Legislature(1999 - 2000)
06/11/1999 09:40 AM Senate MER
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT SPECIAL COMMITTEE ON MERGERS
June 11, 1999
9:40 a.m.
MEMBERS PRESENT
Senator Rick Halford, Chair
Senator Drue Pearce
Senator Johnny Ellis
Representative Joe Green, Vice-Chair
Representative Beth Kerttula
Representative Jim Whitaker
MEMBERS ABSENT
Representative Brian Porter
COMMITTEE CALENDAR
British Petroleum-ARCO Merger
WITNESS REGISTER
Attorney General Bruce Botelho
Department of Law
PO Box 110300
Juneau, AK 99811-0300
Kevin Meyers, President
ARCO Alaska
PO Box 100360
Anchorage, AK 99510-0360
James A. Palmer
Vice President, External Affairs (Alaska)
BP Exploration
PO Box 196612
Anchorage, AK 99519-6612
Stephen Conn
Alaska Public Interest Research Group
PO Box 101093
Anchorage, AK 99503
Kay Brown, Executive Director
Alaska Conservation Alliance
750 W 2nd Ave.
Anchorage, AK 99501
Christy McGraw
BACKBONE
5412 West Dimond #4
Anchorage, AK 99515
Richard Fineberg
PO Box 416
Ester, AK 99725
Jack Laasch
Alaska Petroleum Contractors
6700 Arctic Spur Rd
Anchorage, AK 99516
Pete Leathard
VECO
813 West Northern Lights Blvd.
Anchorage, AK 99503
Bill Walker
Gasline Now
550 West 7th
Anchorage, AK 99517
Vic Fisher
Anchorage, AK
Bob Stimson
ConAm Construction
3015 Seawind Drive
Anchorage, AK 99516
Karen Cowart, General Manager
Alaska Support Industry Alliance
4220 B St, Suite 200
Anchorage, AK 99503
Mary Shields
Norrh West Technical Services
3330 Arctic Blvd.
Anchorage, AK 99503
Maynard Tapp
Hawk Construction Company
1407 W 31st Ave. #100
Anchorage, AK 99503
Bill Stamps
Peak Oil Field Service Company
PO Box 7222
Nikiski, AK 99635
Joe Mathis
NANA Development Corporation
1001 E. Benson
Anchorage, AK 99508
Mike Macy
Alaska Wave Riders
308 G Street
Anchorage, AK 99501
Rick Steiner
PO Box 231824
Anchorage, AK 99523
Walt Parker
Anchorage, AK
Charlie Cole
404.5 Cushman Street
Fairbanks, AK 99701
ACTION NARRATIVE
TAPE 99-1, SIDE A
CHAIRMAN HALFORD called the Joint Special Committee on Mergers
meeting to order at 9:40 a.m. and asked for a motion to go into
executive session. VICE-CHAIRMAN GREEN so moved. There being no
objection, the Committee went into executive session.
The Joint Special Committee on Mergers reconvened to hear a status
report by the Administration.
Number 010
BRUCE BOTELHO, Attorney General for the State of Alaska, introduced
Barbara Ritchie, Deputy Attorney General, and stated he wished to
make preliminary comments to Committee members in a regular
session, and then to speak to members in executive session
regarding matters related to the ongoing investigation.
ATTORNEY GENERAL BOTELHO made the following comments.
In general terms, I wish to report to you formally that we are
continuing to develop our view based on a model formulated
around six different topics. I have provided a copy to you,
Mr. Chairman, and the committee. Copies for the public are in
the back of the room. They list the various committees at
work related to the value of facilities, marine
transportation, TAPS, the gas project, and leasing. With
respect to each of these areas, we have provided the committee
members as well with the questions which we have directed each
of these committees to focus on as a way of providing a
paradigm for our analysis of whether, ultimately, the
acquisition is in the best interest of the State of Alaska.
Our focus is primarily from the point of view of anti-trust,
though those competitive issues obviously have a major impact
on other programs of the state, specifically revenues that
come to the state in the form of taxes and, of course, our
entire leasing program of the state. Between them, the bulk
of the revenues to the state are derived. We have, at the
moment, several meetings that are on schedule this morning in
Seattle. We have a joint meeting with other states and
representatives of ARCO and BP to further discuss issues of
document production. We are scheduled as the State of Alaska
to meet with the Federal Trade Commission in Washington, D.C.
on June 22 and, finally, we will be participating in a hearing
which has been scheduled by the Senate Energy Committee,
chaired by Senator Murkowski, on June 24 in Washington, D.C.
Our goal, obviously, in each of these instances, is again to
work toward an analysis of the merger, again our focus being
what, ultimately, what outcome or alternative outcome, would
be in the best interest of the State of Alaska - both in terms
of the state as sovereign, but also as minora, and a concern
for the welfare of the citizens. Those are my brief comments,
Mr. Chairman, and I am willing to answer questions from the
Chair and other members of the committee, but then request the
opportunity to brief you in further detail about certain
aspects of the investigation in executive session.
CHAIRMAN HALFORD noted, for the benefit of the public, the handout
includes not only the committees referred to by Attorney General
Botelho, but also the core questions initially identified in each
category. He stated that information should be useful to the
public in that it provides background information. CHAIRMAN HALFORD
acknowledged Attorney General Botelho's request for an executive
session, and stated his intent to include an update by legislative
attorneys during that session as well. He announced the committee
would meet in executive session for about 45 minutes, after which
BP and ARCO would give presentations.
Number 089
SENATOR PEARCE asked Attorney General Botelho who would replace
Ann Thompson after July 1 on the committees she was appointed to.
ATTORNEY GENERAL BOTELHO said that slot has not yet been filled
within the Department of Law.
SENATOR PEARCE moved the committee meet in executive session, as
requested by the Attorney General. There being no objection,
CHAIRMAN HALFORD announced the committee would meet in executive
session for the remainder of the Attorney General's presentation.
Number 067
CHAIRMAN HALFORD reconvened the Joint Special Committee on Mergers
to take further testimony.
KEVIN MEYERS, President of ARCO Alaska, Inc., gave the following
testimony.
Thank you Mr. Chairman, members of the committee and committee
staff. Let me thank you first for the opportunity to appear
before you today. For the record I am Kevin Meyers, President
of ARCO Alaska. Today I'll be testifying along with Jim
Palmer from BP Amoco. I'll do my testimony, then Jim will do
his, and then we'll be glad to answer any questions that you
have - if that's okay with you all. ARCO, as you all know,
has been a major player in Alaska for almost 45 years. North
Slope oil production is the foundation of the modern ARCO.
This is where ARCO has had its greatest successes. We are
very proud of what our people have accomplished and the role
that they've played in helping build this great state. Our
business in Alaska is in excellent shape. We've had
exploration success, we are developing new fields, we are on
track to achieve our goal of stabilizing ARCO's share of North
Slope production. With continued reductions in operating and
development costs, and continued access to exploration
acreage, and a continued good working partnership with the
state, we see a bright future for the oil industry in Alaska.
Given all that, you have to be wondering, and many Alaskans
are wondering, and were surprised to hear that ARCO had
approached BP Amoco, proposed and then agreed to an
acquisition - and you have to be wondering why.
Unfortunately, because of the quiet period rules imposed by
the FTC, I'm not here to advocate the transaction from a
shareholder perspective, and won't get into pushing the why
too hard, but I can respond to your questions, and will in my
prepared remarks, address the effects of the transaction on
Alaska.
I believe the merger will benefit the state. It will be
positive because combining ARCO Alaska and BP Amoco will allow
the restructuring of our Alaskan operations. This will allow
elimination of duplication, it will permit lower operating
costs and create new opportunities for growth on the North
Slope. The result will be more capital spending, greater
ultimate oil recovery, higher production and more state
revenue. Clearly this acquisition will bring short term pain
- there's so no doubt to that - but it is also the key to a
better future. Make no mistake - in today's top business
climate, continued consolidation of our operations on the
North Slope is inevitable. North Slope oil production is half
of what it was a decade ago. We are on decline. To remain a
viable industry, and attract new investment, we must continue
to reduce operating costs as production declines. I know many
in the community are worried this change will affect our
suppliers and our contractors. Many of them are here today.
Others are concerned about job losses that will result from
the joining of our two companies. These concerns are
understandable, however, even without this acquisition, change
was imminent. At the time the news of this deal became
public, ARCO and BP were engaged in serious discussions aimed
at establishing a single operator at Prudhoe Bay. This
transaction delivers much more than the single operator
Prudhoe Bay one because it better aligns the interests of BP
Amoco and the remaining PBU owners while delivering Slope-wide
savings and efficiencies.
Now, a lot of good people will soon be looking for work. All
have made significant contributions to the success of our
industry in Alaska and seeing them go will be very, very
difficult. Even so, myself and the ARCO Alaska management
team are working hard to win approval of this merger for lots
of good reasons. One of the most important ones is that the
vast majority of ARCO employees will become part of a larger,
stronger company, better equipped to compete in a fast
changing world. Their jobs and their futures will be much
more secure. The State of Alaska will benefit also. You've
all seen what can happen when we take cost out of our North
Slope operations. I would recall 1994 for those of you who
were here, and most were. Oil prices had plummeted to $15 per
barrel. It's sort of ironic - 15 sounds like a high price
these days but it had plummeted to 15 - and ARCO Alaska's long
term plan showed year after year of declining North Slope
production. To survive, we had to made some difficult
changes. We began by eliminating over 900 jobs. We changed
the way we purchased goods and services. We forged new
agreements with suppliers and contractors. We used technology
and facility sharing agreements to reduce the cost of North
Slope exploration and to lower operating and developmental
costs. When we were done, we had reduced our total operating
costs by 25 percent. Now we knew from the outset that those
savings would go to our bottom line in allowing us to survive
the low oil prices but, more importantly, our new cost
structure allowed us to pursue projects that weren't feasible
before: projects like additional link field drilling in our
existing fields; projects like the mixed pump - the mixable
injection expansion that's being built down at the Port of
Anchorage; projects like West Sak; projects like satellite
exploration and development; and last, but not least, ALPINE,
which is setting a new standard in North Slope development.
We challenged our employees to make the most of our new, lower
cost structure, and they delivered a plan for achieving no
decline after '99. The result was a three-fold increase in
the level of ARCO capital spending in Alaska. That investment
has paid off. In 1998, for the second year in a row, ARCO
replaced every barrel it produced in Alaska. We also kick
started a whole new industry here in Alaska when we awarded
contracts to two Alaskan companies for the fabrication of the
first sea lift modules ever built in Alaska. With the startup
of ALPINE in 2000, we will deliver on the promise of no
decline after '99. Why am I saying all of this? I want to
emphasize that low cost operations mean new opportunities in
increased investment - there is a tie there. That's why we
must continue to drive costs out of the system. That's why
combining our Alaskan operations with BP's Alaskan operations
is the right thing to do. ARCO's low cost Alaskan assets,
combined with the cost savings that will result from the
merger, will significantly improve the competitiveness of
Alaska in BP's global portfolio. This will create new
opportunities for investment on the North Slope and, over the
long term, it will mean more investment in Alaska, more
exploration, more new fields, more production and more state
revenue. The prize is real and it is worth capture.
Now, prior to the regulatory approval of this combination,
ARCO will operate as an independent company. We will continue
to pursue our plans for production in Alaska. Capital
spending will not be reduced. ALPINE will stay on track. We
will continue to explore for new fields. We will continue to
support community service organizations like United Way and
other non-profits. We will continue to put protection of the
environment and the safety of our employees first in all we
do. ARCO is to deliver to BP Amoco a well run company with
quality assets and tremendous growth potential. And, as I
said before, when I talk about assets, I'm not talking about
just the rock and the steel, but first and foremost, the men
and women of ARCO Alaska. In short, it's going to be business
as usual until this deal is approved.
So, where are we? ARCO's first filing with the Federal Trade
Commission was made the week of May 17. We expect to learn in
mid-June whether the FTC will want additional information.
The quiet period I mentioned earlier will end when our proxy
statement is filed and accepted by the Securities and Exchange
Commission, probably in late July. In the interim we are
working with our counterparts at BP Amoco to design an
efficient, cost-effective company that will make the most of
our North Slope assets. ARCO supports and wants this
combination to be successful. We picked BP Amoco for a lot of
easily quantified business reasons but there is a lot of other
strong intangibles as well. First, BP Amoco has made a
commitment to treat our employees with respect and fairness.
Second, we know BP Amoco well. We have been their partners
and their competitors since the discovery of Prudhoe Bay more
than 30 years ago. We share a common commitment to the
development and marketing of cleaner burning fuels, to
operating in an environmentally responsible manner, and to
being good corporate citizens. Finally, and probably most
importantly, we share a history, a 40 year history of
commitment to Alaska. It will be tough to haul down the ARCO
flag for the last time but for me that show will be a little
easier because our people and their commitment to Alaska and
to operating and maintaining the best oil fields in the nation
will continue under BP Amoco. In closing, I want you to know
that we understand and welcome your interest in this
transaction. We look forward to working with the Committee as
it assesses the merger and its impacts on the State. Thank
you.
Number 169
JAMES A. PALMER, Vice President of External Affairs, BP Exploration
Alaska, gave the following testimony.
Mr. Chairman, members of the Committee, for the record my name
is Jim Palmer and I am the Vice President of External Affairs
for BP Exploration Alaska which is part of the BP Amoco Group.
I am grateful for this opportunity to speak to you today about
what is an historic change with BP Amoco and ARCO, and within
the Alaskan oil industry. The agreement for BP Amoco to
purchase ARCO starts a journey towards a new future for
Alaska. Two great Alaska companies have taken the first steps
toward becoming a single, more competitive Alaskan company
that is positioned for the challenges and opportunities of the
21st Century.
Over the last two months, the proposed union of our two
companies has generated a serious and mature discussion
throughout the State, and the hearing here today is a further
important event in that dialog.
The simple reason for this transaction is to recapture the
health and competitiveness of the industry, which is the
foundation of Alaska's economy. BPX and ARCO have striven to
achieve everything they can do separately to reduce the cost
of finding and developing oil on Alaska's North Slope, but we
need to do more to make producing oil in Alaska competitive
with other opportunities in the global marketplace. The
proposed combination of BPX and ARCO in Alaska is the product
of a positive joint and long term vision of the fullest
possible development of the North Slope. We can only do this
by creating greater efficiencies, reducing costs, and
increasing our financial strength by combining our
organizations, which is necessary in order to make greater
investment. Greater investment also leads to increased output
and production which leads to lower unit cost, leading in turn
to more incentive for greater investment - in other words, a
virtuous cycle of lower cost, greater investment, and greater
production. The natural consequence of this positive vision
is increased revenue, long term jobs, and increased stability
for the State of Alaska.
The proposed combination of BP Amoco and ARCO in Alaska is
equally driven by the virtual certainty that the alternative
is a much less benign cycle, a downward spiral of higher
costs, reduced investments and reduced production - the
proverbial "negative spiral." Obviously, the natural
consequence of this unhappy path is reduced revenue and jobs
for Alaska.
It is the positive vision of reduced costs, greater
investment, greater production and the resulting benefits
which brought ARCO to seek the combination earlier this year
and brought both companies to agree to it, and to be here
today to explain this to the Joint Committee. We recognize
that this transaction and its potential impacts have raised
questions and concerns in the months since it was announced.
We are confident that the promise of the combination will,
after examination and reflection, be evident to you and to the
citizens of Alaska you represent, as it was and is to us, and
that we will all enjoy the positive effects of it in the years
to come.
Mr. Chairman, the benefits and positive effects are not simply
a hope that the future will be bright. The immediate benefits
are embodied in concrete commitments we have pledged for the
combined company. These have been aired before the press, in
testimony earlier this year before the House, and in some of
the articles and letters in the press. But let me briefly
summarize our ten key pledges again now.
First, we will invest $5 billion in our Alaska business over
the next five years. This is an increase over the combined
Alaskan investment of BP and ARCO in the last five years, and
$150 million over the current year of 1999.
Second, we will increase our financial support to community
organizations by 50 percent from the current combined ARCO-BP
level.
Third, we will consolidate our global gas technology
activities into Alaska with the objective of commercializing
North Slope gas. The company will continue the ARCO-led
sponsor group, relocate its gas technology center to Alaska,
and build a $70 million gas-to-liquids pilot plant on the
North Slope.
Fourth, we will honor all current agreements with ARCO's
contractors and suppliers and we will continue to treat all
business partners fairly and equitably, with dignity and
respect. ARCO contractors will be able to compete for future
business on a completely equal footing with other contractors,
including current BP contractors. Mr. Chairman, I might add
that we've been greatly encouraged by the welcome for the BP-
ARCO link given by the state's leading contractors. This
confidence speaks well for the future.
Five: Organized labor will continue to play an important role
in our North Slope construction activities, and again we
appreciate the supportive comments on the combination from
several of the labor leaders in the state.
Six: We will continue to work cooperatively and
collaboratively with all levels of government.
Seven: We will continue our efforts to provide jobs and
business opportunities for Alaska.
Eight: BP Amoco will honor ARCO's commitments to build new
millennium class double-hulled tankers, and is fully committed
to a tanker renewal program complying with the Oil Pollution
Act of 1990. Of the 11 chartered tankers used in BP Amoco's
ANS trade, three already have double hulls and six others have
double bottoms.
Nine: We will continue to actively be involved in state and
federal lease sales and continue to pursue exploration and
development opportunities in Alaska.
And tenth, finally, but no less important, we will treat all
of our employees with respect and dignity.
I know there have been concerns expressed about the new
company's potential size and its implications for competition
within Alaska, about the influence and power we could have
when this deal is approved. Mr. Chairman and members of the
Committee, we have been responsible and good corporate
citizens in Alaska for 40 years. That won't change. Indeed
as the importance of Alaska grows in BP Amoco's global
portfolio, so does our responsibility to the state. Our size,
the experience, the skills, the financial resources and the
stability we bring will be Alaska's competitive advantage, not
a competitive threat. We are not competing against Alaska for
shares of the shrinking pie, we are partnering with Alaska to
compete together for a larger slice of the global investment
pie. We can and will be an even more powerful ally of the
state in helping make that bigger pie a reality.
Mr. Chairman, before closing I would like to spend a little
time talking about the process we foresee as we move forward.
We are very excited about the potential for this combination
and are eager to begin capturing and sharing the benefits of
it but there are certain practical and legal steps that must
come first. On the practical side, both ARCO and BP Amoco
must review their respective organizations and plan, in very
specific terms, how the organizations can intelligently be
integrated. That work is continuing in Alaska, and indeed
worldwide, and will take several more months due to the
inherent complexity of blending two large corporations.
And, of course, there are the legal steps which will take
their own time as well. This committee is familiar with some
of that, as I believe BP Amoco's and ARCO's lawyers have been
speaking with the committee's lawyers about establishing a
reasonable procedure for the committee to review the
transaction. That is necessarily a complicated process, due
to the various confidentiality laws and requirements involved.
That will work itself out and I am certain can proceed in good
order. A similar process is going on with the Attorneys
General for Alaska and other states, and those talks are
progressing this week as well, in Anchorage and in Seattle.
The Federal Trade Commission in Washington is conducting its
review at the same time under the Hart-Scott-Rodino merger
notification rules. In that process, the companies filed
their initial notification on May 17 and expect to receive a
second request for information next week. We expect the FTC
review to continue through the summer and we are hopeful that
they complete ten complete all-government reviews in the fall
of this year. We are eager to move forward and to capture the
benefits of this transaction and to demonstrate in real action
the positive effects it will have for our companies, the
state, and for its people. Thank you, Mr. Chairman, for this
opportunity to talk to the committee.
Number 282
CHAIRMAN HALFORD asked Mr. Palmer at what time during the fall he
expects the FTC to complete the government reviews.
MR. PALMER said BP initially estimated six to nine months, which
would fall between September and December, and that target remains.
BP would like the reviews to be completed as soon as possible
however, to get on with business and to remove any uncertainty for
the employees of both companies.
MR. MEYER concurred with Mr. Palmer's response, and said BP and
ARCO want to make sure that all of the Legislature's needs,
questions, and concerns are addressed. They need time to do so and
are doing whatever they can to facilitate the process and alleviate
the concerns of the 2250 employees who might be affected.
CHAIRMAN HALFORD asked when BP and ARCO expect to make their
initial filing documents available to the Attorney General's
Office.
MR. MEYERS replied to his understanding they are currently in
discussions with the Attorneys General about the process in which
that will occur.
MR. PALMER indicated the discussions are going well and should not
create a problem.
CHAIRMAN HALFORD said he is aware that the Attorney General's
Office requested, but has not yet received, the documents, and that
he is trying to formulate a time line for the process.
MR. PALMER said the discussions revolve around which documents the
Attorney General wants, and needs, to see.
Number 309
SENATOR ELLIS referred to the statements made by Mr. Meyer and Mr.
Palmer about creating a more competitive company and noted the
committee's concern is maintaining a healthy level of competition
in the oil industry and ensuring that competition is not eliminated
altogether in Alaska. He questioned BP's position on the issue of
divestiture of acreage as required by statute, and, more
importantly, divestiture of other important assets so that the
situation might be made healthier for smaller oil industry
operators who want to do business in Alaska.
MR. PALMER said in reality, the only competition BP and ARCO have
had in the past has been in the area of leases, otherwise they have
been partners in the development of fields. When BP and ARCO speak
of competitiveness, they are speaking about competing with other
areas of the world involved in oil production. Regarding the
acreage question, MR. PALMER stated BP fully understands the
statutory prohibition to hold more than 500,000 acres. BP and ARCO
fully intend to divest whatever excess acreage they have and will
discuss with the state how it wants to proceed. MR. PALMER said BP
and ARCO see no need to divest any other assets. They believe
there are opportunities for other entrants to do business in Alaska
and hope they do.
Number 335
VICE-CHAIRMAN GREEN stated another company operated at Milne Point
but found it necessary to sell out and leave because operating
costs were too high due to pipeline tariffs (the company was a non-
owner). He asked while the pipeline itself is covered by the
Federal Energy Regulatory Commission (FERC) regulations, how BP and
ARCO foresee allowing other companies to buy into facility use,
cleanup and shipping operations.
MR. MEYERS stated he finds the concern about facility access
intriguing because he believes five fields are sharing the common
facilities of the Lisburne Production Center; three fields are
sharing the common facilities at Prudhoe; four fields are sharing
the common facilities at Kuparuk; and two or three fields share the
common facilities at Endicott. Although those arrangements have
encompassed difficult commercial discussions, closure and a
satisfactory conclusion have always been reached for both the
resource and facilities' owners. He hopes that precedent continues
in the future.
VICE-CHAIRMAN GREEN maintained those negotiations took place
between BP and ARCO but now there will be only one company.
MR. MEYERS noted Exxon was a key player in the negotiations at
Granite Point; Mobile,Phillips and Chevron played a key part in the
negotiations at Prudhoe; and at Kuparuk, Unocal was a key part of
the discussion. He agreed one less party will be involved but he
believes sharing facilities is in the mutual interest of all
parties involved. It is in the interest of the facility sharing
owner to get more production through the facility to drop the per
barrel operating cost; it is in the interest of the resource owner
to get their production on-line; and it is in the interest of all
North Slope owners to get more production to help bear the cost of
TAPS. He noted people with a common incentive will find a
solution.
MR. PALMER added that after the acquisition is approved, BP will be
a larger owner of many fields but it will not be the 100 percent
owner of any field it does not currently own. Facility sharing
requires 100 percent approval of all owners therefore BP will not
have any more veto power than it currently has.
Number 388
CHAIRMAN HALFORD asked Mr. Palmer to identify the most critical
issues BP will face on the upstream side of the merger.
MR. PALMER replied the most critical issue is working with the
state on the perception of the creation of one large company here.
The oil industry worldwide has entered a new era and the merger
will provide huge benefits to the state. The Governor has set out
six areas of concern in relation to local hire and the environment;
each has its own peculiar issues surrounding it. It all boils down
to access to facilities by new entrants and the cost of accessing
the facilities. The pipeline is a common carrier with an agreement
in place on tariff setting. BP has been purchasing oil from
smaller companies and expects to continue to do so. BP will now be
an active marketer on the West Coast - it was not before. Still,
BP will have to sell 50 percent of the oil it produces in Alaska on
the open market so its objective is to get the highest value for
all of the crude - the same position the State of Alaska is in.
CHAIRMAN HALFORD said that because of the direct economic
difference to the State of Alaska in terms of the amount paid based
on the assignment of field costs, or the pipeline tariff or other
agreements, Alaska usually makes more on a barrel of ARCO oil. He
asked Mr. Palmer what impact he foresees the merger having on state
revenue regarding the lower ARCO tariff and field cost assignment.
MR. PALMER stated BP is very cognizant of that issue and that the
subject will be a matter of discussion with the Administration.
Number 449
VICE-CHAIRMAN GREEN stated post-Mukluk, ARCO has been somewhat more
aggressive exploration-wise. He questioned how much of the $5
billion to be invested by BP over the next five years will be used
for existing discoveries development versus what might continue on
the existing fields.
MR. PALMER said he does not have a good answer for that question
because BP has not determined with enough detail how it will spend
the money. Regarding Vice-Chairman Green's assertion that ARCO has
been more aggressive, BP believes it is as aggressive an explorer
as any other company. MR. PALMER pointed to the Liberty and
Sourdough discoveries, and noted when BP took over the Milne Point
field it was producing about 10,000 barrels of oil per day; that
amount is now quadrupled.
Number 478
CHAIRMAN HALFORD stated, with regard to the flow of information
between BP, ARCO and the Administration's attorneys, that it is
important that the committee conduct an independent policy review.
He indicated the committee is interested in the Hart-Scott-Rodino
filing, particularly in the 4(C) business plan section. He asked
Mr. Palmer how he sees the access agreement for the legislative
branch progressing.
MR. PALMER replied BP understands the Legislature's need to have
access to information and BP intends to pursue the ongoing
discussions to achieve accommodation.
CHAIRMAN HALFORD said it is important to conclude the negotiations
as soon as possible.
MR. MEYER said they want to get the Legislature the information it
needs to make its decisions but, at the same time, there are
confidentiality concerns. He expressed confidence that an
agreement will be reached that meets both parties' needs.
Number 518
REPRESENTATIVE WHITAKER brought up the facility sharing agreement
and asked Mr. Meyer to explain what he meant by the term
"commercial discussion."
MR. MEYER said those discussions are centered around determining a
fair facility sharing fee. The discussions take into account what
share of operating and maintenance costs and capital fees should be
paid. In addition, almost every facility operating on the North
Slope is at its limit for water and gas handling, so the
discussions can become complicated. He emphasized that although
the discussions can be lengthy, conclusions have been reached to
the satisfaction of the resource and the facility owners.
REPRESENTATIVE WHITAKER asked if the commercial discussion is
essentially a negotiation between the facility owner and a
potential facility user.
MR. MEYER said a negotiation is correct.
REPRESENTATIVE WHITAKER asked if Conoco was subject to facility
sharing agreements and its associated costs, and BP was not,
whether BP, as the owner of the facility, would be in an
advantageous position.
MR. MEYER clarified that when he spoke about facility sharing he
was referring to the production facilities on the North Slope, not
to the pipeline, TAPS, which is regulated as a public utility. He
said he was not aware of any facility sharing agreement that Conoco
entered into because Conoco had its own production facility.
REPRESENTATIVE WHITAKER asked if a direct line from Milne Point to
Pump Station 1 exists.
MR. MEYER said a pipeline from Milne Point joins the Kuparuk
pipeline, a common carrier, which then joins TAPS, another common
carrier.
REPRESENTATIVE WHITAKER asked if any shared facilities exist
between Milne Point and Pump Station 1.
MR. MEYER said he is not aware of any facility sharing agreements
at Milne Point.
Number 590
CHAIRMAN HALFORD stated the combination of the disposal-removal
component of the tariff over the life of the pipeline, if added to
present value, has been estimated at $5 billion. The value of the
pipeline, for tax purposes, is about $3 billion. He asked whether
the pipeline is an asset or liability in the equation of the
merger.
MR. MEYER said he has not pondered that question but arguments
could be made on both sides of the ledger.
CHAIRMAN HALFORD indicated that issue will be discussed further and
it may be that the disposal costs taken from the tariff may exceed
the cost of removal.
TAPE 99-1, SIDE B
[MR. MEYER'S response was interrupted by the tape change.]
SENATOR PEARCE referred to Mr. Palmer's statement that BP plans to
invest $5 billion in the next five years, an increase over the two
companies' investments during the past five years, and questioned
what level of investment was projected by each company prior to the
plan to merge.
MR. MEYER replied ARCO presented its three year forecasted capital
plan last January and February, in which its net share in Alaska
was estimated to be $450 to $500 million over the next three years.
That plan did not include the $150 million each for the three
millennium tankers ARCO is building. ARCO's goal for 1999 is to
spend $462 million. He assumed the amount would have remained the
same over the five year period.
MR. PALMER replied BP is spending $400 million on capital this
year; last year it spent $700 million. Historically, BP has spent
between $400 and $500 million per year.
SENATOR PEARCE concluded that the $5 billion investment during the
next five years is the same amount both companies planned to spend
independently.
MR. PALMER said that is not necessarily true because he does not
know how much BP planned to spend after this year. It was BP's
view that the $5 billion would be an increase of $100 million per
year spent by both companies.
SENATOR PEARCE asked Mr. Palmer and Mr. Meyer to elaborate on their
comments that the merger will allow Alaska to compete in the global
marketplace, resulting in greater investment. She expressed
concern that the combined operations will save $1 billion per year
which could be invested elsewhere in the global markets rather than
in Alaska, resulting in a net loss to Alaska.
MR. PALMER clarified the $1 billion savings would be in worldwide
operations; the savings in Alaskan operations is projected to be
$200 million. He repeated with the decline in oil, costs are of
concern and BP downsized to prevent a downward spiral. It was BP's
view that investing in activities on the North Slope would have
looked less and less attractive.
MR. MEYER said he believes Mr. Palmer is giving the committee the
"straight scoop." As partners and competitors in the past, both
BP and ARCO did their own estimations of what key partners and
competitors might be doing and where they were going. In his
opinion, $1 billion per year is more than the two companies would
have spent independently.
SENATOR PEARCE asked if that is true even with NPRA.
MR. MEYER said he believes so.
Number 056
REPRESENTATIVE WHITAKER asked whether ARCO and BP representatives
will be available to the committee as it progresses through the
process.
CHAIRMAN HALFORD said they made that commitment. He thanked Mr.
Meyer and Mr. Palmer for their testimony and announced that the
committee would recess until 1:20 p.m. at which time public
testimony would be taken.
Number 068
CHAIRMAN HALFORD reconvened the meeting at 1:40 p.m. and asked
participants to limit their comments to five minutes.
STEPHEN CONN, Executive Director of the Alaska Public Interest
Research Group (AkPIRG), made the following comments. The
Legislature's job is a serious one because it is dealing with a
watershed issue: the ultimate political control of Alaska's natural
resources. The Territorial Legislature experienced again and again
a similar situation whereby a single business had dominant control
of a natural resource and could dictate the price, time, and terms
to exploit that resource. As the Territorial Legislature sought
statehood, that issue was deep and substantive and drew people of
all ideologies together. E.L Bartlett urged delegates to the
Constitutional Convention to be creative in their drafting of the
section on natural resources, pointing out at least two dangers:
the exploitation of Alaska's resources under the thin disguise of
development; and that outside interests tend to stifle any
development that would compete with their activities elsewhere. To
this point in time, Alaska has been able to secure a fair deal for
the exploitation of its natural resources because it has relied on
a competitive process that it could apply to its best interests.
That competitive process is now at stake. As a resident of Alaska,
he wants the Legislature to have full authority over that decision,
not a multinational corporation. He is dismayed with the way the
process has unfolded so far. He questioned how BP and ARCO dare
negotiate how much of the information they have provided to the FTC
they will share with the state. That information must be shared to
the greatest extent possible and a deal should not be cut that
denies the public the opportunity to scrutinize it. Alaska should
file an antitrust lawsuit to secure information through the
discovery process to work on the citizens' behalf. Hearings should
be better noticed and teleconferenced. Sooner or later the public
will understand that the amount of their permanent fund checks will
be affected by the revenue Alaska has to work with in coming years.
BP and ARCO's ten principles have been run as part of their
advertising campaign. BP and ARCO may be reading past actions of
the Legislature, such as NorthStar, as a sign of weakness or
capitulation. BP and ARCO are wrong. The Legislature is not
prepared to capitulate. The public wants maximum input in this
process and is prepared to back the Legislature's demand for
divestiture. BP and ARCO will do what is in the best interest of
their shareholders. He asked the committee to let the public have
full access to its deliberations.
Number 199
KAY BROWN, representing the Alaska Conservation Alliance (ACA),
gave the following testimony. BP Amoco's acquisition of ARCO has
major implications for Alaska and its environment. The ACA
conducted a statewide poll in early June: 29 percent of respondents
favor BP's proposed takeover, 38 percent oppose it and 34 percent
are undecided; 83 percent favor placing conditions on the merger to
protect Alaska's interests, while 9 percent oppose conditions and
8 percent do not know. ACA is fearful that the pace and extent of
conversions to double-hulled tankers may be diminished. Last year,
ARCO announced plans to construct double-hulled tankers for
shipping crude oil from Valdez. ARCO ordered three tankers with an
option to purchase two more. These tankers exceed the standards
for double-hulls required by law, and were to be built ahead of
schedule for converting the U.S. tanker fleet mandated by the Oil
Pollution Act of 1990. At the same time, BP announced its plan to
build three double-hulled tankers for transport of ANS crude,
however construction was abruptly terminated when the merger was
announced. It now appears a total of three new tankers will be
built. No new tankers have been added to the fleet since the Exxon
Valdez oil spill. A new pattern of oil tanker ownership may result
in less corporate liability from future oil spills. BP, a foreign
company, is prohibited from owning TAPS tankers under the Jones
Act. This creates a disincentive for maintaining current standards
of marine safety and oil spill prevention. In ACA's recent poll,
90 percent of Alaskans favored the use of double-hulled, state-of-
the-art tankers in Alaska waters.
MS. BROWN continued. ACA's second concern relates to BP's ability
to maintain oil spill prevention and response capabilities with the
personnel cuts that will result from the merger. This is
particularly troublesome given BP's risky and ill-advised
development of the NorthStar oil field; an area for which there is
no effective spill response technology available, especially during
broken ice conditions. ACA is also concerned that the loss of
competition will result in less innovation in developing new
technologies to protect the environment. Multiple operations are
key to disclosure of environmental problems; downsizing will result
in less self-monitoring of compliance with environmental standards.
MS. BROWN discussed ACA's concern with the more than 60 toxic waste
sites on the North Slope. Conservation groups successfully sued
ARCO in 1988 over those sites; as a result companies developed new
techniques for waste disposal and now reinject the wastes into the
oil bearing formation. As of 1998, however, 253 abandoned reserve
pits have not been cleaned up. Of those, 130 belong to ARCO and
49 to BP. ACA fears the merger will give BP less incentive to
clean up its waste sites.
MS. BROWN speculated that consolidated control of TAPS could affect
the environment. ACA has suggested that a citizens advisory
council be established for the oil fields and TAPS corridor,
however industry opposes that idea. Funds collected through the
TAPS tariff to dismantle TAPS at the end of its life are not in
escrow. To assure accomplishment of pipeline dismantling and
restoration of the environment, funds should be put into escrow
now.
Finally, MS. BROWN stated that the consolidation of industrial
development in Alaska's arctic will give BP unprecedented economic
and political influence over where and how oil and gas exploration
and development will occur in the region. BP has lobbied
aggressively to exploit the coastal plain of ANWR and other
sensitive environmental areas. ACA asks legislators to look
carefully and hard at this merger, and that they take appropriate
steps to address ACA's concerns and the concerns of other Alaskans.
She endorsed Mr. Conn's request for more public access to this
process.
Number 318
CHRISTY MCGRAW made the following comments on behalf of BACKBONE,
a fact-finding group of citizens formed since the merger of BP and
ARCO was announced. The members of BACKBONE are gravely concerned
about the long term implications of combining the two oil giants.
They believe the Legislature is obligated to maximize the sale and
production of Alaska's resources for Alaska. BACKBONE wants the
following:
-optimization of marine transportation with an emphasis on
safety, responsibility, and economic return to Alaska;
-to optimize operation of the TransAlaska pipeline system with
emphasis on providing open commercial access to potential
producers to ensure competition;
-to protect resources, competition, and the environment for
maximum return to Alaskans in development of current and new
North Slope facilities and fields;
-to ensure access to, production of, and marketing of North
Slope natural gas to provide a substantial source of revenue
to the state's budget; and
-to ensure that leasing provides maximum returns to Alaskans
in a timely and state-dictated basis.
BACKBONE believes the TAPS dismantling, removal and restoration
fund has not been providing benefits to Alaskans. It also believes
legislative consideration of the social, cultural, and broad
economic impacts of the merger on Alaskans' quality of life -
including the issue of Alaska hire - is very important. BACKBONE
would like to see more public representation in this process.
Number 400
RICHARD FINEBERG, an oil development consultant, made the following
proposal and comments. In response to this significant alteration
of the landscape of North Slope resource development, the state
should seriously consider owner divestiture and state purchase of
the TransAlaska pipeline as a condition of approval for the merger.
This proposition revolves around two axes. The state should
negotiate to receive ownership of TAPS plus approximately $2
billion, the difference between the money collected by the owners
for dismantling and the assessed value of the pipeline. The state
should operate the pipeline on a non-profit basis reducing shipping
costs by approximately $1 per barrel. Tariff reduction would
enhance state revenues, improve the competitiveness of North Slope
oil in the global market, and remove all possibility that TAPS
might be operated to inhibit competition. This proposal has been
endorsed by AkPIRG, the Alaska Forum for Environmental
Responsibility, and Oil Watch Alaska. He envisions the creation of
a quasi-public corporation, along the lines of the Alaska Railroad
Corporation, to replace the TAPS owners' committee. The
corporation could continue to use the same agent the owners'
committee now uses, the Alyeska Pipeline Service Company. His main
concern is that the pipeline has been used to inhibit competition,
and whether that is occurring or not, it is a potential problem.
The purchase of TAPS could, without cash outlay, enhance the
state's ability to deliver oil to Valdez at tariff rates below
those charged by TAPS owners; ensure competition; ensure that the
pipeline communities receive a stable revenue stream in lieu of
property taxes; ensure that cost cutting does not affect
environmental performance; and escrow dismantling collections to
trade performance of those obligations for latter-day investment
that would prolong North Slope production.
JACK LAASCH, General Manager of Alaskan Petroleum Contractors
(APC), made the following comments. APC supports the BP Amoco -
ARCO merger as its long term working relationship with both
companies has been very good. One operator will provide a more
cost effective approach to oil production on the North Slope
through a single management structure. Efficiencies will be
realized in the areas of oil production, operation, maintenance,
safety, quality, and administration, and in many areas through the
consolidation of Slope-wide procedures and processes. These
efficiencies will benefit the state through increased revenues as
well as by employing Alaskans. BP has shown a strong commitment to
Alaska hire in the past. APC has invested considerable time and
capital into its Anchorage fabrication facility and its Nikiski
modular assembly site. BP's commitment to Alaska's business
development will ensure that this investment will be honored. As
long as Alaska makes oil development economically attractive, BP
Amoco, like any for-profit corporation, will aggressively pursue
the development of new oil in Alaska, as well as commercialization
of North Slope gas. BP has stated it will not only continue its
community support, but it will also increase the amount its
contributions to charitable organizations. This merger will
create an opportunity for future development in Alaska, well beyond
what Alaska has already experienced. He urged members to endorse
the merger.
TAPE 99-2, SIDE A
PETE LEATHARD, President of VECO Corporation, gave the following
testimony. Over 30 years ago, ARCO put VECO in business and since
that time they have worked closely together. ARCO has been a good
corporate citizen and a credit to the State. Alaska is fortunate
to have BP buy ARCO. BP has been doing business in Alaska for 40
years and has been the State's number 1 investor. BP's resources
allow it to invest and remain strong in the world market. Many
smaller companies have left the state in the last decade because
they do not have the resources to compete in the world marketplace.
Many of VECO's contractors will be negatively impacted by the
merger in the short term, however in the long term the benefits
gained by making Alaska more competitive will be worthwhile. BP's
ownership of so much gas will enhance the chance for gas sales, and
its ability to bring the latest in gas technology to Alaska will be
a good opportunity. Regarding state ownership of the pipeline,
VECO believes the state should stay out of the business and let
private enterprise do its job.
SENATOR PEARCE disclosed her association with Mr. Walker, who is a
member of the RCAC, as is her husband.
BILL WALKER, representing a group named Gasline Now, comprised of
mayors from the North Slope Borough and a few other locales, made
the following comments. Gasline Now was established 2+ years ago
in an effort to bring forth the gas line. Its members participated
in hearings on HB 393 which is a step in the right direction to
bring the project to fruition. The most positive aspect of HB 393,
from Gasline Now's standpoint, is that financial incentives were
not provided for gas and liquids. Gasline Now sees the gas and
liquids concept, not unlike the Manhattan icebreaker tanker was in
1969, as another way of removing a resource from Alaska without
providing much benefit to Alaskans. Gasline Now learned that under
HB 393, the biggest beneficiary of a gas line would be the federal
government, through taxation of the profits. Gasline Now submitted
an amendment to HB 170 that would provide for revenue sharing
through community dividends comprised of 25 percent of the net
profits. Gasline Now's goal is to make sure that a pipeline is
built from the North Slope through the permitted route to Prince
William Sound. To this end, members have met once per week for the
past five weeks with the sponsor group. Gasline Now has done some
work on the market side: it appears that the pace of the various
options under consideration may not be in the best interest for a
gas line to be built in Alaska. The tremendous amount of gas on
the North Slope will require a unique market and Alaska needs to
quickly get established in the market, hopefully within the next 24
months. Gasline Now has been in contact with the Texas Municipal
Gas Corporation which bids on gas reserves for the benefit of those
in the coop. Gasline Now finds discussion of a $70 million pilot
project of gas and liquids on the North Slope offensive from the
standpoint that Alaska communities do not have natural gas and will
not without a gas line. Other spinoff activities in the way of
development from a gas line have enormous potential. It is unusual
for a governmental entity to be involved in concepts such as this,
but in some ways it is not unlike Alyeska's approach to the City of
Valdez to protect and get financing. Gasline Now sees the
construction of a gas line as another opportunity for government
and industry to work together to benefit both parties.
MR. WALKER said Gasline Now is concerned about the loss of ARCO
because it is a leader in technological advancement. Gasline Now
believes that a lack of interest in selling the gas will be a
substantial hurdle to the project. He asked committee members to
keep in mind that several entities in Alaska would like to have a
gas line built. The revenue stream that would normally go to the
federal government in the form of income taxes would instead go to
a dividend sharing program. While construction of a gas line might
not be financially economical for BP Amoco, Gasline Now believes it
would be viable and possible for the State of Alaska.
Number 150
VIC FISHER stated that BP, ARCO, and the State of Alaska have had
a very successful partnership. This partnership will now become
more of a monopoly. He noted that Bob Bartlett said, in a November
1955 keynote address to the delegates at the Constitutional
Convention, that in the long term, the convention and the
constitution will be judged, not by the structure of government
established or the rights of individuals, because they are taken
for granted, but by provisions relating to resources. As a result,
the Convention heeded Bartlett's concern about monopoly power.
Bartlett warned the Convention about large multinational
corporations that might get control of Alaska's resources and
develop those resources for their benefit rather than for the
benefit of the people of Alaska. The Constitution vests in the
Legislature the responsibility for protecting the interests of the
State. The Legislature, government, and public need information
regarding the proposal and its implications. If BP and ARCO are
not completely forthcoming with information, the state should file
a lawsuit and use the process of discovery to obtain all
information the state needs to evaluate its position and to
determine any conditions it may want to impose before concurring
with the merger. Any conditions imposed by the State should be
made public.
BOB STIMSON, President of ConAm Construction Company, stated ConAm
has experienced first hand the economic ups and downs of Alaska's
oil industry over the last 25 years. The proposed merger of BP
Amoco and ARCO represents a necessary economic adjustment to keep
Alaska's oil and gas industry viable and competitive in the global
market. Adjustments and modifications by industry and the state
over the years have kept the oil and gas industry healthy. In an
aging oil field, production decreases but costs do not follow suit:
the merger is a logical adjustment to make Prudhoe Bay economics
work. ConAm survived the ups and downs by diversifying into other
non-oil and gas construction projects and is stronger today because
of it. BP Amoco has proven to be an efficient and environmentally
sensitive producer with a good track record as a corporate citizen.
KAREN COWART, General Manager of the Alaska Support Industry
Alliance (the Alliance), made the following comments. The Alliance
does not view the proposed merger as a crisis, however it does
recognize it as a profound turning point, changing the landscape of
Alaska's oil and gas industry. For years, the industry has taken
measures to reduce costs; one operator is the next logical step
toward further efficiency. The biggest surprise that came with the
announcement of the merger is that it will leave the state with not
only one operator, but with only one main producer as well on the
North Slope. Initially, the Alliance expects to see further job
losses in the support sector as administrative functions are
consolidated. Support industry businesses will likely respond to
demand changes by streamlining their own operations. Competition
is critical to successful leasing programs in the National
Petroleum Reserve, the Outer Continental Shelf and possibly ANWR;
it is time to aggressively market Alaska. The state's biggest
weakness is its image of instability created by the $1 billion
fiscal gap. Closing the gap this year is the Alliance's top
priority. While the Alliance does have questions about the merger,
it also believes there is room for optimism. If the merger makes
the resulting company more competitive under increasingly difficult
business conditions, this will bode well for Alaska's future in
petroleum development. Weakened companies cannot afford to operate
in remote, expensive locations like the North Slope, especially
when oil prices continue to fluctuate. Money freed up from cost
savings may well be spent on exploration and production activities.
BP Amoco has said it will pursue ways to commercialize Alaska's
vast natural gas reserves. Without new projects, Alaska's new
modular industry will fade. BP's corporate philosophy is focussed
on development that does not compromise environmental protection or
employee safety.
MARY SHIELDS, General Manager of Northwest Technical Services,
stated she has followed the fluctuation in oil prices and events
around the world, and knows the status quo is not going to work
unless prices turn around dramatically and the coastal plain is
opened. Efficiencies need to be realized for Alaskan operators to
continue to compete in a global market. She has a high regard for
people in BP and ARCO after working closely with them for 15 years
and believes the merger is necessary. ARCO and BP have handled
this transaction in a very straightforward action. Meetings have
been held with organizations that will be impacted and all
questions have been answered. She is concerned about the status of
Northwest's contracts and how competition will be established as
the merger moves forward, as well as Alaska's economy. She echoes
other Alaska business leaders in looking to the newly structured
company to continue its emphasis on Alaskan hire and Alaskan buy;
it is now critically important that this happen. She applauds the
Governor and Legislature as they continue to analyze the change
that will result in uniting two of Alaska's largest employers.
MAYNARD TAPP, President of Hawk Construction Consultants and a
member of the Alliance, made the following points. Alaska must
remain competitive in the worldwide oil market in order for his
company to continue in business in Alaska. Changes in the oil
industry in Alaska were inevitable. A one-company scenario is
somewhat frightening only because we are unfamiliar with its
operations. Hopefully this scenario will offer competitive
opportunities for all Alaskan suppliers and contractors. BP Amoco
and ARCO have been good corporate citizens of the State. Their
announcement regarding higher capital expenditures over the next
five years, as well as efforts toward commercialization of North
Slope gas, is a good indicator of BP's future commitment.
Number 449
BILL STAMPS of the Peak Oil Field Service Company made the
following comments. The oil industry in Alaska has been downsizing
for several years. As producers downsize and consolidate services,
the contracting community must also adjust in the same direction.
This does not mean there will be any reductions to the high
standards and development of our oil and gas reserves. It means
better, safer, and more economical methods of development have
evolved. Finding cost cutting methods and developing Alaska's oil
and gas reserves in a safe and environmentally sound method is
essential for Alaska to compete in world markets. The BP Amoco -
ARCO merger does just that. It is a solid business decision which
he supports.
JOE MATHIS, Manager of Business Development for NANA Development
Corporation, said NANA Development Corporation has been doing
business with the oil industry for the past 25 years, with both
ARCO and BP. NANA has three priorities: shareholder hire; safety;
and protection of the environment. BP and ARCO have honored those
priorities. Over the years he has seen BP and ARCO create a safer
industry and work to protect the environment. NANA's core values
that govern its activities are honesty, integrity, and to treat all
individuals with respect and dignity. BP and ARCO have used the
same values in their dealings with NANA. NANA sees no reason that
those values will change and it has no fear of doing business with
the merged companies.
MIKE MACY, testifying on behalf of Alaska Wave Riders, said the
committee has heard some amazing things from BP and ARCO today,
such as the fact that they feel their workers' pain while BP's
personnel officers finalize plans to cleanse any and all of ARCO's
engineers who have spoken out about the companies' practices on the
Slope. BP has been very clear about what it means when it says it
plans to move its global gas commercialization headquarters to
Alaska; it means it will put a plaque on the door of an office in
Anchorage and continue stalling the North Slope gas export project
until it can place one of its Indonesian projects in the Japanese
market. Even though BP has admitted it is Alaska's partner and
that it will have no competition on the North Slope, it cannot give
the Legislature and the Governor documents because of concerns
about trade secrets and competition. BP and ARCO talk about being
competitive on the world market but Alaska only needs to be
competitive on the West Coast. He has come to expect non-
performances like the one today. He is encouraged by the
committee's questions and is convinced the committee will open up
the process and make all documents available to any interested
Alaskans. Alaska has had too many dirty secrets regarding
settlements of tax, royalty, tariff, and Prudhoe Bay Unit disputes.
If Alaskans are informed and their opinions are heard, the
Legislature will be sure that Alaska's future is determined by
Alaskans and not by BP's shareholders.
TAPE 99-2, SIDE B
RICK STEINER posed his concerns about the merger as follows. The
lack of a competitive edge between ARCO and BP will reduce the
incentives to increase the environmental protection standards. BP
and ARCO have been trying to "out-green" each other over the past
20 years. His main concern is with the tankers traveling through
Prince William Sound; he echoes the Alaska Conservation Alliance's
concerns regarding the need for more new vessels. He hopes the
Legislature exerts every bit of legal authority it has in
stipulating several conditions to any merger that goes forward, one
being that the newly-merged company advance its retirement schedule
of its single-hulled vessels and require that vessels meet the
millennium class standard that ARCO initiated. Also, the
Hinchenbrook tug is inadequate as a rescue or salvage vessel. The
state needs to stipulate that an adequate rescue vessel be
stationed there. The Legislature should support a Presidential
Task Force to audit the pipeline from the terminal North, and a
pipeline citizens advisory council should be created. The biggest
question surrounding the merger is who is in charge. He supports
the comments of AkPIRG, the Alaska Conservation Alliance, BACKBONE,
Mr. Fineberg, Mr. Fisher and Mr. Macy. He suggested leaving some
oil in the ground for 20 years to maximize returns. He thanked the
committee for scrutinizing this issue.
Number 103
WALT PARKER stated he has been involved with North Slope oil since
1947. He fears the state is under-funding itself in regard to
analyzing the merger. The Administration and Committee will need
more expertise to ensure that the State has a level playing field.
If the state files a lawsuit, it will need substantial
documentation so that those who make the ultimate decision have the
best information available. An audit needs to be done on the
pipeline. Without a strong request from the Legislature and the
Governor, the audit will not occur. An audit will enable the State
to better make future decisions regarding tariffs. Regarding
global oil and gas markets, more information is necessary to
determine where Alaska fits in those markets. Anti-trust decisions
changed with the Microsoft case, so the ball field is entirely new.
Regarding the regulatory side of this issue, the APUC has changed
and the Oil and Gas Conservation Commission has been eliminated.
CHAIRMAN HALFORD pointed out the Oil and Gas Conservation
Commission was not eliminated, and in fact, its authority and
funding were increased.
MR. PARKER said the effect on regulators will be very different
because they will not be able to get information from several
sources. He stated the effect on the state's economy needs to be
a part of the dialogue also.
CHAIRMAN HALFORD pointed out the legislative branch cannot file a
lawsuit, but the Committee, by resolution of its creation, has
subpoena power, and it is the committee's intent to gather the
parallel information with the Administration and to be a party to
the discussions. He said the Committee will be in a "catch-22"
situation because of legitimate confidentiality requirements.
CHARLIE COLE made the following remarks. After listening to
previous speakers make verbal assaults about past tax settlements
between the State of Alaska and the oil companies, he has to
respond to the accusations that those settlements are dirty little
secrets. Those settlements were hard fought, well litigated, well
prepared, and as clean as snow. Many committee members were in the
Legislature when those settlements were being negotiated. The
Legislature was fully briefed on those settlements. Anyone who
says they were dirty little secrets is totally wrong: those
settlements were clean, honest, and in the best interest of the
State.
CHAIRMAN HALFORD agreed with Mr. Cole's conclusion but said the
problem is that some of the data behind the information will never
be public because under the Hart-Scott-Rodino filing, it is highly
confidential. He announced that no one else had signed up to
testify, therefore the public testimony portion of the meeting was
closed. He stated the series of questions before the Committee at
its next meeting would be in regard to the confidentiality of
information.
SENATOR PEARCE requested that the Committee get a briefing on the
process and timing of the reauthorization of the pipeline right-of-
way.
CHAIRMAN HALFORD announced the committee would attempt to meet
sometime during the week of July 5th. He announced that any input
is welcome. He adjourned the meeting at 3:25 p.m.
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