Legislature(2015 - 2016)ANCH LIO AUDITORIUM

08/24/2016 01:00 PM RESOURCES

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

Audio Topic
01:00:10 PM Start
01:00:26 PM Update: Alaska Liquefied Natural Gas (aklng) Project
04:01:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Joint House & Senate Resources Committee Meeting TELECONFERENCED
AK LNG Project Update
New Concept Plan for State-led Pipeline from
Alaska Gasline Development Corporation (AGDC)
-- Testimony <Invitation Only> --
-- Teleconference <Listen Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
              SENATE RESOURCES STANDING COMMITTEE                                                                             
         Anchorage Legislative Information Office (LIO)                                                                         
           716 West Fourth Avenue, Anchorage, Alaska                                                                            
                        August 24, 2016                                                                                         
                           1:00 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
HOUSE RESOURCES                                                                                                                 
                                                                                                                                
 Representative Benjamin Nageak, Co-Chair                                                                                       
 Representative David Talerico, Co-Chair                                                                                        
 Representative Mike Hawker, Vice Chair                                                                                         
 Representative Bob Herron                                                                                                      
 Representative Paul Seaton                                                                                                     
 Representative Andy Josephson                                                                                                  
 Representative Geran Tarr                                                                                                      
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator Cathy Giessel, Chair                                                                                                   
 Senator Mia Costello, Vice Chair                                                                                               
 Senator Peter Micciche                                                                                                         
 Senator Bill Stoltze                                                                                                           
 Senator Bill Wielechowski                                                                                                      
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
HOUSE RESOURCES                                                                                                                 
                                                                                                                                
 Representative Craig Johnson                                                                                                   
 Representative Kurt Olson                                                                                                      
 Representative Mike Chenault                                                                                                   
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator John Coghill                                                                                                           
 Senator Bert Stedman                                                                                                           
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Dan Saddler                                                                                                      
Representative Shelley Hughes                                                                                                   
Representative Liz Vazquez                                                                                                      
Senator Mike Dunleavy                                                                                                           
Senator Lesil McGuire                                                                                                           
Senator Anna MacKinnon                                                                                                          
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
UPDATE:  ALASKA LIQUEFIED NATURAL GAS PROJECT                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
STEVE BUTT, Senior Project Manager                                                                                              
Alaska Liquefied Natural Gas Project                                                                                            
ExxonMobil Development Company                                                                                                  
Houston, Texas                                                                                                                  
POSITION STATEMENT:   Provided a PowerPoint  presentation titled,                                                             
"Alaska  LNG,  Fueling  Alaska's   Future,  AKLNG  -  Legislative                                                               
Update."                                                                                                                        
                                                                                                                                
DAVID BARROWMAN, Vice President Upstream Consulting                                                                             
Wood Mackenzie                                                                                                                  
Edinburgh, Scotland, United Kingdom                                                                                             
POSITION STATEMENT:   Provided a PowerPoint  presentation titled,                                                             
"Alaska LNG Competitiveness Study."                                                                                             
                                                                                                                                
KEITH MEYER, President                                                                                                          
Alaska Gasline Development Corporation (AGDC)                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided a PowerPoint  presentation titled,                                                             
"JOINT RESOURCES COMMITTEE HEARING."                                                                                            
                                                                                                                                
HUGH SHORT, Vice Chairman                                                                                                       
Board of Directors                                                                                                              
Alaska Gasline Development Corporation (AGDC)                                                                                   
Girdwood, Alaska                                                                                                                
POSITION  STATEMENT:   Provided opening  remarks during  the AGDC                                                             
PowerPoint presentation, "JOINT RESOURCES COMMITTEE HEARING."                                                                   
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:00:10 PM                                                                                                                    
                                                                                                                                
CHAIR CATHY  GIESSEL called  the joint meeting  of the  House and                                                             
Senate  Resources  Standing  Committees  to order  at  1:00  p.m.                                                               
Representatives  Tarr,  Josephson, Hawker  (via  teleconference),                                                               
Nageak, and  Talerico, and  Senators Wielechowski,  Micciche (via                                                               
teleconference), Costello,  and Giessel were present  at the call                                                               
to order.  Representatives Seaton  and Herron and Senator Stoltze                                                               
arrived  as the  meeting  was  in progress.    Also present  were                                                               
Representatives  Saddler,  Vazquez,   and  Hughes,  and  Senators                                                               
Dunleavy, MacKinnon, and McGuire.                                                                                               
                                                                                                                                
^UPDATE:  Alaska Liquefied Natural Gas (AKLNG) Project                                                                          
     UPDATE:  Alaska Liquefied Natural Gas (AKLNG) Project                                                                  
                                                                                                                              
1:00:26 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL  announced that  the only order  of business  is an                                                               
update on the  Alaska Liquefied Natural Gas  Project ("Alaska LNG                                                               
Project"/"AK  LNG  Project") as  delineated  in  Senate Bill  138                                                               
[passed  in 2014,  Twenty-Eighth  Alaska  State Legislature],  as                                                               
well   as   an  update   on   the   Alaska  Gasline   Development                                                               
Corporation's (AGDC) new concept plan.                                                                                          
                                                                                                                                
1:02:40 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL recounted that the  Alaska LNG Project was approved                                                               
by the legislature  in 2014 through Senate Bill 138,  passed by a                                                               
vote of  52-8.  It has  progressed further than any  previous gas                                                               
pipeline project  in Alaska's  history.   She explained  that the                                                               
reason  for today's  hearing is  the recognition  of some  things                                                               
since  the last  project  update  on 6/29/16.    The project,  as                                                               
currently  formulated,  is  unlikely to  proceed  into  Front-End                                                               
Engineering  Design   (FEED)  at   the  close   of  Pre-Front-End                                                               
Engineering Design  (Pre-FEED) under  the current timeline.   The                                                               
governor has considered  two options.  Option 1 would  be for the                                                               
state to  take over the  project and proceed  to FEED as  soon as                                                               
possible.   Option 2 would  be to  stay in Pre-FEED,  continue to                                                               
work with the project's three  producer parties to work to reduce                                                               
cost  of supply  and to  complete the  permitting and  regulatory                                                               
processes.   The governor has chosen  Option 1, so AGDC  has been                                                               
moving  forward  to  take  over  the  Alaska  LNG  Project  after                                                               
completion  of  Pre-FEED,  which  is expected  sometime  in  mid-                                                               
September.    [Members] are  told  that  BP, ConocoPhillips,  and                                                               
ExxonMobil are  cooperating and collaborating  with the  state on                                                               
this transition.   The project  would also  be moving into  a new                                                               
design, a  new concept,  for going forward  than was  outlined in                                                               
Senate Bill 138.   This hearing is not meant  to revisit how this                                                               
point was arrived  at, but to focus  on the next steps.   In that                                                               
vein, [members] are looking at  specific information from today's                                                               
presentations.                                                                                                                  
                                                                                                                                
CHAIR GIESSEL welcomed the first  presenter, Mr. Steve Butt.  She                                                               
said  Mr.  Butt will  provide  an  update  on the  technical  and                                                               
regulatory  pieces, the  technical timeline  for the  transition,                                                               
and  significant issues  or milestones  that [members]  should be                                                               
aware of.                                                                                                                       
                                                                                                                                
1:04:58 PM                                                                                                                    
                                                                                                                                
STEVE BUTT, Senior Project Manager,  Alaska Liquefied Natural Gas                                                               
Project, ExxonMobil  Development Company,  provided an  update on                                                               
the  Alaska LNG  Project  via a  PowerPoint presentation  titled,                                                               
"Alaska  LNG,  Fueling  Alaska's   Future,  AKLNG  -  Legislative                                                               
Update," dated  8/24/16.   He said  he will  review the  work the                                                               
project  team has  completed since  the last  discussion in  June                                                               
2016  and is  before  the  committees on  behalf  of the  broader                                                               
project team and is representing the work of many other people.                                                                 
                                                                                                                                
MR. BUTT  drew attention  to the cover  page of  his presentation                                                               
and reported  that hundreds  of people over  the last  four years                                                               
have done  the field  work that  underpins project's  progress on                                                               
technical and  regulatory work.   He noted that the  pictures are                                                               
of some  of the crews who  have done this work,  such as waterway                                                               
work, test pits  north of Healy, and an archeology  crew in Windy                                                               
Pass north  of Cantwell.   He expressed  his appreciation  to all                                                               
the  people  on the  work  crews,  the  regulators, and  all  the                                                               
landowners, particularly the Native corporations.                                                                               
                                                                                                                                
1:06:34 PM                                                                                                                    
                                                                                                                                
MR. BUTT displayed  slide 2, "Overview," and  summarized the work                                                               
that  has  been  done  for   Pre-FEED  under  the  joint  venture                                                               
agreement (JVA) since the last update  in June 2016.  He said the                                                               
project  has continued  to  work free  of  any safety  incidents.                                                               
Since June the project has spent  about $35 million and as of the                                                               
end of  July the Pre-FEED  spend has reached about  $487 million.                                                               
As of  today the spend  has exceeded  about $500 million  on Pre-                                                               
FEED since  June of 2014.   About $107 million has  been spent on                                                               
scope  work that  preceded Pre-FEED.   In  total, the  project is                                                               
well  past  $600  million  and the  engineering  work  is  almost                                                               
complete.   All  additional  studies and  alternatives that  were                                                               
brought into the  original scope have all been  done.  Everything                                                               
the project has been able to do  to drive down costs to the lower                                                               
end of  the range  has all been  done.  All  of the  summer field                                                               
work that supports  the Resource Reports has been  finished.  The                                                               
Resource Reports,  12 in total,  are the documents  that progress                                                               
the  federal permitting  process.   Referring  to  the top  right                                                               
photograph on slide 2, he  pointed out that Resource Reports 1-10                                                               
include  about 33,000  pages, a  stack  of paper  six feet  high.                                                               
These  reports  represent  the  millions of  hours  of  work  and                                                               
hundreds  of millions  of  dollars  that were  spent  to get  the                                                               
permits  necessary  to execute  the  project.   The  reports  are                                                               
public and  have been summarized,  making it unnecessary  to have                                                               
to read all 33,000 pages.                                                                                                       
                                                                                                                                
1:08:18 PM                                                                                                                    
                                                                                                                                
MR. BUTT  noted that the 77  JVA deliverables are expected  to be                                                               
complete  in August.    Bringing attention  to  the schematic  on                                                               
slide 2  labeled, "AKLNG Pre-FEED  JVA Project Work  Process," he                                                               
pointed out that  about 130 people make up the  JVA project team.                                                               
The  team  has been  successful  because  it  has relied  on  the                                                               
extensive experience  from hundreds of people  who are functional                                                               
support, experts who  have specific skills, as  well as thousands                                                               
of   contractors  and   hundreds  of   subject  matter   experts.                                                               
Additionally,  through  community  engagement,  the  project  has                                                               
heard from thousands  of community members about  what they think                                                               
about  the  project  and  the   project  design.    All  of  that                                                               
information from all  those people is brought  together to create                                                               
two important  sets of deliverables.   First  is what is  kept in                                                               
the public  domain:  the  export authorizations that  include the                                                               
free  trade country  and non-free  trade country  authorizations,                                                               
the  Federal  Energy  Regulatory Commission  (FERC)  docket,  and                                                               
community interaction.   All of  that information is  provided to                                                               
federal and  state regulators to  get the licenses to  permit the                                                               
project.  Second is the  competitively sensitive information that                                                               
has been  created and  that is  not in the  public domain.   This                                                               
information is  kept proprietary within  the project so  that the                                                               
project can be  as competitive as possible.   The competitiveness                                                               
of  the  project  is  what   is  really  important  and  is  what                                                               
determines how to  move forward.  Some of  those deliverables are                                                               
Pre-FEED deliverables,  such as  how to  build the  project, what                                                               
does it look  like, how many trains, where are  the trains, where                                                               
is the  pipe, how to  make the gas  cold, and  how to put  it all                                                               
together in a way  that it is reliable.  That  is provided to the                                                               
JVA  participants -  the Alaska  Gasline development  Corporation                                                               
(AGDC), BP  [BP Alaska  LNG LLC],  ConocoPhillips [ConocoPhillips                                                               
Alaska LNG Company], and ExxonMobil [ExxonMobil Alaska LNG LLC].                                                                
                                                                                                                                
MR. BUTT related  that over 5,000 reports were  done behind these                                                               
deliverables and there has been  thousands of years of experience                                                               
in  these meetings.   Almost  200 workshops  on design  were held                                                               
over the  last two years.   Through that process the  project has                                                               
been able to tap into this very  deep base of knowledge on how to                                                               
design this work.  All of the  best practices for how to design a                                                               
project  of  this  nature  have  been  brought  into  these  work                                                               
products.    The  ability  to complete  this  work  reflects  the                                                               
knowledge of having  done this type of work before.   The ability                                                               
to tap  into experts who have  done this type of  work many times                                                               
has provided a  lot of long foresight.  The  project's success is                                                               
a reflection of the quality of that work team.                                                                                  
                                                                                                                                
1:12:24 PM                                                                                                                    
                                                                                                                                
MR. BUTT turned to slide  3, "Pre-FEED Deliverables," and said it                                                               
is a summary of  what the work team has accomplished.    He noted                                                               
the state  has paid about 25  percent, $150 million, of  the $600                                                               
million and said slide 3 is  a summary of what has been delivered                                                               
as a  result of  that spend.   First,  he explained,  the project                                                               
team has progressed the environmental  impact statement (EIS) and                                                               
has completed all the Resource  Reports with FERC to complete the                                                               
pre-filing process with  the two sets of different  drafts.  This                                                               
is incredibly  important because it  helps define how  to execute                                                               
the project  in an environmentally  responsible manner and  for a                                                               
project   this  size   one  wants   to   demonstrate  the   least                                                               
environmentally damaging method possible.   The project has filed                                                               
Resource  Reports  11  and  13 with  the  participants  that  are                                                               
currently finishing up filing and  they will be filed this month.                                                               
These reports are  safety plans and detailed  technical plans and                                                               
will not become  part of the public domain because  they are very                                                               
detailed  competitively sensitive  information.   For example,  a                                                               
certain piece  of equipment  obtained in  a certain  manner would                                                               
have  certain   impacts  and  that   defines  how  it   would  be                                                               
sourced/how it would  be bid.  This type of  information does not                                                               
go into  the public domain and  FERC treats it differently.   The                                                               
work is done, the project team  is working with FERC, and FERC is                                                               
currently in  Alaska.  All  the data  from the 2016  summer field                                                               
season will be put in.   The project team will keep building that                                                               
repository of  knowledge.  Many  comments are expected  back from                                                               
FERC and those will have to be catalogued.                                                                                      
                                                                                                                                
1:14:19 PM                                                                                                                    
                                                                                                                                
MR.  BUTT drew  attention to  the upper  right graph  on slide  3                                                               
labeled,  "Deliverables Issued  For Review."   He  explained that                                                               
these deliverables  define how  the project  would be  done; talk                                                               
about  project  scope  and safety,  regulatory,  technology,  and                                                               
execution  plans;   how  and  from  where   everything  would  be                                                               
purchased; how to manage labor;  and most importantly how much it                                                               
would cost  and how  to manage the  schedule estimates.   Through                                                               
the team's work, the cost estimate  has been driven to the bottom                                                               
of the $45-$65 billion range that has always been talked about.                                                                 
                                                                                                                                
MR. BUTT discussed the lower  right graph labeled, "AKLNG - Total                                                               
Project Team -  Total FTEs [full-time equivalents]."   Over time,                                                               
he said, the  project team was built up from  about 50-60 people,                                                               
differentiating  between full  dedicated  project support  people                                                               
and  functional support  people  from the  companies who  provide                                                               
help.  This  graph is based on the hours  that people have billed                                                               
for the project and based on  those hours the project built up to                                                               
about  150 people  through 2015  to deliver  the 77  deliverables                                                               
demonstrated in the top right  graph.  Since starting to complete                                                               
that work  in March  [2016], alternative ideas  and ways  to move                                                               
forward have been looked at.   As work gets completed, people are                                                               
demobilized to keep the costs down.   This graph also provides an                                                               
outlook on what is expected  to happen from August [2016] through                                                               
year's end,  during which time  demobilization will  continue and                                                               
costs will  be kept down.   The  people represented in  the graph                                                               
are  spread out  all over:    all of  the regulatory  team is  in                                                               
Anchorage, the team  that designed the gas treatment  plant is in                                                               
Denver, the pipeline work was done  in Calgary, and the LNG plant                                                               
design was  done by a  small group of  people in Houston.   Those                                                               
locations were picked because that  was where the majority of the                                                               
contractors  were and  it allowed  for keeping  costs down.   The                                                               
expertise and  skill of the people  reflected by the bars  in the                                                               
graph has allowed for getting all  this work done in a relatively                                                               
short  amount of  time and  will  allow the  management of  costs                                                               
going forward.                                                                                                                  
                                                                                                                                
1:16:50 PM                                                                                                                    
                                                                                                                                
MR. BUTT  moved to  slide 4, "Summary,"  and discussed  the stage                                                               
gate process  depicted in graphic form  at the top of  the slide.                                                               
He said  the Pre-FEED  phase has been  largely completed,  so the                                                               
JVA parties are now testing  the requirements to move through the                                                               
FEED decision gate.  To frame  the issue, he brought attention to                                                               
the  status summary  of the  three  key factors  depicted at  the                                                               
bottom of slide  4:  alignment, risks,  and cost.    In regard to                                                               
alignment, he noted  it can safely be said that  the project team                                                               
has successfully  built alignment  on the design  basis regarding                                                               
what would be  built, where, and how.  However,  he continued, as                                                               
has  been  discussed  before,  there  is  not  alignment  on  the                                                               
commercial and  fiscal terms.   In regard  to risks,  the project                                                               
team has  progressed all the  regulatory work required  to reduce                                                               
permitting risks,  but a large  change has  been seen in  the LNG                                                               
market.  In  regard to cost, that market change  has impacted the                                                               
project's cost competitiveness.  The  project team has driven the                                                               
capital cost estimate  down by 15-20 percent, bringing  it to the                                                               
lower end  of the [$45-$65 billion]  range, but at the  same time                                                               
the LNG  market has reduced the  product prices 67 percent.   So,                                                               
the project's cost competitiveness is still at issue.                                                                           
                                                                                                                                
MR. BUTT pointed out that honoring  this stage gate process is an                                                               
industry best  practice.  Successful project  management is about                                                               
reducing  risks  while  increasing  certainty,  so  that  as  the                                                               
project  makes resource  commitments the  project has  confidence                                                               
that it can manage risks and  manage costs.  In the concept stage                                                               
the  project spent  about  $30 million  a year  to  do the  early                                                               
design work  and in  the Pre-FEED stage  the project  spent about                                                               
$30 million a month.   Once in FEED a project  of this size would                                                               
spend $30  million a week and  in construction a project  of this                                                               
size would spend $30 million a  day.  Those stages and that spend                                                               
pattern are  what drives  [the team's]  thinking about  why these                                                               
gates  are  important, because  as  the  team works  through  the                                                               
uncertainties, it wants  to do it at lower spend  levels.  Having                                                               
misalignment at  a spend rate of  $30 million a day  is much more                                                               
expensive than  $30 million a year,  so it is that  thinking that                                                               
shapes this process.                                                                                                            
                                                                                                                                
MR. BUTT concluded by noting  that the stage gates and completing                                                               
the  right work  are key  to managing  cost control  and managing                                                               
cost  control is  key to  having a  successful project.   Project                                                               
team  members  having those  right  skills  and leveraging  those                                                               
through this right  process is what has been  helping the project                                                               
team to  be successful.  It  has been a privilege  to advance the                                                               
Alaska LNG Project,  he said, and to get to  know the legislative                                                               
members.   He offered his  hope and trust  that the work  has met                                                               
legislators' expectations.   The project  team feels that  it has                                                               
been  able to  deliver on  the commitments  that were  within the                                                               
Pre-FEED agreements, do  the work it agreed to do,  and make sure                                                               
that  it  advanced  the  deliverables that  were  critical.    He                                                               
thanked  the  committees  for   their  interest,  questions,  and                                                               
passion, and noted  that the project team members  have felt they                                                               
were part of something that really mattered to Alaska.                                                                          
                                                                                                                                
1:20:39 PM                                                                                                                    
                                                                                                                                
SENATOR  DUNLEAVY  inquired  whether industry  views  the  market                                                               
changes as just being a cyclical  issue of supply and demand like                                                               
it has over the past 10-50  years, or as being a technology issue                                                               
that has changed the paradigm of the system.                                                                                    
                                                                                                                                
MR. BUTT replied  that every time he has talked  to members about                                                               
market windows  and how the  supply and  demand works in  the LNG                                                               
business, he  has made the  point that it  comes down to  cost of                                                               
supply  - if  the project  has  a low  enough cost  of supply  to                                                               
manage the risks it can  be competitive.  Regarding whether there                                                               
has been a  structural change in the market, he  said he does not                                                               
consider  himself an  expert in  that and  he therefore  suggests                                                               
that this question be asked  of the forthcoming witnesses who are                                                               
well versed in  that.  However, he reiterated, the  key is always                                                               
about competitiveness.                                                                                                          
                                                                                                                                
1:22:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether there has  been any progress                                                               
on the  unresolved commercial issues  in balancing  agreements or                                                               
whether things are essentially at the  same stage as they were at                                                               
the last update.                                                                                                                
                                                                                                                                
MR.  BUTT recommended  that the  producer parties  and the  state                                                               
representative  be  asked  directly   how  they  feel  about  the                                                               
commercial project.                                                                                                             
                                                                                                                                
1:22:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  requested Mr. Butt to  reiterate the spend                                                               
rate  for  the Pre-FEED,  FEED,  and  construction periods.    He                                                               
further inquired  how large  of a  team would  need to  be either                                                               
continued or assembled to move into FEED.                                                                                       
                                                                                                                                
MR. BUTT  responded that  the spend profile  has been  studied in                                                               
many ways.   In the concept stage, the project  spent $30 million                                                               
a year to  say how this would  be put together.   In the Pre-FEED                                                               
stage, $30  million a month was  spent to get the  permits and do                                                               
the design  work necessary to  say how  it would all  be executed                                                               
and fit  together.   The spend  for FEED would  be $30  million a                                                               
week and  for the construction  phase it  would be $30  million a                                                               
day.  This is known based on  the work done in the Pre-FEED stage                                                               
since  one of  the  Pre-FEED  deliverables is  the  design of  an                                                               
organization  to  execute  FEED   as  well  as  the  engineering,                                                               
procurement,  and  construction  (EPC).   The  project  team  has                                                               
looked at and talked about the  number of different skill sets in                                                               
construction.   In  regard to  labor, it  is 9,000-12,000  people                                                               
over a  4-7 year period  depending on how  the tops of  the peaks                                                               
are  measured.   From a  team perspective,  about 30  people were                                                               
involved  during concept  and about  150 people  are involved  in                                                               
Pre-FEED, so  an increase by a  factor of 5.   A similar increase                                                               
by  a factor  of 4-5  would be  expected going  from Pre-FEED  to                                                               
FEED, a team of owner  representatives of 600-700 people would be                                                               
needed.   Thousands of contractors  would then be needed  to help                                                               
get the really  detailed design work done.  But,  with that said,                                                               
he continued, it is always  important to differentiate paradigms.                                                               
He is a  representative of the project team working  on behalf of                                                               
the State  of Alaska and  the other  parties, which is  called an                                                               
owners paradigm.  "There is no  benefit in me to work the issue,"                                                               
he said,  "the party's only  benefit when the work  delivers some                                                               
revenue."   Other  parties have  a different  paradigm; they  get                                                               
paid as they do work, they  do not have that same owner paradigm,                                                               
they  do not  benefit until  the project  is online  and revenue.                                                               
Those structures  and those teams  are important.  Needing  to be                                                               
thought about are the spend, the  size, the number of people, and                                                               
also the alignment.                                                                                                             
                                                                                                                                
1:26:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER observed  on  slide 4  that  most of  the                                                               
stoplights under  alignment, risks,  and cost are  colored yellow                                                               
rather  than  red  or  green.     He  asked  whether  the  yellow                                                               
stoplights indicate  that those are  in progression.   He further                                                               
asked  whether all  of the  yellow stoplights  must be  turned to                                                               
green in order to make the FEED decision.                                                                                       
                                                                                                                                
MR.  BUTT answered  it is  really  best to  try to  move them  to                                                               
green.  He  explained it is a decision for  each party that would                                                               
be committing the resources for FEED  to say at what juncture the                                                               
party  is comfortable  to  move  through that  gate.   There  are                                                               
shades  of green  and  shades of  yellow, but  red  is usually  a                                                               
pretty  scary color  for folks.   Moving  them all  towards green                                                               
would be wanted, and  then it is up to each party  to say what it                                                               
needs as an individual party to make that decision.                                                                             
                                                                                                                                
1:26:57 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  inquired whether Mr. Butt  still thinks the                                                               
project is viable commercially such  that it should go forward to                                                               
the next stage.                                                                                                                 
                                                                                                                                
MR. BUTT  replied that as  an individual he believes  the project                                                               
has the opportunity to be commercially  viable.  It is a low risk                                                               
known resource of gas; it  has some structural advantages as well                                                               
as  some structural  disadvantages.   At the  point at  which the                                                               
project costs  get to  be competitive, the  project can  be moved                                                               
forward.   Whether that is right  now, he continued, he  does not                                                               
know.  Sometimes things need to  be worked a little bit harder to                                                               
get to that place, but it is  known what that place looks like in                                                               
its commercially viable, technically  feasible form, with all the                                                               
right regulatory permits in place,  and the project does not have                                                               
all those boxes right now, but the project can get to them.                                                                     
                                                                                                                                
1:28:07 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL noted  that 146 people are listening  online to the                                                               
meeting.   She  said the  next witness,  David Barrowman  of Wood                                                               
Mackenzie, will be  presenting a report that  was commissioned by                                                               
BP, ExxonMobil,  and AGDC regarding  the economic  feasibility of                                                               
the Alaska  LNG Project  under various  scenarios and  in today's                                                               
market condition.                                                                                                               
                                                                                                                                
DAVID  BARROWMAN,   Vice  President  Upstream   Consulting,  Wood                                                               
Mackenzie, stated  that his company  is a global  energy, metals,                                                               
and  mining research  consulting  firm of  over  1,300 people  in                                                               
offices around  the world.   Wood Mackenzie started  covering the                                                               
North Sea  in 1973  and since  then has  grown its  coverage from                                                               
that.  He noted he is  a chartered accountant, has been with Wood                                                               
Mackenzie for  over 30 years, has  worked across the globe  for a                                                               
variety of  companies and governments,  and has been  involved in                                                               
valuation and fiscal work.                                                                                                      
                                                                                                                                
MR. BARROWMAN displayed slide 3,  "Agenda," and noted it provides                                                               
an outline  of the areas he  will be discussing in  his report to                                                               
the  committees.   Moving  to  slide 4,  "Scope  of Project,"  he                                                               
explained that  Wood Mackenzie was  asked by BP,  ExxonMobil, and                                                               
AGDC  to undertake  an  analysis of  the  competitiveness of  the                                                               
Alaska  LNG Project.    The  work carried  out  relied upon  Wood                                                               
Mackenzie's  own   internal  databases  and   publicly  available                                                               
information.     Wood  Mackenzie   was  not  provided   with  any                                                               
information by any of the companies.   The areas looked at in the                                                               
report are:  1) establish a  base cost of supply (CoS) and define                                                               
the competitiveness of  the CoS for Alaska LNG;  2) identify what                                                               
viable options there might be,  excluding cost savings, to reduce                                                               
the project's CoS;  and 3) consider the way forward  to allow for                                                               
a globally competitive LNG project in Alaska.                                                                                   
                                                                                                                                
1:31:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER   complimented  Wood  Mackenzie   for  its                                                               
upfront  willingness  to describe  the  basis  upon which  it  is                                                               
rendering  its  opinions.    Regarding  the  notation  that  Wood                                                               
Mackenzie was not been provided  with any proprietary information                                                               
and  used  its  own  internal databases  and  publicly  available                                                               
information, he  asked how  confident Mr.  Barrowman is  that the                                                               
conclusions  reached in  this report  actually are  applicable to                                                               
the unique specifics of the Alaska LNG Project.                                                                                 
                                                                                                                                
MR. BARROWMAN  replied that Wood  Mackenzie feels  very confident                                                               
on it.   He  said Wood Mackenzie's  own databases  are recognized                                                               
internationally  as being  a fairly  accurate starting  point for                                                               
undertaking a  review of  analysis.   Wood Mackenzie  markets its                                                               
databases  to many  subscribers  within  industry and  government                                                               
across the globe and Wood  Mackenzie builds the databases up from                                                               
discussions that it  has with companies.   These discussions give                                                               
Wood Mackenzie  confidence in the reliability  of the information                                                               
that  it uses.    He  said Wood  Mackenzie  also crosschecks  the                                                               
information against  publically available sources to  give itself                                                               
an additional level of comfort.                                                                                                 
                                                                                                                                
1:33:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER   surmised    that   according   to   the                                                               
international standards  used by  Wood Mackenzie to  compare this                                                               
project,  the  Alaska  LNG  Project  is not  so  unique  that  it                                                               
deviates much from the international standards and experiences.                                                                 
                                                                                                                                
MR.  BARROWMAN responded  that in  its  research databases,  Wood                                                               
Mackenzie   has  modeled   a   large  number   of  LNG   projects                                                               
internationally and  has modeled for  Alaska as well.   The basis                                                               
of  putting those  models together  is standard  and aligns  with                                                               
what Wood Mackenzie does elsewhere.   So, he confirmed, it is not                                                               
really different.                                                                                                               
                                                                                                                                
1:34:40 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN returned to his  presentation and reviewed slide 5,                                                               
"Executive Summary."  He advised  that the competitiveness of the                                                               
Alaska  LNG Project  does not  rank well  when compared  to other                                                               
peer  jurisdictions  or peer  projects  that  could supply  North                                                               
Asia.  The  ranking means that under  current pricing assumptions                                                               
the project would certainly struggle  and even if oil prices rose                                                               
to  around about  $70  a barrel  it would  be  difficult to  make                                                               
acceptable  returns.   However, he  continued, there  are certain                                                               
levers that  could be used  and this presentation and  the report                                                               
look further at the available levers.                                                                                           
                                                                                                                                
MR. BARROWMAN moved  to the world map shown on  slide 7, "Several                                                               
projects targeting  2016 FID have already  pushed their timetable                                                               
back," to  address the topic  of cost of  supply competitiveness.                                                               
He explained  that a global  look was taken  to give a  flavor of                                                               
what  is happening  around the  world.   A plot  was done  of the                                                               
projects that  Wood Mackenzie believed  at the start of  the year                                                               
were  likely to  receive final  investment decision  (FID) during                                                               
2016.    The  blue  circles  on the  map  are  those  where  Wood                                                               
Mackenzie  expected FID  and those  highlighted  with yellow  are                                                               
what Wood  Mackenzie called a  wild card, meaning a  project that                                                               
was a  bit more  tentative but could  still possibly  move ahead.                                                               
The takeaway from  slide 7 is that there are  a lot of challenges                                                               
to LNG  projects worldwide.   Some of the developments  have been                                                               
pushed  back  and  some  have  been canceled  for  a  variety  of                                                               
reasons,  including  market   concerns,  market  conditions,  and                                                               
issues of regulation  and permitting.  The Alaska  LNG Project is                                                               
not alone  in having  problems in moving  the project  through to                                                               
FID.   For  example,  so  far this  year  only  one project,  the                                                               
Tangguh Train 3 in Indonesia, has taken FID.                                                                                    
                                                                                                                                
1:37:19 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN quickly  noted that slide 8, "Alaska  LNG - Project                                                               
Overview,"  is a  highlight  of some  of  the publicly  available                                                               
information that was used by Wood Mackenzie.                                                                                    
                                                                                                                                
MR. BARROWMAN showed  slide 9, "Approach to  Analysis - Breakeven                                                               
Cost  of  Supply," and  noted  that  the  analysis done  by  Wood                                                               
Mackenzie is a breakeven cost of  supply.  He explained what Wood                                                               
Mackenzie goes  through in doing this.   In the analysis  in this                                                               
report, Wood  Mackenzie has not  looked at standard  economics of                                                               
net present  values (NPVs)  or internal  rates of  return (IRRs).                                                               
When people are looking at LNG  projects, they tend more often to                                                               
look at  cost of supply and  comparisons typically are done  on a                                                               
cost of supply basis.  The  cost of supply is trying to determine                                                               
what  the price  would be  for a  project to  break even  and the                                                               
definition of  breakeven is making  a hurdle-based return.   Wood                                                               
Mackenzie  has used  a  return here  of 12  percent,  so this  an                                                               
internal  rate  of  return  within the  project  of  12  percent.                                                               
Twelve percent is  the typical rate used by upstream  oil and gas                                                               
companies  when making  go/no-go decisions.   Wood  Mackenzie has                                                               
seen this  rate come  down; when prices  were higher,  the hurdle                                                               
rates were  higher as well.   For an  LNG project at  the present                                                               
time, 12  percent is reasonable  and is what Wood  Mackenzie uses                                                               
in its standard research databases.                                                                                             
                                                                                                                                
1:39:29 PM                                                                                                                    
                                                                                                                                
MR.  BARROWMAN  displayed  slide  10, "Assumptions  -  Costs  and                                                               
Volumes," and  outlined the assumptions  used by  Wood Mackenzie.                                                               
For the  transmission lines, gas  treatment plant,  pipeline, and                                                               
LNG liquefaction plant costs, Wood  Mackenzie ran two cases - one                                                               
of $45 billion and one of  $65 billion.  For upstream costs, Wood                                                               
Mackenzie used  the assumption  of $10  billion, and  this amount                                                               
covers  both  Point Thomson  and  Prudhoe  Bay.   Future  capital                                                               
expenditure  ("capex")  on  those  two projects  is  split  about                                                               
50/50.   For Point Thomson it  is the costs that  are required in                                                               
the development of the gas.  For  Prudhoe Bay it is more in terms                                                               
of cost  to maintain  the facilities.   Prudhoe  Bay by  the mid-                                                               
2020s will  have been  producing for  50 years,  so it  has aging                                                               
infrastructure.   Wood  Mackenzie  took the  view  that over  the                                                               
period of  several years up  to the end  of the 2020s  there will                                                               
need to be a material amount  of spend.  For shipping costs, Wood                                                               
Mackenzie used the assumption that  the shipping costs will be 60                                                               
cents per million  British thermal units (MMBtu)  to transfer the                                                               
gas from  Alaska to North Asia.   The markets being  targeted are                                                               
in Japan,  South Korea, China,  and Taiwan.  To  provide context,                                                               
he noted  that shipping  costs from LNG  projects located  in the                                                               
U.S. Gulf Coast are closer to about $2 [per MMBtu].                                                                             
                                                                                                                                
MR.  BARROWMAN continued  outlining the  assumptions provided  on                                                               
slide  10.   For  upstream production,  Wood  Mackenzie used  the                                                               
assumption of  3 billion cubic  feet a  day (Bcf/d).   For losses                                                               
through  the system,  Wood Mackenzie  used the  assumption of  11                                                               
percent.   "Losses" means loss  of molecules,  use of the  gas in                                                               
power generation for  the pipeline, and use  for the liquefaction                                                               
plant.  For  the domestic market allocation,  Wood Mackenzie used                                                               
the assumption  of 300 million  cubic feet a day  (MMcf/d), about                                                               
the same number as by AGDC.   About 200 MMcf/d of that allocation                                                               
will be for industrial uses and the rest for household uses.                                                                    
                                                                                                                                
1:42:34 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN  addressed the  graph on  slide 11,  "Comparison of                                                               
Breakeven cost of supply for delivery  into North Asia."  To come                                                               
up  with  the  graph,  he  said, Wood  Mackenzie  looked  at  six                                                               
projects, as  well as  the Alaska LNG  Project, that  are Pre-FID                                                               
and then  built up the cost  of supply for each  of those project                                                               
groups.   He  explained that  within each  bar on  the graph  the                                                               
light blue is  the cost of gas,  which is the upstream  cost.  He                                                               
further  explained that  the bar  depicting the  U.S. Gulf  Coast                                                               
(labeled "Other USGC")  is a Henry Hub derived number;  it is not                                                               
what the  Henry Hub price  is today, but rather  Wood Mackenzie's                                                               
forecast that  the Henry Hub is  going to rise over  the next few                                                               
years.   The average Henry  Hub price from 2019-2030  is forecast                                                               
to be, in  real terms, about $3.41.  That  price was then grossed                                                               
up  to account  for losses,  coming to  a gas  cost of  about $4.                                                               
That $4 compares with Alaska LNG which is just over $2.                                                                         
                                                                                                                                
MR. BARROWMAN noted  that standing out on this chart  is that the                                                               
gas cost for Alaska LNG is  much lower than that for other areas.                                                               
This is  because the gas  production is pretty much  dominated by                                                               
Prudhoe Bay  where the gas  is getting  produced each day  in any                                                               
event, so it  is not as though  a lot of new wells,  if any, need                                                               
to  be  drilled.    That  really  drives  the  comparatively  low                                                               
upstream gas costs for Alaska LNG.                                                                                              
                                                                                                                                
MR. BARROWMAN  pointed out,  however, that  the difference  is in                                                               
the  cost of  the gas  treatment plant,  pipelines, and  anything                                                               
else downstream  of the field,  which is represented by  the dark                                                               
blue color within each  bar on the graph.  Alaska  LNG has a cost                                                               
of supply significantly higher than  that for other jurisdictions                                                               
because  it has  the liquefaction  and gas  treatment plants,  as                                                               
well as an 800-mile-long gas pipeline.   All of these things push                                                               
up the cost of supply.                                                                                                          
                                                                                                                                
MR. BARROWMAN said  the shipping cost for Alaska LNG  is about 60                                                               
cents per  MMBtu, which is  represented by the grey  color within                                                               
each bar.   He explained that  the [dashed lines] on  top of each                                                               
of the  bars represent  a range.   The  ranges for  the different                                                               
projects  are on  the basis  of a  number of  different projects,                                                               
such as  for Asian brownfields  or for niche floating  LNG (FLNG)                                                               
where  the liquefaction  facility is  located on  a vessel.   The                                                               
range is  plotted by the  lowest cost  of supply and  the highest                                                               
cost of  supply project  for each  of the  different areas.   The                                                               
range for Alaska LNG is between $45 billion and $65 billion.                                                                    
                                                                                                                                
1:46:35 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN reiterated that the  breakeven costs are calculated                                                               
on  the basis  of  a 12  percent  internal rate  of  return.   He                                                               
explained that the  two horizontal bars across the  graph are the                                                               
illustrative prices.   Wood Mackenzie  calculated what  the price                                                               
in Asia  might be  on the  basis of  today's oil  price of  $45 a                                                               
barrel and  a long-term oil price  of $70 a barrel,  because Wood                                                               
Mackenzie is  also expecting by  the end  of the decade  that the                                                               
price of crude  oil will have risen  to about $70 a  barrel.  So,                                                               
Wood  Mackenzie applied  the formula,  12-14 percent  of the  oil                                                               
price, plus  80 cents  per MMBtu  as being  a delivered  price in                                                               
Asia.   The horizontal price bars  are not just a  line, he said,                                                               
because of  the range  of 12-14  percent.  At  the moment,  it is                                                               
probably  closer  to  12  percent and  possibly  even  the  "high                                                               
elevens."   He noted that  a lot of deals  have been signed  on a                                                               
Henry Hub  basis.  This  was the  case, he explained,  because as                                                               
the oil  price was  over $100 a  barrel, then  these price-linked                                                               
cases were becoming quite expensive  for producers.  However, the                                                               
reverse  is  now  true  -  with falling  prices  it  is  probably                                                               
potentially a bit  more attractive for buyers to  start using the                                                               
oil price-linked  contracts.  There  is still the Henry  Hub, but                                                               
more of the  oil price-linked contracts are being  seen coming to                                                               
the fore.                                                                                                                       
                                                                                                                                
MR. BARROWMAN  showed slide 12 and  said he will skip  it because                                                               
it is mostly what he has just explained.                                                                                        
                                                                                                                                
1:49:16 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN  returned to the  graph on slide 11  and reiterated                                                               
that Alaska LNG  has the highest cost of supply  (depicted in far                                                               
right bar).   He clarified  the chart  is not saying  that buyers                                                               
will always work  from left to right of the  chart, such that the                                                               
Asian brownfields would  be signed up first, then  the niche FLNG                                                               
projects, and so on.  Instead,  there are many other drivers that                                                               
gas purchasers will take into  account, three of which are listed                                                               
on the left side of slide 13.                                                                                                   
                                                                                                                                
MR.  BARROWMAN  then  moved  to  slide  13,  "North  Asia  has  a                                                               
significant requirement for additional LNG,  but price is not the                                                               
only factor  that buyers take  into consideration."  He  said one                                                               
important  driver  to  buyers is  to  maintain  a  geographically                                                               
diverse  portfolio, so  buyers will  tend to  buy from  different                                                               
producing countries.   For example, many  purchases of Australian                                                               
LNG have  recently been made.   An increasingly  important driver                                                               
is  contractual  flexibility,  he  advised.   For  example,  some                                                               
contracts  are Henry  Hub prices  and  some are  linked to  crude                                                               
prices.   It is important  for buyers  to have a  balance between                                                               
Henry Hub  and oil-price-linked contracts.   Buyers also probably                                                               
want  to  have  contracts  of different  lengths,  he  continued.                                                               
Buyers can underpin their purchases  by having 20-year or 25-year                                                               
contracts  as  well as  some  shorter  contracts of  5-10  years.                                                               
Another important  driver, he said, is  reliability and longevity                                                               
of supply.   A buyer  wants to sign  a contract with  someone the                                                               
buyer knows  is going to  give stable production over  the period                                                               
of the contract.  A buyer does not  want to buy with someone in a                                                               
country that may  turn into a conflict zone pretty  quickly.  So,                                                               
he summarized, there  are issues that will be  taken into account                                                               
and the challenge is trying to  quantify the value that is placed                                                               
on those.                                                                                                                       
                                                                                                                                
1:51:37 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN continued addressing  slide 13, explaining that the                                                               
chart  puts into  context what  is  available for  Alaska LNG  in                                                               
these competing projects.   The total North Asian  demand for LNG                                                               
is  depicted  by  the  red  line  moving  across  the  chart,  he                                                               
explained.  This demand has  been rising quite significantly over                                                               
the last few years.   While it has started to  flatten out, it is                                                               
still  rising over  the next  few  years.   Contracted demand,  a                                                               
signed  sale  and purchase  agreement  (SPA),  is represented  in                                                               
light  blue.   Contracted  demand,  a  Heads of  Agreement  (HOA)                                                               
(shown in dark blue), is not  a firm contract, but something that                                                               
Wood  Mackenzie  believes  will  move through  to  being  a  firm                                                               
contract.    Competing  areas  are  represented  in  yellow;  the                                                               
competing projects  included on  slide 11  are plotted  in yellow                                                               
according to when Wood Mackenzie  expects them to start producing                                                               
LNG.  Alaska LNG  was put on top in red; that is  not to say that                                                               
Alaska LNG  will be the last  one people go to,  but to highlight                                                               
what  the comparative  volumes  could  be from  Alaska  LNG.   An                                                               
additional consideration not  plotted on this chart  is that some                                                               
of the wedge  located between the blue area and  the red line may                                                               
be uncontracted areas,  so that is the size of  the prize that is                                                               
being looked at.  There will  be some existing LNG projects where                                                               
contracts run out and they  will be looking to re-sign contracts.                                                               
Maybe  somewhere  between   25  and  33  percent   of  that  area                                                               
potentially could  go to rollover projects,  but Wood Mackenzie's                                                               
view is that new projects  are attractive for buyers because they                                                               
will give  a long-term stream  of production.  The  challenge for                                                               
existing LNG  projects is that  they may have been  producing for                                                               
20 years and so there may be  a limited supply from some of these                                                               
projects.                                                                                                                       
                                                                                                                                
1:54:40 PM                                                                                                                    
                                                                                                                                
MR.  BARROWMAN  turned  to  slide 14,  "Agenda,"  and  slide  15,                                                               
"Approach,"  and  said  Wood   Mackenzie  looked  at  non-capital                                                               
expenditure  ("non-capex") and  non-operating expenditure  ("non-                                                               
opex")  options to  reduce the  cost of  Alaska LNG  supply.   He                                                               
clarified it is not really cost  issues being looked at here, but                                                               
rather  to drive  home  that  costs will  be  fundamental to  the                                                               
success of this  project, which is highlighted by  the showing of                                                               
a range  between the cases  of $45 billion  and $65 billion.   He                                                               
said three options  were looked at that could reduce  the cost of                                                               
supply:   1)  a  conventional non-recourse  debt  structure in  a                                                               
tolling plant;  2) a restructure  of the project to  increase the                                                               
State  of Alaska's  share; and  3) relief  from federal  or state                                                               
taxes on a stand-alone basis.                                                                                                   
                                                                                                                                
1:56:17 PM                                                                                                                    
                                                                                                                                
MR.  BARROWMAN  discussed  the  first  non-capex/opex  option  to                                                               
reduce the  cost of supply, a  third-party-owned tolling utility.                                                               
Moving to  slide 17,  "The introduction of  a debt  funded third-                                                               
party  tolling structure  will  reduce the  cost  of supply,"  he                                                               
noted the left  vertical bar on the graph  represents the current                                                               
project, so  is the same  bar seen on  slide 11.   Wood Mackenzie                                                               
did two  things in its  analysis, the first  being to add  in the                                                               
element of  debt.   The debt structure  assumed is  a debt:equity                                                               
ratio of  70:30 -  70 percent  debt and  30 percent  equity, with                                                               
equity meaning that  the companies involved will need  to fund 30                                                               
percent of  the project  themselves.  The  70:30 ratio  is common                                                               
within the  industry.   Also assumed  is a  repayment term  of 15                                                               
years, so that is the life  of the period over which repayment of                                                               
the loan  plus interest  will take place.   The  assumed interest                                                               
rate  is  the London  Interbank  Offered  Rate (LIBOR)  plus  3.5                                                               
percent.  The LIBOR rate for  long-term U.S. dollars is about 1.5                                                               
percent,  giving an  interest rate  of  about 5  percent for  the                                                               
debt.  The  way to think about  this is like a  mortgage on one's                                                               
house - borrowing  up front, putting some equity  into the house,                                                               
and then  repaying the  loan over  a number of  years at  a fixed                                                               
amount each year.   In the early  years it will be a  lot of debt                                                               
and  over the  years that  debt portion  will be  reduced.   This                                                               
reduces the cost of supply, he  explained, because it takes out a                                                               
large chunk  of the upfront capex.   For example, if  the debt is                                                               
roughly $30  billion and $15  billion is equity, the  owners will                                                               
not incur the $30 billion in  cost until production starts and at                                                               
which point the loan will then  be repaid plus interest.  In Wood                                                               
Mackenzie's breakeven calculation using  the IRR hurdle, only $15                                                               
billion  is  put  in  upfront  by the  owners,  rather  than  $45                                                               
billion; the effect is that that will reduce the cost of supply.                                                                
                                                                                                                                
1:59:18 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN continued  on slide 17, explaining  that the second                                                               
element  added  into  the  analysis   is  a  third-party  tolling                                                               
company.  Tolling  means that someone else comes in  and owns all                                                               
the facilities that are downstream of  the fields.  This would be                                                               
the  gas  treatment plant,  the  pipeline,  and the  liquefaction                                                               
facility.  The companies would put  the gas down the pipeline and                                                               
through the plant  and be charged a  toll in the same  way that a                                                               
toll road  works.  This could  reduce the cost of  supply because                                                               
someone  who owns  these  facilities and  pipeline  is likely  to                                                               
accept a  utility rate of  return, which  is a lower  return than                                                               
the 12 percent that is required on the upstream.  A third-party-                                                                
owned tolling utility usually will  accept a lower rate of return                                                               
because the  cash flows are  typically much  more stable -  it is                                                               
known  what the  toll  rate is  going to  be,  although it  might                                                               
fluctuate  slightly.   There should  be fairly  stable production                                                               
and the toller is  not at the mercy of, say,  the oil price going                                                               
up or a  lot of the other  risks that face the upstream.   So, in                                                               
the analysis, Wood Mackenzie ran  the breakeven cost of supply at                                                               
8 percent  rather than 12  percent.  Some context  for comparison                                                               
is Gassled in  Norway.  On one  hand it is not  a good comparison                                                               
because it is an already built  pipeline system, but on the other                                                               
it  is  a  good  comparison  because it  has  a  managed  return.                                                               
Gassled is  really all the  offshore gas pipelines that  exist in                                                               
Norway.   Originally the  pipelines were  all owned  by different                                                               
companies, but about 15 years ago  they were all merged into this                                                               
Gassled entity.   Originally the  ownership was in line  with the                                                               
upstream company.   The  upstream companies  would own  shares in                                                               
gaslines.   The returns  they make  are only a  real return  of 7                                                               
percent pre-tax,  and pre-tax  and post-tax  in Norway  are quite                                                               
different.   The  marginal  rate of  tax is  78  percent, so  the                                                               
returns  post-tax  of  Gassled  are   not  that  high,  they  are                                                               
significantly below 8 percent.   Over time the upstream companies                                                               
have  sold out  their  interest  and the  owners  of the  Gassled                                                               
system tend to be investment  funds or pension funds, including a                                                               
couple of Canadian pension funds  which have indirect interest in                                                               
the Gassled system.  What is  being seen is likely to happen here                                                               
- Wood Mackenzie  is assuming a situation where  a known upstream                                                               
player  comes along  that may  be a  pipeline owner  or may  be a                                                               
utility or  other investor  like a pension  fund, someone  who is                                                               
willing to accept a lower return.                                                                                               
                                                                                                                                
2:03:24 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN continued addressing the  graph on slide 17, noting                                                               
the  right vertical  bar represents  a third-party-owned  tolling                                                               
utility, a  scenario where  there is  a significant  reduction in                                                               
the breakeven cost  of supply.  He said all  of the projects that                                                               
Wood Mackenzie looked  at will do debt financing, so  that is not                                                               
going to  be unique.   Most,  he advised, will  not go  through a                                                               
third-party  tolling; some  do have  third-party tolling  and for                                                               
some the ownership  of the plant is the same  as the ownership in                                                               
the upstream.   That may be an area where  the Alaska LNG Project                                                               
could be made more competitive.   When talking about third party,                                                               
the state  also may  have a role  in here.   He pointed  out that                                                               
even when  comparing Alaska LNG  with a project that  does third-                                                               
party tolling  elsewhere, the absolute  benefit to Alaska  LNG is                                                               
probably going to be greater.   This is due to the project's huge                                                               
amount  of [liquefaction  and other  infrastructure], represented                                                               
in dark blue on  slide 11.  Basically, this area  is cut in about                                                               
half,  so  although  proportionately these  other  projects  will                                                               
reduce,  the Alaska  LNG Project  is really  able to  reduce this                                                               
quite significantly.  Because the  Alaska LNG Project has quite a                                                               
low gas  cost compared  to the other  jurisdictions, moving  to a                                                               
tolling system  could be  proportionately beneficial  towards the                                                               
project.  In  absolute terms, even at the $65  billion case, what                                                               
has happened is  getting below the $70 long-term price  case.  It                                                               
may be possible to have a  profitable project if the price rises,                                                               
he advised,  but it is still  going to struggle at  today's price                                                               
of $45 a barrel, although in  the low-cost case it is starting to                                                               
look a lot  better than it was on the  existing-project case that                                                               
Wood Mackenzie originally showed committee members.                                                                             
                                                                                                                                
2:06:20 PM                                                                                                                    
                                                                                                                                
MR.  BARROWMAN displayed  slide  19, "The  introduction of  State                                                               
ownership,"  and addressed  the second  non-capex/opex option,  a                                                               
state-owned  tolling  utility,  that  could reduce  the  cost  of                                                               
Alaska  LNG  supply.   He  explained  that  the left  and  center                                                               
vertical bars  on the graph  are the same  as in slide  17, while                                                               
the right  vertical bar represents  the adding  in of a  State of                                                               
Alaska-owned tolling utility.   In this assumption,  he said, the                                                               
State of  Alaska owns  100 percent  of the  pipe and  the plants.                                                               
Also assumed  is that the State  of Alaska may be  able to reduce                                                               
tax,  a unique  additional point  over  a third-party.   In  this                                                               
scenario Wood  Mackenzie has  assumed a  no-tax case,  meaning no                                                               
tax in  the pipe and plant.   There would still  be the royalties                                                               
and profit taxes  in the upstream.  It is  just in the downstream                                                               
that  federal  and  state  taxes  are  removed,  including  state                                                               
corporate  income  tax  and  state  ad  valorem  property  taxes.                                                               
Clearly, the decision  of what happens is up  to the legislature,                                                               
he  continued, but  what Wood  Mackenzie has  done is  to show  a                                                               
situation where  that happens and  what the economics  would look                                                               
like.  In  this situation there would be a  reduction of a little                                                               
under $1 an  MMBtu and the $45 million case  would start to break                                                               
even  at today's  prices.    It is  certainly  something that  is                                                               
worthy of consideration, he advised.                                                                                            
                                                                                                                                
2:09:00 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN moved to slide  21, "Changes to the Fiscal Regime,"                                                               
and addressed  the third non-capex/opex option  that could reduce                                                               
the cost of  Alaska LNG supply.  He pointed  out the concept that                                                               
if  governments  want projects  to  move  ahead  and the  tax  or                                                               
royalty  system  is  preventing   it  from  happening,  then  the                                                               
government would be  willing to change the  fiscal regime because                                                               
it is better  to have a bit  of something than a  lot of nothing.                                                               
Typically, relief is granted for  assets that are high cost found                                                               
in  unhospitable   locations  or  for  projects   that  have  low                                                               
profitability  under existing  terms.   For example,  the Snohvit                                                               
LNG  Project in  Norway  received  accelerated capital  allowance                                                               
relief as well  as relief against the upstream taxes.   The Yamal                                                               
LNG  Project in  Russia received  exemption to  certain taxes  to                                                               
allow the project  to move ahead.  He noted  that more detail and                                                               
more  examples  of  relief are  provided  in  the  presentation's                                                               
appendix for those members wishing to look at it.                                                                               
                                                                                                                                
2:10:48 PM                                                                                                                    
                                                                                                                                
MR. BARROWMAN  displayed slide 22,  "Impact of Federal  and State                                                               
fiscal  change  on  integrated   structure,"  and  continued  his                                                               
discussion of the third option.   The graph illustrates [the cost                                                               
of  supply  impact  of  changes  to  the  fiscal  regime  on  the                                                               
integrated  100  percent  equity  project]  for  three  different                                                               
cases,  he  explained.   The  left  vertical bar  represents  the                                                               
current project  and excludes the  tolling and any  state equity;                                                               
it  is  a comparison  to  look  at  the current  project,  equity                                                               
funded, and see  what happens if federal and state  tax are taken                                                               
out.  The analysis did not  made any changes to the upstream, but                                                               
the analysis  includes the 25  percent royalty in-kind  (RIK) and                                                               
tax  as gas  (TAG).    Addressing the  case  of  no federal  take                                                               
represented  by  the  middle  vertical bar,  he  noted  that  the                                                               
breakeven point  is reduced by about  $1 an MMBtu.   Referring to                                                               
the case of  pre-take represented by the right  vertical bar, Mr.                                                               
Barrowman  explained that  pre-take  excludes  federal and  state                                                               
tax.   The incremental  element between no  federal take  and the                                                               
pre-take, he said,  is the removal of the  state corporate income                                                               
tax and the state ad valorem  tax, which reduces the breakeven by                                                               
the order of  about $1 an MMBtu.   In the $45 billion  case it is                                                               
tending towards  being in  the market for  the $70  long-term oil                                                               
price  assumption,  he  reported,  but  still  nowhere  near  the                                                               
current  price of  today.   He said  the takeaway  from this  is:                                                               
changes to  the fiscal  regime certainly  can make  a difference;                                                               
changes to the fiscal regime on  their own will not be sufficient                                                               
and need to be part of a package of other changes.                                                                              
                                                                                                                                
2:13:22 PM                                                                                                                    
                                                                                                                                
MR.   BARROWMAN   closed   his  presentation   with   slide   24,                                                               
"Conclusions."   In  terms of  global  competitiveness, he  said,                                                               
Alaska LNG  is currently  quite challenged.   However,  there are                                                               
levers that  can be used,  he said, such  as state support  for a                                                               
tolling  utility-like  return, a  debt  financed  project, or  an                                                               
increase  of  the  state  share   with  potential  for  resultant                                                               
reduction  in tax.    He noted  that a  number  of elements  were                                                               
outside the scope  of this analysis; for  example, Wood Mackenzie                                                               
did  not attempt  to  quantify monetization  of  the state's  gas                                                               
share.   The  state has  a  25 percent  interest and  is able  to                                                               
market that share of gas and  potentially make a profit from that                                                               
gas.   Wood  Mackenzie also  did  not quantify  the in-state  gas                                                               
supply, which is  about 300 million cubic feet a  day and another                                                               
area of potential benefit.   Other things not quantified were job                                                               
creation, enabling  new exploration, and third-party  access.  If                                                               
companies see that there is an  export route for gas, then it may                                                               
make exploration for gas more attractive.   If more gas was to be                                                               
discovered,  it could  be exported.    If it  is the  short-term,                                                               
there may need  to be additional cost on plant  and pipeline, but                                                               
it certainly  gives companies more  options and it makes  it more                                                               
attractive in terms of exploration.                                                                                             
                                                                                                                                
2:15:39 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI thanked Mr.  Barrowman for the presentation,                                                               
saying he  was expecting  doom and  gloom, but  is now  feeling a                                                               
little  optimistic.   He asked  what  sort of  pushback could  be                                                               
expected  from  the  producers,   and  what  downsides  could  be                                                               
expected to  the state  and to  producers, by  going to  a third-                                                               
party-owned tolling utility.                                                                                                    
                                                                                                                                
MR. BARROWMAN replied it is difficult  for him to comment on what                                                               
the producers themselves  may say.    But, he said, if  he were a                                                               
producer and  if it  was a  reliable owner  he was  confident in,                                                               
then he may  well feel confident that it would  be giving him the                                                               
opportunity  to monetize  his gas;  so he  would see  more upside                                                               
than downside.  Clearly, there  is a challenge in finding someone                                                               
to take on the role of  third-party ownership, he allowed, and he                                                               
is not suggesting that  it is going to be an  easy task because a                                                               
lot of  cash will need to  be found.  [His]  presentation did not                                                               
address  who is  actually going  to build  it, he  noted.   Is it                                                               
necessarily going to be the same as  the owners?  There are a lot                                                               
of questions that this study raises, he said.                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  surmised from  slide 17 that  the breakeven                                                               
point is  roughly at  [an oil  price] of $45  per barrel  for the                                                               
scenario of  a third-party-owned tolling  utility and  12 percent                                                               
rate of return.                                                                                                                 
                                                                                                                                
MR. BARROWMAN  clarified that there  are a number of  elements to                                                               
it.   He  explained that  for the  upstream portion  [depicted in                                                               
light blue],  the breakeven  is still at  12 percent  because the                                                               
assumption  is  that  these upstream  producers  will  require  a                                                               
return that  is normal  for upstream producers,  which is  on the                                                               
order  of 12  percent.    However, the  pipe  and plant  portion,                                                               
depicted in  dark blue, assumes a  return of 8 percent,  which is                                                               
the third-party  toller coming  in and  accepting a  lower return                                                               
and therefore the producers do not need  to pay as much in a toll                                                               
for the third party to make an 8 percent return.                                                                                
                                                                                                                                
2:19:24 PM                                                                                                                    
                                                                                                                                
SENATOR DUNLEAVY surmised that if  the state reduced its exposure                                                               
or risk  by putting less into  the project, then the  state would                                                               
get less out of the project.                                                                                                    
                                                                                                                                
MR.  BARROWMAN  understood Senator  Dunleavy  to  mean the  state                                                               
would have less  in because there would be  an independent third-                                                               
party toller.                                                                                                                   
                                                                                                                                
SENATOR DUNLEAVY replied yes, the state would have less in.                                                                     
                                                                                                                                
MR.  BARROWMAN answered  that  someone else  coming  in would  be                                                               
making a  profit -  an 8  percent return on  the pipe  and plant.                                                               
However, what  it would do is  enable the project to  move ahead.                                                               
Potentially  these  may  be  revenues  that  were  not  otherwise                                                               
available, because on the current  project basis the economics do                                                               
not stand up.                                                                                                                   
                                                                                                                                
SENATOR  DUNLEAVY asked  whether  contracting  is changing  along                                                               
with the  perceived supply of gas  in that for years  it has been                                                               
heard that  contract [lengths] are  for 20-25 years.   He further                                                               
asked  whether  contract  durations   are  now  becoming  shorter                                                               
because the  folks who are  buying the gas are  playing suppliers                                                               
off of each other, something that has always been done.                                                                         
                                                                                                                                
MR. BARROWMAN  confirmed there  is much  more flexibility  now in                                                               
the LNG market than there was  10-15 years ago.  Historically, he                                                               
said, Senator  Dunleavy is correct,  but beware of  the long-term                                                               
contracts.  More short-term contracts  and more spot supplies are                                                               
starting to be seen.  Some  major players are buying supplies for                                                               
their  own portfolio,  so purchases  will be  made that  will not                                                               
immediately be allocated specifically to an end user.                                                                           
                                                                                                                                
2:21:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  inquired why,  if third-party  tolling or                                                               
state ownership provides the potential  for such significant cost                                                               
savings, other  competing projects  elsewhere in the  globe would                                                               
not be using  the same thing.  He further  inquired whether there                                                               
are  special circumstances  in Alaska  that make  it possible  or                                                               
advantageous for the Alaska LNG Project but not for the others.                                                                 
                                                                                                                                
MR. BARROWMAN  turned to slide 11  and replied that the  issue is                                                               
Alaska has  this huge  cost for liquefaction  and plant  and many                                                               
other projects  around the  world are  able to  move ahead  at 12                                                               
percent, so therefore the companies  will be involved in both the                                                               
upstream and  the LNG plant.   For some of the  other projects it                                                               
may  be attractive  to  get  in third-party  tollers  who may  be                                                               
willing to accept a lower rate  of return.  It may be appropriate                                                               
for some,  but it is  not going  to be appropriate  for everyone.                                                               
So, yes, it  may well happen elsewhere.  Certainly  the debt part                                                               
is not unique.   In absolute terms there is going  to be a bigger                                                               
benefit  for Alaska  than elsewhere,  because Alaska  is starting                                                               
off with a bigger number.                                                                                                       
                                                                                                                                
2:23:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  addressed the gas treatment  plant (GTP) and                                                               
liquefaction facility [represented in  dark blue within the bars]                                                               
on slide  11.  She said  she would like to  better understand how                                                               
Wood Mackenzie  is using that  cost over time, because  the first                                                               
molecule of gas is going to  be the most expensive.  For example,                                                               
when looking  at the infrastructure  costs relative to the  30 or                                                               
40 year life of the project,  the early part is where those costs                                                               
are the  most significant.   In  regard to  showing that  cost as                                                               
being  oversized relative  to other  projects, she  asked whether                                                               
Wood Mackenzie is averaging that over  the life of the project or                                                               
is saying on day one because  those costs are so significant that                                                               
is what disadvantages Alaska LNG to other projects.                                                                             
                                                                                                                                
MR.  BARROWMAN  explained that  Wood  Mackenzie  builds into  its                                                               
models the  upstream gas costs,  and the  downstream liquefaction                                                               
and pipe costs, and then runs  those models.  The data built into                                                               
the model for  Alaska downstream is the pipeline  costs and plant                                                               
costs, and  these costs are year  by year from the  early to mid-                                                               
2020s,  with  production starting  about  2026.   There  are  the                                                               
upfront   capital  costs   to  build   the  plant   and  pipeline                                                               
infrastructure.   Then there are  the operating  costs throughout                                                               
the  lifetime  that  are  required   each  year  to  operate  the                                                               
facilities and have these running  through the productive life of                                                               
the downstream facilities.   Then the throughput  is plugged into                                                               
the model.  The  throughput starts off at 3 Bcf  per day and then                                                               
there  are losses  before getting  on to  the LNG  tankers.   The                                                               
model  does  an  iterative  calculation  to  work  out  what  the                                                               
revenues need to  be in dollars per unit, a  unit being an MMBtu,                                                               
for the project  to break even at a 12  percent discount rate, so                                                               
giving  the  project  a  12  percent  return.    The  model  will                                                               
calculate  a net  present value  calculation,  meaning that  each                                                               
year the  cash flow  for each  year is  discounted by  12 percent                                                               
more  than  the  cash  flow  for  the  prior  year.    The  model                                                               
calculates a  cash flow,  which is the  revenues less  the costs,                                                               
and the  breakeven point is when  it gets to a  net present value                                                               
of zero at a 12 percent  discount rate.  So, the model calculates                                                               
the breakeven and looks at the  life of the project.  Things that                                                               
happen earlier in  the project have more effect  on the breakeven                                                               
cost of  supply than  things later, because  five years  down the                                                               
line  those  things have  been  discounted  by  five lots  of  12                                                               
percent, and 30 years down the  line they have been discounted by                                                               
30 years of 12 percent.                                                                                                         
                                                                                                                                
2:28:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR related that  when thinking about a potential                                                               
third-party tolling structure,  two questions come to  mind.  One                                                               
is access, which was not  mentioned.  She requested Mr. Barrowman                                                               
to comment about access for  in-state use; for example, for local                                                               
utilities and how  that would work.  Second,  under the potential                                                               
for state ownership, she noted  that once property or other taxes                                                               
were removed  there would not be  a source for the  impact aid or                                                               
the payments  in lieu of  taxes.   Because this project  would be                                                               
pretty  impactful  on  local communities,  she  inquired  whether                                                               
those costs were factored into overall costs in the modeling.                                                                   
                                                                                                                                
MR. BARROWMAN replied that access  for in-state use would need to                                                               
be negotiated, but it is something  that the state can build into                                                               
the  approval process  to allow  the  required access  structure.                                                               
Regarding  the impact  aid, he  said Wood  Mackenzie removed  the                                                               
state corporate  income tax  and the  ad valorem  property taxes,                                                               
but nothing  else.  He understood  there may be concerns  about a                                                               
number of  things, such as municipal  benefits from taxes.   If a                                                               
project moves  ahead, one would  hope there would  be significant                                                               
other sources of  income for the state itself, which  would be on                                                               
the upstream,  such as  upstream taxes from  gas production.   As                                                               
well, there  will be  the state's  share of  gas production.   He                                                               
clarified he is not saying these  other sources would make up for                                                               
sources lost,  but making  the point that  it is  not necessarily                                                               
all downside and there will be other upsides as well.                                                                           
                                                                                                                                
2:30:56 PM                                                                                                                    
                                                                                                                                
SENATOR  COSTELLO requested  some  examples  of what  third-party                                                               
tolling entities might be.                                                                                                      
                                                                                                                                
MR.  BARROWMAN  responded  it  could  be  a  range  of  different                                                               
investors, including financial investors  such as equity funds or                                                               
pension funds.   It could be pipeline companies  or other utility                                                               
companies,  or possibly  some Asian  investors.   For example,  a                                                               
number of  Asian companies have  been willing to invest,  such as                                                               
the Japanese, and  maybe at slightly lower rates  than other ones                                                               
are willing to accept.  It  is difficult to say exactly what they                                                               
are, he  continued, but  there are examples.   It  certainly will                                                               
not  be  the  upstream  companies,   but  there  could  be  other                                                               
companies  involved  in  energy  and  other  companies  that  are                                                               
involved  in  ownership  of pipelines,  and  companies  that  are                                                               
willing  to accept  returns  based on  long  term, stable  income                                                               
streams.   The state also  has a role  to play here,  he advised.                                                               
It may be that the state  takes part of additional equity as well                                                               
and it  may be that  the state seeks  funding from some  of these                                                               
other entities.                                                                                                                 
                                                                                                                                
SENATOR COSTELLO  asked whether Mr. Barrowman  is currently aware                                                               
of any entities  that are interested in  investing as third-party                                                               
tolling entities.                                                                                                               
                                                                                                                                
MR. BARROWMAN answered  he is not specifically aware  of any that                                                               
are interested in specifically investing  in Alaska.  There are a                                                               
number of entities that have  invested worldwide, he said, and he                                                               
is  willing  to  provide  the committee  chair  with  details  of                                                               
companies that have done this type of investment elsewhere.                                                                     
                                                                                                                                
2:33:58 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON noted she wants  to understand the intersection                                                               
of slides  7 and  11.  She  asked whether she  is correct  in her                                                               
assumption that the East Africa  project is delayed, Canada Large                                                               
Scale and Australia  have been placed on hold, and  Alaska is the                                                               
last man standing.                                                                                                              
                                                                                                                                
MR. BARROWMAN  replied that slide  7 just highlights  examples of                                                               
some of the projects where there  have been delays.  He clarified                                                               
that "LNG  Canada" is the name  of one particular project,  it is                                                               
not all  the LNG projects  in Canada;  for example, there  is the                                                               
Pacific NorthWest  LNG Project and  Douglas Channel  LNG Project.                                                               
Slide 7  says that the  FID for the  LNG Canada Project  has been                                                               
postponed beyond the  end of 2016.  On slide  11, the bar labeled                                                               
"Canada Large Scale" is a  couple of projects that Wood Mackenzie                                                               
thinks might move ahead.  The  boundaries in that bar include LNG                                                               
Canada and Pacific  NorthWest LNG Project, so it  shows the range                                                               
between the breakeven costs for  supplying the two projects.  So,                                                               
not all  the projects highlighted  [in slide 7] feature  in slide                                                               
11.                                                                                                                             
                                                                                                                                
2:36:27 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON  referred to  slide 11  in regard  to comparing                                                               
the local market  with East Africa and different  portions of the                                                               
world, which are included on  the slide as benchmarks that Alaska                                                               
should compare  itself to.   She inquired  whether a  majority of                                                               
these  projects are  still  going forward  or  have already  been                                                               
paused because of the current energy price and other variables.                                                                 
                                                                                                                                
MR. BARROWMAN  responded that  some of  these are  going forward.                                                               
The East African  ones are very large  projects where significant                                                               
volumes of  LNG will be  produced, he said, and  the expectations                                                               
are that  these will be  moving forward  to FID.   Wood Mackenzie                                                               
highlighted that there  are a number of other  projects that have                                                               
been  delayed and  some that  have been  canceled.   So, it  is a                                                               
fairly broad  spectrum from projects that  Wood Mackenzie expects                                                               
to go ahead to ones that are being canceled and delayed.                                                                        
                                                                                                                                
2:37:39 PM                                                                                                                    
                                                                                                                                
SENATOR  MACKINNON asked  whether Mr.  Barrowman has  any working                                                               
knowledge of  the liquidity that is  on the market from  the side                                                               
of producers or investors.   For example, looking at ExxonMobil's                                                               
balance  sheets and  what cash  is available  to the  company for                                                               
investing in  different opportunities  around the globe  and what                                                               
those  rates  of return  might  look  like.   She  further  asked                                                               
whether there is  a lot of cash liquidity sitting  on the balance                                                               
sheets  waiting  for  investment opportunities  and  whether  the                                                               
companies that  typically invest in  these kinds of  projects are                                                               
out looking and diversifying their portfolios.                                                                                  
                                                                                                                                
MR. BARROWMAN  answered he could  not quote what  the liquidities                                                               
of the  companies are, but he  knows some are quite  stressed and                                                               
others have  significant amounts.   Many may well debt  fund some                                                               
portion of their investment as well,  he continued.  The issue is                                                               
that even if a company has  money sitting there, the project will                                                               
need to achieve a return, and  the hurdle of 12 percent will need                                                               
to be  achieved.  The  reason for that  is that companies  have a                                                               
long portfolio of different projects  that they are comparing, so                                                               
that is  really going to be  the main driver on  whether projects                                                               
proceed or not.                                                                                                                 
                                                                                                                                
2:39:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER drew attention  to the bar labeled "Current                                                               
Project" on  slide 17 and  recalled that elsewhere in  the report                                                               
Wood Mackenzie  has called  it a  100 percent  equity model.   On                                                               
slide  17,  he  observed,  it  is being  compared  to  a  partial                                                               
debt:equity structure.   He inquired whether  "100 percent equity                                                               
model" means  100 percent  equity funding  or also  includes some                                                               
element of debt financing.                                                                                                      
                                                                                                                                
MR. BARROWMAN  replied it is  totally equity funded  by companies                                                               
and does  not include any debt  funding.  The debt  funding first                                                               
appears on slide 17.                                                                                                            
                                                                                                                                
2:40:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER posed  a scenario  in which  a project  is                                                               
pursued under what is being called  the current equity model.  He                                                               
asked what the likelihood is that  the state and all its partners                                                               
would  "totally cash  upfront equity  fund"  the project  without                                                               
debt.   He said  it has  been his  understanding over  many years                                                               
that  these  partners would  also  likely  pursue some  level  of                                                               
debt:equity  structuring,   which  would  have   a  correspondent                                                               
reduction  in  the  breakeven  costs in  the  bar  depicting  the                                                               
current project.                                                                                                                
                                                                                                                                
MR. BARROWMAN  responded that  Representative Hawker  is correct.                                                               
The point  he made, he  explained, was  that when looking  at the                                                               
debt funding,  all the other  projects that Alaska  compares with                                                               
would debt  fund as  well.   It is unrealistic  to assume  that a                                                               
project of  this nature would be  equity funded.  The  purpose in                                                               
showing it is  a start point for comparison.   The challenge that                                                               
even Wood Mackenzie  has is not knowing the exact  details of all                                                               
the debt  funding arrangements that  may be  used.  So,  to start                                                               
with a  comparable basis, Wood  Mackenzie looks at a  100 percent                                                               
funded basis and then moves through.                                                                                            
                                                                                                                                
2:42:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked how  much the breakeven  costs would                                                               
be reduced  on the  current project model  by applying  a similar                                                               
70:30 debt to equity structure.                                                                                                 
                                                                                                                                
MR.  BARROWMAN answered  it would  be reasonable  to assume  that                                                               
about half  of that reduction  may be as a  result of debt.   The                                                               
problem,  he  said, is  that  when  starting  to layer  on  these                                                               
things, it is very  much a case of what order  the things are put                                                               
in.   If  just  debt  funding and  just  third-party tolling  was                                                               
looked at, a total reduction would  be seen that is more than the                                                               
combined reduction.   As  a rule  of thumb,  it is  reasonable to                                                               
think about 50:50 between the  debt to equity and the third-party                                                               
tolling structure.                                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER  surmised Mr. Barrowman is  saying "sort of                                                               
split the difference."                                                                                                          
                                                                                                                                
MR. BARROWMAN agreed that that is probably reasonable.                                                                          
                                                                                                                                
2:43:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER recalled  Mr. Barrowman  pointing out  the                                                               
second element in the tolling  structure presuming a utility rate                                                               
of return typically  about 8 percent.  He  recalled Mr. Barrowman                                                               
describing  the investors  involved  as being  "long term  stable                                                               
stream" investors.   He inquired  whether, as indicated  on slide                                                               
15, a project like Alaska LNG  could expect that sort of investor                                                               
to step in  with an 8 percent non-recourse debt  at the beginning                                                               
stages where the maximum construction,  market, and project risks                                                               
are  being faced.    That  would seem  to  be  contrary to  those                                                               
investors' willingness to  offer such a low rate  in exchange for                                                               
the security of  a very low or no-risk project,  he remarked.  He                                                               
therefore questioned  whether that  8 percent really  would apply                                                               
at the  inception of the  project or whether much  more expensive                                                               
mezzanine financing  would have to  be put  up to get  the Alaska                                                               
project going, stabilized, and proved to be a stable investment.                                                                
                                                                                                                                
MR. BARROWMAN clarified that the  8 percent being talked about is                                                               
not an  interest rate;  it is  the rate of  return that  a third-                                                               
party  toller would  need to  receive.   The issue  of debt  is a                                                               
separate  point.   The  non-recourse debt  that  is being  talked                                                               
about  is related  to the  debt  structure.   Wood Mackenzie  has                                                               
spoken  to a  number of  people about  what they  believe lenders                                                               
would  require for  a project  of  this nature.   Wood  Mackenzie                                                               
believes  somewhere  between  3  and 4  percent  above  LIBOR  is                                                               
probably realistic  at this stage.   So, two separate  things are                                                               
being talked  about:  one is  the interest rate that  would apply                                                               
for  a  lender  that  is  lending,  say,  70  percent,  and  Wood                                                               
Mackenzie is saying that that would  be about 5 percent; and then                                                               
separately is the third-party toller  that would require a return                                                               
of 8 percent on its equity.                                                                                                     
                                                                                                                                
2:45:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER clarified  that  going to  that 8  percent                                                               
required return was the point of his question.                                                                                  
                                                                                                                                
MR. BARROWMAN  said he  thinks that the  8 percent  is realistic.                                                               
There  are potential  risks, he  continued, but  these are  taken                                                               
account of within  the 8 percent.  He  agreed with Representative                                                               
Hawker that there  certainly are execution risks,  but said there                                                               
is  not a  lot of  the  other risks  that are  involved in,  say,                                                               
upstream  development, such  as  oil price  risk and  exploration                                                               
risk.  Therefore, Wood Mackenzie  still feels comfortable with an                                                               
8 percent utility rate of return being a reasonable target.                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER expressed  appreciation for Mr. Barrowman's                                                               
opinion.                                                                                                                        
                                                                                                                                
2:47:10 PM                                                                                                                    
                                                                                                                                
SENATOR  GIESSEL, in  regard  to  the 8  percent  rate of  return                                                               
talked about  by Representative Hawker, noted  there are projects                                                               
that have  had significant  cost overruns  and posited  that that                                                               
has  to represent  risk for  people who  are entering  into these                                                               
projects.    For example,  she  continued,  today's news  has  an                                                               
article  about a  construction contractor  suing  Chevron on  the                                                               
Gorgon Project [in Western Australia],  a billion dollar lawsuit.                                                               
And yet  a person taking this  on would only expect  an 8 percent                                                               
rate of  return?   She asked  whether this  is seen  commonly and                                                               
requested an example.                                                                                                           
                                                                                                                                
MR.  BARROWMAN answered  he  is slightly  struggling  to give  an                                                               
example at this stage.  But,  he advised, any cost overruns would                                                               
effectively  increase the  toll charge.   The  8 percent  rate of                                                               
return  will  be based  upon  the  initial  investment.   If  the                                                               
initial investment rises,  then the risk is being  placed back on                                                               
the other project participants if the  company needs to make an 8                                                               
percent  return.   Having said  that, he  continued, in  terms of                                                               
contracts the  contracts may well  be agreed.   Potentially there                                                               
could be movement  around that 8 percent as this  is not an exact                                                               
science.  Recalling  his earlier example of the  built project in                                                               
Norway, he  reiterated that  the pre-tax  7 percent  return gives                                                               
post-tax significantly less,  but he said that  that is something                                                               
that companies are willing to accept within the North Sea.                                                                      
                                                                                                                                
2:49:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR   referenced  the  concept   of  take-or-pay                                                               
contracts,  and  inquired  whether  the  contracts  with  utility                                                               
investors are  the same kind  such that  if the project  fails in                                                               
another way  the State  of Alaska would  be obligated  to provide                                                               
gas to that utility or to pay.                                                                                                  
                                                                                                                                
MR. BARROWMAN  understood Representative  Tarr to be  saying that                                                               
if [the state] signed a sales  contract to a Japanese utility and                                                               
then  the pipeline  was not  built, what  are the  risks on  [the                                                               
state]?                                                                                                                         
                                                                                                                                
REPRESENTATIVE TARR noted  it could also be  an earthquake, given                                                               
the Alaska landscape.                                                                                                           
                                                                                                                                
MR.  BARROWMAN replied  he is  not sure  on the  details of  what                                                               
would typically go  into the contracts on that.   He said his gut                                                               
reaction is  that there would  need to be clearly  some condition                                                               
that if  there was a  force majeure event.   Other than  that, he                                                               
said he is not sure on the  details of what the support would be,                                                               
but is pretty  confident that [the state] would not  be forced to                                                               
supply,  that [the  state] would  have recourse  to the  owner or                                                               
builder of the pipeline or tolling structure.                                                                                   
                                                                                                                                
2:51:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON recalled  Mr.  Barrowman talking  about                                                               
how a  third party playing the  role of title owner  and operator                                                               
of the entire kit was atypical  and not the norm, but that third-                                                               
party  financing without  that ownership  was much  more what  is                                                               
seen.  He posed a scenario  under the original model conceived by                                                               
Senate Bill 138  in which the original parties  borrowed money to                                                               
finance $15 billion of a $50  billion project.  He asked how that                                                               
is  different   than  a  third-party  financing   that  has  been                                                               
described under this alternative approach.                                                                                      
                                                                                                                                
MR.  BARROWMAN  responded that  if  he  understands the  question                                                               
correctly, it is similar to  the question asked by Representative                                                               
Hawker about,  "If we go from  the current project and  just debt                                                               
fund, where do we end up?"                                                                                                      
                                                                                                                                
REPRESENTATIVE JOSEPHSON  replied yes,  except that he  thinks it                                                               
was  understood that  there  would be  some  component of  equity                                                               
portion to each party's share.                                                                                                  
                                                                                                                                
MR. BARROWMAN answered that it will  reduce the cost of supply if                                                               
there is debt  funding.  Clearly, he continued, one  would not be                                                               
benefitting from,  say, a utility rate  of return on that  and so                                                               
it would  still have about 12  percent rate of return.   It would                                                               
certainly reduce  the cost of  supply, probably by  about halfway                                                               
down between the  current project and the  third-party or tolling                                                               
utility; but,  it is  not going  to take  it all  the way  that a                                                               
third-party toller would.                                                                                                       
                                                                                                                                
REPRESENTATIVE JOSEPHSON  understood Mr.  Barrowman to  be saying                                                               
that  if  the  original  four parties  simply  accepted  a  lower                                                               
utility rate of return for  the toll that they charged themselves                                                               
or others, then suddenly the costs  are much more manageable.  It                                                               
is just this  difference between this 8 and 12  percent that they                                                               
would demand be paid that makes it not feasible.                                                                                
                                                                                                                                
MR. BARROWMAN  replied that what is  being shown here is  that if                                                               
someone is  willing to come  in and  accept an 8  percent utility                                                               
rate of  return, then it does  start to push the  project through                                                               
to being more positive on the economic side.                                                                                    
                                                                                                                                
2:55:42 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL  drew attention  to the graphic  on slide  13 which                                                               
shows the supplies that are  available now and the opportunity in                                                               
the gold color.   She related it  is often heard that  there is a                                                               
very tiny  window for [Alaska LNG]  to enter into the  market and                                                               
that  this window  will be  missed if  [the parties]  do not  act                                                               
expeditiously.  Observing the pie-shaped  portion of yellow under                                                               
the red line,  she interpreted this to be a  fairly large area of                                                               
opportunity for  new projects coming  online.  She  asked whether                                                               
Mr. Barrowman sees a narrow or wider window of opportunity.                                                                     
                                                                                                                                
MR. BARROWMAN  responded that on  the chart there certainly  is a                                                               
fairly long  period for which  supplies need to be  provided for.                                                               
While he  would not necessarily  say it  is very short  term, one                                                               
could  envision a  situation where  deals being  signed over  the                                                               
next  few years  start  to fill  in  that  gap.   It  could be  a                                                               
situation  that if  things are  delayed  a number  of years  then                                                               
there might not be quite the  same levels of opportunity.  Having                                                               
said  that, he  continued, as  one moves  through time  into 2030                                                               
there will  be more  opportunities arising there.   So,  while he                                                               
does not  quite agree that  it is just  a short term  problem, he                                                               
would say that these things will  start to get filled up as other                                                               
projects get signed.   Also, as he mentioned earlier,  there is a                                                               
variety - some are long term and some may be short term.                                                                        
                                                                                                                                
CHAIR GIESSEL thanked  Mr. Barrowman for providing  his report in                                                               
person and  stated that he  provided very helpful  and meaningful                                                               
information.                                                                                                                    
                                                                                                                                
2:58:11 PM                                                                                                                    
                                                                                                                                
CHAIR  GIESSEL said  Keith Meyer,  President of  AGDC, will  next                                                               
provide an  update on AGDC's efforts  to stand up a  team to take                                                               
over the  Alaska LNG Project,  including timeline,  schedule, and                                                               
milestones.   Also  included in  the update  will be  information                                                               
about  Front-End Engineering  Design  (FEED),  the scheduling  of                                                               
FEED, the  Federal Energy  Regulatory Commission  (FERC) filings,                                                               
commercial  standpoint  in  terms  of acquiring  the  Alaska  LNG                                                               
assets, such  as land,  and the U.S.  Department of  Energy (DOE)                                                               
permit, and budget issues.  Chair Giessel further stated:                                                                       
                                                                                                                                
     We are, as  you might think of us, as  the loan officer                                                                    
     in  a  credit  union,  and so  we  are  entertaining  a                                                                    
     project that wishes to have  some loans put forward and                                                                    
     we  are evaluating  those, doing  our due  diligence on                                                                    
     the economics of those.   It is our mandate to maximize                                                                    
     the resource for  the people of Alaska,  so that's what                                                                    
     we will be discussing today with ... AGDC.                                                                                 
                                                                                                                                
2:59:36 PM                                                                                                                    
                                                                                                                                
KEITH  MEYER, President,  Alaska Gasline  Development Corporation                                                               
(AGDC),  provided  a  PowerPoint  presentation  entitled,  "JOINT                                                               
RESOURCES COMMITTEE  HEARING," dated  8/24/16.   Before beginning                                                               
his presentation,  Mr. Meyer  invited Mr. Hugh  short to  give an                                                               
opening remark.                                                                                                                 
                                                                                                                                
3:00:32 PM                                                                                                                    
                                                                                                                                
HUGH  SHORT, Vice  Chairman, Board  of Directors,  Alaska Gasline                                                               
Development  Corporation (AGDC),  stated  that  this project  has                                                               
gone through  a number of iterations  during his year and  a half                                                               
tenure as  a board member.   It  was after the  conversation with                                                               
the producers  in late  winter and early  spring that  a decision                                                               
was faced  by the AGDC board.   That decision was  really focused                                                               
on  to stop  the  project,  or pause  depending  on  how that  is                                                               
characterized  and it  ends up,  or  to pursue  other avenues  to                                                               
potentially   move  the   project  forward   under  a   different                                                               
structure.   At its last  meeting [8/18/16], the AGDC  board made                                                               
the statement that the State  of Alaska, through the Alaska Stand                                                               
Alone Pipeline  (ASAP) and Alaska  LNG, has allocated  about $330                                                               
million towards this  effort over the last few years.   It is the                                                               
obligation  of the  AGDC board  to  be able  to look  at all  the                                                               
options with  the stakeholders and  the AGDC president  to ensure                                                               
there is  no other path forward  on this project and  look at the                                                               
feasibility of  other options.   That  is where  the board  is at                                                               
today.    The  board  has  directed the  AGDC  president  to  put                                                               
together some  alternatives.  The  alternative that will  be seen                                                               
today,  and  that  the  previous   speakers  have  discussed,  is                                                               
something  the  board  has  just  begun  considering  and  having                                                               
conversations  around.   The  AGDC  board is  in  the process  of                                                               
learning, understanding,  and trying  to make decisions  based on                                                               
good public policy  and based on ensuring that at  the end of the                                                               
day  this project  is not  putting excess  risk on  the State  of                                                               
Alaska  or  the residents  of  Alaska.    Mr.  Short said  he  is                                                               
encouraged that AGDC  is having very good  conversations with its                                                               
producer  parties with  regard to  a potential  new structure  of                                                               
moving this  project forward.   There has been an  earnest effort                                                               
amongst all of the producer parties  in Alaska LNG to discuss and                                                               
move this  project forward  because of  the significant  prize to                                                               
move 65 trillion cubic feet of gas and get it to market.                                                                        
                                                                                                                                
3:04:31 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL  related that  she heard  the discussion  at AGDC's                                                               
8/18/16 board  meeting about  the investment made  thus far.   As                                                               
the appropriating  body, she continued,  the legislature  also is                                                               
doing  its due  diligence and  will  take the  approach that  the                                                               
major  producers take  - if  a project  becomes uneconomic,  they                                                               
stop regardless of  what has been invested thus  far, rather than                                                               
continue to pursue an uneconomic  project.  Thus, the legislature                                                               
is with AGDC in that process.                                                                                                   
                                                                                                                                
3:05:22 PM                                                                                                                    
                                                                                                                                
MR. MEYER stated  that things are going very well  with the joint                                                               
venture  parties.   He  began  his  PowerPoint presentation  with                                                               
slide 3,  "Key Messages,  Where are  we with the  project?"    He                                                               
explained  that these  are recent  joint key  messages that  were                                                               
developed  together by  AGDC and  the producer  parties, and,  as                                                               
well, he will  also be providing some  AGDC corporate statements.                                                               
He advised  that the  Alaska LNG Project  continues to  make good                                                               
technical  progress.    The  Pre-FEED work  is  over  90  percent                                                               
complete  and  Pre-FEED  deliverables  are  anticipated  by  mid-                                                               
September.   Planning for  the transition  to an  AGDC-led Alaska                                                               
LNG Project is underway, with  the target for commencement by the                                                               
end of October and completion by the end of the year.                                                                           
                                                                                                                                
MR.  MEYER moved  to slide  4, "Key  Messages, What  is happening                                                               
with  the  transition?"   He  reported  the parties  are  working                                                               
together to consider commercial  options to improve the project's                                                               
ability to compete in the  global LNG market.  Once transitioned,                                                               
AGDC will be responsible for  managing the project going forward,                                                               
including   applying  for   regulatory  approval,   securing  the                                                               
commercial  commitments from  gas sellers,  shippers, and  buyers                                                               
necessary to acquire  the equity and debt financing  that will be                                                               
required to  complete the  project and  preparing to  start FEED.                                                               
He  noted that  neither  a  full FEED,  nor  a full  construction                                                               
project, is  being pushed forward  at this point; that  will come                                                               
much later.                                                                                                                     
                                                                                                                                
3:07:47 PM                                                                                                                    
                                                                                                                                
MR.  MEYER addressed  slide  5, "Key  Messages,  Are the  parties                                                               
working collaboratively?"   As part of the effort  to improve the                                                               
project's competitiveness,  he advised,  the parties  are working                                                               
collaboratively to  transition the  project to  state leadership.                                                               
The parties  are also  pursuing alternative  commercial structure                                                               
options and concepts  that have been successfully  used in global                                                               
LNG projects  to reduce the cost  of supply of the  project.  The                                                               
goal  is to  have  a  seamless continuation  of  the project  and                                                               
maintain  project momentum.   He  said AGDC,  BP, ConocoPhillips,                                                               
and ExxonMobil  are currently holding transition  meetings with a                                                               
goal  to  enable  a  seamless  continuation  of  the  Alaska  LNG                                                               
Project.  These  discussions have the goal of  timely transfer of                                                               
information, data, and work product,  as well as access to assets                                                               
necessary for a successful FERC filing.                                                                                         
                                                                                                                                
MR.  MEYER turned  to slide  6, "Additional  AGDC Messages,"  and                                                               
said AGDC  has approved  funding through  fiscal year  (FY) 2017.                                                               
As  part of  the state's  budgetary process,  he continued,  AGDC                                                               
will prepare  a budget  request to  the Alaska  State Legislature                                                               
for FY  2018.  He said  AGDC will augment its  current technical,                                                               
commercial,  and  project   management  expertise  as  necessary,                                                               
consistent  with project  progress  and funding.   Further,  AGDC                                                               
plans  to  ensure   the  Alaska  LNG  Project   builds  upon  the                                                               
tremendous  expertise and  accomplishments already  invested into                                                               
the  project.     He  expressed   AGDC's  appreciation   for  the                                                               
professional and  cooperative way  the parties have  advanced the                                                               
project to this stage and said  he looks forward to continuing to                                                               
the next stage of the project.                                                                                                  
                                                                                                                                
3:09:39 PM                                                                                                                    
                                                                                                                                
MR. MEYER  displayed slide 7,  "Refining the 'Stage  Gates,'" and                                                               
drew attention  to the  stage gate  diagram across  the top.   He                                                               
explained that the project is  currently wrapping up the Pre-FEED                                                               
process, and  next is the  decision [for whether to  enter FEED],                                                               
which is  represented by the  diamond-shaped box on  the diagram.                                                               
To date in the diagram, all  of the documentation has been on the                                                               
left side  of the diamond.   There is no governance  to deal with                                                               
under this next  phase and so everything right now  is focused on                                                               
this  diamond,  which  is  the  decision to  enter  FEED.    That                                                               
decision has  two outcomes -  either go to FEED  or stop.   It is                                                               
very clear  now that  the project is  not ready to  go to  a full                                                               
FEED, so there is not the go  decision.  "But, at the same time,"                                                               
he continued, "we can't stop, just  yet."  He posited that [AGDC]                                                               
owes to itself,  the state, and all the  stakeholders involved to                                                               
consider what the  other alternatives are other  than just saying                                                               
stop, and that is where the project is right now.                                                                               
                                                                                                                                
MR. MEYER continued on slide 7  and looked at new elements in the                                                               
decision to  enter FEED, explaining  that this is  the discussion                                                               
of the modified  structure that is more of  a third-party tolling                                                               
structure that brings in infrastructure  investors that do accept                                                               
a lower rate  of return.  He reviewed the  list of five questions                                                               
on slide  7 that now need  to be addressed relative  to these new                                                               
elements.  Regarding the first  question, "Have we structured the                                                               
project for  tax and other financial  efficiencies?" he explained                                                               
that this is the lowering of  the blue bars in the Wood Mackenzie                                                               
presentation.   Regarding the second  question, "Have  we secured                                                               
customers sufficient  for financing?" he advised  that unless the                                                               
project gets customers it will  not get financing.  Regarding the                                                               
third  question,   "Have  we   identified  and   secured  parties                                                               
interested in  equity investment in the  infrastructure project?"                                                               
he stressed that equity investors are  needed and they need to be                                                               
attracted to the  project, to Alaska, and to  the underpinning of                                                               
the customer contracts.  Regarding  the fourth question, "Have we                                                               
identified  and secured  lenders  for  non-recourse project  debt                                                               
finance?"  he elaborated  on the  meaning of  non-course.   It is                                                               
non-recourse  to Alaska,  he explained.   Non-recourse  debt just                                                               
looks at the  sanctity of the contracts  underneath that project,                                                               
the commercial  agreements.  Regarding the  fifth question, "Have                                                               
we  secured   large  EPC  companies   competent  to   manage  the                                                               
construction of  the project and  shoulder a significant  part of                                                               
the construction related risks?" he  noted that this is where the                                                               
risk  is pushed  off to  those parties  best able  to handle  it.                                                               
Those parties  do have to be  paid to handle some  risk, he said,                                                               
but that  significant overrun risk is  taken away.  For  AGDC, or                                                               
potentially  the other  investors, it  is worth  paying a  little                                                               
more to get rid of that  overrun risk, since [AGDC] does not have                                                               
the balance sheet to absorb the overrun risk.                                                                                   
                                                                                                                                
3:12:57 PM                                                                                                                    
                                                                                                                                
MR. MEYER concluded by reading from  slide 8, "Summary."  He said                                                               
AGDC has accepted  the challenge to lead the  Alaska LNG Project;                                                               
AGDC  recognizes  the  project   will  need  customers,  adequate                                                               
financing, construction contractors,  and legislative approval to                                                               
move forward;  AGDC believes the  Alaska LNG Project can  be made                                                               
commercially viable and can compete  in the global LNG arena; and                                                               
the project offers  enormous benefits to Alaska  and deserves the                                                               
opportunity to capture Alaska's share of the global LNG market.                                                                 
                                                                                                                                
3:13:43 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON  inquired as  to when AGDC  might be  coming to                                                               
the legislature with  either a financial request or  a request to                                                               
change the  structure of current  Alaska state  statute regarding                                                               
this project.                                                                                                                   
                                                                                                                                
MR. MEYER  replied that right now  AGDC is looking at  the normal                                                               
budget process,  not a special  session.   He said AGDC  has some                                                               
existing funding and the next phase  is moving from the FERC pre-                                                               
filing  process into  the formal  FERC filing.   The  FERC filing                                                               
itself  probably  will  not  happen until  January  [2017].    He                                                               
related  that   he  has  asked   the  [engineering   and  program                                                               
management]  team to  prepare a  number  of different  scenarios.                                                               
One  scenario is  to live  within the  existing funds  through FY                                                               
2017 and  another is  a more austere  program that  stretches out                                                               
through  calendar year  2017.   Also  to be  looked  at are  some                                                               
increased spending scenarios for  more activity, more engineering                                                               
work,  but AGDC  is not  going to  recommend that  until it  gets                                                               
better clarity on who else may be  funding.  It is hoped that the                                                               
existing producer parties  will be funding some of  this or maybe                                                               
the third  party would be funding  some of this, but  that is not                                                               
known today.                                                                                                                    
                                                                                                                                
3:15:25 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON, in  regard to transitions, noted  that some of                                                               
the pieces that would be needed  for a stand-alone project are in                                                               
the ownership of other entities.   She asked how AGDC is entering                                                               
negotiations  without the  authority, or  at least  the financial                                                               
backing, to transition those assets to a state-led project.                                                                     
                                                                                                                                
MR. MEYER responded as follows:                                                                                                 
                                                                                                                                
     When  you  talk about  the  assets  that are  in  third                                                                    
     parties, a  block of those are  in the LLC, if  you are                                                                    
     talking about  that.  So,  we have  access to a  lot of                                                                    
     the joint venture  information.  The LLC,  which is the                                                                    
     landowner  and which  has  some  significant status  in                                                                    
     this  project, the  state is  not a  party to.   You're                                                                    
     correct, it has  three parties.  We  are in discussions                                                                    
     with those  parties about the  use of ...  those assets                                                                    
     in  that LLC.    So, we're  in  discussions, those  are                                                                    
     confidential, but  they're also  not complete.   From a                                                                    
     principal  point of  view, I'm  hoping that  it doesn't                                                                    
     require  a purchase  of those.   You  know the  parties                                                                    
     have spent some  money in that purchase  of those right                                                                    
     up front is  what I'm talking about.  At  some point in                                                                    
     time it will.  I think  that AGDC is being expected and                                                                    
     asked and  is willing  to take  on a  lot of  the heavy                                                                    
     pulling  of  this project  with  respect  to moving  it                                                                    
     through  the FERC  arena.    I don't  expect  us to  be                                                                    
     cashing out existing parties at  the front end of this.                                                                    
     At  some  point  in  time we'll  want  to  acquire  the                                                                    
     assets, or  at least certainly  the right to use.   So,                                                                    
     what FERC requires of an  LNG applicant is that we have                                                                    
     either ownership or control of the  land.  So we do not                                                                    
     need  to own,  but we  do absolutely  need to  control.                                                                    
     The control can be through  lease, the control could be                                                                    
     through contracts.   So,  we will  need to  negotiate a                                                                    
     control ... of those LLC assets.                                                                                           
                                                                                                                                
3:17:52 PM                                                                                                                    
                                                                                                                                
SENATOR  MACKINNON inquired  whether  the  legislature will  hear                                                               
more  about the  transition of  either control  or purchase  at a                                                               
later time in  greater detail.  She further  inquired whether the                                                               
legislature will see  some kind of legislation to  start a state-                                                               
owned project in the coming session.                                                                                            
                                                                                                                                
MR. MEYER,  in regard to  the first question, answered  that AGDC                                                               
would expect  to see that in  the future in terms  of the funding                                                               
if  funding  is  needed  for  that  kind  of  an  activity.    He                                                               
reiterated  his hope  that  AGDC can  initially  do that  largely                                                               
through contract.   In regard to the second  question, he stated,                                                               
"It's  my  understanding  that  we   do  not  need  any  kind  of                                                               
legislative change  under 138  to go into  the kind  of structure                                                               
that we're talking about."                                                                                                      
                                                                                                                                
SENATOR  MACKINNON commented  that that  will be  interesting and                                                               
said she looks forward to that.                                                                                                 
                                                                                                                                
MR. SHORT  offered his belief that  AGDC is at a  stage right now                                                               
in  this project  where  it  would be  premature  to forecast  or                                                               
understand  what  legislative  changes, if  necessary,  would  be                                                               
required.   He said the AGDC  board has not spent  enough time to                                                               
understand what  that would  look like and  so he  would withhold                                                               
any statement  that AGDC would  not need any  legislative changes                                                               
until AGDC has more information.                                                                                                
                                                                                                                                
3:19:43 PM                                                                                                                    
                                                                                                                                
SENATOR  MACKINNON  stated, "We  all  want  to monetize  Alaska's                                                               
natural  gas."   Speaking for  herself, she  said she  absolutely                                                               
wants  a  project that  is  economically  viable for  the  state.                                                               
Regarding Mr. Short's opening comment  about an economic analysis                                                               
on  what AGDC  is proposing,  she asked  whether AGDC  has anyone                                                               
under contract to bring an actual  study to the table to see what                                                               
AGDC is  proposing as investment by  the state or through  a debt                                                               
acquisition  or  a  third  party.    She  further  asked  whether                                                               
legislators are going  to see some hard numbers  that have actual                                                               
analysis by an outside contractor.                                                                                              
                                                                                                                                
MR. SHORT replied that the answer is  yes.  He said that a lot of                                                               
financial analysis is  required to move this project  to the next                                                               
stage.  Adequate  information is not had at this  time to be able                                                               
to present  that, given the early  nature of where AGDC  is at in                                                               
this  process.    The  AGDC   board  will  present  that  to  the                                                               
legislature  when it  is appropriate;  AGDC is  working to  bring                                                               
those resources to the table and ensure there is that process.                                                                  
                                                                                                                                
3:21:31 PM                                                                                                                    
                                                                                                                                
MR. MEYER  clarified that AGDC  has not done a  detailed analysis                                                               
as it is  too early in the  process.  What is  being talked about                                                               
is a structure,  he continued.  Wood Mackenzie has  laid out what                                                               
the  implications  and  the  benefits  of  that  could  be.    He                                                               
applauded Wood Mackenzie for its work  and said he is glad to see                                                               
that it is  directionally where AGDC is talking about.   He noted                                                               
Wood Mackenzie  did that  without any  input from  AGDC.   It was                                                               
good to see that a  project-financed, third-party tolling kind of                                                               
structure is  actually in the  zone of competitiveness,  he said,                                                               
and  that is  what AGDC  is  sort of  shooting for.   Right  now,                                                               
however, it  is still  too early  to say what  will be  the exact                                                               
structure, what parties  are going to be involved.   He expressed                                                               
his hope that the producer parties  will play a very active role.                                                               
He further explained that AGDC  is looking at the state ownership                                                               
structure and at how to  get a third-party, quasi-equity investor                                                               
into a  state-owned structure  and get the  tax benefits,  and so                                                               
through a securitization  of the cash flows out  of this project.                                                               
But AGDC is not  there yet and has some legal work  to do.  Also,                                                               
AGDC has some work to do with  customers to determine if it is in                                                               
the hunt.   Some of AGDC's producer parties ideally  will be [the                                                               
state's] best  customers.   Today AGDC  and the  producer parties                                                               
are joint venture  parties, but regardless he looks  at them from                                                               
a pipeline  standpoint as  [the state's]  customers and  they can                                                               
buy the  services through the  pipe and through the  LNG facility                                                               
and take  their LNG at Nikiski  and they can they  go serve their                                                               
customers.  Another alternative  is AGDC actively finds customers                                                               
and has them  subscribe for services, or a  combination of those.                                                               
He  reiterated that  AGDC has  not  done a  detailed analysis  on                                                               
"here is the  structure we propose, here is the  amount of equity                                                               
that we're looking at from the  state, here are the third parties                                                               
involved."  He  added that third parties  have expressed interest                                                               
to him and  there is enough excitement out there  that people are                                                               
interested, but at the same  time what is being heard universally                                                               
on  this project  by all  of the  project's participants  is that                                                               
something must  be done  with the  cost of  supply.   The project                                                               
team  has beaten  the  capital  costs down  and,  while there  is                                                               
apparently still  more room to go,  the team has done  good work.                                                               
However,  it is  still  a little  too  high if  all  of them  are                                                               
required to fund the  thing.  So, AGDC has to  look at this other                                                               
structure, like Wood  Mackenzie has illustrated, which  is not so                                                               
much new, but  new to this project; most of  the pipelines in the                                                               
Lower  48 have  been  built this  way  and a  number  of the  LNG                                                               
facilities.  Now  it is being said that this  looks like it works                                                               
and he  is happy that  the Wood  Mackenzie folks came  up unaided                                                               
with the conclusion that this puts it  in the zone.  Now it is up                                                               
to AGDC to  do a lot of  work - the stage gate  has been expanded                                                               
to  say  there   must  be  the  financial   efficiency,  the  tax                                                               
efficiency, that equity  must be found, customers  must be found,                                                               
debt must  be found,  and a  large EPC  contractor must  be found                                                               
that is willing to  shoulder some of this risk as  well.  That is                                                               
the work  that AGDC faces  as it  looks into 2017  and throughout                                                               
2017, in addition to the FERC filing.                                                                                           
                                                                                                                                
3:25:25 PM                                                                                                                    
                                                                                                                                
SENATOR MACKINNON  said it has  been known  for a long  time that                                                               
the project  partners could  change over  time and  the structure                                                               
might  change, and  that  [legislators] needed  to  be fluid  and                                                               
ready  for those  changes.   She said  things seem  to have  been                                                               
going forward  two steps and then  a step back, such  as the pipe                                                               
size  and  other  things  that  create  uncertainty  around  this                                                               
project.   She  inquired whether  Mr. Meyer  can assure  her that                                                               
there is  still a  termination point in  Nikiski or  whether that                                                               
termination point  is starting to  come into question.   She said                                                               
she is asking  because she was purview to a  letter [dated 8/1/16                                                               
from Mr. Meyer] that was  talking about challenges with the Kenai                                                               
Spur [Highway].                                                                                                                 
                                                                                                                                
MR. MEYER assured Senator MacKinnon that  he is, and AGDC is, and                                                               
nothing that AGDC  is looking at deviates from that.   All of the                                                               
resource  reports done  today are  for that  site, he  said.   He                                                               
believed the letter  being talked about went to  a landowner that                                                               
is on  the affected  route of road,  the highway  relocation, and                                                               
because that activity  has slowed down a bit  there are questions                                                               
out in Kenai.   The fellow hand delivered a letter  to him and to                                                               
a  board member,  and when  he  gets a  hand-delivered letter  he                                                               
wants to  respond to the  party.   Also, he reported,  [Mr. Fritz                                                               
Krusen, Vice President Alaska LNG], met  with the fellow.  It was                                                               
a person wanting to know what  is happening, it was no suggestion                                                               
that AGDC is going to deviate from  that.  As long as all parties                                                               
are  cooperating together  on  the site  there  is absolutely  no                                                               
reason  to  deviate.    It  would  be  a  significant  delay  and                                                               
detriment if a different site had to be picked.                                                                                 
                                                                                                                                
3:28:03 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL  summarized answers provided to  Senator MacKinnon.                                                               
In regard  to financial analysis, the  answer was that it  is too                                                               
early and that AGDC will be  beginning work on this.  The answers                                                               
also talked  about legal questions,  detailed analysis,  and cost                                                               
of supply  work.   She drew  attention to  slide 7  depicting the                                                               
stage-gated  process, and  observed that  no dates  are provided.                                                               
She  noted that  [legislators] had  a  course on  the subject  of                                                               
megaprojects  and are  therefore quite  familiar with  this.   In                                                               
regard to  the list of  missing information that AGDC  is working                                                               
on  providing,  she  asked  what the  timeline  is  for  reaching                                                               
conclusion of all of that investigation.                                                                                        
                                                                                                                                
MR. MEYER responded that AGDC  does have some timelines not shown                                                               
on the slide.  He offered his  belief that there is a window that                                                               
AGDC  must be  prepared  to  hit and  that  is  in the  mid-2020s                                                               
timeframe.  He said he would like  there to be a sense of urgency                                                               
to  try to  hit that  and try  to get  in that  window.   Working                                                               
backwards from  that, he would ideally  like to be in  a position                                                               
to reach  a "preliminary" final investment  decision (FID), which                                                               
then kicks  off the FEED, in  a timeframe of third  quarter 2018.                                                               
A lot of the technical folks  say that is aggressive, he allowed,                                                               
and he agrees.   If this is  done, it would be looking  at a 2023                                                               
in-service date.   While there could be some sliding  on that, he                                                               
would ideally  like to get  the five  elements listed on  slide 7                                                               
addressed  between now  and  third  quarter 2018.    That is  the                                                               
timeline he is  pushing his personnel and the AGDC  team to meet.                                                               
So, structure, debt, and equity  must be looked at, although debt                                                               
comes  later.   The equity  folks  must be  identified and  there                                                               
needs to be customers.  He  reiterated his hope that the producer                                                               
parties  are  the  best  customers,  and they  may  be  the  only                                                               
customers,  but [AGDC]  must be  prepared that  they are  not and                                                               
therefore [AGDC]  must do  some marketing to  get to  the buyers.                                                               
This project, and  to some extent Alaska's efforts  in getting an                                                               
LNG project, have  somewhat suffered because of a  lack of market                                                               
awareness of  the project itself, the  timing, and the cost.   So                                                               
part  of AGDC's  challenge as  a state  project is  to raise  the                                                               
awareness in the  minds of the market that this  project is real,                                                               
is going to happen, and is going  to be cost competitive.  But, a                                                               
lot of work must be done to be able to do that.                                                                                 
                                                                                                                                
3:31:40 PM                                                                                                                    
                                                                                                                                
CHAIR  GIESSEL  commented  that   something  learned  from  those                                                               
megaproject courses  is that "urgency often  equals higher cost."                                                               
She  then addressed  marketing, noting  that Senate  Bill 138  is                                                               
very specific that  the Department of Natural  Resources (DNR) is                                                               
responsible for the  marketing of the gas, DNR is  charged to get                                                               
the highest return for the people  of Alaska.  She asked what the                                                               
coordination is between DNR and AGDC in terms of marketing.                                                                     
                                                                                                                                
MR. MEYER  answered that DNR  is responsible for the  royalty gas                                                               
and royalty decision  of the marketing of that.   He said AGDC is                                                               
doing  two things.   One  is marketing  the project  so that  the                                                               
pipeline, the liquefaction, the access to  the gas.  The other is                                                               
providing a commercialization service to  parties like DNR and to                                                               
parties that  might be the  producers that want to  sell wellhead                                                               
sales.  When  he is talking about marketing, AGDC  is going to be                                                               
talking to large  buyers about purchasing LNG at  Nikiski all the                                                               
way to purchasing natural gas up  at the north and subscribing to                                                               
pipeline and  liquefaction service on  the system and  they would                                                               
be tolling customers.   So, this project can be  looked at as the                                                               
tolling  model  described  in  the  earlier  presentation.    The                                                               
customers hold capacity,  and the customers may  be the producers                                                               
or  buyers or  a marketing  entity created  to provide  a bundled                                                               
service.  In  regard to how AGDC is coordinating  with DNR, right                                                               
now AGDC  has made  it clear that  it is not  trying to  take the                                                               
royalty decision.   He said  the way  he has characterized  it to                                                               
DNR is  that AGDC will find  a customer, will bring  the customer                                                               
back to  Alaska, and  there will  be a  netback for  a reasonable                                                               
tolling.   Then DNR will  be provided with  the price of  the gas                                                               
and DNR can either  take it or say no this or  that must be done,                                                               
and then between the two the parties eventually come together.                                                                  
                                                                                                                                
CHAIR  GIESSEL remarked  that  it raises  questions  in her  mind                                                               
about how  AGDC can be marketing  gas that AGDC does  not have at                                                               
the moment.                                                                                                                     
                                                                                                                                
3:34:35 PM                                                                                                                    
                                                                                                                                
SENATOR COSTELLO asked  how Mr. Meyer thinks that  not reaching a                                                               
FEED decision  is going to  help [the  state] let the  world know                                                               
that this project is real.                                                                                                      
                                                                                                                                
MR. MEYER replied that "it's sort  of a fact that we're not going                                                               
to  go into  a  FEED decision."    He recalled  one  of the  Wood                                                               
Mackenzie slides indicating  that there are a  number of projects                                                               
facing that.   He said  he would love to  see this project  go to                                                               
FEED, but AGDC is not going to  push and say this project must go                                                               
to FEED.  It is not going to  - the parties do not support it now                                                               
and he  would not recommend  it now.  There  is work to  do under                                                               
this  other structure.   He  related that  AGDC has  said to  its                                                               
producer  parties that  if everybody  votes to  go to  FEED, then                                                               
AGDC  will be  there with  them, so  he is  not saying  that AGDC                                                               
would be negative  if everybody wanted to go.   But for right now                                                               
that is not being looked at.   Is that a negative to the project?                                                               
Yes.  There is no question that  going to FEED is a much stronger                                                               
vote of  confidence.   Would it make  AGDC's marketing  easier if                                                               
the project were going to FEED?   Absolutely.  The FEED addresses                                                               
some risks.  However, he pointed  out, the amount of work done on                                                               
this  project  in  Pre-FEED  far  surpasses  most  of  the  other                                                               
projects.  So,  even though it is called Pre-FEED,  the amount of                                                               
work lets the project provide  a pretty good cost estimate, which                                                               
then  lets  the  project  develop some  competitive  tariffs  and                                                               
pricing for the customers.  But,  all of that has to be validated                                                               
finally in the FEED stage.                                                                                                      
                                                                                                                                
3:36:54 PM                                                                                                                    
                                                                                                                                
SENATOR COSTELLO asked what happens to  Senate Bill 138 as far as                                                               
the road map now.                                                                                                               
                                                                                                                                
MR. MEYER  responded that  to him  Senate Bill  138 is  alive and                                                               
well and that  is what AGDC is  living under.  The  charge in the                                                               
bill was to  build a project for the benefit  of Alaska, he said,                                                               
and  to  maximize the  upstream  resource  base  and to  do  that                                                               
through the construction  of a pipeline and an  LNG facility, and                                                               
also address  the gas treating and  some lines up north  and also                                                               
put a  burden on AGDC,  which AGDC  welcomes, to address  the in-                                                               
state gas  needs.  He posited  that AGDC is very  squarely in the                                                               
fairway of  Senate Bill 138 and  he does not see  AGDC deviating.                                                               
He offered his  appreciation for the comments of Mr.  Short.  His                                                               
own  comments, he  continued,  were prefaced  with  "I don't  see                                                               
that," as opposed  to a statement of fact.   Senate Bill 138 does                                                               
not say "you can't do this  unless you get these three parties on                                                               
board."  The bill certainly  contemplated a joint venture.  While                                                               
he was not  with AGDC when the parties got  into Senate Bill 138,                                                               
he said he  thinks the contemplation was, "hey if  we get in this                                                               
joint venture this  is going to go all the  way to construction."                                                               
However,  none  of  the  documentation said  that,  none  of  the                                                               
documentation said it was even going  to go beyond Pre-FEED.  The                                                               
documentation  said everything  prior to  "the diamond"  [FID] is                                                               
all that is being agreed to.   The project is now at the diamond,                                                               
so the parties have to decide whether  to go to FEED.  The market                                                               
has changed,  he continued, "there  is less revenue in  the front                                                               
door for some of them and  there is more opportunities out in the                                                               
world for others,  so this project gets hurt a  bit."  He posited                                                               
that talking about this sort  of different financial structure is                                                               
not at  all deviating from  the major  goal of what  he considers                                                               
Senate Bill 138 to have.                                                                                                        
                                                                                                                                
3:39:19 PM                                                                                                                    
                                                                                                                                
SENATOR COSTELLO inquired whether,  if staying within the fairway                                                               
of Senate Bill  138, Mr. Meyer's intention is to  allow DNR to do                                                               
the marketing.                                                                                                                  
                                                                                                                                
MR. MEYER answered that DNR  is responsible for marketing its gas                                                               
and so  AGDC is  not taking  that.  In  terms of  doing marketing                                                               
activities to  assist that, AGDC  is going  to do that.   Because                                                               
AGDC is  going to  be marketing the  project and  marketing other                                                               
people's gas,  he said he  views AGDC's  role as going  out there                                                               
finding customers.  When he  talks about marketing he is thinking                                                               
of finding customers that he brings  back to the Alaska beach and                                                               
shares  with the  village.   That  marketing  activity helps  all                                                               
producers and  the project.  Some  producers do not want  AGDC to                                                               
do  their marketing,  which is  perfectly fine,  he said,  but he                                                               
recognizes that  as a company  and as a  state "we've got  to get                                                               
out there and  sort of help that marketing activity  along ... so                                                               
that's really what we're talking about doing."                                                                                  
                                                                                                                                
3:40:48 PM                                                                                                                    
                                                                                                                                
SENATOR  STOLTZE stated  that one  of  the premises  of the  FEED                                                               
process, although  the out of  bounds have been changed  on that,                                                               
is that  it does not  get customers or  investors.  He  asked how                                                               
the  salaries  and  expenses  of  the  people  at  AGDC  and  the                                                               
contracting work will  be paid, absent the next step.   He opined                                                               
that it  is unclear  which field  is being played  on, but  it is                                                               
known that  the out of  bounds and  the goal lines  are changing.                                                               
He said  he has sat through  hours and years of  these things and                                                               
there was  a definite drilling in  of the importance of  the FEED                                                               
process, but  now he does not  know if it  is out of bounds.   If                                                               
the  FEED process  is  not important  there is  not  going to  be                                                               
investors and  customers will  not commit,  according to  all the                                                               
hundreds of  hours of testimony that  has been heard.   Noting he                                                               
voted against  AGDC's last appropriation,  he asked  where AGDC's                                                               
continued funding will come from.                                                                                               
                                                                                                                                
MR. MEYER replied that AGDC  has funding through fiscal year 2017                                                               
to carry  it through  these coming  activities.   He said  he has                                                               
asked  folks  for both  a  more  austere  budget  as well  as  an                                                               
elevated level of expenditure assuming  there is outside funding.                                                               
The outside  funding could come  from the joint  venture parties,                                                               
but at  this point that is  unknown.  At this  current time, AGDC                                                               
is not expecting to go into  a $2 billion FEED program, more work                                                               
has to be done.                                                                                                                 
                                                                                                                                
3:44:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  referred to an AGDC  PowerPoint presentation                                                               
provided to members prior to  the hearing [entitled, "President's                                                               
Report, Board  of Directors Meeting," dated  8/18/16].  Referring                                                               
to slide 5  in that presentation, "Major  Activity Timeline," she                                                               
observed that  the transition  to AGDC as  the lead  is scheduled                                                               
for  [fourth  quarter]  2016.   She  recalled  that  the  funding                                                               
approved  during last  year's special  session was  for the  2016                                                               
work plan  and budget.  She  asked how the funding  given at that                                                               
time,  which she  thought  would have  carried  through the  last                                                               
calendar  year  and  into  this  full  calendar  year,  has  been                                                               
extended to cover fiscal year  2017 in its entirety.  Continuing,                                                               
Representative Tarr recounted  that Wood Mackenzie's presentation                                                               
contemplates third-party  tolling or  state ownership.   However,                                                               
she  said, Mr.  Meyer's  comments  make it  sound  like AGDC  has                                                               
already  moved to  state ownership.   Noting  that the  gas being                                                               
talked about  is not  owned by  the state,  she posited  that the                                                               
only way  AGDC can reasonably  seek customers for a  pipeline and                                                               
tolling structure is  if it is the actual owner  of the pipeline.                                                               
She asked  whether Mr. Meyer  thinks AGDC has made  that decision                                                               
and is moving  forward in that direction more  than was presented                                                               
in the [Wood Mackenzie] presentation  and further asked how those                                                               
options are being contemplated.                                                                                                 
                                                                                                                                
MR. MEYER responded  that the aforementioned timeline  was in the                                                               
AGDC board presentation that was  posted on the legislature's and                                                               
AGDC's  websites.   That presentation  talked about  a transition                                                               
commencing in  October 2016  and continuing to  the end  of 2016.                                                               
Regarding  funding, he  said  AGDC has  funding  approved for  FY                                                               
2017; AGDC  is living under  that today  and intends for  that to                                                               
carry it through at least fiscal  year 2017 and potentially a bit                                                               
beyond,  so a  special  request is  not  needed. Regarding  state                                                               
ownership and  the tolling, he  said no decisions have  been made                                                               
on any  of this  yet, either on  paper, by the  board, or  in his                                                               
mind; AGDC is still open.   The state ownership option gives [the                                                               
state]  some particular  tax  advantages and  that  is where  the                                                               
additional steps  come from.  A  big part of the  advantage comes                                                               
from  the  third-party tolling  with  the  use of  infrastructure                                                               
investors.   What is  unknown today is  whether those  two things                                                               
can live together.   He said he has been  consistent all along in                                                               
what  he  has  told  members  -  do  not  equate  ownership  with                                                               
investment.   Even though  [the state] may  be 100  percent owner                                                               
that does not  mean it is going  to be 100 percent  investor.  If                                                               
[the state]  had to be 100  percent investor that would  kill the                                                               
deal.  So,  AGDC is definitely looking at  third-party equity and                                                               
absolutely   third-party  debt.     While   it  will   take  some                                                               
significant  work, he  continued, AGDC  is trying  to figure  out                                                               
whether  those two  things can  live together  - "Can  we have  a                                                               
state  ownership but  yet not  reach ...  that ownership  so much                                                               
that  it  ruins  our  tax  position?"     It  is  what  he  calls                                                               
"securitization of  the cash flow."   The  state may be  an owner                                                               
but there may  be a cash stream coming out  that becomes put into                                                               
a product like a security that  the equity folks can invest into.                                                               
It is  unknown today whether  both of  those things can  be done.                                                               
It is certainly worth going for.   There is a big benefit just by                                                               
moving  to the  tolling structure,  but an  absolute much  better                                                               
benefit  would  be received  if  the  tax  can  be avoided.    He                                                               
reiterated  that the  Wood Mackenzie  study  was done  completely                                                               
without any  input from  AGDC and offered  his belief  that there                                                               
was no help from  the others as well.  He added  that AGDC is not                                                               
suggesting this project  pay zero local tax; it is  his plan that                                                               
parties on  the route need  to be compensated, maybe  through the                                                               
payment in  lieu of taxes (PILT)  mechanism.  He clarified  he is                                                               
not suggesting  that [AGDC] is  going for zero state  and federal                                                               
tax -  it is the federal  tax that the benefit  of that ownership                                                               
is received.                                                                                                                    
                                                                                                                                
3:49:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR stated it still  seems that AGDC would not be                                                               
able  to seek  other customers  until  a decision  has been  made                                                               
about who actually owns the pipeline.   Until then, it seems that                                                               
doing so  is inappropriate and  maybe even illegal,  she posited.                                                               
Someone  has   to  have  the   responsibility  of   building  the                                                               
infrastructure that the customers  would need, she continued, and                                                               
until  it is  figured  out who  is  going to  build  and own  the                                                               
infrastructure  it seems  like there  is a  mismatch.   Something                                                               
stressed throughout this process is  the alignment of the current                                                               
arrangement and made  clear to her is that  these potential other                                                               
opportunities  are  aligned  much differently.    Therefore,  she                                                               
said, she  is trying to match  up which decision gets  made first                                                               
so  that  the next  piece  can  happen,  and  it seems  that  the                                                               
ownership piece would  have to happen first  because before there                                                               
is an  owner how  can customers  be secured?   Customers  have to                                                               
have somebody  they would pay  and how would financing  be gotten                                                               
without an owner?  The alignment,  she continued, is not clear of                                                               
how  these pieces  would work  together  under one  of the  other                                                               
arrangements.                                                                                                                   
                                                                                                                                
MR. MEYER  agreed that at some  point in time the  ownership must                                                               
be decided.   The ownership,  he explained, would most  likely be                                                               
held  by  a project  company  that  would  be a  special  purpose                                                               
vehicle and  it would probably  be more  than one -  probably one                                                               
for the  pipe, one  for the  LNG, and one  for the  gas treatment                                                               
plant (GTP).  That structure  is the structure that actually gets                                                               
the  debt and  does  the contracts.   That  entity  is not  [yet]                                                               
formed,  so what  can be  done right  now is  the "marketing  and                                                               
business  development,"  the  identification of  customers.    He                                                               
reiterated  his hope  that  the customers  will  be the  producer                                                               
parties that have the most to  gain just by monetizing their gas,                                                               
not ownership in a low-return pipe.   While his hope is that AGDC                                                               
does not  have to leave the  state for customers, he  knows it is                                                               
going to  have to.   To get  the customers there  must be  a good                                                               
idea  of how  the costs  are  lining up,  so there  must be  some                                                               
thought  about the  structure and  the kind  of debt  equity that                                                               
might be obtained.   Then it just becomes  a simultaneous process                                                               
of starting  to get a customer,  the customer may say  it wants a                                                               
certain quantity.   If it  is a  big quantity the  customer might                                                               
get certain  advantages and  so the advantages  have to  be taken                                                               
into  account against  other potential  customers.   Some of  the                                                               
customers  may take  some construction  risk, but  most will  not                                                               
because they do  not have to today, unlike a  couple decades ago.                                                               
What  AGDC  is  doing  now is  business  development,  marketing,                                                               
finding  customers, talking  to lenders,  talking to  structuring                                                               
entities,  talking  to  potential   equity  investors,  and  most                                                               
certainly talking to  the upstream folks that he hopes  to be the                                                               
big customers.  Then, that all  has to come together, and that is                                                               
a lot of work to do in the next 18-24 months.                                                                                   
                                                                                                                                
3:53:43 PM                                                                                                                    
                                                                                                                                
CHAIR  GIESSEL stated  she  would take  questions  from two  more                                                               
members and requested that members  submit any other questions in                                                               
writing for her to give to AGDC.                                                                                                
                                                                                                                                
3:54:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER turned to slide  7 and recalled Mr. Meyer's                                                               
response to  Senator Giessel's question  in which he called  it a                                                               
"preliminary" FID  decision in third  quarter 2018.   He inquired                                                               
whether  Mr. Meyer  is  merging  the FID  decision  and the  FEED                                                               
decision itself into the same concept.                                                                                          
                                                                                                                                
MR. MEYER answered that when  he talks about a "preliminary" FID,                                                               
it is sort of  giving the green light to do  the FEED work, which                                                               
can be expensive, but it is short of the real final.                                                                            
                                                                                                                                
REPRESENTATIVE  HAWKER  concluded,  then,  that  in  Mr.  Meyer's                                                               
words, "pre-FID"  is equivalent  to the  FEED decision,  which is                                                               
something he has never heard before.                                                                                            
                                                                                                                                
MR. MEYER replied  that he called it "preliminary" FID.   He said                                                               
that,  to him,  before making  a final  investment decision,  the                                                               
FEED work must be done or enough  FEED work done to where a large                                                               
EPC contractor  says it will  take the risk sufficient  enough to                                                               
give comfort to the lenders and  equity investors.  The FEED work                                                               
is a level  of expenditure that can be  significant and therefore                                                               
it is  short of FID, but  it is everybody committing  to go ahead                                                               
and fund the bigger FEED.                                                                                                       
                                                                                                                                
3:55:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER referred  to the first element  on slide 7,                                                               
"Have  we structured  the  project for  tax  and other  financial                                                               
efficiencies?"  He recalled that "at  the last meeting we had, we                                                               
talked at length about how you were  going to set up a tax exempt                                                               
non-recourse SP,  special purpose, entity."   He further recalled                                                               
that a few  moments ago Mr. Meyer said in  response to a question                                                               
that the great reduction in cost  of service is really becoming a                                                               
tax  exempt organization.    That is  a  25-30 percent  reduction                                                               
potentially, Representative Hawker continued.   He recounted that                                                               
at  the last  meeting there  was  talk about  the need  to get  a                                                               
private letter ruling  or provide some certainty  to members that                                                               
this tax  exempt goal  can be  accomplished.   He asked  what the                                                               
plan  and timeframe  are for  pursuing that  surety.   He further                                                               
asked  whether  all the  other  things  about customers,  selling                                                               
people's gas, securing lenders,  and contract managers, all hinge                                                               
upon finally actually defining a  project, which is normally what                                                               
would be done in FEED.                                                                                                          
                                                                                                                                
MR. MEYER clarified he did not  say the major benefit was the tax                                                               
efficiency,  it is  one of  the benefits.   As  seen in  the Wood                                                               
Mackenzie  report, he  continued, the  third party,  lower hurdle                                                               
rate return  equity gives  the biggest  bang for  the buck.   The                                                               
taxes are important.   This project needs everything  it can, but                                                               
the extent to which it can  be structured for both tax efficiency                                                               
and the  third party is not  known.  The letter  ruling is really                                                               
to help in addressing that, but  counsel has been received to not                                                               
seek the letter ruling until structure  is well defined.  A well-                                                               
defined structure  for the third-party-funded  entity is  not had                                                               
today,  so a  letter  ruling  would be  sought  afterwards.   The                                                               
letter ruling  really addresses  the tax  issue more  so, though,                                                               
than the structuring.                                                                                                           
                                                                                                                                
3:58:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER remarked that members  and AGDC need to get                                                               
back together  on the record  and have a long  conversation about                                                               
what  AGDC  is truly  planning  to  do,  and if  AGDC's  original                                                               
concept  document  is  still the  operative  document,  and  what                                                               
AGDC's sequence of events is.   He inquired whether Mr. Meyer has                                                               
read  [Industrial   Megaprojects:    Concepts,   Strategies,  and                                                             
Practices  for Success],  by  Edward W.  Merrow,  a textbook  the                                                             
legislature has studied.                                                                                                        
                                                                                                                                
MR. MEYER replied  he has the book  and has read parts  of it, if                                                               
it is the same book he thinks is being talked about.                                                                            
                                                                                                                                
3:58:58 PM                                                                                                                    
                                                                                                                                
SENATOR  MACKINNON,  in   reference  to  Representative  Hawker's                                                               
questions, said members are trying  to understand whether it is a                                                               
refining of the  stage gates or a redefining of  what stage gates                                                               
mean.   She recalled Mr. Meyer  stating that DNR is  in charge of                                                               
marketing its  gas.  She  said Mr.  Meyer can answer  this later,                                                               
but  she would  like  to know  if there  is  other gas  available                                                               
besides DNR's  that could  be marketed  or if  that was  just the                                                               
choice  of  words  that  Mr.  Meyer used.    More  pressing,  she                                                               
continued, is  that in  answer to a  question by  Senator Stoltz,                                                               
Mr. Meyer stated  that AGDC could accept outside  funding.  Given                                                               
the  legislative process  that AGDC  would go  through to  accept                                                               
funding or trade off risk for  the state giving up something, she                                                               
asked what Mr. Meyer was referring to.                                                                                          
                                                                                                                                
MR.  MEYER offered  his  understanding that  for  AGDC to  accept                                                               
outside  funding,  AGDC  must receive  legislative  approval  for                                                               
that.   It  is also  his understanding  that if  AGDC wants  more                                                               
funding  it   must  get  legislative   approval.    He   said  he                                                               
anticipates seeking that, but things are not at that point yet.                                                                 
                                                                                                                                
SENATOR  MACKINNON  said  Mr.  Meyer  can  answer  the  following                                                               
question later.   During the TransCanada  buyout process, members                                                               
became aware  of several  subsidiaries that  were starting  to be                                                               
put together.   She  inquired as to  how many  subsidiaries there                                                               
are under AGDC's management and what the intended use is for                                                                    
each of those.                                                                                                                  
                                                                                                                                
4:01:07 PM                                                                                                                    
                                                                                                                                
CHAIR GIESSEL reiterated her request that members submit further                                                                
questions in writing to her office so she can provide them to                                                                   
AGDC.                                                                                                                           
                                                                                                                                
4:01:34 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committees, the joint                                                                
meeting of the House Resources Standing Committee and Senate                                                                    
Resources Standing Committee was adjourned at 4:02 p.m.                                                                         

Document Name Date/Time Subjects
JT RES Aug 24-25 Hearing Notice.cg.pdf SRES 8/24/2016 1:00:00 PM
Hearing Notice
baker-miller_alaska_lng_project_antitrust_analysis_March_25_2014.pdf SRES 8/24/2016 1:00:00 PM
Federal Antitrust issue AK LNG
manley-brautigam_alaska_gas-lng_corporate_tax_analysis_March_25_2014.pdf SRES 8/24/2016 1:00:00 PM
Taxation AK LNG project
AGDC President Report BOD 8-18-2016.pdf SRES 8/24/2016 1:00:00 PM
AGDC President Report
Can AGDC change gasline model under SB 138.pdf SRES 8/24/2016 1:00:00 PM
SB 138
2016 8 11 AGDC Response Letter to Senator Meyer and Senator Giessel.pdf SRES 8/24/2016 1:00:00 PM
Letters - Kenai Spur Hwy- AKLNG project.pdf SRES 8/24/2016 1:00:00 PM
Kenai Spur Highway Impacts - AKLNG project
Report_ADR_2002_StateFinancialParticipation.pdf SRES 8/24/2016 1:00:00 PM
DOR 2002 Report State Participation in Gasline
Latest AKLNG community impacts Persily 8-9-16.pdf SRES 8/24/2016 1:00:00 PM
Community impacts AKLNG
enalytica, AK LNG State-led project (slides), August 2016.pdf SRES 8/24/2016 1:00:00 PM
enalytica, AK LNG State-led project, August 2016.pdf SRES 8/24/2016 1:00:00 PM
enalytica analysis of new concept plan AKLNG
AKLNG – Legislative Update 24Aug2016 v1.2x.pdf SRES 8/24/2016 1:00:00 PM
AK LNG UPdate August 2016
AGDC Joint Resources Presentation August 24, 2016.pdf SRES 8/24/2016 1:00:00 PM
AGDC presentation
AGDC Questions and Answers August 23, 2016.pdf SRES 8/24/2016 1:00:00 PM
AGDC questions and answers sheet
AGDC Responses to Sen Giessel August 23, 2016.pdf SRES 8/24/2016 1:00:00 PM
AGDC responses to Sen. Giessel questions
Wood MacKenzie Alaska LNG Competitiveness Study- Aug 2016.pdf SRES 8/24/2016 1:00:00 PM
Wood MacKenzie AKLNG report Aug 2016
SRES letter-questions to AGDC 9-6-16.pdf SRES 8/24/2016 1:00:00 PM
Questions to AGDC from RESOURCES Cmmtee
Questions for AGDC 9-6-16.pdf SRES 8/24/2016 1:00:00 PM
Question to AGDC from RESOURCES Cmmtee
LEG Legal Opinion SB 138 and new concept plan 9-14-16.pdf SRES 8/24/2016 1:00:00 PM
SB 138