to  address the  aforementioned.   ConocoPhillips' base                                                               
design is for a  4.5 bcf a day project, but if  in open season it                                                               
turns out to be a 5 bcf  a day project everyone would be aligned.                                                               
However, she questioned  what would happen if in  the open season                                                               
it's determined to be a 4.3 bcf a day pipeline.                                                                                 
2:36:12 PM                                                                                                                    
REPRESENTATIVE  SEATON pointed  out that  currently the  approval                                                               
has  to  be  reasonable  with  the  commissioners,  which  is  an                                                               
administrative  process.   He asked  if ConocoPhillips  wants the                                                               
determination  of a  reasonable modification  to come  before the                                                               
legislature rather  than the commissioners  or have  the licensee                                                               
make the determination.                                                                                                         
MS. KING  said that she would  be happy to provide  the committee                                                               
with an  answer on  that.  She  explained that  she's envisioning                                                               
review  of  an  existing  open season  process  and  the  federal                                                               
regulation of  that in order  to bridge the  gap.  She  said that                                                               
she   understands  the   legislature's   need   to  have   enough                                                               
information to be able to evaluate [a modification].                                                                            
2:37:37 PM                                                                                                                    
CO-CHAIR  GATTO pointed  out  that this  pipeline  is a  monopoly                                                               
rather than a  free market.  Within the  monopoly are established                                                               
parameters within which the companies  must work.  Co-Chair Gatto                                                               
opined  that  it's  advantageous  to work  within  the  specified                                                               
parameters and that violation of  any one parameter would require                                                               
mutual agreement.                                                                                                               
MS.  KING offered  that some  of those  requirements will  not be                                                               
paid by  a pipeline entity  as many of  them are costs  that FERC                                                               
allows to  be passed through  the toll.   This is  illustrated in                                                               
the   earlier  example   in   which   the  appropriate   up-front                                                               
engineering work  wasn't done  and the  project costs  much more.                                                               
In such  a situation, it's  difficult for  a shipper to  say that                                                               
more engineering work should've been  done as it would've reduced                                                               
the cost.   Ms. King opined that she could  foresee a scenario in                                                               
which parties could promise things  without necessarily having to                                                               
pay for them  and then applicants that will end  up paying for it                                                               
may  charge that  it's commercially  unreasonable.   Many of  the                                                               
provisions seem to usurp the way  in which FERC manages the terms                                                               
and rates  associated with  pipelines.  She  opined that  some of                                                               
the provisions obligate parties to  act a certain way before FERC                                                               
in order to influence FERC's decision in a particular scenario.                                                                 
2:40:04 PM                                                                                                                    
CO-CHAIR GATTO  characterized the two  commissioners as a  set of                                                               
judges and  once [an  applicant] passes  the gates,  the proposal                                                               
must stand  on its  merits.  The  commissioners could  not choose                                                               
anyone and call it a failed open season.                                                                                        
MS.  KING  pointed out  that  his  supposition pre-supposes  that                                                               
these requirements  would allow a  party to bid.   She reiterated                                                               
that  some  of  the  requirements  are  problematic.    Ms.  King                                                               
emphasized that ConocoPhillips  would at least like  a process by                                                               
which  the legislature  and the  public could  see its  proposal,                                                               
which could  still be rejected.   Therefore,  ConocoPhillips, she                                                               
related,  believes  that  moving  from bid  requirements  to  bid                                                               
variables   would    be   [appropriate],   although    she   said                                                               
ConocoPhillips is open  to alternatives.  In  further response to                                                               
Co-Chair  Gatto,   Ms.  King  assured  the   committee  that  her                                                               
materials  were prepared  by  a team  at  ConocoPhillips and  any                                                               
common  themes across  companies is  due  to the  view of  common                                                               
2:43:04 PM                                                                                                                    
REPRESENTATIVE ROSES  returned to whether the  bid is conforming.                                                               
If an  entity put a considerable  amount of funds into  a bid, he                                                               
questioned why  that entity  wouldn't submit  a bid  that relates                                                               
the  costs per  size of  pipe.   However,  under "this  scenario"                                                               
[proposed in AGIA] there's no knowledge  as to whether such a bid                                                               
would be considered in compliance.   Therefore, he said he agreed                                                               
with  Ms.  King  that  some   of  the  requirements  may  be  too                                                               
2:45:23 PM                                                                                                                    
CO-CHAIR  GATTO  indicated  that  it's  reasonable  to  have  the                                                               
requirements,  and therefore  he  said he  wasn't  sure that  the                                                               
overall structure of the requirements should be changed.                                                                        
2:46:46 PM                                                                                                                    
CO-CHAIR GATTO recessed until 15  minutes after the conclusion of                                                               
the House floor session.                                                                                                        
4:13:24 PM                                                                                                                    
CO-CHAIR  GATTO called  the meeting  back to  order at  4:13 p.m.                                                               
Representatives  Gatto, Roses,  Seaton, Wilson,  and Edgmon  were                                                               
present  at  the call  back  to  order.   Representative  Johnson                                                               
arrived as the meeting was in progress.                                                                                         
4:13:34 PM                                                                                                                    
MS.  KING continued  her presentation  and  drew the  committee's                                                               
attention to  slide 7, titled  "Proposed AGIA."  With  respect to                                                               
the bid  requirements, she related  that ConocoPhillips  has been                                                               
struggling to  develop a  work commitment  package that  allows a                                                               
project  to  be implemented.    The  legislation specifies  three                                                               
fixed date requirements  such that in order to  make a conforming                                                               
bid,  an entity  has to  commit the  following:   that within  36                                                               
months an open season will be  concluded; a date certain by which                                                               
the entity could  begin the National Environmental  Policy Act of                                                               
1969  (NEPA) pre-filing  process;  a date  certain  by which  the                                                               
entity  would submit  its FERC  applications.   The concern,  she                                                               
opined, is that  an entity might have a proposal  in which it can                                                               
meet two  date requirements  while the third  is a  challenge and                                                               
results  in  parties  potentially   offering  an  alternative  to                                                               
demonstrate work commitments.  However,  she read the legislation                                                               
to mean  that the  aforementioned situation  would result  in the                                                               
rejection of the  bid as a nonconforming bid.   For about a year,                                                               
ConocoPhillips has been  on record saying that it  can offer more                                                               
on work  commitments.   Furthermore, ConocoPhillips  is concerned                                                               
with hard dates, which seem contrary  to the best way in which to                                                               
implement a mega-project.   She acknowledged that  people want to                                                               
see  a commitment  to the  project, which  could be  fulfilled by                                                               
committing dollars.   The aforementioned is a  situation in which                                                               
the  prescriptive  nature  of  the   bid  requirements  could  be                                                               
4:17:06 PM                                                                                                                    
CO-CHAIR GATTO  asked if  there's some  way to  [put in  place] a                                                               
variable  such that  the commitment  is for  either 36  months or                                                               
something else.                                                                                                                 
MS. KING  identified alternatives that ConocoPhillips  could work                                                               
through as  variables in which  the bid could include  either one                                                               
[requirement]  or  another,  or  there is  a  specified  minimum.                                                               
"Something that  opens it up, that  doesn't just say you  have to                                                               
do these  three dates  or you'll be  rejected as  a nonconforming                                                               
bid," she explained.                                                                                                            
4:17:40 PM                                                                                                                    
REPRESENTATIVE WILSON  questioned why an entity  couldn't propose                                                               
the  date it  felt  it  could meet  and  maintain  that it  can't                                                               
guarantee it.                                                                                                                   
MS. KING  answered that she understood  the aforementioned, under                                                               
the  language of  the legislation,  to be  a caveat  to the  bid.                                                               
Therefore,  there  would be  the  ability  to  reject that  as  a                                                               
nonconforming bid if conditions were placed on it.                                                                              
4:18:34 PM                                                                                                                    
REPRESENTATIVE SEATON  directed attention  to the  requirement on                                                               
page  5,  lines  14-17,  in CSHB  177(O&G),  which  requires  the                                                               
conclusion of  an open season no  later than 36 months  after the                                                               
date  the license  is issued.    However, the  evaluation of  the                                                               
project will be  based on the net present value  and on the speed                                                               
of  the  proposal.    Therefore,  an  entity  that  says  it  can                                                               
[conclude an  open season]  in 24 months  would provide  an extra                                                               
work   commitment.       Representative   Seaton    related   his                                                               
understanding that  Ms. King  wants to  be able  to say  that the                                                               
entity  won't be  able to  [conclude  an open  season] within  36                                                               
months  and   that  be  considered  acceptable.     However,  the                                                               
legislation  seems to  say that  the only  acceptable bid  is one                                                               
that provides  an open  season within 36  months.   He questioned                                                               
why it's unacceptable to specify an outer time limit.                                                                           
MS. KING opined  that this comes back to the  point that schedule                                                               
driven  mega-projects have  not  had a  successful track  record.                                                               
Therefore, the  largest concern  with any fixed  date is  that it                                                               
could  result in  a scenario  in which  an entity  isn't spending                                                               
enough up  front because  it's trying to  meet an  arbitrary date                                                               
requirement,   which  could   result   in   that  entity   having                                                               
significantly   higher   costs  in   the   later   years.     The                                                               
aforementioned is  a challenge  for the  industry.   However, she                                                               
acknowledged that the state wants  to see a project move forward.                                                               
One  solution  proposed  by  ConocoPhillips   is  that  with  the                                                               
appropriate fiscal  framework, an alternative might  be to commit                                                               
to a certain amount of dollars  while advancing the project.  For                                                               
example, some  of the steps  to completion of a  FERC application                                                               
aren't  within  the project  sponsor's  control.   Therefore,  if                                                               
ConocoPhillips  were to  draft date  requirements, they  would be                                                               
heavily  caveated  by  those  things  outside  of  the  company's                                                               
control.  However,  the company could still  offer an alternative                                                               
that could  be accepted or  rejected.  The  aforementioned allows                                                               
companies to  bring forward alternative work  commitments and ask                                                               
whether it meets the state's needs.                                                                                             
4:23:13 PM                                                                                                                    
CO-CHAIR  GATTO related  his belief  that three  years is  enough                                                               
time  [to   conclude  an   open  season],   but  it   seems  that                                                               
ConocoPhillips  is saying  that one  never knows  what amount  of                                                               
time is enough.                                                                                                                 
MS.  KING questioned  whether the  distinction between  36 months                                                               
and  37  months,   if  that  was  the   difference  in  something                                                               
substantial in the  project, would be a large value  driver.  She                                                               
opined  that  there  are  other  ways,  beyond  hard  dates,  for                                                               
applicants to  demonstrate a commitment  to advance  the project.                                                               
In further  response to Co-Chair  Gatto, Ms. King said  that with                                                               
all  of  these requirements  there  would  be  a tendency  to  go                                                               
through them and  modify them to make it a  minimum.  The concern                                                               
is  that each  individual will  weigh each  [minimum requirement]                                                               
differently.   Ms. King opined that  ConocoPhillips is attempting                                                               
to find  a way in  which to implement the  project in such  a way                                                               
that   it's  successful,   take  care   of  how   ConocoPhillips'                                                               
shareholders'  money  is  spent,  and deliver  the  best  project                                                               
possible.   Therefore, she clarified  that if  [the requirements]                                                               
can  be opened  up across  the board,  ConocoPhillips can  make a                                                               
proposal to which the legislature has the right to reject.                                                                      
4:26:39 PM                                                                                                                    
REPRESENTATIVE WILSON said  that she could see  why the producers                                                               
would like  it to be a  money amount instead of  a specified date                                                               
because  they  are  large  corporations  that  can  handle  such.                                                               
However,  that   seems  to   eliminate  the   pipeline  builders.                                                               
Representative Wilson  opined that [the legislation]  attempts to                                                               
make a level playing field for all.                                                                                             
MS.  KING   clarified  that   she  only   speaks  on   behalf  of                                                               
ConocoPhillips.   She further clarified  that she didn't  want to                                                               
infer  that her  comments  related to  the  work commitments  are                                                               
representative  of  what  all  the  producers  want.    Ms.  King                                                               
explained that  if the work  commitments could be converted  to a                                                               
variable,  the  pipeline  company  could propose  dates  for  the                                                               
legislature to  consider.  She reiterated  ConocoPhillips' desire                                                               
for an alternative  to fixed dates by which  it could demonstrate                                                               
work  commitments to  the state.    Moreover, proposals  received                                                               
with fixed  dates will have  to be  reviewed in terms  of whether                                                               
those dates  can be met.   She  further clarified that  she isn't                                                               
trying to eliminate  an entity's ability to bid a  fixed date and                                                               
the state giving them extra points for such.                                                                                    
4:29:35 PM                                                                                                                    
REPRESENTATIVE   ROSES   said   he  understood   the   need   for                                                               
flexibility,  but  also  understands  the  need  for  a  timeline                                                               
commitment.    With  regard  to   the  earlier  mentioned  dollar                                                               
commitment, Representative  Roses questioned to whom  does it go.                                                               
He  recalled Ms.  King's earlier  statements with  regard to  the                                                               
time,  effort, and  money ConocoPhillips  has put  forth on  this                                                               
proposed  pipeline and  opined  that  ConocoPhillips' ability  to                                                               
meet  the  36-month  deadline  will be  easier  than  others  who                                                               
haven't been in negotiations or performed studies.                                                                              
MS. KING clarified that the  $125 million and 1 million man-hours                                                               
was  spent collectively  by BP,  ConocoPhillips, and  ExxonMobil.                                                               
With regard to  fixed dates, there are many  decisions within the                                                               
timeline and ConocoPhillips' ability  to meet those decisions are                                                               
dependent upon  many third  parties, whether  that's negotiations                                                               
with contractors  or other state  agencies.  A fixed  date places                                                               
an entity in  a difficult position with regard  to managing those                                                               
negotiations  on a  mega project.   Although  an entity  might be                                                               
willing  to take  that risk  on  some projects,  the dollars  are                                                               
significant on this project.   "If we find ourselves being driven                                                               
by a  schedule, we get  increasingly concerned about  our ability                                                               
to predict  the costs  and avoiding  a cost blow  out.   Ms. King                                                               
again reiterated that on a  project this large, one can't predict                                                               
that  those   dates  will  be   met.    Ms.  King   related  that                                                               
ConocoPhillips is  trying to find  a way to develop  a legitimate                                                               
work commitment  proposal that can  be weighed and if  it doesn't                                                               
meet the state's needs, then it could be rejected.                                                                              
4:34:29 PM                                                                                                                    
CO-CHAIR GATTO  pointed out that  if an  entity fails it  has the                                                               
right  to cure.   If  it can't  cure, [the  legislature] has  the                                                               
right to  dissolve the relationship  and take all the  assets and                                                               
award them to another entity.                                                                                                   
MS.  KING  stated her  agreement  with  the  right to  cure,  but                                                               
emphasized that  again it returns  to the willingness of  a party                                                               
to accept that cure.  If an  entity has agreed to a certain date,                                                               
but  it can't  maintain that  date, the  other side  needs to  be                                                               
willing  to say  that the  entity  has the  right to  cure.   She                                                               
opined  that  there  will  be many  wading  through  whether  the                                                               
requirement wasn't  met due  to actions  within their  control or                                                               
without their control.   Such questions and  debates could result                                                               
in disputed  areas.  She  acknowledged the legislature's  need to                                                               
see solid  work commitments.   However, ConocoPhillips  is asking                                                               
whether  more  flexibility  can  be offered  in  order  to  allow                                                               
creativity with a proposal.                                                                                                     
4:36:45 PM                                                                                                                    
REPRESENTATIVE  WILSON  returned  to  slide 5,  and  related  her                                                               
interpretation that there is a  commitment in that certain things                                                               
will be done in each phase.                                                                                                     
MS. KING  said that's why  the title of the  graph on slide  5 is                                                               
"Success  Case Project  Timeline."   She pointed  out that  areas                                                               
such as  field data  collection could add  additional time.   She                                                               
explained that the  four seasons of environmental  field data has                                                               
to be  completed before an  application can be submitted  to FERC                                                               
and  NEB.   Furthermore,  prior to  obtaining that  environmental                                                               
field data, permitting  must occur.  Moreover,  the weather would                                                               
be  a factor  in an  entity's ability  to obtain  the data.   She                                                               
questioned what would  happen if the weather  prohibits an entity                                                               
from obtaining the data within the prescribed timeframe.                                                                        
4:38:53 PM                                                                                                                    
CO-CHAIR  GATTO related  his understanding  that if  the reserves                                                               
tax had  passed, ConocoPhillips would  be on the hook  for annual                                                               
taxes and the  legislature could say the 90  days isn't necessary                                                               
because  the  state  is  collecting   money  until  the  licensee                                                               
produces gas.   "Without that inducement, which  is an inducement                                                               
not for the bidder  and we don't have it to  offer any more, then                                                               
our  fear is  that 90  days  can become  any number  of days  ...                                                               
unless there's  something in  there that gives  ... the  bidder a                                                               
penalty," he said.                                                                                                              
MS. KING  said this goes back  to the exclusivity point.   If the                                                               
state  chooses  a licensee  that's  a  pipeline entity  and  that                                                               
entity can't  deliver, she questioned  upon who the  gas reserves                                                               
tax would be imposed.  She  opined that those who have been asked                                                               
to make the shipping commitment  would face the punitive damages.                                                               
If ConocoPhillips isn't chosen as  the licensee, but the licensee                                                               
promises something ConocoPhillips doesn't  believe it can deliver                                                               
and ConocoPhillips' options to do  something outside that process                                                               
are closed off  by signing a 10-year exclusive  agreement, it's a                                                               
lose-lose situation.                                                                                                            
4:41:04 PM                                                                                                                    
CO-CHAIR GATTO  said that the  penalty would be given  to whoever                                                               
is the licensee, regardless of whether they own gas.                                                                            
MS.  KING said  that the  legislature  will still  have to  weigh                                                               
proposals and  the work  commitment included in  them.   Ms. King                                                               
further said:                                                                                                                   
     The problem  is:  is that  there's probably 8 or  10 of                                                                    
     these  buckets ...  but they've  been manifested  in 20                                                                    
     different  requirements  of  which  some  of  them  the                                                                    
     customers  of the  actual pipeline  will  pay, not  the                                                                    
     pipeline  itself  ....   And  so,  there's a  different                                                                    
     risk-reward  balance  that's  been  set  up  with  that                                                                    
     requirement.   For some parties,  they can come  in and                                                                    
     say, "Yes,  I can  commit to do  that."   Other parties                                                                    
     might say "Well, actually I'm  going to be the one that                                                                    
     might end  up having  to pay for  that, I  think that's                                                                    
     commercially   unreasonable;  I'm   uncomfortable  with                                                                    
     that.  And so, that's  the balance we're trying to find                                                                    
     is by  opening up that  to bid variables, all  of these                                                                    
     up  to  bid  variables,  ...  it  allows  you  and  the                                                                    
     administration to weigh that.                                                                                              
MS.  KING opined  that ultimately  there will  be proposals  with                                                               
strengths in different areas.                                                                                                   
4:44:16 PM                                                                                                                    
REPRESENTATIVE SEATON characterized allowing  an entity to say it                                                               
will spend  some money  without guaranteeing it  will ever  go to                                                               
open season  as problematic.   The  only date  certain is  the 36                                                               
months and the others are  dates certain that the entity chooses.                                                               
Representative  Seaton opined  that  the purpose  of  AGIA is  to                                                               
obtain  bids on  building  a pipeline  and thus  he  said he  has                                                               
difficulty  in determining  how [progress  is made]  when nothing                                                               
more than a monetary commitment is made.                                                                                        
MS.   KING   related   that   it   would   be   unacceptable   to                                                               
ConocoPhillips'  management  to  spend   funds  to  get  nowhere.                                                               
However, there  needs to be  a commitment  to spend dollars  in a                                                               
certain  manner in  order to  ensure  that the  project is  being                                                               
diligently  advanced.   She said  that she  understands that  the                                                               
legislature needs to  have a mechanism by which  it sees progress                                                               
is  actually being  made on  the  project.   She then  reiterated                                                               
concern with regard to a schedule-driven project.                                                                               
4:48:14 PM                                                                                                                    
REPRESENTATIVE  SEATON commented  that  the problem  in the  last                                                               
proposal was  that funds were  being spent  without advancements.                                                               
He then  asked if the 36  months to go  to open season is  a deal                                                               
killer for ConocoPhillips.                                                                                                      
MS. KING reiterated that fixed  dates are problematic.  She again                                                               
stated that ConocoPhillips believes  it can bring meaningful work                                                               
commitment proposals to the legislature.                                                                                        
4:50:01 PM                                                                                                                    
CO-CHAIR GATTO remarked that it would  be helpful if Ms. King had                                                               
some   suggested   language   to  replace   the   specific   date                                                               
requirements that are of concern for the company.                                                                               
MS. KING reiterated that she has  been involved in other areas in                                                               
which  there were  fixed-date requirements.   However,  they were                                                               
not  mega-projects that  were  the  largest private  construction                                                               
projects  in North  America.   She emphasized  that she  finds it                                                               
particularly  problematic that  comparisons  are  made to  really                                                               
small projects.  In further  response to Co-Chair Gatto, Ms. King                                                               
clarified  that  ConocoPhillips  is  willing  to  make  different                                                               
commitments.   She then reiterated that  the legislation includes                                                               
very prescriptive commitments, some of  which will be paid for by                                                               
some  parties  while  others  will   be  passed  through  to  the                                                               
shippers.  Ms.  King said that making  these commitments variable                                                               
is  one change  that would  address  this concern  such that  the                                                               
various aspects of the proposals could be weighed.                                                                              
CO-CHAIR GATTO  said he seriously  questions whether  there would                                                               
be five votes from this committee to forward such a change.                                                                     
4:52:57 PM                                                                                                                    
REPRESENTATIVE  WILSON  asked  if  Ms.  King  could  provide  the                                                               
committee with  the language utilized  in the  mega-projects with                                                               
which she was involved.                                                                                                         
MS.  KING clarified  that this  proposed project  is the  largest                                                               
project she has  worked on for ConocoPhillips.   She informed the                                                               
committee that ConocoPhillips' market  cap is about $100 billion,                                                               
but this  project amounts  to a firm  shipping commitment  of $26                                                               
billion.     Sometimes  the  difficulty  ConocoPhillips   has  in                                                               
attempting to bridge the gap  such that ConocoPhillips can manage                                                               
the  project   most  effectively  is  interpreted   as  stalling.                                                               
However,   that's  not   ConocoPhillips'   intent,  rather   it's                                                               
attempting  to find  a  framework  by which  it  can advance  the                                                               
4:56:31 PM                                                                                                                    
CO-CHAIR  GATTO  recalled from  last  year's  presentations on  a                                                               
proposed gasline,  that one mustn't  confuse high risk  with high                                                               
value.     Since  this  project   is  so  risky   and  expensive,                                                               
ConocoPhillips doesn't  want to establish firm  time commitments,                                                               
he surmised.                                                                                                                    
MS. KING said that's exactly  the concern of ConocoPhillips.  She                                                               
questioned whether the  legislature would want to at  least see a                                                               
bid in which it didn't meet  all the 20 requirements, but offered                                                               
creative alternatives to the few it didn't meet.                                                                                
4:58:03 PM                                                                                                                    
MS.  KING,  continuing  with  slide 7,  turned  to  the  resource                                                               
package that  begins on  page 19  of CSHB  177(O&G).   She opined                                                               
that the  resource risks  on this project  have always  posed the                                                               
greatest obstacle  to a  gas pipeline  due to  the nature  of the                                                               
long-term shipping  commitments.   The predominant  resource risk                                                               
that the  state can  control, she relayed,  relates to  taxes and                                                               
royalties.  "Long-term  clarity on the state  taxes and royalties                                                               
is critically important  to reducing the risk  on these long-term                                                               
shipping commitments.  Addressing  these issues remains essential                                                               
to  making   this  pipeline  project  a   reality,"  she  stated.                                                               
Although the  administration doesn't  want to negotiate  on these                                                               
terms,  there  needs  to  be  a vehicle  to  work  through  these                                                               
resource terms.   Ms.  King relayed  ConocoPhillips' appreciation                                                               
of the  recognition and importance  of the resource issues  for a                                                               
proposed  gas pipeline  project as  well as  the administration's                                                               
recognition of stability as a  critical resource issue.  Ms. King                                                               
     We  have always  understood  that the  issue of  fiscal                                                                    
     stability  would  likely  be   decided  by  the  Alaska                                                                    
     Supreme  Court.   The specific  resource provisions  in                                                                    
     the  bill  ...  do  not  provide  adequate  clarity  or                                                                    
     predictability.   The present  bill makes  some changes                                                                    
     to the royalty contracts  but rather than negotiate the                                                                    
     changes  to the  contracts,  the bill  would force  the                                                                    
     lessees to  accept some future  regulations.   The bill                                                                    
     also promises a degree  of protection against potential                                                                    
     changes to  the gas production  tax, which is  a start.                                                                    
     However, it  does not identify what  the production tax                                                                    
     rate  is  going  to  be  and  the  period  of  relative                                                                    
     stability  is  insufficient  for   a  project  of  this                                                                    
     magnitude.    In  addition,   there  is  no  protection                                                                    
     against   other   taxes   that  might   be   aimed   at                                                                    
     circumventing  that protection.   We  suggest that  the                                                                    
     resource package  be converted to a  bid variable where                                                                    
     resource  owner  applicants  can propose  the  resource                                                                    
     terms  and the  public and  the legislature  can review                                                                    
     them.  This will provide  an option by where the public                                                                    
     and  the legislature  can see  an entire  package, both                                                                    
     the  midstream  and  the   resource,  and  provide  the                                                                    
     foundation for the project to be advanced.                                                                                 
5:00:35 PM                                                                                                                    
MS. KING,  in response to  Representative Wilson,  suggested that                                                               
it would be  an alternative in which a resource  package could be                                                               
bid or planned for the  terms in proposed AS 43.90.300-43.90.320.                                                               
The  public  and  the  legislature  could  review  that  resource                                                               
package.    She  characterized   the  aforementioned  as  a  good                                                               
starting point of a bid variable as part of a bid package.                                                                      
REPRESENTATIVE WILSON, recalling similar  situations in the past,                                                               
interpreted  that   to  mean  years  of   negotiation,  which  is                                                               
MS.  KING  related her  agreement  that  she  didn't want  to  go                                                               
through that  same duration of  time that  it took to  go through                                                               
those  issues before.    She  then related  her  belief that  the                                                               
process by which  resource issues are worked through  can be sped                                                               
up.   However,  she said  she struggled  to see  how that  can be                                                               
accomplished in the format before the committee.                                                                                
REPRESENTATIVE WILSON  asked if  ConocoPhillips wants to  lock in                                                               
all the taxes and royalties for a certain amount of time.                                                                       
MS. KING replied,  not necessarily, adding that  she is referring                                                               
to the  package of tax and  royalty terms.  Ms.  King opined that                                                               
there  isn't one  solution as  each of  the lessees  are impacted                                                               
differently.   Although  ConocoPhillips may  view things  with an                                                               
exploration eye,  it still is trying  to find the fastest  way to                                                               
reach a  package that works  for those who  may be asked  to make                                                               
long-term shipping commitments.  She  reiterated the need to find                                                               
a balance.   Ms. King then expressed concern with  making a long-                                                               
term shipping commitment  if the state hasn't  decided whether to                                                               
take  its gas  in-kind or  in-value.   Furthermore,  the area  of                                                               
production  taxes is  an  area  in which  work  will be  required                                                               
because it's  dependent upon the  rate.  Therefore, having  a bid                                                               
variable allows a dialogue.                                                                                                     
5:05:30 PM                                                                                                                    
REPRESENTATIVE ROSES  said he could understand  this conversation                                                               
and the concern of a producer  as it impacts the costs.  However,                                                               
he  questioned how  any  other  entity wanting  to  bid would  be                                                               
helped by  such a proposal  if one  of the three  major producers                                                               
isn't involved  in the  pipeline.  Therefore,  it seems  that two                                                               
different conversations  are occurring.   Firstly,  someone needs                                                               
to obtain  a license to begin  the open season as  opposed to the                                                               
producers wanting a  fixed commitment before the gas  gets out of                                                               
the ground.   It seems, he  opined, to be the  conversations that                                                               
occur  as  part  of  the  open season  process  rather  than  the                                                               
permitting process.                                                                                                             
MS.  KING opined  that the  aforementioned conversation  needs to                                                               
occur prior to  an open season because the issues  are those that                                                               
sit  behind  whether  a  party  can  make  a  long-term  shipping                                                               
commitment.  The conversations related  to whether the state will                                                               
take its  gas in-kind  or in-value and  the production  tax rates                                                               
over time are  conversations that should occur prior  to making a                                                               
20-year  shipping  commitment.   Therefore,  ConocoPhillips,  she                                                               
opined,  believes that  the timing  prior  to an  open season  is                                                               
critical.   Although  the  legislation talks  about  some of  the                                                               
midstream issues, it also includes  provisions about the resource                                                               
issues  and  at this  time,  the  legislation provides  the  only                                                               
framework by  which the  resource issues  can be  worked through.                                                               
The challenge,  she opined,  is to  find a way  in which  to work                                                               
both sides of the equation within this legislation.                                                                             
5:07:21 PM                                                                                                                    
REPRESENTATIVE ROSES  asked if it  would be more  predictable and                                                               
palatable  if the  state decided  not to  tax the  gas or  charge                                                               
corporate  or   production  tax,   but  merely  took   a  certain                                                               
percentage of the gas.                                                                                                          
MS. KING responded  that the aforementioned is  one solution that                                                               
ConocoPhillips  would  definitely  want   to  consider  and  work                                                               
through if the administration and  legislature wanted to consider                                                               
that.   She  likened  the situation  mentioned by  Representative                                                               
Roses to a  fixed percentage system.  If the  project is becoming                                                               
more  profitable  or struggling,  everyone  would  have an  equal                                                               
percentage in  the results.   She mentioned  that in  some forums                                                               
people  have  interpreted  fiscal predictability  as  fixing  the                                                               
actual  payments that  would  be made.   The  idea  of the  state                                                               
taking  its  gas and  converting  that  as payment  is  something                                                               
ConocoPhillips is willing to explore.                                                                                           
5:09:09 PM                                                                                                                    
REPRESENTATIVE    SEATON   related    his   understanding    that                                                               
ConocoPhillips would like  to take the resource issues  out of HB                                                               
177  entirely.   Representative  Seaton  inquired  as to  whether                                                               
ConocoPhillips has  specific [language/provisions] that  it would                                                               
like  removed   from  the  royalty  inducement   section  of  the                                                               
MS.  KING said  that  her request  wasn't to  convert  this to  a                                                               
resource  as  she  recognized  that HB  177  is  predominately  a                                                               
pipeline  proposal.    In  fact,   the  legislation  attempts  to                                                               
mitigate some  of the risk on  the pipeline side and  proposed AS                                                               
43.90.300-43.90.320 attempt to  mitigate some of the  risk on the                                                               
upstream  side.    The  aforementioned  is  very  complex  and  a                                                               
framework  to do  so is  still forthcoming.   Ms.  King clarified                                                               
that  ConocoPhillips isn't  proposing  that AGIA  be modified  to                                                               
include all the terms  into HB 177, but rather place  it as a bid                                                               
variable  that  specifies that  a  resource  owner applicant  can                                                               
propose resource terms  that the state can  review.  Furthermore,                                                               
a process can  be established by which resolution  of those terms                                                               
can be reached.                                                                                                                 
5:12:34 PM                                                                                                                    
REPRESENTATIVE SEATON surmised that  only certain applicants, the                                                               
producers, will  be able  to use  the line.   The only  bids that                                                               
would  be  acceptable to  review  for  comparison would  be  from                                                               
resource  owners.   Therefore,  it's  a  bid variable  that  only                                                               
applies to a few of the  potential applicants and the others will                                                               
be "thrown  away" because  the applicants  with that  ability are                                                               
those  with  the  ability  to  deny  gas  to  any  of  the  other                                                               
licensee's  proposals.    He  questioned  how  making  it  a  bid                                                               
variable  results  in any  competitive  bids  from anyone  for  a                                                               
MS. KING pointed out that a  pipeline bid can still exist and the                                                               
two components  of the  project can be  compared.   However, it's                                                               
particularly  problematic  with  existing  leases  to  have  non-                                                               
resource owners bid on what should  be the lease terms.  Ms. King                                                               
reiterated that ConocoPhillips  is trying to find a  way in which                                                               
to use HB 177 as a vehicle,  while work is still necessary on the                                                               
resource side.   Again, ConocoPhillips  views the  resource terms                                                               
as a one-line  item on which the resource  owner applicants could                                                               
5:14:19 PM                                                                                                                    
REPRESENTATIVE SEATON opined  that the problem with  having it as                                                               
a bid  variable is just that.   As currently written,  it's not a                                                               
bid  variable but  rather conditions  on which  all bids  will be                                                               
equal.   If the  upstream [conditions]  can be  made part  of the                                                               
bid, it means that the bids are no longer comparable.                                                                           
MS. KING  said, "I  wouldn't even  know how  to bid  with those."                                                               
She  then pointed  out that  proposed  AS 43.90.300-AS  43.90.320                                                               
doesn't  include a  production tax  rate and  no assurances  with                                                               
regard to royalty  in-kind and royalty in-value  switching as the                                                               
legislation merely  says that some regulations  and a contractual                                                               
arrangement  will be  developed prior  to  an open  season.   She                                                               
opined  that there  are too  many  questions with  regard to  the                                                               
resource terms.                                                                                                                 
5:15:56 PM                                                                                                                    
REPRESENTATIVE  SEATON asked  whether  ConocoPhillips would  have                                                               
more comfort if  the resource terms weren't part  of the pipeline                                                               
bid, but were addressed separately before open season.                                                                          
MS.  KING  said  that  she  would have  to  talk  with  her  team                                                               
regarding that possibility.  The  preference is, at this time, to                                                               
have the resource terms as a bid variable.                                                                                      
5:17:58 PM                                                                                                                    
MS.  KING  then  moved  on  to  the  final  area  under  the  bid                                                               
variables,  expansions   and  rolled-in  rates.     She  directed                                                               
attention  to   slide  8,  which   illustrates  the   wells  that                                                               
ConocoPhillips  has drilled  on the  North Slope  from 2000-2007,                                                               
the  wells that  were  permitted,  and non-ConocoPhillips  wells.                                                               
She  reminded the  committee that  ConocoPhillips is  the state's                                                               
largest explorer and continues to  explore in a region that's gas                                                               
prone,  NPR-A.   Therefore, ConocoPhillips  wants to  ensure that                                                               
the pipeline  can accommodate  new gas on  a reasonable  and fair                                                               
basis.    ConocoPhillips believes,  she  related,  that the  most                                                               
effective way to  encourage exploration on the North  Slope is to                                                               
actually get  a pipeline project built  in the first place.   She                                                               
then pointed  out that  it's clear that  FERC will  determine how                                                               
rates  are  set  for  the  initial pipeline  and  the  terms  for                                                               
expansion for that pipeline.                                                                                                    
MS.  KING  again  highlighted that  ConocoPhillips  has  actively                                                               
worked since  2000 to advance a  gas pipeline project and  put in                                                               
place the  government framework.   The explorer issues  have been                                                               
debated once with the federal  legislation, which resulted in the                                                               
Alaska  Natural   Gas  Pipeline   Act.     She  noted   that  the                                                               
aforementioned  Act  included  a provision  related  to  mandated                                                               
expansions.  The  explorer issues were also  debated before FERC,                                                               
Orders  2005  and  2005A,  but  both  times  there  has  been  no                                                               
drilling.  The aforementioned is  of concern.  She questioned why                                                               
a  company  would drill  when  the  state  continues to  push  to                                                               
provide   guaranteed  subsidized   rates   for  those   deferring                                                               
drilling.  If some of  these companies had actually drilled wells                                                               
in their gas prospects, they may  have been able to find gas that                                                               
would help improve  the project viability now, she  stressed.  As                                                               
mentioned  earlier,   the  U.S.   Congress  already   created  an                                                               
unprecedented provision  with the mandated  expansion provisions.                                                               
The Alaska Natural Gas Pipeline  Act, Section 105, clearly states                                                               
that  a shipper  who  is willing  to sign  up  for firm  shipping                                                               
commitments, pay for an expansion,  and can demonstrate that such                                                               
an expansion won't  require a subsidy; FERC  has an unprecedented                                                               
right to  order an expansion of  this natural gas pipeline.   The                                                               
aforementioned  isn't the  case  for any  other  pipeline in  the                                                               
Lower  48.   She then  pointed out  that there  is absolutely  no                                                               
issue with an explorer taking  a firm shipping commitment on spec                                                               
for a gas pipeline project if the explorer hasn't found the gas.                                                                
5:22:19 PM                                                                                                                    
MS. KING,  in response to  Representative Wilson,  clarified that                                                               
under Section 105  [of the Alaska Natural Gas  Pipeline Act] FERC                                                               
can  mandate an  expansion.   Therefore,  two  vehicles by  which                                                               
parties  can  obtain expansion  of  the  pipeline already  exist.                                                               
There is voluntary  expansion and FERC can  order expansion under                                                               
Section 105.   Ms.  King clarified  that ConocoPhillips  isn't in                                                               
opposition to  Section 105.   Therefore,  she questioned  why the                                                               
provisions in AGIA are necessary.   Ms. King opined then that the                                                               
real issue isn't  access to the pipeline but rather  the cost for                                                               
the  access  and  who  will  pay for  it.    ConocoPhillips,  she                                                               
related,  is  concerned  because  it doesn't  want  the  original                                                               
project  to  be  loaded  with additional  requirements,  such  as                                                               
subsidies for  others, that  place additional  commercial burdens                                                               
on the project.   She related ConocoPhillips'  interest in having                                                               
partners.  Ms. King clarified  that ConocoPhillips doesn't oppose                                                               
the  application  of rolled-in  rates  for  some expansions,  the                                                               
concern  is   mandating  that   application  for   all  potential                                                               
expansions if a subsidy were to be found.                                                                                       
5:25:31 PM                                                                                                                    
MS. KING,  in response to  Representative Seaton, opined  that to                                                               
her knowledge the language of  CSHB 177(O&G) doesn't say anything                                                               
about subsidy.  The language  [page 6, line 21, subparagraph (A)]                                                               
refers  to supporting  and  proposing rolled-in  rates  up to  15                                                               
percent.  In further response  to Representative Seaton, Ms. King                                                               
clarified that  ConocoPhillips' position  is that FERC  should be                                                               
the  adjudicator of  any rate  treatment for  an expansion.   The                                                               
pipeline  [company] will  propose something  for rate  treatment,                                                               
and  if shippers  aren't happy  with that,  they will  protest it                                                               
before FERC, she said.  The  balance struck by FERC is related in                                                               
the quote from Order 2005 on slide 9.                                                                                           
5:27:39 PM                                                                                                                    
REPRESENTATIVE SEATON  surmised that slide  9 is saying  the same                                                               
thing  as on  page 6  [subparagraph (A)]  of CSHB  177(O&G).   He                                                               
related  his  understanding  that  the  language  says  that  the                                                               
pipeline owner/entity will propose to  FERC rolled-in rates up to                                                               
but not more than 15 percent above the initial recourse rate.                                                                   
MS.  KING  noted  her   agreement  with  Representative  Seaton's                                                               
assessment, adding that the language  specifies that the pipeline                                                               
entity is being  obligated to propose rolled-in rates  even if it                                                               
would be  a subsidy.   She highlighted  the following  from Order                                                               
2005:  "to  adopt rolled-in treatment up to the  point that would                                                               
cause  there to  be a  subsidy of  expansion shippers  by initial                                                               
shippers, if any subsidy were to  be found."  Ms. King specified,                                                               
"So,  if  the pipeline  entity  thought  this  looks ...  like  a                                                               
subsidy, this would still require  the pipeline entity to propose                                                               
that even  though it didn't  meet this rebuttable  presumption of                                                               
rolled-in  rates."   There is  a  mirror clause  on the  resource                                                               
terms, which  attempts to  obligate the  shippers to  not protest                                                               
the 15 percent rolled-in rate on the other side, she noted.                                                                     
5:29:11 PM                                                                                                                    
REPRESENTATIVE SEATON related his  understanding that FERC has to                                                               
determine  whether there's  a subsidy  or not.   Therefore,  [the                                                               
language in  subparagraph (A) on page  6] merely says that  up to                                                               
15 percent, the  pipeline company has to propose  to FERC rolled-                                                               
in  rates.   The FERC,  under its  rules, will  determine whether                                                               
it's a  subsidy.   If there  is a subsidy,  FERC may  not approve                                                               
rolled-in rates.                                                                                                                
5:30:14 PM                                                                                                                    
MS.  KING  opined  that  a  pipeline  entity  would  be  able  to                                                               
determine whether it  believes there's been a subsidy  and make a                                                               
proposal to FERC about how they  think the rate treatment for the                                                               
pipeline  should   be  handled.     The  aforementioned   can  be                                                               
accomplished with  the language in  Order 2005.  Ms.  King opined                                                               
that  she could  foresee scenarios  in which  the state  might be                                                               
very   uncomfortable  with   rolled-in  rate   treatment.     She                                                               
explained, "What is  attempting to be done here is  to say the 15                                                               
percent  becomes a  'proxity'  for  a defined  term  of what  the                                                               
subsidy is."   The FERC  was very careful in the deliberations in                                                               
Order  2005  and 2005A  to  say  that  it  doesn't have  a  clear                                                               
definition of  a subsidy and  will review the  specific instances                                                               
in  the  future  and  weigh  the  incremental  costs,  systemwide                                                               
benefits, and the  incremental cost of fuel of  that expansion to                                                               
strike a  balance.  She indicated  that FERC's bias will  be that                                                               
for  the  Alaska  natural gas  pipeline,  it's  rolled-in  rates.                                                               
However, if  an entity  can demonstrate  that there's  a subsidy,                                                               
the policy will be reversed, she said.                                                                                          
5:31:57 PM                                                                                                                    
MS.  KING then  moved on  to  slide 10,  titled "ANS  Exploration                                                               
Potential."  She  highlighted the 83 tcf in NPR-A,  the 72 tcf in                                                               
the Beaufort Sea, and 210 tcf in  the Chukchi Sea.  Those are the                                                               
three  largest exploration  potentials shown  on slide  10.   She                                                               
pointed out  that within  NPR-A the state  doesn't have  a direct                                                               
royalty as  those are federal lands  for which there is  a shared                                                               
federal  royalty after  the royalty  is paid  out to  the federal                                                               
government.  The  state, she noted, would have the  right to have                                                               
production  taxes on  NPR-A.   Within  the Beaufort  Sea and  the                                                               
Chukchi  Sea there  are no  royalty or  production taxes  for the                                                               
state.  She  posed a situation with Prudhoe Bay  gas in which the                                                               
state has a  one-eighth royalty and some  production tax revenue.                                                               
If the Prudhoe Bay toll that's going  to Chicago is $4 and the 15                                                               
percent clause comes into play, the  toll increases to $4.60.  In                                                               
that scenario, it's  clear that under the  state's netback system                                                               
the state  will receive less  money from  its Prudhoe Bay  gas on                                                               
both royalty  and production  taxes.   That might  be acceptable,                                                               
she opined,  if the  field is  coming from a  state field.   "The                                                               
reason there was an expansion that  caused that rate to go up; if                                                               
that was coming  from a state field, then you  might be receiving                                                               
more royalties  and production taxes  from that state  field, and                                                               
more gas," she said.                                                                                                            
5:34:01 PM                                                                                                                    
MS. KING  then posed  an example in  which the  [expansion] comes                                                               
from the  Beaufort Sea  or the Chukchi  Sea.   The aforementioned                                                               
may  result in  the state  receiving less  money for  the state's                                                               
Prudhoe  Bay  royalty gas  and  production  taxes and  the  state                                                               
wouldn't receive any additional  revenues from the Chukchi field.                                                               
Therefore, the  state may  question why  it should  subsidize the                                                               
federal  government.   "Why  should  the  federal government  get                                                               
higher  value  for  its  royalty  based  upon  a  rolled-in  rate                                                               
treatment  here, if  there's truly  a subsidy  to be  found," she                                                               
pointed out.   Ms. King then turned to an  example as an explorer                                                               
when  the  toll   is  $4.    She  posed  a   situation  in  which                                                               
ConocoPhillips and  its partner  in NPR-A find  a field  in NPR-A                                                               
that  it wants  to  expand,  and it's  an  [$]800  million a  day                                                               
expansion on  the pipeline.   The toll  then decreases  to $3.80,                                                               
which  ConocoPhillips and  its partner  review as  an exploration                                                               
appraisal prospect.   The two  decide that  for a toll  of $3.80,                                                               
they can  make that development  decision and develop  that field                                                               
due to  the expected  cost to  get to market.   However,  if five                                                               
years later  another expansion occurs  from the Beaufort  Sea, in                                                               
which  ConocoPhillips doesn't  have  any equity,  the toll  could                                                               
increase  to  as  high  as  $4.60.    Ms.  King  emphasized  that                                                               
ConocoPhillips  may not  have made  that investment  decision and                                                               
developed  that  field  had  it  known  the  toll  was  going  to                                                               
5:35:54 PM                                                                                                                    
CO-CHAIR GATTO  pointed out  that this gas  is very  expensive to                                                               
produce.  Co-Chair Gatto opined:                                                                                                
     If Prudhoe  Bay and  Point Thomson are  delivering gas,                                                                    
     that  anybody  ...  who  even  thinks  there's  a  find                                                                    
     offshore is going to be  exploring and not ... for five                                                                    
     to ten years.   So, I'm not expecting that  gas to come                                                                    
     in at  zero royalty and  no production tax  because all                                                                    
     the low  hanging fruit is there.   Who wants to  go out                                                                    
     for the top of the tree offshore?                                                                                          
MS.  KING said  that she  wasn't going  to anticipate  what other                                                               
companies'   exploration  strategies   might   be.     Slide   10                                                               
illustrates that  some of these  large figures are  present based                                                               
on assumptions regarding what might  be available in the Beaufort                                                               
Sea and  the Chukchi  Sea.   The state  may be  in a  position in                                                               
which  it isn't  the leaseholder  because the  field could  be on                                                               
federal  lands.   Furthermore, the  state may  not even  have the                                                               
right to get production taxes from some of [these fields].                                                                      
5:37:02 PM                                                                                                                    
MS.  KING provided  another example  in which  during an  initial                                                               
open season, consumers  in Fairbanks decide that  they would like                                                               
to  take some  short-haul service.   Short-haul  service means  a                                                               
shorter toll  is taken to  take some gas  off in Fairbanks.   For                                                               
example, she  suggested that it  costs $.50  to get gas  from the                                                               
North Slope  to Fairbanks.   There was  then an expansion  of the                                                               
pipeline and  the rolled-in rate  treatments caused the  rates to                                                               
increase.  Therefore,  suddenly a customer in  Fairbanks that was                                                               
paying $.50 may now be paying $.56.   Ms. King opined that it may                                                               
be difficult  to explain to  consumers in Fairbanks  that they're                                                               
paying more to subsidize someone  else's exploration volumes that                                                               
may  be  in  the  pipe  going  to the  Lower  48  markets.    The                                                               
aforementioned examples illustrate  how the state may  want to at                                                               
least preserve the  right to have a debate  before FERC regarding                                                               
whether there has been a subsidy.                                                                                               
5:38:27 PM                                                                                                                    
MS. KING,  speaking to expansions, specified  that ConocoPhillips                                                               
has particular areas  of concern, such as in the  case of a small                                                               
marginally economic expansion for  which the incremental costs of                                                               
fuel   and   capital  costs   could   be   higher.     Therefore,                                                               
ConocoPhillips isn't  sure that a small  marginal expansion would                                                               
provide a systemwide  benefit.  She pointed out that  the cost of                                                               
fuel at the cost of expansion  is of concern because the fuel has                                                               
to be  paid in-kind.   Furthermore,  the incremental  capital and                                                               
operating costs [are of concern]  because of the uncertainty with                                                               
regard to  future costs of  various items.  Ms.  King questioned,                                                               
"If everyone believed  that the numbers ... always  were going to                                                               
result in lower tolls ... why  would everyone be pushing for this                                                               
language so hard?   If it was always going  to be rolled-in rates                                                               
that benefited  the entire  system, the  FERC policy  would cover                                                               
that."   Therefore, ConocoPhillips  proposes that FERC  should be                                                               
the adjudicator with  expansions.  She mentioned that  FERC has a                                                               
process by which parties can  argue the rebuttable presumption of                                                               
rolled-in  rates  and  the  state has  many  tools  to  incentive                                                               
exploration while  weighing the situation  in regard to  the full                                                               
impacts to the system.                                                                                                          
5:42:09 PM                                                                                                                    
CO-CHAIR GATTO related his understanding  that Ms. King is saying                                                               
that  it's  possible that  rolled-in  rates  increase the  rates.                                                               
However, he pointed  out that rolled-in rates mean  that more gas                                                               
is being  sold and thus  more money is  coming in "on  the bottom                                                               
end."   If  rolled-in rates  reduce the  shipping price,  then it                                                               
results in  more gas  and a lower  price per unit.   Even  if the                                                               
rolled-in rates increase,  the entity would still  have more gas.                                                               
"So,  it  isn't  a one  way  where  the  rates  just go  up,"  he                                                               
MS. KING pointed out  that the new gas might be  gas in which the                                                               
state  or  ConocoPhillips  has  no  value  [or  interest].    She                                                               
reiterated the  preference of preserving  the option  of debating                                                               
the issue before FERC.                                                                                                          
5:43:07 PM                                                                                                                    
REPRESENTATIVE SEATON said that he  doesn't see anything from the                                                               
perspective  of ConocoPhillips,  as  a  producer, that  prohibits                                                               
ConocoPhillips from  arguing before FERC that  there's a subsidy.                                                               
Furthermore,  he  said  that  the  legislation  doesn't  seem  to                                                               
prohibit  the state  arguing  against the  rolled-in  rates as  a                                                               
subsidy.   The legislation merely  says that the pipeline  has to                                                               
propose rolled-in rates so long as  it's not 15 percent above the                                                               
initial recourse rate.                                                                                                          
MS. KING directed the committee's  attention to page 20, lines 26                                                               
through page  21, line 5  and on page  21, lines 31  through page                                                               
22,  line 9.   She  specified that  the legislation  does include                                                               
provisions that specify that the  15 percent treatment of rolled-                                                               
in rates can't be protested  if the inducement package is desired                                                               
on the resource side.   Therefore, the legislation was drafted to                                                               
obligate the  pipeline entity and  the shippers to act  a certain                                                               
way before FERC, she opined.                                                                                                    
5:45:19 PM                                                                                                                    
REPRESENTATIVE  SEATON directed  attention  to line  31 and  said                                                               
that  if FERC  doesn't have  the policy  in effect,  the presumed                                                               
rolled-in  rates apply.   Therefore,  if there  is a  policy that                                                               
rolled-in  rates  do apply,  [the  pipeline  entity] could  argue                                                               
however it wants.   If that policy has been  terminated such that                                                               
there isn't a presumption of  rolled-in rates, then [the pipeline                                                               
entity] would argue for it.                                                                                                     
MS.  KING   noted  her  agreement,   and  reiterated   that  this                                                               
legislation is trying  to obligate the parties,  both as shippers                                                               
and as pipeline  entities, to act a certain way  before FERC that                                                               
isn't following  FERC policy.   The aforementioned is  of concern                                                               
for ConocoPhillips, she reiterated.                                                                                             
5:46:23 PM                                                                                                                    
REPRESENTATIVE  SEATON related  his  understanding  that if  FERC                                                               
reversed its  rate, [the state]  has the obligation  and [desire]                                                               
to  have  exploration  take  place.   If  incremental  rates  are                                                               
utilized, the exploration and utilization  won't go forward.  The                                                               
language of  concern for ConocoPhillips perseveres  the expansion                                                               
and exploration capability of the state, she surmised.                                                                          
MS. KING  acknowledged that  it's a policy  call.   She specified                                                               
that her  hope is to provide  examples by which the  state may be                                                               
placed  in  a  position  that subsidizing  an  expansion  may  be                                                               
something that the  state may want to reconsider.   Ms. King then                                                               
mentioned  that many  have pointed  out that  the application  of                                                               
rolled-in rates in  Canada by the NEB is different  from the FERC                                                               
policy and  that [the NEB's  policy] has proven a  successful way                                                               
to open that  basin.  However, she opined that  FERC's policy has                                                               
done a good job of opening  up the Lower 48 basins as illustrated                                                               
by the  existing interstate pipelines  as well as those  that are                                                               
being built and expanded.   The legislation as currently written,                                                               
she reiterated,  is trying to  obligate [the pipeline  entity and                                                               
the shipper] to argue before  FERC for the application of rolled-                                                               
in rates, even if it's a subsidy.                                                                                               
5:49:38 PM                                                                                                                    
REPRESENTATIVE  ROSES  recalled  that  Mr.  Palmer,  TransCanada,                                                               
testified  that in  Canada rolled-in  rates are  used whether  it                                                               
increases  or decreases.   He  further recalled  that Mr.  Palmer                                                               
said that in the U.S. rolled-in  rates are used when it increases                                                               
but not when it decreases.   Therefore, if Mr. Palmer's statement                                                               
is correct,  any savings are  incremental and only  increases are                                                               
rolled in.  He asked if that's FERC policy.                                                                                     
5:50:32 PM                                                                                                                    
MS. KING  said that  she can't  attest to  what Mr.  Palmer said.                                                               
However, she  reiterated that  FERC policy is  that if  there's a                                                               
systemwide  benefit, then  the  expansion will  be  treated as  a                                                               
rolled-in expansion.  If the  incremental costs outweigh what the                                                               
initial  shippers are  paying,  then  it will  be  treated as  an                                                               
incremental  expansion and  the  parties would  have  to pay  the                                                               
incremental  rate.    That  has  been  FERC  policy  since  1999.                                                               
However,  she pointed  out that  with Order  2005A FERC  deviated                                                               
from  its  policy by  saying  that  for  the Alaska  natural  gas                                                               
pipeline,  FERC's  bias  will  be  a  rebuttable  presumption  of                                                               
rolled-in  rates up  to the  point of  a subsidy.   The  FERC was                                                               
trying to strike  a balance for the Alaska  natural gas pipeline,                                                               
she  opined.     Ms.  King   clarified  that   ConocoPhillips  is                                                               
requesting that  the language  [in Order  2005A] be  the language                                                               
under which  ConocoPhillips is able  to operate.   Although there                                                               
are a  number of cross-border  pipelines even though the  NEB and                                                               
FERC  have  different systems,  she  pointed  out that  the  U.S.                                                               
policy   has  been   successful  in   opening  basins   as  well.                                                               
Therefore, she  said she  is confident  that pipelines  are being                                                               
built today under FERC policy.                                                                                                  
5:52:16 PM                                                                                                                    
CO-CHAIR JOHNSON asked  if Canada caps its  return on investments                                                               
for a pipeline company.                                                                                                         
MS. KING  said that she  hasn't personally researched  the return                                                               
on equities  allowed by NEB.   She offered  to follow up  on that                                                               
point if ConocoPhillips has information on it.                                                                                  
5:53:20 PM                                                                                                                    
CO-CHAIR  GATTO  opined if  a  rolled-in  rate is  offered,  it's                                                               
difficult  to  compete with  the  old  pipelines that  are  fully                                                               
depreciated.   Therefore,  the environment  is  different for  an                                                               
existing  pipeline  in  the  Lower 48  and  the  proposed  Alaska                                                               
natural gas pipeline.                                                                                                           
MS.  KING  noted   her  agreement,  but  pointed   out  that  new                                                               
interstate pipelines  are being built  with the policies  of both                                                               
FERC and NEB.                                                                                                                   
5:55:28 PM                                                                                                                    
REPRESENTATIVE  SEATON   related  his  understanding   that  FERC                                                               
changed  its  policy  in  the  Lower  48  where  there  are  many                                                               
pipelines since  new pipelines weren't  being built  because they                                                               
couldn't offer  competitive rates  unless incremental  rates were                                                               
required in  the old pipelines  in order to create  a competitive                                                               
environment.   Therefore, the incremental  costs had to  be borne                                                               
by  the gas  going through  the old  pipeline so  that there  was                                                               
competition and  new pipelines  could be  built.   The situation,                                                               
however,  in Alaska  is trying  to open  a basin  pipeline rather                                                               
than competition  with an  older existing  pipeline.   He related                                                               
his further understanding  that the new FERC policy  in Alaska is                                                               
present  because  of the  lack  of  competition  in Alaska.    He                                                               
surmised that  the aforementioned is  why FERC had  the rolled-in                                                               
rate presumption.                                                                                                               
MS. KING  said that she  definitely doesn't have all  the history                                                               
of every  pipeline.  However,  she pointed  out that some  of the                                                               
older pipelines  can use  much fuel for  their compression.   She                                                               
highlighted  that  ConocoPhillips  continues   to  carry  a  cost                                                               
estimate  for the  Alberta to  Lower 48  part of  the project  in                                                               
order to  know the  next best  alternative.   The choices  are as                                                               
follows:    building  new,   expanding  existing  pipelines,  and                                                               
utilizing  existing  capacity.   To  compare  the  aforementioned                                                               
choices one  would review the  incremental costs  and incremental                                                               
fuel [costs] of  each option at the time  the commercial decision                                                               
is made.                                                                                                                        
5:58:14 PM                                                                                                                    
MS. KING  continued with slide  11, titled "Suggested  Changes to                                                               
AGIA."      She   highlighted  that   ConocoPhillips   recommends                                                               
converting  AGIA   bid  requirements  to  bid   variables.    The                                                               
aforementioned, she  opined, will  allow other proposals  as well                                                               
as  other  commitments and  inducements  to  be put  forward  for                                                               
consideration.  Further, such a  conversion would allow resource-                                                               
owner  applicants to  propose packages  with  resource terms  and                                                               
foster  greater quantity  and  quality of  proposals.   She  then                                                               
pointed   out   that   ConocoPhillips   suggests   amending   the                                                               
exclusivity provisions  to protect  Alaska's options  because the                                                               
treble  damages provision  is  particularly  problematic for  the                                                               
state  if it  wanted to  advance  an alternative  project if  the                                                               
licensed  project  has  stumbled.     Moreover,  the  exclusivity                                                               
provisions impair the state's ability  to agree on resource terms                                                               
in  the  future.    She related  that  ConocoPhillips  likes  and                                                               
supports the state  coordinator/streamlined permitting model with                                                               
the federal legislation and that  should be something similar for                                                               
Alaska and it should be available to all parties.                                                                               
5:59:54 PM                                                                                                                    
MS. KING concluded her presentation as follows:                                                                                 
     We  want  to  achieve  a framework  that  promotes  the                                                                    
     development of the ANS gas  resources and addresses the                                                                    
     legitimate interests  of all  parties.  The  project is                                                                    
     difficult; it  is a  challenge for  us to  work through                                                                    
     these issues.  ... we  think it's important that we all                                                                    
     try  to  get  on  the  same team  and  find  a  way  to                                                                    
     compromise.    Like  most   major  decisions  in  life,                                                                    
     compromise  is necessary  for  all  parties to  advance                                                                    
     things going  forward.  We  have to keep focus  on what                                                                    
     it  takes to  get the  project moving  forward, and  we                                                                    
     can't lose  sight that the  costs are going up  on this                                                                    
     project.   I know from  my own perspective,  the recent                                                                    
     announcement of  the McKenzie  Delta project,  the cost                                                                    
     increases on that,  causes at least me to  want to take                                                                    
     a step back and pause.                                                                                                     
6:01:03 PM                                                                                                                    
MS. KING,  in response to  Co-Chair Gatto, said that  she doesn't                                                               
know  the  exact  wording  being   used  by  the  McKenzie  Delta                                                               
partnership.   However,  she related  her understanding  that the                                                               
project is  on hold.  To  her knowledge, she didn't  believe that                                                               
project  has  reached the  point  of  laying  pipe.   In  further                                                               
response  to  Co-Chair  Gatto,  Ms. King  opined  that  the  cost                                                               
increases have  impacted the project.   Therefore, ConocoPhillips                                                               
is concerned that costs for  the Alaska gas pipeline project have                                                               
increased similarly.   Ms.  King emphasized the  need to  keep in                                                               
mind the real prize:  the tens  of billions of dollars in new tax                                                               
and royalty  revenues, the countless  jobs, and the  new economy.                                                               
In  order  to  achieve  the aforementioned,  the  risks  must  be                                                               
realistically addressed and  the risk and rewards  balanced.  "No                                                               
company  will  work  harder  than  ConocoPhillips  to  make  this                                                               
project a reality," she said.                                                                                                   
6:02:57 PM                                                                                                                    
REPRESENTATIVE ROSES  directed attention to the  language on page                                                               
12,  line 5,  of  CSHB 177(O&G)  and asked  if  that would  allow                                                               
ConocoPhillips  to put  in  some  of the  criteria  Ms. King  has                                                               
MS. KING said that the language  might allow a company to provide                                                               
something additional.   However, if  that company hadn't  met the                                                               
basic requirements, she still questioned  whether [FERC] would be                                                               
able to reject the bid as a nonconforming bid.                                                                                  
6:04:01 PM                                                                                                                    
CO-CHAIR JOHNSON, regarding exclusivity,  opined that there needs                                                               
to be a  winner.  He then  inquired as to Ms. King's  view of the                                                               
exclusivity  if  the  resource  terms  were  eliminated  and  the                                                               
coordinator and the state agencies  were made available to anyone                                                               
interested, but the treble damages were maintained.                                                                             
MS. KING  said she would  want to  see the specific  language and                                                               
how the  elimination of  the resource terms  would link  with the                                                               
treble damages  clause.  However, she  stated that ConocoPhillips                                                               
supports  having the  coordinator and  streamlined permitting  to                                                               
apply  to  any  project.    She  noted  that  Co-Chair  Johnson's                                                               
proposal  is  intriguing.    In   further  response  to  Co-Chair                                                               
Johnson, Ms. King  said that she would be happy  to work with him                                                               
on some language.                                                                                                               
6:07:10 PM                                                                                                                    
REPRESENTATIVE  SEATON related  his understanding  that if  there                                                               
are  too many  evaluation criteria,  the chances  are that  there                                                               
won't be very  many bids because those interested  won't know how                                                               
the  project  will   be  evaluated.    He   related  his  further                                                               
understanding  that Ms.  King disagrees  with the  aforementioned                                                               
MS. KING clarified  that most of her testimony today  has been in                                                               
regard to  the list  of requirements  rather than  the evaluation                                                               
REPRESENTATIVE SEATON opined  that Ms. King wants  to move things                                                               
from requirements to bid variables  for evaluation, and therefore                                                               
the requirements  specified under proposed AS  43.90.130 (3)-(20)                                                               
would be  moved into evaluation  criteria and the  only must-have                                                               
then is  to complete  an application.   He questioned  how moving                                                               
the conditions to  bid variables creates an  environment in which                                                               
no  one knows  what  to put  forward because  it's  based on  the                                                               
subjective evaluation on 30 criteria.                                                                                           
MS.  KING opined  that bid  variables  clearly send  a signal  of                                                               
what's important to the state.   Furthermore, bid variables allow                                                               
the discretion  to the  parties to say  which variables  they can                                                               
meet.   Ms. King  then emphasized  that the  state already  has a                                                               
significant  challenge   in  regard  to  how   to  evaluate  [the                                                               
criteria].   Since the project  hasn't been defined,  it's likely                                                               
that there  won't be exact apples-to-apples  comparisons on these                                                               
projects.  Therefore, the state  will be left to develop criteria                                                               
that best fits the interest of the state.                                                                                       
REPRESENTATIVE  SEATON pointed  out that  bid variables  could be                                                               
evaluated  in  many  different  ways,  which  is  different  than                                                               
specifying  that an  entity must  meet certain  criteria and  the                                                               
evaluation occurs  on the  net present value  of the  product and                                                               
the probability of success.                                                                                                     
6:12:08 PM                                                                                                                    
REPRESENTATIVE  SEATON  recalled  discussions regarding  the  gas                                                               
treatment plant  (GTP) and  the presence of  carbon dioxide.   He                                                               
asked if  ConocoPhillips were  bidding on  the project,  would it                                                               
consider   reviewing   the   GTP.     He   further   asked   what                                                               
ConocoPhillips  would do  with  the  carbon dioxide,  questioning                                                               
whether it would be sold to a field for enhanced recovery.                                                                      
MS. KING explained that ConocoPhillips  has always envisioned the                                                               
GTP being part of the midstream  of the project.  She opined that                                                               
the  GTP  is  a  critical  portion   of  the  project  and  is  a                                                               
significant portion  of the  cost of the  project.   She recalled                                                               
that $2.5-$3  billion in  2001 for  the project.   The  GTP would                                                               
offer the services  to remove the impurities, find  a location to                                                               
dispose of them, and would  be the first compressor station where                                                               
it  would  compress   and  chill  the  gas.     She  then  turned                                                               
specifically  to  the  actual disposal  of  the  impurities,  and                                                               
pointed  out that  it's a  process by  which the  GTP could  make                                                               
arrangements with  working interest  owners in an  existing field                                                               
and  find  a zone  in  which  to  inject  [the impurities]  in  a                                                               
nonproductive  zone.     She  highlighted  that   there  is  much                                                               
technical work  to be done  to determine whether  it's worthwhile                                                               
to  dispose [impurities]  and  the true  cost of  doing  so.   In                                                               
further response,  Ms. King confirmed  that it may have  value or                                                               
it may be a cost.                                                                                                               
6:14:38 PM                                                                                                                    
REPRESENTATIVE SEATON drew attention  to the resource components,                                                               
and asked  if Ms. King  viewed those  as being linked  to initial                                                               
firm transportation or available to  everyone that comes along at                                                               
any other time.                                                                                                                 
MS. KING  related her understanding  that the  administration has                                                               
tied it  to the signing of  a long-term shipping commitment.   If                                                               
there was  going to be a  stability provision, then some  type of                                                               
mechanism  to tie  it  to  some volume  or  component  of gas  is                                                               
necessary, she  opined.   As mentioned  earlier, Ms.  King opined                                                               
that there  is value  in having  the terms  apply to  all working                                                               
interest owners  as it  creates more  alignment across  the North                                                               
Slope.   She said that  there will have  to be a  discussion with                                                               
regard to the  breadth of the resource  issues and ConocoPhillips                                                               
is  open  to  those  discussions.    "Clearly,  for  the  initial                                                               
shipping commitment period,  in order to get  those long-term 20-                                                               
year  shipping commitments  is what's  going  to kick-start  this                                                               
project," she said.                                                                                                             
6:16:32 PM                                                                                                                    
REPRESENTATIVE SEATON  referred to page  6, lines 3-5,  and asked                                                               
if  ConocoPhillips has  a problem  with  a two-year  reassessment                                                               
through  nonbinding  solicitations or  other  means  in order  to                                                               
determine if there is additional gas that needs to be shipped.                                                                  
MS.  KING  encouraged the  committee  to  change that  particular                                                               
requirement to  a bid  variable.   She then  said that  she would                                                               
like to  think through  this requirement a  bit more  because she                                                               
anticipated  that as  soon as  an expansion  or new  discovery is                                                               
found under  the normal  course of action  the pipeline  would be                                                               
contacted right away.   A voluntary expansion  process would seem                                                               
to be the first course of action, she opined.                                                                                   
6:18:27 PM                                                                                                                    
REPRESENTATIVE SEATON posed  a scenario in which  the language on                                                               
page 6,  lines 3-5, is  maintained, and  asked if Ms.  King would                                                               
prefer the  language to refer  to "binding, nonbinding,  or other                                                               
MS.  KING  reiterated that  her  focus  is  on  making it  a  bid                                                               
variable, and  she offered  to give it  more thought  and provide                                                               
the committee with her thoughts.                                                                                                
6:19:10 PM                                                                                                                    
REPRESENTATIVE ROSES  asked if ConocoPhillips would  or would not                                                               
have  an interest  in bidding  on this  project if  CSHB 177(O&G)                                                               
moves forward as currently written.                                                                                             
MS. KING answered that she  would not recommend to the management                                                               
of ConocoPhillips to  bid on the project unless  some changes are                                                               
made to the legislation.                                                                                                        
6:19:36 PM                                                                                                                    
CO-CHAIR  GATTO opined  that bid  variables are  troubling.   The                                                               
[goal]  is to  obtain  some qualified  applications, which  means                                                               
[fulfilling] 20 requirements.  From  that group, the desire is to                                                               
have  bidders.   The  commissioners will  take  the variables  in                                                               
those proposals from the qualified  applicants and will weigh the                                                               
bid variables  in order to choose  the licensee.  At  that point,                                                               
there's  only two  requirements:   the net  present value  to the                                                               
state and the likelihood of  success.  Co-Chair Gatto opined that                                                               
this isn't  a bad plan.   Co-Chair Gatto suggested that  Ms. King                                                               
provide  the committee  with a  plan  under which  ConocoPhillips                                                               
would be able to  bid and specifies what a bid  variable is.  Co-                                                               
Chair Gatto concluded by expressing  the hope that ConocoPhillips                                                               
will be a strong player.                                                                                                        
[HB 177 was held over.]                                                                                                         
6:27:04 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 6:27 p.m.                                                                 

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