Legislature(2019 - 2020)Anch LIO Lg Conf Rm

12/16/2019 02:00 PM RESOURCES

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Audio Topic
01:59:44 PM Start
02:02:30 PM Overview: Bp/hilcorp Transaction
04:00:48 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Joint with Senate RES
+ Overview: BP/Hilcorp Transaction TELECONFERENCED
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
              SENATE RESOURCES STANDING COMMITTEE                                                                             
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         ANCHORAGE LIO                                                                                        
                       December 16, 2019                                                                                        
                           1:59 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
SENATE RESOURCES STANDING COMMITTEE                                                                                             
                                                                                                                                
 Senator John Coghill, Vice Chair                                                                                               
 Senator Cathy Giessel                                                                                                          
 Senator Lora Reinbold                                                                                                          
 Senator Click Bishop                                                                                                           
 Senator Scott Kawasaki                                                                                                         
 Senator Jesse Kiehl                                                                                                            
                                                                                                                                
HOUSE RESOURCES STANDING COMMITTEE                                                                                              
                                                                                                                                
 Representative Geran Tarr, Co-Chair                                                                                            
 Representative Grier Hopkins, Vice Chair (online)                                                                              
 Representative Sara Hannan                                                                                                     
 Representative Sara Rasmussen                                                                                                  
 Representative George Rauscher (online)                                                                                        
 Representative Ivy Spohnholz                                                                                                   
 Representative Dave Talerico                                                                                                   
 Representative Chris Tuck                                                                                                      
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
HOUSE RESOURCES STANDING COMMITTEE                                                                                              
                                                                                                                                
 Representative John Lincoln, Co-Chair                                                                                          
                                                                                                                                
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Elvi Gray-Jackson                                                                                                       
Senator Josh Revak                                                                                                              
                                                                                                                                
Representative Bryce Edgmon (online)                                                                                            
Representative Zack Fields (online)                                                                                             
Representative Mel Gillis                                                                                                       
Representative Jennifer Johnston                                                                                                
Representative Andy Josephson (online)                                                                                          
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW: BP/HILCORP TRANSACTION                                                                                                
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
CORRI FEIGE, Commissioner                                                                                                       
Alaska Department of Natural Resources                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Provided an overview of the BP/Hilcorp                                                                    
transaction.                                                                                                                    
                                                                                                                                
PETER   CALTAGIRONE,    Senior   and   Legal    Policy   Advisor,                                                               
Commissioner's Office                                                                                                           
Alaska Department of Natural Resources                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Provided a sale structure overview of the                                                                 
BP/Hilcorp transaction.                                                                                                         
                                                                                                                                
MATT SNODGRASS, Commercial Analyst                                                                                              
Division of Oil and Gas                                                                                                         
Alaska Department of Natural Resources                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Provided a financial analysis overview of                                                                 
the BP/Hilcorp transaction.                                                                                                     
                                                                                                                                
JOHN PTACIN, Chief Assistant Attorney General                                                                                   
Oil and Gas Section                                                                                                             
Alaska Department of Law                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Explained the role of the Department of Law                                                               
in the BP/Hilcorp transaction.                                                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:59:44 PM                                                                                                                    
VICE CHAIR  COGHILL called  the joint meeting  of the  Senate and                                                             
House  Resources  Standing  Committees  to  order  at  1:59  p.m.                                                               
Present at the  call to order from the  Senate Resources Standing                                                               
Committee  were   Senators  Giessel,  Bishop,   Reinbold,  Kiehl,                                                               
Kawasaki,  and  Vice Chair  Coghill.    Also in  attendance  were                                                               
Senators Gray-Jackson and Revak.                                                                                                
                                                                                                                                
CO-CHAIR TARR  announced that present  at the call to  order from                                                               
the  House  Resources  Standing  Committee  were  Representatives                                                               
Talerico, Rasmussen,  Tuck, Hannan, and Co-Chair  Tarr. She noted                                                               
that  Representative Lincoln  is  excused for  a medical  reason.                                                               
Also in  attendance were Representatives Edgmon  (online), Fields                                                               
(online), Gillis, Johnston, and Josephson (online).                                                                             
                                                                                                                                
VICE  CHAIR  COGHILL   noted  that  Senator  Revak   as  well  as                                                               
Representatives Johnston and Gillis are present at the meeting.                                                                 
                                                                                                                                
^Overview: BP/Hilcorp Transaction                                                                                               
                Overview: BP/Hilcorp Transaction                                                                            
                                                                                                                                
2:02:30 PM                                                                                                                    
VICE  CHAIR  COGHILL  announced that  the  joint  committee  will                                                               
discuss the  BP Alaska  and Hilcorp  role as  they played  out to                                                               
Alaska's   various   agencies.   Leading  the   conversation   is                                                               
Commissioner Corri  Feige from the  Alaska Department  of Natural                                                               
Resources and her team members.                                                                                                 
                                                                                                                                
He  announced  that  Senator  Gray-Jackson   is  present  at  the                                                               
meeting.                                                                                                                        
                                                                                                                                
CO-CHAIR TARR announced that  Representative Spohnholz has joined                                                               
the committee meeting and Representative Rauscher is online.                                                                    
                                                                                                                                
VICE CHAIR  COGHILL noted that Representative  Hopkins has joined                                                               
the meeting online.                                                                                                             
                                                                                                                                
2:03:30 PM                                                                                                                    
CORRI   FEIGE,  Commissioner,   Alaska   Department  of   Natural                                                               
Resources, Anchorage,  Alaska, said  experts from within  DNR and                                                               
the Alaska Department of Law (DOL)  have joined her for the joint                                                               
committee overview. She said she  is joined by experts within DNR                                                               
and DOL who are actively engaged  in the due diligence and review                                                               
of the  BP/Hilcorp transaction. All  the experts are part  of the                                                               
department's   internal   review    team   for   the   BP/Hilcorp                                                               
transaction.                                                                                                                    
                                                                                                                                
She introduced  the department's  expert team for  the BP/Hilcorp                                                               
transaction as follows:                                                                                                         
                                                                                                                                
   • Dr. Matt Snodgrass, Commercial Analyst with the Division of                                                                
     Oil and Gas, Alaska Department of Natural Resources (DNR).                                                                 
                                                                                                                                
   • John Ptacin, Chief Assistant Attorney General, Oil and Gas                                                                 
     Section, Alaska Department of Law (DOL).                                                                                   
                                                                                                                                
   • Peter Caltagirone, Senior and Legal Policy Advisor,                                                                        
     Commissioner's Office, Alaska Department of Natural                                                                        
     Resources (DNR).                                                                                                           
                                                                                                                                
2:04:26 PM                                                                                                                    
COMMISSIONER  FEIGE  stated  that   she  and  the  aforementioned                                                               
presenters would  share presentation  of the  DNR overview,  BP &                                                               
Hilcorp  Transaction,  and The  Deal  and  the State's  Oversight                                                               
Role. She said  Alaska law is clear, no transfer  of the interest                                                               
in an oil  and gas lease shall  be binding on the  state until it                                                               
is approved  by the DNR  commissioner. That authority  places DNR                                                               
in a  primary oversight  role through  which a  comprehensive due                                                               
diligence  and review  of the  transaction is  undertaken by  the                                                               
department to  ensure that the  deal is  in the best  interest of                                                               
the  State  of   Alaska  and  that  the   state's  interests  are                                                               
protected.                                                                                                                      
                                                                                                                                
She noted  that transactions like the  BP/Hilcorp transaction are                                                               
not  new  to  the  State  of Alaska.  The  state's  agencies  are                                                               
studying the deal  with the same level of  detail and granularity                                                               
as  those  that  have  come   before,  namely  the  BP  and  Arco                                                               
transaction.  The  DNR  will  talk  about how  the  BP  and  Arco                                                               
transaction differs from the BP/Hilcorp transaction.                                                                            
                                                                                                                                
She said  the BP/Hilcorp  deal is a  complex transaction  in that                                                               
there  are numerous  subsidiaries and  affiliates of  the primary                                                               
entities  involved  as  well  as  a  mix  of  both  upstream  and                                                               
midstream assets changing hands.                                                                                                
                                                                                                                                
She  specified that  upstream assets  mean  wells and  production                                                               
facilities associated with production  in the fields. She pointed                                                               
out  that  midstream assets  mean  assets  like the  Trans-Alaska                                                               
Pipeline System  (TAPS) and the  shares in the pipeline  as well.                                                               
She added that assets like the  storage tank at the Valdez Marine                                                               
Terminal are identified as midstream as well.                                                                                   
                                                                                                                                
She noted that an acronym  listing for the different entities and                                                               
nomenclatures  used by  the oil  industry will  be posted  on the                                                               
Alaska  Legislature's  Bill  Action  and  Status  Inquiry  System                                                               
(BASIS) for reference.                                                                                                          
                                                                                                                                
VICE CHAIR  COGHILL confirmed  that the  acronym listing  will be                                                               
posted on BASIS.                                                                                                                
                                                                                                                                
2:06:27 PM                                                                                                                    
COMMISSIONER  FEIGE  explained  that deals  like  the  BP/Hilcorp                                                               
transaction are  a normal  part of  the natural  evolution within                                                               
the oil  and gas industry all  around the world. As  an oil field                                                               
matures it  is not uncommon  for the original developers  to sell                                                               
their  assets  to  operators  who   specialize  in  mature  asset                                                               
management  and  production, the  type  of  deal that  is  before                                                               
committee members.                                                                                                              
                                                                                                                                
She reviewed the  agenda for the department's  overview, slide 2,                                                               
and  noted  that the  presentation  will  be structured  in  four                                                               
primary categories:                                                                                                             
                                                                                                                                
   • Who are the parties to this deal?                                                                                          
                                                                                                                                
   • What assets and liabilities are changing hands?                                                                            
                                                                                                                                
 • How does the State of Alaska review and approve this deal?                                                                   
                                                                                                                                
   • When might this deal close?                                                                                                
                                                                                                                                
She said the state agencies  talked about during the presentation                                                               
have  either an  immediate  or  a direct  role  in approving  the                                                               
BP/Hilcorp transaction. If  an agency does not  have an immediate                                                               
or  direct role,  the agency  will  not be  discussed during  the                                                               
presentation. The  presentation has  been structured  for brevity                                                               
with the recognition  that there will be  several public meetings                                                               
on the BP/Hilcorp transaction.                                                                                                  
                                                                                                                                
2:08:11 PM                                                                                                                    
She reviewed the following Sale Overview on slide 3:                                                                            
                                                                                                                                
   • August 27, 2019:                                                                                                           
        o Sale publicly announced.                                                                                              
                                                                                                                                
   • $5.6 billion of upstream and midstream interests.                                                                          
                                                                                                                                
   • Purported stock sale of the upstream companies.                                                                            
   • Combined stock and asset sale of the midstream companies                                                                   
     and TAPS assets.                                                                                                           
   • October 11, 2019:                                                                                                          
        o Division of Oil & Gas provided with confidential                                                                      
          purchase and sale agreement to assist with its due                                                                    
          diligence.                                                                                                            
                                                                                                                                
COMMISSIONER  FEIGE   summarized  that  in  the   upstream  is  a                                                               
purported  stock sale  of companies  and  in the  midstream is  a                                                               
combined stock and asset sale  of midstream companies and assets.                                                               
The DNR has been working its  due diligence since the Division of                                                               
Oil  & Gas  received the  confidential copy  of the  purchase and                                                               
sales agreement on October 11, 2019.                                                                                            
                                                                                                                                
She said  DNR has been working  closely with both BP  and Hilcorp                                                               
and  to  date  the  companies have  been  very  forthcoming  with                                                               
additional  information  that  DNR  has requested.  Both  BP  and                                                               
Hilcorp have been very transparent  in answering any questions or                                                               
providing clarity regarding certain aspects in the deal.                                                                        
                                                                                                                                
2:09:30 PM                                                                                                                    
PETER   CALTAGIRONE,    Senior   and   Legal    Policy   Advisor,                                                               
Commissioner's  Office, Alaska  Department of  Natural Resources,                                                               
Anchorage,  Alaska, reviewed  the following  from slide  4, BP  &                                                               
Hilcorp - Sale Structure:                                                                                                       
                                                                                                                                
   • [Upstream] The Standard Oil Company, Share Sales to Hilcorp                                                                
     Alaska, LLC [Upstream]:                                                                                                    
        o BP Exploration (Alaska) Inc. (BPXA):                                                                                  
             square4 Holds Upstream Interests                                                                                   
                  • Prudhoe Bay                                                                                                 
                  • Pt. Thomson                                                                                                 
                  • Milne Point                                                                                                 
                  • Liberty                                                                                                     
                  • ANWR.                                                                                                       
        o BP Alaska LNG LLC                                                                                                     
             square4 One third interest Alaska LNG Project, LLC                                                                 
                                                                                                                                
   • [Midstream] BP Pipelines Alaska Inc. (BPPA), Share and                                                                     
     Asset Sale to Harvest Alaska, LLC                                                                                          
        o Share Sale                                                                                                            
             square4 Alyeska Pipeline Service Company                                                                           
                  • Approximately 49.1069 percent                                                                               
             square4 Prince William Sound Oil Response Corporation                                                              
             square4 BP Transportation Alaska Inc.                                                                              
                  • Owns 32 percent PTE Pipeline, LLC                                                                           
                  • Owns 50 percent Milne Point Pipeline, LLC                                                                   
        o Asset Sale                                                                                                            
             square4 TAPS Assets                                                                                                
                                                                                                                                
MR.  CALTAGIRONE   explained  that   the  graphic   presented  to                                                               
committee members in slide 4  shows the overall sale structure of                                                               
the  transaction  and the  entity  names  that  are going  to  be                                                               
involved, divided by the upstream and midstream categories.                                                                     
                                                                                                                                
He said  the reference to the  Standard Oil Company shown  in the                                                               
upstream  is  a remnant  of  the  oil  trusts  from back  in  the                                                               
Rockefeller days in the 1800s  through a series of iterations and                                                               
sales over  the years; that is  the actual entity that  holds the                                                               
ownership of  shares in some  of the interests that  are changing                                                               
hands in the BP/Hilcorp deal.                                                                                                   
                                                                                                                                
He  explained that  the DNR  overview will  address the  upstream                                                               
interest  on the  North Slope  for BP  Exploration (Alaska)  that                                                               
includes  exactly  where  the  interests  are  located  with  the                                                               
percentages. Also,  the third-party  interest for the  Alaska LNG                                                               
Project,  BP Alaska  LNG,  will be  addressed  in greater  detail                                                               
regarding exact entity holdings and what will be transferred.                                                                   
                                                                                                                                
He  said  BP  Pipeline  Alaska  is  the  entity  that  holds  the                                                               
midstream  assets:  TAPS, shares  in  Alyeska,  and a  25-percent                                                               
share  in  Prince William  Sound  Oil  Response Corporation.  The                                                               
midstream interest  for BP Pipeline  Alaska will  be transferring                                                               
to Harvest Alaska, Hilcorp's midstream entity.                                                                                  
                                                                                                                                
2:11:37 PM                                                                                                                    
COMMISSIONER  FEIGE  addressed  slide   5,  Upstream  Assets,  as                                                               
follows:                                                                                                                        
                                                                                                                                
   • All issued and outstanding shares of stock of BP                                                                           
     Exploration (Alaska) Inc. (BPXA).                                                                                          
                                                                                                                                
   • BPXA owns working interests in oil and gas leases in the                                                                   
     following areas:                                                                                                           
        o Prudhoe Bay Unit: 26.36 percent                                                                                       
        o Pt. Thomson Unit: 32 percent                                                                                          
        o Milne Point Unit: 50 percent                                                                                          
        o Liberty Unit (Federal unit): 50 percent                                                                               
        o Arctic National Wildlife Refuge (ANWR) (ASRC leases):                                                                 
          50 percent:                                                                                                           
             square4 ANWR leases are from the Arctic Slope Regional                                                             
               Corporation (ASRC), not the State of Alaska.                                                                     
                                                                                                                                
She  said  the  upstream  assets changing  hands  have  important                                                               
percentages to  bear in mind.  First, BPXA owns  working interest                                                               
ownerships  in oil  and gas  leases.  The Liberty  Unit is  often                                                               
federal waters  and will  produce a bit  from state  and federal.                                                               
There  are 19  leases in  ANWR that  date back  to the  1980s, 50                                                               
percent  working interest  ownership  in the  leases will  change                                                               
hands. However,  the leases were  issued by  ASRC and not  by the                                                               
State of Alaska.                                                                                                                
                                                                                                                                
COMMISSIONER  FEIGE  reviewed the  following  on  slide 6,  North                                                               
Slope Upstream Assets Before, As of December 2019:                                                                              
                                                                                                                                
   • Milne Point                                                                                                                
        o Hilcorp Alaska LLC: 50 percent                                                                                        
             square4 Unit operator                                                                                              
        o BP Exploration (Alaska) Inc: 50 percent                                                                               
                                                                                                                                
   • Prudhoe Bay Unit                                                                                                           
        o ExxonMobil Alaska Production Inc: 36.4027 percent                                                                     
        o ConocoPhillips Alaska Inc: 36.0767 percent                                                                            
        o BP Exploration (Alaska) Inc: 26.3606 percent                                                                          
             square4 Unit operator                                                                                              
        o Chevron USA Inc: 1.1600 percent                                                                                       
                                                                                                                                
   • Liberty Unit                                                                                                               
        o Hilcorp Alaska LLC: 50 percent                                                                                        
             square4 Unit operator                                                                                              
        o BP Exploration (Alaska) Inc: 50 percent                                                                               
                                                                                                                                
   • Point Thomson Unit                                                                                                         
        o ExxonMobil Alaska Production Inc: 61.1845 percent                                                                     
             square4 Unit operator                                                                                              
        o BP Exploration (Alaska) Inc: 31.9321 percent                                                                          
        o ConocoPhillips Alaska Inc: 4.9345 percent                                                                             
        o Jade Energy LLC: 1.6103 percent                                                                                       
                                                                                                                                
   • ANWR Leases                                                                                                                
        o BP Exploration (Alaska) Inc: 50 percent                                                                               
        o Chevron USA Inc: 50 percent                                                                                           
                                                                                                                                
She noted  that Hilcorp Alaska  currently owns 50 percent  of the                                                               
Milne  Point and  Liberty units.  Hilcorp will  be acquiring  the                                                               
other 50 percent from both the Milne Point and Liberty units.                                                                   
                                                                                                                                
2:13:39 PM                                                                                                                    
She addressed slide 7, North  Slope Upstream Assets Post Closure,                                                               
If Approved, as follows:                                                                                                        
                                                                                                                                
   • Milne Point:                                                                                                               
        o Hilcorp Alaska LLC: 50 percent                                                                                        
             square4 Unit operator                                                                                              
        o Hilcorp (BPXA): 50 percent                                                                                            
                                                                                                                                
   • Prudhoe Bay Unit                                                                                                           
      o ExxonMobil Alaska Production Inc: 36.4027 percent                                                                       
        o ConocoPhillips Alaska Inc: 36.0767 percent                                                                            
        o Hilcorp (BPXA): 26.3606 percent                                                                                       
             square4 Unit operator                                                                                              
        o Chevron USA Inc: 1.1600 percent                                                                                       
                                                                                                                                
   • Liberty Unit                                                                                                               
        o Hilcorp Alaska LLC: 50 percent                                                                                        
             square4 Unit operator                                                                                              
        o Hilcorp (BPXA): 50 percent                                                                                            
                                                                                                                                
   • Point Thomson Unit                                                                                                         
        o ExxonMobil Alaska Production Inc: approximately 61                                                                    
          percent                                                                                                               
             square4 Unit operator                                                                                              
        o Hilcorp (BPXA): approximately 37 percent                                                                              
        o Jade Energy LLC: approximately 2 percent                                                                              
                                                                                                                                
   • ANWR Leases:                                                                                                               
        o BP Exploration (Alaska) Inc: 50 percent                                                                               
        o Chevron USA Inc: 50 percent                                                                                           
                                                                                                                                
COMMISSIONER FEIGE  explained that post closure  for the upstream                                                               
units  is  the  same  math, but  the  percentages  have  changed.                                                               
Hilcorp will  still hold  the minority  percentage of  26 percent                                                               
for the Prudhoe Bay Unit that is currently held by BPXA.                                                                        
                                                                                                                                
She pointed  out that  with the  upstream assets,  especially the                                                               
large  legacy fields  like Prudhoe  Bay, no  one company  goes it                                                               
alone and  acts unilaterally.  The Prudhoe  Bay field  is managed                                                               
through a technical operating  working group. Both ConocoPhillips                                                               
and ExxonMobil  have technical  professionals that  are secundant                                                               
to the operating team, they work  side by side at present with BP                                                               
and they will  continue to work side by side  with Hilcorp if the                                                               
transaction closes and Hilcorp assumes unit operator role.                                                                      
                                                                                                                                
She  detailed that  post  closure for  the  upstream units  shows                                                               
Hilcorp at  37 percent  versus 32 percent  for the  Point Thomson                                                               
Unit. The  reason for Hilcorp's 37  percent interest is due  to a                                                               
transfer   that   DNR   received    the   previous   week   where                                                               
ConocoPhillips  is  transferring  its  5  percent  of  the  Point                                                               
Thomson Unit  to Hilcorp Alaska.  The ConocoPhillips  transfer is                                                               
unrelated to the  BP/Hilcorp transaction of 32  percent for Point                                                               
Thomson.                                                                                                                        
                                                                                                                                
COMMISSIONER FEIGE reviewed the  following on slide 8, Additional                                                               
Asset Transfers:                                                                                                                
                                                                                                                                
   • All issued and outstanding limited liability company                                                                       
     membership interests of BP Alaska LNG LLC (BPALL).                                                                         
                                                                                                                                
   • BPALL owns one-third of outstanding limited liability                                                                      
     company interest in Alaska LNG Project, LLC (AKLNG).                                                                       
                                                                                                                                
She  noted  that additional  assets  that  are being  transferred                                                               
would  be  all  the  issued  and  outstanding  limited  liability                                                               
company  membership  shares or  interest  of  BP Alaska  LNG.  BP                                                               
Alaska LNG,  LLC (BPALL) is  the entity  that was created  by the                                                               
producer  group as  a part  of the  AKLNG Project.  BPALL is  the                                                               
entity that holds  the rights to the land at  Nikiski which would                                                               
be  the home  of the  liquefaction units  associated with  AKLNG.                                                               
BPALL is also  the operating company of record  under any federal                                                               
export permit  associated with  an AKLNG  Project. BPALL  is also                                                               
the entity where Hilcorp would be  stepping in to the more recent                                                               
$10 million pledge by BP,  AGDC, and ExxonMobil for advancing due                                                               
diligence on  the economics  of the large  AKLNG line  and export                                                               
project.                                                                                                                        
                                                                                                                                
2:16:55 PM                                                                                                                    
She reviewed Harvest Alaska, LLC Midstream on slide 9:                                                                          
                                                                                                                                
   • BPTA holds 50 percent of the outstanding limited liability                                                                 
     company interests of Milne Point Pipeline, LLC. (of which                                                                  
     Harvest currently holds the other 50 percent).                                                                             
                                                                                                                                
   • Thirty-two percent of the outstanding membership interests                                                                 
     of Point Thomson Export Pipeline.                                                                                          
                                                                                                                                
She  detailed   that  the  noted  midstream   interests  from  BP                                                               
Transportation (BPTA) would transfer  to Harvest Alaska, which is                                                               
Hilcorp's midstream  entity. BPTA  currently holds 50  percent of                                                               
the  Milne Point  Pipeline. She  recalled that  Hilcorp currently                                                               
owns the other  50 percent of Milne Point and  they also hold the                                                               
other 50 percent  of Milne Point Pipeline.  Post closure, Harvest                                                               
would own the  other 50 percent of the Milne  Point Pipeline from                                                               
BPTA.  The result  would place  the total  of both  midstream and                                                               
upstream,  Milne Point  and Hilcorp,  in  subsidiary hands.  BPTA                                                               
would also  transfer 32  percent of  its outstanding  interest in                                                               
the Point  Thomson export  pipeline and that  goes hand  and hand                                                               
with the working interest ownership transfer.                                                                                   
                                                                                                                                
COMMISSIONER  FEIGE  addressed  slide  10,  Harvest  Alaska,  LLC                                                               
Midstream, as follows:                                                                                                          
                                                                                                                                
   • Acquiring from BP Pipelines (Alaska) Inc. (BPPA):                                                                          
        o BPPA's approximately 48.4 percent interest in TAPS and                                                                
          approximate 47.6 interest in TAPS terminal tankage in                                                                 
          Valdez.                                                                                                               
        o Approximately   49.1069    percent   of    issued   and                                                               
          outstanding shares of Alyeska Pipeline Service                                                                        
          Company.                                                                                                              
        o Approximately 25 percent share in Prince William Sound                                                                
          Spill Response Corporation.                                                                                           
                                                                                                                                
2:18:39 PM                                                                                                                    
REPRESENTATIVE HANNAN  opined that Hilcorp appears  to become the                                                               
unit operator for  all of Alaska's North Slope  assets except for                                                               
Point  Thomson and  their minority  shareholder  position in  the                                                               
Prudhoe Bay  Unit. She asked  if being  the unit operator  with a                                                               
minority position  is common and  are there concerns  for Hilcorp                                                               
being the primary  unit operator for all of  Alaska's North Slope                                                               
assets.                                                                                                                         
                                                                                                                                
COMMISSIONER FEIGE  clarified that the  North Slope map  shown to                                                               
committee members does not show  all the North Slope assets, just                                                               
the assets  that are  changing hands. Having  an operator  with a                                                               
minority  position is  not uncommon.  Nobody goes  it alone;  the                                                               
Prudhoe  Bay Unit  is operated  as a  team by  the other  working                                                               
interest owners.                                                                                                                
                                                                                                                                
2:20:46 PM                                                                                                                    
REPRESENTATIVE HANNAN asked if DNR  has any questions or concerns                                                               
about Hilcorp's  ability. She opined  that Hilcorp appears  to be                                                               
taking  a  big  step-up  by  becoming the  unit  operator  for  a                                                               
longstanding  unit that  shifts  from multinationals  to a  small                                                               
independent. She asked  if DNR has heard from  the other partners                                                               
involved in unit operations.                                                                                                    
                                                                                                                                
COMMISSIONER FEIGE replied that there  have not been any specific                                                               
concerns  from the  other working  interest owners.  However, the                                                               
point Representative  Hannan raises is  very much central  to the                                                               
due  diligence  that  DNR and  other  agencies  are  undertaking.                                                               
Combing through  Hilcorp's capability to  undertake operatorship,                                                               
to have the financial wherewithal to  manage any kind of upset or                                                               
event that  might happen  on that  unit, that's  all part  of the                                                               
financial  analysis  that  DNR  and other  agencies  are  in  the                                                               
process of undertaking as due diligence.  The DNR wants to see an                                                               
orderly  and smooth  transaction so  that there  is no  hiccup or                                                               
production disruption as the BP/Hilcorp transaction takes place.                                                                
                                                                                                                                
2:22:19 PM                                                                                                                    
SENATOR KIEHL ask if a  post-closure prospective of operators for                                                               
the North Slope can be provided  to show what the ownership stake                                                               
looks like across the North Slope.                                                                                              
                                                                                                                                
COMMISSIONER FEIGE  noted that  the website  for the  Division of                                                               
Oil and Gas shows a working  interest ownership map for the North                                                               
Slope and  Cook Inlet.  The division's  online map  shows exactly                                                               
who  owns the  working  interest  in all  of  Alaska's fields  in                                                               
addition to  acreage across the  North Slope and Cook  Inlet. The                                                               
information from the  division shows a very  competitive array of                                                               
investors and working interest ownership  across the North Slope,                                                               
primarily due to the vigorous response to recent discoveries.                                                                   
                                                                                                                                
VICE  CHAIR  COGHILL   opined  that  the  last   lease  sale  was                                                               
indicative of the  broad array that Commissioner  Feige noted for                                                               
the North Slope.                                                                                                                
                                                                                                                                
COMMISSIONER FEIGE concurred with Vice Chair Coghill.                                                                           
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  referenced the sales structure  for the                                                               
BP/Hilcorp transaction  that included share and  asset sales. She                                                               
asked  if there  were  distinct regulatory  obligations that  are                                                               
different for share and asset sales.                                                                                            
                                                                                                                                
2:24:28 PM                                                                                                                    
MR.  CALTAGIRONE answered  that there  are different  obligations                                                               
and oversite  that occurs  based on how  the assets  are changing                                                               
hands.  Committee members  will hear  greater detail  on the  due                                                               
diligence that  DNR undertakes with  the help of DOL  and outside                                                               
consultants.                                                                                                                    
                                                                                                                                
VICE  CHAIR  COGHILL  asked Commissioner  Feige  to  address  the                                                               
additional  asset transfers  and confirm  that there  are no  new                                                               
dollars or  new authority that  transferred, and  the transaction                                                               
is just a straight transfer.                                                                                                    
                                                                                                                                
COMMISSIONER FEIGE answered yes, the  transaction would be just a                                                               
straight across transfer.                                                                                                       
                                                                                                                                
VICE CHAIR  COGHILL commented  that if  there are  new agreements                                                               
that those will percolate to the top.                                                                                           
                                                                                                                                
COMMISSIONER  FEIGE replied  that Vice  Chair Coghill's  query is                                                               
part of  the due diligence  and is one of  the areas that  DNR is                                                               
tracking very closely.                                                                                                          
                                                                                                                                
CO-CHAIR  TARR asked  Commissioner Feige  to readdress  the North                                                               
Slope  upstream   asset,  post  closure,  specifically   the  two                                                               
situations  regarding the  Milne  Point and  Liberty units  where                                                               
Hilcorp  currently has  50  percent and  post  closure they  will                                                               
become the sole  operator. She asked if the  two different colors                                                               
shown  in slide  displayed  to committee  members indicates  that                                                               
there are going to be two different Hilcorp subsidiaries.                                                                       
                                                                                                                                
COMMISSIONER  FEIGE   answered  that  the  green   color  in  the                                                               
overview's  slide is  meant  to  note that  the  Liberty Unit  is                                                               
technically a federal  unit, not a state unit. The  sand color in                                                               
the slide represents  state units and the  green color represents                                                               
a  federal unit.  She asked  Co-Chair  Tarr if  she answered  her                                                               
question.                                                                                                                       
                                                                                                                                
CO-CHAIR TARR answered  no. She specified that  she was referring                                                               
to the green and blue  colors that shows the ownership percentage                                                               
and  if  the separate  colors  showed  that a  different  Hilcorp                                                               
subsidiary is going to come in at 50 percent.                                                                                   
                                                                                                                                
COMMISSIONER  FEIGE  explained  that  the  different  colors  are                                                               
simply meant  to note the  portions that Hilcorp would  be taking                                                               
in.                                                                                                                             
                                                                                                                                
2:27:17 PM                                                                                                                    
MR. CALTAGIRONE reviewed  the following on slide  12, Contrast to                                                               
BP-ARCO Transaction Merger vs. Straight Purchase:                                                                               
                                                                                                                                
   • BP/Arco Merger (2000):                                                                                                     
        o Federal Securities and Exchange Commission Oversight.                                                                 
        o Anticompetitive / antitrust issues to consider.                                                                       
        o Merger of two major producers in Alaska.                                                                              
        o Approximately 70 percent of combined production at                                                                    
          time.                                                                                                                 
                                                                                                                                
He explained that  the overview will transition to  how the state                                                               
agencies  involved  in  an  oversight   role  in  the  BP/Hilcorp                                                               
transaction will  perform their due diligence.  A comparison will                                                               
be  made  to  the  BP  and Arco  merger  of  2000,  a  completely                                                               
different deal  that will  be used to  compare with  and contrast                                                               
with the BP/Hilcorp transaction.                                                                                                
                                                                                                                                
MR. CALTAGIRONE  explained that  the BP and  Arco merger  of 2000                                                               
was between BP  Amoco and the Atlantic  Richfield Company (ARCO),                                                               
a global  $27 billion  to $30 billion  merger of  both companies.                                                               
Because the merger involved two  publicly traded companies, there                                                               
was both  a U.S. Securities  and Exchange Commission (SEC)  and a                                                               
Federal  Trade Commission  (FTC)  oversight role  on the  federal                                                               
level. The SEC is the  entity that protects investors of publicly                                                               
traded  securities  and  the  FTC  is  the  federal  government's                                                               
independent agency that protects consumers.  The SEC did not have                                                               
concerns with the  merger, but the FTC sought to  unjoin the deal                                                               
that eventually  led to an  agreement where the Alaska  assets of                                                               
Arco Alaska were spun off  to Phillips Petroleum, currently known                                                               
as ConocoPhillips.                                                                                                              
                                                                                                                                
He  noted  that   the  merger  of  BP  and   Arco  accounted  for                                                               
approximately 70  to 74  percent of the  combined Alaska  oil and                                                               
gas production. The BP and Arco  merger came on the heels of some                                                               
other very large  and notable oil mergers at the  time: Shell and                                                               
Texaco joint  venture in 1997,  BP acquisition of Amoco  in 1998,                                                               
and the  Exxon and Mobil  merger that  was occurring at  the same                                                               
time. The concerns were much different  at the time of the BP and                                                               
Arco  merger. The  main concern  with the  BP and  Arco deal  was                                                               
price manipulation at West Coast refineries.                                                                                    
                                                                                                                                
2:29:59 PM                                                                                                                    
He continued reviewed the following  on slide 12, Contrast to BP-                                                               
ARCO Transaction Merger vs. Straight Purchase:                                                                                  
                                                                                                                                
   • Proposed Hilcorp Acquisition (2020):                                                                                       
        o Federal Trade Commission conclusions:                                                                                 
             square4 Hart-Scott-Rodino Act analysis.                                                                            
             square4 No antitrust or competitiveness concerns.                                                                  
        o Hilcorp increasing barrel of oil equivalent production                                                                
          share in the State from 12 percent pre-deal to 28                                                                     
          percent post-deal.                                                                                                    
                                                                                                                                
He said  contrasting to  today's BP/Hilcorp  transaction, Hilcorp                                                               
currently accounts  for 12  percent of the  combined oil  and gas                                                               
production  in  Alaska,  post-deal   the  combined  oil  and  gas                                                               
production  in  Alaska  increases  to 28  percent.  By  contrast,                                                               
ConocoPhillips  will have  42 percent  of Alaska-wide  production                                                               
post-deal,  ExxonMobil will  still have  19 percent.  The numbers                                                               
for the  BP/Hilcorp transaction  are not  anywhere near  what the                                                               
numbers are for the BP and Arco merger of 2000.                                                                                 
                                                                                                                                
MR.  CALTAGIRONE  noted   that  the  Hart-Scott-Rodino  Antitrust                                                               
Improvements Act  of 1976 required  the FTC to have  an oversight                                                               
role  in   the  BP/Hilcorp  transaction.   The  parties   in  the                                                               
transaction had  to file paperwork  with the FTC, analysis  and a                                                               
30-day  waiting  period  has  occurred. The  FTC  did  not  issue                                                               
anything, ergo  the FTC does  not necessarily have  any antitrust                                                               
or  anticompetitive  concerns  with   the  deal.  The  BP/Hilcorp                                                               
transaction is currently in the state's lap.                                                                                    
                                                                                                                                
2:31:08 PM                                                                                                                    
COMMISSIONER  FEIGE  reviewed the  following  on  slide 13,  DNR:                                                               
Division of Oil and Gas:                                                                                                        
                                                                                                                                
   • State Pipeline Coordinator Office:                                                                                         
        o Fit, willing and able test.                                                                                           
        o AS 38.35.100(a).                                                                                                      
                                                                                                                                
   • Leasing:                                                                                                                   
        o Administer and approve change in control of leases.                                                                   
        o 11 AAC 82.605.                                                                                                        
                                                                                                                                
   • Units:                                                                                                                     
        o Administer change in control of operator of Prudhoe                                                                   
          Bay Unit.                                                                                                             
        o 11 AAC 83.331.                                                                                                        
                                                                                                                                
   • Commercial:                                                                                                                
        o Examine existing financial assurances and determine                                                                   
          what amendments will be required.                                                                                     
        o Analyze financials of Hilcorp and Harvest.                                                                            
                                                                                                                                
   • Permitting:                                                                                                                
        o Administer change in control of permits.                                                                              
        o 11 AAC 83.158(e).                                                                                                     
        o 11 AAC 83.346(e).                                                                                                     
        o 11 AAC 96.040(c).                                                                                                     
                                                                                                                                
   • 11 AAC 82.605 (b):                                                                                                         
        o Paraphrase: No transfer of an interest in a lease is                                                                  
          binding upon the state unless approved by the                                                                         
          Commissioner.                                                                                                         
                                                                                                                                
She explained  that in Alaska  the state  wears two hats,  one as                                                               
the landowner  or lessor,  the other  as a  regulatory authority.                                                               
The State  of Alaska  owns and leases  its resources  to industry                                                               
for development  and production, a relationship  that shields the                                                               
state from  the risk associated with  exploration uncertainty and                                                               
the    significant   capital    requirements   associated    with                                                               
development.                                                                                                                    
                                                                                                                                
COMMISSIONER FEIGE  detailed that  the State of  Alaska generates                                                               
through its lessor and lessee  relationship the rents, royalties,                                                               
and taxes.  The most significant  portion of the  state's revenue                                                               
comes through  the royalties  and royalty  income, 50  percent of                                                               
which goes  to the  Permanent Fund  and the  other 50  percent is                                                               
then used for state government and state government services.                                                                   
                                                                                                                                
She  emphasized  that approving  the  change  of control  in  its                                                               
resource leases is  by no means a  rubber-stamped process. Alaska                                                               
law is clear  that no transfer of interest in  a lease is binding                                                               
upon the  state unless approved  by the DNR  commissioner. Within                                                               
DNR, the  Commercial Section for the  Division of Oil and  Gas is                                                               
charged  with  spearheading  and  doing   the  bulk  of  the  due                                                               
diligence  associated   with  resource  leases.   Matt  Snodgrass                                                               
oversees  the  due  diligence  effort  to  examine  the  existing                                                               
financial  assurances   of  Hilcorp   and  its   subsidiaries  to                                                               
determine what amendments are required.                                                                                         
                                                                                                                                
2:34:00 PM                                                                                                                    
MATT  SNODGRASS, Commercial  Analyst,  Division of  Oil and  Gas,                                                               
Alaska  Department  of   Natural  Resources,  Anchorage,  Alaska,                                                               
reviewed the following  on slide 14, Financial  Analysis, for the                                                               
BP/Hilcorp transaction:                                                                                                         
                                                                                                                                
   • Independent third-party review of the financial risk                                                                       
     associated with the transaction:                                                                                           
        o National Economic Research Associates, Inc. (NERA).                                                                   
        o NERA's energy practice has:                                                                                           
             square4 Over half a century of energy sector practice.                                                             
             square4 Prior experience assisting the State of Alaska in                                                          
               complex economic matters.                                                                                        
             square4 Proprietary modeling and analytic techniques.                                                              
             square4 Multiple Ph.D.-level economists with extensive                                                             
               experience modeling and analyzing risk in the                                                                    
               energy sector.                                                                                                   
                                                                                                                                
He said the Commercial Section of  the Division of Oil and Gas is                                                               
largely  responsible for  conducting  the  inhouse financial  and                                                               
economic   review  of   Hilcorp   as  well   as  the   BP/Hilcorp                                                               
transaction. The  State of  Alaska has  contracted with  a third-                                                               
party  consulting  firm,  National Economic  Research  Associates                                                               
(NERA), to  assist with  its rigorous  and robust  analysis. NERA                                                               
has been  an economic consulting firm  for over 50 years  and one                                                               
of their  areas of specialty  practice is doing  complex economic                                                               
and  financial analysis  inside of  the energy  sector. NERA  has                                                               
past  aided  the   State  of  Alaska  and   other  public  sector                                                               
organizations   in  trying   to  understand   complex  commercial                                                               
transactions.                                                                                                                   
                                                                                                                                
MR. SNODGRASS opined that NERA  offers different opportunities to                                                               
increase  value  and  rigor  inside  the  BP/Hilcorp  transaction                                                               
analysis. NERA has  a suite of proprietary  modeling and analytic                                                               
techniques that  adds value in  assisting with  understanding and                                                               
working the problems. NERA also has  a stable of well trained and                                                               
experienced   economics  staff   including   several  PhD   level                                                               
economists  that  can  help  work   with  issues  and  make  sure                                                               
everything is fully pursued.                                                                                                    
                                                                                                                                
2:35:47 PM                                                                                                                    
He reviewed the following on slide 15, Financial Assurances:                                                                    
                                                                                                                                
   • Ensure that the Hilcorp corporate family has the financial                                                                 
     capacity to fulfill its obligations to the state, including                                                                
     those not realized for many years.                                                                                         
                                                                                                                                
   • Existing financial assurances framework:                                                                                   
        o Initial financial assurance agreement entered into in                                                                 
          2011.                                                                                                                 
        o Sixth Amended and Restated Financial Assurances                                                                       
          Agreement in 2019.                                                                                                    
                                                                                                                                
   • Regular reporting of highly confidential information:                                                                      
        o Annual audited financial statements.                                                                                  
        o Quarterly unaudited financial statements.                                                                             
        o Third   party   estimate   of   upstream   dismantling,                                                               
          removing, and restoring (DR&R) obligation submitted                                                                   
          every three years.                                                                                                    
        o Reserve reporting requirements.                                                                                       
        o Insurance covering assets.                                                                                            
                                                                                                                                
He  said  NERA's  analysis will  be  supported  with  information                                                               
around   Alaska's  statutes,   rules,   contracts,  and   leases.                                                               
Informing NERA  on Alaska's unique  opportunities will  help NERA                                                               
frame  questions  that   are  of  importance  to   the  state  in                                                               
furthering its  analysis. Having the analysis  and information in                                                               
place  will   inform  the  state   on  its   financial  assurance                                                               
arrangement  with Hilcorp.  The  intent  for financial  assurance                                                               
agreements  is  to  assure  that  the  public  interest  will  be                                                               
protected today and long into the future.                                                                                       
                                                                                                                                
MR.  SNODGRASS emphasized  that  financial assurance  discussions                                                               
are not  new conversations that  the Division  of Oil and  Gas is                                                               
having   with  the   lessee.  Conversations   around  structuring                                                               
financial  assurance  arrangements in  a  way  that protects  the                                                               
state's  interests are  conversations  that the  division has  on                                                               
almost a daily basis with different lessees.                                                                                    
                                                                                                                                
He  said  the Division  of  Oil  and  Gas  has an  extensive  and                                                               
successful  record of  engaging in  negotiations with  Hilcorp to                                                               
create  the  financial  assurance arrangements  that  offers  the                                                               
state sufficient  protection to  ensure obligations are  going to                                                               
be  satisfied. The  Division of  Oil  and Gas  began working  and                                                               
developing the  financial assurance agreements with  Hilcorp when                                                               
they first entered Alaska in 2011.  In December 2019, DNR and the                                                               
division  executed  the  Sixth  Amended  and  Restated  Financial                                                               
Assurances Agreement,  so the state  is now in its  seventh round                                                               
with Hilcorp  ensuring that  a framework is  in place  to protect                                                               
the state's interests.                                                                                                          
                                                                                                                                
2:38:08 PM                                                                                                                    
He  referenced  the  characteristics of  the  existing  financial                                                               
assurance arrangements, noting that DNR  has had and continues to                                                               
have  access to  significant  and  highly confidential  financial                                                               
information  from Hilcorp.  The  agreements in  place since  2011                                                               
have  required  Hilcorp  to   provide  annual  audited  financial                                                               
information  to  the state.  The  DNR  will be  receiving  annual                                                               
audited  financial  information  from: Hilcorp  Energy  One,  the                                                               
parent;  Hilcorp  Alaska,  its  Alaska  subsidiary;  and  Harvest                                                               
Midstream  One,  the midstream  parent  for  Harvest Alaska,  its                                                               
Alaska subsidiary.                                                                                                              
                                                                                                                                
He  detailed that  in addition  to the  yearly audited  financial                                                               
statements, similar  to a 10-K  SEC filing for a  publicly traded                                                               
organization,  DNR receives  quarterly unaudited  financials from                                                               
Hilcorp  that  provides  quarter  by  quarter  oversight  of  the                                                               
financial health  of the Alaska  subsidiary, Hilcorp  Alaska. The                                                               
DNR  has a  significant time  series  data set  in observing  the                                                               
financial health of Hilcorp quarter by quarter.                                                                                 
                                                                                                                                
He said in addition to  the audited and unaudited financials that                                                               
DNR  receives   from  Hilcorp,   the  department   also  receives                                                               
proprietary oil and gas  information, including reserve reporting                                                               
requirements. When asked, Hilcorp  must deliver information about                                                               
their oil  and gas reserves  inside the  State of Alaska  so that                                                               
the state  can more robustly  manage its  risk. The DNR  also has                                                               
the ability to request and  evaluate the insurance coverages that                                                               
are in  place to  cover any  assets in Alaska  that are  on state                                                               
lands.                                                                                                                          
                                                                                                                                
MR.  SNODGRASS  said   another  important  requirement  obligates                                                               
Hilcorp to go  out to the market and secure  an independent third                                                               
party to  estimate how much  it will  cost Hilcorp to  remove its                                                               
working interest infrastructure on state  lands and to return the                                                               
lands to a condition that  is acceptable to the DNR commissioner.                                                               
The  agreement  allows   DNR  to  understand  the   size  of  the                                                               
obligations that Hilcorp carries on state lands.                                                                                
                                                                                                                                
2:40:49 PM                                                                                                                    
He addressed slide 16, Financial Assurances, as follows:                                                                        
                                                                                                                                
   • Periodic reassessment of financial position.                                                                               
       o Net worth ratio test and Altman's Z-score tests.                                                                       
        o Automatic triggers to protect the State of Alaska                                                                     
          should there be material change in financial health.                                                                  
        o Surety bonding requirements that shift with the                                                                       
          lessee's financial health.                                                                                            
                                                                                                                                
   • Financial assurances framework will be renegotiated using                                                                  
     the results from the financial analysis to protect the                                                                     
     State of Alaska's interests.                                                                                               
                                                                                                                                
He noted  that within the  financial assurance  arrangements with                                                               
Hilcorp is  an inbuilt mechanism  that allows DNR to  take action                                                               
if a  material change  occurs to  agreed upon  financial metrics.                                                               
The assurance  structure provided  to the state  is automatically                                                               
triggered  to change  when  the financial  health  of the  lessee                                                               
deteriorates, requiring increased assurances.                                                                                   
                                                                                                                                
He summarized that  the previously noted analysis  will allow DNR                                                               
to negotiate  the new  updated financial  assurances arrangements                                                               
and make sure public interest remains protected.                                                                                
                                                                                                                                
2:42:05 PM                                                                                                                    
COMMISSIONER FEIGE reviewed the  following on slide 17, Financial                                                               
Assurances:                                                                                                                     
                                                                                                                                
   • BP represents to the state that it will remain secondarily                                                                 
     liable for the upstream DR&R obligations of BPXA as they                                                                   
     exist at the time of the transfer.                                                                                         
                                                                                                                                
   • BPPA retaining obligations related to the DR&R of TAPS and                                                                 
     is leaving all parent company guarantees from BP                                                                           
     Corporation North America Inc. in place regarding that                                                                     
     obligation.                                                                                                                
                                                                                                                                
COMMISSIONER  FEIGE  explained   that  BP  remaining  secondarily                                                               
liable means  should Hilcorp be  incapable of executing  on their                                                               
obligations,   BP   steps   in  as   the   secondary   liability.                                                               
Additionally, BP  Pipelines is  retaining obligations  related to                                                               
the DR&R  of TAPS  and is leaving  all parent  company guarantees                                                               
from  BP  Corporation  North  America  in  place  regarding  that                                                               
obligation.                                                                                                                     
                                                                                                                                
2:43:18 PM                                                                                                                    
JOHN  PTACIN,  Chief  Assistant Attorney  General,  Oil  and  Gas                                                               
Section,  Alaska  Department  of Law  (DOL),  Anchorage,  Alaska,                                                               
provided  background information  and explained  the department's                                                               
role in the BP/Hilcorp transaction.                                                                                             
                                                                                                                                
He reviewed the following on  slide 18, Attorney General's Office                                                               
Role:                                                                                                                           
                                                                                                                                
   • John Ptacin, Chief Assistant Attorney General, Oil and Gas                                                                 
     Section. Former Chief of the Regulatory Affairs and Public                                                                 
     Advocacy Section.                                                                                                          
                                                                                                                                
   • Morrison & Foerster LLP and National Economic Research                                                                     
     Associates.                                                                                                                
                                                                                                                                
   • Department of Law  Oil and Gas Section's role:                                                                             
        o Represent decision makers through various regulatory                                                                  
          processes.                                                                                                            
        o Represent the State of Alaska before the Regulatory                                                                   
          Commission of Alaska (RCA).                                                                                           
                                                                                                                                
He noted  that he has been  the legal advisor to  the Division of                                                               
Oil and Gas for the past  six years and has represented the State                                                               
of Alaska in all matters related to TAPS.                                                                                       
                                                                                                                                
He explained  that he is  mainly before the committee  to address                                                               
TAPS,  an   important  component   of  the   proposed  BP/Hilcorp                                                               
transaction. The DNR  and DOL has a  team in place to  get to the                                                               
bottom of  the legal and  factual issues related to  the proposed                                                               
transfer of 48 percent of TAPS  to Harvest. The DOL is taking the                                                               
BP/Hilcorp transfer  very seriously because the  state, just like                                                               
RCA, wants  to know whether Harvest  is fit and whether  it is in                                                               
the  public interest  to transfer  48 percent  of TAPS  to a  new                                                               
company.                                                                                                                        
                                                                                                                                
MR. PTACIN said part of the team  that is going to help the State                                                               
of Alaska  in its  analysis includes the  use of  outside counsel                                                               
from  Morrison &  Foerster,  a law  firm that  has  acted as  the                                                               
state's lawyer on TAPS matters for  the last 40 years. Morrison &                                                               
Foerster will help DOL on both TAPS and upstream issues.                                                                        
                                                                                                                                
He noted  that not just  lawyers are going  to be looking  at the                                                               
BP/Hilcorp  transfer.  NERA  will  also be  helping  DOL  on  the                                                               
midstream issues.  If DOL feels  that other expert  assistance is                                                               
needed, DOL  will go  and get  it during  the RCA  proceedings as                                                               
well.                                                                                                                           
                                                                                                                                
He summarized  that DOL and DNR  are doing its legal  and factual                                                               
analysis because  the State  of Alaska,  importantly, is  not the                                                               
entity that  is going to  make the  decision whether TAPS,  or at                                                               
least the percentage thereof, is going to change hands.                                                                         
                                                                                                                                
2:45:47 PM                                                                                                                    
He addressed  slide 19, RCA  Process (Alaska  Statute 48.06.305),                                                               
as follows:                                                                                                                     
                                                                                                                                
   • RCA proceedings in general:                                                                                                
        o Quasi-judicial;                                                                                                       
        o Five commissioners;                                                                                                   
        o Resides under Department of Commerce (DCCED).                                                                         
                                                                                                                                
   • RCA pipeline acquisition dockets:                                                                                          
        o Administrative process;                                                                                               
        o Court-like discovery;                                                                                                 
        o Likely hearing.                                                                                                       
                                                                                                                                
   • Questions answered in an RCA pipeline docket:                                                                              
       o Is the acquiring pipeline operator fit and able?                                                                       
        o Is the proposed acquisition in the public interest?                                                                   
                                                                                                                                
He remarked  that letting committee  members and the  citizens of                                                               
Alaska know about what the RCA is  about to do will be helpful as                                                               
well  as what  their role  is as  opposed to  what the  executive                                                               
branch's role is.                                                                                                               
                                                                                                                                
He explained  that RCA is a  quasi-judicial body, a body  that is                                                               
essentially  court-like when  they make  determinations like  the                                                               
BP/Hilcorp  transaction.  The  RCA has  five  commissioners  that                                                               
essentially act like  judges when a question  like the BP/Hilcorp                                                               
transaction is  presented to  them. The  RCA is  going to  open a                                                               
docket  and parties  like  the  state and  the  parties that  are                                                               
looking to  do the transaction  are going  to go before  the RCA,                                                               
which is  essentially why the RCA  is not at the  joint committee                                                               
meeting  to answer  questions. Having  the RCA  attend the  joint                                                               
committee meeting is  essentially like asking a judge  to come in                                                               
and  opine about  a decision  that  he or  she is  about to  make                                                               
decisions on.                                                                                                                   
                                                                                                                                
MR.  PTACIN summarized  that  he  is trying  to  do  his best  to                                                               
explain what is  about to happen. He emphasized that  he does not                                                               
represent the RCA  but will likely represent the  State of Alaska                                                               
in proceedings related to the acquisition before the RCA.                                                                       
                                                                                                                                
2:47:11 PM                                                                                                                    
He explained  that the  RCA is  important because  the commission                                                               
serves as  the entity in  the state  that makes sure  things like                                                               
utilities  are  charging  just  and  reasonable  rates,  and  the                                                               
utilities  are running  safe  and  efficiently. The  commission's                                                               
oversight  includes  the  state's  pipelines  because  there  are                                                               
barrels of  oil that stay  within the  state and that  confers to                                                               
them their jurisdiction, TAPS is one of those assets as well.                                                                   
                                                                                                                                
He said  the reason why pipeline  entities end up before  the RCA                                                               
is because  like local utilities  and natural gas  companies, the                                                               
pipelines  are essentially  like  monopolies and  must  go to  an                                                               
entity like the  RCA to get a certification in  order to operate.                                                               
TAPS is one of several pipelines that are under RCA regulation.                                                                 
                                                                                                                                
He explained that  part of his job  every year is to  look at the                                                               
pipeline rates  to make sure  they are just and  reasonable. TAPS                                                               
and the other pipelines at  issue with the BP/Hilcorp transaction                                                               
come under  the RCA's jurisdiction.  The court-like case  that is                                                               
about to  be entered  with the  RCA will  decide two  things: the                                                               
public interest  and is Harvest  fit to  run 48 percent  of TAPS.                                                               
The  nice  thing  about  the  hearings before  the  RCA  is  that                                                               
interested parties  can intervene, information may  be requested,                                                               
and information gets shared. If  there are discovery disputes, if                                                               
there is  information that is  being withheld, parties can  go to                                                               
the  five-member  commission  and  get  the  materials  that  are                                                               
needed. The RCA hearing is coming and  that is a result of BP and                                                               
Hilcorp filing their transfer proposal on September 27, 2019.                                                                   
                                                                                                                                
2:49:24 PM                                                                                                                    
He explained  that for the last  two month the RCA,  as is normal                                                               
in  proceedings   like  the  BP/Hilcorp  transaction,   has  been                                                               
reviewing  the   filing  for   completeness.  Filings   like  the                                                               
BP/Hilcorp  transaction are  very complex  and sometimes  parties                                                               
miss things and the RCA will  point out filing errors. During the                                                               
filing  review process,  entities and  the public,  including the                                                               
State of Alaska, have been  filing comments to the RCA explaining                                                               
what they  would like to see  done before the RCA.  Everybody has                                                               
been  in  a  holding  pattern   waiting  to  see  where  the  RCA                                                               
essentially  wants to  go with  the question  of how  the Hilcorp                                                               
acquisition relates to TAPS.                                                                                                    
                                                                                                                                
MR. PTACIN said  last week the RCA made it  very clear that their                                                               
intention is  to take a hard  look at the proposed  transfer. The                                                               
RCA has  assigned an administrative  law judge to the  case which                                                               
means they  have opened a docket.  On December 13, 2019,  the RCA                                                               
sent an  order requiring  BP and  Hilcorp to  provide substantial                                                               
amounts  of documents  to the  commission by  December 23,  2019.                                                               
Included  in  the documents  request  by  the  RCA is  the  afore                                                               
mentioned   purchase  and   sale  agreement,   audited  financial                                                               
statement  for both  BP North  America and  Hilcorp, and  various                                                               
documents explaining  the corporate organization of  all entities                                                               
involved.                                                                                                                       
                                                                                                                                
He emphasized that the  case before the RCA is not  going to be a                                                               
garden-variety  rate  case that  addresses  the  cost to  ship  a                                                               
barrel of  oil. The bigger question  for the case is  the Harvest                                                               
fit and the  ability to take over 48 percent  of the company that                                                               
essentially runs TAPS  and is such a transaction  in the public's                                                               
interest.  The   decision  will   be  made  by   the  five-member                                                               
commission board and  not by the state, DNR, or  DOL. The DNR and                                                               
DOL will  be a  party in  front of the  RCA and  that is  why the                                                               
departments are currently  doing its homework on  the audited and                                                               
unaudited financials along  with other data of Harvest  and BP to                                                               
answer the previously noted fundamental questions.                                                                              
                                                                                                                                
2:51:51 PM                                                                                                                    
He  pointed out  that Hilcorp  is  buying 48  percent of  Alyeska                                                               
Pipeline  Services, the  entity that  runs TAPS.  Hilcorp is  not                                                               
coming  in to  run  TAPS.  Hilcorp will  become  a voting  member                                                               
amongst several  other companies in  a consortium that all  own a                                                               
piece of TAPS: BP, ExxonMobil, and Unocal.                                                                                      
                                                                                                                                
He  said the  state, as  a  party before  the RCA,  will look  at                                                               
whether  Harvest  can fund  running  TAPS.  Every year  the  TAPS                                                               
carriers get  to make their  money back  for running TAPS  plus a                                                               
small profit.  However, over time  there is a necessity  for cash                                                               
calls that  are anywhere from  $2 million  to $20 million  a year                                                               
depending on  operating expenses and capital  costs for operating                                                               
an 800-mile pipeline  that is 40 years old. There  are times that                                                               
the TAPS consortium must put forth cash.                                                                                        
                                                                                                                                
MR. PTACIN  noted that the  DNR and DOL  will do the  testing and                                                               
the analysis necessary to understand  whether Harvest can take on                                                               
unforeseen disturbance in TAPS. The  RCA does not have a deadline                                                               
and they are  going to take a  hard look due to  the magnitude of                                                               
the TAPS transfer.                                                                                                              
                                                                                                                                
2:54:10 PM                                                                                                                    
MR. CALTAGIRONE reviewed the following on slide 20, AOGCC Role:                                                                 
                                                                                                                                
   • Designation of Operator:                                                                                                   
        o Owner  submits  for  approval   a  designation  of  new                                                               
          operator form:                                                                                                        
             square4 New operator agrees to accept obligations.                                                                 
             square4 Furnish surety or personal bond, amount depends                                                            
               on number of wells.                                                                                              
             square4 BPXA expected to remain operator of record as                                                              
              wholly owned subsidiary of Hilcorp.                                                                               
             square4 Bonding from both Hilcorp and BPXA expected to                                                             
               remain in place.                                                                                                 
             square4 20 AAC 25.020.                                                                                             
                                                                                                                                
   • Designation of Ownership:                                                                                                  
        o Within 15 days  of new ownership of  a property, Notice                                                               
          of Ownership must be filed with AOGCC.                                                                                
        o 20 AAC 25.022.                                                                                                        
                                                                                                                                
   • Bonding:                                                                                                                   
        o New requirements  took effect  May 2019,  with optional                                                               
          phase-in over 4 years:                                                                                                
             square4 Both BP and Hilcorp are currently compliant with                                                           
               level of bonding and the commission will work                                                                    
               with the applicants to determine if a variance is                                                                
               required post deal closure.                                                                                      
             square4 20 AAC 25.025.                                                                                             
                                                                                                                                
He explained that the Alaska  Oil and Gas Conservation Commission                                                               
(AOGCC)  is an  independent, quasi-judicial  agency of  the state                                                               
that also  resides under DCCED.  The AOGCC has a  regulation role                                                               
with  well  regulation  and  the   prevention  of  waste  of  the                                                               
resource.                                                                                                                       
                                                                                                                                
He  said  there are  two  functions  that  AOGCC performs  as  it                                                               
relates  to the  BP/Hilcorp  deal. The  first  is ministerial  in                                                               
nature which  involves the  designation of  ownership, changeover                                                               
of  ownership  and operator,  and  designated  operator of  well.                                                               
Under Alaska  law, the new  operator must accept  the obligations                                                               
of the old operator.                                                                                                            
                                                                                                                                
MR. CALTAGIRONE noted  that within the slide 20  the bullet point                                                               
that  reads,  "BPXA expected  to  remain  operator of  record  as                                                               
wholly   owned   subsidiary   of  Hilcorp,"   recently   received                                                               
information  indicates  that  there  will be  a  name  change  to                                                               
Hilcorp.                                                                                                                        
                                                                                                                                
He  said the  second of  the  two functions  that AOGCC  performs                                                               
relates  to bonding.  New requirements  went into  effect in  May                                                               
2019 as  it relates to the  amount of bonding that  companies are                                                               
required to  carry for plugging abandonment  obligations. Both BP                                                               
and Hilcorp  are currently  compliant with  the level  of bonding                                                               
and  AOGCC will  work with  the  applicants to  determine if  the                                                               
variance   is   required   after   post-deal   closure.   Bonding                                                               
requirements are found in Alaska regulation, 20 AAC 25.025.                                                                     
                                                                                                                                
2:56:01 PM                                                                                                                    
COMMISSIONER FEIGE reviewed  the following on slide  21, DEC: Oil                                                               
Discharge Prevention  and Response (AS 46.04.030,  18 AAC 75.400-                                                               
496):                                                                                                                           
                                                                                                                                
   • Facilities that produce, store, or transport oil must have                                                                 
     an oil discharge prevention and contingency plan approved                                                                  
     by DEC.                                                                                                                    
                                                                                                                                
   • Hilcorp has two options:                                                                                                   
        o Change of Owner Amendment:                                                                                            
             square4 As a major amendment there is a 30-day public                                                              
               comment period.                                                                                                  
             square4 Potential for quicker approval since it builds                                                             
               off previously approved BP plan.                                                                                 
        o New Plan:                                                                                                             
             square4 Pre-application meeting required at least 60 days                                                          
               before submitting an application (held November                                                                  
               20, 2019).                                                                                                       
             square4 Application due at least 180 days before start of                                                          
               operations.                                                                                                      
             square4 30 to 45-day public comment period.                                                                        
        o Current BP Plans:                                                                                                     
             square4 BPX Greater Prudhoe Bay, North Slope.                                                                      
                                                                                                                                
She said the Department of  Environmental Conservation (DEC) also                                                               
has a  significant oversight role in  the BP/Hilcorp transaction.                                                               
It is charged  with oil spill prevention and response,  and as it                                                               
pertains  to the  BP/Hilcorp deal  and operations  across Alaska,                                                               
generally. Any facility that produces,  stores, or transports oil                                                               
must have an  oil discharge prevention and  contingency plan that                                                               
has been approved by DEC.                                                                                                       
                                                                                                                                
COMMISSIONER FEIGE explained that  Hilcorp as two options. First,                                                               
do a  change of  owner amendment  which is  as a  major amendment                                                               
there would  be a  30-day public  comment period  associated with                                                               
the filing and that would be  a comment period opened by DEC. The                                                               
change of  owner amendment  could be a  quicker path  for Hilcorp                                                               
because the amendment builds from a previously approved BP plan.                                                                
                                                                                                                                
She said  the second  option for  Hilcorp is to  apply for  a new                                                               
plan. A  new plan requires  a preapplication meeting at  least 60                                                               
days  before  application  submission. A  preapplication  meeting                                                               
took place  November 20,  2019; that application  will be  due to                                                               
DEC at  least 180  days before operations  start at  any facility                                                               
under the  discharge plan. The  application also comes with  a 30                                                               
to 45-day public comment period.                                                                                                
                                                                                                                                
She noted that BP Alaska currently  has an approved oil and spill                                                               
contingency and response plan at the Greater Prudhoe Bay Unit.                                                                  
                                                                                                                                
2:57:51 PM                                                                                                                    
She  reviewed   the  following  on   slide  22,   DEC:  Financial                                                               
Responsibility  Spills and  Threatened Spills  (AS 46.04.040,  18                                                               
AAC 75.205-290):                                                                                                                
                                                                                                                                
   • Operators that produce, store, or transport oil must                                                                       
     demonstrate proof of financial responsibility to respond to                                                                
     events and spills.                                                                                                         
                                                                                                                                
   • Requires annual DEC approval.                                                                                              
                                                                                                                                
   • Amount is based on the company's single facility with the                                                                  
     highest financial responsibility requirement (each facility                                                                
     is not required to have separate financial responsibility).                                                                
                                                                                                                                
   • Maximum proof required for any facility except tankers is                                                                  
     $93.5 million.                                                                                                             
                                                                                                                                
She  said   also  under  DEC's   purview  and  attached   to  the                                                               
responsibility  for spills  or potential  spills  is a  financial                                                               
responsibility component  that every  facility and  operator must                                                               
have.  Operators  that  produce,  store, or  transport  oil  must                                                               
demonstrate the  proof of financial responsibility  to respond to                                                               
events  and   spills.  The  financial   component  responsibility                                                               
requires annual DEC approval.                                                                                                   
                                                                                                                                
COMMISSIONER  FEIGE  explained  that   the  amount  of  financial                                                               
component is  based upon the  company's single facility  that has                                                               
the   highest   financial   responsibility   requirement.   Every                                                               
individual  facility  is  not  required  to  post  the  financial                                                               
assurance,  but  the   single  highest  financial  responsibility                                                               
requirement is required for the company's single facility.                                                                      
                                                                                                                                
She noted that the maximum  proof of requirement for any facility                                                               
is $93.5 million. While there  is financial assurance cap for any                                                               
given facility  or for each  company's primary facility  of $93.5                                                               
million,  there is  no cap  on  liability. Every  company is  100                                                               
percent responsible for  any spill or event that  occurs on their                                                               
leases or their  units, the $93.5 million is simply  a cap on the                                                               
financial assurance for DEC.                                                                                                    
                                                                                                                                
She  reviewed   the  following  on   slide  23,   DEC:  Financial                                                               
Responsibility  Spills and  Threatened Spills  (AS 46.04.040,  18                                                               
AAC 75.205-290):                                                                                                                
                                                                                                                                
• BP proof of financial responsibility cannot be transferred.                                                                   
                                                                                                                                
   • Hilcorp already has demonstrated proof of financial                                                                        
     responsibility for the maximum $93.5 million for its                                                                       
     current assets, using commercial insurance policies.                                                                       
                                                                                                                                
   • Hilcorp must apply for DEC approval to include the newly                                                                   
     acquired facilities, prior to sale closing.                                                                                
                                                                                                                                
3:00:11 PM                                                                                                                    
She reviewed the  following on slide 24,  DEC: Contaminated Sites                                                               
Liability and Cleanup:                                                                                                          
                                                                                                                                
   • For contamination existing at the time of sale, Alaska law                                                                 
     holds both BP and Hilcorp responsible for contamination                                                                    
     after the sale (joint and several liability).                                                                              
                                                                                                                                
   • While BP is a responsible party and will continue to be                                                                    
     responsible  for  contamination   existing  prior  to  sale,                                                               
     Hilcorp   will  conduct   activities  relating   to  cleanup                                                               
     actions,  long   term  monitoring,  and   implementation  of                                                               
     institutional controls.                                                                                                    
                                                                                                                                
   • There are both:                                                                                                            
        o Active contaminated sites (actions still necessary).                                                                  
        o "Cleanup   Complete    with   Institutional   Controls"                                                               
          contaminated sites (contamination remains in place).                                                                  
   • Moving forward from the sale, Hilcorp will be liable for                                                                   
     contamination it causes or contributes to.                                                                                 
                                                                                                                                
COMMISSIONER  FEIGE  said  contaminated   sites  is  under  DEC's                                                               
oversight. The  Prudhoe Bay Unit  has been in production  for 40-                                                               
plus years  and there are  areas across  in the unit  where there                                                               
could have been or have  been spills previously occurring or past                                                               
drill  cutting pits  that may  have not  been closed  out to  the                                                               
satisfaction of the state. For  contamination that is existing at                                                               
the time of  the sale, Alaska law holds that  both BP and Hilcorp                                                               
are   responsible  for   that   contamination,  Hilcorp   becomes                                                               
responsible for  contamination that  occurs after the  sale, that                                                               
is the joint  and several liability. While BP  is the responsible                                                               
party   for  any   contamination  that   existed  prior   to  the                                                               
transaction, Hilcorp will probably  be undertaking the conduct of                                                               
activities to continue to cleanup  or do the long-term monitoring                                                               
or implementation of institutional controls.                                                                                    
                                                                                                                                
She  explained that  on the  Greater Prudhoe  Bay Unit  there are                                                               
currently both  types of  contaminated sites.  Contaminated sites                                                               
are  characterized  as  either  sites  where  actions  are  still                                                               
necessary or  sites where cleanup is  complete with institutional                                                               
controls;  these are  sites which  could have  contamination that                                                               
remains in  place for  natural attenuation over  time due  to the                                                               
potential to cause more environmental  harm from removal. Cleanup                                                               
with institutional controls means getting  the site to a standard                                                               
of cleanup approved by the state and to the satisfaction of DEC.                                                                
                                                                                                                                
She  summarized that  after the  BP/Hilcorp transaction,  Hilcorp                                                               
will  be  liable   for  any  contamination  that   it  causes  or                                                               
contributes to.                                                                                                                 
                                                                                                                                
3:02:19 PM                                                                                                                    
SENATOR BISHOP  asked if  the legislature could  see the  line of                                                               
questioning matrix  that DNR  will use for  the due  diligence on                                                               
the financials.                                                                                                                 
                                                                                                                                
MR.  SNODGRASS  answered  that  committee  members  will  receive                                                               
information as DNR progresses through the analysis.                                                                             
                                                                                                                                
SENATOR BISHOP  responded that he  looked at  Hilcorp's producing                                                               
wells  in  the Lower  48  and  he'd like  to  know  how many  are                                                               
horizontal and how many are vertical  when he looks at the return                                                               
for a ten-year  run. He asked if  that is one of  the things that                                                               
DNR will use in its financial modeling.                                                                                         
                                                                                                                                
MR.  SNODGRASS  answered  no.  He  explained  that  DNR  will  do                                                               
financial  modeling  with   forward-looking  expectations  around                                                               
development  plans,  production   changes,  and  associated  cash                                                               
flows.                                                                                                                          
                                                                                                                                
3:04:24 PM                                                                                                                    
SENATOR BISHOP  responded that he  does not  have to look  at the                                                               
numbers because he  knows Mr. Snodgrass understands  them, but he                                                               
wants to make sure the right questions are being asked.                                                                         
                                                                                                                                
VICE CHAIR COGHILL  inquired if the modeling used by  NERA is the                                                               
type that DNR is familiar with.                                                                                                 
                                                                                                                                
MR. SNODGRASS answered that modeling  will be driven by the sorts                                                               
of  questions  that  DNR  ultimately  asks.  NERA's  modeling  is                                                               
proprietary and  the relationships that  exist are not  known. He                                                               
said he expects extensive exposure  to several different types of                                                               
models.                                                                                                                         
SENATOR KAWASAKI asked  the extent to which DNR  will have access                                                               
to confidential  information and  how important DNR  believes the                                                               
confidential  information  is  for  understanding  the  financial                                                               
fitness of Hilcorp.                                                                                                             
                                                                                                                                
MR. SNODGRASS  replied DNR  has access  to the  audited financial                                                               
statements, the  associated risks,  forward-looking expectations,                                                               
and  market  exposures.  Hilcorp  has been  put  on  notice  that                                                               
through  the  NERA  process  the   DNR  will  request  additional                                                               
information on an as needed basis.                                                                                              
                                                                                                                                
3:06:52 PM                                                                                                                    
SENATOR  KAWASAKI noted  that  the transfer  of  interest in  the                                                               
lease is binding upon the  state unless the commissioner approves                                                               
the transfer. He asked what  circumstances the commissioner would                                                               
deny the lease transfer.                                                                                                        
                                                                                                                                
COMMISSIONER FEIGE replied  that approval is based on  a level of                                                               
comfort  that  the  lease  can  be  operated  by  the  entity  in                                                               
maintaining the state's interest in the lease.                                                                                  
                                                                                                                                
SENATOR KAWASAKI  asked at  what point  does the  commissioner or                                                               
department say  they do  not feel comfortable.  He inquired  if a                                                               
commercial lease has ever been denied by the department.                                                                        
                                                                                                                                
3:08:27 PM                                                                                                                    
COMMISSIONER FEIGE  answered that DNR  will speak out  during the                                                               
due diligence  process when seeking additional  information. Both                                                               
companies  have been  very forthcoming  in providing  information                                                               
when asked.  However, if  the state is  not comfortable  that the                                                               
transaction is not  in the state's interest, then  the state will                                                               
not approve the  transaction. She said to her  knowledge she does                                                               
not know that a commercial lease has ever been disallowed.                                                                      
                                                                                                                                
REPRESENTATIVE TUCK asked who decides  on the auditors for third-                                                               
party audits.                                                                                                                   
                                                                                                                                
MR.  SNODGRASS  answered  that   the  auditors  are  selected  by                                                               
Hilcorp, the lessee.                                                                                                            
                                                                                                                                
REPRESENTATIVE TUCK pointed  out that DNR has  described its role                                                               
as,  in  the public's  interest,  but  the  RCA role  in  statute                                                               
states, "in the  best interest of the public." He  asked if there                                                               
is a different standard between the DNR and RCA.                                                                                
                                                                                                                                
3:10:36 PM                                                                                                                    
COMMISSIONER FEIGE answered  no. She opined that  the verbiage is                                                               
an  art  of  language.  If  the transaction  is  in  the  state's                                                               
interest,  the   transaction  absolutely   is  in   the  public's                                                               
interest.                                                                                                                       
                                                                                                                                
REPRESENTATIVE TUCK asked  what happens if there  is a greenlight                                                               
from DNR but not from RCA.  He inquired if a conflict between DNR                                                               
and RCA would be adjudicated.                                                                                                   
                                                                                                                                
COMMISSIONER FEIGE replied that  DNR probably wouldn't greenlight                                                               
something that RCA  wouldn't also greenlight. She  noted that the                                                               
state pipeline  coordinator section  has a  role with  the, "Fit,                                                               
willing,  and  able"   test  that  is  also  part   of  what  RCA                                                               
undertakes.  The  DNR  is  working   in  parallel  with  the  RCA                                                               
regarding information sharing.                                                                                                  
                                                                                                                                
REPRESENTATIVE TUCK  pointed out that  local hire is in  the best                                                               
interest  of the  public. He  opined that  one question  that the                                                               
committee may want asked is how much local hire there will be.                                                                  
                                                                                                                                
3:12:57 PM                                                                                                                    
COMMISSIONER FEIGE answered that local  hire is not part of DNR's                                                               
process. However,  Hilcorp has noted  that they  have interviewed                                                               
well over a thousand people.  Hilcorp will be putting together an                                                               
employment plan. Future hearings  will allow committee members to                                                               
directly ask the companies about local hire.                                                                                    
                                                                                                                                
VICE CHAIR COGHILL  opined that committee members  will hear from                                                               
the legislature on  a regular basis about hiring  Alaskans. It is                                                               
a topic that the legislature is not going to be quiet about.                                                                    
                                                                                                                                
SENATOR KIEHL noted  that Mr. Snodgrass and  Mr. Ptacin commented                                                               
that  they have  audited financial  statements from  Hilcorp, and                                                               
that the  RCA has  insisted on  audited financial  statements. He                                                               
said he  read that Hilcorp  has asked  to be excused  from filing                                                               
audited  financial  statements  because  they  don't  do  audited                                                               
financial statements. He asked Mr. Ptacin to comment.                                                                           
                                                                                                                                
MR. PTACIN answered  that his recollection is that  as of Friday,                                                               
December  13,  the  RCA asked  for  Hilcorp's  audited  financial                                                               
statements.  He surmised  that Senator  Kiehl may  be referencing                                                               
when  Hilcorp  asked  at  present  that  any  sort  of  financial                                                               
information remain confidential once filed  with the RCA. The RCA                                                               
has  not ruled  on  whether confidentiality  will  be granted  to                                                               
Harvest and BP.                                                                                                                 
                                                                                                                                
MR. SNODGRASS explained that DNR  has inhouse audited financials.                                                               
He  said regarding  Representative  Tuck's  question, the  lessee                                                               
does select  the auditor that  it uses for the  audited financial                                                               
statement  submissions.  However, when  DNR  does  audits by  its                                                               
inhouse auditors  inside the  Division of  Oil and  Gas, included                                                               
within the audits are things like royalty audits.                                                                               
                                                                                                                                
3:15:56 PM                                                                                                                    
SENATOR  KIEHL   noted  that  Mr.  Snodgrass   talked  about  the                                                               
information and  the analysis with  the intent being so  that DNR                                                               
could, "more robustly  manage our risks. He asked  what tools DNR                                                               
has to process or more robustly manage the state's risks.                                                                       
                                                                                                                                
MR. SNODGRASS explained that one of  the ways DNR manages risk in                                                               
an ongoing  way is through  the development of agreements  at the                                                               
onset  to assist  with measuring,  managing, and  then mitigating                                                               
risk in  an ongoing  way. There  are different  financial metrics                                                               
that  DNR can  track  through  time as  well  as pre-agreed  upon                                                               
inbuilt  mechanisms that  should the  risk profile  of the  state                                                               
change, the financial assurances change in response.                                                                            
                                                                                                                                
SENATOR GIESSEL referenced bonding and  TAPS, noting that BP will                                                               
remain  secondarily liable  for  the  dismantling, removing,  and                                                               
restoring  (DR&R). She  asked if  bonding  is done  for DR&R  and                                                               
where the money would come from if BP were to go bankrupt.                                                                      
                                                                                                                                
3:17:45 PM                                                                                                                    
MR. PTACIN answered that BP  and its predecessors that have owned                                                               
part of  Alyeska Pipeline have  raised significant  money through                                                               
tariff rates to do the DR&R  for TAPS. He said Senator Giessel is                                                               
not wrong in her conclusion that  BP is talking about a corporate                                                               
guarantee to pay  the DR&R for TAPS. However,  the requirement to                                                               
do the  DR&R for TAPS  is not just  beholden to one  company, the                                                               
DR&R requirement  is essentially whomever  else has a  percent of                                                               
the pipeline also  must agree to take the TAPS  assets out of the                                                               
ground.  He  said  if  the   Hilcorp  acquisition  goes  through,                                                               
ConocoPhillips, ExxonMobil,  and BP are the  three companies that                                                               
are joining for the DR&R obligation.                                                                                            
                                                                                                                                
SENATOR GIESSEL  asked what  happens to  BP's DR&R  obligation 40                                                               
years in the future if they go bankrupt in 10 years.                                                                            
                                                                                                                                
MR. PTACIN explained  that through the TAPS tariff  rates for the                                                               
last 40 years, the companies have  not been required to set aside                                                               
money for DR&R.  One reason the decision was made  not to require                                                               
money  to be  set aside  is  that the  sequestration of  stagnate                                                               
capital  would  have  raised  TAPS  tariff  rates  quite  a  bit,                                                               
resulting  in a  substantial deduction  in the  state's royalties                                                               
and taxes.  The companies have  collected the money for  DR&R and                                                               
will do the DR&R as a corporate guarantee.                                                                                      
                                                                                                                                
3:20:40 PM                                                                                                                    
SENATOR  GIESSEL noted  that TAPS  is  run by  a consortium.  She                                                               
asked who oversees the consortium and if there is a chairman.                                                                   
                                                                                                                                
MR. PTACIN  answered that  there is a  side agreement  called the                                                               
TAPS Agreement  amongst the  carriers. The  agreement sets  out a                                                               
series of  bylaws on consortium interaction  and decision making.                                                               
Part of the decision making for the  RCA and the state will be to                                                               
determine if Harvest fits into the TAPS Agreement.                                                                              
                                                                                                                                
REPRESENTATIVE RASMUSSEN  noted that  the committee  members have                                                               
heard  a lot  about public  interest. She  asked how  DNR defines                                                               
public interest. She  said one of the things that  the state will                                                               
consider  is  Hilcorp's  expertise  in aging  fields  and  higher                                                               
production  levels that  will  bring in  more  royalties and  tax                                                               
money to the state.                                                                                                             
                                                                                                                                
REPRESENTATIVE  RASMUSSEN  said she  has  heard  a lot  from  the                                                               
public  about philanthropy  because BP  is known  as a  community                                                               
pillar for their  giving. She asked Commissioner  Feige to expand                                                               
on philanthropy.                                                                                                                
                                                                                                                                
3:22:42 PM                                                                                                                    
COMMISSIONER FEIGE  answered that in  determining what is  in the                                                               
public  interest  as  part  of  the  department's  due  diligence                                                               
process, DNR  is looking  at a broad  suite of  factors including                                                               
the capability  of Hilcorp and  their history in the  state since                                                               
2011.  The  DNR  has  seen Hilcorp's  history  in  taking  mature                                                               
assets, raising production, and lowering operating costs.                                                                       
                                                                                                                                
She said  the protection of  the public interest and  the state's                                                               
interest  goes  directly  to  royalty   income  which  feeds  the                                                               
Permanent Fund  and state government  services. The DNR  looks at                                                               
production and future production  potential for production taxes,                                                               
property potential  for future  property income  taxes, financial                                                               
analysis,  and financial  assurance  agreements for  the DR&R  of                                                               
upstream assets. All the previously  noted factors are considered                                                               
through the department's due diligence process.                                                                                 
                                                                                                                                
She  reiterated  that  DNR  is  in  its  seventh  iteration  with                                                               
Hilcorp.  Hilcorp  has  DR&R financial  assurance  agreements  in                                                               
place with  the state. The  due diligence process gets  rolled up                                                               
into  a broader  picture of  whether DNR  believes Hilcorp  is an                                                               
entity that can perform at a level that can replace BP.                                                                         
                                                                                                                                
She explained  that philanthropy is  not part of  DNR's oversite.                                                               
She  disclosed   that  Hilcorp  has  clearly   expressed  to  the                                                               
department their philanthropy plan  and expects that Hilcorp will                                                               
share with the public their philanthropy plan.                                                                                  
                                                                                                                                
3:25:35 PM                                                                                                                    
CO-CHAIR  TARR  asked Mr.  Snodgrass  to  readdress his  previous                                                               
overview  of financial  assurances. She  said what  concerns her,                                                               
even though  DNR has access  to financial statements,  is whether                                                               
Hilcorp's  additional subsidiaries  have the  financial resources                                                               
for the piece  they are taking on, especially  for companies that                                                               
have not been  in existence before. She asked what  kind of asset                                                               
transfer must happen for the subsidiaries.                                                                                      
                                                                                                                                
MR.  SNODGRASS   answered  that  with  respect   to  the  audited                                                               
financials  that DNR  receives  yearly,  the department  received                                                               
financials for Hilcorp Energy One  and Harvest Midstream One. The                                                               
DNR is currently receiving financials  for Harvest Midstream One,                                                               
the  parent entities  of Harvest  Alaska.  HMI is  the parent  of                                                               
Harvest Alaska,  and HE1 is  the parent of Hilcorp  Alaska; those                                                               
subsidiaries will be consolidated  into the audited financials of                                                               
the parents.                                                                                                                    
                                                                                                                                
MR. SNODGRASS said  for Hilcorp Alaska, DNR  also receives yearly                                                               
audited  financials  for  just   a  subsidiary  entity  as  well.                                                               
Harvest Alaska is itself a  consolidated entity of a wholly owned                                                               
subsidiary   of  Hilcorp,   so  its   financial  information   is                                                               
consolidated  inside  of  the   yearly  audited  financials  from                                                               
Hilcorp Alaska.                                                                                                                 
                                                                                                                                
3:27:25 PM                                                                                                                    
CO-CHAIR   TARR  said   with  these   annual   evaluations   that                                                               
you're   doing   or  the  three-year    true  up   on  the   DR&R                                                               
obligations,   then  as  these  branches  mature  and  different                                                                
responsibilities    are   taken  on,   that   kind   of  regress                                                                
evaluation  will  continue   to happen  so  that  there's  not  a                                                               
circumstance  - and  where  I'm going  with this  is thinking  to                                                               
the  AOGCC   and  what  happened   with  their  recent   regs  to                                                               
increase  the  bonding  capacity  and  also the  request  for  us                                                               
to do  legislation  that would  allow  them to go  back on  prior                                                               
operators   -  so   just  those   conversations   have  sort   of                                                               
highlighted   what   can  happen   through   the   evolution   of                                                               
ownership  and that's  why I'm asking  in this  context.                                                                        
                                                                                                                                
CO-CHAIR  TARR  asked if  DNR's  annual  evaluations  and  three-                                                               
year  true-up on  the DR&R  obligations  will continue  as  these                                                               
branches  mature  and different  responsibilities   are taken  on                                                               
so that  there's  not  a circumstance  like  what  happened  with                                                               
the  AOGCC's   recent  regulations   to  increase   the  bonding                                                                
capacity  and  request  for  legislation   to allow  them  to  go                                                               
back on  prior operators.                                                                                                       
                                                                                                                                
MR. SNODGRASS  answered that the  underlying idea is  that should                                                               
additional subsidiaries be created  or additional assets that DNR                                                               
needs to  authorize be picked  by Hilcorp or  Hilcorp subsidiary,                                                               
that  is  going  to  automatically  be  rolled  into  the  future                                                               
assurance  agreement. The  hope  is to  avoid  the situation  she                                                               
described  by   providing  a   durable  and   predictable  lessee                                                               
framework that  defines their expectations.  He added that  it is                                                               
hard to  visualize a  situation in  which there  could be  such a                                                               
hole, but the recommendations to  pay attention in DNR's analysis                                                               
is beneficial in making sure  the concern is reflected during the                                                               
renegotiations for financial assurances.                                                                                        
                                                                                                                                
CO-CHAIR  TARR  recognized  that  Representative  Fields  was  in                                                               
attendance and Representative Josephson was online.                                                                             
                                                                                                                                
3:29:36 PM                                                                                                                    
REPRESENTATIVE HANNAN commented that  the interest in Alaska that                                                               
BP is transferring  is a minority of their worldwide  oil and gas                                                               
interests.  She asked  for a  parallel for  Hilcorp; how  much of                                                               
Hilcorp's total  oil and  gas investment has  been in  Alaska and                                                               
how much will it be after the transaction.                                                                                      
                                                                                                                                
MR. SNODGRASS said he question  should be directed to Hilcorp but                                                               
his  understanding  is  that Hilcorp  will  substantially  be  an                                                               
Alaska company after the transaction.                                                                                           
                                                                                                                                
REPRESENTATIVE HANNAN asked  if the RCA has  scheduled its quasi-                                                               
judicial hearing  or if the  schedule is pending receipt  of more                                                               
information.                                                                                                                    
                                                                                                                                
MR. PTACIN  answered that scheduling  by the RCA is  pending more                                                               
information.  He said  there are  a number  of matters  that will                                                               
have  to   be  taken  up,   the  first   of  which  will   be  on                                                               
confidentiality.                                                                                                                
                                                                                                                                
3:31:30 PM                                                                                                                    
CO-CHAIR TARR  noted that  she spoke  with the  RCA and  the next                                                               
decision point  will be on  January 10,  2020 when a  decision on                                                               
the confidentiality request is issued.  The RCA will decide about                                                               
whether the  application is  complete to  move forward.  The most                                                               
recent  order from  the  RCA  noted that  the  commission is  not                                                               
statutorily  required to  make its  decision under  any timeline.                                                               
This is different than the requirement for a utility.                                                                           
                                                                                                                                
MR. PTACIN  answered correct.  He said there  is not  a six-month                                                               
clock on a pipeline matter.                                                                                                     
                                                                                                                                
VICE  CHAIR COGHILL  opined that  the  RCA does  have the  public                                                               
interest in  mind, and it is  not in the best  public interest to                                                               
drag the process out.                                                                                                           
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  asked if the  state has a  working DR&R                                                               
estimate for TAPS.  She inquired what safeguards are  in place to                                                               
ensure that if the DR&R is not  set aside in a distinct fund that                                                               
the  actual  value  for  the  DR&R is  preserved  in  case  of  a                                                               
bankruptcy.                                                                                                                     
                                                                                                                                
MR.  PTACIN  answered  that  the last  DR&R  estimate  of  $2.631                                                               
billion was done in 2005. To  date, the major owners of TAPS have                                                               
collected  upwards  of $5.164  billion  with  interest, which  is                                                               
substantially more  than the  estimate. Corporate  guarantees are                                                               
currently  in  place  from  three very  large  oil  companies  to                                                               
perform the DR&R  of TAPS. He conceded  that corporate guarantees                                                               
are not the  greatest assurances, but the DR&R  is something that                                                               
DNR is  going to  look into  as part of  the BP/Hilcorp  deal. He                                                               
opined that with rising costs,  the over collection may be closer                                                               
than the 2005 estimate indicates.                                                                                               
                                                                                                                                
3:34:23 PM                                                                                                                    
REPRESENTATIVE  SPOHNHOLZ  opined  that the  delta  between  $2.6                                                               
billion  and  $5.1  billion  is  significant,  particularly  when                                                               
considering that  the state  gets royalty  money on  profits that                                                               
are being  avoided. She asked  if there  is a distinction  in the                                                               
way DR&R is handled on the North Slope versus TAPS.                                                                             
                                                                                                                                
MR. PTACIN  asked if the question  is in respect to  the upstream                                                               
versus TAPS.                                                                                                                    
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ answered yes.                                                                                          
                                                                                                                                
MR. PTACIN  explained that  one big  distinction is  that because                                                               
TAPS  is a  regulated pipeline,  part of  the rate  structure has                                                               
been to allow for the companies  to collect their rates for DR&R.                                                               
That is not the reality for the upstream.                                                                                       
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ asked  if there is no  obligation to set                                                               
aside the DR&R funds for North Slope upstream assets.                                                                           
                                                                                                                                
MR. PTACIN answered that upstream  is mostly done through bonding                                                               
and corporate guarantee.                                                                                                        
                                                                                                                                
MR.  SNODGRASS explained  that DNR  has  engaged in  a series  of                                                               
discussions  with  its  upstream   lessees  to  try  and  develop                                                               
financial assurance agreements to  secure against the outstanding                                                               
obligation that differs between companies.                                                                                      
                                                                                                                                
3:36:24 PM                                                                                                                    
REPRESENTATIVE SPOHNHOLZ asked if  the negotiations are primarily                                                               
handled by AOGCC or DEC.                                                                                                        
                                                                                                                                
MR. SNODGRASS  answered that the  negotiations and  the financial                                                               
assurance agreements are almost exclusively run through DNR.                                                                    
                                                                                                                                
VICE  CHAIR COGHILL  noted that  there  was quite  an issue  some                                                               
years ago  on corrosion and  replacement for gathering  lines. He                                                               
said the issue was troubling, but it was handled.                                                                               
                                                                                                                                
SENATOR REINBOLD asked how many  people are getting laid off. She                                                               
noted that for every oil and  gas job there are roughly ten other                                                               
jobs that are created in a community.                                                                                           
                                                                                                                                
She opined  that BP has done  an excellent job being  an operator                                                               
and she is in awe of what they  have been able to achieve. BP did                                                               
have  an issue  in the  Gulf of  Mexico, but  their deep  pockets                                                               
allowed  them to  dig deep  and  reconcile the  best they  could.                                                               
Hilcorp had a spill in 2015  that took a couple of years rectify,                                                               
so one should always look at  past performance, she said.                                                                       
                                                                                                                                
SENATOR REINBOLD noted that Commissioner  Feige said stress tests                                                               
were done  to ensure that  Hilcorp was able  to run the  field as                                                               
well as having liability and  insurance coverage. She opined that                                                               
Hilcorp  looks like  a great  company  to take  over a  declining                                                               
field due to  their creativity and innovation  in other declining                                                               
fields.  She asked  how  DNR can  ensure that  there  is the  $93                                                               
million from  a new operator  for insurance and liability  and if                                                               
the qualification is based on assets or potential liability.                                                                    
                                                                                                                                
3:38:51 PM                                                                                                                    
COMMISSIONER  FEIGE  explained  that  the $93.5  million  is  the                                                               
financial responsibility required  by DEC and by no  means is the                                                               
amount meant to be the  only financial responsibility required of                                                               
the  operator.  Liability always  remains  100  percent with  the                                                               
entity or  consortium that is  the operator and owner.  The $93.5                                                               
million   cap  is   based  upon   the  single   largest  facility                                                               
responsibility  under DEC's  regulations. If  the state  responds                                                               
and is  involved in helping  with cleanup, DEC has  the authority                                                               
to recover all costs. She  added that DNR has financial assurance                                                               
agreements going into place for the DR&R.                                                                                       
                                                                                                                                
SENATOR REINBOLD  asked if  the committee is  going to  hear from                                                               
BP, ConocoPhillips, Exxon, and Hilcorp  or will the discussion be                                                               
left to the regulatory agencies.                                                                                                
                                                                                                                                
3:40:31 PM                                                                                                                    
VICE  CHAIR COGHILL  replied that  the committee  will have  more                                                               
hearings  on  the BP/Hilcorp  transaction.  He  said the  current                                                               
meeting is  the first  overview to  discover what  the BP/Hilcorp                                                               
deal  looks like  and their  financial assurances.  The committee                                                               
will talk  about taxes  and other topics;  for example,  TAPS was                                                               
built for a  much larger volume than what  currently runs through                                                               
the  pipeline, an  issue  that  will have  to  be addressed.  The                                                               
committee meetings will  be handled differently in  the House and                                                               
Senate, but the current meeting  is for committee members to hear                                                               
how  the state  sees the  transaction in  its best  interest, the                                                               
legal challenges,  where the economic  studies need to  fall, and                                                               
how the commissioner  gets to make a decision at  the go or no-go                                                               
point. The RCA is going to be looking at TAPS in depth.                                                                         
                                                                                                                                
He reiterated  that he  is chairing the  current meeting  to help                                                               
with discovery, but each chairman in  each body is going to bring                                                               
their  specific issues  to light.  He  said he  committed to  the                                                               
House that the  current meeting would be kept at  as high a level                                                               
as possible because  whether the issue is  Alaska hire, financial                                                               
assurances, or the  importance of DR&R when no one  knows when it                                                               
will occur,  those are big deals.  However, the main thing  is to                                                               
keep the oil flowing.                                                                                                           
                                                                                                                                
3:42:35 PM                                                                                                                    
REPRESENTATIVE TUCK noted that there  was a presentation on DNR's                                                               
Resource Source  Book that recently  came out that shows  a steep                                                               
decline in production  for 2020. DNR was not  at the presentation                                                               
but it  alluded to  the uncertainty,  risk factors,  and unknowns                                                               
associated  with the  BP/Hilcorp transaction.  He asked  what the                                                               
big cause is in the sudden  drop in production if Hilcorp is very                                                               
good at getting the last drop of oil in any find or field.                                                                      
                                                                                                                                
COMMISSIONER FEIGE replied there was  no aspect of the BP/Hilcorp                                                               
transaction that  was considered  in the production  forecast for                                                               
the  year  going  forward. The  decline  primarily  reflects  the                                                               
natural  decline  curve  of  the   Prudhoe  Bay  Unit,  which  is                                                               
approximately four percent per year.                                                                                            
                                                                                                                                
3:45:39 PM                                                                                                                    
VICE  CHAIR  COGHILL asked  Commissioner  Feige  to complete  the                                                               
BP/Hilcorp transaction overview.                                                                                                
                                                                                                                                
COMMISSIONER FEIGE reviewed the timeline depicted on slide 26.                                                                  
                                                                                                                                
   • The goal of BP and Hilcorp:                                                                                                
        o Closure in the second quarter of 2020.                                                                                
                                                                                                                                
   • Under Alaska law the State of Alaska does not have a                                                                       
     timeline for review.                                                                                                       
                                                                                                                                
She emphasized  that the State  of Alaska  will take the  time to                                                               
undertake its due  diligence to either say the  transaction is in                                                               
the state's and the public's best interest or it is not.                                                                        
                                                                                                                                
She said if the BP/Hilcorp  transaction were a baseball game, the                                                               
DNR review and due diligence process  is in the third inning. The                                                               
DNR and  RCA review  is early  in the  game with  new information                                                               
being  received. The  BP/Hilcorp purchase  and sale  agreement is                                                               
400 pages  long, so  the review by  DNR and RCA  will be  a long,                                                               
thorough, and methodical process.                                                                                               
                                                                                                                                
3:47:53 PM                                                                                                                    
CO-CHAIR  TARR explained  that one  of the  things that  has been                                                               
publicly  discussed is  the  idea of  another  public charter  or                                                               
document  that   addresses  some   of  the  concerns   that  were                                                               
previously addressed.                                                                                                           
                                                                                                                                
COMMISSIONER FEIGE replied  that looking back at the  Arco and BP                                                               
merger, the charter  was a document designed to  compel a certain                                                               
level of corporate behavior  or corporate responsibility. Looking                                                               
at  how  the  merger  played out  with  ConocoPhillips  and  then                                                               
Phillips  Petroleum,   the  charter  never  served   any  purpose                                                               
whatsoever.  First,  the  charter  was  not  legally  binding  or                                                               
enforceable. The  charter was an  available tool at  the disposal                                                               
of the  department's many tools  that could  be used to  attain a                                                               
comfort point that the public  interest and the state interest is                                                               
protected.                                                                                                                      
                                                                                                                                
She opined that  the document was legally  unenforceable. None of                                                               
the activities in  the charter were done or  undertaken. If there                                                               
was a  point in the  BP/Hilcorp transaction  where a tool  like a                                                               
charter was necessary, DNR would  have something with teeth in it                                                               
that is legally binding.                                                                                                        
                                                                                                                                
She  summarized  that DNR  is  in  the  early  stage in  the  due                                                               
diligence process and  there is no need at this  point for a tool                                                               
like a public charter. However,  a charter is at the department's                                                               
disposal should it be needed.                                                                                                   
                                                                                                                                
3:49:56 PM                                                                                                                    
SENATOR  BISHOP commented  that going  forward with  the hearings                                                               
prospectively,  the  Alaska  Department of  Labor  and  Workforce                                                               
Development should  be consulted  in the  BP/Hilcorp transaction.                                                               
He noted that workplace safety  concerns have been brought to his                                                               
attention  and the  department  should come  and  explain to  the                                                               
committee   how   Hilcorp   executes   facilities,   inspections,                                                               
workplace safety,  etcetera. Having the department  involved will                                                               
assure  the  working  public  that  there  will  be  no  gaps  in                                                               
workplace safety.                                                                                                               
                                                                                                                                
VICE CHAIR COGHILL  said Senator Bishop's comments  will be taken                                                               
into consideration.                                                                                                             
                                                                                                                                
REPRESENTATIVE TUCK  referenced Chair Tarr's comment  on charters                                                               
and the  discussion about  enforceability. He  noted that  BP has                                                               
given an assurance to the  State of Alaska on secondary liability                                                               
of  assets.  He  asked  how enforceable  BP's  assurance  is.  He                                                               
inquired if BP's  assurance agreement is an  agreement between BP                                                               
and Hilcorp, or between BP and the State of Alaska.                                                                             
                                                                                                                                
MR. PTACIN  explained that  BP is stepping  in to  be secondarily                                                               
liable.  This will  require a  legal document  that both  DOL and                                                               
Morrison  &   Foerster  will  write   in  a  way  that   will  be                                                               
enforceable.                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK asked  if the agreement would  be between the                                                               
State  of Alaska  and  BP, or  if the  state  just watching  what                                                               
transpires between BP and Hilcorp.                                                                                              
                                                                                                                                
MR.  PTACIN replied  that he  imagined that  the State  of Alaska                                                               
would want to be part to the liability agreement.                                                                               
                                                                                                                                
3:52:36 PM                                                                                                                    
REPRESENTATIVE   SPOHNHOLZ   commented  that   she   respectfully                                                               
disagrees  with  Commissioner  Feige's  statement  regarding  the                                                               
value  of  the  public  charter.  She said  her  two  decades  of                                                               
experience in  the nonprofit  sector showed  her that  the public                                                               
charter is  important in guaranteeing  and putting in  the public                                                               
sphere both BP and ConocoPhillips' commitment to philanthropy.                                                                  
                                                                                                                                
She  opined  that the  oil  industry  has  been the  backbone  of                                                               
philanthropy in  the State of Alaska  for a very long  time. When                                                               
considering  the  possible  elimination of  a  key  philanthropic                                                               
partner  in the  State of  Alaska,  the public  charter was  very                                                               
important  to providing  some assurances  to  the community  that                                                               
there would still be a lot of philanthropy.                                                                                     
                                                                                                                                
She  said one  of the  first things  that many  in the  nonprofit                                                               
sector thought of when learning  about the BP/Hilcorp transaction                                                               
was a deep  concern for the health of the  nonprofit sector which                                                               
has already  been challenged by  budget cuts over the  last year.                                                               
BP has been an incredible  philanthropic investor in the State of                                                               
Alaska and has done so much for the community.                                                                                  
                                                                                                                                
She  remarked  that  one  of   her  biggest  concerns  about  the                                                               
BP/Hilcorp transaction is about the  lack of transparency for the                                                               
public with regards to whether Hilcorp  has the assets to back up                                                               
its responsibility  to the State  of Alaska.  She said she  has a                                                               
lot of respect  in DNR's ability to do stress  tests and internal                                                               
evaluations.  However,  she asked  how  information  can be  made                                                               
available  to the  public in  a  digested format  to create  more                                                               
confidence in  the community. She  opined that  public confidence                                                               
is just as  important as the expert professional  doing their due                                                               
diligence.                                                                                                                      
                                                                                                                                
3:55:06 PM                                                                                                                    
MR.  PTACIN  answered  that  regarding  TAPS  and  the  midstream                                                               
issues,  the   RCA  will  decide   on  whether  the   release  of                                                               
information will create a  competitive or financial disadvantage.                                                               
The RCA will also  look at the need of the  public in whether the                                                               
public  interest in  knowing the  released information  outweighs                                                               
any sort  of proprietary value claim.  He noted that the  RCA has                                                               
denied confidentiality  requests in recent cases.  He opined that                                                               
the public  would find the  information from  the RCA case  to be                                                               
incredibly illustrative due to the  massive sale of 48 percent of                                                               
a 700-mile pipeline.  He added that the amount of  data that gets                                                               
put into an RCA case is remarkable.                                                                                             
                                                                                                                                
He  said  going  forward  he  imagined  that  there  will  be  an                                                               
opportunity  for DNR  to provide  answers to  questions regarding                                                               
work being  done upstream, how  far the department is  going, the                                                               
type of testing, and what the data is showing.                                                                                  
                                                                                                                                
He  opined that  there  is  a way  to  relay  information to  the                                                               
legislature and the public without  betraying the confidence of a                                                               
company that is trying to  keep proprietary information away from                                                               
competitors.                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SPOHNHOLZ   reiterated   that   buoying   public                                                               
confidence   via  transparent   information  is   important.  She                                                               
remarked  that when  an  accountant says,  "I've  done the  work,                                                               
trust me," she  trusts and respects the professional  to do their                                                               
work, but some transparency is needed.                                                                                          
                                                                                                                                
3:58:00 PM                                                                                                                    
VICE CHAIR COGHILL opined that  committee members received a good                                                               
and  credible look  at the  confidence  level of  the people  and                                                               
departments  who will  be looking  out for  the best  interest of                                                               
Alaska.                                                                                                                         
                                                                                                                                
He said  the departments' broad  overview looked at  what portion                                                               
of  the field  is  going to  be impacted,  how  big the  pipeline                                                               
question is  on everything  from how  to roll TAPS  up to  how to                                                               
keep it  afloat. He  emphasized that  Alaska wants  to be  in the                                                               
production  mode while  also requiring  environmental credibility                                                               
to be very high.                                                                                                                
                                                                                                                                
VICE CHAIR COGHILL said he personally  has a lot of confidence in                                                               
Hilcorp, but the  transaction is a big  undertaking that requires                                                               
the state  to go  through its due  diligence. The  next questions                                                               
are going to  be on fitness and finance, how  will Alaska benefit                                                               
from the Hilcorp  transaction, and what are some  of the economic                                                               
challenges.                                                                                                                     
                                                                                                                                
He opined that  the fitness question is still  under scrutiny and                                                               
the committee's  overview provided members information  about how                                                               
the   departments   are    looking   at   fitness   economically,                                                               
regulatorily, and within the fields.                                                                                            
                                                                                                                                
He  said the  departmental  overview gave  the  committee a  good                                                               
place to do its own due diligence,  but also to provide a way for                                                               
members  to  ask questions  as  credibly  as possible.  Committee                                                               
members  have a  lot of  people  asking them  questions that  are                                                               
difficult to answer, but the  departments provided a good base to                                                               
work from.                                                                                                                      
                                                                                                                                
CO-CHAIR  TARR stated  that  she looked  forward  to the  ongoing                                                               
conversations.                                                                                                                  
                                                                                                                                
VICE CHAIR COGHILL said it was  a pleasure working with the House                                                               
on  the start-up  discussion for  the BP/Hilcorp  transition. How                                                               
the House  and Senate  take on the  different issues  is unknown,                                                               
but he expects that the two bodies will work closely together.                                                                  
                                                                                                                                
4:00:48 PM                                                                                                                    
There  being  no  further  business  to  come  before  the  joint                                                               
committee, Vice Chair Coghill adjourned  the joint meeting of the                                                               
Senate and House Resources Standing Committees at 4:00 p.m.                                                                     

Document Name Date/Time Subjects
DNR Presentation- BP HC Transaction Dec 16 Legis Hearing.pdf HRES 12/16/2019 2:00:00 PM
BP/Hilcorp Transaction
BP Hilcorp Transaction Acronym List.pdf HRES 12/16/2019 2:00:00 PM
BP and Hilcorp Transaction