Legislature(2013 - 2014)BARNES 124

03/26/2013 06:00 PM RESOURCES


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Audio Topic
06:07:26 PM Start
06:07:48 PM SB21
08:39:13 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time Change --
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
- ConocoPhillips, BP, ExxonMobil
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 26, 2013                                                                                         
                           6:07 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Eric Feige, Co-Chair                                                                                             
Representative Dan Saddler, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Mike Hawker                                                                                                      
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Geran Tarr                                                                                                       
Representative Chris Tuck                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 21(FIN) AM(EFD FLD)                                                                    
"An  Act relating  to  the interest  rate  applicable to  certain                                                               
amounts  due for  fees,  taxes, and  payments  made and  property                                                               
delivered to  the Department of  Revenue; providing a  tax credit                                                               
against  the corporation  income tax  for qualified  oil and  gas                                                               
service  industry  expenditures;  relating  to the  oil  and  gas                                                               
production tax rate; relating to  gas used in the state; relating                                                               
to monthly  installment payments  of the  oil and  gas production                                                               
tax; relating to  oil and gas production tax  credits for certain                                                               
losses and expenditures;  relating to oil and  gas production tax                                                               
credit  certificates;  relating  to nontransferable  tax  credits                                                               
based  on production;  relating to  the  oil and  gas tax  credit                                                               
fund; relating  to annual statements by  producers and explorers;                                                               
establishing the  Oil and Gas  Competitiveness Review  Board; and                                                               
making conforming amendments."                                                                                                  
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB  21                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX                                                                                         
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/16/13       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/16/13       (S)       TTP, RES, FIN                                                                                          
01/22/13       (S)       TTP AT 3:30 PM BELTZ 105 (TSBldg)                                                                      
01/22/13       (S)       Heard & Held                                                                                           
01/22/13       (S)       MINUTE(TTP)                                                                                            
01/24/13       (S)       TTP AT 3:30 PM BUTROVICH 205                                                                           
01/24/13       (S)       Heard & Held                                                                                           
01/24/13       (S)       MINUTE(TTP)                                                                                            
01/29/13       (S)       TTP AT 3:30 PM BELTZ 105 (TSBldg)                                                                      
01/29/13       (S)       Heard & Held                                                                                           
01/29/13       (S)       MINUTE(TTP)                                                                                            
01/31/13       (S)       TTP AT 1:00 PM BUTROVICH 205                                                                           
01/31/13       (S)       Heard & Held                                                                                           
01/31/13       (S)       MINUTE(TTP)                                                                                            
02/05/13       (S)       TTP AT 3:30 PM BUTROVICH 205                                                                           
02/05/13       (S)       Heard & Held                                                                                           
02/05/13       (S)       MINUTE(TTP)                                                                                            
02/07/13       (S)       TTP AT 3:30 PM BUTROVICH 205                                                                           
02/07/13       (S)       Moved SB  21 Out of Committee                                                                          
02/07/13       (S)       MINUTE(TTP)                                                                                            
02/08/13       (S)       TTP RPT 1NR 4AM                                                                                        
02/08/13       (S)       NR: DUNLEAVY                                                                                           
02/08/13       (S)       AM:   MICCICHE,   GARDNER,   FAIRCLOUGH,                                                               
                         MCGUIRE                                                                                                
02/08/13       (S)       LETTER OF INTENT WITH TTP REPORT                                                                       
02/09/13       (S)       TTP AT 10:00 AM BUTROVICH 205                                                                          
02/09/13       (S)       -- MEETING CANCELED --                                                                                 
02/11/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/11/13       (S)       Heard & Held                                                                                           
02/11/13       (S)       MINUTE(RES)                                                                                            
02/13/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/13/13       (S)       Heard & Held                                                                                           
02/13/13       (S)       MINUTE(RES)                                                                                            
02/15/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/15/13       (S)       Heard & Held                                                                                           
02/15/13       (S)       MINUTE(RES)                                                                                            
02/18/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/18/13       (S)       Heard & Held                                                                                           
02/18/13       (S)       MINUTE(RES)                                                                                            
02/20/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/20/13       (S)       Heard & Held                                                                                           
02/20/13       (S)       MINUTE(RES)                                                                                            
02/22/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/22/13       (S)       Heard & Held                                                                                           
02/22/13       (S)       MINUTE(RES)                                                                                            
02/25/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/25/13       (S)       Heard & Held                                                                                           
02/25/13       (S)       MINUTE(RES)                                                                                            
02/27/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/27/13       (S)       Moved CSSB  21(RES) Out of Committee                                                                   
02/27/13       (S)       MINUTE(RES)                                                                                            
02/28/13       (S)       RES RPT CS   3DP 1DNP 2NR 1AM   NEW                                                                    
                         TITLE                                                                                                  
02/28/13       (S)       LETTER OF INTENT WITH RES REPORT                                                                       
02/28/13       (S)       DP: GIESSEL, MCGUIRE, DYSON                                                                            
02/28/13       (S)       DNP: FRENCH                                                                                            
02/28/13       (S)       NR: MICCICHE, BISHOP                                                                                   
02/28/13       (S)       AM: FAIRCLOUGH                                                                                         
02/28/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
02/28/13       (S)       Heard & Held                                                                                           
02/28/13       (S)       MINUTE(FIN)                                                                                            
03/01/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/01/13       (S)       Heard & Held                                                                                           
03/01/13       (S)       MINUTE(FIN)                                                                                            
03/01/13       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/01/13       (S)       -- MEETING CANCELED --                                                                                 
03/02/13       (S)       RES AT 10:00 AM BUTROVICH 205                                                                          
03/02/13       (S)       -- MEETING CANCELED --                                                                                 
03/04/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/04/13       (S)       Heard & Held                                                                                           
03/04/13       (S)       MINUTE(FIN)                                                                                            
03/04/13       (S)       FIN AT 1:30 PM SENATE FINANCE 532                                                                      
03/04/13       (S)       Heard & Held                                                                                           
03/04/13       (S)       MINUTE(FIN)                                                                                            
03/05/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/05/13       (S)       Heard & Held                                                                                           
03/05/13       (S)       MINUTE(FIN)                                                                                            
03/05/13       (S)       FIN AT 1:30 PM SENATE FINANCE 532                                                                      
03/05/13       (S)       Heard & Held                                                                                           
03/05/13       (S)       MINUTE(FIN)                                                                                            
03/06/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/06/13       (S)       Heard & Held                                                                                           
03/06/13       (S)       MINUTE(FIN)                                                                                            
03/06/13       (S)       FIN AT 1:30 PM SENATE FINANCE 532                                                                      
03/06/13       (S)       Heard & Held                                                                                           
03/06/13       (S)       MINUTE(FIN)                                                                                            
03/06/13       (S)       FIN AT 3:00 PM SENATE FINANCE 532                                                                      
03/06/13       (S)       -- Public Testimony --                                                                                 
03/11/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/11/13       (S)       -- MEETING CANCELED --                                                                                 
03/11/13       (S)       FIN AT 1:30 PM SENATE FINANCE 532                                                                      
03/11/13       (S)       -- MEETING CANCELED --                                                                                 
03/12/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/12/13       (S)       Bills Previously Heard/Scheduled                                                                       
03/12/13       (S)       FIN AT 1:30 PM SENATE FINANCE 532                                                                      
03/12/13       (S)       Heard & Held                                                                                           
03/12/13       (S)       MINUTE(FIN)                                                                                            
03/12/13       (S)       FIN AT 4:00 PM SENATE FINANCE 532                                                                      
03/12/13       (S)       Heard & Held                                                                                           
03/12/13       (S)       MINUTE(FIN)                                                                                            
03/13/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/13/13       (S)       Heard & Held                                                                                           
03/13/13       (S)       MINUTE(FIN)                                                                                            
03/13/13       (S)       FIN AT 1:30 PM SENATE FINANCE 532                                                                      
03/13/13       (S)       Heard & Held                                                                                           
03/13/13       (S)       MINUTE(FIN)                                                                                            
03/14/13       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/14/13       (S)       Moved CSSB  21(FIN) Out of Committee                                                                   
03/14/13       (S)       MINUTE(FIN)                                                                                            
03/18/13       (S)       FIN RPT CS  2DP 1DNP 1NR 3AM   NEW                                                                     
                         TITLE                                                                                                  
03/18/13       (S)       DP: KELLY, MEYER                                                                                       
03/18/13       (S)       DNP: HOFFMAN                                                                                           
03/18/13       (S)       NR: FAIRCLOUGH                                                                                         
03/18/13       (S)       AM: DUNLEAVY, BISHOP, OLSON                                                                            
03/18/13       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/18/13       (H)       Scheduled But Not Heard                                                                                
03/19/13       (S)       RLS AT 9:00 AM FAHRENKAMP 203                                                                          
03/19/13       (S)       -- MEETING CANCELED --                                                                                 
03/20/13       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/20/13       (H)       Scheduled But Not Heard                                                                                
03/21/13       (S)       TRANSMITTED TO (H)                                                                                     
03/21/13       (S)       VERSION: CSSB 21(FIN) AM(EFD FLD)                                                                      
03/22/13       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/22/13       (H)       RES, FIN                                                                                               
03/22/13       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/22/13       (H)       Heard & Held                                                                                           
03/22/13       (H)       MINUTE(RES)                                                                                            
03/25/13       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/25/13       (H)       Heard & Held                                                                                           
03/25/13       (H)       MINUTE(RES)                                                                                            
03/26/13       (H)       RES AT 6:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAN SECKERS, Tax Counsel                                                                                                        
ExxonMobil Corporation                                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified on CSSB 21(FIN) am(efd fld).                                                                   
                                                                                                                                
SCOTT JEPSEN, Vice President External Affairs                                                                                   
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified on CSSB 21(FIN) am(efd fld).                                                                   
                                                                                                                                
BOB HEINRICH, Vice President Finance                                                                                            
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified on CSSB 21(FIN) am(efd fld).                                                                   
                                                                                                                                
DAMIAN BILBAO, Head of Finance                                                                                                  
BP Exploration (Alaska) Inc.                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified on CSSB 21(FIN) am(efd fld).                                                                   
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
6:07:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  ERIC   FEIGE  called   the  House   Resources  Standing                                                             
Committee meeting to order at  6:07 p.m.  Representatives Seaton,                                                               
Johnson,  Tuck,  Hawker,  P.  Wilson,  Saddler,  and  Feige  were                                                               
present at  the call  to order.   Representatives Tarr  and Olson                                                               
arrived as the meeting was in progress.                                                                                         
                                                                                                                                
               SB  21-OIL AND GAS PRODUCTION TAX                                                                            
                                                                                                                                
6:07:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  announced that the  only order of business  is CS                                                               
FOR SENATE BILL NO. 21(FIN) am(efd  fld), "An Act relating to the                                                               
interest rate applicable to certain  amounts due for fees, taxes,                                                               
and payments  made and  property delivered  to the  Department of                                                               
Revenue; providing  a tax credit  against the  corporation income                                                               
tax  for qualified  oil and  gas  service industry  expenditures;                                                               
relating to the oil and gas  production tax rate; relating to gas                                                               
used in  the state; relating  to monthly installment  payments of                                                               
the  oil  and  gas  production  tax;  relating  to  oil  and  gas                                                               
production  tax  credits  for certain  losses  and  expenditures;                                                               
relating  to  oil and  gas  production  tax credit  certificates;                                                               
relating  to nontransferable  tax  credits  based on  production;                                                               
relating to the  oil and gas tax credit fund;  relating to annual                                                               
statements by  producers and explorers; establishing  the Oil and                                                               
Gas   Competitiveness  Review   Board;   and  making   conforming                                                               
amendments."                                                                                                                    
                                                                                                                                
6:08:37 PM                                                                                                                    
                                                                                                                                
DAN SECKERS,  Tax Counsel, ExxonMobil  Corporation, stated  he is                                                               
not providing  any slides or  graphs because there is  nothing he                                                               
can produce  that will be  any different than what  the committee                                                               
has already  seen from  the [legislature's  and administration's]                                                               
consultants and others,  which is that Alaska's  fiscal regime is                                                               
broken.  He  said he agrees with most  everything the consultants                                                               
have told  this and other  committees - under Alaska's  Clear and                                                               
Equitable Share  (ACES), Alaska is not  globally competitive and,                                                               
more  importantly,  not  globally   attractive  to  bring  needed                                                               
investments  to  the  state.   In  ExxonMobil's  view,  the  most                                                               
important issue facing Alaska today is  the need for the state to                                                               
develop a competitive, attractive,  and stable fiscal regime that                                                               
allows Alaska  to attract  the needed  investments for  the North                                                               
Slope.  Deciding  whether it is time for Alaska  to make a change                                                               
rests with legislators, not his  company.  Do legislators want to                                                               
continue  under  the  uncompetitive and  unattractive  system  of                                                               
ACES, or  do legislators want  to make a  step change to  get the                                                               
investment that Alaska needs?                                                                                                   
                                                                                                                                
6:10:24 PM                                                                                                                    
                                                                                                                                
MR.  SECKERS said  ExxonMobil believes  CSSB 21(FIN)  am(efd fld)                                                               
makes significant  progress to improving Alaska's  overall fiscal                                                               
environment.   Three features of  the bill improve ACES  and move                                                               
Alaska  forward in  global competitiveness.   First,  eliminating                                                               
progressivity represents significant  improvement and this change                                                               
alone  significantly  improves Alaska's  global  competitiveness.                                                               
Progressivity is difficult and complicated  to work with, plus it                                                               
takes away all  the upside.  Upside is needed  for investors that                                                               
risk a lot in Alaska given  its unique situation of high cost and                                                               
other issues.   Upside is  what ExxonMobil  is able to  retain in                                                               
the  other places  that Alaska  is competing  with.   Eliminating                                                               
progressivity  fixes one  of the  most  penalizing and  crippling                                                               
aspects of  Alaska's fiscal  regime.  The  second feature  is the                                                               
gross revenue  exclusion (GRE).   It is critically  important for                                                               
the state  to stimulate exploration and  development in resources                                                               
yet  to be  discovered in  new fields  and increasing  production                                                               
from all  fields, both new and  existing.  To be  significant any                                                               
reform  to  Alaska's fiscal  structure  must  include the  legacy                                                               
fields  and the  GRE can  do just  that.   However, as  currently                                                               
written it is unclear  as to exactly how it will  work and how it                                                               
will be applied to the legacy  fields.  As a tax practitioner, he                                                               
said, that  level of  uncertainty makes him  nervous and  when he                                                               
gets nervous  he must  advise his client  who then  gets nervous,                                                               
which then makes  the decision under that  revenue exclusion that                                                               
much more hard to  make.  The third feature is  the $5 per barrel                                                               
credit.  It is important  to tie incentives to production because                                                               
more production  is what everyone wants.   This is a  very unique                                                               
simple creative  way to do  that.  However,  ExxonMobil's concern                                                               
is whether  $5 is  enough to  balance the  other features  of the                                                               
bill, particularly the impact of the increased base tax rate.                                                                   
                                                                                                                                
6:13:17 PM                                                                                                                    
                                                                                                                                
MR.  SECKERS  reiterated  that CSSB  21(FIN)  am(efd  fld)  makes                                                               
Alaska more  competitive, but said  the real question  is whether                                                               
it  makes Alaska  attractive enough  to get  the investments  the                                                               
state really  needs.   Alaska's competitors  - places  like North                                                               
Dakota and Texas  - do not face the challenges  that are faced in                                                               
Alaska, such as  high costs, remoteness, and  distance to market,                                                               
which are  factors that investors  have to overcome  when wanting                                                               
to invest  in Alaska.   While making  Alaska more  competitive is                                                               
great,  the  question that  should  be  before the  committee  is                                                               
whether CSSB  21(FIN) am(efd fld)  makes Alaska as  attractive as                                                               
it should be.  In ExxonMobil's  view, the bill's base tax rate of                                                               
35  percent is  too high  and reducing  it should  be considered.                                                               
Alaska  represents   an  important  and  critical   component  of                                                               
ExxonMobil's   worldwide  global   portfolio.     ExxonMobil   is                                                               
committed to  Alaska to help  craft a fiscal environment  that is                                                               
stable,  competitive, and  attractive  to  bring new  investments                                                               
that will  allow Alaska to  develop its great  resource potential                                                               
now and in the future.   The question now before the committee is                                                               
whether CSSB 21(FIN)  am(efd fld) makes Alaska  as competitive as                                                               
ExxonMobil thinks  Alaska should  be relative to  the competition                                                               
the state  faces.   Concluding, he  said it is  up to  the policy                                                               
makers to  decide whether it is  time to make a  step change from                                                               
ACES and  whether to take  CSSB 21(FIN) am(efd fld),  improve it,                                                               
and make Alaska  what it can be - competitive  and attractive for                                                               
the investments that everyone wants.                                                                                            
                                                                                                                                
6:16:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK asked  what new  projects could  be expected                                                               
over the next five years if CSSB 21(FIN) am(efd fld) was passed.                                                                
                                                                                                                                
MR.  SECKERS  replied  ExxonMobil  cannot speak  for  the  legacy                                                               
fields  of  Prudhoe  Bay  and  Kuparuk  because  it  is  not  the                                                               
operator;  he  suggested  the  question be  addressed  to  BP  or                                                               
ConocoPhillips Alaska,  Inc.  He added  ExxonMobil is progressing                                                               
Point  Thomsen  as best  it  can.    ExxonMobil looks  for  every                                                               
competitive, attractive investment  in Alaska and that  is why it                                                               
is  hoping   legislators  will  make  changes   to  increase  the                                                               
opportunities that are there in  the legacy fields and elsewhere.                                                               
A small improvement in the  recovery from legacy fields is likely                                                               
to dwarf any new discovery on the  North Slope.  It is hoped this                                                               
bill would  attract other players  as well as ExxonMobil  to look                                                               
at opportunities.                                                                                                               
                                                                                                                                
6:17:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  what language  could be  used to                                                               
remove the lack of clarity in the GRE relating to legacy fields.                                                                
                                                                                                                                
MR. SECKERS  responded he  does not  have any  specific language.                                                               
However, of  concern are  terms such  as "accurately  metered and                                                               
measured," or something  to that effect, because  he is uncertain                                                               
what that really would mean.   More importantly, however, is what                                                               
would actually  qualify as  one of the  wells.   Current language                                                               
states the well would have to tap  into either a new vein or part                                                               
of  a reservoir  that  was  not contributing  before,  but it  is                                                               
uncertain as to what that exactly  might mean.  For example, if a                                                               
well was drilled that produces 10,000  barrels a day, does it all                                                               
have to be  100 percent new recovery, which  is what ExxonMobil's                                                               
engineers would  probably argue, he  asked.   Would all of  it be                                                               
nullified if  someone says  2 barrels  out of  the 10,000  are an                                                               
acceleration,  he  further  asked.   From  a  tax  practitioner's                                                               
viewpoint, the clearer the language  in a statute, the better off                                                               
the state will be.                                                                                                              
                                                                                                                                
6:19:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK asked what projects  ExxonMobil would like to                                                               
do that are currently uneconomical under the ACES regime.                                                                       
                                                                                                                                
MR. SECKERS  answered he will  get back to the  committee because                                                               
as a tax  person he does not have an  inventory of such projects.                                                               
However, ExxonMobil is working with  its partners to pursue every                                                               
opportunity  identified by  the operators  in the  legacy fields.                                                               
The goal  is to make that  inventory of projects being  looked at                                                               
grow even larger.                                                                                                               
                                                                                                                                
REPRESENTATIVE  TUCK, with  regard to  progressivity, noted  that                                                               
[tax on] the upside can  be significantly reduced by investing in                                                               
Alaska.   He asked whether  Mr. Seckers,  as a tax  attorney, has                                                               
looked  at models  to  see how  much  more investment  ExxonMobil                                                               
could have  made in Alaska that  would have bought down  that tax                                                               
burden to make it even more profitable.                                                                                         
                                                                                                                                
MR. SECKERS replied  ExxonMobil looks at all  the investments and                                                               
tax is a key  component to the analysis.  A  problem with ACES is                                                               
that progressivity  relates all  the way back  to dollar  one, so                                                               
the marginal take  is huge; even if a  company makes investments,                                                               
it is a huge impact to  the economics.  Because tax is calculated                                                               
monthly,  under  progressivity  there  can be  huge  swings  even                                                               
though the tax is trued up on  an annual basis.  Any project that                                                               
made the cut, ExxonMobil wanted to fund under ACES.                                                                             
                                                                                                                                
REPRESENTATIVE TUCK surmised that  while ExxonMobil has been very                                                               
profitable in Alaska,  the issue is that it is  not as profitable                                                               
as ExxonMobil would like it  to be competitively with other areas                                                               
that the company is looking at investing in.                                                                                    
                                                                                                                                
MR. SECKERS responded ExxonMobil has  invested in Alaska, paid an                                                               
enormous amount of taxes and  royalties, and has enjoyed its time                                                               
in  Alaska.   ExxonMobil is  in the  business to  invest to  make                                                               
money and  to produce oil  and gas, and  if it is  attractive and                                                               
viable to do so in Alaska, the  company will do that and wants to                                                               
do that for  the long term.  ExxonMobil wants  to continue making                                                               
investments in Alaska  if the fiscal regime  gets improved enough                                                               
to allow that to happen.                                                                                                        
                                                                                                                                
6:22:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE inquired  how the  provision within  CSSB 21(FIN)                                                               
am(efd  fld)  for a  Competitiveness  Review  Board might  affect                                                               
ExxonMobil's investment decisions.                                                                                              
                                                                                                                                
MR. SECKERS  answered such  a board, in  premise, might  work but                                                               
would create some  concern about the stability of  the tax regime                                                               
because the board would be  constantly looking at the regime year                                                               
after year.   While it is  prudent for any taxing  regime to make                                                               
certain  it remains  competitive and  attractive, he  said he  is                                                               
unsure whether  this is  the best  vehicle in  which to  do that.                                                               
There is concern  about what information the  board would require                                                               
companies to produce, how confidentiality  would be retained, and                                                               
the amount of  interaction that would be  necessary for companies                                                               
to comply with the board's requests.                                                                                            
                                                                                                                                
6:24:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON noted concern  has been heard  over the                                                               
past few years  about why legislators cannot get  guarantees.  To                                                               
enable listeners to understand why it  is hard for Mr. Seckers to                                                               
make a guarantee, she requested  him to explain how ExxonMobil in                                                               
Alaska must compete within its own company.                                                                                     
                                                                                                                                
MR. SECKERS  responded he does not  know of any regime  where the                                                               
host  government considering  making changes  demands guarantees,                                                               
and he would be surprised  if the consultants could identify one.                                                               
Continuing,  he said  investments undergo  much scrutiny  and are                                                               
tested  under a  number of  different metrics  in terms  of which                                                               
projects get  funded.   The decision  is not his  to make,  it is                                                               
done  in  Dallas by  people  way  above his  pay  grade.   It  is                                                               
competitive and  looked at  worldwide; ExxonMobil  has businesses                                                               
in virtually every country and  every state, so an investment has                                                               
to  pass a  lot  of tests.   However,  ExxonMobil  is bullish  on                                                               
Alaska and  wants to invest  in Alaska,  so it hopes  the changes                                                               
the legislature makes will allow that to happen.                                                                                
                                                                                                                                
6:26:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON understood  the United Kingdom's brownfield                                                               
development to be a case in which there is a guarantee.                                                                         
                                                                                                                                
MR. SECKERS  replied his  understanding is  that a  guarantee was                                                               
not demanded per se.  While  a company would have to invest there                                                               
to get  that allowance,  he does not  believe the  United Kingdom                                                               
said  investors  had to  tell  what  they  would invest  for  the                                                               
government to make this adjustment.   Generally, market economics                                                               
dictate an investment is attractive  and competitive to make, and                                                               
that is what ExxonMobil does and that is where it will invest.                                                                  
                                                                                                                                
REPRESENTATIVE SEATON understood  the United Kingdom's brownfield                                                               
situation to  be one  in which a  challenged development  will go                                                               
forward when an  agreement is reached between  the government and                                                               
a company that a tax reduction  or large credit will be received.                                                               
He inquired whether  Mr. Seckers believes the  first two elements                                                               
of the GRE  - new units and new participating  areas - are clear.                                                               
He agreed with  Mr. Seckers that the third element  could be very                                                               
contentious because any company drilling  in a legacy field would                                                               
claim the  oil is new  in order to have  20 percent of  the gross                                                               
revenue excluded.                                                                                                               
                                                                                                                                
MR. SECKERS  responded the  first two  provisions of  the current                                                               
GRE language  are much clearer than  is the third.   However, the                                                               
third  provision is  more  critical because  it  is intended  for                                                               
legacy fields which, in ExxonMobil's  view, are where the state's                                                               
economic future  lies.   No other resource  can stem  the state's                                                               
production in the near term than can the legacy fields, he said.                                                                
                                                                                                                                
6:29:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON believed  the  new  participating area  is                                                               
very definitely targeted  for within legacy fields.   Not talking                                                               
about  guarantees, he  asked how  long ExxonMobil  anticipates it                                                               
would take  to see  results if the  changes made  are significant                                                               
enough to change behavior.                                                                                                      
                                                                                                                                
MR. SECKERS concurred  the second element of the  GRE could apply                                                               
to  legacy fields.   However,  ExxonMobil's  engineers have  said                                                               
there are  no projects in the  legacy fields in the  near-term or                                                               
mid-term range that would qualify  for that element, which is why                                                               
he focused  on the third  element.   Regarding the time  it would                                                               
take  to  see  results,  he   said  he  cannot  speak  for  other                                                               
companies, but  recalled that Mr. Pulliam,  [the administration's                                                               
consultant], anticipated it would  be rather quickly.  ExxonMobil                                                               
is  committed to  Alaska  and wants  to invest  here,  so to  the                                                               
extent that a law is  passed that significantly changes ACES, the                                                               
company would be looking at it as quickly as it can.                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON believed  Mr. Pulliam's  estimate was  the                                                               
effects would be seen within three years.                                                                                       
                                                                                                                                
MR.  SECKERS  answered he  cannot  remember  Mr. Pulliam's  exact                                                               
words and  the best  he can  recall is that  Mr. Pulliam  said it                                                               
would be sooner rather than later.                                                                                              
                                                                                                                                
6:32:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  inquired whether  there are other  regimes that                                                               
tax new oil differently than old oil.                                                                                           
                                                                                                                                
MR. SECKERS  suggested asking this  question of  the consultants,                                                               
but said some  regimes offer certain holidays  and exemptions for                                                               
stripper  wells, if  one considers  that  new oil.   The  concept                                                               
itself is similar  to holidays and things of that  nature, but he                                                               
would  have to  get back  to the  committee as  to whether  it is                                                               
specifically targeted  to new oil  per se.  In  further response,                                                               
he explained  a holiday  concept is where  a company  gets relief                                                               
from  a taxing  provision, either  entirely or  a portion,  for a                                                               
period  of time  based on  the happening  of certain  events; for                                                               
example, exemption  from a tax  for a  certain period of  time in                                                               
return for  drilling a  well or  for drilling  a certain  type of                                                               
well or for doing a certain type  of activity.  A holiday is also                                                               
very common with  property tax when a  company receives exemption                                                               
for a period of time for constructing an office building.                                                                       
                                                                                                                                
CO-CHAIR   SADDLER  recounted   Pedro  van   Meurs  telling   the                                                               
legislature a year or so ago  about the concept of establishing a                                                               
baseline of decline, and where  oil produced above that predicted                                                               
decline line  would be taxed  as new oil  and below that  line is                                                               
existing  oil that  would have  been produced  anyway.   He asked                                                               
whether Mr. Seckers has heard of such a tax regime in practice.                                                                 
                                                                                                                                
MR. SECKERS responded none come to mind.                                                                                        
                                                                                                                                
CO-CHAIR  SADDLER  inquired  whether  ExxonMobil  reports  proven                                                               
reserves to the Securities Exchange Commission (SEC).                                                                           
                                                                                                                                
MR. SECKERS answered  that is not his job to  do but imagines the                                                               
company does, although he does not  know the extent of the report                                                               
that is filed.                                                                                                                  
                                                                                                                                
CO-CHAIR  SADDLER  asked  how  it is  determined  what  a  proven                                                               
reserve  is, explaining  that he  is trying  to find  out whether                                                               
this is a method for identifying old oil versus new oil.                                                                        
                                                                                                                                
MR. SECKERS replied he will have  to ask a company engineer as to                                                               
what the exact criteria is.                                                                                                     
                                                                                                                                
6:35:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  requested Mr.  Seckers  to  ask an  ExxonMobil                                                               
reservoir   engineer  the   following  question:     "Would   the                                                               
difference between  what is  proven reserves  this year  and what                                                               
might be seen  as proven reserves in future years  be seen as one                                                               
possible mechanism  for identifying  what is  new oil  versus old                                                               
oil?"   He explained the reason  for his asking this  question is                                                               
Mr.  Seckers'  statement  that  the  mechanism  proposed  by  the                                                               
Department of  Natural Resources (DNR)  is not real clear,  so he                                                               
is searching for something that might be clearer.                                                                               
                                                                                                                                
MR. SECKERS  responded he  will have to  give that  some thought.                                                               
Proven reserves,  unproven reserves, and static  reserves are not                                                               
an  exact science.    He  recalled there  was  concern about  the                                                               
decline curve  and where that is  measured from.  He  offered his                                                               
hope for a simpler result, such  as having the Alaska Oil and Gas                                                               
Conservation Commission  (AOGCC) certify a well  that is drilled,                                                               
as  opposed  to having  to  barrel-track  it  or making  it  more                                                               
complicated.   In further  response, he  offered his  belief that                                                               
when a well  is drilled and starts  to flow it is  in the purview                                                               
of the  AOGCC to make  certain that it  is, in fact,  a producing                                                               
well.   He concurred  with Co-Chair Saddler  that the  AOGCC does                                                               
not determine  whether it is new  or old oil; however,  he added,                                                               
he is not 100 percent certain.                                                                                                  
                                                                                                                                
6:37:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER inquired  whether  Mr. Secker's  would like  to                                                               
propose  a better  way  under the  third element  of  the GRE  to                                                               
determine  what is  new oil  that  would have  not been  produced                                                               
absent the changes in tax law.                                                                                                  
                                                                                                                                
MR. SECKERS  answered he  would have to  give that  some thought,                                                               
but  he knows  from talking  to ExxonMobil's  engineers that  the                                                               
only way  for wells to  get funded is  if it  is to bring  on new                                                               
reserves, not  to accelerate  production.   Therefore, he  is not                                                               
certain  the  split  that  Co-Chair Saddler  is  looking  for  is                                                               
actually necessary.   The better test  might be that if  the well                                                               
is drilled  and it  flows, then  some sort of  relief to  make it                                                               
more attractive could be in order.                                                                                              
                                                                                                                                
CO-CHAIR SADDLER understood Mr. Seckers  to be saying, then, that                                                               
it  is  not  an  incentive  to  maximize  production  within  the                                                               
parameters  of the  health  of the  reservoir  when profits  from                                                               
drilling are higher at high oil prices.                                                                                         
                                                                                                                                
MR. SECKERS replied the version  of the bill before the committee                                                               
is clearly  a significant improvement.   The goal now is  to make                                                               
it as  attractive as possible  by having  it apply to  the legacy                                                               
fields -  which are the  state's lifeblood - so  that investments                                                               
occur there.   ExxonMobil has an  inventory of items it  hopes to                                                               
expand  when  they become  competitive  to  do  so.   In  further                                                               
response,  he agreed  to take  Co-Chair Saddler's  aforementioned                                                               
question to ExxonMobil's reservoir engineers.                                                                                   
                                                                                                                                
6:39:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR noted  Point Thomsen is the  only project Mr.                                                               
Seckers mentioned as something that  will be adding new oil soon.                                                               
Since  that oil  is the  result  of a  court case,  she said  she                                                               
cannot imagine  that Mr.  Seckers is suggesting  the best  way to                                                               
get to new  production is through litigation.   She asked whether                                                               
Mr. Seckers  has any additional  information about  what projects                                                               
are  potentially coming  on line.   Regarding  the gross  revenue                                                               
exclusion,  she pointed  out that  some legislators  have concern                                                               
that  it is  inappropriate for  already-planned activities  to be                                                               
eligible for the GRE.                                                                                                           
                                                                                                                                
MR.  SECKERS responded  his  comments on  Point  Thomsen were  in                                                               
response to a question about  what ExxonMobil is currently doing.                                                               
He  said it  is inappropriate  for him  to speak  to projects  at                                                               
legacy  fields  because  ExxonMobil  is not  the  operator.    He                                                               
suggested  the  question be  asked  of  the operators  when  they                                                               
testify today.  In terms of  the gross revenue exclusion, he said                                                               
ACES  does not  make Alaska  attractive  or competitive.   It  is                                                               
ExxonMobil's   view  that   legislators  want   to  make   Alaska                                                               
competitive   as  well   as   attractive   and  incentivize   all                                                               
production,  whether from  new or  existing  fields.   To get  to                                                               
production,  to stem  the decline  in the  near term,  ExxonMobil                                                               
believes  the  legacy  fields  should be  part  of  that  target.                                                               
Incentivizing  as many  opportunities as  possible is  a critical                                                               
component of any major change to the fiscal regime.                                                                             
                                                                                                                                
6:41:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK  understood tax  breaks in the  legacy fields                                                               
will  help in  the short  term, but  inquired whether  ExxonMobil                                                               
would be looking at doing new exploration if the bill passes.                                                                   
                                                                                                                                
MR. SECKERS  answered ExxonMobil looks  at every lease  sale that                                                               
comes up and has bid on some  in recent times.  While people like                                                               
to  refer  to ExxonMobil  as  "harvesting"  - which  his  company                                                               
thinks is  an inappropriate  comment -  the company  is exploring                                                               
every  opportunity to  expand the  legacy fields  to get  as much                                                               
improvement into those  fields as possible.  He is  unable to say                                                               
whether   ExxonMobil  would   look  into   long-term  exploration                                                               
opportunities because  he is not  on the exploration side  of the                                                               
company.  However,  ExxonMobil is looking at Alaska  all the time                                                               
and  if  any  competitive opportunities  present  themselves  the                                                               
company would be very interested in them.                                                                                       
                                                                                                                                
REPRESENTATIVE  TUCK asked  what years  in Alaska  were the  most                                                               
profitable, or the heyday, for ExxonMobil.                                                                                      
                                                                                                                                
MR. SECKERS  replied ExxonMobil provides  all its  information to                                                               
the Department  of Revenue.  As  a matter of course,  the company                                                               
does not talk about profits.                                                                                                    
                                                                                                                                
6:43:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE opined  that  a wide  range  of different  things                                                               
could be  done in  this legislation, pointing  out that  over the                                                               
last year  legislators have investigated many  different options.                                                               
He  inquired  what  type  of  incentive,  in  Mr.  Seckers'  best                                                               
estimate, would result in the most production the soonest.                                                                      
                                                                                                                                
MR. SECKERS  responded policy change  affects many  taxpayers, so                                                               
different buttons affect different  people different ways, making                                                               
it a  difficult question to answer.   If members stay  within the                                                               
structure of CSSB 21(FIN) am(efd  fld), he would suggest that the                                                               
base  rate is  too high  and is  an area  that ExxonMobil  thinks                                                               
should be  lowered.  Clarity  around the GRE would  be important.                                                               
The  $5 per  barrel is  a simple  and good  concept, but  members                                                               
should  check with  consultants as  to  whether $5  is the  right                                                               
number.  Of those three areas, he  said the base rate is the most                                                               
critical.                                                                                                                       
                                                                                                                                
6:44:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked  how ExxonMobil would deal  with the third                                                               
category of GRE provisions if they became law.                                                                                  
                                                                                                                                
MR. SECKERS answered clarity could  be added by regulation should                                                               
the  statute  become law  as  currently  written, in  which  case                                                               
ExxonMobil would be  active in providing guidance.   However, his                                                               
personal  perspective is  that he  would  much rather  see it  in                                                               
statute where it is clearer.                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER inquired  whether ExxonMobil  would wait  until                                                               
there was clarity through regulation  before the company factored                                                               
this provision into calculating its investment decisions.                                                                       
                                                                                                                                
MR. SECKERS  replied he  would have to  check with  his company's                                                               
engineers before he  could answer.  On a general  sense, he said,                                                               
it is hard  to make investments when it is  uncertain how the law                                                               
is going to  operate.  It is  hard to advise a client  to take an                                                               
action in  the hope that a  regulation will be drafted  a certain                                                               
way.   However, ExxonMobil does  have faith that  the regulations                                                               
would be drafted to provide the clarity that would be required.                                                                 
                                                                                                                                
CO-CHAIR SADDLER surmised ExxonMobil  would hang back until there                                                               
was more certainty.                                                                                                             
                                                                                                                                
MR.  SECKERS   responded  ExxonMobil  would  definitely   take  a                                                               
cautious  look because  it would  not know  for certain  what the                                                               
outcome might be.                                                                                                               
                                                                                                                                
6:46:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked  whether the timing of  the decision about                                                               
the GRE qualification,  i.e. if that decision was  made closer to                                                               
the front end  or towards the end of a  decision to invest, would                                                               
have any bearing.                                                                                                               
                                                                                                                                
MR. SECKERS  answered the most  clarity upfront the easier  it is                                                               
to make a decision.  It is  no different than for a person trying                                                               
to make  decisions when there  is a tax  impact.  The  sooner one                                                               
can get  that clarity, the  better the investment  decision would                                                               
be and the more certainty one would make that decision under.                                                                   
                                                                                                                                
CO-CHAIR SADDLER  inquired how much  trust ExxonMobil  would have                                                               
that  the  Department of  Natural  Resources  (DNR) will  make  a                                                               
decision the  company could live  with should the  GRE provisions                                                               
pass as currently written.                                                                                                      
                                                                                                                                
MR. SECKERS replied both the  Department of Natural Resources and                                                               
the Department of Revenue do the  best job they can and he thinks                                                               
they  do  a  great job.    One  would  hope  the intent  of  this                                                               
provision is for  them to provide the certification  that one can                                                               
rely  on.   Guidance to  that effect,  clarity in  terms of  what                                                               
information a company needs to  provide to get that certification                                                               
and  the timeframe  the  director or  commissioner  has to  issue                                                               
that, are critical and one would  hope they would be addressed in                                                               
the regulations.   He offered his belief  that the administration                                                               
would operate  in good faith, as  it always has, and  that if DNR                                                               
issued certification that both departments would respect that.                                                                  
                                                                                                                                
6:48:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  asked  whether  there is  anything  about  the                                                               
consultants'  views  or representations  of  the  GRE, as  it  is                                                               
defined  and would  be  applied, that  ExxonMobil  would like  to                                                               
answer or to correct.                                                                                                           
                                                                                                                                
MR.  SECKERS  responded all  of  the  consultants, including  Mr.                                                               
Marks, have  done a great job  and have represented the  state of                                                               
Alaska's competitiveness accurately.   He said he cannot question                                                               
the data the consultants used because  he does not have access to                                                               
that, but he  believes what they presented is  fair and objective                                                               
and he sees no fault in what they have provided thus far.                                                                       
                                                                                                                                
6:49:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  understood  Mr. Seckers  to be  saying                                                               
that ExxonMobil would act quicker  if clarity was provided in the                                                               
bill itself rather  than waiting for regulations to  do so, given                                                               
that putting regulations into place can sometimes take years.                                                                   
                                                                                                                                
MR. SECKERS answered the more  concise and specific the language,                                                               
the better.   He suggested  DNR be asked  how long it  expects it                                                               
will take to create the  regulations that it would want companies                                                               
to operate under  should the bill pass, given there  are a lot of                                                               
missing  pieces.   To  the  extent the  information  is known  in                                                               
advance, the  easier the  decision to  work under  that provision                                                               
becomes.                                                                                                                        
                                                                                                                                
6:50:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON  thanked  Mr. Seckers  for  his  testimony,                                                               
stating  that in  a number  of meetings  the only  testimony from                                                               
ExxonMobil was  on paper or  lasted less  than five minutes.   He                                                               
noted ExxonMobil  has been tied to  the history of Alaska  for an                                                               
event  that  had more  to  do  with the  name  of  a vessel  than                                                               
something  the company  was directly  responsible for,  but which                                                               
has had  a negative  impact on  relationships between  Alaska and                                                               
the company.   He said he  has been told throughout  his 30 years                                                               
of involvement with the industry  that ExxonMobil is the toughest                                                               
of the  three companies in Alaska  to deal with when  it comes to                                                               
putting together  a deal, but once  the deal is put  together and                                                               
signed  ExxonMobil is  the  easiest because  it  does not  micro-                                                               
manage.  He inquired whether that is an accurate assessment.                                                                    
                                                                                                                                
MR.  SECKERS  replied  the  aforementioned  event  was  a  tragic                                                               
accident  that ExxonMobil  regrets.   That  event, he  continued,                                                               
made  ExxonMobil look  at its  internal operations,  improvements                                                               
were  made,  and  the  company  is  now  an  industry  leader  in                                                               
operational safety.  When ExxonMobil  says something it says what                                                               
it  means and  it means  what it  says.   It is  unfortunate that                                                               
people say  ExxonMobil is hard  to deal  with, but it  is because                                                               
ExxonMobil likes to  make certain the answer is right  and is the                                                               
best answer  for all parties  involved.   Once that cut  is made,                                                               
ExxonMobil  will  do  things  to   the  best  operational  safety                                                               
standards possible.                                                                                                             
                                                                                                                                
REPRESENTATIVE OLSON added he was  not making a negative comment,                                                               
just trying to get to the chase without taking half an hour.                                                                    
                                                                                                                                
6:53:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK, regarding  the instability  that ExxonMobil                                                               
fears a  Competitiveness Review Board might  cause, requested Mr.                                                               
Seckers' opinion on whether the  legislature should continue with                                                               
its approach of making decisions based  on what it hears from the                                                               
experts it  hires rather than  establishing a board.   He further                                                               
asked  how more  stability could  be created  to give  ExxonMobil                                                               
more confidence going forward.                                                                                                  
                                                                                                                                
MR. SECKERS  responded stability is  important but only  works if                                                               
it is  not at too  high of a  price.  The  Competitiveness Review                                                               
Board could  work, but  to require  by law  that an  analysis and                                                               
reporting be  done every single  year adds an element  of concern                                                               
because that  means it is likely  to change or could  be changed.                                                               
While ExxonMobil understands the legislature  is free to change a                                                               
law whenever  it wants, putting  in statute that  the legislature                                                               
will constantly look at a law makes it concerning.                                                                              
                                                                                                                                
6:55:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK  recalled  that   during  the  2012  special                                                               
session,  PFC  Energy stated  that  the  decline curve  could  be                                                               
looked  at  and  negotiated  to incentivize  anything  above  the                                                               
curve.    Regarding  the  GRE  and the  question  of  what  would                                                               
constitute old oil  versus new oil, he asked  whether Mr. Seckers                                                               
thinks it would be better to look at all oil as being the same.                                                                 
                                                                                                                                
MR.  SECKERS answered  he was  aware of  the proposals  made last                                                               
year regarding  the decline curve  idea.  While he  is personally                                                               
unaware of any  current regime that employs this, that  is not to                                                               
say there are  none.  The legacy fields represent  the only known                                                               
resource  that is  able to  stem  the production  decline in  the                                                               
near-term or mid-term  and it is ExxonMobil's view  that the goal                                                               
should be  to make that as  attractive as possible.   The idea he                                                               
mentioned before - [giving some relief]  if a well is drilled and                                                               
it flows -  would make it simpler  under the GRE and  would be an                                                               
attractive incentive.   It is hard  to distinguish; it is  not an                                                               
exact-measurement science.   ExxonMobil's engineers do  not drill                                                               
wells to accelerate,  they drill wells to add  production, to add                                                               
recovery, and  therefore it  should qualify.   So, to  the extent                                                               
clarity can be  made in the GRE  and make it apply  to the legacy                                                               
fields, that is a step forward in the right direction.                                                                          
                                                                                                                                
6:58:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR referenced Mr.  Seckers' statements about the                                                               
proposed  base  tax  rate  being   too  high  and  about  overall                                                               
competitiveness.   She  asked whether  Mr. Seckers  has seen  the                                                               
chart  provided by  Mr. Janak  Mayer of  PFC Energy  showing that                                                               
Alaska  would  be well  below  many  other oil  producing  areas,                                                               
particularly  for  new  development.     She  requested  that  he                                                               
elaborate on what he means in terms of competitiveness.                                                                         
                                                                                                                                
MR. SECKERS  replied he has seen  the chart but does  not have it                                                               
committed to memory.  He said  his reference to the base rate and                                                               
competitiveness  was in  regard  to whether  this proposal  makes                                                               
Alaska more  competitive, which it  unquestionably does.   And it                                                               
is absolutely better  than ACES because it cannot  get much worse                                                               
than  ACES.   While CSSB  21(FIN) am(efd  fld) would  make Alaska                                                               
more competitive  and put  Alaska's regime in  the middle  of the                                                               
pack, he  would like to  see Alaska  become more attractive.   He                                                               
wants Alaska to beat North Dakota  and Texas.  To the extent that                                                               
Alaska  can make  itself as  attractive as  it can  be, the  more                                                               
investments are likely to flow.   He said ExxonMobil believes the                                                               
base  rate is  too high  - it  affects the  effective tax  rates.                                                               
Look at all of the other  issues that Alaska faces.  For example,                                                               
a slide  produced by Mr.  Mayer for the Senate  Special Committee                                                               
on TAPS  Throughput shows how  Alaska compares cost-wise  and the                                                               
cost in Alaska is staggering.   ExxonMobil suggests consideration                                                               
be  given  to making  Alaska  more  attractive than  these  other                                                               
places that do  not have such high costs and  distance to market.                                                               
Addressing  the base  tax rate,  which ExxonMobil  thinks is  too                                                               
high, is one way to do that.                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR offered to share  a copy of the chart, saying                                                               
that  in the  example  she is  looking at  Alaska  would be  more                                                               
competitive  than North  Dakota under  CSSB 21(FIN)  am(efd fld).                                                               
Responding to  Co-Chair Feige, she  said she is referring  to the                                                               
chart the committee  was given yesterday.   She further confirmed                                                               
the example is under the GRE fields.                                                                                            
                                                                                                                                
7:01:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER noted there are  a number of other provisions in                                                               
the bill besides the GRE, base  rate, and $5 [credit] per barrel.                                                               
He asked  Mr. Seckers to  provide ExxonMobil's  opinion regarding                                                               
the proposed  change in  interest rate,  the carry  forward loss,                                                               
and the Alaska manufacture credit.                                                                                              
                                                                                                                                
MR.  SECKERS  responded  ExxonMobil  encourages  Alaska  to  make                                                               
itself as competitive  and attractive as possible.   Reducing the                                                               
interest rate  is a  critical step  and something  ExxonMobil has                                                               
endorsed for  years.  While  the manufacturing credit  would help                                                               
make  Alaska more  competitive in  terms  of more  jobs and  more                                                               
investment, it is hard to  say whether it would impact ExxonMobil                                                               
per  se.   Regarding the  tax loss  carry forward  provisions, he                                                               
remarked  that if  ExxonMobil found  itself in  a loss,  everyone                                                               
would be hurting.   But, he continued, from  the perspective that                                                               
the rate was  changed to match the proposed new  base rate, it is                                                               
probably incentive  to many companies,  and smaller  companies in                                                               
particular.   Some of  these provisions may  be very  critical to                                                               
encouraging  other companies  to come  to Alaska,  and ExxonMobil                                                               
supports these changes being made for them.                                                                                     
                                                                                                                                
CO-CHAIR  SADDLER, regarding  Mr.  Seckers' statement  that a  35                                                               
percent base  tax rate  is too high,  inquired what  number would                                                               
not be too high.                                                                                                                
                                                                                                                                
MR. SECKERS declined  to say, stating it is up  to legislators to                                                               
decide  how attractive  Alaska should  be.   He suggested  asking                                                               
this question of the legislature's consultants.                                                                                 
                                                                                                                                
7:03:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  observed that  the chart  mentioned by                                                               
Representative  Tarr  only  mentions   the  government  take  and                                                               
therefore does  not tell overall where  Alaska is at.   She asked                                                               
whether ExxonMobil just looks at  government take or looks at the                                                               
overall package when making its decisions.                                                                                      
                                                                                                                                
MR. SECKERS  answered government take  is a key component  to any                                                               
investment decision that ExxonMobil makes.   It is just one gauge                                                               
that is used, but not the  only one; a number of measurements are                                                               
used that are proprietary to ExxonMobil.                                                                                        
                                                                                                                                
REPRESENTATIVE P. WILSON inquired  whether other changes, such as                                                               
allowing permanent  roads so that  work could be  done year-round                                                               
instead of only certain times, would make a difference.                                                                         
                                                                                                                                
MR.  SECKERS  replied  it  clearly would  make  a  difference  in                                                               
respect to access to resources, but  he cannot say how that would                                                               
relate in terms of making  Alaska more competitive and attractive                                                               
for investment dollars.   He suggested this question  be asked of                                                               
the legislature's consultants.                                                                                                  
                                                                                                                                
7:05:42 PM                                                                                                                    
                                                                                                                                
SCOTT  JEPSEN, Vice  President  External Affairs,  ConocoPhillips                                                               
Alaska, Inc.,  began his PowerPoint  presentation by  framing the                                                               
issues  within Alaska  that pertain  to the  kind of  investments                                                               
ConocoPhillips  Alaska,  Inc.   ("ConocoPhillips")  is  currently                                                               
pursuing [slide 2].  The easy oil  is gone, he said; the easy oil                                                               
being  the type  of development  that  was had  when Kuparuk  and                                                               
Prudhoe Bay  were first  developed.  Those  were high  rate wells                                                               
that were  relatively simple,  although at  the time  those wells                                                               
were pushing technology.  There was  very little or no water with                                                               
those wells, the kind of  development that every engineer strives                                                               
to be in  on the front end.  As  they mature, however, continuing                                                               
to  increase  production,  increase   recovery,  becomes  a  more                                                               
complex  problem, which  is where  things  are right  now in  the                                                               
North Slope  legacy fields of  Alpine, Kuparuk, and  Prudhoe Bay.                                                               
Although  Alpine is  younger,  it still  has  its own  particular                                                               
challenges.                                                                                                                     
                                                                                                                                
MR. JEPSEN pointed out that  ConocoPhillips is currently drilling                                                               
very  complex wells,  such  as the  octa-lateral,  and the  wells                                                               
being drilled  tend to be  very high cost.   Drilling inexpensive                                                               
wells is pretty much not done  in the "oil patch" these days, but                                                               
in Alaska  they tend to  be higher than average.   ConocoPhillips                                                               
is targeting  smaller reserves and  fault blocks that take  a lot                                                               
of technology to identify, as  well as drilling around the flanks                                                               
of the fields  where oftentimes the sands are  thinner, rates are                                                               
lower, and  sand quality  is often not  as high.   ConocoPhillips                                                               
has developed  satellites and  will continue  doing so,  but they                                                               
tend  to be  capital  intensive because  most  of the  satellites                                                               
require  roads,  pads, new  wells,  pipelines,  and power  lines.                                                               
Viscous oil is also being looked  at, but the billions of barrels                                                               
of viscous  oil on the  North Slope are challenged  by relatively                                                               
poor  reservoir quality,  thick oil,  and low  rates.   Accessing                                                               
much of the viscous oil  will require infrastructure investments,                                                               
not just drilling off of existing pads.                                                                                         
                                                                                                                                
7:08:40 PM                                                                                                                    
                                                                                                                                
MR.  JEPSEN said  a  technique being  used  by ConocoPhillips  to                                                               
maximize recovery  in these  aging fields  is water  flood, which                                                               
produces more and more water as  the oil is produced.  Right now,                                                               
about three times  as much water as oil is  being produced, which                                                               
drives up the operating cost per  barrel and is a trend that will                                                               
probably continue.   However, he emphasized,  there is tremendous                                                               
resource potential  in the legacy fields.   A few years  ago, the                                                               
Department of Revenue (DOR) put out  a forecast of over 4 billion                                                               
barrels of  oil to be  recovered from  the legacy fields  for the                                                               
years 2010-2050.  In that same  study, DOR looked at the recovery                                                               
from  the  fields of  Nikaitchuq,  Oooguruk,  Point Thomsen,  and                                                               
Liberty, and the total from these  fields was less than a quarter                                                               
of  the  legacy fields.    He  said  he  is not  diminishing  the                                                               
significant  accomplishments  of  the companies  that  have  been                                                               
exploring and  developing these other  opportunities, but  in the                                                               
near-term  the greatest  opportunities for  increased production,                                                               
increased reserves, are in the legacy fields.                                                                                   
                                                                                                                                
7:10:19 PM                                                                                                                    
                                                                                                                                
BOB  HEINRICH,  Vice  President Finance,  ConocoPhillips  Alaska,                                                               
Inc.,  began by  reviewing  the issues  that ConocoPhillips  sees                                                               
with Alaska's  Clear and  Equitable Share (ACES)  [slide 2].   He                                                               
said the primary issue is the  high average and high marginal tax                                                               
rates.  The top right graph  on slide 2 illustrates the effect of                                                               
marginal tax rates  by the state and federal  governments and the                                                               
producers  across a  range  of prices,  he  continued.   Marginal                                                               
share is the incremental cash that  is generated by a $1 increase                                                               
in price and  how that incremental dollar is  split between those                                                               
three parties.   At  today's price  environment of  roughly $110,                                                               
less than $.20  on every incremental dollar  is actually retained                                                               
by the  producer; the  other $.80  is split  among the  state and                                                               
federal authorities.   The  red bars on  the graph  represent the                                                               
State of  Alaska, he  explained, and  their increasing  height as                                                               
prices  increase  is  wholly  a  function  of  the  progressivity                                                               
surcharge  under ACES.   As  prices increase,  this progressivity                                                               
eliminates the  upside from prices  that producers  typically see                                                               
when working in other oil-producing regions.                                                                                    
                                                                                                                                
MR.  HEINRICH said  the  effects of  progressivity  and the  high                                                               
marginal tax rates are best  illustrated by looking at the bottom                                                               
right chart on  slide 2 which depicts  earnings by ConocoPhillips                                                               
Alaska, Inc.   From 2007-2011,  oil price movements  were between                                                               
$60 and  $110 per barrel  [ANS West  Coast], but the  earnings of                                                               
ConocoPhillips Alaska hardly moved -  staying between $22 and $25                                                               
per barrel.  Nearly  all of that upside was paid  to the State of                                                               
Alaska  through  the progressivity  feature  of  ACES.   The  tax                                                               
credits, however,  do help offset  a small  part of the  high tax                                                               
rates that result  from ACES and they serve a  purpose in helping                                                               
to offset the  high cost environment and  difficult conditions of                                                               
Alaska.   Another positive  aspect of those  ACES tax  credits is                                                               
that they do  apply to all fields; they  are providing incentives                                                               
to improving production  in the legacy fields as well  as the new                                                               
developments.   However, those  tax credits  in the  structure of                                                               
ACES are not enough to offset  the high average and high marginal                                                               
tax rates that result from the progressivity feature of ACES.                                                                   
                                                                                                                                
7:12:52 PM                                                                                                                    
                                                                                                                                
MR. HEINRICH turned to discussing  his company's point of view on                                                               
CSSB 21(FIN) am(efd  fld) [slide 3].  He  said ConocoPhillips has                                                               
advocated for elimination  of progressivity due to  its impact at                                                               
the  high  price environment,  the  prices  of today  and  above.                                                               
Also, creating  a flatter tax rate  over a broad range  of prices                                                               
is a positive  approach to taxation, he continued.   The proposed                                                               
bill achieves both of those.                                                                                                    
                                                                                                                                
MR. HEINRICH drew  attention to the upper right graph  on slide 3                                                               
that compares ACES  and CSSB 21(FIN) am(efd fld)  from a producer                                                               
share basis  across a  range of prices  using industry  data from                                                               
the  Department of  Revenue.   He explained  that producer  share                                                               
calculations depend  on many factors, including  assumptions like                                                               
cost structure - operating and  capital expenditures - which vary                                                               
from  field to  field  and  producer to  producer  and person  to                                                               
person doing  the analysis.   The resulting producer  share under                                                               
CSSB  21(FIN) am(efd  fld) is  basically flat  across a  range of                                                               
prices   [$60-$120],  which   ConocoPhillips  likes   because  it                                                               
represents a  consistent split  of results  across this  range of                                                               
prices between the  state and the industry.  It  means as the pie                                                               
gets bigger  the industry and  the state  share a portion  in the                                                               
same tax rate.  At an ANS West  Coast price of $60 per barrel and                                                               
below, the  gross minimum tax kicks  in under both ACES  and CSSB                                                               
21(FIN)  am(efd  fld).   That  eventually  results in  situations                                                               
where the producers are paying  taxes despite their negative cash                                                               
flows from  their operations.  Below  a price of $91,  the Senate                                                               
bill represents a tax increase  compared to ACES, while above $91                                                               
it represents a  benefit to the producers.  The  loss in producer                                                               
share [at prices  between about $61 and $91], is  a result of the                                                               
elimination of  tax credits, which provide  a significant portion                                                               
of the  benefit at lower prices.   The combination of  the higher                                                               
base rate of 35  percent, offset in part by the  $5 per barrel of                                                               
produced oil credit, is not enough  to offset the loss of the tax                                                               
credits at these low prices.                                                                                                    
                                                                                                                                
7:15:39 PM                                                                                                                    
                                                                                                                                
MR. HEINRICH  stated ConocoPhillips  supports establishing  a tax                                                               
structure that  creates an attractive  investment climate  for an                                                               
overall  competitive tax  rate helping  offset the  high cost  of                                                               
Alaska's  operating environment  and that  incentivizes both  the                                                               
existing  fields  and   new  fields  for  new   production.    He                                                               
reiterated  that  CSSB  21(FIN)  am(efd  fld)  represents  a  tax                                                               
increase at  lower prices.   While it  is a good  improvement, it                                                               
still puts Alaska at the upper  end of its competitive peer group                                                               
and that  does not differentiate  enough to offset  Alaska's high                                                               
cost  and  difficult  operating environment.    Lastly,  the  GRE                                                               
concept, as currently structured, does  not appear to do much for                                                               
the legacy fields.                                                                                                              
                                                                                                                                
MR. HEINRICH moved to bar chart  on slide 4, noting it is similar                                                               
to the one  shown earlier by Representative Tarr,  but is instead                                                               
from PFC Energy's  [March 12, 2013,] testimony  before the Senate                                                               
Finance Committee.   He explained  the chart shows  the effective                                                               
tax  rates  of  different  fiscal  structures  in  different  oil                                                               
producing areas at the four  different crude prices of $80, $100,                                                               
$120, and  $140 per barrel.   The red arrow  on the far  right of                                                               
the chart  points to  Alaska's current system  under ACES  for an                                                               
existing  producer, which  essentially is  the legacy  fields and                                                               
which, in  these scenarios, do  not get  a benefit from  the GRE.                                                               
Here, the effects  of the progressivity surcharge  under ACES can                                                               
be  seen -  the  [percent] government  take  increases as  prices                                                               
increase.  However, as shown by the  bars to the left of the ACES                                                               
arrow, the  majority of the more  competitive structures actually                                                               
have slightly regressive  systems.  He noted that  the blue arrow                                                               
located in  the middle  of the  pack for  competing jurisdictions                                                               
represents Alaska at a 30 percent  base rate with a $5 per barrel                                                               
of oil  produced credit,  a provision that  was considered  for a                                                               
point in  time in  the Senate  Finance Committee.   The  left red                                                               
arrow, labeled 65  percent, was pulled from a  another slide that                                                               
PFC Energy showed  in its [March 12, 2013,]  presentation for the                                                               
bill's current provision of a 35  percent base rate with a $5 per                                                               
barrel  of oil  produced credit.   At  the 65  percent government                                                               
take  level, CSSB  21(FIN) am(efd  fld) positions  Alaska at  the                                                               
high  end  of the  middle  of  the  pack.   While  ConocoPhillips                                                               
expects the activity levels to increase,  at that tax rate it may                                                               
not be as high everyone would like to see.                                                                                      
                                                                                                                                
7:18:34 PM                                                                                                                    
                                                                                                                                
MR.  JEPSEN  then addressed  the  gross  revenue exclusion  (GRE)                                                               
provision, saying ConocoPhillips' comments  echo much of what was                                                               
said by  Mr. Seckers.   While  the GRE by  itself does  provide a                                                               
mechanism  to  incentivize   investment,  ConocoPhillips  sees  a                                                               
couple of problems with it.   The currently proposed criteria for                                                               
how a  well would qualify  states that it cannot  be contributing                                                               
to  production.     As   mentioned  earlier,   ConocoPhillips  is                                                               
searching  its legacy  fields for  fault  blocks, isolated  fault                                                               
blocks  that are  not being  drained very  effectively.   In many                                                               
instances  these  fault blocks  may  not  be completely  sealing.                                                               
ConocoPhillips is  going back and  developing reserves  that will                                                               
not produce  into the life  of the field  if another well  is not                                                               
put there.  From a  strictly rigorous reservoir engineering point                                                               
of view,  it might be  very tough  to convince the  Department of                                                               
Natural  Resources (DNR)  that this  particular location  has not                                                               
been contributing to production, even  though at the end of field                                                               
life  a  lot of  oil  will  be left  behind  and  even though  by                                                               
drilling  the  well  it will  book  additional  proven  developed                                                               
reserves.   As the  GRE is  currently written,  ConocoPhillips is                                                               
greatly concerned as  to whether it will be able  to convince DNR                                                               
that many, if  any, of its legacy field projects  qualify for the                                                               
GRE.   It could be  that DNR's intent  is different than  what is                                                               
seen in the written words,  but it would make ConocoPhillips feel                                                               
better if there was greater clarity around that.                                                                                
                                                                                                                                
7:20:03 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN  stated that the  GRE language of  "accurately metered                                                               
and measured" is also a  potential issue.  However, he continued,                                                               
there  is precedent  for statutory  language of  this nature  and                                                               
still making it work within  the fields.  ConocoPhillips does not                                                               
meter and measure  every single well in the field.   It tests the                                                               
wells on  a periodic basis and  compares that to how  much oil is                                                               
actually  being put  down the  pipeline for  a particular  field.                                                               
For example,  oil going  into the  Kuparuk pipeline  is allocated                                                               
back to the individual fields,  individual drill sites and wells,                                                               
based upon  the well  tests.   While this  allocation methodology                                                               
sounds a bit complicated, it  is one that ConocoPhillips has used                                                               
in the past  when there were the separate  economic limit factors                                                               
(ELF).   ConocoPhillips is using this  allocation methodology for                                                               
leases that have  different royalty rates and how  much oil comes                                                               
from each  lease.  Thus,  it is  not without precedent,  but from                                                               
ConocoPhillips'  point  of  view,  the company  would  feel  more                                                               
confident if  the issue  about what  qualifies for  a GRE  can be                                                               
solved and  there is  something either  on the  record or  in the                                                               
statute that clarifies  what is meant by  "accurately metered and                                                               
measured."                                                                                                                      
                                                                                                                                
MR. JEPSEN  provided ConocoPhillips'  suggestions for  changes to                                                               
the GRE.  He said one  suggestion is that production from any new                                                               
well  (whether a  sidetrack, a  coil tubing  drilling well,  or a                                                               
grassroots well)  that meets the  criteria for  qualified capital                                                               
receives  the GRE.   The  reason for  using qualified  capital is                                                               
because  the  term   is  defined  under  ACES  as   part  of  the                                                               
calculation   for  determining   the  net   profit  per   barrel.                                                               
Generally speaking,  when a  company is  going to  capitalize the                                                               
well, new  reserves are being  produced - additional  recovery is                                                               
being produced  - versus what the  company is getting out  of the                                                               
field.   From  the  viewpoint of  ConocoPhillips,  using that  as                                                               
criteria for  what qualifies  will be clearer.   A  company would                                                               
understand going  into it  that a  particular well  qualifies for                                                               
the GRE.  It would make  it a greater incentive, particularly for                                                               
the legacy fields,  and would bring more  investment and drilling                                                               
rigs  into those  fields.   If the  intention is  that it  is not                                                               
going  to  apply to  the  legacy  fields,  then the  language  as                                                               
written probably accomplishes that.                                                                                             
                                                                                                                                
7:22:31 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN reiterated  that it is ConocoPhillips  belief that the                                                               
greatest  opportunities for  incremental investment,  production,                                                               
proven  developed  reserve  additions,   are  within  the  legacy                                                               
fields.    He  urged  the  committee   to  take  a  look  at  the                                                               
aforementioned suggestion  as an option  for the GRE.   Making it                                                               
simple and clear is  going to be the key to making  it work.  The                                                               
more complicated it  is, the more retrospective  the analysis is.                                                               
The  more technical  it is,  the less  applicable it  is probably                                                               
going to be.   The less of an impact, the less of  a factor it is                                                               
going to be in making investment decisions.                                                                                     
                                                                                                                                
MR. JEPSEN  concluded by stating  that CSSB 21(FIN)  am(efd fld),                                                               
as  currently proposed,  is an  improvement over  ACES and  would                                                               
lead to incremental and more investment.   It would put Alaska at                                                               
the  high end  of  places that  are taking  the  lion's share  of                                                               
ConocoPhillips' investment right now.   For example, in the Lower                                                               
48 the company's  investment between the years 2010  and 2012 has                                                               
gone  from $1.5  billion to  $4.8  billion.   That investment  is                                                               
partly   because  of   the  resources   and  partly   because  of                                                               
technology, as  well as because  of the favorable  tax framework.                                                               
Alaska has  many of the  same characteristics, but under  ACES it                                                               
does not  have the same kind  of favorable tax framework.   While                                                               
CSSB 21(FIN) am(efd  fld) is a positive step, if  Alaska wants to                                                               
see the  kind of  investment it  would like,  then ConocoPhillips                                                               
would ask  the committee  to consider reducing  the base  rate to                                                               
move Alaska into a regime that  is more attractive than under the                                                               
bill  as currently  written.   Modifying  the GRE  so  it can  be                                                               
counted  on  for  legacy  field   investments  would  be  another                                                               
significant improvement.                                                                                                        
                                                                                                                                
7:24:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK asked what the  decline curve is today within                                                               
ConocoPhillips' legacy fields.                                                                                                  
                                                                                                                                
MR. JEPSEN  replied the curve  is a  function of the  maturity of                                                               
individual wells and individual patterns.   For a new well coming                                                               
on stream, the base natural  decline without water flood, without                                                               
enhanced oil recovery (EOR), is about  18 percent.  A mature well                                                               
that has been on stream for 30  years might have a decline of 8-9                                                               
percent.   In  addition to  being a  function of  that particular                                                               
well's  maturity, the  decline curve  is also  a function  of the                                                               
kind of  processes being used  to enhance recovery.   The decline                                                               
rates seen in  these fields generally are not what  he would call                                                               
natural  decline  rates  because  ConocoPhillips  has  a  lot  of                                                               
enhanced oil recovery processes going on.                                                                                       
                                                                                                                                
REPRESENTATIVE TUCK  inquired where  the legacy  fields belonging                                                               
to ConocoPhillips Alaska, Inc. currently stand.                                                                                 
                                                                                                                                
MR. JEPSEN  responded he does  not have handy the  actual decline                                                               
rate for the Kuparuk field, but will get back with that number.                                                                 
                                                                                                                                
REPRESENTATIVE TUCK asked how  many of ConocoPhillips' operations                                                               
in its legacy fields require  collective decisions with the other                                                               
two producers.                                                                                                                  
                                                                                                                                
MR. JEPSEN  answered in  the Kuparuk  Field it  takes ExxonMobil,                                                               
BP, and  ConocoPhillips Alaska, Inc.  to approve the  majority of                                                               
the investments.                                                                                                                
                                                                                                                                
REPRESENTATIVE  TUCK  inquired  whether ConocoPhillips  has  some                                                               
projects it would like to get released as soon as ACES is fixed.                                                                
                                                                                                                                
MR. JEPSEN  replied if a  change to ACES is  seen, ConocoPhillips                                                               
will factor  that into investment  decisions; a range  of options                                                               
has been discussed during this  legislative session.  If the bill                                                               
passes  as currently  written,  his company  will  push for  some                                                               
additional investments, but  it may not be as  much investment as                                                               
the company thinks  it could potentially fund in  these fields if                                                               
it had a more robust tax framework.                                                                                             
                                                                                                                                
7:27:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  understood  ConocoPhillips  has  had  two                                                               
significant oil exploration successes in  the Gulf of Mexico.  He                                                               
asked whether those successes could  be discussed to illustrate a                                                               
difference in  productivity and  the economic  competitiveness of                                                               
the Gulf of Mexico compared to Alaska.                                                                                          
                                                                                                                                
MR.  JEPSEN responded  he probably  cannot  give the  granularity                                                               
being looked for  because he is not that  familiar with deepwater                                                               
Gulf of  Mexico.  However,  as seen on the  far left side  of the                                                               
[slide  4] chart,  the Gulf  of  Mexico is  the most  competitive                                                               
place in the world to invest.   That is generally true on federal                                                               
offshore  waters  because  there  is no  severance  tax  and  the                                                               
royalty rate  is usually about  12.5 percent.   ConocoPhillips is                                                               
one of  largest lease  holders in deepwater  Gulf of  Mexico, the                                                               
reasons being  that it  is resource rich  and a  very competitive                                                               
place to invest.                                                                                                                
                                                                                                                                
7:28:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER noted  that while much is  included in CSSB                                                               
21(FIN) am(efd  fld), he  is also interested  in things  that may                                                               
not be in it.   A perennial issue for him is  where the state can                                                               
remove impediments that  make it possible for  everyone to better                                                               
administrate Alaska's  tax code.   He  inquired how  important or                                                               
helpful  it would  be  if state  auditors were  able  to place  a                                                               
reasonable and tested reliance upon joint interest buildings.                                                                   
                                                                                                                                
MR. HEINRICH  answered ConocoPhillips supports that  concept that                                                               
joint interest  buildings do represent  a reasonable  approach in                                                               
identifying costs  that are audited  among the partners  as well.                                                               
Responding further,  he said it  may help streamline  the process                                                               
of the state's audits.   For example, ConocoPhillips Alaska, Inc.                                                               
is still waiting for its first audit under ACES.                                                                                
                                                                                                                                
7:30:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER stated  that  in the  definition of  lease                                                               
expenses he  believes the legislature  has abrogated  its ability                                                               
to  write statute,  and  to  write very  clear  statute, when  it                                                               
allows the Department of Revenue  to adopt regulations as well as                                                               
to establish  additional standards  for purposes of  carrying out                                                               
this  section.    He  asked  whether  giving  that  extraordinary                                                               
latitude to  the Department  of Revenue  has caused  the industry                                                               
any problems  with the  surety of  being able  to go  through the                                                               
code and know what can and cannot be claimed.                                                                                   
                                                                                                                                
MR. HEINRICH responded the clarity  of the regulations has been a                                                               
challenge for  ConocoPhillips in  terms of  not knowing  how they                                                               
are going  to be interpreted  and applied  in practice.   Some of                                                               
that clarity will happen over time  as audits are concluded and a                                                               
history is developed.                                                                                                           
                                                                                                                                
7:31:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON, regarding  testimony by ConocoPhillips and                                                               
others  about the  complexity  of  the GRE  when  applying it  to                                                               
existing producing  areas and where those  determinations will be                                                               
made, said  he anticipates the determinations  will be challenged                                                               
and result in  administrative appeals and court  cases.  However,                                                               
he continued,  the two provisions  of the  GRE for new  units and                                                               
new participating areas are clear  and simple.  He recounted that                                                               
at ConocoPhillips' February 28,  [2013,] analysts meeting, it was                                                               
stated that  the company is  working hard to develop  and produce                                                               
every last  barrel it can  get at  economically and is  trying to                                                               
get to hard-to-reach  pockets of oil that have  been bypassed and                                                               
are not  being produced by existing  wells, and to do  it without                                                               
spending  a lot  of  money.   It was  said  that accessing  these                                                               
pockets  using  conventional  drilling was  not  economic,  which                                                               
resulted in use  of the lower cost method of  coil tube drilling.                                                               
He recounted that  the House and Senate  resource committees just                                                               
returned from an excellent tour  of ConocoPhillips' facilities on                                                               
the North  Slope where members  saw that this coil  tube drilling                                                               
is neat and clean and does  not require bores, casing, or blowout                                                               
preventers.     Given   there  are   more   economic  ways   than                                                               
conventional  drilling to  get  to  that oil,  he  asked why  the                                                               
legislature would  try to apply  a very complex GRE  to determine                                                               
which oil  was participating  rather than  taking ConocoPhillips'                                                               
word  that this  is a  very economical  way to  get at  those and                                                               
enhance  that production.   He  requested an  explanation of  the                                                               
reasoning for  why ConocoPhillips  would be  supporting something                                                               
that is going to be very administratively complex.                                                                              
                                                                                                                                
7:34:42 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN, regarding the GRE  itself, answered ConocoPhillips is                                                               
advocating something  that is considerably  simpler than  what is                                                               
in the current bill.   ConocoPhillips would urge the committee to                                                               
change that  so it is not  so difficult to interpret.   Regarding                                                               
the analysts' presentation, ConocoPhillips  was talking about how                                                               
to apply technology  to its worldwide portfolio  to help increase                                                               
production  and  increase recovery.    What  was being  discussed                                                               
during that  presentation is what  is being  done day in  and day                                                               
out  at Kuparuk;  it is  nothing new,  it is  not an  incremental                                                               
stream of investment,  it is not a  new project, it is  not a new                                                               
initiative.  ConocoPhillips has  been doing essentially that same                                                               
kind of  work -  that same  level of investment  - in  those same                                                               
kinds of  projects for the  last five years  under ACES.   So, if                                                               
ConocoPhillips is going  to do that, the question  being asked is                                                               
why apply for a GRE.  One  reason is that even under CSSB 21(FIN)                                                               
am(efd fld),  Alaska is  still at  the top of  the middle  of the                                                               
pack.  ConocoPhillips  anticipates what it will do  in the future                                                               
and the disclaimers  at the front end of  all these presentations                                                               
is,  "investor  make  your  own  decisions  about  ...  what  the                                                               
company's performance might  be."  The world could  change, so no                                                               
plans are cast in  stone.  If things remain as  they are today in                                                               
terms of the company's capital  situation and other opportunities                                                               
for investment,  this is what the  company will probably do.   To                                                               
be clear  - ConocoPhillips could  do more  in Alaska.   If Alaska                                                               
was  in  a   place  where  it  could   attract  more  investment,                                                               
ConocoPhillips would  do more of  those types of activities.   If                                                               
the question is  whether the status quo is okay  so nothing needs                                                               
to be done  to secure it or  whether the state would  like to see                                                               
more, he would argue that as a state  he would like to see more -                                                               
more jobs, more oil down TAPS,  a long-term healthy economy - and                                                               
that can be done if substantial changes are made to ACES.                                                                       
                                                                                                                                
7:37:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  appreciated that  global look,  but argued                                                               
the problem is  that there is a substantial change  to ACES under                                                               
CSSB 21(FIN) am(efd  fld).  The biggest change is  SB 21, not the                                                               
GRE  applied  to  the  third category,  which  is  very  complex.                                                               
Something  legislators have  been told  all along  is to  make it                                                               
simple.  But  this one element is being said  to be very complex;                                                               
therefore,  companies   will  apply  for  everything,   which  he                                                               
presumes  will  mean the  state  is  going  to  have a  lot  more                                                               
decisions and  frustration on  everyone's part.   He said  he can                                                               
understand  a company  wanting to  have 20  percent of  a field's                                                               
gross revenue  excluded, but asked  why stimulate a  very complex                                                               
system  that has  an indeterminate  measurement that  nobody will                                                               
agree on,  whereas the other two  portions of the GRE  are pretty                                                               
cut and  clear.   He requested  a response  to the  coiled tubing                                                               
drilling and other things that  ConocoPhillips is currently doing                                                               
in the  field and why that  should have the extra  incentive of a                                                               
ross revenue exclusion.                                                                                                         
                                                                                                                                
7:39:18 PM                                                                                                                    
                                                                                                                                
MR.  JEPSEN replied,  "This is  not a  global answer,  this is  a                                                               
specific answer.  If you change  ... the tax framework in Alaska,                                                               
it will attract more investment. ...  This gets back to ... where                                                               
we stand  in other places we  are investing money, we  are at the                                                               
high end of ... the government  share in those other places where                                                               
we are investing a  lot of money right now."  To  put Alaska in a                                                               
more competitive position, one of  the few things in legislators'                                                               
control  is the  tax rate.   Getting  to the  middle of  the pack                                                               
would be  a better position for  Alaska and one way  to get there                                                               
is  to apply  the GRE  to new  wells that  have production,  have                                                               
reserves, in  the legacy fields.   But, it will take  time to get                                                               
there.   Regarding the  second part  of the  GRE that  applies to                                                               
participating areas (PAs), he said he  thinks it would be hard to                                                               
administer in  the existing fields  for several reasons.   First,                                                               
he does not  see a lot of opportunities for  new PAs, which means                                                               
talking  about  expansion  of  existing  PAs,  and  the  vagaries                                                               
currently seen in the [proposed]  statute make it uncertain as to                                                               
whether that  is something that a  company can count on.   It has                                                               
the  measurement issues  and whether  the  Department of  Natural                                                               
Resources might say that at least  a portion of the expansion was                                                               
probably contributing  to production in  some way.  So,  even the                                                               
second item  in the GRE will  have little applicability.   If the                                                               
purpose  of the  GRE  is to  bring new  investment  and see  more                                                               
production in  the next 5-10 years,  then it needs to  be applied                                                               
to legacy fields,  otherwise no one will be qualifying  for a GRE                                                               
for quite  some time.   Lastly, ConocoPhillips is  advocating for                                                               
making it  simple.  As  currently written,  the GRE will  be very                                                               
complicated  and may  not have  the desired  consequences because                                                               
ConocoPhillips may  not bother trying to  pursue one.  It  is the                                                               
job  of the  Department of  Natural Resources  and Department  of                                                               
Revenue to protect the state's  interests; so, if written in such                                                               
a fashion  that they can deny  the GRE, he anticipates  that they                                                               
will  and he  cannot fault  them.   ConocoPhillips might  test it                                                               
once  or twice  and  if  it is  applied  in  a very  conservative                                                               
fashion, he would  just decide it is as suspected.   He therefore                                                               
thinks it  needs to  be simpler  and should  apply to  the legacy                                                               
fields, and the  suggestions that ConocoPhillips has  laid on the                                                               
table would make it simple and clear.                                                                                           
                                                                                                                                
7:42:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER,  regarding ConocoPhillips'  suggestion for                                                               
new wells that meet the  criteria for qualified capital, inquired                                                               
whether ConocoPhillips  is suggesting  it be  linked back  to the                                                               
definition  of  a qualified  capital  expenditure  under the  [AS                                                               
43.55.023]  credits  section,  where  as long  as  it  meets  the                                                               
state's  criteria   for  a  lease  expense   and  is  essentially                                                               
incorporated into  the internal  revenue code,  that this  be the                                                               
basis for the determination.                                                                                                    
                                                                                                                                
MR. HEINRICH  responded correct,  saying a  reason ConocoPhillips                                                               
came to  that particular metric is  because it is already  in the                                                               
existing  structure.   The company  is  familiar with  how it  is                                                               
calculated, the company's  returns are filed on  a monthly basis,                                                               
and  it is  already going  through the  audit process.   It  is a                                                               
metric ConocoPhillips  can use to  file its federal  income taxes                                                               
that  then  feed in  to  the  determination under  the  qualified                                                               
capital under ACES.                                                                                                             
                                                                                                                                
7:43:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR recalled that about  a week ago in the Senate                                                               
Finance  Committee, ConocoPhillips  stated it  could not  say how                                                               
much it  would do  differently if  this bill were  to pass.   She                                                               
asked whether that is still the company's position.                                                                             
                                                                                                                                
MR.  JEPSEN answered  correct, ConocoPhillips  feels it  is going                                                               
directionally the way it should go.   Projects are looked at on a                                                               
case-by-case basis and he thinks  they will fare better than they                                                               
would under ACES.                                                                                                               
                                                                                                                                
7:43:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  recalled   seeing  a  legislative  research                                                               
report showing the  per-barrel profits and, except  for the Asian                                                               
Pacific  Region, Alaska  was at  the top  and had  record profits                                                               
over the last several quarters.   If that is not a situation that                                                               
allows  ConocoPhillips to  invest in  Alaska, then  where is  the                                                               
company  investing,  she  inquired,   and  what  would  give  the                                                               
committee  reason to  believe that  ConocoPhillips would  invest,                                                               
then, under a situation where it does not have record profits.                                                                  
                                                                                                                                
MR. HEINRICH  replied he may  not speak specifically to  the data                                                               
points, but  said the aforementioned  material looks like  it may                                                               
be coming from ConocoPhillips' recent  Form 10-K report outlining                                                               
the metrics  from the different  regions in which the  company is                                                               
producing.  What  cannot be seen from the  numbers, he explained,                                                               
is  the type  of production  in those  different areas.   In  the                                                               
Lower 48, where  the company's profits are probably  on the lower                                                               
side of  the different regions,  almost 70 percent  of production                                                               
is  natural  gas.   In  recent  times  natural  gas has  been  at                                                               
historical low prices, which affected  the company's earnings for                                                               
the last  several years, particularly  in 2012.  In  Alaska, over                                                               
95  percent of  ConocoPhillips'  production is  oil, with  Alaska                                                               
being about as pure of an oil area  as the company has.  So, when                                                               
trying to  compare oil  producing regions  to areas  that include                                                               
natural gas or are predominantly natural  gas, it is very hard to                                                               
get  much  information  because  it  is  an  apples  and  oranges                                                               
comparison.  When comparing  ConocoPhillips' activities in Alaska                                                               
versus other places where it  is making new investments, the data                                                               
point  to  look  at  is  the cash  margin  because  the  earnings                                                               
reported  in the  Form 10-K  represent  the company's  historical                                                               
investments.   In the last  12 years ConocoPhillips  has invested                                                               
over  $25  billion in  Alaska,  so  earnings are  generated  from                                                               
activities that  have been  done in  the past.   When  looking at                                                               
where  ConocoPhillips is  putting  its new  money, the  company's                                                               
cash margins  in Alaska  are currently in  the range  of $30-$35,                                                               
but in the Eagle  Ford and Bakken plays they are  in the range of                                                               
$40-$50; so,  40-50 percent higher  margins from places  like the                                                               
Eagle   Ford   and   Bakken   where   a   significant   part   of                                                               
ConocoPhillips' investment capital is going.                                                                                    
                                                                                                                                
7:47:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR asked  where  cash-margin basis  information                                                               
could be found.                                                                                                                 
                                                                                                                                
MR. HEINRICH  responded analyst presentations done  over the last                                                               
couple of years are available on  the Internet, but said he could                                                               
provide them.   In further  response, he confirmed they  are from                                                               
ConocoPhillips' presentations.                                                                                                  
                                                                                                                                
MR. JEPSEN added that  ConocoPhillips' investor presentations are                                                               
available on its public web site.                                                                                               
                                                                                                                                
7:47:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK noted  Alaska is  trying to  figure out  the                                                               
sweet spot for  itself in comparison to other  places.  Referring                                                               
to  [slide 4],  he surmised  fewer investments  are happening  in                                                               
Norway and Indonesia than in Canada-Nova Scotia and Brazil.                                                                     
                                                                                                                                
MR.  JEPSEN answered  ConocoPhillips has  invested in  Norway for                                                               
more than  30 years and has  significant assets there.   It would                                                               
not  be  farfetched to  say,  he  continued, that  ConocoPhillips                                                               
would make more  investments there if Norway had  a different tax                                                               
regime.   Alaska's tax  framework is  comparable to  Norway's and                                                               
ConocoPhillips still  makes investments  and is not  walking away                                                               
from Alaska.  But a different  type of tax framework is needed if                                                               
Alaska wants to see more investment.                                                                                            
                                                                                                                                
7:49:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK recalled the  2001 [Gerking study] in Wyoming                                                               
which concluded  that doing anything  with the production  tax is                                                               
inelastic  in making  changes in  investments in  that area.   He                                                               
understood that  ConocoPhillips testified before the  Senate that                                                               
it  planned on  spending  $2.5  billion over  the  next 5  years.                                                               
Given this, and what is  being proposed under CSSB 21(FIN) am(efd                                                               
fld),  he asked  how  much  more investment  can  be expected  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR. JEPSEN disagreed that taxes  do not matter, pointing out that                                                               
everyone has experience  with his/her own taxes and  it does make                                                               
a difference.   The  ACES environment  of being  at the  very top                                                               
does  make a  difference  and  is a  factor  that determines  the                                                               
economics of  individual projects.   While he is  unfamiliar with                                                               
the aforementioned  study, he said  his opinion is that  it makes                                                               
no  sense to  say that  taxes do  not matter.   The  $2.5 billion                                                               
mentioned in  the analysts  meeting is  the continuation  of what                                                               
ConocoPhillips has  been spending for  about the last 5  years on                                                               
those same  types of  activities.   How much  more ConocoPhillips                                                               
would  invest would  be a  function  of where  the proposed  bill                                                               
actually ends  up.   Where the  bill is right  now is  a positive                                                               
start, he said, and he  thinks some additional investment will be                                                               
seen.  Any projects will have  to be taken to the company's board                                                               
for consideration along with other projects the company has.                                                                    
                                                                                                                                
MR.  HEINRICH  added that  the  roughly  $500 million  referenced                                                               
about ConocoPhillips'  development projects  in Alaska is  only a                                                               
part  of its  overall capital  budget.   In the  last 3-4  years,                                                               
ConocoPhillips has  spent $700-$900 million and  expects to spend                                                               
similar levels with the current  fiscal structure.  The [spending                                                               
above $500 million]  is going into maintenance  and asset renewal                                                               
work that is  viewed as important to  keeping existing production                                                               
in a safe  state as facilities reach ages of  30-40 years.  Thus,                                                               
ConocoPhillips has been spending much more than $500 million.                                                                   
                                                                                                                                
7:52:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK allowed  he can see how the  third portion of                                                               
the  GRE could  be problematic.    He asked  whether there  would                                                               
still  be  the same  amount  of  hesitation with  ConocoPhillips'                                                               
future projects as under ACES  should CSSB 21(FIN) am(efd fld) be                                                               
passed as currently written                                                                                                     
                                                                                                                                
MR. JEPSEN  replied part of  the message that  ConocoPhillips has                                                               
been trying to  convey is that more investment  would probably be                                                               
seen with  the changes  on the  table today.   However,  it would                                                               
probably  not be  as much  investment as  everyone would  like to                                                               
see.  He said  he thinks changes could be made  to this bill that                                                               
will put Alaska  in a more favorable position  for investment and                                                               
that will bring more investment.                                                                                                
                                                                                                                                
7:53:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK understood  that ConocoPhillips, unlike other                                                               
producers, separates out Alaska in  its taxes.  He inquired which                                                               
years were the most profitable for ConocoPhillips in Alaska.                                                                    
                                                                                                                                
MR. JEPSEN responded the price of  oil in the early 1980s was $40                                                               
per barrel and  ConocoPhillips was producing an awful  lot of oil                                                               
out of Alaska.   To do that  comparison he would have  to go back                                                               
and make some inflation adjustments;  so he cannot readily answer                                                               
the question as to what year has been the most profitable.                                                                      
                                                                                                                                
REPRESENTATIVE TUCK asked whether  the question could be answered                                                               
by which years in Alaska had the best cash flow.                                                                                
                                                                                                                                
MR.  JEPSEN said  his  answer  would be  the  same  - prices  and                                                               
profits  cannot be  compared from  one point  in time  to another                                                               
point in time  30 years later and have it  be an apples-to-apples                                                               
comparison.                                                                                                                     
                                                                                                                                
7:55:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.   WILSON  requested  a  description   of  what                                                               
ConocoPhillips  Alaska,  Inc. goes  through,  what  areas in  the                                                               
world it  is up against, when  it presents projects in  Alaska to                                                               
the board for consideration.                                                                                                    
                                                                                                                                
MR.  HEINRICH answered  the  process has  many  metrics, some  of                                                               
which are confidential, but it is  not just rates of return.  The                                                               
slate of opportunities  is ever-changing, so on any  given day it                                                               
depends in part on what  other opportunities the company can work                                                               
itself into that  may require capital.  It is  a changing process                                                               
because  ConocoPhillips comes  into  different opportunities  and                                                               
exits different areas as they  get into different phases of their                                                               
lifecycle.                                                                                                                      
                                                                                                                                
REPRESENTATIVE P.  WILSON requested further elaboration  on where                                                               
those other opportunities might be located throughout the world.                                                                
                                                                                                                                
MR.  HEINRICH  replied  his response  is  more  around  portfolio                                                               
management.    When looking  at  West  Africa or  Australia,  the                                                               
company is trying to balance many  things, such as oil versus gas                                                               
exposure and whether to shift the  portfolio to being more oil in                                                               
nature versus  gas.   Today, those  investment dollars  are going                                                               
into liquid  rich oil plays around  the world as opposed  to gas,                                                               
which  ConocoPhillips had  made a  conscious effort  to get  into                                                               
through  the mid-2000s  and  some of  the  company's projects  in                                                               
Australia came about  during that timeframe.  It  depends on what                                                               
the  view   is  of  the   direction  of  the   industry,  prices,                                                               
opportunities,  and how  ConocoPhillips  wants  its portfolio  to                                                               
evolve over time.   Dispositions resulting out  of that portfolio                                                               
management also drive some of that.                                                                                             
                                                                                                                                
7:57:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  inquired whether  portfolio management                                                               
is the reason  why ConocoPhillips cannot make  a commitment about                                                               
exactly what  is going to  happen.  She  said she is  asking this                                                               
question for  the record  given that some  people have  said they                                                               
want  certainty  that things  will  increase  in Alaska  and  are                                                               
unwilling to do something unless there is a commitment.                                                                         
                                                                                                                                
MR. HEINRICH  responded the recent analyst  discussions show that                                                               
ConocoPhillips' strategy is about  increasing its exposure in oil                                                               
and  increasing its  overall margin  contributions.   That margin                                                               
contribution is driving some dispositions  for areas that are not                                                               
generating high  returns and driving investment  into places that                                                               
are.   So, those two  things actually  favor the types  of things                                                               
that ConocoPhillips could do in Alaska.                                                                                         
                                                                                                                                
MR.  JEPSEN  added  the  more   Alaska  is  positioned  to  favor                                                               
investment, the better it is going  to fare in all those kinds of                                                               
discussions.  Even though a commitment  cannot be made, it can be                                                               
said that  ConocoPhillips just had  two major discoveries  in the                                                               
U.S. Gulf  of Mexico,  one of  the best places  in the  world for                                                               
investment.   Those places are going  to fare well no  matter how                                                               
the rest  of the  world changes.   An  idea he  would put  to the                                                               
committee is to  position Alaska such that  investment is favored                                                               
here over other opportunities.                                                                                                  
                                                                                                                                
7:59:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked whether  ConocoPhillips can  guarantee to                                                               
anyone  - its  shareholders,  its  managers -  that  X amount  of                                                               
spending will result in Y amount of increased production.                                                                       
                                                                                                                                
MR. JEPSEN  answered that  is certainly  talked about  at analyst                                                               
presentations.  "We talk about we  are going to make this kind of                                                               
investment, we anticipate  this kind of production.   To say that                                                               
that never happens is probably not  accurate, but that is done in                                                               
a  very methodical  basis after  much  review with  our board  of                                                               
directors, with  our executive committee.   We are not here  in a                                                               
place today where we can say  that, nor do we take these projects                                                               
and have  them matured  to the  point where we  could say  to our                                                               
board  or to  our  executive management  'this  is something  you                                                               
ought to commit to doing.'   So the things that you typically see                                                               
in those  presentations are things  that we are  pretty confident                                                               
about.   Right  now,  Alaska has  been in  a  place where,  quite                                                               
frankly, I do  not think as much effort has  been put into trying                                                               
to mature projects  as you might have seen if  we had a different                                                               
tax framework."                                                                                                                 
                                                                                                                                
CO-CHAIR SADDLER noted he has  often heard that if Alaska reduces                                                               
its taxes, the  money that would be retained by  the oil industry                                                               
will be spent  elsewhere.  He inquired whether  money is fungible                                                               
or if investment in Alaska is made with Alaska-earned dollars.                                                                  
                                                                                                                                
MR. HEINRICH replied he does  not believe ConocoPhillips actually                                                               
tracks money  in/money out, but said  it is very natural  in this                                                               
industry that  money moves across  geographic boundaries.   Forty                                                               
years  ago, for  example, the  money to  fund development  of the                                                               
assets in Alaska came from somewhere.                                                                                           
                                                                                                                                
8:01:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  commented  the  committee has  heard  lots  of                                                               
dollar figures tossed around about  the amount of spending on the                                                               
North Slope  that is currently taking  place to keep the  rate of                                                               
decline at a certain point.   He asked what ConocoPhillips' level                                                               
of investment is to keep the decline rate at its current level.                                                                 
                                                                                                                                
MR.  JEPSEN  responded  ConocoPhillips  has  invested  around  $1                                                               
billion a year for  about the last 3-4 years, and  it can be seen                                                               
the kind of declines that have resulted from that.                                                                              
                                                                                                                                
CO-CHAIR SADDLER inquired  whether Mr. Jepsen or  Mr. Heinrich is                                                               
familiar with any  taxing regimes that are predicated  on new oil                                                               
or that might  have a better way of identifying  new oil that the                                                               
GRE exclusion could be applied to.                                                                                              
                                                                                                                                
MR. JEPSEN answered nothing comes to mind that mimics the GRE.                                                                  
                                                                                                                                
8:02:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER asked  how ConocoPhillips  would deal  with the                                                               
third category GRE if it became law as currently written.                                                                       
                                                                                                                                
MR. JEPSEN  replied he is  "guesstimating" as  to ConocoPhillips'                                                               
behavior  because  there  have been  no  conversations  with  the                                                               
Department of  Natural Resources as  to how the  department would                                                               
try to apply it.   But, he would say that  it would be reasonably                                                               
difficult for ConocoPhillips to prove  or live up to the standard                                                               
currently written into the bill.   His guess is that it would not                                                               
stimulate a  whole lot  of litigation  - if  ConocoPhillips found                                                               
out  that  the  interpretation   of  the  Department  of  Natural                                                               
Resources and  Department of  Revenue was such  that the  type of                                                               
wells  the company  is planning  on drilling  would not  qualify,                                                               
then that is probably where the company would leave it.                                                                         
                                                                                                                                
MR. HEINRICH added that from  an economic analysis perspective it                                                               
would  be  real hard  for  ConocoPhillips  to  factor it  into  a                                                               
decision-making  process until  there  is clarity  in the  likely                                                               
outcome.   At  best, it  might get  a footnote  in the  company's                                                               
analysis until a point where  there is confidence it is something                                                               
that can be counted on for a particular type of project.                                                                        
                                                                                                                                
CO-CHAIR SADDLER  surmised the ambiguity  would cause  a chilling                                                               
factor.                                                                                                                         
                                                                                                                                
[Response inaudible.]                                                                                                           
                                                                                                                                
8:04:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER inquired whether any  of the other less critical                                                               
provisions of CSSB 21(FIN) am(efd fld) raise any concerns.                                                                      
                                                                                                                                
MR.  JEPSEN  responded  he  concurs  with  ExxonMobil  about  the                                                               
Competitive Review Board,  adding it would take some  time to see                                                               
how that is going to work.   He said the consultants advising the                                                               
committee about how Alaska fares  in terms of competitiveness are                                                               
highly experienced and highly educated  experts and the board, as                                                               
currently set up, would not consist  of those same people.  There                                                               
are  also  the issues  around  confidentiality  and whether  that                                                               
board could make that judgment  without the breadth of experience                                                               
had by PFC Energy  or Econ One Research.  If  it becomes an issue                                                               
every year  it becomes the center  of at least the  first 30 days                                                               
of  every session  waiting  for this  report,  which throws  some                                                               
uncertainty into  it.  While it  may be just fine,  he said there                                                               
are certainly questions in his mind as  to how it would work.  He                                                               
added  that the  other provisions  mentioned earlier  by Co-Chair                                                               
Saddler generally do not apply  to ConocoPhillips, so the company                                                               
is relatively indifferent to those.                                                                                             
                                                                                                                                
8:05:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  understood ConocoPhillips  generally  supports                                                               
the   work   that   the  [legislature's   and   administration's]                                                               
consultants have done.  He  asked whether there is any particular                                                               
thing the  company would  like to  draw attention  to, highlight,                                                               
dispute, or correct.                                                                                                            
                                                                                                                                
MR.  HEINRICH  answered  he  does   not  believe  there  is  much                                                               
disagreement, but the  one area in which differences  are seen is                                                               
around the modeling  work that goes into looking  at the producer                                                               
take.    Because  there  are   different  assumptions  there  are                                                               
differences  between the  different  consultants, but  it is  not                                                               
because  ConocoPhillips  does  not  understand  potentially  what                                                               
those are.  Generally speaking,  the consultants have represented                                                               
the  case  very  well.   Responding  further,  he  confirmed  the                                                               
differences are  in the assumptions  used for the  producer share                                                               
or government  take analyses.   He said  those analyses  are very                                                               
much dependent on the assumptions  used for operating and capital                                                               
expenses, tax rates,  and effective tax rates.   Some assumptions                                                               
might  use a  theoretical asset.   ConocoPhillips  uses the  data                                                               
from  the  Department of  Revenue's  sources  book to  model  the                                                               
industry.   It is  not to  say any of  the approaches  are wrong,                                                               
they just give slightly different variances.                                                                                    
                                                                                                                                
8:07:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  read from the aforementioned  February 28,                                                               
2013,  analysts meeting  [report] in  which it  was stated  that:                                                               
there  are numerous  development opportunities  in Alaska  in and                                                               
around the  ConocoPhillips' existing  assets from Prudhoe  Bay to                                                               
Kuparuk to  Alpine and associated  satellite fields;  the company                                                               
is  applying  high  technology   drilling  capabilities  so  that                                                               
investment  results in  an incremental  35,000 barrels  a day  by                                                               
2017,  which mitigates  the base  decline  in Alaska  to about  3                                                               
percent a year;  and this does not include the  Alpine West major                                                               
project,  but when  Alpine  West  is added  the  base decline  is                                                               
mitigated to about 2 percent a  year.  Because he heard 9 percent                                                               
mentioned earlier,  Representative Seaton  said he would  like to                                                               
ask  Mr. Jepsen  and Mr.  Heinrich  whether they  agree with  the                                                               
analysts meeting  that this is  what ConocoPhillips  is currently                                                               
projected to be doing.                                                                                                          
                                                                                                                                
MR.  JEPSEN pointed  out the  previous answer  was to  a question                                                               
dealing with natural  decline in the fields when  nothing is done                                                               
after a well is drilled.   Instead, ConocoPhillips is doing quite                                                               
a  bit more  to maintain  production in  these fields  by working                                                               
over  wells, fixing  broken wells,  and stimulating  wells.   New                                                               
wells are  also being drilled.   A base of investment  goes on to                                                               
keep the  decline from being  at the rates talked  about earlier;                                                               
enhanced  oil recovery  (EOR) is  a  big component  in trying  to                                                               
maintain production.   He explained Mr. Fox  was representing the                                                               
agglomeration  of all  of  ConocoPhillips'  interests across  the                                                               
North  Slope, and  he does  not take  exception to  what Mr.  Fox                                                               
said.   It is a  function of the  performance that is  being seen                                                               
today and  the historical investments  the company has  made and,                                                               
hopefully, will be making in the future.                                                                                        
                                                                                                                                
8:09:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  noted that during  the time of  the economic                                                               
limit factor  (ELF), some  areas basically had  no tax  yet there                                                               
was no  explosion in investment.   When asked about  this before,                                                               
people have responded that it had to  do with the price of oil at                                                               
that time.   She requested Mr.  Jepsen to comment on  that in the                                                               
context of what is being thought about today.                                                                                   
                                                                                                                                
MR.  JEPSEN presumed  Representative  Tarr is  talking about  the                                                               
time period between 1996 and 2006.   Displaying a chart that used                                                               
data from  the Department  of Natural Resources  to plot  all the                                                               
new fields brought  on stream during that time frame,  he said it                                                               
amounts to about 260,000 barrels a  day of production by the year                                                               
2005 or so.  During  that time frame, considerable investment was                                                               
going  on  and  considerable  new   production  came  on  stream.                                                               
Additionally,  in existing  fields  like Kuparuk,  ConocoPhillips                                                               
was investing in wells and investing  in EOR.  The EOR project in                                                               
Kuparuk  was started  in  1996 or  1997 and  moved  from being  a                                                               
small-scale project  to field-wide, adding  25,000-30,000 barrels                                                               
per day production.  So,  the comment that ConocoPhillips was not                                                               
doing anything when  ELF was low is simply wrong.   A reason this                                                               
may not  have been seen  in the decline  is that Prudhoe  Bay and                                                               
Kuparuk  are gigantic  fields and  their base  decline is  pretty                                                               
steep.  A  million barrels a day naturally declining  at 10 or 15                                                               
percent a year is  a pretty steep hill to climb  when it is doing                                                               
that year in and year out.   Given where things are at right now,                                                               
there is  probably the opportunity  to offset the  decline pretty                                                               
significantly because  the field  rates are  lot lower  than they                                                               
were back in that time frame.                                                                                                   
                                                                                                                                
8:11:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR   requested  the  aforementioned   chart  be                                                               
provided to  the committee.  She  asked Mr. Jepsen to  comment on                                                               
the following statements from the  study in Wyoming [2001 Gerking                                                               
et al, abstract, page 1]:                                                                                                       
                                                                                                                                
     A  production tax  rate increase  is shown  to decrease                                                                    
     early period  exploration effort, affect  little change                                                                    
     in  reserve   additions  and  future   production,  and                                                                    
     substantially increase discounted  tax revenue.  Policy                                                                    
     implications  of   this  outcome  suggest   that  state                                                                    
     officials may consider raising  production tax rates as                                                                    
     a way to  increase revenue while risking  little in the                                                                    
     way of loss to future oil activity.                                                                                        
                                                                                                                                
MR. JEPSEN replied he will look at  the study and get back to the                                                               
committee with comments.                                                                                                        
                                                                                                                                
8:13:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE observed  that slide  3 of  yesterday's Econ  One                                                               
Research presentation  shows the crossover between  ACES and CSSB                                                               
21(FIN)  am(efd fld)  for government  take  to be  about $80  per                                                               
barrel   while  the   chart  provided   today  on   slide  3   by                                                               
ConocoPhillips  shows it  at approximately  $90 per  barrel.   He                                                               
asked why this difference.                                                                                                      
                                                                                                                                
MR. HEINRICH  responded that is  what he was  referencing earlier                                                               
today when  he said  a lot  depends on  the assumptions  used for                                                               
operating  costs, capital  costs,  state tax  rates, and  federal                                                               
income  taxes.    ConocoPhillips  modeled  this  data  using  the                                                               
Department  of   Revenue's  sources  book  information   for  the                                                               
industry  taxpayers,  which  he believes  represents  essentially                                                               
producers and  production on the  North Slope.   So, it may  be a                                                               
different set  of data than  the different consultants  have used                                                               
in constructing  their models.  Additionally,  the ConocoPhillips                                                               
chart  specifically represents  fiscal year  2014 as  though CSSB                                                               
21(FIN) am(efd fld) were in effect  for the whole fiscal year; it                                                               
is not  a five-year average  or a  full field-wide average.   The                                                               
reason  for choosing  to represent  2014  is because  it is  much                                                               
nearer  in  time  and  therefore   more  accurate  and  a  better                                                               
portrayal of what  can be expected in a given  year as opposed to                                                               
a five-year average or some other  metric that does not relate to                                                               
a specific year.                                                                                                                
                                                                                                                                
MR.  JEPSEN pointed  out that  oil price  inflated over  time and                                                               
then  discounted back  drives that  crossover point  lower; doing                                                               
the discounted cash  flow economics leads to a  lower current oil                                                               
price for a crossover  point than if it is done  as shown here in                                                               
today's presentation.   While  it is complicated,  it is  part of                                                               
the  issue in  terms  of how  different  presenters present  this                                                               
data.                                                                                                                           
                                                                                                                                
8:16:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  understood, then, that  in ConocoPhillips'                                                               
modeling  and decision  making,  the company  is  not looking  at                                                               
inflation factors  and if the  discount rate  is used it  is just                                                               
the discount rate based on the nominal rate/nominal dollars.                                                                    
                                                                                                                                
MR. HEINRICH answered  [the chart on slide 3]  is an undiscounted                                                               
view of the world for fiscal year 2014.                                                                                         
                                                                                                                                
The committee took an at-ease from 8:17 p.m. to 8:27 p.m.                                                                       
                                                                                                                                
8:27:36 PM                                                                                                                    
                                                                                                                                
DAMIAN  BILBAO, Head  of Finance,  BP Exploration  (Alaska) Inc.,                                                               
thanked all  legislators for addressing the  shortcomings of ACES                                                               
and  "working  hard  to  meet  the  governor's  principles  of  a                                                               
simpler,  fairer,  more  durable  tax policy  that  attracts  the                                                               
needed  investment Alaska  requires."   These efforts  indicate a                                                               
common understanding  of the seriousness that  production decline                                                               
presents to  Alaska, most notably  evidenced by  the Trans-Alaska                                                               
Pipeline  System (TAPS)  flowing three-quarters  empty.   He said                                                               
CSSB 21(FIN) am(efd  fld) is a step change from  the current ACES                                                               
policy  and signals  to investors  that Alaska  is serious  about                                                               
attracting investment to the state.   However, while it is a step                                                               
forward in making Alaska more  attractive to investment, Alaska's                                                               
geographic,  technical, and  cost  challenges are  such that  the                                                               
state may  not want to  be satisfied  with settling on  the upper                                                               
end of average on the competitive  scale.  He urged the committee                                                               
to  consider opportunities  for  improving the  bill's first  two                                                               
elements  of base  rate  and  credit per  barrel,  which he  said                                                               
cannot be  decoupled, and  its third  element providing  of gross                                                               
revenue exclusion (GRE).                                                                                                        
                                                                                                                                
MR.  BILBAO,  referring  to  the only  slide  in  his  PowerPoint                                                               
presentation, discussed  what BP Exploration (Alaska)  Inc. ("BP)                                                               
believes the bill  does well.  Elimination of  progressivity is a                                                               
game  changer, he  said,  and puts  Alaska back  in  the game  of                                                               
competition  of competition  for investment.   Progressivity  has                                                               
made  Alaska noncompetitive  for rate-adding  investment that  is                                                               
needed  to create  a different  decline curve  than what  is seen                                                               
today and over the last several  years.  While BP recognizes that                                                               
non-rate-adding  investment, or  rate sustaining  investment, has                                                               
continued, the  large rate-adding investments that  are necessary                                                               
to create a different production  profile going forward have gone                                                               
elsewhere.    Removing  progressivity  should  make  for  a  more                                                               
productive discussion  with potential  investors in the  Lower 48                                                               
who are not currently investing in  Alaska and have found the tax                                                               
policy to  be complex and difficult  to model.  If  one considers                                                               
the  number of  players operating  in areas  like the  Bakken and                                                               
Eagle Ford relative  to the number of investors  in Alaska today,                                                               
at today's  prices this should  be an  item of both  surprise and                                                               
concern for the people of Alaska.                                                                                               
                                                                                                                                
8:32:06 PM                                                                                                                    
                                                                                                                                
MR. BILBAO pointed  out that CSSB 21(FIN) am(efd  fld) raises the                                                               
base  rate  from 25  percent  [as  originally introduced]  to  35                                                               
percent, but offsets  this with a $5 per barrel  credit.  He said                                                               
it  is  important  to  recognize  that  those  two  elements  are                                                               
inextricably linked.   The balance between the base  rate and the                                                               
credit is critical  and must be maintained or the  bill loses its                                                               
effectiveness  for  investors.   Furthermore,  the  focus of  the                                                               
credit shifts  from being linked  to investment to  instead being                                                               
linked  to production  - a  clear message  on policy  priorities.                                                               
This shift in  policy encourages a near-term  focus on developing                                                               
new  production.   The gross  revenue  exclusion provision  could                                                               
have a positive  impact on near-term and  long-term economics, he                                                               
continued.   Changing  the GRE  component to  include the  legacy                                                               
fields  was a  significant  shift because  it  targets where  the                                                               
opportunity is greatest.                                                                                                        
                                                                                                                                
MR. BILBAO added  that an important point is  CSSB 21(FIN) am(efd                                                               
fld)  simplifies Alaska's  fiscal  system,  allowing for  greater                                                               
certainty around  planning and analyzing projects.   For example,                                                               
inefficient  elements  of administering  ACES  are  removed.   He                                                               
reminded members  of testimony provided  by Tom  Williams, former                                                               
commissioner of the Department of  Revenue, in which Mr. Williams                                                               
explained  how calculating  the progressivity  tax under  a price                                                               
that changes  over the  course of  the year may  result in  a tax                                                               
payment  more than  50 percent  higher than  a payment  where the                                                               
average  price is  actually  the same  but  with less  volatility                                                               
throughout the  year.  It  makes it  very difficult to  plan BP's                                                               
business when something entirely beyond  BP's control such as the                                                               
volatility  of  price,  much  less  the  change  of  it,  can  so                                                               
significantly impact the company's  cash profile.  Continuing, he                                                               
said CSSB  21(FIN) am(efd  fld) proves  to board  rooms worldwide                                                               
that Alaska is serious about  competing and attracting investors.                                                               
When investors  look at where  to invest, they consider  not only                                                               
the fiscal  climate, but also  the commitment to  be competitive,                                                               
which is something  this bill signals very clearly.   Lastly, the                                                               
bill  levels  the  playing  field and  moves  away  from  picking                                                               
winners and  losers by providing  a more level playing  field and                                                               
encouraging all the  players to pursue all the  projects that are                                                               
economically competitive.                                                                                                       
                                                                                                                                
8:35:43 PM                                                                                                                    
                                                                                                                                
MR.  BILBAO next  addressed where  BP  believes the  bill can  be                                                               
improved, saying the [35 percent]  base rate would be challenging                                                               
at  lower  prices.     He  recounted  testimony   in  which  [the                                                               
administration's   consultant],  Barry   Pulliam  [of   Econ  One                                                               
Research], stated  that at  $80 per  barrel, CSSB  21(FIN) am(efd                                                               
fld) is  less competitive  than ACES.   In  2010, ANS  West Coast                                                               
prices averaged  around $80 per  barrel; given this was  not very                                                               
long ago, BP  encourages the committee to consider  the impact of                                                               
the  bill  at  prices  below  $100.     The  current  GRE  is  an                                                               
improvement  to  the original  bill,  he  continued, because  its                                                               
focus  now  includes  the development  of  resources  inside  the                                                               
legacy  fields.   However, BP  would encourage  the committee  to                                                               
improve how  the GRE is  applied and how  parties can rely  on it                                                               
when  they  run  their  economics.     The  GRE  applies  at  the                                                               
discretion of  the Department  of Revenue  and the  Department of                                                               
Natural  Resources.   It must  be considered  that it  takes many                                                               
years for a project to make  its way through the conveyor belt of                                                               
opportunity - from when BP  first decides to dedicate resource to                                                               
the project  to when it  actually gets sanctioned.   As currently                                                               
written, it  is uncertain  whether the  project can  benefit from                                                               
the  GRE.   Whether that  decision is  made earlier  on when  the                                                               
resources are  dedicated to begin to  look at a project  or later                                                               
on when  the project  is sanctioned,  which may  be years,  it is                                                               
important that those two decisions  remain consistent even though                                                               
many years  have passed in  between both points.   More certainty                                                               
is needed  in this provision so  BP can have confidence  that the                                                               
GRE assumption should be included in its economic modeling.                                                                     
                                                                                                                                
MR.   BILBAO    concluded   by    stating   that    BP   believes                                                               
CSSB 21(FIN) am(efd  fld)  puts  Alaska  back  in  the  game  and                                                               
creates  a  simpler and  more  balanced  system.   He  encouraged                                                               
members to consider  BP's suggestions for improving  the bill and                                                               
said  BP  looks  forward  to supporting  the  committee  as  this                                                               
process continues.                                                                                                              
                                                                                                                                
[CSSB 21(FIN) am(efd fld) was held over.]                                                                                       
                                                                                                                                
8:39:13 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 8:39 p.m.                                                                 

Document Name Date/Time Subjects
HRES SB21 BP - Bilbao 3.26.13.pdf HRES 3/26/2013 6:00:00 PM
SB 21
HRES SB21 ConocoPhil. 3.26.13.pdf HRES 3/26/2013 6:00:00 PM
SB 21
HRES SB21 Production Under ELF Slide 3.26.13 Backup.pdf HRES 3/26/2013 6:00:00 PM
SB 21
HRES SB21 Historical Investment Slide.Adjusted to 2012 Dollars 3.26.13 Backup.pdf HRES 3/26/2013 6:00:00 PM
SB 21