Legislature(2015 - 2016)BARNES 124

02/18/2015 01:00 PM House RESOURCES



Audio Topic
01:15:31 PM Start
01:16:29 PM Alaska Lng Update: Bp, Conocophillips, Exxonmobil, Alaska Gasline Development Corporation, Transcanada, Department of Natural Resources, Department of Revenue
03:08:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:15 pm Today --
+ AK LNG Update: TELECONFERENCED
BP, Conoco Phillips, ExxonMobil, AGDC,
Trans-Canada, Dept. of Natural Resources & Dept.
of Revenue
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 18, 2015                                                                                        
                           1:15 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative David Talerico, Co-Chair                                                                                         
Representative Mike Hawker, Vice Chair                                                                                          
Representative Bob Herron                                                                                                       
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Andy Josephson                                                                                                   
Representative Geran Tarr                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Benjamin Nageak, Co-Chair                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
ALASKA LNG UPDATE:  BP, CONOCOPHILLIPS, EXXONMOBIL, ALASKA                                                                      
GASLINE DEVELOPMENT CORPORATION, TRANSCANADA, DEPARTMENT OF                                                                     
NATURAL RESOURCES, DEPARTMENT OF REVENUE                                                                                        
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAVID VAN TUYL, Regional Manager                                                                                                
BP Exploration (Alaska) Inc.                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided an update on the Alaska LNG                                                                     
Project from his corporation's perspective.                                                                                     
                                                                                                                                
DARREN MEZNARICH, Project Integration Manager                                                                                   
Alaska LNG Project                                                                                                              
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided an update on the Alaska LNG                                                                     
Project from his corporation's perspective.                                                                                     
                                                                                                                                
BILL MCMAHON, Senior Commercial Advisor                                                                                         
ExxonMobil Corporation                                                                                                          
POSITION STATEMENT:  Provided  a PowerPoint presentation, "Alaska                                                             
LNG Project Update," on behalf of the project team.                                                                             
                                                                                                                                
VINCENT LEE, Director                                                                                                           
Major Projects Development                                                                                                      
TransCanada                                                                                                                     
Calgary, Alberta, Canada                                                                                                        
POSITION  STATEMENT:    Provided  an update  on  the  Alaska  LNG                                                             
Project from his corporation's perspective.                                                                                     
                                                                                                                                
DAN FAUSKE, President                                                                                                           
Alaska Gasline Development Corporation (AGDC)                                                                                   
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Provided  an update  on  the  Alaska  LNG                                                             
Project from his corporation's perspective.                                                                                     
                                                                                                                                
MARTY RUTHERFORD, Deputy Commissioner                                                                                           
Office of the Commissioner                                                                                                      
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided information from  her department's                                                             
perspective in regard to the Alaska LNG Project update.                                                                         
                                                                                                                                
DONA KEPPERS, Deputy Commissioner                                                                                               
Office of the Commissioner                                                                                                      
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided information from  her department's                                                             
perspective in regard to the Alaska LNG Project update.                                                                         
                                                                                                                                
RANDALL HOFFBECK, Commissioner Designee                                                                                         
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Provided   an  update  on  the  Municipal                                                             
Advisory Gas Project Review Board for the Alaska LNG Project.                                                                   
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:15:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  DAVID  TALERICO  called the  House  Resources  Standing                                                             
Committee meeting to order at  1:15 p.m.  Representatives Hawker,                                                               
Olson, Seaton, Josephson,  and Talerico were present  at the call                                                               
to order.   Representatives Johnson, Tarr, and  Herron arrived as                                                               
the meeting was in progress.                                                                                                    
                                                                                                                                
^ALASKA  LNG  UPDATE:   BP,  ConocoPhillips,  ExxonMobil,  Alaska                                                               
Gasline  Development  Corporation,   TransCanada,  Department  of                                                               
Natural Resources, Department of Revenue                                                                                        
   ALASKA LNG UPDATE:  BP, ConocoPhillips, ExxonMobil, Alaska                                                               
  Gasline Development Corporation, TransCanada, Department of                                                               
            Natural Resources, Department of Revenue                                                                        
                                                                                                                                
1:16:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO announced that the  only order of business is a                                                               
briefing on  the Alaska Liquefied  Natural Gas (LNG)  Project (AK                                                               
LNG) in  accordance with Section  77 of Senate Bill  138, Chapter                                                               
14 [passed by  the 28th Alaska State Legislature  and signed into                                                               
law in 2014].                                                                                                                   
                                                                                                                                
1:17:41 PM                                                                                                                    
                                                                                                                                
DAVID VAN  TUYL, Regional Manager, BP  Exploration (Alaska) Inc.,                                                               
spoke as follows:                                                                                                               
                                                                                                                                
     I've worked  for BP  in Alaska for  over 30  years now,                                                                    
     and  the  last half  of  which  has been  dedicated  to                                                                    
     working to  get Alaska's  gas to market.   Now,  I have                                                                    
     the privilege  of working  in my  current roles  on the                                                                    
     joint fiscal  team and on  the management  committee of                                                                    
     the  Alaska LNG  Project  effort.   Today  we have  the                                                                    
     right parties aligned on a  way to collectively advance                                                                    
     this  project.   That  was true  last  February and  it                                                                    
     remains true today.  Make no  mistake, we have a lot of                                                                    
     work to do,  both on the project team and  with all the                                                                    
     supporting efforts  that you'll hear more  about today.                                                                    
     But  we remain  on track  for a  2016 decision  to move                                                                    
     into  the  next  phase  of   the  project  -  front-end                                                                    
     engineering  and design,  or what  we call  FEED.   The                                                                    
     companies   before  you   have   all  dedicated   their                                                                    
     resources  to meet  this  challenge.   So  has the  new                                                                    
     administration.   And we're now  actively engaged  on a                                                                    
     variety of  fronts to continue to  progress the project                                                                    
     and the associated commercial work  that is required to                                                                    
     meet that  goal.   Any one  of us,  even with  our best                                                                    
     efforts working  in isolation, can't make  this project                                                                    
     a   success.     But,  all   of  us   working  together                                                                    
     cooperatively,  can.   Last  year  we  started on  this                                                                    
     journey together  and we've  taken some  very important                                                                    
     and very  successful steps together.   This body passed                                                                    
     [Senate  Bill]  138  by an  overwhelming  majority,  we                                                                    
       entered into an agreement to begin the current Pre-                                                                      
     FEED phase, we  filed for a [U.S.  Department of Energy                                                                    
     (DOE)]  export license  application,  and we  initiated                                                                    
     the [Federal Energy Regulatory Commission (FERC)] pre-                                                                     
     filing process.   The  project has  momentum.   We look                                                                    
     forward  to continuing  this  journey  together and  to                                                                    
     working with you  in the coming weeks and  months as we                                                                    
     see the future of Alaska LNG continue to unfold.                                                                           
                                                                                                                                
1:19:55 PM                                                                                                                    
                                                                                                                                
DARREN MEZNARICH, Project Integration Manager, Alaska LNG                                                                       
Project, ConocoPhillips Alaska, Inc., spoke as follows:                                                                         
                                                                                                                                
     I've been with  the company for 25 years and  I live in                                                                    
     Anchorage.   I'm very thankful  for the  opportunity to                                                                    
     be  part  of  this  significant project,  which  is  so                                                                    
     important  for  all  the  participants,  including  the                                                                    
     state.   I  appreciate  the comments  my colleague  has                                                                    
     made   and  I'd   like   to  build   on   them.     For                                                                    
     ConocoPhillips, we see two steps  in front of us before                                                                    
     a FEED  decision:   commercial and  fiscal.   First, we                                                                    
     are building  a commercial foundation for  the project,                                                                    
     in  particular  completing  two key  agreements:    gas                                                                    
     supply  agreement and  a  governance  agreement.   Only                                                                    
     after the  commercial foundation  is in place  would we                                                                    
     recommend  the   administration  and   the  legislature                                                                    
     consider  implementing  that   second  step,  which  is                                                                    
     finalizing  the  fiscal  foundation.   Then,  with  the                                                                    
     commercial and the fiscal foundation  in place, and the                                                                    
     completion  of the  technical Pre-FEED  work, we  would                                                                    
     expect to have the information  necessary for all of us                                                                    
     to  make a  FEED  decision.   When we  refer  to a  gas                                                                    
     supply  agreement, we're  just  talking about  matching                                                                    
     our share of  cash investment with the share  of gas or                                                                    
     LNG we'd receive.   ConocoPhillips, like everyone else,                                                                    
     expects to be  making a cash investment  based upon our                                                                    
     gas  percentage share  to the  project.   Once we  make                                                                    
     that investment we need to  be sure that we can deliver                                                                    
     our gas into  the project on that same share  on a day-                                                                    
     to-day basis.   And  also that we  have the  ability to                                                                    
     get that same share of gas  or LNG from the back of the                                                                    
     project.   So it's  a relatively  simple concept  - our                                                                    
     investment share  equals our gas throughput  equals our                                                                    
     product  off-take  out  the  back.    But  it  requires                                                                    
     working  through  the  details and  getting  it  right.                                                                    
     That  second   ...  agreement   I  talked   about,  the                                                                    
     governance agreement,  we might  call that  the venture                                                                    
     agreements.  What  we mean are the  agreements that set                                                                    
     up the business - what is  your share of cost, what are                                                                    
     your voting rights, who is  in charge of what, how long                                                                    
     do we  have to pay  the bills,  and all those  kinds of                                                                    
     details.   So,  these concepts  will be  discussed more                                                                    
     when  Bill  [McMahon]  takes   us  through  the  slides                                                                    
     shortly.     As  we  sit  here   today  the  commercial                                                                    
     agreements are  not complete, but  we are  working hard                                                                    
     to meet the schedule in front  of us.  I believe we all                                                                    
     want  to find  a way  to make  this project  a success,                                                                    
     and, again, we're all working well together.                                                                               
                                                                                                                                
1:22:38 PM                                                                                                                    
                                                                                                                                
BILL MCMAHON, Senior  Commercial Advisor, noted he  has more than                                                               
32  years  of experience  with  ExxonMobil.   He  specified  that                                                               
today's PowerPoint presentation is on  behalf of all five parties                                                               
before the committee today.  He spoke as follows:                                                                               
                                                                                                                                
     My   last   22   years   have   been   spent   pursuing                                                                    
     commercialization of  Alaska gas.  And  Alaska has been                                                                    
     and continues  to be an important  part of ExxonMobil's                                                                    
     worldwide  investment portfolio.   ExxonMobil  has been                                                                    
     encouraged  by the  progress that's  been  made on  the                                                                    
     project so far.   Steve Butt was before  you on January                                                                    
     30  [2015]  and provided  you  an  update and  we  look                                                                    
     forward to building on that  update in additional areas                                                                    
     of the  project.   This time last  year we  advised you                                                                    
     about  a  Heads  of  Agreement  that  had  been  signed                                                                    
     related  to  the Alaska  LNG  Project  and that  was  a                                                                    
     positive milestone.   It provided  a robust  roadmap on                                                                    
     how to  move forward.   As  Dave [Van  Tuyl] indicated,                                                                    
     Senate Bill 138  was passed.  That  was consistent with                                                                    
     the  Heads of  Agreement, provides  a great  foundation                                                                    
     upon  which  to  build,  and  we  advise  you  of  what                                                                    
     additional  work has  been done  since then.   So,  the                                                                    
     five parties  that are at  the table today, as  well as                                                                    
     the Department of Natural  Resources and the Department                                                                    
     of  Revenue, have  been actively  engaged  in the  work                                                                    
     that  needs to  be  done  to get  us  to that  critical                                                                    
     decision about FEED that we want  to make in 2016.  And                                                                    
     we'll walk  through the different components  that will                                                                    
     underpin that during the presentation.                                                                                     
                                                                                                                                
1:24:40 PM                                                                                                                    
                                                                                                                                
VINCENT LEE, Director, Major Projects Development, TransCanada,                                                                 
spoke as follows:                                                                                                               
                                                                                                                                
     I have been with TransCanada for  24 years.  I serve as                                                                    
     the commercial  lead for TransCanada in  the Alaska LNG                                                                    
     Project.    In 2014  TransCanada  signed  the Heads  of                                                                    
     Agreement  for  the  Alaska LNG  Project  with  [Alaska                                                                    
     Gasline  Development  Corporation (AGDC)],  the  state,                                                                    
     and   the  three   producers.     At  the   same  time,                                                                    
     TransCanada  and the  state agreed  on a  Memorandum of                                                                    
     Understanding  [MOU]  that   established  the  material                                                                    
     terms  for TransCanada  to  provide  gas treatment  and                                                                    
     transportation services  to the  state for  the state's                                                                    
     share of gas in the  Alaska LNG Project.  Following the                                                                    
     passage of [Senate Bill]  138, TransCanada entered into                                                                    
     a Precedent  Agreement and  an Equity  Option Agreement                                                                    
     with  the state.   The  Precedent Agreement  formalizes                                                                    
     the major  terms that were  agreed in MOU.   The Equity                                                                    
     Options  Agreement  provides  the state  an  option  to                                                                    
     acquire  up  to  40 percent  of  TransCanada  ownership                                                                    
     interest  in  the  gas  treatment  plant  and  pipeline                                                                    
     segments of the Alaska LNG Project.   As a party to the                                                                    
     joint  venture  agreement   for  Alaska  LNG  Pre-FEED,                                                                    
     TransCanada   has    seconded   highly    skilled   and                                                                    
     experienced    pipeline   and    important   management                                                                    
     employees into  the Alaska LNG Project  team, including                                                                    
     pipeline  manager who  leads  all technical  activities                                                                    
     for the pipeline segments of  the project.  TransCanada                                                                    
     is negotiating  with the state administration  to reach                                                                    
     agreement on  a long-term firm  transportation services                                                                    
     agreement which would  replace the Precedent Agreement.                                                                    
     We   are   working  to   have   the   FTSA,  the   firm                                                                    
     transportation services agreement,  finalized and ready                                                                    
     to  present  to  legislature for  review  and  approval                                                                    
     later  this   year.     TransCanada  also   is  working                                                                    
     diligently with  the other  Alaska LNG  participants in                                                                    
     the [indisc]  commercial agreements to prepare  for the                                                                    
     FEED decisions.                                                                                                            
                                                                                                                                
1:26:59 PM                                                                                                                    
                                                                                                                                
DAN  FAUSKE, President,  Alaska  Gasline Development  Corporation                                                               
(AGDC), pointed  out that AGDC  is owned  by all citizens  of the                                                               
state.  He said he is unique at  this table in that one of AGDC's                                                               
subsidiaries is  the Alaska Stand Alone  Pipeline (ASAP) Project.                                                               
Additionally, AGDC represents the  state's position on the equity                                                               
share for the liquefaction plant  - the downstream portion of the                                                               
Alaska LNG  Project (AK LNG).   He  reminded members that  he has                                                               
testified in  the past that things  are going very well  and that                                                               
he appreciates  the sharing of  information, the  agreements that                                                               
have  been signed,  the  ability  for ASAP  to  attempt to  align                                                               
itself with  the other  project, the sharing  of data,  and doing                                                               
actual contract  work for AK  LNG from an  engineering standpoint                                                               
to help  facilitate that project.   He thanked the  committee for                                                               
having the team provide this presentation.                                                                                      
                                                                                                                                
1:28:44 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON noted  that today's PowerPoint update  is an overview                                                               
consistent with Senate  Bill 138.  Drawing attention  to slide 2,                                                               
he said the Alaska LNG Project's  sponsor group is made up of all                                                               
the parties that  have an interest in moving  Alaska LNG forward:                                                               
the State of  Alaska through the Department  of Natural Resources                                                               
(DNR) and  the Department  of Revenue  (DOR), the  Alaska Gasline                                                               
Development Corporation (AGDC),  TransCanada, ConocoPhillips, BP,                                                               
and ExxonMobil.   The sponsor group  meets on a regular  basis to                                                               
discuss the project, to read  the progress, and discuss issues of                                                               
current interest.  The sponsor  group is working in particular to                                                               
align  the  parties to  allow  the  parties  to move  forward  in                                                               
consort.  The approach with  the Alaska LNG Project is consistent                                                               
with other projects  around the world.  A gated  process is being                                                               
used.    The  sponsors  want  to get  all  seven  parties  moving                                                               
together  so that  when a  gate is  hit there  can be  a positive                                                               
decision by  all parties to  move forward through that  gate into                                                               
the next  phase.  For  simplicity, he said,  he may refer  to the                                                               
Alaska LNG  Project as  "the project" and  when referring  to the                                                               
sponsors  he will  be talking  about  all seven  parties who  are                                                               
interested in moving this project forward.                                                                                      
                                                                                                                                
MR. MCMAHON turned  to slide 3 to address  the other arrangements                                                               
under  the project.   In  addition to  the seven  parties in  the                                                               
sponsor group, there  is the joint venture group that  is made up                                                               
of  [AGDC,  TransCanada,  ConocoPhillips,  BP,  and  ExxonMobil].                                                               
These are the  parties that are actually doing  the Pre-FEED work                                                               
to  move the  project forward,  such as  the engineering  and the                                                               
environmental  permitting.   A  third  group  is the  Alaska  LNG                                                               
Project,  LLC  [currently  made up  of  ConocoPhillips,  BP,  and                                                               
ExxonMobil].  A formal legal entity,  the LLC was put together to                                                               
allow the start  of the DOE export license process.   The license                                                               
application needed to  be filed last year to keep  the project on                                                               
track and a  legal entity was needed to hold  land access for the                                                               
LNG plant to  show to DOE that  this is a bonafide  project.  The                                                               
project has been actively securing  rights to land in the Nikiski                                                               
area, the proposed site for the LNG plant.                                                                                      
                                                                                                                                
1:32:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON observed  on  slide 3  that  the State  of                                                               
Alaska, as  an owner of  gas, is  not included under  the [Alaska                                                               
LNG Project, LLC].  He inquired about this.                                                                                     
                                                                                                                                
MR. MCMAHON  replied that at the  time the LLC was  formed it was                                                               
ExxonMobil, BP, and  ConocoPhillips.  It is  anticipated that the                                                               
state will have a representative in this LLC in the future.                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether  the  anticipation is  that                                                               
that will be  with 25 percent of the gas  and therefore an equal-                                                               
share partner with voting rights.                                                                                               
                                                                                                                                
MR. MCMAHON  responded correct, it  would be consistent  with the                                                               
state  royalty-in-kind (RIK)  and  tax as  gas  (TAG) volumes  as                                                               
outlined in  Senate Bill  138 and would  total about  25 percent.                                                               
This would be  subject to the state electing  to take royalty-in-                                                               
kind and subsequent elections for the state to take tax as gas.                                                                 
                                                                                                                                
1:33:25 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON resumed the presentation  [slide 4], highlighting the                                                               
interests of each  entity within the sponsor group.   He said the                                                               
state  administration  represents  the  State of  Alaska  in  the                                                               
project's  efforts.   The Department  of Natural  Resources (DNR)                                                               
administers, among  other matters,  the state's  royalty interest                                                               
and  pipeline rights-of-way.   The  Department  of Revenue  (DOR)                                                               
administers the  regulation and collection  of taxes.   Depending                                                               
on the  state's election  to take  royalty-in-kind (RIK)  and the                                                               
election by ExxonMobil,  BP, and ConocoPhillips for  the state to                                                               
take tax as  gas (TAG), the state could receive  about 25 percent                                                               
of  the  resulting production.    As  far as  the  infrastructure                                                               
project,  DNR  and DOR  are  representing  the interests  of  the                                                               
state.   The departments are  concerned with the security  of gas                                                               
supply going  into the  project and the  departments are  keen to                                                               
facilitate the  ability to expand  the project in the  future and                                                               
to  ensure  that  third  parties have  potential  access  to  the                                                               
project.  Moving to slide 5,  he said that for Pre-FEED, AGDC and                                                               
TransCanada  represent  the   State  of  Alaska's  infrastructure                                                               
interests in the project:   AGDC represents the state's ownership                                                               
interest in the LNG plant  and TransCanada represents the state's                                                               
interest in the pipeline and the gas treatment plant (GTP).                                                                     
                                                                                                                                
1:35:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  addressed  Mr. McMahon's  statement  that                                                               
AGDC  and  TransCanada are  representing  the  State of  Alaska's                                                               
infrastructure  interests  in  the  project.   He  presumed  that                                                               
infrastructure means  hard things  on the  ground, such  as pipe,                                                               
buildings,  and facilities.   He  noted that  in the  legislation                                                               
establishing  AGDC, AGDC  was given  much broader  authority than                                                               
just holding  infrastructure, such as  being able to  develop and                                                               
potentially  be a  participant in  downstream marketing  or other                                                               
activities.    He asked  whether  a  decision  has been  made  to                                                               
strictly limit AGDC to being an infrastructure participant.                                                                     
                                                                                                                                
MR. FAUSKE answered  there is great communication  with the state                                                               
through DNR and  DOR.  A variety of discussions  of this sort are                                                               
going on  as to  what role AGDC  can play in  the future,  so the                                                               
best he can say is that  those conversations do take place but no                                                               
decision has yet been made on that.                                                                                             
                                                                                                                                
1:36:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  observed that  slide 4 talks  about BP,                                                               
ExxonMobil,  and ConocoPhillips  electing for  the state  to take                                                               
tax as  gas.   He asked  whether the  understanding is  that that                                                               
decision is in the producers'  discretion rather than the state's                                                               
discretion.                                                                                                                     
                                                                                                                                
MR. VAN TUYL  replied the dynamics of the state's  choice to take                                                               
royalty-in-kind versus in-value and  then the subsequent election                                                               
by the  producers to  pay their  production tax  as gas  are both                                                               
outlined in  Senate Bill  138.   The tax as  gas election  by the                                                               
producers is contingent upon the  state first making its decision                                                               
to take  royalty-in-kind.   Assuming the state  was to  make that                                                               
election, which  it has  not yet done,  the producers  would then                                                               
have the opportunity to make  an election to pay their production                                                               
tax obligation in  the form of gas, so it  is a producer election                                                               
to pay production tax as gas.                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  noted  that  if  the  state  exercises                                                               
royalty-in-kind but the producers  don't exercise the election on                                                               
tax as gas,  it would undermine the state's ability  to market in                                                               
an economical  way.  He asked  whether that would be  a factor in                                                               
the industry's decision.                                                                                                        
                                                                                                                                
MR. VAN TUYL responded another  element leading up to the state's                                                               
decision for  the RIK election  will be sufficient  confidence in                                                               
the  state's ability  to market  its gas.   There  is a  specific                                                               
requirement for  the state to  work individually  with producers,                                                               
it  cannot be  done collectively  because of  anti-trust reasons,                                                               
and so he imagines  that the state would want to  be very keen on                                                               
understanding that  decision and that election  before making its                                                               
subsequent  election.   The  element  of  marketing certainty  is                                                               
something that was identified by  the legislature and included in                                                               
Senate Bill 138.                                                                                                                
                                                                                                                                
MR.  MEZNARICH added  that the  expectation, as  laid out  in the                                                               
Heads of Agreement  (HOA) roadmap, is that  those decisions would                                                               
be made  prior to the  parties taking  their FEED decision.   So,                                                               
that should all be bundled up in that fiscal foundation.                                                                        
                                                                                                                                
1:40:10 PM                                                                                                                    
                                                                                                                                
MR.  MCMAHON turned  to slide  6 and  continued highlighting  the                                                               
interests of each entity within  the sponsor group.  He specified                                                               
that ExxonMobil,  BP, and ConocoPhillips  hold rights  to produce                                                               
natural gas from the Prudhoe Bay  Unit and the Point Thomson Unit                                                               
and  are   actively  working  on   how  to   commercialize  those                                                               
resources.     Each  represents  its  respective   companies  and                                                               
shareholders in  any efforts to commercialize  the gas, including                                                               
ownership in the new Alaska LNG Project facilities.                                                                             
                                                                                                                                
REPRESENTATIVE HAWKER pointed  out that the Prudhoe  Bay Unit and                                                               
the Point  Thomson Unit  are anticipated to  put the  majority of                                                               
gas  into  this project.    He  inquired  as to  the  approximate                                                               
ownership percentages  at Prudhoe and  at Point Thomson  for each                                                               
of the three companies.                                                                                                         
                                                                                                                                
MR. MCMAHON answered that ExxonMobil  has about 62 percent of the                                                               
working  interest   in  Point  Thomson,  BP   about  30  percent,                                                               
ConocoPhillips about  5 percent,  and some  minor owners  make up                                                               
another percent or so.                                                                                                          
                                                                                                                                
MR.  VAN TUYL  explained that  Mr. McMahon  did not  answer about                                                               
Prudhoe Bay because  BP is the operator of Prudhoe  Bay.  He said                                                               
that both  ExxonMobil and ConocoPhillips, in  round numbers, have                                                               
about 36  percent of the ownership  of Prudhoe Bay, BP  has about                                                               
26  percent, and  the  balance of  about 2  percent  is owned  by                                                               
Chevron.                                                                                                                        
                                                                                                                                
1:42:32 PM                                                                                                                    
                                                                                                                                
MR.  MCMAHON outlined  the Alaska  LNG Project  Pre-FEED activity                                                               
(slide 7), saying the sponsors  are keenly interested in this key                                                               
part  of the  project.    He said  the  integrated team  includes                                                               
personnel from  ExxonMobil, the lead party,  TransCanada, BP, and                                                               
ConocoPhillips.   The project is currently  in Pre-FEED activity.                                                               
Engineering  of   the  project  facilities  is   being  advanced.                                                               
Project execution  plans are  being put  together because,  for a                                                               
project of this size, getting  all of the materials and personnel                                                               
on site  at the right time  is a big consideration.   The overall                                                               
cost and  schedules are  being refined.   And,  very importantly,                                                               
the   environmental  permitting   applications   are  being   put                                                               
together.   A lot of  technical work underpins  the applications.                                                               
A cooperation agreement  is being worked with  AGDC to coordinate                                                               
field data collection so that  if the Alaska LNG Project collects                                                               
some data that  is of interest to the ASAP  Project, there is the                                                               
ability  to  share that  and  vice  versa  -  ASAP data  that  is                                                               
collected can  be shared  with AK  LNG.  There  is no  reason for                                                               
folks to pay twice for field data.                                                                                              
                                                                                                                                
MR. MCMAHON understood the legislature  is considering the "parks                                                               
right-of-way  bill" [HB  139].    He said  that  could  be a  key                                                               
enabler  to help  the  project progress  through  the five  parks                                                               
located  between the  North Slope  and tidewater  in Southcentral                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR.  MCMAHON   described  the   project  facilities   [slide  8],                                                               
explaining  the LNG  plant  will be  on the  south  end and  will                                                               
include LNG  storage tanks as  well as  a loading terminal.   The                                                               
LNG plant  will be  fed by an  800-mile-long pipeline  going from                                                               
the North  Slope down  to Southcentral.   A gas  treatment plant,                                                               
designed to  take out products like CO  and  HS,  will be located                                                               
                                      22                                                                                        
on the  North Slope.   About 60  miles of transmission  line will                                                               
take gas  from Point Thomson to  the gas treatment plant.   Based                                                               
on  the location  of the  gas treatment  plant, the  transmission                                                               
line from Prudhoe  Bay to the gas treatment plant  will be rather                                                               
short.   Work is going on  at Prudhoe Bay and  Point Thomson, but                                                               
that work  is outside the purview  of the Alaska LNG  Project and                                                               
is the responsibility of the owners of those two units.                                                                         
                                                                                                                                
1:45:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked how  the transmission lines  will be                                                               
paid  for  by  the  project   as  a  unit,  given  the  different                                                               
ownerships and amounts of gas.                                                                                                  
                                                                                                                                
MR. MCMAHON replied [the project]  will put together a commercial                                                               
structure  that will  allow  it  to align  the  ownership of  the                                                               
Thomson  transmission line  with the  gas that's  flowing through                                                               
that, and the same thing on  the Prudhoe transmission line.  When                                                               
the two  streams co-mingle,  the ownership  of the  gas treatment                                                               
plant,  pipeline, and  LNG plant  will  be aligned  with the  gas                                                               
flowing  through them.    [The project]  has  the flexibility  to                                                               
adjust  ownership within  the different  components to  match the                                                               
expected throughput.                                                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON inquired  whether  the transmission  lines                                                               
will be  on a toll  or tariff that  is based on  the transmission                                                               
amounts.  He said he is trying  to understand how it will be paid                                                               
for as a  unit, given that different owners  will be transmitting                                                               
different amounts  of gas,  and how  that will  relate back  to a                                                               
revenue stream  corresponding to  the expense stream  of building                                                               
it in the unit.                                                                                                                 
                                                                                                                                
MR. MCMAHON responded it is  anticipated that the project will be                                                               
built  under "FERC  Section 3"  [of the  Natural Gas  Act (NGA)].                                                               
Therefore,  the rights  to  move gas  on an  asset  will be  tied                                                               
directly  to the  ownership in  that asset.   To  the extent  the                                                               
state takes the  royalty and tax as gas out  of Point Thomson, it                                                               
is anticipated that  the state's share of  that transmission line                                                               
would  match [its]  molecules going  through and  so it  would be                                                               
back-to-back, that the  right for the state to flow  the gas will                                                               
be tied right  to the state's ownership in the  pipe, and similar                                                               
for ExxonMobil, BP, and ConocoPhillips.                                                                                         
                                                                                                                                
1:47:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  remarked he  is unsure  the aforementioned                                                               
answer by  Mr. McMahon  quite "rang"  with him,  but said  he may                                                               
come back  to it later.   Noting that the  diagram on slide  8 is                                                               
abstract, he  said what is  really be  talked about is  the whole                                                               
pipe project from the gathering  lines and gas treatment plant on                                                               
the North Slope, the 800 miles  of pipeline, and the LNG plant in                                                               
Nikiski.   He asked  whether he is  correct in  recollecting that                                                               
these  are  the  assets  that are  currently  estimated  to  cost                                                               
upwards of $65 billion.                                                                                                         
                                                                                                                                
MR. MCMAHON answered yes.                                                                                                       
                                                                                                                                
REPRESENTATIVE HAWKER understood a  statement was made in another                                                               
committee by other people that all  the money being spent on this                                                               
infrastructure would  be deductible  under the State  of Alaska's                                                               
net production tax calculations  for determining taxable value of                                                               
oil and  gas.  He inquired  whether the costs of  these pipes and                                                               
structures are  going to  be deductible in  the calculation  of a                                                               
tax based on the net value.                                                                                                     
                                                                                                                                
MR. MCMAHON  replied his  understanding of  Senate Bill  21 [28th                                                               
Alaska  State  Legislature] is  that  the  facilities within  the                                                               
dotted [red]  circle on  the diagram are  not deductible  for the                                                               
calculation of production tax.                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER  said that is certainly  his understanding.                                                               
He  requested Mr.  McMahon  to  make it  doubly  clear that  this                                                               
project is not deductible in calculation of production taxes.                                                                   
                                                                                                                                
1:50:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON,  addressing the  diagram on slide  8, said                                                               
he is trying  to get the cost structure of  the transmission line                                                               
from Point Thomson.   He asked whether ExxonMobil  will be liable                                                               
for  62  percent  of  the  75   percent  of  the  costs  for  the                                                               
transmission line  because its ownership  is 62 percent  and then                                                               
there would be  royalty if royalty-in-kind is taken.   He said he                                                               
is "trying  to align  that since  this is all  in one  project in                                                               
which there seems to be a more equal share."                                                                                    
                                                                                                                                
MR.  MCMAHON first  pointed out  that the  royalty percentage  at                                                               
Point Thomson is different than at  Prudhoe Bay, so it would be a                                                               
matter  of  taking the  royalty  percentage  and then  taking  13                                                               
percent of  what's left for  production tax  to come up  with the                                                               
total  state  share.   ExxonMobil  would  be responsible  for  62                                                               
percent of  the cost,  less that  state gas  share.   He believed                                                               
Representative Seaton was  suggesting it would be  75 percent, so                                                               
times that it  might be 72 percent or 74  percent or whatever the                                                               
number works out.  He said  Representative Seaton is on the right                                                               
track as far as calculating  what each producer would pay towards                                                               
that  asset and  the remainder  would be  to the  account of  the                                                               
State of Alaska or the state's representative in the project.                                                                   
                                                                                                                                
REPRESENTATIVE SEATON inquired  whether there will be  a toll for                                                               
shipping the gas  on the pipeline once gas is  flowing or whether                                                               
there will be no revenue from transmission through the pipeline.                                                                
                                                                                                                                
MR. MCMAHON  responded that under  a FERC Section 3  structure it                                                               
will  be the  decision of  each individual  owner as  to how  the                                                               
owner wants to structure that.                                                                                                  
                                                                                                                                
1:52:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON understood,  then, that  there may  or may                                                               
not be a  tolling on each individual to repay  the capital costs,                                                               
and so the State of Alaska  might have a totally different tariff                                                               
structure  than  would ConocoPhillips,  BP,  or  ExxonMobil.   He                                                               
asked how the Alaska LNG Project,  LLC, will get money to pay for                                                               
these things if there is not a tariff structure.                                                                                
                                                                                                                                
MR. MCMAHON  answered the way the  LLC will get the  money is the                                                               
owners will  receive cash  calls to pay  for construction  as the                                                               
pipeline  is being  built, and  during operations  there will  be                                                               
additional  cash calls  to pay  for the  operating expenses.   He                                                               
confirmed  that  the State  of  Alaska  could have  a  particular                                                               
arrangement as  described by Representative Seaton;  for example,                                                               
TransCanada,  or the  owner  of  the asset,  may  have a  tolling                                                               
arrangement to  handle that, and  that may be different  than the                                                               
way  ExxonMobil, ConocoPhillips,  or BP  may choose  to structure                                                               
theirs.                                                                                                                         
                                                                                                                                
MR. VAN TUYL nodded in agreement.                                                                                               
                                                                                                                                
REPRESENTATIVE  SEATON,  in  regard  to  downstream  of  the  gas                                                               
treatment plant, inquired whether that  means each owner is going                                                               
to be negotiating what could  be a totally different structure on                                                               
any revenue  coming from  the project  based on  whether it  is a                                                               
tariff or some other mechanism.                                                                                                 
                                                                                                                                
MR. MCMAHON replied correct.  As  the pipeline is being built the                                                               
owners  will have  cash calls  and have  to pay  for that.   Once                                                               
operating, there  will be cash  calls for operating  expenses and                                                               
it will be  up to ExxonMobil to decide how  it will charge itself                                                               
to use the capacity that it owns.                                                                                               
                                                                                                                                
MR. VAN TUYL nodded in agreement.                                                                                               
                                                                                                                                
1:55:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  understood,  then,  that  possibly  there                                                               
would not be any revenue from  this project; that if the State of                                                               
Alaska owns, say, 25 percent,  the state would be responsible for                                                               
25 percent of the costs and  the value of the state's end product                                                               
would  be increased  because there  wouldn't be  any transmission                                                               
tolls through the project.                                                                                                      
                                                                                                                                
MR. MCMAHON responded  that would be the case if  that is the way                                                               
the State of Alaska structures  its commercial arrangements.  The                                                               
large income source  for this project is the sale  of natural gas                                                               
off the line or LNG off the  loading jetty.  It would just depend                                                               
on  how the  State of  Alaska structures  its ownership,  who the                                                               
state  has  owning  the different  pieces,  and  what  commercial                                                               
arrangement  the state  might  have with  those  parties to  move                                                               
state gas on the state's share of the project.                                                                                  
                                                                                                                                
REPRESENTATIVE SEATON remarked he thinks  that it is a little bit                                                               
different picture  than [the  committee] has  been looking  at as                                                               
far as revenue goes, as far  as the pipeline or tariffs, and [the                                                               
committee]  has  talked about  another  pipeline  situation.   He                                                               
suggested that the committee get  a fuller explanation of exactly                                                               
how that would all work within the state's purview.                                                                             
                                                                                                                                
1:56:59 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON  resumed his presentation, addressing  the Alaska LNG                                                               
Project arrangements  listed on slide 9.   He said other  work is                                                               
ongoing in addition  to the work stewarded by  Steve Butt [Senior                                                               
Project Manager,  Alaska LNG Project].   While the  sponsor group                                                               
is  keenly interested  in  the project  work  and Pre-FEED  work,                                                               
other very important activities are  also going on to support the                                                               
project  and to  support  the  FEED decision.    This other  work                                                               
includes the production  of gas into the  project, the commercial                                                               
agreements that will  underpin the project, the  fiscal terms for                                                               
the project,  regulatory work,  plus a  large effort  in external                                                               
affairs and  government relations  for the  project.   Turning to                                                               
slide 10,  Mr. McMahon said  preparations for  commercial natural                                                               
gas production into the project  are underway at both Prudhoe Bay                                                               
and  Point Thomson,  the  anchor  fields that  will  be used  for                                                               
justifying  building   the  project.     After  decades   of  oil                                                               
operations  at Prudhoe  Bay, a  transition  will go  on from  oil                                                               
operations to  simultaneous gas and oil  sales.  As part  of that                                                               
the Prudhoe Bay owners will  need to install some new facilities.                                                               
In the context of this LNG  project those additions are not going                                                               
to be  major, but they  are going to be  essential to be  able to                                                               
produce gas  out of Prudhoe  Bay.  At Point  Thomson, development                                                               
is now  underway to  get first  production out  of that  field in                                                               
advance  of   May  2016,  consistent   with  the   Point  Thomson                                                               
settlement  agreement.   This initial  development is  focused on                                                               
producing  oil and  condensate.   To  accommodate gas  deliveries                                                               
from Point Thomson, a significant  amount of investment will have                                                               
to  be done  to drill  additional  wells, put  in gas  production                                                               
facilities,  and to  flange up  to the  60-mile gas  transmission                                                               
line.  The Prudhoe Bay and  Point Thomson owners are working with                                                               
the Alaska Oil and Gas  Conservation Commission (AOGCC) to secure                                                               
field gas  off-take authorizations  that are consistent  with the                                                               
designs  on this  project.   Early completion  of this  work will                                                               
allow a better  understanding of the project volumes  that can be                                                               
expected and  ensure that  the project designs  are robust.   The                                                               
gas  off-takes  from Prudhoe  Bay  and  Point Thomson  will  help                                                               
establish the equities in the  project because that ratio between                                                               
Prudhoe Bay and  Point Thomson impacts the  aggregate volumes and                                                               
ownerships that will  be flowing for the three  companies as well                                                               
as the State of Alaska.  The desire  is to get the field gas off-                                                               
take authorizations in time to inform the 2016 FEED decision.                                                                   
                                                                                                                                
2:01:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON inquired  about  deductibility or  credits                                                               
for the expenditures for this other work listed [on slide 9].                                                                   
                                                                                                                                
MR. MCMAHON  answered Representative  Seaton is  rightly pointing                                                               
out that  gas production is  outside the dotted [red]  circle [on                                                               
the slide 8  diagram].  Those expenses will be  paid by the Point                                                               
Thomson owners and Prudhoe Bay  owners respectively.  He said his                                                               
understanding  is that  those  expenditures,  depending on  their                                                               
exact nature,  will be deductible  according to the  system under                                                               
Senate Bill 21, the More Alaska Production Act (MAPA).                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  asked whether these expenses  will be just                                                               
deductible against profits or will also include credits.                                                                        
                                                                                                                                
MR. MEZNARICH replied  he will get back to the  committee with an                                                               
answer.                                                                                                                         
                                                                                                                                
2:02:44 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON discussed the commercial  work being done [slide 11].                                                               
He explained that Senate Bill  138 provided for the potential for                                                               
lease modifications to  address switching between royalty-in-kind                                                               
and royalty-in-value  as provided in  the lease agreements.   The                                                               
idea would be for the  Department of Natural Resources to address                                                               
the switching  to be  more consistent  with the  way that  LNG is                                                               
marketed and sold  through long-term contracts.   Senate Bill 138                                                               
also provided  the ability  to convert  certain lease  forms into                                                               
fixed percentages.  Point Thomson  has some sliding scale royalty                                                               
leases (SSRs), so  if the Point Thomson owner  and the Department                                                               
of Natural  Resources can  see eye-to-eye  on a  fixed percentage                                                               
that  could  be used  to  extinguish  the sliding  scale  royalty                                                               
obligation,  that authority  has been  granted under  Senate Bill                                                               
138.   Similarly  at Point  Thomson, there  are net  profit share                                                               
leases  that  provide  for  a  variable  royalty  and  that  same                                                               
opportunity is there to turn that  into a fixed percentage if the                                                               
parties  can reach  agreement.   These are  things that  make the                                                               
state's exact percentage of gas unknown  at this time until it is                                                               
decided whether those  conversions can be made  at Point Thomson.                                                               
A key  part of the commercial  work is the Department  of Natural                                                               
Resource's  consideration of  state royalty-in-kind.   Under  the                                                               
current lease agreements  the state does have  the choice between                                                               
royalty-in-kind or royalty-in-value, so  the three producers will                                                               
be working  with the Department  of Natural Resources  to provide                                                               
information to  help them in that  decision, which is key  to the                                                               
state's gas matching its ownership in the project.                                                                              
                                                                                                                                
2:05:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON, regarding  state royalty-in-kind and given                                                               
that there  is both  condensate and  gas, inquired  whether those                                                               
are tied together or separate.                                                                                                  
                                                                                                                                
MR.  MCMAHON replied  that  is  something that  will  have to  be                                                               
worked through  with the Department  of Natural Resources.   When                                                               
it comes to net profit share,  it would seem that working oil and                                                               
condensate  and gas  together  may make  sense  because they  all                                                               
generate  profit.   In  sliding scale  royalties  those could  be                                                               
separated.  It will just have  to be seen what the administration                                                               
wants to do.                                                                                                                    
                                                                                                                                
2:06:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER   asked   how   [the   producers]   would                                                               
characterize the importance of the  state exercising its royalty-                                                               
in-kind option  as it relates  to the ability of  [the producers]                                                               
to  continue to  develop the  project along  the lines  that were                                                               
conceived and presented the last year.                                                                                          
                                                                                                                                
MR. VAN TUYL responded the  importance of royalty-in-kind related                                                               
to state participation was outlined  in the January 2014 Heads of                                                               
Agreement.     [The  producers]  certainly  believe   that  state                                                               
participation, and alignment of  interests among all the parties,                                                               
including the State of Alaska, is  critical for the project to be                                                               
successful.  [The producers] see  the royalty-in-kind decision as                                                               
being a key element of that.  Clearly,  there is a lot of work to                                                               
be done  and much of it  incumbent upon [the producers]  as lease                                                               
holders  to support  that  decision by  the state.    It's not  a                                                               
foregone conclusion, there  is work that needs to be  done.  Many                                                               
of those  elements are outlined  in Senate Bill 138,  Section 28,                                                               
as  to what  is required  to  lead up  to that  decision.   Those                                                               
conversations  are   actually  being  had  right   now  with  the                                                               
administration  to support  that.   It is  absolutely a  critical                                                               
element of the whole construct as [the producers] see it today.                                                                 
                                                                                                                                
MR. MEZNARICH seconded the comments  made by Mr. Van Tuyl, saying                                                               
that from  the perspective of ConocoPhillips  the royalty-in-kind                                                               
and  tax as  gas -  state participation  - are  key terms  in the                                                               
Heads of  Agreement and  they are reflected  in Senate  Bill 138.                                                               
ConocoPhillips  sees those  as critical  to  enable a  successful                                                               
project.                                                                                                                        
                                                                                                                                
2:08:26 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON  resumed the presentation [slide  11], addressing the                                                               
commercial   foundation  agreements   among   the  state,   AGDC,                                                               
TransCanada,  ExxonMobil, BP,  and  ConocoPhillips  that will  be                                                               
needed to underpin the project  in the FEED decision.  Governance                                                               
will need  to be established  for the long-term venture  for FEED                                                               
and beyond.   Agreements will need  to be put into  place for gas                                                               
to be supplied to the project,  which will be of keen interest to                                                               
the  State  of  Alaska  because  if there  is  a  situation  with                                                               
royalty-in-kind and tax as gas  the state will need to understand                                                               
how it receives gas from Prudhoe  Bay and Point Thomson and bring                                                               
it into the project.  Also,  agreements will be needed around how                                                               
gas is  taken off  the pipeline  and LNG is  lifted from  the LNG                                                               
plant to make  those sales that provide revenue  to this project.                                                               
Because  the  supply   of  gas  for  in-state   needs  is  keenly                                                               
important, agreements will  be needed in that area.   Making sure                                                               
this project is  expandable to accommodate future gas  is an area                                                               
where agreements are  expected as well.  This  commercial work is                                                               
going on right now to get ready for the FEED decision.                                                                          
                                                                                                                                
REPRESENTATIVE HERRON,  regarding the  aforementioned agreements,                                                               
inquired  whether one  must happen  before the  other or  whether                                                               
they are all "number one's" at this time.                                                                                       
                                                                                                                                
MR. MCMAHON  answered they are all  "number one's" - each  one of                                                               
them needs to be progressed  because the parties have agreed that                                                               
they are important  to move forward with the project.   So, there                                                               
is a massive parallel effort going on now to advance those.                                                                     
                                                                                                                                
MR.  MEZNARICH added  that ConocoPhillips  sees these  commercial                                                               
agreements as foundational.   The fiscal issues  are being worked                                                               
in parallel,  but ConocoPhillips  believes that "this  page" must                                                               
be  right  before  coming  back to  the  administration  and  the                                                               
legislature to ask  the legislature and ultimately  the public to                                                               
support a fiscal package.                                                                                                       
                                                                                                                                
2:11:19 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON  returned to the presentation  [slide 11], explaining                                                               
the state would move its gas  through the gas treatment plant and                                                               
the  pipeline  under  a long-term  firm  transportation  services                                                               
agreement (FTSA) between  itself and TransCanada.   He noted that                                                               
this  is  another  commercial  agreement  that  will  enable  the                                                               
decision to enter FEED in 2016.                                                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  surmised there will be  separate long-term                                                               
firm  transportation services  agreements  with each  of the  gas                                                               
owners and that they may be under different terms.                                                                              
                                                                                                                                
MR. MCMAHON  confirmed there will  be individual  arrangements by                                                               
each of the owners.                                                                                                             
                                                                                                                                
MR.  LEE added  that TransCanada  is currently  working with  the                                                               
state  on  a  long-term firm  transportation  services  agreement                                                               
between TransCanada  and the  State of  Alaska.   As part  of the                                                               
FTSA,  there  will  be  a  tariff  for  shipping  state  gas  and                                                               
processing state  gas through  the gas treatment  plant.   So, if                                                               
the state and TransCanada agree  to the FTSA, TransCanada will be                                                               
the transporter for  the state gas.  In  return, TransCanada will                                                               
receive a tariff from the state.                                                                                                
                                                                                                                                
2:13:16 PM                                                                                                                    
                                                                                                                                
MR.  MCMAHON resumed  the presentation,  turning to  slide 12  to                                                               
discuss  the fiscal  work being  done.   Given the  unprecedented                                                               
scale,  complexity, and  cost of  the Alaska  LNG Project,  along                                                               
with  the  need to  compete  in  the  global energy  markets,  he                                                               
advised  that  a  competitive, predictable,  and  durable  fiscal                                                               
environment will be required.   Establishing these terms is a key                                                               
enabler for  the project and  the project's LNG  buyers, lenders,                                                               
and  investors.   In 2014  good  progress was  made towards  this                                                               
goal, including the Heads of  Agreement and Senate Bill 138; that                                                               
sets up  for the work around  the lease modifications as  well as                                                               
the  royalty-in-kind.   A key  consideration for  ExxonMobil, BP,                                                               
ConocoPhillips, the  administration, and the legislature  is what                                                               
the  best option  is  to provide  these  predictable and  durable                                                               
terms  for  this  project.     Also  being  worked  on  with  the                                                               
administration, and  ultimately with  the legislature,  are ideas                                                               
related  to property  tax and  payments that  would occur  during                                                               
construction.  The  work products that will be coming  out of the                                                               
Municipal  Advisory  Gas Project  Review  Board  (MAG group)  are                                                               
going  to  be  very  important   to  ultimately  finding  lasting                                                               
solutions to property tax.   Legislative review and approval will                                                               
be necessary  for property  taxes to  support the  FEED decision.                                                               
Mr.  McMahon defined  what is  meant by  predictable and  durable                                                               
fiscal  terms,  explaining  that   predictability  is  about  the                                                               
state's take, royalty  and taxes, being calculated in  a way that                                                               
is as consistent  and as unambiguous as possible.   Durability is                                                               
that these  terms should last  for a period of  time commensurate                                                               
with the  risks that are being  taken.  Risks are  being taken by                                                               
the investors in the project, by  the lenders to the project, and                                                               
by the buyers of  the LNG from the project.   These terms need to                                                               
be balanced.   The revenue  share for the state,  ExxonMobil, BP,                                                               
and  ConocoPhillips needs  to be  clearly defined  in a  way that                                                               
improves the  probability that a commercially  viable project can                                                               
be achieved.   The Alaska  LNG Project is a  world-scale project.                                                               
All the  investors, including the  state, need to  understand the                                                               
investment structure and the  commercial terms before proceeding.                                                               
These terms must also recognize  the risk, and balance the needs,                                                               
of the state, ExxonMobil, BP, and ConocoPhillips.                                                                               
                                                                                                                                
2:17:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER   pointed  out  that  [Senate   Bill]  138                                                               
essentially established a fiscal regime  for the State of Alaska.                                                               
He asked whether  [the producers] are still  comfortable with the                                                               
fiscal regime as established in Senate Bill 138.                                                                                
                                                                                                                                
MR. MCMAHON  replied Senate  Bill 138 was  an excellent  piece of                                                               
legislation  that is  being  built upon  today.   It  established                                                               
production tax as a 13  percent gross tax, authorized the state's                                                               
participation  in  the  project,  and established  a  process  to                                                               
develop  project-enabling  agreements  like  the  aforementioned.                                                               
Looking  at property  taxes is  a next  natural step  in building                                                               
upon Senate Bill 138 and providing  a way to pay those taxes that                                                               
is predictable  and durable.  Project-enabling  agreements around                                                               
predictability and durability are another  thing to build on that                                                               
foundation.  [The producers] feel  good about Senate Bill 138 and                                                               
what it has provided for the project.                                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER acknowledged Senate  Bill 138 left open the                                                               
matter of  determining predictability and durability  on property                                                               
tax,  which is  why  the Municipal  Advisory  Gas Project  Review                                                               
Board is currently working to come  up with a proposal that comes                                                               
back  to the  legislature.    The elephant  in  the  room is  the                                                               
production  tax, the  13 percent  gross tax  on gas  at point  of                                                               
production.  He said he didn't  hear a very clear answer from Mr.                                                               
McMahon that,  "yes, you  were still  okay with  that provision."                                                               
He asked  whether [the producers]  are going to come  back asking                                                               
for  any further  production tax  changes in  order to  meet [the                                                               
producers'] definition of predictable and durable.                                                                              
                                                                                                                                
MR. MCMAHON, from ExxonMobil's standpoint, responded no.                                                                        
                                                                                                                                
MR. VAN TUYL answered no, it is not BP's intent either.                                                                         
                                                                                                                                
MR.  MEZNARICH replied  he has  no  knowledge of  that being  the                                                               
intent of ConocoPhillips.  He  said ConocoPhillips sees the Heads                                                               
of Agreement  and Senate Bill  138 as  a roadmap to  a successful                                                               
project  and so  ConocoPhillips believes  the components  of that                                                               
can lead  to a successful  project and  a decision to  take FEED.                                                               
Senate Bill 138 was consistent with the Heads of Agreement.                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER noted  the state's  income tax  provisions                                                               
are  currently  worldwide-apportioned  state income  taxes.    He                                                               
inquired  whether  the  state income  tax  provisions  are  still                                                               
acceptable to  [the producers]  and the  ability to  move forward                                                               
with this project.                                                                                                              
                                                                                                                                
MR. VAN TUYL replied he  doesn't believe Senate Bill 138 included                                                               
a specific treatment  of state corporate income tax.   Talks with                                                               
the  administration will  include discussion  of the  entirety of                                                               
the  fiscal arrangements  between  the state  and the  producers.                                                               
Those  discussions are  ongoing  and whatever  fruit  is born  in                                                               
those discussions will come back to  the legislature.  He said he                                                               
does not know  that there is a specific desire  to change it, but                                                               
as the discussions are ongoing it  will be seen where they end up                                                               
and the legislature  will have a key role in  determining what is                                                               
ultimately agreeable.                                                                                                           
                                                                                                                                
MR. MEZNARICH  responded that  the perspective  of ConocoPhillips                                                               
is consistent  with BP's.  He  said the key to  ConocoPhillips is                                                               
to have  the predictability and  durability that  understand what                                                               
this is  going to be like  for the next several  decades and know                                                               
what is being  gotten into when everyone makes  the FEED decision                                                               
together.   A  solution must  be found  that works  for everyone.                                                               
This is going to be a huge  decision, he said, but he believes it                                                               
can be done, and ConocoPhillips is focused on doing that.                                                                       
                                                                                                                                
2:21:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR said the alignment  structure only works with                                                               
the 13 percent  production tax in place because  that's what gets                                                               
the state  with its royalty  portion to the ownership  share that                                                               
the state needs  to have.  She said she  was expecting a stronger                                                               
answer in  this regard from all  of the producers because  if the                                                               
producers want to  make any changes to that it  would disrupt the                                                               
state's  alignment interest  and would  be inconsistent  with the                                                               
agreement in Senate Bill 138.                                                                                                   
                                                                                                                                
MR. MCMAHON answered the reason  hesitancy is being heard is that                                                               
any commercial negotiator  knows a deal is not a  deal until it's                                                               
a deal.   As [the  producers] work with the  administration there                                                               
could be  additional puts  and takes  in the  overall formulation                                                               
and so [the producers] are being  careful not to tie the hands of                                                               
those  at  the  negotiating  table.   [The  producers]  certainly                                                               
recognize that changing the production  tax from 13 percent has a                                                               
cascade effect on  state participation in the project  and tax as                                                               
gas and state gas share.   Other things are being worked on right                                                               
now, so  [the producers] are hesitant  to close off an  avenue of                                                               
discussion while trying to come up  with a package that works for                                                               
all of the folks  at the table.  The way  many negotiations go is                                                               
that things  are nailed down  and [then move  on to the  next] in                                                               
trying to  corner the uncertainty.   Sometimes that  doesn't work                                                               
and  a little  bit  of  backtracking is  required,  which is  why                                                               
certainty  is not  being heard  - [the  producers] know  that the                                                               
deal is not complete yet.                                                                                                       
                                                                                                                                
2:23:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  understood  that   all  of  the  expenses                                                               
relevant to gas at Point Thomson  and at Prudhoe Bay are going to                                                               
be written off against oil profit  tax.  He asked whether that is                                                               
[the producers'] understanding of the way this is going to work.                                                                
                                                                                                                                
MR.  MCMAHON  replied  yes,  under  Senate  Bill  21,  MAPA,  the                                                               
expenses that are  associated with the oil and  gas operation are                                                               
deductible under the calculation of production tax.                                                                             
                                                                                                                                
REPRESENTATIVE SEATON posited that if  gas taxes are not going to                                                               
occur  for 10  years or  however  long the  contract takes  place                                                               
because it  is going to be  gas in-kind, then what  is being said                                                               
is  that all  of the  gas expenses  are going  to be  written off                                                               
against  oil   profit  tax  currently   and  through   that  full                                                               
development  stage.   He  said  the committee  needs  to see  and                                                               
discuss an analysis  of what those expenses at  Point Thomson and                                                               
Prudhoe Bay  are going  to mean  for the oil  profit tax  for the                                                               
next 10  years.   An analysis  will ensure it  is known  what the                                                               
impact is on the state between now and when gas flows.                                                                          
                                                                                                                                
2:26:38 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON  continued the  presentation, moving  to slide  13 to                                                               
discuss the  regulatory work  being done.   He reported  that the                                                               
export authorization [application] filed  last year with the U.S.                                                               
Department  of  Energy  (DOE)  has   resulted  in  a  free  trade                                                               
agreement (FTA)  authorization, thereby allowing [the  Alaska LNG                                                               
Project, LLC] to export Alaska  gas to countries that have signed                                                               
the  free trade  agreement.   An application  for non-FTA  export                                                               
authorization is  on track and  the process at DOE  is continuing                                                               
to be followed.   A major regulatory effort is  underway with the                                                               
Federal  Energy Regulatory  Commission  (FERC)  for the  National                                                               
Environmental Protection Act (NEPA) process.   It is currently in                                                               
the pre-file phase where information  is being exchanged with the                                                               
regulator to help ensure that  the highest quality application is                                                               
submitted.  The NEPA process  results in the environmental impact                                                               
statement (EIS) needed at the  end to issue the authorizations to                                                               
construct the  project.   A key  part of  that is  the set  of 12                                                               
resource  reports being  prepared  for the  project.   The  first                                                               
draft of  those was  submitted this month;  over 9,000  pages are                                                               
now on the FERC web site.   This first pass at these applications                                                               
will be used  to collect information from stakeholders  to have a                                                               
better assessment of what the impacts  of the project are and the                                                               
potential mitigations.   A second  draft of the  resource reports                                                               
will then  be put  in with  FERC with  the idea  of putting  in a                                                               
final  submission for  that process  entering  the formal  filing                                                               
process.  Progress  is being made in  this area.  This  is a very                                                               
open and  public process  - FERC and  its contract  will continue                                                               
holding  public meetings  to solicit  feedback.   This will  be a                                                               
great opportunity  for the  people and the  leaders of  Alaska to                                                               
provide input on the project.                                                                                                   
                                                                                                                                
2:29:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON recalled  Mr.  McMahon earlier  stating                                                               
that  the  gas treatment  plant  would  not be  deductible  under                                                               
Senate  Bill 21.   He  inquired  whether Mr.  McMahon thinks  the                                                               
participants  in   the  Alaska   LNG  Project  and   the  present                                                               
administration  have  an  understanding  of  at  what  point  gas                                                               
exploration  is  deductible  vis-a-vis  is  not  deductible,  for                                                               
example the  gas treatment  plant.   He further  inquired whether                                                               
Mr. McMahon  thinks the statutes  and regulations  already answer                                                               
those questions.                                                                                                                
                                                                                                                                
MR. MCMAHON offered  his belief that the  statute and regulations                                                               
are clear  in that area.   The  activities within the  dotted red                                                               
circle  [slide 8]  are  not lease  activities,  they are  project                                                               
activities to commercialize  Alaska gas.  The  expenses that have                                                               
been  talked about  as far  as Senate  Bill 21,  MAPA, are  lease                                                               
expenditures  for  the ongoing  oil  and  gas operations  at  the                                                               
fields.   Those expenses are part  of the calculation of  the tax                                                               
liability for  the producers.  It  is the way that  the state has                                                               
chosen to  collect production  tax, he said,  so he  believes the                                                               
regulations and statutes are clear.                                                                                             
                                                                                                                                
2:30:59 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON turned  back to the presentation  [slide 14], stating                                                               
that  the  final  area  of  interest for  the  sponsor  group  is                                                               
external affairs  and government  relations.   He said  this team                                                               
facilitates  public dialogue  about the  Alaska LNG  Project with                                                               
federal,  state,  municipal,  and tribal  governments,  including                                                               
agencies and legislative bodies.  This  is an effort to reach all                                                               
the  stakeholders  and  there  will   be  initiatives  to  target                                                               
different stakeholder  groups.  A  project of this  magnitude and                                                               
complexity cannot succeed without broad support.                                                                                
                                                                                                                                
REPRESENTATIVE OLSON  inquired whether  one or  all five  [of the                                                               
sponsor group members] are going to the stakeholder meetings.                                                                   
                                                                                                                                
MR. MCMAHON responded the seven  parties in the sponsor group are                                                               
working together  when talking to the  public.  The effort  is to                                                               
speak with  one voice as  the project and  a myriad of  teams and                                                               
consultants are working this area.                                                                                              
                                                                                                                                
REPRESENTATIVE  TARR commented  that in  looking at  the list  of                                                               
sponsor group members,  it would appear that if a  vote was taken                                                               
the state would  have three votes among the seven  members of the                                                               
group.   She pointed  out that  when the  sponsor group  has been                                                               
talked about  previously, the  state was talked  about as  one in                                                               
addition to the  others in that relatively  equal relationship in                                                               
the sponsor  group.  She  said she wants to  ensure it is  on the                                                               
record that the role of the state has not changed.                                                                              
                                                                                                                                
MR. MCMAHON  thanked Representative Tarr for  that clarification,                                                               
adding that "depending  on which venue we're  in, different parts                                                               
of the  sponsor group have a  vote and have  a say and we  try to                                                               
display this as broad as possible  because ... the state has many                                                               
different roles in  this project and so we try  to display that."                                                               
He said Representative  Tarr is right when  talking about venture                                                               
party  activities where  the state  is paying  25 percent  of the                                                               
cost - the state, the state entities, have a 25 percent say so.                                                                 
                                                                                                                                
2:33:50 PM                                                                                                                    
                                                                                                                                
MR. MCMAHON resumed  the presentation, moving to  the last slide,                                                               
slide 15, "Deliverables to Support  2016 FEED Decision."  He said                                                               
each  of  the six  work  areas  [AKLNG Project,  Gas  Production,                                                               
Commercial, Fiscal,  Regulatory, and  External Affairs/Government                                                               
Relations] will  be delivering hard  deliverables that  will help                                                               
support the FEED decision next year.   The project team will have                                                               
all  of its  Pre-FEED  project deliverables  coming  out for  gas                                                               
production.    Prudhoe Bay  and  Point  Thomson will  have  their                                                               
development plans and it will  be understood what the off-take is                                                               
from  the Alaska  Oil and  Gas  Conservation Commission  (AOGCC).                                                               
Key  agreements will  be  in place.   The  fiscal  terms will  be                                                               
understood  in  regard  to  property  tax,  royalty-in-kind,  and                                                               
predictable and durable  terms.  The DOE export  licenses will be                                                               
had and there  will be progress on the FERC  NEPA process.  Broad                                                               
support for  the project is  being envisioned.  These  are things                                                               
that each of  the sponsors will be looking for  as they make that                                                               
decision about entering that next phase of this project - FEED.                                                                 
                                                                                                                                
MR. MCMAHON  concluded his presentation  with comments  about the                                                               
timeline.   He  said efforts  are continuing  to target  this key                                                               
decision of  FEED in the second  quarter of 2016.   Each party is                                                               
resourcing the efforts  accordingly.  As required  in Senate Bill                                                               
138,  there  must  be  a   public  review  prior  to  any  formal                                                               
legislative review  and there will  be certain  agreements signed                                                               
by the state  that will require legislative approval.   Given the                                                               
magnitude of this project and the  decision that is going to have                                                               
to  be made  on FEED,  a decision  that will  entail more  than a                                                               
billion dollars of  spending for the next phase,  it is essential                                                               
to   take  the   time  to   satisfactorily  complete   all  these                                                               
deliverables so  that every party  at that critical time  will be                                                               
able to vote yes for moving the Alaska LNG Project forward.                                                                     
                                                                                                                                
2:36:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  noted TransCanada  may possibly  have three                                                               
world class megaprojects  all coming on line at  roughly the same                                                               
time.  He  asked Mr. Lee whether  this will put a  real stress on                                                               
the labor market or the availability of skill.                                                                                  
                                                                                                                                
MR. LEE  answered the two  other major projects  that TransCanada                                                               
is  working on  right now  have  a different  timeframe than  the                                                               
Alaska LNG Project.   TransCanada does not  believe that internal                                                               
resourcing  is an  issue  for handling  the  Alaska LNG  Project,                                                               
given that this  project is a few years further  down the road as                                                               
compared  to  the other  projects  that  TransCanada is  handling                                                               
right now.                                                                                                                      
                                                                                                                                
2:37:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  said he received comfort  from a recent                                                               
seminar  with the  legislature's consultants  that the  alignment                                                               
gave equal shares  of ownership, the state's  in conjunction with                                                               
TransCanada's,  and  that there  would  be  less litigation  over                                                               
things like  tariffs and tolls.   He said he would  appreciate it                                                               
if the  committee could follow up  on some of the  questions that                                                               
Representative Seaton had  on those issues because  they are less                                                               
clear to him now than they were before.                                                                                         
                                                                                                                                
CO-CHAIR  TALERICO offered  his belief  that [the  producers] are                                                               
going to provide the committee  with information on the questions                                                               
that were had earlier.                                                                                                          
                                                                                                                                
MR. MCMAHON replied yes.                                                                                                        
                                                                                                                                
CO-CHAIR  TALERICO understood  that the  transmission lines,  gas                                                               
treatment plant,  pipeline, and LNG storage  and loading facility                                                               
are not part of the credit system.                                                                                              
                                                                                                                                
MR. MCMAHON nodded in agreement.                                                                                                
                                                                                                                                
CO-CHAIR  TALERICO further  understood  [the  producers] have  no                                                               
intention of making changes to the 13 percent [production] tax.                                                                 
                                                                                                                                
MR. MCMAHON responded correct.                                                                                                  
                                                                                                                                
2:39:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  inquired  whether a  firm  transportation                                                               
services  agreement  (FTSA)  between TransCanada  and  the  state                                                               
would mean  that TransCanada is  the operator of the  pipeline or                                                               
that there  would be four  independent operators of  the pipeline                                                               
based on the percentages of ownership of the gas.                                                                               
                                                                                                                                
MR. LEE answered  that since the pipeline is  one physical asset,                                                               
it is  logical to have  one operator.   However, no  decision has                                                               
yet been made by the sponsors as to who is going to operate it.                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  said he  is trying  to understand  how the                                                               
FTSA  between TransCanada  and the  state  works when  it is  one                                                               
physical asset  that has  multiple shippers  that may  have other                                                               
arrangements other than similar firm transportation shipping.                                                                   
                                                                                                                                
MR.  LEE  replied  there  are  two  aspects  when  talking  about                                                               
operations.   One is  the commercial operation  and the  other is                                                               
the technical or field operation.   The physical operation of the                                                               
pipelines is  what he was  referring to  earlier - it  only makes                                                               
sense  to have  one physical  operator.   In terms  of commercial                                                               
operations, the  commercial structure that is  being contemplated                                                               
is each project  participant would look after its  own portion of                                                               
the  pipeline in  this  particular case.    So, for  TransCanada,                                                               
there would be a commercial  arrangement with the State of Alaska                                                               
for  TransCanada to  be  the commercial  operator  for the  state                                                               
portion of the pipeline.                                                                                                        
                                                                                                                                
2:42:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  asked whether  the  project  is still  on                                                               
schedule to meet the anticipated  FEED decision of second quarter                                                               
2016.                                                                                                                           
                                                                                                                                
MR.  MCMAHON  responded  [the  sponsor  group]  is  still  moving                                                               
forward on that timeframe, but, as  has been said, it is critical                                                               
to have high quality deliverables out  of each of the work areas.                                                               
Where  things sit  today,  it  is a  challenge  but [the  sponsor                                                               
group] is moving forward with the plans that have been set.                                                                     
                                                                                                                                
MR.  VAN  TUYL  echoed  Mr.  McMahon's  comments,  saying  second                                                               
quarter [2016]  is the target  being worked towards.   He pointed                                                               
out that, as  discussed, there are elements  beyond the project's                                                               
control,  such  as  the Municipal  Advisory  Gas  Project  Review                                                               
Board,  which   is  a   critical  element   of  the   project  in                                                               
understanding how  property taxes might  be levied and  coming up                                                               
with  a mechanism  that is  supportable by  those communities  as                                                               
well as the  state and the project.  That  process is running its                                                               
own course  and is making good  progress, but the project  has no                                                               
control over how quickly people will reach agreement.                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER  acknowledged that the  "management science                                                               
on  megaprojects"   clearly  demonstrates   that  schedule-driven                                                               
projects have  a much greater  possibility of failure  than those                                                               
that are outcome  driven.  He said he understands  the point that                                                               
quality  decisions are  needed  and to  not  be totally  schedule                                                               
driven.  Yet, he opined, if  there is no striving for perfection,                                                               
then the  project is  probably not going  to land  on excellence.                                                               
He  related he  is  hearing  that for  the  major benchmarks  the                                                               
target  is still  2016, but  that the  minor benchmarks  are much                                                               
more fluid  in their completion  than the major benchmarks.   The                                                               
legislature  was  anticipating  receiving  the  majority  of  the                                                               
contracts for  its approval  in August 2015.   However,  he said,                                                               
his sense  is that legislators  should probably not  presume they                                                               
are going to get those in  August but that [the project sponsors]                                                               
will be  working to get them  to legislators in a  timely fashion                                                               
so the FEED decision can still be  met.  He asked whether that is                                                               
a fair statement.                                                                                                               
                                                                                                                                
MR. MCMAHON nodded yes.                                                                                                         
                                                                                                                                
2:46:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR,  in regard to a  pipeline operator, recalled                                                               
that  committee   conversations  last   year  were   centered  on                                                               
TransCanada's  strength  as  both   a  pipeline  operator  and  a                                                               
pipeline builder, but  the committee didn't really  tease out the                                                               
physical operation versus  the commercial side.   She asked about                                                               
the status  of that conversation  and whether  other alternatives                                                               
are under consideration if TransCanada is not the operator.                                                                     
                                                                                                                                
MR.  LEE  answered  the  current structure  in  the  Pre-FEED  is                                                               
TransCanada has secondees  in the project team;  for example, the                                                               
pipeline manager is a TransCanada  secondee who has many years of                                                               
experience and  a leverage of the  TransCanada internal resources                                                               
to  perform his  job with  design  and development  (D&D) in  the                                                               
Alaska  LNG Project.    Through that  channel  the project  teams                                                               
receive the  benefit of  TransCanada's expertise  and experience,                                                               
and  that is  one model  that TransCanada  can add  value to  the                                                               
project.  Perhaps it will  be similar to the Pre-FEED arrangement                                                               
or there might  be a different model.  However,  there is no such                                                               
discussion at this  point in time.  Things will  have to progress                                                               
further down  the road before  the operating model can  be firmed                                                               
up and who is going to operate the facilities.                                                                                  
                                                                                                                                
2:48:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO recognized  members  in the  audience:   Kenai                                                               
Peninsula Mayor  Mike Navarre and DNR  Commissioner Designee Mark                                                               
Myers.                                                                                                                          
                                                                                                                                
The committee took an at-ease from 2:49 p.m. to 2:52 p.m.                                                                       
                                                                                                                                
2:52:27 PM                                                                                                                    
                                                                                                                                
MARTY   RUTHERFORD,   Deputy    Commissioner,   Office   of   the                                                               
Commissioner, Department  of Natural Resources (DNR),  stated she                                                               
is the  Walker Administration's  lead person  for the  Alaska LNG                                                               
Project.   She said she rejoined  DNR on December 1,  [2014], and                                                               
began receiving  non-confidential briefings  from the  Alaska LNG                                                               
Project team.   Shortly thereafter,  she was allowed to  sign the                                                               
seven-party  confidential  agreement  (CA) and,  along  with  Ms.                                                               
Keppers  and others,  she began  getting more  in-depth briefings                                                               
that included the confidential information.   Upon rejoining DNR,                                                               
she was impressed  with the quality of the  [project] team, which                                                               
was retained [from  the previous administration].   While she and                                                               
the  other new  people were  coming  up to  speed, the  [project]                                                               
staff  and  contractors  continued  to do  their  work  on  their                                                               
respective teams.                                                                                                               
                                                                                                                                
MS. RUTHERFORD said the state  continues the priorities that were                                                               
set  under the  Heads of  Agreement (HOA)  and under  Senate Bill                                                               
138, and by  the previous administration in  its discussions with                                                               
the  committee.   These have  to do  with protecting  the state's                                                               
interest and  downside risk associated  with this project  and to                                                               
continue to  investigate and  to assess  and address  through the                                                               
commercial negotiations  the full spectrum  of both the  State of                                                               
Alaska's  opportunities with  this project  and the  benefits and                                                               
the costs  as well as the  risks associated with that.   Pursuant                                                               
to the HOA  and Senate Bill 138, all the  parties are progressing                                                               
the  principles and  moving forward  aggressively.   The task  is                                                               
huge, but  the goal  is to  allow the parties  to make  that FEED                                                               
decision  in early  second quarter  2016.   Given  the amount  of                                                               
cooperation she has  seen and the willingness by  all the parties                                                               
to  find means  of addressing  the various  challenges that  each                                                               
party  faces, she  said she  thinks  it's something  that can  be                                                               
accomplished.  She added that she  is looking forward to the next                                                               
12  months  and getting  to  that  point  where a  positive  FEED                                                               
decision can be made.                                                                                                           
                                                                                                                                
2:56:38 PM                                                                                                                    
                                                                                                                                
DONA KEPPERS,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department of Revenue (DOR), said  she came to [the Department of                                                               
Revenue] in 2008 as an audit  master and stepped in as the deputy                                                               
commissioner during the transition  to the new administration, so                                                               
she  is not  new to  the  Alaska LNG  Project.   In the  previous                                                               
administration  she  participated  in the  project  in  different                                                               
capacities of detailed  work dealing with governance  and the tax                                                               
issues.  With  the change into her new role  she is participating                                                               
across  all of  the work  being done  by the  state's gas  teams,                                                               
allowing her to see at a  global level how the detailed work fits                                                               
into the  larger picture.   With the  change in  administration a                                                               
very aggressive  step was taken as  far as briefings for  the new                                                               
members of the  administration and new members of the  team.  The                                                               
[new members]  have been in lockstep  up to this point,  and DNR,                                                               
AGDC,  and  the sponsor  group  will  continue  to keep  all  the                                                               
deliverables moving  forward.  This  is a very  exciting project,                                                               
she added, and  she cannot imagine any place else  she would want                                                               
to be in  order to join with the state,  the legislature, and all                                                               
of the parties in going to the next step.                                                                                       
                                                                                                                                
MS. KEPPERS said the Department  of Revenue is currently focusing                                                               
in two  major areas.   Phase 2  of the financing  alternatives is                                                               
about to start and will be worked  on over the summer in order to                                                               
deliver  a report  to the  legislature in  the fall.   The  other                                                               
piece  of  large  work  deals with  the  Municipal  Advisory  Gas                                                               
Project Review Board (MAG group),  which began meeting monthly in                                                               
November and  will be meeting  this Friday.  These  meetings have                                                               
escalated and people are engaged.   The commissioner leading that                                                               
charge  [Randall  Hoffbeck]  started  in December  and  [DOR]  is                                                               
looking  forward to  being  able  to land  a  mechanism and  work                                                               
through this.   The relationship with the  municipalities is very                                                               
important  and their  input is  valued for  getting to  the right                                                               
place to move this piece of the business forward.                                                                               
                                                                                                                                
2:59:39 PM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK, Commissioner  Designee, Department  of Revenue                                                               
(DOR), related that the MAG group  tried to put together a report                                                               
at the  end of  the last administration.   However,  unrelated to                                                               
the last  administration, things kind of  blew up at the  end and                                                               
the report became almost a wish  list rather than a specific plan                                                               
to move forward.  The MAG  group was re-engaged in January [2015]                                                               
and the  group reconfirmed the  idea that it is  comfortable with                                                               
the payment  in lieu  of taxes  (PILT) structure  moving forward.                                                               
Because the PILT in  general is too big of a  concept for the MAG                                                               
group  to  work  with,  the  group  requested  DOR  to  put  some                                                               
parameters around  it.  So,  on Friday [2/20/15], DOR  is meeting                                                               
with  the MAG  group with  some structure  around a  PILT.   That                                                               
structure  has  been informally  floated  to  most of  the  major                                                               
players associated with  the MAG group, and was  floated with the                                                               
sponsor group yesterday.   Although the devil is  in the details,                                                               
the concept appears  to be something that people are  going to be                                                               
willing to  work with.  If  a consensus is reached  on Friday, it                                                               
will be  loaded into  the sponsor group  for consideration.   The                                                               
MAG group's  authority is  to provide the  advice and  input, but                                                               
because the  MAG group is  not the decision  maker it must  go to                                                               
the AK LNG group to look at.                                                                                                    
                                                                                                                                
COMMISSIONER HOFFBECK  advised committee members to  keep in mind                                                               
that this is  not just a municipal  issue.  The state  is a large                                                               
stakeholder in  the property tax as  well, he said, and  it could                                                               
be 40 percent  or more.  For  example, a very rough  number for a                                                               
$60 billion project at 2 mils  is $1.2 billion a year in property                                                               
tax  and the  state could  have as  much as  40 percent  of that.                                                               
Therefore, the  state has  an interest in  making sure  that this                                                               
PILT works for everybody.  He  said he is happy with the progress                                                               
that has been  made.  The commitment from  the municipalities has                                                               
been tremendous  and he  is hopeful that  some structure  will be                                                               
landed upon on Friday that can be loaded into the process.                                                                      
                                                                                                                                
3:02:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  understood the  MAG  group  has an  interim                                                               
report with  a number  of recommendations  and that,  pending new                                                               
appointees to  the board,  a final  report is to  come out.   She                                                               
asked whether that  process will be by-passed and  the focus will                                                               
be just on the details of the PILT structure.                                                                                   
                                                                                                                                
COMMISSIONER HOFFBECK  confirmed the  PILT structure is  going to                                                               
be the  focus and that  it can  certainly be incorporated  into a                                                               
final report, which  is still owed to the legislature.   The idea                                                               
would be to actually report on the results.                                                                                     
                                                                                                                                
3:03:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER said  the MAG  group is  composed of  very                                                               
good people,  but each person  has a very provincial  interest of                                                               
looking after  his/her own community.   The last time  he watched                                                               
the group, he  related, he was worried things would  not get very                                                               
far very  fast given all the  differing opinions.  Noting  it now                                                               
sounds  like  substantial progress  is  being  made, he  inquired                                                               
whether it is  progress that is making everyone at  the MAG group                                                               
happy or whether there  will be a lot of dissent  once there is a                                                               
proposal before [the legislature].                                                                                              
                                                                                                                                
COMMISSIONER HOFFBECK  believed there will  be some dissent.   He                                                               
said  he  has floated  the  idea  past  the  mayor of  the  Kenai                                                               
Peninsula  Borough,  the  representative  from  the  North  Slope                                                               
Borough, the  mayor of the Denali  Borough, and the mayor  of the                                                               
Fairbanks North Star  Borough.  Reiterating that the  devil is in                                                               
the details, he said they all,  in concept, thought it was a good                                                               
direction  that was  being taken.   One  thing that  needs to  be                                                               
understood going forward  is that the sponsor  group cannot carry                                                               
the burden  of the allocation  of the revenues from  the property                                                               
tax.   If the  decision is made  by the state  that there  is too                                                               
much money going  to a specific borough or  municipality, that is                                                               
not an  issue that the  sponsor group  takes on; theirs  is total                                                               
revenue into  the system.   There may  be another  more difficult                                                               
discussion with  the MAG group going  forward as far as  how that                                                               
is dispersed,  but that should  not hold  up the progress  on the                                                               
gasline, he specified.                                                                                                          
                                                                                                                                
3:05:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  recalled a provision  in Senate Bill  138 to                                                               
provide a  percentage to  rural communities  outside of  the road                                                               
system that  are ineligible  for some  of this  PILT arrangement.                                                               
She asked whether that is being worked on now.                                                                                  
                                                                                                                                
COMMISSIONER HOFFBECK replied he has not worked on that yet.                                                                    
                                                                                                                                
3:05:50 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  thanked Mr. Fauske  for his  good presentation                                                               
in the other  body about two weeks ago.   He inquired whether Mr.                                                               
Fauske has any comments for today.                                                                                              
                                                                                                                                
MR. FAUSKE  remarked that  transitions, or  any change,  are hard                                                               
because things are  done differently or there is  mystery in what                                                               
is going to  be done.  However,  he said, he can only  speak in a                                                               
very positive manner as to  how things are progressing and moving                                                               
forward.   The list of  [work] items  is a significant  list, but                                                               
everyone  is  dedicated  to  getting that  list  completed.    He                                                               
concurred with Representative Hawker  about trying to achieve the                                                               
benchmarks that  are set in a  gated approach and that  they need                                                               
to be realistic.  The effort  going forward is spectacular.  As a                                                               
former financial officer for the  North Slope Borough, he said he                                                               
understands  the   property  tax   issue  and  has   offered  his                                                               
assistance to  Commissioner Hoffbeck.   He said he has  talked to                                                               
people many times about the  importance of local revenue but also                                                               
not to  be deal breakers  on the  idea in that  everyone benefits                                                               
from this but everyone needs to  be reasonable in terms of how to                                                               
put a project together.  He  said his sense from the producers is                                                               
that the mechanisms  need to be improved upon but  that this is a                                                               
solvable problem.   His message is  that this will be  solved and                                                               
the next issue moved on to.                                                                                                     
                                                                                                                                
3:08:18 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 3:08 p.m.                                                                 

Document Name Date/Time Subjects
2 17 15 Sec 77 SB 138 Report_Revised for HRES.pdf HRES 2/18/2015 1:00:00 PM
SB 138
AKLNG SOA 3rd Party Commitments 1-30-2015.pdf HRES 2/18/2015 1:00:00 PM
AKLNG HRES Testimony 02-18-2015.pdf HRES 2/18/2015 1:00:00 PM