Legislature(2011 - 2012)BARNES 124

02/18/2011 01:00 PM RESOURCES

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01:04:12 PM Start
01:04:29 PM Overview(s): Alaska Oil & Gas Explorer & Support Industry
04:03:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Alaska Oil & Gas Explorers & Support TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 18, 2011                                                                                        
                           1:04 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Eric Feige, Co-Chair                                                                                             
Representative Paul Seaton, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Alan Dick                                                                                                        
Representative Neal Foster                                                                                                      
Representative Bob Herron                                                                                                       
Representative Cathy Engstrom Munoz                                                                                             
Representative Berta Gardner                                                                                                    
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Mike Hawker                                                                                                      
Representative Craig Johnson                                                                                                    
Senator Cathy Giessel                                                                                                           
COMMITTEE CALENDAR                                                                                                            
OVERVIEW(S):  ALASKA OIL & GAS EXPLORER & SUPPORT INDUSTRY                                                                      
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
BART ARMFIELD, Vice President, Field Operations                                                                                 
Brooks Range Petroleum Corporation (BRPC)                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation about                                                                 
BRPC's North Slope operations and commented on HB 110.                                                                          
KEN THOMPSON, Managing Director, Owner                                                                                          
Alaska Venture Capital Group (AVCG), LLC                                                                                        
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Provided a  PowerPoint presentation  about                                                             
AVCG's Alaska operations and commented on HB 110.                                                                               
JAMES JOHNSEN, Senior Vice President of Administration                                                                          
Doyon Limited                                                                                                                   
Fairbanks, Alaska                                                                                                               
POSITION  STATEMENT:   Provided a  PowerPoint presentation  about                                                             
Doyon and supported HB 110.                                                                                                     
ED DUNCAN, President, Chief Operating Officer                                                                                   
Great Bear Petroleum LLC                                                                                                        
Austin, Texas                                                                                                                   
POSITION  STATEMENT:   Provided a  PowerPoint presentation  about                                                             
Great Bear Petroleum  LLC and why HB  110 is a step  in the right                                                               
DAVE CRUZ, President, Chief Executive Officer                                                                                   
Cruz Companies                                                                                                                  
Palmer, Alaska                                                                                                                  
POSITION  STATEMENT:    Testified  that his  oil  field  services                                                             
company faces much  uncertainty on the North  Slope; he supported                                                               
HB 110 as a means for turning things around.                                                                                    
GARY PORTER, Pilot                                                                                                              
Homer, Alaska                                                                                                                   
POSITION  STATEMENT:   Explained  that due  to  the oil  industry                                                             
decline his business has very little work.                                                                                      
MIKE PEARSON                                                                                                                    
Sutton, Alaska                                                                                                                  
POSITION STATEMENT:   Warned that something must be  done to keep                                                             
the North Slope, Alaska's lifeblood, from being killed.                                                                         
REBECCA LOGAN, General Manager                                                                                                  
Alaska Support Industry Alliance                                                                                                
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Described   the  makeup  of   her  trade                                                             
organization and the concerns of its member companies.                                                                          
DOUG SMITH, President, CEO                                                                                                      
Little Red Services                                                                                                             
Anchorage Alaska                                                                                                                
POSITION  STATEMENT:    Described  the  problems  his  oil  field                                                             
services company is currently facing and supported HB 110.                                                                      
PHIL KROMM                                                                                                                      
Carlile Transportation                                                                                                          
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:   Described the problems he is  seeing on the                                                             
North Slope as a line haul driver for a transport company.                                                                      
ACTION NARRATIVE                                                                                                              
1:04:12 PM                                                                                                                    
CO-CHAIR  PAUL   SEATON  called  the  House   Resources  Standing                                                             
Committee meeting to order at  1:04 p.m.  Representatives Seaton,                                                               
Feige,  P.  Wilson,  Herron,  Gardner,  Foster,  and  Munoz  were                                                               
present at the call to  order.  Representatives Dick and Kawasaki                                                               
arrived  as the  meeting was  in progress.   Senator  Giessel and                                                               
Representatives Hawker and Johnson were also present.                                                                           
^OVERVIEW(S):  Alaska Oil & Gas Explorer & Support Industry                                                                     
   OVERVIEW(S):  Alaska Oil & Gas Explorer & Support Industry                                                               
                [Contains discussion of HB 110]                                                                                 
1:04:29 PM                                                                                                                    
CO-CHAIR SEATON announced  that the only order of  business is an                                                               
overview  of  the  Alaska  oil   and  gas  explorer  and  support                                                               
industry, as  well as any  comments that the industry  might have                                                               
about [HB 110] and how  to increase production through the Trans-                                                               
Alaska Pipeline System (TAPS).                                                                                                  
1:05:44 PM                                                                                                                    
BART  ARMFIELD, Vice  President, Field  Operations, Brooks  Range                                                               
Petroleum  Corporation   (BRPC),  specified   that  BRPC   is  an                                                               
operating entity on  behalf of its working  interest owners which                                                               
are:    Alaska  Venture  Capital   Group  (AVCG),  LLC,  Ramshorn                                                               
Investments,  TG  World  Energy,  and  Brooks  Range  Development                                                               
Corporation.  He said BRPC manages  in excess of 240,000 acres on                                                               
the North Slope (slide 1).   The Beechey Point Unit, a proved and                                                               
formed exploration  unit, is  BRPC's near-term  development area.                                                               
To the west  of this unit is BRPC's exploration  area which has a                                                               
pending exploration  unit called the Southern  Miluveach Unit and                                                               
to the  east is BRPC's  strategic planning area called  the South                                                               
Thomson  Area.    The  exploration  well  being  drilled  in  the                                                               
southeast corner of  the Southern Miluveach Unit  is scheduled to                                                               
be spud on March 1, 2011.                                                                                                       
1:08:16 PM                                                                                                                    
MR. ARMFIELD noted  that by the end of 2011  BRPC will have spent                                                               
in excess of  $154 million on the North Slope  during its 10-year                                                               
life.  He said AVCG was formed in  2000 and the time from 2000 to                                                               
2007  was   used  to  implement  business   strategies,  set  the                                                               
foundation  for   the  operations  of  the   company,  acquire  a                                                               
leasehold position, evaluate the  prospects within that position,                                                               
formulate  an  exploration plan,  and  hire  the technical  staff                                                               
required  to  support  those  activities,  with  the  first  well                                                               
drilled  in 2007.   Participation  in area-wide  lease sales  has                                                               
occurred every  year since 2000.   The  North Tarn Well  is being                                                               
drilled in 2011 pending approval  of the Southern Miluveach Unit,                                                               
at  which point  will be  the edge  of sanctioning  a development                                                               
MR.  ARMFIELD related  that during  visits to  legislative bodies                                                               
last week he was asked  why Brooks Range Petroleum Corporation is                                                               
out drilling this year, so he  developed [slide 2] to answer that                                                               
question.  First,  the working interest owners need  to have that                                                               
investment of  $154 million perform.   Second,  the corporation's                                                               
current  approved  business plan  has  a  timeline that  reflects                                                               
production,  and  revenues  from that  production,  in  mid-2013.                                                               
Third,  each  year of  delay  has  an  adverse affect  on  BRPC's                                                               
internal rate  of return.  He  pointed out that BRPC  is the only                                                               
entity that is out with activities in 2011.                                                                                     
1:11:10 PM                                                                                                                    
MR.  ARMFIELD stated  that the  current economic  models used  by                                                               
BRPC  to evaluate  its  prospects support  the  internal rate  of                                                               
return for  these smaller accumulations  with an  assumption that                                                               
that reserve  base, once sanctioned,  will foster  further growth                                                               
and make  that investment even  more profitable.  An  increase in                                                               
the tax  rate and a reduction  in the capital credits  would have                                                               
an adverse  impact to BRPC's  models and could very  easily shift                                                               
them into  an uneconomic position  because they are so  small and                                                               
are on  the edge.  Conversely,  adoption of a policy  that lowers                                                               
the  rate  and increases  credits  would  have a  much  different                                                               
impact  on that  economic  model.   Performing  to that  economic                                                               
model would  go a long  way in  providing a confidence  level for                                                               
the working interest owners that  have invested $154 million, and                                                               
a positive  return would allow  the gathering of  more investment                                                               
capital.  He  advised that there is a watchful  eye on Alaska and                                                               
if  positive policies  come out  of this  legislative session  he                                                               
thinks  there will  be  an  elevation in  the  activity level  of                                                               
people coming to the North Slope and to Alaska.                                                                                 
1:13:13 PM                                                                                                                    
MR. ARMFIELD  related that he  calls the proposed base  tax rate,                                                               
progressivity, capital  credits, and timing of  those credits the                                                               
top side of  HB 110 (slide 3).   The first three  elements do not                                                               
affect  BRPC today  because it  does not  yet have  production or                                                               
revenue, but  the goal is  to become affected  by them.   He said                                                               
BRPC supports the  bracketed structure and the  reduced base rate                                                               
with a  cap because  these policy  measures would  greatly affect                                                               
BRPC's models  and improve  the internal rate  of return  that is                                                               
presented to  the working interest  owners.  The  fourth element,                                                               
the  acceleration of  the payment  schedule  for capital  credits                                                               
from a  two-year to a  one-year realization, would  have profound                                                               
effects  on  BRPC's  annual  planning  and  overall  North  Slope                                                               
operations.    The proposed  increase  of  the qualified  capital                                                               
credits from 20 percent to  40 percent would most definitely have                                                               
a  big  effect  on  BRPC's  position.    Further,  BRPC  supports                                                               
extending the sunset for small  producer credits through the year                                                               
2021 at the least, although indefinitely would be preferred.                                                                    
1:15:32 PM                                                                                                                    
REPRESENTATIVE   HERRON  inquired   whether  raising   the  small                                                               
producer tax credit above $12 million  a year would be of benefit                                                               
to Brooks Range Petroleum Corporation or to the state.                                                                          
MR. ARMFIELD  replied yes,  it would most  definitely be  nice to                                                               
have it  go up.   However, he has  not evaluated what  level that                                                               
should be because  BRPC has been accepting the  current figure of                                                               
$12 million that is scheduled for sunset in 2016.                                                                               
REPRESENTATIVE HERRON asked whether BRPC  likes the tax credit on                                                               
well lease expenditures for Cook  Inlet that would be expanded to                                                               
the North Slope.                                                                                                                
MR. ARMFIELD  responded yes,  that is a  positive, and  there are                                                               
probably several  other things  within HB 110  that BRPC  has not                                                               
fully evaluated.  Additionally, BRPC  has some line item concerns                                                               
and  plans  to  address  these   as  legislators  re-define  that                                                               
CO-CHAIR  SEATON  interjected  that  there will  be  full  public                                                               
testimony once the details of the bill are fully rolled out.                                                                    
1:17:33 PM                                                                                                                    
MR. ARMFIELD reviewed the throughput  history of TAPS, along with                                                               
the  production forecast  from the  2009  Division of  Oil &  Gas                                                               
Annual Report (slide  4).  He said HB 110  has the opportunity to                                                               
profoundly impact the state's declining  oil production and would                                                               
change  how  new and  existing  players  plan and  execute  their                                                               
activities on the North Slope.                                                                                                  
MR. ARMFIELD presented  what BRPC is calling  Plan-2050, which is                                                               
an  incremental/phased  look at  how  to  support production  and                                                               
throughput  of TAPS  to address  the  current production  decline                                                               
(slide 5).   The goal of  Phase I would  be to add 10  new fields                                                               
over  the next  12 years  with  an average  production of  12,000                                                               
barrels  of oil  per  day per  field.   This  would increase  the                                                               
recoverable  reserves by  500  million barrels.    The amount  of                                                               
investment capital to support that  level of activity would be in                                                               
excess of $6.3 billion.   History demonstrates that adding 10 new                                                               
developments over  a 12-year  period can be  done.   For example,                                                               
over  the   last  12  years  Alpine,   Northstar,  Oooguruk,  and                                                               
Nikaitchuq were  put on  line, and Badami  was restarted.   While                                                               
those do not  total 10 projects, they  collectively represent the                                                               
equivalent of 10 projects of 12,000 barrels per day per field.                                                                  
MR. ARMFIELD  said the goal  of Phase  II is 32  new developments                                                               
over the next 20 years.   Since 10 new developments would already                                                               
have occurred,  Phase II would be  the addition of 22  new fields                                                               
under the same  parameters, but in this case it  would be done in                                                               
an 8-year period.  He maintained  that this is an achievable goal                                                               
when  one looks  at the  current advancements  in technology  and                                                               
prototypes, such  as the unconventional resource  plays presently                                                               
happening in  North Dakota.  There  will come a time,  and it may                                                               
be in the  very near future, that those  processes are applicable                                                               
to  the North  Slope,  and those  advancements  will support  the                                                               
ability to add  22 new developments of 12,000 barrels  of oil per                                                               
day per field in an 8-year  period, or it could be 8 developments                                                               
of 30,000 barrels of oil per day per field.                                                                                     
1:22:35 PM                                                                                                                    
MR. ARMFIELD highlighted  Phase III of BRPC's  Plan-2050 in which                                                               
the final  goal of 44  new developments  would be reached  by the                                                               
year 2050 [meaning 12 more  new fields would be developed between                                                               
2031 and 2050].  Thus, by 2050,  a total of over $18.6 billion in                                                               
new  capital  investment would  come  into  the state  and  total                                                               
recoverable reserves would increase by 2.2 billion barrels.                                                                     
MR.  ARMFIELD outlined  how the  production  decline curve  would                                                               
flatten under Plan-2050 when the  new production is combined with                                                               
the production from existing fields  (slide 6).  Current industry                                                               
as  a  whole could  support  four  new developments  from  within                                                               
existing fields over the first  12-year period of Plan-2050.  Six                                                               
new developments would come from  independents and new players to                                                               
Alaska, bringing the  total of new developments to  ten [top left                                                               
graph].    He  compared  the  production  curve  of  the  current                                                               
Division  of Oil  & Gas  (DOG)  forecast with  that of  Plan-2050                                                               
Phase I (the years 2011-2024),  explaining that the Phase I curve                                                               
represents a combination of the  production history from the past                                                               
12  years and  the  current DOG  forecast,  with production  from                                                               
Phase I  beginning in 2015  since there needs  to be a  lead time                                                               
for Phase  I production to  start.  He  pointed out that  the two                                                               
bottom graphs  [on slide  6] carry  out the  Plan-2050 production                                                               
curve for Phase  II (years 2011-2031) and Phase  III (years 2011-                                                               
2049)  using the  same aforementioned  combination of  production                                                               
history, DOG forecast, and Plan-2050 forecast.                                                                                  
1:25:53 PM                                                                                                                    
MR. ARMFIELD  said Brooks Range Petroleum  Corporation sees three                                                               
courses for action that are  probably being considered [slide 7].                                                               
One  course of  action is  the  status quo  where current  fiscal                                                               
policy remains the  same.  He said he thinks  that if this course                                                               
of action  is taken  the current  production trend  will continue                                                               
[declining  from  600,000 barrels  per  day  in 2011  to  100,000                                                               
barrels  per  day  in  2050],  the effect  on  activity  will  be                                                               
marginal, the  chance for new  developments will be  limited, and                                                               
there will  be a high  degree of  uncertainty.  He  expressed his                                                               
disappointment that only 3 explorers  are present at this hearing                                                               
instead of  30 or 40.   A second course  of action is  a negative                                                               
adjustment in which taxes are  increased and credits are lowered.                                                               
He  said BRPC's  perspective is  that this  would cause  downward                                                               
pressure on  the [current declining]  forecast, would  reduce the                                                               
number of  capable slope  players, would  increase the  burden on                                                               
the  existing  units,  and  would  have a  very  high  degree  of                                                               
1:27:44 PM                                                                                                                    
MR. ARMFIELD continued,  saying that a third course  of action is                                                               
a positive adjustment where the focus  is on throughput.  He said                                                               
HB 110  would result in  an upward movement in  activity, improve                                                               
exposure  to  discoveries,   exploit  existing  producing  units,                                                               
expand  clients for  vendors, stabilize  the state's  tax revenue                                                               
base, establish  common throughput  targets, extend  the economic                                                               
and physical  operation of  TAPS, and improve  the life  of field                                                               
potential.   He  noted that  the  $18.6 billion  figure he  cited                                                               
earlier  relates  only to  those  projects  that are  successful.                                                               
Using a  basis of 50  percent successful projects and  50 percent                                                               
failed projects the total of  new investment capital would be $36                                                               
billion under  HB 110  [Phases I-III  of Plan-2050].   Therefore,                                                               
Brooks   Range  Petroleum   Corporation  supports   the  positive                                                               
adjustment through HB 110.  At  the very least, he continued, the                                                               
payment schedule  should be accelerated  from a  two-year program                                                               
to  a  one-year  program  [for exploration  and  other  qualified                                                               
capital  investments]  and that  the  small  producer tax  credit                                                               
should be  extended [from its  current expiration date of  May 1,                                                               
2016, to May 1, 2021] (slide 8).                                                                                                
1:30:20 PM                                                                                                                    
MR. ARMFIELD, in response to  Co-Chair Seaton, clarified that his                                                               
basis  in investment  capital of  50 percent  successful projects                                                               
and 50 percent  failed projects would apply to all  of the graphs                                                               
shown on  slide 6.   In  further response  he confirmed  that for                                                               
[Phase I]  the new investment  capital would be $6.3  billion for                                                               
successful  projects  and  for  successful  and  failed  projects                                                               
combined  it would  be about  $13 billion.   [For  Phase II]  the                                                               
total new  investment capital for successful  and failed projects                                                               
combined  would   be  about  $26   billion  [$13.2   billion  for                                                               
successful projects].                                                                                                           
REPRESENTATIVE  P.  WILSON, regarding  Mr.  Armfield's  use of  a                                                               
50:50 success to failure ratio,  recalled hearing a few years ago                                                               
that the  ratio is  1 wet well  for every 6  wells drilled.   She                                                               
asked whether this ratio has changed over the years.                                                                            
MR. ARMFIELD  replied that he  cannot support  the 1 in  6 number                                                               
right  now given  that BRPC's  performance has  not been  to that                                                               
level.   Over the past 4  years, BRPC has drilled  9 penetrations                                                               
on  the North  Slope and  2 were  dry.   In further  response, he                                                               
clarified that 2 out of the 9  were definitely not good, 2 of the                                                               
remaining  7 are  known to  be good,  and the  other 5  are still                                                               
being evaluated.                                                                                                                
1:33:20 PM                                                                                                                    
CO-CHAIR  SEATON   said  the  committee   is  also   focusing  on                                                               
throughput  and ensuring  that any  changes made  will result  in                                                               
that.  He understood Mr. Armfield  to be saying that for BRPC the                                                               
most  important  things  are extending  the  small  producer  tax                                                               
credit and having  the credit cycle be over a  period of one year                                                               
rather than two.                                                                                                                
MR. ARMFIELD responded  that that is correct,  but clarified that                                                               
those two are  the most important today to BRPC  in terms of real                                                               
financial impacts.   The goal is to get to  the position of being                                                               
a producer,  at which  point the  other things  will then  have a                                                               
definite impact on BRPC.                                                                                                        
1:34:36 PM                                                                                                                    
CO-CHAIR SEATON  noted that Beechey Point  and Southern Miluveach                                                               
are  both unitized  but not  yet  producing oil.   Regarding  the                                                               
provision  in HB  110  for a  lower  tax rate  on  new units,  he                                                               
inquired  about BRPC's  position  on whether  those two  existing                                                               
units should be classified as new or old oil.                                                                                   
MR. ARMFIELD answered that BRPC  has concerns about this language                                                               
because  it really  would affect  the company.   In  its business                                                               
plans and  execution, BRPC always forms  a unit to proceed.   The                                                               
acreage is  acquired, any available  seismic is reviewed  and new                                                               
seismic is shot, an exploration  unit is formed, and a commitment                                                               
is  made  to work  programs  to  support that  exploration  unit.                                                               
While Beechey Point  has been a unit for nearly  three years, the                                                               
oil would  be new; therefore,  BRPC would definitely  be impacted                                                               
if it  was thrown out of  being qualified for this  category.  In                                                               
further  response to  Co-Chair Seaton,  Mr. Armfield  said it  is                                                               
BRPC's perspective  that [Beechey  Point and  Southern Miluveach]                                                               
are new oil.   Regarding heavy oil and other  resources that have                                                               
been out  there and are considered  old, he pointed out  that the                                                               
technology has not  been there to allow their  development and so                                                               
when the technology is refined to  allow getting that type of oil                                                               
he would argue that it is new oil.                                                                                              
1:39:04 PM                                                                                                                    
REPRESENTATIVE P.  WILSON requested  further explanation  on when                                                               
something becomes a unit.                                                                                                       
MR.  ARMFIELD explained  that BRPC  forms  exploration units  and                                                               
there  are  differences   between  exploration  units,  producing                                                               
units,   participating  areas,   and  a   wide  range   of  other                                                               
categories.  His concern with the  proposed language in HB 110 is                                                               
that there is no distinction  between the aforementioned types of                                                               
units, the language  just says units.  He  further explained that                                                               
once  BRPC  forms  those  exploration   units,  they  go  to  the                                                               
Department of  Natural Resources  for approval and  an applicable                                                               
work program  is assigned to  them that extends  that exploration                                                               
unit  for  a given  number  of  years  based on  the  performance                                                               
adhered  to in  that  work  program.   Once  into production  and                                                               
development, it  goes into  a producing  unit that  is associated                                                               
with a participating area, and from there it gets more complex.                                                                 
1:40:40 PM                                                                                                                    
REPRESENTATIVE  P. WILSON  understood Mr.  Armfield's explanation                                                               
and his  concern, but asked  why the  other locations on  the map                                                               
are not called units.                                                                                                           
MR.  ARMFIELD replied  that BRPC  has not  yet applied  for those                                                               
areas because  there is a  long process for  forming a unit.   An                                                               
area cannot  be unitized just  because a company wants  to; there                                                               
must  be a  foundation  that supports  that unitization  process.                                                               
The Southern Miluveach  Unit was just completed  and is currently                                                               
being evaluated by  DNR.  The unit's books are  four inches thick                                                               
to support the  unit application, which could be  approved in its                                                               
current form or could be approved  in a reduced or expanded form.                                                               
The Beechey Point Unit went  through the process, was formed, and                                                               
is approved.  These two units  have work programs that BRPC plans                                                               
to move  forward on.  The  other areas are still  being evaluated                                                               
as to what  BRPC thinks the units should look  like and what work                                                               
program BRPC should commit to for maintaining a unit.                                                                           
1:42:27 PM                                                                                                                    
CO-CHAIR SEATON  inquired whether the  new capital amount  of $36                                                               
billion in  the Plan-2050 includes  new production  facilities at                                                               
the new oil units, or  whether the assumption was that everything                                                               
would run through existing Prudhoe Bay infrastructure.                                                                          
MR. ARMFIELD  responded that the  $36 billion is  derived through                                                               
an economic  model in which the  cost is applied on  a per barrel                                                               
basis.    So,   yes,  the  figure  involves   new  facilities  or                                                               
modifications to existing  facilities to be able  to handle that.                                                               
In  further response,  he said  the  costs are  inclusive of  ice                                                               
roads,  exploration,   exploration  wells,   gravel,  facilities,                                                               
pipeline,  and  whatever  it  takes  to  support  that  level  of                                                               
production and these are applied in the model.                                                                                  
1:44:00 PM                                                                                                                    
MR. ARMFIELD, in  response to Co-Chair Feige,  confirmed that, to                                                               
his knowledge, BRPC is drilling  the only exploration well on the                                                               
North Slope this winter season.                                                                                                 
REPRESENTATIVE  GARDNER  asked  whether  all nine  of  the  wells                                                               
drilled by  BRPC participated in  the state's  exploration credit                                                               
MR. ARMFIELD answered yes, adding  that BRPC takes full advantage                                                               
of every opportunity afforded to it by the state.                                                                               
1:45:39 PM                                                                                                                    
KEN THOMPSON,  Managing Director,  Owner, Alaska  Venture Capital                                                               
Group (AVCG), LLC,  explained that AVCG is the  parent company of                                                               
Brooks Range Petroleum  Corporation.  He has lived  in Alaska for                                                               
17 years  and from  1994-1998 he  was president  and CEO  of ARCO                                                               
Alaska, Inc.   His purpose is to present  ideas to re-incentivize                                                               
investment and  increase the  competitiveness of  Alaska relative                                                               
to other  oil basins with one  common state and industry  goal in                                                               
mind:   to  level  Alaska's  oil production  (slide  2).   Alaska                                                               
Venture Capital Group  has had a very  positive relationship with                                                               
the State  of Alaska  and its  agencies, and would  like to  be a                                                               
company that  helps the  state to substantially  grow the  pie of                                                               
1:48:01 PM                                                                                                                    
MR. THOMPSON maintained  that the state of Alaska  can have level                                                               
oil  production again.    Some  companies in  Alaska  are in  the                                                               
harvest mode  and that should be  their strategy.  But  there are                                                               
other companies like AVCG that are  in a growth mode and over the                                                               
next one to  two decades companies like AVCG do  not have to find                                                               
a big  Prudhoe Bay or a  big Kuparuk.   If the state can  have 10                                                               
50-million-barrel oil  fields every 12 years,  the production can                                                               
be leveled.                                                                                                                     
MR. THOMPSON explained  that his job at AVCG is  to raise capital                                                               
for exploration  and development  on the  North Slope,  while Mr.                                                               
Armfield's  job within  BRPC is  to  do the  implementation.   In                                                               
addition  to  raising  capital  from  current  investors,  he  is                                                               
looking for one  new investor and that is why  he is currently in                                                               
Houston, Texas, at the North  American Oil and Gas Prospect Expo.                                                               
In  addition to  looking for  a partner  that can  bring in  more                                                               
capital to  help accelerate  the company's  work, there  could be                                                               
substantial upside  in shale  oil on some  of the  acreage, which                                                               
could possibly be a new  business within Alaska.  Therefore, AVCG                                                               
needs to bring  in a company with that expertise.   He added that                                                               
Great Bear Petroleum  is also playing that same  concept with the                                                               
acreage that it  acquired last October.  Of  the 15,000 attendees                                                               
at  the  expo,  50  stopped  by AVCG's  booth,  and  5  companies                                                               
expressed interest and asked for more information.                                                                              
1:51:04 PM                                                                                                                    
MR. THOMPSON said he thinks  fundamental improvements to Alaska's                                                               
Clear  and  Equitable Share  (ACES)  are  needed to  attract  new                                                               
investors.   His company's  focus is  on what  it calls  the next                                                               
frontiers  for major  developments  on the  North  Slope.   Those                                                               
frontiers would grow  the company as well as  level production in                                                               
Alaska.  Those  frontiers fall into two categories  for what AVCG                                                               
does:  exploration of smaller  fields in the 25-50 million barrel                                                               
range  with the  sharing  of regional  processing facilities  and                                                               
production  from low-permeability  sands and  oil source  shales.                                                               
On the Southern Miluveach Unit  about 1 billion barrels have been                                                               
identified in  sands, with about  20 percent recoverable.   About                                                               
100,000 of AVCG's  acreage may have significant  oil source shale                                                               
potential.    As  the  state  looks at  how  to  level  and  grow                                                               
production,  other frontier  areas  include  North Slope  viscous                                                               
oil, North Slope  natural gas, and North Slope  offshore oil, but                                                               
those are the realm of the major oil companies.                                                                                 
1:53:40 PM                                                                                                                    
MR. THOMPSON  explained that  Alaska Venture  Capital Group  is a                                                               
holding  company that  owns all  the leases  and assignments  and                                                               
will own  the oil production  and production revenues  (slide 3).                                                               
Additionally, AVCG  manages the direction and  business strategy,                                                               
negotiates  all  business  deals,  and  attracts  new  investors.                                                               
Moving to slide 4, he specified  that AVCG has spent $154 million                                                               
and he is  a personal investor.  Alaska Venture  Capital Group is                                                               
committed to Alaska  and is working hard to get  a return on that                                                               
capital  for its  investors.    Of the  240,000  acres, about  50                                                               
percent  is held  by  AVCG  and the  other  50  percent is  split                                                               
between Ramshorn Exploration, a private  firm out of Houston, and                                                               
TG World Energy, a small public corporation in Calgary.                                                                         
1:56:14 PM                                                                                                                    
MR.  THOMPSON  highlighted what  he  deals  with to  attract  new                                                               
investors in  the face of  global competition for  capital (slide                                                               
5).  He related that about a year  ago, AVCG had a partner out of                                                               
Calgary  called Bow  Valley,  a  small public  company.   It  was                                                               
purchased by Dana  Petroleum, a larger public company  out of the                                                               
United Kingdom  (UK).  With  that purchase Dana became  the owner                                                               
of about  20 percent of the  holdings shown on slide  4; however,                                                               
upon looking  at everything, Dana concluded  that Alaska's fiscal                                                               
regime  was tougher  than the  UK  sector where  it was  playing.                                                               
Dana decided to focus  solely on the UK and said  it did not want                                                               
to  invest in  Alaska,  so AVCG  acquired  Dana's interest  which                                                               
increased  AVCG's interest  from  30 percent  to  the current  50                                                               
percent.  The owners of AVCG  do not necessarily like the risk of                                                               
50  percent ownership  given that  AVCG plays  the risky  side of                                                               
exploration.   Therefore, his job  over the past nine  months has                                                               
been  to find  an  investor that  can bring  capital  as well  as                                                               
expertise.  Last  summer AVCG attended this same  expo in Houston                                                               
at  which time  12 companies  expressed strong  interest.   Since                                                               
then, however,  11 have  said no  and the  number one  reason for                                                               
saying  no  is  the  Alaska  fiscal  regime  with  its  high  and                                                               
complicated taxation.  Several of  those companies elected to put                                                               
their  money  into North  Dakota's  Bakken  Oil Shale  where  the                                                               
severance tax rate is much more  favorable, plus the risk is less                                                               
in North  Dakota than  it is  in Alaska.   Some  did not  want to                                                               
participate  because  they  were  looking for  fields  of  50-100                                                               
million  barrels  or   more  and  therefore  did   not  like  the                                                               
prospectivity on  the North  Slope.  One  company remains  and is                                                               
very interested.   Internally, that  company is going  to approve                                                               
partnering with  AVCG and will  bring in its technologies  to the                                                               
North  Slope.   However, the  one final  hurdle is  the company's                                                               
board meeting  in March  where board members  want to  hear about                                                               
the only issue  that remains for them - Alaska's  taxes.  He said                                                               
he has prepared a positive story  for this board meeting and most                                                               
of that positive  story is HB 110.  Over  the next several months                                                               
he  will  meet  with  the  other  five  companies  that  recently                                                               
expressed  interest,  but he  is  hoping  the aforementioned  one                                                               
company will join in  and then he will not have  to meet with the                                                               
other five.                                                                                                                     
2:00:50 PM                                                                                                                    
MR. THOMPSON,  addressing the  portion of  slide 5  regarding the                                                               
UK, pointed  out that  the riskier  fields in  the North  Sea are                                                               
exempt from  the UK's supplemental  surcharge that is  leveled on                                                               
top of the  corporation tax.  For the first  $1.3 billion of each                                                               
field's  profits  there  is no  surcharge,  which  allows  better                                                               
recovery of  capital.  He related  that he just met  with several                                                               
executives  from Noble  Energy, a  company that  recently made  a                                                               
huge natural gas  discovery in offshore Israel.   While Israel is                                                               
increasing its government take from  30 percent to 52-62 percent,                                                               
which is still less than the  Alaska and the U.S. total take, the                                                               
30 percent rate will be  maintained until a producer recovers 200                                                               
percent of  investment.   Under this  concept, the  capital comes                                                               
back  more quickly,  although Alaska  does help  in some  regards                                                               
with the capital tax credits.                                                                                                   
2:02:31 PM                                                                                                                    
MR. THOMPSON reported that while  Alaska had three booths at this                                                               
expo, the  states of  North Dakota,  Texas, and  Wyoming combined                                                               
had  100-200  booths.    When shale  production  began  in  North                                                               
Dakota, the  state suspended its  severance tax for 18  months on                                                               
any new  production, after which  time the  tax goes back  to the                                                               
normal maximum  rate of 11  or 12  percent.  That  tax suspension                                                               
generated a lot of new activity and  now it is running on its own                                                               
with about  150-160 wells per  month being drilled in  the Bakken                                                               
Shale.  Oil  production in North Dakota is on  the incline and is                                                               
expected to double  [this decade] at which point  it will surpass                                                               
Alaska as a production state.                                                                                                   
MR.  THOMPSON,  in relation  to  his  work  trying to  raise  new                                                               
capital,  pointed out  that in  terms  of overall  attractiveness                                                               
Alaska  is in  the  middle  relative to  the  rest  of the  world                                                               
[Fraser Institute  2010 Global Petroleum  Survey as  presented by                                                               
the Alaska Department of Revenue  on 2/5/2011] (slides 6-7).  The                                                               
most attractive states  depicted on the graph had  tens of booths                                                               
at  the aforementioned  expo.    He said  he  thinks  there is  a                                                               
correlation between where people  are interested in investing and                                                               
these graphs, which  are being shown in corporate  board rooms as                                                               
well as  government hearings.  This  is what makes it  harder for                                                               
him in trying to raise capital, but AVCG is not giving up.                                                                      
2:05:46 PM                                                                                                                    
MR.  THOMPSON   offered  AVCG's  recommendations  to   assist  in                                                               
achieving the common goal of no  decline (slide 8).  He said AVCG                                                               
supports  the  proposed  changes  in   HB  110  of  revising  the                                                               
progressivity  surcharge  and  capping   the  total  tax  [at  50                                                               
percent].    To attract  partners  in  moving the  Beechey  Point                                                               
exploration unit  to a development  unit, it would be  helpful if                                                               
the base  tax rate for  new fields was  15 percent instead  of 25                                                               
percent with the  total tax capped at 40 percent,  as proposed by                                                               
HB 110.  He said AVCG is willing to share its economics on that.                                                                
MR.  THOMPSON thanked  the state  for  the tax  credits that  are                                                               
currently  provided on  exploration,  saying  those credits  have                                                               
been significant  to AVCG and have  helped it to drill  two wells                                                               
in  some years  instead  of  one, which  doubles  the chance  for                                                               
discovery.  If,  as proposed by HB 110, this  tax credit could be                                                               
refunded in  one year  instead of  the current  two, he  would be                                                               
able to  recommend to AVCG's owners  to go to three  wells a year                                                               
instead of two, which would help accelerate finding oil.                                                                        
2:07:30 PM                                                                                                                    
MR.  THOMPSON, regarding  AVCG's support  for increasing  the tax                                                               
credits  for qualified  capital investments  from the  current 20                                                               
percent to 40  percent as proposed by HB 110,  said that the only                                                               
issue  is clarifying  the definition,  particularly of  units, as                                                               
discussed by Mr. Armfield.                                                                                                      
MR.  THOMPSON pointed  out  that the  small  producer tax  credit                                                               
plays very  well when he  talks with prospective investors.   The                                                               
current credit  of $12 million  a year  every year for  the first                                                               
five years  helps recover  capital before  the higher  tax rates,                                                               
which is  very helpful.   Extending this credit five  more years,                                                               
as proposed by  HB 110, would help to bring  on the Beechey Point                                                               
unit and  AVCG is hopeful  that the well currently  being drilled                                                               
will also be able to take advantage of this credit.                                                                             
MR. THOMPSON  related that  the mantra when  he was  president of                                                               
ARCO Alaska was "no decline after  '99" and that was in regard to                                                               
ARCO's  production,  which  is   now  ConocoPhillips.    The  two                                                               
companies pretty  much did that  for several years and  he thinks                                                               
Alaska can  too.  Regarding the  10 fields in 12  years mentioned                                                               
by Mr. Armfield, he shared that  AVCG has set an internal goal of                                                               
achieving 2  of those 10.   If  AVCG can attract  some additional                                                               
investors, he  thinks all  of that  can add up  to the  10 fields                                                               
needed to reduce the decline.                                                                                                   
2:09:52 PM                                                                                                                    
REPRESENTATIVE P.  WILSON inquired where Alaska  would be located                                                               
on the  Fraser graph  of overall attractiveness  (slide 6)  if HB                                                               
110 was passed.                                                                                                                 
MR.  THOMPSON  replied  he  does  not know  because  he  has  not                                                               
calculated where the Alaska line would  move.  However, if HB 110                                                               
passes,  it  will for  sure  be  bold  headlines in  the  Houston                                                             
Chronicle energy section,  as well as in Dallas,  Denver, and Los                                                             
Angeles.  It will be heard  throughout the industry and likely be                                                               
headlines in the  Oil & Gas Journal because  the prospectivity is                                                             
2:11:48 PM                                                                                                                    
REPRESENTATIVE FOSTER asked what the  atmosphere is like when Mr.                                                               
Thompson approaches prospective investors  and what their read is                                                               
on Alaska.  He commented  that Mr. Thompson's statement of "we're                                                               
not giving  up" means that  others are and indicates  that Alaska                                                               
needs to do something.                                                                                                          
MR. THOMPSON responded  that AVCG ran a large  survey three years                                                               
ago in the Southern Miluveach unit  and found 16 leads ranging in                                                               
size from 10-40  million barrels of oil.  While  all of those may                                                               
not make  it to the drilling  stage, showing them at  AVCG's expo                                                               
booth generated buzz  and the oil source shales  that were mapped                                                               
generated quite  a bit of  buzz.  Some  of AVCG's acreage  on the                                                               
western  North Slope  is in  prime  areas similar  to the  Bakken                                                               
Shale.  Showing  that that play is commercial in  Alaska, or that                                                               
the  severance tax  is  suspended  like has  been  done in  North                                                               
Dakota  for all  new Bakken  horizontal wells,  could generate  a                                                               
buzz, word would get out, and more people would come to Alaska.                                                                 
2:15:21 PM                                                                                                                    
CO-CHAIR SEATON  inquired what range  of investment  capital AVCG                                                               
looks for when talking to prospective investors.                                                                                
MR. THOMPSON  replied that  for a  two-well drilling  program the                                                               
typical overall  budget for seismic,  new land  acquisitions, and                                                               
two wells is $50-plus million per  year.  Any company entering an                                                               
area enters with  the idea of pushing hard for,  say, five years,                                                               
so that would  be $250 million.  Alaska Venture  Capital Group is                                                               
looking for companies  that can pay 20-50 percent of  that, so it                                                               
is going to be companies that  are willing to do $50-$125 million                                                               
for exploration within Alaska.   For development, AVCG is looking                                                               
for hundreds of millions to  billions, so the companies know that                                                               
if they  become involved  they must have  access to  pretty large                                                               
capital for development.                                                                                                        
2:17:30 PM                                                                                                                    
The committee took an at-ease from 2:17 p.m. to 2:20 p.m.                                                                       
2:20:44 PM                                                                                                                    
JAMES  JOHNSEN, Senior  Vice President  of Administration,  Doyon                                                               
Limited, specified that Doyon is  a for-profit Native corporation                                                               
founded in 1972  dedicated to the economic  and social well-being                                                               
of its  18,158 shareholders and  to strengthening the  Native way                                                               
of life  (slide 2).   Doyon  owns 12.5 million  acres of  land in                                                               
Interior Alaska  and 2010 was  its twenty-sixth  consecutive year                                                               
of  profitability  (slide  3).    While  Doyon  is  a  for-profit                                                               
company, it also  has social values in addition  to its financial                                                               
goals,  so   Alaska  hire,  shareholder  hire,   and  shareholder                                                               
development are critical  to the company.   Doyon's enrollment is                                                               
open,  so  the number  of  shareholders  goes  up daily.    Fifty                                                               
percent of  the shareholders are  located in Interior  Alaska, 25                                                               
percent  live  in Anchorage  and  the  rest  of Alaska,  and  the                                                               
remaining 25  percent live  in the  rest of  the U.S.  (slide 4).                                                               
Doyon is  seeing a gradual  movement of people from  the Interior                                                               
villages into Fairbanks and, in particular, Anchorage.                                                                          
2:24:25 PM                                                                                                                    
MR.  JOHNSEN outlined  Doyon's  corporate  strategies (slide  5).                                                               
Doyon is a  holding company that works to select  the optimal mix                                                               
of  operating   companies  to   maximize  earnings   and  provide                                                               
shareholder opportunities.   Doyon adds value  to those companies                                                               
by  providing  capital,  administrative services,  guidance,  and                                                               
strategy.     A  major  strategy   is  conducting  oil   and  gas                                                               
exploration on state and other  lands, but primarily Doyon lands.                                                               
From  a  rural  economic   development  standpoint,  Doyon  seeks                                                               
partnerships with  village corporations  to the  extent possible.                                                               
Lastly, increasing value to  shareholders is critically important                                                               
since  they are  the  owners.   Last year,  Doyon  paid over  $20                                                               
million in  shareholder wages,  over $6  million in  dividends to                                                               
shareholders,   about   $600,000   in  college   and   university                                                               
scholarships  to  shareholders,  and  $500,000  in  donations  to                                                               
various community organizations.                                                                                                
MR. JOHNSEN,  noting that  this money  must come  from someplace,                                                               
explained  that Doyon  operates  in three  industries (slide  6):                                                               
oil   field   services   which   includes   drilling,   security,                                                               
engineering,  facilities, and  construction services;  government                                                               
contracting  which   includes  military  utility   management  in                                                               
Alaska, security services in locations  outside Alaska, civil and                                                               
military construction,  and logistics services primarily  for the                                                               
U.S.  Department of  Defense; and  land and  resource development                                                               
which includes oil  and gas exploration, hard  rock minerals, and                                                               
sand and gravel.                                                                                                                
2:27:24 PM                                                                                                                    
MR. JOHNSEN  said Doyon  has four companies  that operate  in oil                                                               
field services:  Doyon Drilling,  Doyon Universal, Doyon Emerald,                                                               
and Doyon  Industrial/Associated (slide  7).  Doyon  Drilling has                                                               
seven drill rigs  operating on the North Slope, all  of which are                                                               
currently under  contract.   A new  technologically sophisticated                                                               
rig, "Rig  25", was  just commissioned at  an investment  of over                                                               
$100 million.  A large share  of employees work on the slope, but                                                               
the  primary location  administratively  is  Anchorage.   Current                                                               
business outlook on the slope  is not good - exploration activity                                                               
is  down,  all of  Doyon's  drilling  activity is  workovers  and                                                               
infield work.   Additionally, Doyon  is very concerned  about the                                                               
regulatory  constraints  being  put  on  federal  lands.    Doyon                                                               
employment has  fallen by about  9 percent  [from 314 in  2007 to                                                               
285 in  2010].   Doyon is  the number one  contractor for  BP and                                                               
ConocoPhillips  and  roughly  85  percent  of  Doyon's  employees                                                               
working there are  Alaskans.  About 45 percent  of Doyon Drilling                                                               
employees are  Alaska Native  shareholders, which  is a  big deal                                                               
because  of the  large salaries  that these  particular employees                                                               
make  and take  back to  their families  and communities.   Doyon                                                               
Universal,  a  joint  venture  of Doyon  and  the  French  multi-                                                               
national corporation Sodexo,  provides security/facility services                                                               
on  the  North Slope  and  on  the Trans-Alaska  Pipeline  System                                                               
(TAPS).  The  industry outlook here is also not  positive and the                                                               
employment  decline  is  even  more serious  with  a  25  percent                                                               
employment loss  between 2007 and  2010.  Doyon Emerald,  a small                                                               
recently  acquired   company,  provides   engineering  consulting                                                               
services to the industry.   It is doing a lot  of design for some                                                               
of the  integrity programs and  is stable  at the moment.   Doyon                                                               
Industrial,  a   joint  venture  between  Doyon   and  Associated                                                               
Pipeline, is  a major pipeline  construction firm doing a  lot of                                                               
the  feeder  pipeline  replacement   work  on  the  North  Slope.                                                               
Although  exploration activity  is  down this  company is  seeing                                                               
some work, but  it is short-term work and  Doyon Industrial would                                                               
like to be doing more of it.                                                                                                    
2:30:53 PM                                                                                                                    
MR. JOHNSEN pointed out that Doyon  is also looking for oil, gas,                                                               
and hard rock  minerals on the 12.5 million acres  of surface and                                                               
subsurface lands that it owns,  while being a responsible steward                                                               
of these  lands (slide  8).   Doyon is investing  in oil  and gas                                                               
exploration  in the  Interior and  about a  year and  a half  ago                                                               
spent roughly $20 million in  the drilling of an exploration well                                                               
in  Nenana on  Mental  Health Trust  land.   That  data is  being                                                               
analyzed and  a seismic  program is planned  in the  Nenana Basin                                                               
for next  year.   Last year  Doyon conducted  seismic exploration                                                               
for  oil near  Stephens  Village and  that  seismic program  will                                                               
continue this  year.  Doyon  partnered with  village corporations                                                               
for  the  road construction  and  other  work  on both  of  these                                                               
projects, which  is in keeping  with Doyon's dedication  to rural                                                               
economic  development  and  which  provides  quite  a  multiplier                                                               
effect.   Through its partnerships  and the state's  tax credits,                                                               
Doyon  has leveraged  its  investments and  has  spent over  $200                                                               
million on exploration activities in the Interior.                                                                              
2:33:14 PM                                                                                                                    
MR.  JOHNSEN concluded  by  stressing that  Doyon  is an  Alaskan                                                               
company that employs  about 1,500 Alaskans (slide 9).   On behalf                                                               
of both  its shareholders and  its employees, Doyon must  look to                                                               
the   future   for   business  opportunities   and   takes   this                                                               
responsibility  seriously.    Doyon  believes vast  oil  and  gas                                                               
opportunities  remain  in  Alaska  and  on  Doyon  lands  in  the                                                               
Interior.  However, investment  in  oil and  gas exploration  and                                                               
production is  down, Alaskans  have lost  jobs and  revenues, and                                                               
Doyon has lost revenue.   Doyon believes Alaska's current oil tax                                                               
policy  inhibits investment  in development  and is  inconsistent                                                               
with  the  state's  constitutional requirement  to  maximize  the                                                               
benefit of  the state's  resources.  Doyon  supports a  state tax                                                               
policy  that  fills the  pipeline,  produces  jobs, and  provides                                                               
revenues for  the state.  Doyon  supports the elements of  HB 110                                                               
that   encourage   exploration   and   increase   investment   in                                                               
2:34:47 PM                                                                                                                    
REPRESENTATIVE HERRON understood  that Doyon was a  key player in                                                               
getting the  small producer credit  in the  current tax law.   He                                                               
asked whether the number for that credit should be changed.                                                                     
MR. JOHNSEN  replied he is  unprepared to respond at  this point.                                                               
It will be  awhile before Doyon is able to  take advantage of the                                                               
credit because  it is  still in the  early exploration  phase and                                                               
therefore  he will  have  to get  back to  the  committee with  a                                                               
response.    He  added,  however, that  Doyon  concurs  with  the                                                               
responses  that have  been heard  from those  companies that  are                                                               
further along than  is Doyon.  In further response,  he agreed to                                                               
provide justification in Doyon's response to the committee.                                                                     
2:36:06 PM                                                                                                                    
REPRESENTATIVE GARDNER inquired whether  there are elements in HB                                                               
110  that Doyon  believes  will  not act  to  fill the  pipeline,                                                               
produce jobs, and provide revenue.                                                                                              
MR.  JOHNSEN   responded  yes,   Doyon  would   propose  friendly                                                               
amendments  to expedite  implementation  so that  it takes  place                                                               
sooner rather than in a few years.                                                                                              
2:36:50 PM                                                                                                                    
MR. JOHNSEN,  in response to  Representative P.  Wilson, answered                                                               
that Associated  Pipeline, Doyon's  partner in  Doyon Industrial,                                                               
is  out  of  Houston.    In response  to  another  question  from                                                               
Representative  P.  Wilson, Mr.  Johnsen  stated  that the  Doyon                                                               
shareholders located  outside of Alaska are  Native shareholders.                                                               
Responding to Co-Chair Seaton, he  confirmed that slide 4 depicts                                                               
where  Doyon's   Native  shareholders  live.     In  response  to                                                               
Representative Gardner,  he said  he did  not know  whether other                                                               
corporations have a  similar percentage of 25  percent of out-of-                                                               
state  shareholders, but  that people  have the  freedom to  move                                                               
2:38:29 PM                                                                                                                    
CO-CHAIR SEATON,  regarding the  number of Doyon  employees shown                                                               
on  slide 7  for  2007  through 2010,  requested  Mr. Johnsen  to                                                               
provide employment  statistics for the  five years prior  to 2007                                                               
so committee  members could see  whether ACES has had  a positive                                                               
or negative effect on employment numbers.                                                                                       
MR. JOHNSEN agreed to do so.                                                                                                    
2:39:36 PM                                                                                                                    
REPRESENTATIVE MUNOZ asked whether  Doyon anticipates a continued                                                               
employment decline under the current tax regime.                                                                                
MR.  JOHNSEN  answered that  a  continued  decline is  definitely                                                               
projected for  Doyon's drilling and services  companies, although                                                               
an increase may be seen  for Doyon Industrial's maintenance work.                                                               
He said  Doyon does  not see  a positive future  if there  are no                                                               
adjustments to the incentives on the North Slope.                                                                               
CO-CHAIR  SEATON interjected  that one  reason for  asking for  a                                                               
longer range  employment history  is because the  2010 employment                                                               
numbers are  higher than those of  2009 and 2008, but  lower than                                                               
2007  and it  is  unknown whether  2007 was  a  maximum point  in                                                               
employment numbers or just a spike.                                                                                             
2:40:59 PM                                                                                                                    
REPRESENTATIVE  GARDNER inquired  whether Doyon  has participated                                                               
in the state's credit programs.                                                                                                 
MR. JOHNSEN  replied yes, the  Nenana project, and  expedition of                                                               
these programs would expedite Doyon's receipt of those credits.                                                                 
CO-CHAIR  FEIGE   commented  that  he  knows   Native  hires  are                                                               
important to  Doyon because several years  ago he spent a  lot of                                                               
time [as  a pilot] hauling  Doyon's Rig  19 crews back  and forth                                                               
and the  names on the manifests  were all Yukon names.   He urged                                                               
Doyon to keep it up.                                                                                                            
2:42:26 PM                                                                                                                    
ED  DUNCAN,  President,  Chief   Operating  Officer,  Great  Bear                                                               
Petroleum LLC, stated that Great  Bear Petroleum is a new company                                                               
to Alaska in registration only  because his experience in Alaska,                                                               
and that  of his  colleagues, goes  back 30 years.   He  and four                                                               
other managing members run Great Bear  and the company has a very                                                               
aggressive and progressive business development strategy.                                                                       
MR. DUNCAN advised  that Alaska competes for capital  on a global                                                               
scale,  not  just domestically  (slide  3).   Capital  is  mobile                                                               
today; it will find the  best investment opportunity in the world                                                               
and  gravitate  in that  direction.    Great Bear  believes  that                                                               
Alaska  presents an  opportunity for  growth in  the sense  of an                                                               
investment into  oil and gas  business, but Great Bear  also sees                                                               
great  opportunity for  Alaska to  improve its  position globally                                                               
and will talk about that in the context of HB 110.                                                                              
2:44:43 PM                                                                                                                    
MR. DUNCAN  pointed out that  great prospectivity is  what really                                                               
drives oil and gas exploration and  production work (slide 4).  A                                                               
poor  basin with  poor  rocks  cannot be  made  great with  great                                                               
fiscal  terms.   Alaska is  fortunate to  have some  of the  best                                                               
rocks and one  of the best petroleum provinces in  the world, but                                                               
Alaska  also  has some  fiscal  terms  that are  suppressing  the                                                               
development of that great basin.                                                                                                
MR. DUNCAN noted  that recognition of Alaska as a  global oil and                                                               
gas producer  has declined over  the past two decades  (slide 5).                                                               
What can  be done about that  production decline?  Great  Bear is                                                               
singularly focused on Alaska and  building an exploration leg and                                                               
production base  of oil  first, gas second,  on the  North Slope.                                                               
It is  an expensive  business and costs  have risen;  so, whether                                                               
exploration tax credits  should be higher is  something he cannot                                                               
answer today,  but Great  Bear's finance  people could  look into                                                               
this issue and  quantify a number.  Great Bear  believes that the                                                               
ability  to deliver  unconventional  resources  to market,  which                                                               
Great Bear thinks  is a significant part of  the long-term answer                                                               
for  Alaska,   rests  primarily   on  improving   the  commercial                                                               
environment within  which it  operates.   Great Bear  believes it                                                               
has the  technical risk in  hand, but the  commercial environment                                                               
is where Great Bear has to establish how to make this happen.                                                                   
2:47:38 PM                                                                                                                    
MR. DUNCAN noted  that HB 110 would have a  number of significant                                                               
impacts on Great Bear Petroleum (slide  6).  Extension of the tax                                                               
credits  to the  North  Slope  would have  a  huge  impact.   The                                                               
ability to  claim the  tax credits  in a  single year  versus two                                                               
years  would also  have a  huge impact  because Great  Bear is  a                                                               
small company with very, very  high expenditures on the front end                                                               
of its  program.   Reduction of the  production tax  burden would                                                               
improve  Great Bear's  ultimate commercial  outcome, which  would                                                               
improve   the   probability   of  attracting   critical   capital                                                               
investment to the state, to the  plays, and to the business.  The                                                               
scale of capital  investment is huge, he added,  with the numbers                                                               
mentioned by  Mr. Thompson  being on  the low  end of  the amount                                                               
needed to arrest or grow the production base of the state.                                                                      
2:48:52 PM                                                                                                                    
MR. DUNCAN said  Great Bear Petroleum's business  thesis is based                                                               
on unconventional  shale oil and  gas production (slide 7).   His                                                               
job as  a new ventures  geologist is to identify  new opportunity                                                               
space to  look for oil and  gas.  He matches  together geological                                                               
conditions, engineering  technology, and  commercial environments                                                               
to  provide areas  within  which Great  Bear  will prosecute  its                                                               
business.  He  began thinking about areas around  the globe where                                                               
world class  source rocks  existed at  drillable depths  and with                                                               
appropriate  thermal  maturity   that  would  allow  technologies                                                               
developed  in   only  the  last   three  years  to   be  deployed                                                               
successfully  for  unconventional  oil   and  gas  resource  play                                                               
development.   As he thought  about such areas, he  was surprised                                                               
to land  back on  the North  Slope where  he started  his career.                                                               
Some of the  richest oil-prone source rocks in  North America and                                                               
the world are reasonably  proximal to established infrastructure,                                                               
are at  drillable depths, are  thermally stressed  optimally, and                                                               
are  completely untested  - and  that was  the genesis  for Great                                                               
Bear Petroleum.   This is the opportunity to deliver  a play that                                                               
has long-lived  production, manageable risk, allows  the state to                                                               
forecast  forward revenue,  and provides  tremendous job  growth.                                                               
The critical step  in making it happen is  not technical; rather,                                                               
it is commercial viability and competition for capital.                                                                         
2:52:15 PM                                                                                                                    
MR.  DUNCAN  highlighted Great  Bear's  vision,  saying that  his                                                               
company   is  leading   the   industry   toward  development   of                                                               
unconventional oil and gas resources  from known, prolific source                                                               
rocks  on the  North  Slope  (slide 8).    That  is Great  Bear's                                                               
business  thesis, he  said, and  the  company is  not doing  this                                                               
anywhere else  in the  world.   Great Bear has  done this  in the                                                               
Lower  48  and understands  the  geology  of  the plays  and  the                                                               
exploitation  technology.    Great  Bear   is  on  the  verge  of                                                               
contracting the largest  service providers in the  world that are                                                               
already  resident  in  the  state   and  that  already  have  the                                                               
technology in  the state to  help Great  Bear develop a  proof of                                                               
concept stage for the play because proof of concept is critical.                                                                
Mr. DUNCAN,  responding to Co-Chair  Seaton about  the definition                                                               
of proof  of concept,  explained that  exploitation of  this play                                                               
will involve long-length  lateral wells.  The  early work program                                                               
has already  been set and,  weather permitting, the  program will                                                               
be accelerated  late this  year to build  a rock  mechanics model                                                               
that will  allow design  of the  wells and  reservoir stimulation                                                               
program as scientifically  and precisely as possible.   Two full-                                                               
production tests  will be  drilled in the  January to  April 2012                                                               
window  to   test  the  viability  and   applicability  of  known                                                               
technologies to  these rocks in north  Alaska.  While this  is an                                                               
aggressive plan, accelerating the  research and development phase                                                               
is critical because  it allows the company to  scale the business                                                               
development side and full development cycle of this project.                                                                    
2:54:55 PM                                                                                                                    
MR.  DUNCAN, in  further response  to Co-Chair  Seaton, confirmed                                                               
that the  proof of concept  stage is drilling  in the field.   He                                                               
added  that the  regional mapping  for this  basin was  done some                                                               
time ago  by the U.S. Geological  Survey (USGS) and the  State of                                                               
Alaska.   Thus, Great  Bear was able  to build  an interpretation                                                               
for this  play and is  past the data room  stage and is  going to                                                               
the  field next.   The  rock  mechanics studies  will be  drilled                                                               
holes  with  whole  rock  extracted.     Rock  strength  will  be                                                               
determined to provide a picture of  how wells will drill and what                                                               
kind of fracturing stimulation technology  will be deployed.  The                                                               
full-length laterals  will be full  exploration style  wells that                                                               
will probably have a little  more analytical analysis done during                                                               
drilling than when  in full-production mode.  A  unique aspect of                                                               
unconventional  resource  play  development   is  that  once  the                                                               
boundaries  of the  play are  known, the  characteristics of  the                                                               
play are known.  The industry tends to move towards a factory-                                                                  
type drilling so the drilling  costs go down somewhat, details of                                                               
the individual  well analytical work  programs simplify,  and the                                                               
rate  at which  wells  can  be drilled,  stimulated,  and put  on                                                               
production increases.   Great Bear  has a very  aggressive annual                                                               
drilling schedule in full development  mode with a target of 200-                                                               
250 wells  a year.   As a contrast,  he noted that  today 300-350                                                               
wells per month are being drilled in the Bakken of North Dakota.                                                                
2:58:22 PM                                                                                                                    
MR. DUNCAN  said Great Bear  Petroleum believes  that development                                                               
of this  play is  super critical  for putting  long-lived, large-                                                               
volume oil into  TAPS in the near term.   Development of the play                                                               
is possible on the geological  and technical front.  However, the                                                               
commercial side is  onerous and that is why Great  Bear is before                                                               
the committee  to talk  about how the  fiscal environment  can be                                                               
changed  to ensure  that this  play can  be developed  relatively                                                               
unencumbered.  Great Bear is  committed to working with the state                                                               
and is  committed to operating in  an environmentally responsible                                                               
manner.  This play and the  work program behind this play address                                                               
some of the  serious concerns that were just  expressed by Doyon.                                                               
This is a  significant way of securing  long-lived oil production                                                               
into TAPS  as well as thousands  of wells being drilled  over the                                                               
next 20-25  years that  will create an  enormous amount  of long-                                                               
term jobs.  Great Bear believes  that in a full development mode,                                                               
this  play  will deliver  a  minimum  steady-state production  of                                                               
150,000 barrels of oil a day  over the horizon, and production in                                                               
the near term of 15 years would be much higher than that.                                                                       
3:01:24 PM                                                                                                                    
MR. DUNCAN presented the play's  potential oil production profile                                                               
(slide 9).  He said the  profile uses the same production metrics                                                               
on  a per  well basis  as the  Eagle Ford  [shale play]  in South                                                               
Texas, which has  rock and oil types similar to  the Shublik, and                                                               
Great Bear Petroleum believes this  North Slope play will, at the                                                               
least, equal the metrics of the  Eagle Ford.  The target of 3,000                                                               
total wells will  be reached by drilling 200-250  wells per year,                                                               
so the  drill out period is  long, the number of  associated jobs                                                               
is  significant, and  the production  profile grows  dramatically                                                               
and quickly  and holds until  the plateau  is reached.   He added                                                               
that what  is beginning to be  seen as a science  and engineering                                                               
phenomenon  is that  while the  initial  production declines  are                                                               
fairly dramatic in the first  year post fracture stimulation, the                                                               
wells appear to  be developing a very  long-lived asintotic plane                                                               
at  a reasonably  high production  level.   Therefore, the  3,000                                                               
accumulated wells  run a long  time over the horizon,  so revenue                                                               
growth  and generation  for the  state is  tremendous, as  is the                                                               
associated  job  growth.   He  reiterated  that in  Great  Bear's                                                               
opinion the risk is not technical, but commercial.                                                                              
3:04:27 PM                                                                                                                    
MR.  DUNCAN concluded  his presentation  by  noting that  current                                                               
policy has  not addressed  declining production  and has  not re-                                                               
invigorated exploration  (slide 10).   He said HB 110  focuses on                                                               
encouraging  increased oil  production immediately  and will  aid                                                               
Great  Bear in  attracting  critical capital  to  deliver on  its                                                               
stated strategy.   The bill encourages  new exploration activity,                                                               
maintaining many of the exploration  incentives that exist today.                                                               
Great Bear's  lease area is  over 500,000  acres and will  take a                                                               
lot of exploration drilling to prove  that area.  Great Bear sees                                                               
it as  a viable way  to put  long-term oil production  into TAPS,                                                               
and this is in addition  to the conventional exploration programs                                                               
that will continue to add oil  and gas.  Great Bear believes that                                                               
reasonable  solutions can  be agreed  and implemented,  providing                                                               
long-term stability  to the  state and  HB 110 is  a step  in the                                                               
right direction.                                                                                                                
3:07:25 PM                                                                                                                    
MR.  DUNCAN, in  response to  Representative Herron,  stated that                                                               
Great Bear Petroleum  is now an Alaska company with  an office in                                                               
Anchorage.    Its mission  is  not  to  build  a glass  tower  in                                                               
Anchorage  but  to build  technical  alliances  with key  service                                                               
providers  that  have  more  experience  than  Great  Bear  could                                                               
assemble by  hiring [employees].   He said  the biggest  names in                                                               
the  industry, both  multi-national and  indigenous, are  already                                                               
resident in  Alaska.  Great Bear's  mode of operation is  to join                                                               
with groups to  supply the critical skills  and needed technology                                                               
to  prosecute Great  Bear's  work program.    Every company  that                                                               
Great Bear has met  with has said it has the  technology to do an                                                               
unconventional play, which is 100 percent Great Bear's business.                                                                
3:11:32 PM                                                                                                                    
REPRESENTATIVE HERRON  asked whether Great Bear  thinks the small                                                               
producer's tax credit of $12 million should be increased.                                                                       
MR. DUNCAN responded  that he does not have a  specific answer at                                                               
this time,  but he  is willing  to commit his  staff to  help the                                                               
committee and the  state determine whether that  number should be                                                               
moved and what it should be.                                                                                                    
3:12:44 PM                                                                                                                    
REPRESENTATIVE   HERRON   inquired  whether   President   Obama's                                                               
position on fracturing will affect Alaska.                                                                                      
MR. DUNCAN  answered that reservoir stimulation  by fracturing is                                                               
controversial  in  some parts  of  the  nation for  good  reason.                                                               
Understanding the distribution of  potable water aquifers and the                                                               
effect on  urban surface  environments is  very critical.   Great                                                               
Bear Petroleum  will fracture stimulate  its wells in a  way that                                                               
will not  affect any potable  water aquifers, of which  there are                                                               
none in the area of operation.   Great Bear is cognizant that the                                                               
subsistence  communities  in  this  area  will  have  subsistence                                                               
hunting rights  at certain times  of the  year and those  will be                                                               
taken on  board.  The  event in the  northeast U.S. that  lead to                                                               
much of the concern, real and  other wise, had a juxtaposition of                                                               
certain geological elements, human  habitation, and aquifers; but                                                               
those kinds of impediments are not present on the North Slope.                                                                  
3:14:47 PM                                                                                                                    
REPRESENTATIVE GARDNER commented that  most legislators had never                                                               
heard  of Great  Bear Petroleum  until several  months ago.   She                                                               
asked whether  the company is  brand new  and whether it  has any                                                               
holdings or activities elsewhere.                                                                                               
MR. DUNCAN answered  that Great Bear Petroleum  is focused solely                                                               
on  the North  Slope of  Alaska.   When  competition for  capital                                                               
occurs within the walls of the  company it is deciding whether to                                                               
drill the east side of the  company's lease in Alaska or the west                                                               
side,  not whether  to drill  a well  in Texas  or North  Dakota.                                                               
Great  Bear will  hire to  the  best of  its ability  exclusively                                                               
Alaskan.   He cannot  promise that all  of the  service providers                                                               
have that  exact same  standard, but Great  Bear will  be dealing                                                               
with Alaska-based service providers.                                                                                            
3:16:04 PM                                                                                                                    
REPRESENTATIVE GARDNER asked  where the capital for  this type of                                                               
capital  intensive  work  comes   from,  given  that  Great  Bear                                                               
Petroleum is a brand new company.                                                                                               
MR.  DUNCAN replied  that Great  Bear is  a private  company with                                                               
initial investment capital  coming from friends and  family.  The                                                               
additional  investment capital  for funding  the company  through                                                               
the proof of concept stage  was very broad-based and significant.                                                               
While he has  no fear about Great Bear getting  through the proof                                                               
of  concept stage,  he proffered  that no  company in  the world,                                                               
other than a  couple of the super-majors, has  capital on account                                                               
to fund out of pocket the  full development drilling of 250 wells                                                               
a year which  is in excess of $2 billion  annually for this play.                                                               
Great Bear believes the oil and gas  is there and that it can get                                                               
the resource out of the ground  at rates that will be material to                                                               
TAPS and the long-term health of the state.                                                                                     
3:17:56 PM                                                                                                                    
CO-CHAIR SEATON inquired whether the  $2 billion in capital costs                                                               
includes production facilities or only  the drilling.  He further                                                               
asked whether  the development would require  separate production                                                               
MR. DUNCAN responded that he  believes the resource base is large                                                               
enough to dictate  a development scenario that  allows Great Bear                                                               
to  get the  oil  into  TAPS so  he  does  not expect  facilities                                                               
construction  to be  an impediment.   Moving  that amount  of oil                                                               
around  will require  building roads,  pipelines, pump  stations,                                                               
and processing facilities.   In further response, he  said the $2                                                               
billion was directed at the drilling capital expenditures.                                                                      
3:20:41 PM                                                                                                                    
DAVE CRUZ,  President, Chief  Executive Officer,  Cruz Companies,                                                               
noted that his  company is an Alaska-based provider  of oil field                                                               
services,  heavy civil  construction,  and marine  services.   He                                                               
said  his   company  is  faced   with  a  tremendous   amount  of                                                               
uncertainty, although the previous testimony  has made him feel a                                                               
little better than when he  first walked into the committee room.                                                               
He began  working on  the North Slope  in the  mid-1970s, started                                                               
his own company in 1981, and  then partnered with his wife in the                                                               
business 28 years ago.   As his company has grown  it has been in                                                               
resource   development,  building   roads,  clearing   pipelines,                                                               
airports, and a  multitude of disciplines.  In  2004, his company                                                               
purchased a  portion of Western  Geophysical's assets  in Prudhoe                                                               
Bay, figuring  to get  into the business  of building  ice roads.                                                               
About  that  time  "ARCO"  was  sold,  "Conoco"  took  over,  and                                                               
independent  oil  companies  began  to show  up  and  explore  in                                                               
Alaska.     His  company  specialized  in   exploration  support,                                                               
building the  ice roads  and ice  pads, hauling  equipment across                                                               
the  tundra during  the  winter, setting  up  and supporting  the                                                               
drill rigs and camps, and then tearing them down for the thaws.                                                                 
3:23:44 PM                                                                                                                    
MR.  CRUZ said  the explorers  included "Anadarko,  Brooks Range,                                                               
FEX, Chevron, Renaissance, Total,  Conoco ... Savant ... Pioneer,                                                               
ENI,  and  UltraStar", but  several  of  these companies  are  no                                                               
longer  in the  state.    In 2005  the  exploration  side of  his                                                               
company employed  30 people; by  2008 it employed 200  people all                                                               
winter, of which  99 percent were Alaska residents.   In 2009 the                                                               
number of employees dropped to  150 during which time the company                                                               
took  a  two-year  exploration   project  for  Chevron  south  of                                                               
Prudhoe.  When ACES started to  kick in, a total lack of interest                                                               
in exploring  on the North Slope  began and his number  of winter                                                               
employees decreased from 150 to 32,  with only 5 weeks of work in                                                               
2010.  He currently has 12 people  working on the slope.  He said                                                               
he  attributes  much of  this  decline  to the  business  climate                                                               
created by Alaska's high taxes.                                                                                                 
3:26:17 PM                                                                                                                    
MR. CRUZ told committee members  that last fall he moved millions                                                               
of dollars worth  of equipment to the Bakken oil  fields of North                                                               
Dakota, after it  sat on the North  Slope for about a  year and a                                                               
half.   His company's specialty  in North Dakota is  moving drill                                                               
rigs.   His  work  in  North Dakota,  where  161  drill rigs  are                                                               
working  in an  area of  100 square  miles, has  taught him  that                                                               
Alaska's production has declined to  the point that it is broken.                                                               
He  reported that  much of  the surface  and subsurface  in North                                                               
Dakota is privately owned, unlike  in Alaska.  Another difference                                                               
is  that   North  Dakota's  tax  structure   invites  investment.                                                               
Changes must  be made to  Alaska's oil tax structure,  he warned,                                                               
or oil in Alaska will be done.                                                                                                  
3:27:42 PM                                                                                                                    
MR. CRUZ  pointed out  that to  compete as  a contractor  he must                                                               
offer a  better price than his  competitor and do better  work to                                                               
stay in the  business.  Alaska is competing against  the costs in                                                               
other  places; for  example, the  cost of  drilling a  production                                                               
well  in   North  Dakota  is   $2.5  million,  while   the  first                                                               
exploration  well  on  the  North Slope  of  Alaska  requires  an                                                               
investment  of $25  million.   For Alaska  to compete,  the state                                                               
government  must provide  incentives  for  investment, or  people                                                               
like himself  must go someplace else  to make a living.   He took                                                               
only 10 employees from Alaska to  North Dakota, the rest are from                                                               
Wyoming, Arizona, North  Dakota, and Colorado.  If he  was not in                                                               
North  Dakota right  now he  would  be having  some very  serious                                                               
problems  to  contend  with;  therefore,  he  is  a  very  strong                                                               
supporter of HB 110 to help turn things around.                                                                                 
3:29:53 PM                                                                                                                    
GARY PORTER,  Pilot, testified that he  and his wife own  a small                                                               
air service in Homer that  operates aircraft statewide.  He built                                                               
a new  facility in  Homer used  primarily for  winter maintenance                                                               
and a  new hanger and facility  in Deadhorse.  He  said his story                                                               
mimics that of  Mr. Cruz's.  His company went  to the North Slope                                                               
about six  or seven years ago  when the last oil  bubble happened                                                               
and it looked  like things were going to take  off after 15 years                                                               
of the slope  looking like a ghost  town.  When the  price of oil                                                               
went  up and  things were  looking great,  he dove  in with  both                                                               
feet.   The money  he made was  immediately reinvested  back into                                                               
infrastructure that  still stands.   He hired 100  percent local,                                                               
mostly kids  graduating from the  Homer high school  because they                                                               
had a  good foundation from working  on fishing boats.   The jobs                                                               
were at least six months of the year at pretty good pay.                                                                        
3:32:32 PM                                                                                                                    
MR.  PORTER said  that  at the  time this  last  bubble began  he                                                               
thought it would  last.  He followed the ACES  taxes briefly, but                                                               
he never really got into it  because it was complicated and he is                                                               
not  an economist.   He  was  therefore hopeful  that the  people                                                               
working on  ACES knew what they  were doing, but instead  the oil                                                               
companies were run  off and now he is left  with huge investments                                                               
and no  work.  He  wonders what the opposition  to HB 110  is and                                                               
what the arguments  are against it.  He proffered  that the state                                                               
of Alaska  will have a  beautiful government when the  oil levels                                                               
out at 300,000 barrels, but there will be no workforce.                                                                         
3:36:13 PM                                                                                                                    
MIKE  PEARSON stated  that  he  began working  in  the oil  field                                                               
shortly  after arriving  in Alaska  in 1975.   He  has worked  on                                                               
drilling platforms in Cook Inlet and  on the North Slope.  Now he                                                               
is driving truck  for NANA Oil Field  [Services], hauling potable                                                               
water and  diesel all over the  North Slope, which allows  him to                                                               
see what everyone  is doing.  Four years ago  things were looking                                                               
pretty  bright with  new  camps, a  hotel,  and other  facilities                                                               
being built.  But since then  he has watched things trickle away.                                                               
Liberty has  had engineering and bureaucratic  problems and Point                                                               
Thomson is  being shut down.   People  he knows in  the Anchorage                                                               
area thought  they were going to  work this winter, but  did not,                                                               
and  he  does  not know  what  they  will  do  this spring.    He                                                               
understood why there  was no work during the oil  downturn of the                                                               
mid-1980s when  the price of a  barrel of oil was  less than that                                                               
of a red  salmon.  However, he cannot understand  why there is no                                                               
work at today's price of $100 per  barrel.  There used to be dust                                                               
clouds  from all  the trucks  in a  line on  the road  delivering                                                               
supplies, but no longer.                                                                                                        
3:39:24 PM                                                                                                                    
MR.  PEARSON further  understood  that this  spring  some of  the                                                               
older drilling  rigs will be cut  up and sold for  scrap.  Alaska                                                               
is losing  its manpower on the  North Slope, he warned,  and some                                                               
of  the work  is one-of-a-kind  that takes  many years  to learn.                                                               
The wages  are going  down and  workers are  taking pay  cuts and                                                               
losing insurance  benefits.   Companies are  trying to  stay, but                                                               
that has meant taking away from the  worker.  He said he has also                                                               
noticed  that  when   flying  on  Alaska  Airlines   all  of  the                                                               
passengers have grey hair, which  indicates to him that the state                                                               
is  losing  its  young  people.   The  North  Slope  is  Alaska's                                                               
lifeblood, something  must be  done or the  golden goose  will be                                                               
3:41:35 PM                                                                                                                    
REBECCA   LOGAN,  General   Manager,   Alaska  Support   Industry                                                               
Alliance, explained that her organization  is a trade association                                                               
of 500  members who employ  40,000 of the 310,000  people working                                                               
in  the state  of  Alaska.   The  association  represents a  wide                                                               
variety  of  employers  and  sectors of  business  that  are  the                                                               
support  companies  for  the oil,  gas,  and  mining  industries.                                                               
These  companies  include   automotive,  clothing,  construction,                                                               
drilling,  education, food  and beverage,  janitorial, oil  field                                                               
service,  personnel,  photography, real  estate,  transportation,                                                               
and  welding companies,  as well  as Alaska  Native corporations,                                                               
financial institutions, and nonprofit organizations.                                                                            
3:43:25 PM                                                                                                                    
MS.  LOGAN  related that  the  association  recently completed  a                                                               
survey of its membership.  She  shared the responses of 80 Alaska                                                               
companies  that employ  9,739  people in  the  state.   Fifty-six                                                               
percent of those 80 companies reported  that that they have had a                                                               
reduction in workforce since 2008.   Eighty-five percent of those                                                               
80 companies reported  that worries about finding work  in a poor                                                               
economy  have kept  them  up at  night.   The  80 companies  also                                                               
identified issues that  will have the greatest impact  on them in                                                               
2011  and the  top three  issues  were lack  of work,  regulatory                                                               
environment, and  access to  natural resources.   In  response to                                                               
Representative  P.  Wilson,  said  she will  provide  the  survey                                                               
results  to  committee  members  as  well as  the  names  of  the                                                               
companies that are in each committee member's district.                                                                         
3:45:19 PM                                                                                                                    
CO-CHAIR SEATON  advised that the  committee is cognizant  of the                                                               
lack  of work,  but  the  problem is  making  sure  that what  is                                                               
enacted  is   right  for  Alaska   and  will  generate   the  new                                                               
production.  Regarding the lack of  work, he pointed out that the                                                               
ConocoPhillips  CD-5  drill pad,  the  Liberty  field, and  Point                                                               
Thomson  have  been  stopped by  federal  regulatory  actions  or                                                               
negotiations  with  the  state,   not  the  state's  tax  system.                                                               
Members are  faced with the  idea that it  is the taxes  that are                                                               
stopping all  development; yet, according  to Alaska Oil  and Gas                                                               
Conservation Commission  (AOGCC) figures, the drop  in the number                                                               
of  production wells  occurred  before  the petroleum  production                                                               
profits tax  (PPT) or Alaska's  Clear and Equitable  Share (ACES)                                                               
and the  number has  since been  on a  plateau.   Legislators are                                                               
trying to identify the true levers  and whether the response to a                                                               
drop  in  revenue  to  the  state  will  be  the  stimulation  in                                                               
production that  everyone is  seeking or  whether the  levers are                                                               
instead permitting,  regulation, and  negotiation.  He  said that                                                               
if  there is  any way  to target  the information  that ties  the                                                               
survey  results to  tax policy,  and not  regulatory delays,  the                                                               
committee would appreciate hearing that.                                                                                        
3:48:40 PM                                                                                                                    
DOUG  SMITH,  President,  CEO,  Little  Red  Services,  said  his                                                               
company is an Alaskan oil  field service company that operates on                                                               
the North  Slope exclusively and  it currently employs  about 100                                                               
Alaskans.   What is  being seen under  the current  tax structure                                                               
and  regulatory burden  is  a decrease  in  the infield  activity                                                               
which his  company supports.  The  work his company does  is from                                                               
the  wellhead down  and  includes feeding  of  crude and  diesel,                                                               
cleaning  the well  bore to  enhance production  of existing  oil                                                               
fields,  freeze protection  of the  wells  when TAPS  has a  slow                                                               
down, and  getting the  oil flowing  again once  TAPS is  back on                                                               
line.  In his  20 years in the Alaska industry he  has seen a lot                                                               
of  changes in  the tax  structure.   While  one needs  to be  an                                                               
economist to  understand the  impacts of  all the  tax structures                                                               
that Alaska has  had, it appears that the current  tax regime has                                                               
placed Alaska  at a disadvantage in  the global market.   He said                                                               
he  is  unsure   where  the  Department  of   Labor  &  Workforce                                                               
Development job numbers come from  because they do not match what                                                               
he sees on the ground in Prudhoe.                                                                                               
3:51:05 PM                                                                                                                    
MR. SMITH  stated that  as an  employer the  biggest thing  he is                                                               
confronted  with is  the  decline in  investment  in the  infield                                                               
arena.   Since 2008  his company  has seen a  20 percent  drop in                                                               
demand for its services.  Between  2008 and 2010 his company lost                                                               
6,000  truck hours,  which equates  to  about 20  percent of  his                                                               
company's  total  infield  servicing  truck hours  and  about  $2                                                               
million in  revenue.  He was  forced to lay off  11 employees, of                                                               
which  9  were  Alaska  residents, and  these  employees  had  an                                                               
average tenure  with his company of  5 years plus.   A home grown                                                               
company,  Little Red  Services is  a long-term  employer type  of                                                               
company,  with the  company's first  two employees  still working                                                               
for it.  This is the first time  his company has had to make this                                                               
kind of reduction.   Additionally, the company had  to reduce its                                                               
employee  benefits by  changing the  type of  healthcare benefits                                                               
that it provided  and had to stop paying  profit sharing benefits                                                               
for the  past two years.   There has  been a heartfelt  impact on                                                               
the day-to-day lives of his employees.                                                                                          
3:53:10 PM                                                                                                                    
MR. SMITH read  two statements that he agrees with  from a recent                                                               
article in  the Anchorage  Daily News  written by  Senator Hollis                                                             
French and Representative  Les Gara:  1) "If oil  is taxed at too                                                               
high a  rate there is a  risk that crucial investments  don't get                                                               
made  in  the   state's  most  important  industry."     2)  "Any                                                               
reasonable  tax relief  proposal that  will lead  to more  Alaska                                                               
jobs  and more  Alaska oil  will get  serious consideration  from                                                               
this  legislature."   He  related that  last week  he  went to  a                                                               
briefing  where the  senator and  representative  said that  they                                                               
wanted the state  to advertise what it has to  offer to investors                                                               
through tax credits,  royalty relief, and such.   However, as was                                                               
earlier heard from Mr. Thompson,  potential investors are turning                                                               
away from  Alaska's prolific oil  producing areas because  of the                                                               
state's  tax policy.   Advertising  what the  state offers  under                                                               
ACES  is  not  the  only solution;  another  is  a  broader-based                                                               
solution  that weighs  Alaska's  policy against  other areas  and                                                               
having a middle ground to move forward with in the legislature.                                                                 
3:54:10 PM                                                                                                                    
MR.  SMITH said  that while  he appreciates  the state's  healthy                                                               
budget reserve, he  fears Alaska is putting at  risk the industry                                                               
that adds to that treasury long  term.  While opponents to reform                                                               
argue that employment is up under  ACES, he said he believes that                                                               
a look  into those  numbers will  show that  exploration, infield                                                               
development, and production-related jobs  are down while there is                                                               
an uptick in infrastructure maintenance  jobs.  His employees are                                                               
keeping themselves apprised of what  is happening across the U.S.                                                               
right  now, and  his company  is concerned  about its  ability to                                                               
retain  key, skilled  people who  may choose  to leave  for areas                                                               
like North Dakota  where they see a longer-term  future with less                                                               
opposition to development.  Production  is down significantly and                                                               
while  HB  110 will  not  completely  reverse that,  his  company                                                               
supports the bill  because it should change  Alaska's position in                                                               
the  global  economy  to attract  additional  investment,  create                                                               
jobs, and allow his company to  stay in the state long-term as an                                                               
employer and maintain and grow its employment levels.                                                                           
3:56:11 PM                                                                                                                    
MR. SMITH  said his company is  not looking for a  handout.  This                                                               
is an opportunity  to address the state's  fiscal structure, keep                                                               
Alaskans   working,   and   maximize  development   of   Alaska's                                                               
resources.   In  addition  to providing  jobs  the industry  also                                                               
participates  in  civic  activities;  for example,  in  2010  the                                                               
United Way of Anchorage received a  total of $3.7 million from 44                                                               
major  oil  and  oil  support  companies,  which  represented  49                                                               
percent of the  funds it raised from the private  sector.  Little                                                               
Red Services provided $70,000  in charitable contributions across                                                               
the state.   He  commended Governor Parnell's  grasp of  what the                                                               
industry needs  to move forward  and said the reform  proposed by                                                               
HB 110 deserves serious consideration.                                                                                          
3:57:36 PM                                                                                                                    
PHIL KROMM, Carlile  Transportation, stated that he  is a 15-year                                                               
line  haul driver  with Carlile  Transportation,  a company  with                                                               
about  650 employees.    He also  works  in safety,  recruitment,                                                               
training, and  driver retention for  Carlile.  He  usually drives                                                               
his 18-wheeler on the  haul road to take goods to  the slope.  He                                                               
loves his  job and is  excited to be  able to share  his concerns                                                               
about the  situation that  Alaska, its  local companies,  and its                                                               
people  are in  right now.   He  has firsthand  knowledge of  the                                                               
significant decline in business volume  and work slow down on the                                                               
North Slope  that has affected people.   It is obvious  that less                                                               
pipe is going up the road,  specifically less drill stem which is                                                               
used for  exploration.  Since ACES  went into effect, all  of the                                                               
drivers  on the  haul road  have seen  the decline  that happened                                                               
3:59:46 PM                                                                                                                    
MR. KROMM  reported that there  is also a  considerable reduction                                                               
in  loads   of  construction  supplies,  from   lumber  to  heavy                                                               
equipment.  Carlisle is not the  only one feeling the pain; it is                                                               
all of  the oil and gas  providers and contractors.   Non-oil and                                                               
gas  business are  affected, too,  because when  his paycheck  is                                                               
less  he and  his family  make fewer  trips to  the local  coffee                                                               
stand and diner.  Also, during  the winter Carlile hires about 30                                                               
additional people  to move  things around  between the  fields on                                                               
the slope, but  for the last couple of years  those 30 additional                                                               
jobs have not been there.   This is significant because it is not                                                               
just  30 families  without a  job  at Carlile,  it also  includes                                                               
other  businesses and  therefore adds  up.   The  people that  do                                                               
still  have  jobs  are  just  scraping by  because  there  is  no                                                               
overtime  available due  to  the work  not  being there  anymore.                                                               
Drivers are looking for loads just  to make a paycheck and he has                                                               
personally seen  drivers leave  Alaska for  work in  other places                                                               
like the Dakotas  that have good pay and a  lower cost of living.                                                               
Alaska is losing jobs and  good employees because of the declines                                                               
in local business.                                                                                                              
MR. KROMM  related that the  conversations on the road  today are                                                               
about the  high cost of living,  how to make ends  meet with less                                                               
money,  and  a nervous  sense  about  the  future of  the  state.                                                               
Alaska  needs  to be  competitive  to  keep its  workforce  here,                                                               
create opportunities  for jobs,  and keep  investment circulating                                                               
here  at home.   He  and  his fellow  drivers want  to stay  busy                                                               
hauling drill pipe and look forward  to the ice roads season.  It                                                               
is exciting to  see a new man  camp being moved up  to the slope,                                                               
not  being  moved  off  the  slope to  the  Dakotas.    With  the                                                               
committee's  help  and  cooperation,  development  and  a  stable                                                               
investment climate can happen.                                                                                                  
4:03:37 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 4:03 p.m.                                                                 

Document Name Date/Time Subjects
Great Bear HB 110 Presentation Juneau Feb 18 2011.pptx HRES 2/18/2011 1:00:00 PM
Brooks Range Juneau HRC.pptx HRES 2/18/2011 1:00:00 PM
AVCG Thompson HB 110 Testimony 021811.pptx HRES 2/18/2011 1:00:00 PM
Armstrong Oil and Gas testimony HB 110.pdf HRES 2/18/2011 1:00:00 PM
Savant Alaska, LLC testimony - HB 110.pdf HRES 2/18/2011 1:00:00 PM
Doyon House Resources 18 Feb 2011.pptx HRES 2/18/2011 1:00:00 PM
Ultra Star Testimony HB 110.pdf HRES 2/18/2011 1:00:00 PM
HRES 2.18.11 NANA Worley-Parsons.pdf HRES 2/18/2011 1:00:00 PM
HRES 2.18.11 Phil Kromm.pdf HRES 2/18/2011 1:00:00 PM