Legislature(2015 - 2016)BARNES 124
01/27/2016 01:00 PM House RESOURCES
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Alaska Liquefied Natural Gas (ak Lng) Project by the Fiscal Team | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
January 27, 2016
1:01 p.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
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
All members present
COMMITTEE CALENDAR
PRESENTATION(S): ALASKA LIQUEFIED NATURAL GAS (AK LNG) PROJECT
BY THE FISCAL TEAM
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BILL MCMAHON, Senior Commercial Advisor
ExxonMobil Production
Anchorage, Alaska
POSITION STATEMENT: Provided his company's view on the progress
of the Alaska LNG Project and provided a PowerPoint presentation
entitled, "Alaska LNG Venture Participant Update."
MARTY RUTHERFORD, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Assisted in providing a PowerPoint
presentation entitled, "Alaska LNG Venture Participant Update."
DAVID VAN TUYL, Regional Manager
BP Exploration Alaska
Anchorage, Alaska
POSITION STATEMENT: Provided his company's view on the progress
of the Alaska LNG Project and assisted in providing a PowerPoint
presentation entitled, "Alaska LNG Venture Participant Update."
L.W. "LEO" EHRHARD, Vice President, Commercial Assets
ConocoPhillips Alaska
Anchorage, Alaska
POSITION STATEMENT: Provided his company's view on the progress
of the Alaska LNG Project and assisted in providing a PowerPoint
presentation entitled, "Alaska LNG Venture Participant Update."
L.C. "FRITZ" KRUSEN, Interim President
Alaska Gasline Development Corporation (AGDC)
Department of Commerce, Community, and Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided his company's view on the progress
of the Alaska LNG Project and assisted in providing a PowerPoint
presentation entitled, "Alaska LNG Venture Participant Update."
ACTION NARRATIVE
1:01:19 PM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 1:01 p.m. Representatives Nageak,
Talerico, Hawker, Tarr, Josephson, Seaton, and Olson were
present at the call to order. Representatives Johnson and
Herron arrived as the meeting was in progress.
^PRESENTATION(S): Alaska Liquefied Natural Gas (AK LNG) Project
by the Fiscal Team
PRESENTATION(S): Alaska Liquefied Natural Gas (AK LNG) Project
by the Fiscal Team
1:02:30 PM
CO-CHAIR NAGEAK announced that the only order of business is a
presentation on the Alaska Liquefied Natural Gas Project (AK
LNG) by the project's fiscal team.
1:03:07 PM
BILL MCMAHON, Senior Commercial Advisor, ExxonMobil Production,
offered the appreciation of the Walker Administration, Alaska
Gasline Development Corporation (AGDC), ExxonMobil, BP, and
ConocoPhillips for being able to provide today's update on the
Alaska LNG Project (AK LNG). He explained that after the five
parties at the table introduce themselves, he will [provide a
PowerPoint presentation] on the package that is before the
committee. He noted he has been with ExxonMobil for over 30
years and has been working on different forms of Alaska gas
commercialization since 1992. Mr. McMahon continued:
ExxonMobil remains committed to the Alaska LNG Project
and believes that this project is the best project for
developing Alaska North Slope [ANS] gas. As a lease
holder of gas resources on the Alaska North Slope,
we've diligently undertaken through various individual
and joint activities to commercialize ANS natural gas.
We are now pursuing the Alaska LNG Project with the
State of Alaska, also represented by AGDC, along with
BP and ConocoPhillips. We're following a framework
that was developed by the State of Alaska in 2014 that
is comprised of a Heads of Agreement [HOA] signed in
January of 2014 and Senate Bill 138 that was passed in
April of 2014. Under the agreed framework, our
project has achieved some significant milestones. We
have progressed Pre-FEED [Front-End Engineering and
Design] activities, we've received export
authorizations both for Free Trade and Non-Free Trade
Agreement countries, and we've submitted a draft
environmental filing with the Federal Energy
Regulatory Commission [FERC].
In Pre-FEED alone, with ExxonMobil as the lead party,
the total costs are going to be over $500 million.
[ExxonMobil has] provided about a third of the funding
and about two-thirds of the project personnel. We
appreciate the work of the Alaska Legislature in the
Special Session to allow AGDC to offer an affirmative
vote for the 2016 work plan and budget [WP&B]. This
has allowed the Pre-FEED work to go on uninterrupted
and we appreciate that.
Our current schedule calls for completing the Pre-FEED
deliverables in 2016 and this is going to position the
participants for a decision on entering the FEED
phase, a phase that is expected to cost over $1
billion. And as ExxonMobil considers this decision,
this stage-gate decision, we are going to evaluate the
project's potential commercial viability and technical
viability by assessing the following aspects of the
project: How much will the project cost? What are
the capital requirements and what's the execution
schedule? What's the outlook for getting FERC permits
to construct and the other regulatory authorizations?
What kind of LNG market confidence do we find and
buyer support? ... What's the business environment,
including the LNG price outlook as well as the
availability of materials and equipment and qualified
contractors and venders? And then finally ... we need
to have the project-enabling fiscal and commercial
agreements in place. As I've testified before, the
key commercial agreement that ExxonMobil ... has a
special interest [in] is mutually acceptable fiscal
contract terms that provide a competitive,
predictable, and durable framework for the project.
Of course we're cognizant that before the parties can
vote affirmatively for FEED that ... the parties are
going to have to take into consideration near-term
cash flows that are going to be needed for, for that
work in today's challenging environment.
Now, more than ever, we're reminded that projects must
be extremely cost competitive to survive the
inevitable up and down of the market. As Steve Butt
highlighted on [1/25/16], the parties are continuing
to evaluate ways to drive down costs to make Alaska
LNG competitive in the global market.
So, when the producers and the administrations are
aligned and ready, legislative action will be needed
on project-enabling agreements and ... approvals will
be sought consistent with Senate Bill 138. So
ExxonMobil believes that support from all the
stakeholders is essential - the parties represented
here at the table, the Alaska Legislature, the people
of Alaska - all necessary for a successful project.
We believe that ExxonMobil's actions to complete Pre-
FEED, and negotiate agreements, and to secure timely
regulatory approvals demonstrate our commitment to the
Alaska LNG Project.
1:08:35 PM
MARTY RUTHERFORD, Deputy Commissioner, Office of the
Commissioner, Department of Natural Resources (DNR), expressed
the Walker Administration's appreciation for the legislature's
support of the TransCanada buyout during the fall 2015 special
session. That allowed [the state] to purchase the TransCanada
rights to the pipeline and the gas treatment plant [GTP].
TransCanada was the state's agent for those portions and in
November 2015 those were transferred to AGDC. The
administration is appreciative that there is now a consolidated
voice at the table for the project. She recognized the
"wonderful work" that the technical project team led by [Steve
Butt, AK LNG senior project manager] has done, including the
team's efforts to complete the Pre-FEED work in a timely fashion
and to try to lower the costs so that the project's LNG will be
competitive in the world market once the project is able to move
to that stage. Ms. Rutherford continued:
The Walker Administration is very committed to the AK
LNG Project and we are very supportive of the work
that's been done on the project technical level. I
would note, however, that we are also very concerned
at the slow pace of the commercial agreements. We had
hoped to be much further along. In fact, as you well
know, the governor was interested in having a fall
2015 special session on commercial agreements and now,
of course, we are referencing a spring 2016 special
session.
We do remain hopeful, however, that we can complete
these agreements in time for such a special session
and this administration is fully prepared to meet that
schedule. So, again, I look forward to the
opportunity to have a further discussion with you
today.
1:10:41 PM
REPRESENTATIVE HAWKER recalled that during the fall 2015 special
session a question came up about who is really leading the
state's team, given the fair amount of personnel changes and
such that have occurred. He inquired whether it is clear to
[the project participants] who is leading the state's team. He
further inquired as to who is that person.
DAVID VAN TUYL, Regional Manager, BP Exploration Alaska,
replied:
It has been explained to us that ... from the state's
end the project is being led by a policy-making group
consisting of Marty Rutherford, the attorney general,
and Commissioner Hoffbeck. Our primary contact on a
number of these commercial agreements is with Deputy
Commissioner Rutherford. The state, I think very
reasonably, has delegated its responsibilities on a
number of the issues that ... we're working with to
various members. But it's clear to me anyway ... of
who it is within the state that is the representative
in setting policy, and it is the folks that I just
mentioned.
REPRESENTATIVE HAWKER concluded it is not a person, but a
committee.
MR. VAN TUYL responded, "My understanding is that what the state
had explained to us is they have a three-person policy-making
board or committee, if you want to call it that, but our primary
contact is with Deputy Commissioner Rutherford."
MR. MCMAHON, responding to Representative Hawker's question,
said the foregoing is his understanding as well.
L.W. "LEO" EHRHARD, Vice President, Commercial Assets,
ConocoPhillips Alaska, concurred with the foregoing
understanding, stating that it is very clear to his company.
1:13:21 PM
REPRESENTATIVE OLSON asked whether any other boards, of which
the committee might be unaware, are involved with the project.
MS. RUTHERFORD answered, "AGDC is also on the policy level for
decisions on the project, and those commercial agreements that
they have a role in." She said details will be provided during
a presentation before the committee on 1/29/16, at which time
the structure and matrix will be reviewed for dealing with all
the commercial agreements, and who has what role.
REPRESENTATIVE OLSON clarified he is referring to smaller groups
like the one with which Ms. Rutherford is actively involved.
MS. RUTHERFORD replied yes, there is the gas team which has
representatives of AGDC and the departments of law, revenue, and
natural resources. "That gas team answers to ... whenever there
is a policy question ... they look to guidance from the policy
makers that were just referenced by the three producers," she
said. She continued, "... at the end of the day ... the
governor makes those major decisions, yes."
1:14:53 PM
REPRESENTATIVE SEATON recalled that TransCanada and the buyout
process were contentious issues until the confidentiality of
that contract was waived and the provisions that had been kept
secret from legislators could then be seen. Being able to see
the secret provisions strongly influenced the decision that then
became pretty unanimous. He urged that this type of "hand
grenade," where legislators are unable to know what they are
voting on, not be built into the next system. He said he would
like some confidence that the legislature will not be asked to
approve a contract that is essentially a blank piece of paper
that includes the most significant aspects to the state's fiscal
future. He inquired whether the experience with TransCanada has
enabled the parties to understand why the legislature needs to
have access to those agreements.
MS. RUTHERFORD opined this administration agrees with
Representative Seaton absolutely. The administration's
intention for all commercial agreements that commit the state's
resources or monies, and any agreement that commits the
Department of Natural Resources beyond two years on the project
elements, is that such agreements are brought to the legislature
for approval. She continued:
This administration strongly agrees that we need to be
as absolutely transparent as possible with the
legislature and the people of the state on what it is
that we are committing to and what we are attaining as
part of an AK LNG project. There certainly may be
some areas where there are commercial issues that will
cause us to have to deal carefully with ... perhaps in
confidential discussions with the legislature, but we
are going to try to minimize those and be as open and
as transparent as we possibly can.
REPRESENTATIVE SEATON inquired whether other things, such as
voting rights structures, could be made available to legislators
so that legislators know what the subsequent decisions will be
and who the participants will be and at what levels.
1:19:00 PM
L.C. "FRITZ" KRUSEN, Interim President, AGDC, Department of
Commerce, Community, and Economic Development (DCCED), replied:
AGDC sort of takes the lead on a number of agreements
that represent how we're going to run the project, how
we're going to run the operation. We call them the
"governance suite" and I'll make sure that we do all
we can to have those aspects transparent to the
legislature.
REPRESENTATIVE TARR asked whether it is very clear to the three
project partners that are outside of the state that they go to
Deputy Commissioner Rutherford as the point of contact for
interactions with the state on AK LNG.
[The three project partners nodded yes.]
1:20:19 PM
MR. VAN TUYL provided BP's statement to the committee, noting he
has been working for BP in Alaska for over 31 years, the last
several of which have been dedicated to getting Alaska's gas
resource to market. He paraphrased from the following written
statement [original punctuation provided]:
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.
I am very pleased to be here with all of my colleagues
to provide this update on the progress of the Alaska
LNG Project, and this is from BP's perspective. The
success of Alaska LNG is critical to BP's business
here in Alaska, and it's also critical to the future
of the State of Alaska and so many Alaskans who will
benefit, both directly and indirectly, from a
successful project.
Now this past year in 2015 has been an important and
we think a very successful one for the Alaska LNG
projects. Alaska LNG continues to make progress
towards becoming a reality and I think it's worth
taking just a moment to reflect on some of the
important achievements that were made this past year.
As my colleague Mr. McMahon mentioned, in February the
project filed 12 draft resource reports with the
Federal Energy Regulatory Commission, totaling over
8,000 pages available on the FERC web site .... In
March, the FERC then, based on that filing, issued
their Notice of Intent to proceed with an
Environmental Impact Statement for the project, and
that began a nine-month public comment period.
In May, the project received authorization from the
Department of Energy to export up to 20 million tons
per annum (MMTPA) of LNG to non-free trade agreement
countries and that's coupled with the free trade
agreement authorization the project already had. And
that's a huge message to the world and a major step
forward for the project. The Alaska LNG Project was
able to jump the queue, if you will, over other U.S.
LNG projects that were also awaiting export
authorization, and I think that's a feat we owe in
large part to the hard work of our Alaska federal
delegation.
In October, the Alaska Oil and Gas Conservation
Commission increased the maximum allowable gas offtake
rate from Prudhoe Bay to a level sufficient to support
LNG export, and they also allowed authorization for
injection of impurities, including CO2, into the main
Prudhoe Bay reservoir. [The Alaska Oil and Gas
Conservation Commission] also established a gas
offtake rate for the Point Thomson field that's
critical for the successful Alaska LNG Project. And
those authorizations we have never had before
sufficient to support the project.
1:23:20 PM
MR. VAN TUYL continued paraphrasing:
As was mentioned also in November, the State of Alaska
through the legislative authorization agreed to
acquire TransCanada's 25 percent interest in the
midstream portion of the project.
And then in December all the parties here - BP, Exxon,
Conoco, State of Alaska - approved the 2016 work
program and budget which authorizes over $200 million
in spending to continue advancing the project, which
we are doing.
And as you heard just the other day from Steve Butt,
the project team is making good progress on those Pre-
FEED deliverables, something like 85 percent complete.
We also worked through a number of commercial issues
during the course of 2015, and we continue to make
progress on others.
Beginning last February, we worked with the
administration to understand a bit more about the
administration's "Plan B" in the event that the Alaska
LNG Project was, for whatever reason, to not proceed,
and the implications that that plan had for our joint
work so we can continue working together on the Alaska
LNG Project, which we have.
This past summer BP responded both verbally and in
writing to public notice of new confidentiality
[regulations] proposed for AGDC, that we wanted to
make sure that those terms facilitated AGDC's full and
equal participation in the project because we think
that's absolutely imperative to success, while also
protecting the project's competitive advantages.
Throughout 2015, we have worked with the
administration in defining a property tax framework
for the project, and that framework has been
communicated through the Municipal Advisory Group
Pipeline Review Board process.
We heard the administration's desire to prioritize a
withdrawal agreement, and BP successfully negotiated
and executed a Gas Availability Agreement this past
December, along with ConocoPhillips and the State of
Alaska. BP also looks forward to continuing to work
with the State as it desires to progress any other
such agreements.
And we are also making progress on other commercial
fronts, including support for the DNR in making its
royalty-in-kind election, defining fiscal terms for
the project, working with the State on the manner in
which in-state gas supply would be provided, and other
commercial issues.
So while there is still much work to be done, we do
continue to make progress. We understand the
governor's recent statements about the need for
additional progress, and we agree.
1:25:56 PM
MR. VAN TUYL continued paraphrasing:
Just as we said at our last legislative update in
September, the agreements we're actively negotiating
are complex and will impact this multi-billion dollar
project that will span decades. Given the complicated
issues we're working through and the fact that each of
the parties in the negotiation has its own needs and
concerns, it probably shouldn't surprise us that the
negotiations can be difficult. Last time we spoke
about hitting speed bumps along the way as an
encouraging sign that we're tackling the tough issues
and still moving forward. And that continues to be
the case.
BP desires to get these agreements done as soon as
possible, but we also recognize that it is essential
to all the parties that these agreements are done
well. BP is committed, just as we have been
throughout this process, to working out our remaining
issues as quickly and as fairly as possible.
We're encouraged that the project continues to make
real, tangible progress, as measured by these key
external milestones that I mentioned.
And BP remains actively engaged to continue
progressing the Alaska LNG Project, both with the
technical work and the associated commercial work.
Given the current economic environment, 2016 looks to
be a challenging year for all of us. We at BP, and we
as Alaskans, know what it means to face challenges.
The best way we have found, is to do so together.
That is the path that was envisioned in the January
2014 Heads of Agreement, it is the path that was
forged by this legislature with the passage of [Senate
Bill 138, passed and signed into law in 2014], and BP
remains committed to progressing in an aligned way
forward on the Alaska LNG project.
1:27:49 PM
REPRESENTATIVE HAWKER observed that Mr. Van Tuyl's comments
indicate that tremendous progress is being made; however, the
governor is increasingly concerned about the lack of progress in
negotiating the agreements necessary to enable the project to
proceed. He asked who is right.
MR. VAN TUYL stressed that BP continues to dedicate its
resources to negotiate complex and world-class agreements. The
parties are meeting regularly and are making progress in that
regard. He acknowledged that putting the agreements before the
legislature will be a tangible, external milestone and said,
"But the fact that we don't yet have ink on paper of all the
parties, doesn't mean that we're not progressing those
agreements ...."
REPRESENTATIVE HAWKER offered his understanding that the
governor seeks to impose some specific deadlines on the
completion of these critical agreements. He asked whether the
project has evolved from a project progressing on its merits, on
a reasonable and rational basis, to a schedule-driven project
with hard schedules established by the state, and with dire
consequences for the project if unmet.
1:30:25 PM
MR. VAN TUYL replied that from BP's perspective it is essential
that the agreements are done well, fairly, and right, which will
take time to work out; however, he said, "I cannot tell you with
any certainty, exactly what time that's going to take."
REPRESENTATIVE HAWKER directed the following question to Ms.
Rutherford:
Has the governor ... imposed fixed time deadlines to
conclude the work that I'm hearing here is difficult?
Again, are we, have we moved to a schedule-driven
project, and if so what is that schedule?
MS. RUTHERFORD said she would differentiate between a date-
driven schedule for the project versus a date-driven schedule
for the agreements. She reviewed initial stages of the project
and observed that the work plan and budget set completion of the
Pre-FEED by December 2016, but the commercial agreements have
"slipped." Ms. Rutherford explained:
They have slipped the schedule that was identified in
2014 as part of the Heads of Agreement. The intention
was to have them available by 2015 regular session,
and then it was a special session, and now we're
looking at a 2016 special session. Obviously, the
State of Alaska cannot progress commercial agreements
by itself. It requires agreement by all the parties
involved, for, whether that be the producers and AGDC,
or the producers and the sovereign, and it is
absolutely the hope of this administration that we
could provide to the legislature commercial agreements
by the end of March in order to be able to get to a
special session so that we could have a constitutional
amendment ready to go to support a fiscal agreement by
June 20, for the November ... general election. ...
So, has [the governor] set this as an expectation?
Yes. But can we ensure that it's going to occur? No.
1:33:40 PM
REPRESENTATIVE HAWKER opined the commercial agreements are the
progress on the project and thus cannot be separated from the
field work; in fact, the field work is dependent upon the
progress made by the policy committee. He questioned whether
Ms. Rutherford was assuring the committee that the governor
understands that the agreements may not be done by a time
certain, and "is just hoping, that he is not stipulating,
time[s] [certain]."
MS. RUTHERFORD responded that the project technical work is
progressing under its own stage-gate timeframe as directed by
the work plan and the budget schedule, and the governor is not
imposing any schedule or dates into that process. Regarding the
commercial agreements, she restated the producers' desire to
have a fiscal agreement that supports the project's commercial
structure, and that the state - as advised by the attorney
general - is required to hold a constitutional amendment in
order to execute a fiscal stability agreement. Because
constitutional amendments must occur at a general election, and
the next are scheduled for November 2016, and November 2018, the
schedule is dictated by the desire to get the agreements
approved and a constitutional amendment [on the general election
ballot]. The governor has set March dates as target dates so
that a spring special session, followed by a November 2016
constitutional amendment, can be scheduled.
REPRESENTATIVE HERRON directed attention to previous remarks by
Mr. Van Tuyl as follows [in part]:
We understand the governor's recent statements about
the need for additional progress. We agree.
REPRESENTATIVE HERRON inquired whether the foregoing statement
referenced the letter from [Governor Bill Walker addressed to
Ms. Janet L. Weiss, Mr. Jim Flood, and Mr. Joe Marushack, dated
1/18/16, Re: AKLNG Project - North Slope Development].
1:36:50 PM
MR. VAN TUYL recalled that the governor has made multiple public
statements about his desire to have commercial agreements in
place, and that desire was reiterated in the aforementioned
letter. He restated that BP is in agreement with the governor,
however, the challenge remains that those agreements can only be
completed when all of the parties are satisfied that their
commercial needs are met and protected.
REPRESENTATIVE HERRON also agreed that the enabling agreements
are crucial and must be correct. He pointed out that in the
letter the governor clearly indicated a deadline of the end of
the regular session, but noted that the end of the legislative
session is unknown. He asked, "Can these eight enabling
agreements in your opinion ... do they have a really good chance
to do that?"
MR. VAN TUYL opined:
... getting all of them complete in the timeframe that
Deputy Commissioner Rutherford mentioned is going to
be a real challenge. I would say further, that we are
very motivated to get those agreements completed
because we understand the imperative to the project
... but that doesn't change the fact of the complex
problems that are being dealt with and the fact that
we have multiple parties that might see any particular
issue ... with their own company interests, or state
interests at stake. ... So, I certainly can't say
definitively that they will be done.
1:39:53 PM
REPRESENTATIVE HERRON directed attention to a portion of the
abovementioned letter from the governor that read [in
part][original punctuation provided]:
[Absent such alignment the] Administration will be
unable to support any Fiscal Contract that the
Producers may seek, or a Constitutional Amendment
supporting such Fiscal Contract.
REPRESENTATIVE HERRON said, "I just want it on the record that
that is a very disconcerting comment ...."
MR. VAN TUYL restated BP's commitment.
REPRESENTATIVE SEATON recalled that seven of nine members of the
House Resources Standing Committee signed a letter sent to each
member of the previous legislature that discouraged a contract
from the producers insisting upon fiscal certainty on oil, which
is the issue that prevented a previous project from fruition
[document not provided]. He remarked:
[It is] the legislature that has to approve those
contracts, [and it] had a pretty hefty lift saying,
"We don't want to see this back." We didn't put it in
{Senate Bill 138] because at that time it wasn't, it
was deemed by the state presenters as not being really
right for discussion, but when the whole committee
sent a letter to everyone laying out several
parameters, that being the first parameter, of which,
of things that would be unacceptable. I just want to
make sure that, that's still on the record, and
everybody understands that there was a concerted
effort to try and send, to try and get that message to
everyone. I can tell by your nodding of your head you
remember that letter and I appreciate that.
1:42:50 PM
MR. VAN TUYL said yes, he did remember the letter. He
acknowledged that a successful fiscal agreement would require
not only the agreement of the parties but also legislative
ratification.
REPRESENTATIVE HAWKER returned attention to an earlier comment
indicating that the governor believes a deadline of the end of
this legislative session is necessary in order to put a
constitutional amendment before the voters in 2016. He referred
to previous testimony from representatives of the industry that
fiscal certainty may not be as necessary for them to enter into
Front-End Engineering and Design (FEED) as the governor
believes. Representative Hawker questioned whether the
companies can make a FEED decision without a vote on a
constitutional amendment in 2016.
MR. MCMAHON confirmed that for ExxonMobil, having a good
understanding of the fiscal terms is essential prior to a
commitment of its share of the investment associated with FEED.
Furthermore, ExxonMobil requires a competitive fiscal contract
that is predictable, durable, and consistent with the Alaska
State Constitution.
REPRESENTATIVE HAWKER remarked:
... I heard that you needed a contract that had those
qualifications, I didn't hear you say you had to have
a constitutional amendment on the ballot this 2016 ...
to go forward and enter into FEED. Does ExxonMobil
require a clarifying constitutional amendment on the
ballot, fall 2016, to move ahead into FEED?
1:45:30 PM
MR. MCMAHON answered that the Walker Administration has
indicated its approach to providing fiscal stability is to draft
a constitutional amendment, have the legislature authorize its
vote, and put the constitutional amendment on the ballot. He
said, "We're working with the administration on this and we
support their approach ...."
REPRESENTATIVE HAWKER observed this was not an answer to his
question.
REPRESENTATIVE JOSEPHSON recalled from a number of past meetings
that the industry believed a constitutional amendment must be
pursued. He characterized the amendment as a concept that would
not be viewed by his constituents as oil certainty on taxation,
but as a narrow concept that would be "eminently explainable."
MR. MCMAHON restated it is essential to have a fiscal contract
before the FEED decision, and the contract must be consistent
with the Alaska State Constitution. The constitutional
amendment is necessary to follow the path laid out by the Walker
Administration.
REPRESENTATIVE JOSEPHSON observed [ExxonMobil] was "taking a
deferential posture" and remarked:
Does [ExxonMobil] take a position that for its own
security and stability, durability, those concepts,
that it would be nice to know that the 30th and 31st
legislature can't undo the agreed-to twelve and a half
percent gas tax rate, or, I assume Exxon, for example,
has its own opinion about that ... is your position
just that ... if that's the governor's position it's
fine? Or is it, do you have anything more heartfelt
than that?
1:48:41 PM
MR. MCMAHON advised the committee that he has worked with
various administrations since 1992, and there have been
different approaches to providing fiscal certainty. He agreed
that ExxonMobil defers to the Walker Administration, with whom
it is negotiating, and it is essential that the fiscal terms in
the contract are robust, predictable, and durable so that they
are only changed by agreement of the parties to the contract,
and that subsequent legislators cannot change the terms.
MR. VAN TUYL added that one of the critical elements in the
nature of a fiscal agreement is that it represents the support
of the host government, thus the parties must ensure that they
have full agreement and alignment with the path of the Walker
Administration.
REPRESENTATIVE HAWKER noted that a different perspective has
been heard from some industry participants as to the necessity
of a constitutional amendment; although the deference to the
administration's stance has also been stated - from the
practical and legislative standpoint - he inquired as to whether
there are other mechanisms that could provide sufficient
"assurance and comfort with this project to move forward." He
pointed out that there have been statements from the parties as
to whether the completion of the agreements may or may not meet
the governor's deadline; if, in fact, the deadline is missed for
a constitutional amendment, is there another vehicle, mechanism,
or approach that could provide the necessary assurance to
continue the project into FEED and make substantial financial
commitments.
1:51:40 PM
MR. VAN TUYL surmised that if another mechanism was supported by
the host government, BP would be willing to investigate and
pursue that mechanism; however, it is an "academic exercise for
us to want to do one thing but not have the host government's
support, when the nature of the fiscal agreement is to try to
embody host government support for the project."
REPRESENTATIVE HAWKER asked whether "host government" is the
entire government, the legislature, or specifically the
executive branch.
MR. VAN TUYL explained that when he uses the term "host
government," he is referencing the entirety of government -
including the residents of the state - in order to engender
decades of stability for the project. Instability is not
consistent with the commitments required from the companies, the
state, and the LNG project customers.
CO-CHAIR NAGEAK returned attention to the presentation.
1:53:24 PM
MR. EHRARD informed the committee he is the vice president for
Commercial Assets for ConocoPhillips, he lives in Anchorage, and
he has held his position for about nine months. He continued
his testimony, as follows:
In my role, I've got accountability for the Cook Inlet
operated assets, the Prudhoe Bay non-operated assets,
our Trans-Alaska Pipeline System (TAPS) and other
pipeline interests, aviation and importantly for
today's conversation, the AK LNG project. In my 30
years of industry experience I have worked LNG
projects throughout the world in business development
and project development capacities in the Middle East,
North and West Africa and now here in Alaska. I am
very proud to be part of this project and I amplify
and echo Dave's sentiments regarding the quality of
individuals and the world-class project that stands
before us. For the Alaska LNG project itself, my role
is a project owner and ConocoPhillips representative.
My team's role is to integrate all aspects of the
project - technical, commercial, and ultimately the
marketing aspects. And our objective, like those
seated with me and those in the room is to monetize
economically ANS gas resources. ConocoPhillips
continues to support this project. We continue to
work to progress the commercial and technical aspects
and we have been very impressed by the technical
achievements we have achieved in 2015. But we do have
to be realistic about the project in the current price
environment. And we have to be realistic about the
commercial challenges that are in front of the
project. Our industry faces weak oil prices that have
not been seen for more than a decade. And weak
natural gas prices that have not been seen for 15 or
more years. Together this has created challenges to
the industry as we deal with greatly diminished
revenues from our production assets. The AK LNG
project faces significant economic headwinds. Low oil
and gas prices have depressed Asia LNG prices by 60
percent since 2014. The LNG market is very tight, if
not oversold, for 2016. But fortunately, we are not
trying to sell into this market, the prices will
resume, they will recover, they will get better. But
in these times, until they do, we have to be careful
stewards of cash and closely manage all of our
expenditures. This applies to all of our Projects,
and includes AK LNG.
MR. EHRARD continued:
We will work with our AK LNG partners to find cost
savings in our 2016 spend. We know this is important
to the state as well, just as we have done with the
rest of our Alaska portfolio and our worldwide
portfolio. As you will hear from Bill in the joint
presentation, there is a long list of commercial
agreements that need to be completed to support the
special session. Unfortunately, we have not made the
progress on these agreements, compared to what we had
hoped for at this point in the process, but we
continue to work. As most of you are aware, the
governor has identified a list of agreements that he
wants to see completed before a special session. This
will be very difficult to accomplish. They're complex
agreements as Dave indicated, there are numerous
agreements, they're interrelated in their nature;
there are no off-the-shelf versions of these
agreements that we can go and grab. They are very
unique for a world-class project, so you can
appreciate the challenge in front of us. Of
particular concern to us is the gas supply agreement.
As ConocoPhillips testified in February, June, and
September, the gas supply agreement is foundational
for the project. It's the basis for determining the
rate and total volume of gas to be supplied to the
project from the Prudhoe Bay and Point Thomson fields.
It directly or indirectly sets the participation or
equity basis for the project. It says what happens
when the volumes are not supplied, for example, if a
field has problems, or if there's an opportunity to
increase production. It has to contemplate a lot of
scenarios. ConocoPhillips believes the gas supply
agreement is one of the key agreements required for
the legislature to consider action on the fiscal
contract. This agreement is required for a FEED
decision. We testified in September that it was
crucial to agree to this as soon as we could to ensure
that the project has a solid commercial foundation
upon which the legislature can ratify fiscal
legislation and, hopefully, a constitutional
amendment. The commercialization of ANS gas is
important to us all and should we find ourselves in a
situation of impasse where ConocoPhillips cannot go
forward, we will not stand in the way of the project.
I want to make that very clear. We will make our gas
available to the state on commercially reasonable
terms. Back to the process, and our path forward on
AK LNG, ConocoPhillips remains committed and engaged
with the other parties to complete all the agreements
on the table. Further, we are encouraged by the
state's ongoing engagement to progress the project
commercially and technically - this includes the
governor's accessibility and his engagement on the
project in recent weeks and months. We appreciate
their ongoing effort to find a way forward in a timely
manner. I want to thank the chair and the committee
members for the opportunity to testify and listen to
my remarks.
1:58:53 PM
REPRESENTATIVE TARR referred to the complexity of the current
low price environment and its influence on the companies'
decision-making. She asked the parties to help legislators
better understand the consideration that is given to price
indicators and other milestones.
MR. EHRHARD stated that the parties look at the challenges of a
low price environment in three phases: short-term, medium-term,
and long-term. In the short-term, [low] prices crimp revenue
streams and cash must be managed carefully to sustain the
business. In the medium-term, ConocoPhillips will continue to
look at market drivers for signals to how the markets will
develop, such as the number of new projects coming online at the
same time AK LNG is marketing and producing its gas. Also to be
addressed in the short-term phase is the cost of the project;
the project must work commercially, and to do so the parties
must remain competitive by seeking to lower total construction
costs for the project. Mr. Ehrhard agreed that the beauty of
the stage-gated process is that each company increases its
definition and scope about the project at each stage-gate, thus
can make an informed choice based on many market conditions,
corporate conditions, environmental aspects, and other factors.
REPRESENTATIVE TARR asked what level of prices, at the end of
calendar 2016, are required to make an industry decision to
progress into FEED.
2:02:05 PM
MR. EHRHARD, speaking for ConocoPhillips only, stated that
ConocoPhillips will take a holistic view of the whole project,
understanding that previous efforts to commercialize North Slope
gas have failed, and recognizing that this "looks like the
project that'll go forward." ConocoPhillips will not take an
overly short-term view, but will look at the corporate
conditions at the time and at what is needed to balance the
ConocoPhillips Alaska portfolio with oil development
opportunities and gas development opportunities.
MR. VAN TUYL agreed with Mr. Ehrhard, adding that an important
element for BP - as the operator of Prudhoe Bay - is to ensure
safe, compliant, and sustainable operation of its core business.
In fact, BP's core business will make it possible to bridge the
gap to gas production, which is still several years away. BP is
currently in the process of evaluating its activity levels to
improve its cost base. The decisions at Prudhoe Bay are made by
the working interest owners in a similar manner as decisions
will be made by the parties to the AK LNG project. The parties
can directly control the costs of a project, and he stressed
that BP will seek to reduce the costs of AK LNG, and at the same
time ensure its core business is sustainable.
REPRESENTATIVE JOHNSON said he could not envision how decisions
can be approached on very complex agreements without all of the
parties at the table, because the supply of gas is unknown; in
fact, without a commitment from the state, one quarter of the
supply of gas is in question. He asked, "Until we do our part
and say 'yes, we're going to do this' how can you possibly come
up with any of these agreements that are going to mean
anything?"
2:05:35 PM
MR. VAN TUYL replied that BP's approach is to use the framework
in the Heads of Agreement and Senate Bill 138, which outlined
core elements that are essential for a successful project, one
of which is aligned ownership interest in the project: matching
the gas each owner brings into the project. Aligned ownership
interest and matching gas is made possible by a royalty-in-kind
(RIK) decision; although the state has not yet taken this
decision, the other parties are assuming the state's
requirements for RIK gas will be met and, at that time, the
agreements will "follow along."
REPRESENTATIVE JOHNSON remarked:
If we're looking for alignment and we're looking for
certainty, if we took that off the table today, that
we are certain, we are going to take it in-kind ...
doesn't sound like you're going to change anything
that you're doing, because you're assuming that's
going to happen.
MR. VAN TUYL responded that even if the RIK decision were taken
today, the core agreements - the governance agreement and the
gas balancing agreement - would remain to be negotiated.
REPRESENTATIVE OLSON requested the administration's definition
of the term "sovereign."
MS. RUTHERFORD explained that DNR uses the term primarily to
differentiate between the executive - Department of Revenue,
DNR, and the Department of Law - versus the Alaska Gasline
Development Corporation. She added:
It's just a shorthand way of differentiating sort of
who is managing the various aspects of the project.
The project kit is definitely controlled by AGDC,
many of the agreements associated with the resources
and the fiscals are with the agencies, and those were
set up, those are statutorily defined for the most
part, so that's a shorthand version of what we mean.
REPRESENTATIVE OLSON concluded that sovereign used in this
context is not an individual but a group.
MS. RUTHERFORD said yes. At a subsequent hearing the
administration will identify which agency is in charge of which
aspects. Many of the agreements have various elements; for
example, a decision by the state in favor of RIK triggers the
opportunity for the producers to pay their production tax as
gas, and there would be a consult responsibility of DNR with
DOR.
2:09:49 PM
CO-CHAIR NAGEAK redirected the committee's attention to the
presentation.
REPRESENTATIVE JOSEPHSON requested clarification on the
contingencies and factors affecting DNR's pending RIK decision.
MS. RUTHERFORD replied:
It is not possible to make a determination that taking
royalty-in-kind is actually in the state's interest
... and to make the associated risk and reward
analysis, unless you know the terms under which you
are making that decision. For instance, does ... do
we actually have lifting rights? And can we secure
our gas supply up at the two units given that we're
not working interest owners? And we're a derivative -
we only get our gas when it's produced by the
producers - how much are we going to pay for fuel cost
allowance? How much are we going to pay for CO2
disposal? Under what terms and conditions are we
going to ... be able to deal with the market when ...
how will we determine how much our gas supply will be
in any given year? It is not possible to tell the
people of the State of Alaska, what it is that we're
going to be actually getting in exchange for anything
we're giving up unless in fact we know those. ... We
are assuming that we can get to royalty-in-kind in
order to work the issues, but in fact, at the end of
the day, you cannot explain why this is a good idea
until you have the details of agreements in place.
2:13:01 PM
REPRESENTATIVE SEATON observed that the fiscal terms under
discussion are for over a long period of time, and are related
to the state's tax issues. One of the objectives [related to
tax issues] is a 20 percent gross value exclusion or reduction
in oil taxes for new oil, and it is conceivable that there will
be new gas coming from a variety of operators. He asked:
Is there an element to this, the fiscal
considerations, that we include any element of the
gross value reduction for new gas from new fields, or
new fields within the fields? Any of the strictures
that were put around that when oil taxes - oil and gas
taxes - were initiated in the last few years? And I
don't care under which scenario we're talking about
....
MR. MCMAHON responded that the health of today's business
affects the decisions related to AK LNG. He expressed his hope
that more new fields are found and brought into the project,
because although Prudhoe Bay and Point Thomson can anchor the
project for a substantial period of time, the facilities are
designed to last for decades, thus it is essential that new
fields are found so that AK LNG will last many years to make
Exxon/Mobil's investment worthwhile.
2:15:19 PM
REPRESENTATIVE SEATON then asked whether the gross value
reduction currently in law is applied to gas - either current or
new gas - in the fiscal considerations under discussion. He
explained:
We've done the full field analysis of oil fields now,
and a new 15,000 barrel/day oil field - at anything
below $60 - the full field life is a net loss to the
state. And so I want to know whether we are having
any terms similar to the gross value reduction
applying to any new gas fields that would contribute
to this project.
MR. MCMAHON responded:
The way we're proceeding is with the Senate Bill 138
approach, where upon a royalty-in-kind election, that
the state would take their royalty-in-kind, and then
if they do, then the producers could elect to pay
their production tax as gas - TAG we like to call it,
tax as gas - and that would be a fixed percentage. I
believe it's 13 percent gross, so there are no
exclusions in that calculation: 13 percent of the
gas, after royalty, would be paid to the state in the
form of gas.
2:17:12 PM
MR. MCMAHON turned attention to slide 2 of the presentation, and
noted that most of the information on the slide has been covered
by the presenters' opening remarks, except for the in-state gas
aggregator subsidiary that was formed by AGDC. He highlighted
that the residents of Alaska have been very interested to know
how they will gain access to Alaska gas. The AGDC subsidiary
will serve to collect [gas] supplies from the project and make
them available to Alaskans. Slide 3 illustrated the AK LNG
project structure, and he pointed out that AGDC has filled the
role previously held by TransCanada. Slide 4 listed the
responsibilities of the project team; slide 5 illustrated the
project facilities that will be built by the partners and the
following additional facilities: Prudhoe Bay Unit (PBU)
Facilities; Point Thomson Unit (PTU) Facilities; In-State Gas
Facilities. Mr. McMahon informed the committee that Steve Butt,
as the project manager, speaks on behalf of all of the venture
participants, and slide 6 illustrated the work outside of the
project's teams' purview: gas production; commercial
arrangements; fiscal terms; regulatory arrangements; external
affairs/government relations. Mr. McMahon said he would
highlight what has changed since the last presentation. On
slide 7, he noted that the Alaska Oil and Gas Conservation
Commission (AOGCC) issued offtake authorizations at PBU and PTU,
and authorized the injection of CO2 into Prudhoe Bay from the
gas treatment plant.
2:20:04 PM
MR. MCMAHON continued to slide 8, which illustrated that the
state's gas share comes from working interests from Exxon/Mobil,
ConocoPhillips, and BP; RIK is approximately 13 percent; and
when added to production tax, the state's gas share totals
approximately 25 percent. Slide 9 was a new chart indicating
the alignment with AGDC after AGDC secured TransCanada's assets;
he explained that when the state lifts 25 percent of the gas
from the project, the gas will ship through AGDC's gas treatment
plant capacity, pipeline capacity, and LNG plant capacity. Mr.
McMahon advised "... [slide 9] shows really good alignment, and
so that's a change since the last time we met." Slide 11 was an
agreement-by-agreement update of key commercial advancements:
· governance for the long term venture including expansions:
contract texts are advancing, outstanding issues are
likely resolved
· gas supply to project: parties are seeking alignment on
common commercial structure, two alternatives are under
consideration
· gas/LNG lifting rights from project: guiding principles
are needed and can be developed during FEED
· in-state gas: AGDC needs to decide how to distribute gas
and how to collect supplies from the project
· GTP by-product handling
· field cost allowance at PTU
· PTU lease conversions
· LNG marketing structures relative to the state's gas
share.
MR. MCMAHON stressed that all of the foregoing agreements are
critical to support DNR's RIK election and a special session to
approve fiscal terms.
REPRESENTATIVE HAWKER requested an updated schedule that
reflects any new agreements that may have been determined
necessary, as well as a document that reflects the exit of
TransCanada.
MS. RUTHERFORD agreed to provide the requested information.
MR. MCMAHON returned attention to slide 12, noting that the
fiscal proposals need to be aligned with all of the parties and
delivered to the legislature for appropriate approvals.
REPRESENTATIVE HAWKER observed that fiscal portions of the
presentation rely upon the HOA and Senate Bill 138. He pointed
out that the HOA expired December 31, 2015, and therefore is no
longer an operative agreement. He said his understanding is
that the replacement agreement for the HOA is the interim joint
venture agreement (JVA), and inquired as to whether the interim
JVA is of permanent duration, or has an expiration date.
MR. MCMAHON answered that the JVA governing the Pre-FEED phase
has an expiration date. In further response to Representative
Hawker, Mr. McMahon shook his head to indicate he could not
provide the expiration date.
CO-CHAIR NAGEAK asked Mr. McMahon to provide the date when it is
known.
MR. VAN TUYL offered BP's view that even though the HOA expired,
it provided a framework of how the various commercial agreements
on the project would advance, and along with Senate Bill 138,
the framework outlined in the HOA is still valid.
2:27:35 PM
REPRESENTATIVE HERRON requested Mr. McMahon to state two
possible consequences of not making the deadline required to
have the constitutional amendment vote in November, 2016.
MR. MCMAHON advised that missing the deadline for November,
2016, would delay the vote on the constitutional amendment until
November, 2018. Another consequence would be the impact on the
decision to enter the FEED phase.
REPRESENTATIVE HERRON suggested that the biggest consequence
would be losing momentum with [the Federal Energy Regulatory
Commission (FERC)].
MR. MCMAHON replied yes.
REPRESENTATIVE HAWKER returned attention to the HOA and recalled
the HOA contained very optimistic dates for the completion of
agreements. If BP regards the HOA as the conceptual agreement
for moving forward, that "is almost self-contradictory with your
statement that these agreements are going to take much longer
than originally anticipated under the HOA to become completed."
He asked, "Were you firmly reaffirming the desire to meet the
dates in the HOA?"
2:29:36 PM
MR. VAN TUYL said no. The dates that were envisioned in the HOA
have passed. He clarified that his intent was to emphasize that
the HOA outlined the way the project should advance with the
state being a direct participant, and that the state takes its
royalty in-kind, with a number of other project-enabling
agreements. He continued:
[The outline] still remains true. Obviously the
timeframe has extended beyond what was originally
anticipated. ... But that basic framework ... in BP's
view is still valid; those, those elements are still
key to a successful project.
REPRESENTATIVE HAWKER asked, "Are the timeframes under Senate
[Bill] 138 what you truly believe to be the statutory timeframe
for the progress of this project?"
MR. VAN TUYL said the HOA envisioned the passage of legislation,
the first of which was Senate Bill 138. He explained:
That is, under the scope of it - Senate Bill 138 -
that's how we're advancing. It is as it was
envisioned in the Heads of Agreement, but there are
more things that have not yet been introduced to the
legislature including a fiscal agreement that was
envisioned in the HOA, those things we're still
working. And we've talked about the timeframe there:
it's as yet unspecific. But again, the framework, the
need for those things, still exists.
2:31:43 PM
REPRESENTATIVE TARR returned attention to a bullet point on
slide 12, "Seeking legislation to address property taxes." She
pointed out that this component is required because with the
state's substantial investment in the project, the project must
benefit all Alaska communities, even those not directly on the
route of the pipeline. She inquired as to the progress of the
[Alaska LNG Project Municipal Impact Grant Program and payment
in lieu of taxes (PILT)] components of the project.
MR. MCMAHON said, as reported to the Municipal Advisory Gas
Project Review Board (MAGPRB), the parties have tentative
alignment on the total value of construction impact payments in
lieu of tax (construction impact PILT) to offset the impacts of
construction throughout the state, and tentative alignment on a
flow-related property tax (FRPT) rate. In conjunction with the
commissioner of DOR, the parties need to convert the value of
the construction impact PILT into an actual payment schedule,
and to convert the total value of the FRPT into payment rates.
Regarding the delays in schedule, he pointed out that since the
HOA was signed there was a change of administration, which had
an impact on the schedule.
MS. RUTHERFORD advised that there will be further discussion of
this topic at the committee hearing on 1/29/16.
2:34:09 PM
REPRESENTATIVE SEATON expressed his concern that by allowing all
of the gas development costs to be written off as lease
expenditures, and to be taken off on oil taxes, the state is
offsetting 35 percent of all the upstream costs to the project,
a factor which is not considered in the calculations that
determine value to the state. In addition, a net operating loss
that becomes a carry-forward credit is the state's liability.
He remarked:
If we've taken 25 percent of the project based on
royalty and production tax, where is the recognition
of the 35 percent lease expenditures applied against
oil taxes - which means it's 35 percent? It doesn't
matter whether you call it a tax credit or lease
expenditure converted to a credit, it's state money
that we do not receive in the upstream of the project.
Can you relate that to me as to how that incorporates
in the project at all, or does it matter to the
project?
2:36:05 PM
MR. MCMAHON returned attention to slide 5 to point out that all
of the expenditures illustrated within the circle [transmission
lines; gas treatment plant; pipeline; LNG plant, storage,
loading] are expenditures downstream of the units and thus do
not enter into the calculation of production tax under [the More
Alaska Production Act, passed and signed into law in 2013
(MAPA)]. He restated that Exxon/Mobil needs a healthy base
business as a foundation for this project to move forward. Mr.
McMahon turned attention to slide 13, which highlighted
regulatory arrangements, and noted that the second draft of the
resource reports is underway. He reminded the committee that
FERC encourages draft submissions of resource reports in order
to provide feedback from FERC, and to hear public comment. The
second round of the resource reports draft is expected to be
filed in the first half of 2016, and will include revisions
related to cost reduction activities and the decision on the
diameter of the pipeline.
MR. MCMAHON closed with slide 15 which listed key
accomplishments that have been made since the last update before
the committee, and that also listed major outstanding issues.
He pointed out the outstanding issues are heavily focused on
fiscal and commercial topics. Slide 16 listed what is necessary
to support the FEED decision.
2:39:05 PM
REPRESENTATIVE HAWKER returned attention to a bullet point on
slide 15, "Domestic (in-state) gas supply structures(s) to
supply gas to AGDC Aggregator," and said:
When I correlate that to one of the expected
agreements by session end, that's a[n] agreement that,
basically where all of you commit to provide a pro
rata ... share of the state's internal needs. ...
That's the first time I've heard of a commitment for a
pro rata share from each of you to meet the state's
domestic needs. Is that something new?
MR. KRUSEN said AGDC has discussed [a pro rata share] as a
hypothetical good basis to ensure alignment for in-state gas
sales.
REPRESENTATIVE JOSEPHSON asked Mr. McMahon whether adjustments
to credits or deductions for lease expenditures made this
session, or this year, would have an impact on the final
investment decision (FID) and the future of the project, from
the view of industry.
MR. MCMAHON, speaking for Exxon/Mobil, said that if taxes
increase, that would have an impact on Exxon/Mobil's FEED and
FID decisions.
REPRESENTATIVE TARR asked whether there is a price tipping point
that "seriously challenges your interest in moving forward with
the project at this time ...."
MR. VAN TUYL, providing BP's perspective, stated that in
December [2015] all of the parties approved the work program and
budget for the project through 2016. To BP, the next
significant stage-gate checkpoint is at FEED, and the future of
the LNG market and the cost of the project will figure
prominently at that time. In the meantime, managing the cost
of Pre-FEED deliverables is incumbent upon all of the parties.
2:43:35 PM
REPRESENTATIVE HAWKER referred to the administration's
insistence to reengineer the project from the originally
conceived 42-inch pipeline to a 48-inch pipeline. He requested
the cost of the investigation and the conclusion thereof.
MR. KRUSEN estimated that about "twentyish" million [dollars]
have been spent thus far, as of December [2015], to bring
engineering of the "48-inch effort, up to the same level as the
42 effort." He added that approximately another $5 million to
$10 million will be spent to get to the April 1 decision point,
when the apples-to-apples comparison will be made, followed by
the AK LNG management committee's decision. In further response
to Representative Hawker, he said the AK LNG management
committee is one of the governance organizations - a decision-
making organization - of the AK LNG project with representatives
from BP, Exxon/Mobil, ConocoPhillips, and AGDC.
MR. KRUSEN, in response to Representative Hawker's second
question on the conclusion drawn from the aforementioned
engineering effort said, "... I haven't seen the numbers yet."
REPRESENTATIVE OLSON recalled Steve Butt's testimony at the
[1/25/16] meeting that the cost was $27 million to $30 million.
More importantly, Mr. Butt testified that the additional size
and weight of the larger pipe would increase the number of
truckloads of pipe from 100,000 to 150,000, along with other
ramifications. He questioned why further consideration of the
larger pipe is necessary.
MR. KRUSEN agreed there are related issues, which will all be
taken into consideration before a decision is made.
2:47:09 PM
REPRESENTATIVE OLSON asked, "This pushed us back almost a year
hasn't it?"
MR. KRUSEN said no. He explained that the project is not going
as fast as hoped because "new things have been discovered, and
if we built the project sort of as we originally envisaged, it
would be on that sort of north end of that $45 [billion] to $65
billion range. So we are, the project, is really trying to take
costs out and that's just taking more time. ... If we elected to
go that way [the 48-inch pipe] would add two more months to the
decision to go into FEED. ... We still will stay with the,
filing, the final FERC filing in the second half of this year."
REPRESENTATIVE JOSEPHSON questioned whether a decision in favor
of the larger pipe could drive the cost "down the other way."
MR. KRUSEN opined a betting person would say 48-inch pipe would
cost more capital than 42-inch pipe because there is more steel;
on the other hand, fewer compressor stations would be needed.
CO-CHAIR NAGEAK announced that the committee would schedule
further presentations on the AK LNG project, and thanked the
participants.
2:50:32 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at [2:51]
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AKLNG HRES Testimony 01-27-2016 Final.pdf |
HRES 1/27/2016 1:00:00 PM |
|
| 01 27 16 HSE RES - Sec 77 SB 138 - DNR Rpt.pdf |
HRES 1/27/2016 1:00:00 PM |
SB 138 |
| HSE RES - AK LNG PJ Updated Timeline -Agreements to be Negotiated.pdf |
HRES 1/27/2016 1:00:00 PM |
|
| HES RES - AK LNG Project Update - BP Opening Remarks.pdf |
HRES 1/27/2016 1:00:00 PM |
|
| HES RES - AK LNG Project Update - ConocoPhillips Opening Remarks.pdf |
HRES 1/27/2016 1:00:00 PM |
|
| HES RES - AK LNG Project Update - ExxonMobil Opening remarks.pdf |
HRES 1/27/2016 1:00:00 PM |