Legislature(1999 - 2000)

04/20/1999 05:06 PM House WTR

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
       HOUSE SPECIAL COMMITTEE ON WORLD TRADE                                                                                   
            AND STATE/FEDERAL RELATIONS                                                                                         
                   April 20, 1999                                                                                               
                     5:06 p.m.                                                                                                  
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Representative Ramona Barnes, Chair                                                                                             
Representative John Cowdery, Vice Chair                                                                                         
Representative Gail Phillips                                                                                                    
Representative Joe Green                                                                                                        
Representative Ethan Berkowitz                                                                                                  
Representative Reggie Joule                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Representative Beverly Masek                                                                                                    
                                                                                                                                
OTHER HOUSE MEMBERS PRESENT                                                                                                     
                                                                                                                                
Representative Beth Kerttula                                                                                                    
Representative Scott Ogan                                                                                                       
Representative Brian Porter                                                                                                     
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
OVERSIGHT HEARING:  PROPOSED PURCHASE OF ARCO, Inc. by BP-AMOCO                                                                 
                                                                                                                                
(* First public hearing)                                                                                                        
                                                                                                                                
PREVIOUS ACTION                                                                                                                 
                                                                                                                                
See House Special Committee on World Trade & State/Federal                                                                      
Relations minutes dated 4/13/99 and 4/15/99.                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
DAVID COBB, Mayor                                                                                                               
City of Valdez                                                                                                                  
PO Box 307                                                                                                                      
Valdez, Alaska 99686                                                                                                            
Telephone:  (907) 835-4313                                                                                                      
POSITION STATEMENT:  Urged the committee to review the merger for                                                               
Alaska's shareholders and the bottom line.                                                                                      
                                                                                                                                
BILL ALLEN, Chairman and Founder                                                                                                
VECO                                                                                                                            
813 West Northern Lights                                                                                                        
Anchorage, Alaska 99503                                                                                                         
Telephone:  (907) 264-8101                                                                                                      
POSITION STATEMENT:  Indicated that if the merger is to happen,                                                                 
BP is the best company to be involved.                                                                                          
                                                                                                                                
MAYNARD TAPP, President                                                                                                         
Hawk Construction Consultants                                                                                                   
Member, Alaska Support Industry Alliance                                                                                        
200 West 34th Avenue, Number 809                                                                                                
Anchorage, Alaska 99503                                                                                                         
Telephone:  (907) 278-1877                                                                                                      
POSITION STATEMENT:  Testified as a concerned member of the                                                                     
Alaska Support Industry Alliance.                                                                                               
                                                                                                                                
CARL MARRS, President and CEO                                                                                                   
Cook Inlet Region, Incorporated                                                                                                 
PO Box 93330                                                                                                                    
Anchorage, Alaska 99509                                                                                                         
Telephone:  (907) 274-8638                                                                                                      
POSITION STATEMENT:  Believed Alaska's long-term best interest is                                                               
to preserve the status quo even if it results in the reduction of                                                               
production and revenue.                                                                                                         
                                                                                                                                
DAVID GOTTSTEIN                                                                                                                 
Address and telephone not provided.                                                                                             
POSITION STATEMENT:  Discussed growth as the only solution to                                                                   
Alaska's long-term fiscal gap.                                                                                                  
                                                                                                                                
KEITH BURKE, Vice President                                                                                                     
Business Development                                                                                                            
Natchiq, Incorporated                                                                                                           
6700 Arctic Spur Road                                                                                                           
Anchorage, Alaska 998518                                                                                                        
Telephone:  (907) 267-3177                                                                                                      
POSITION STATEMENT:  "Natchiq is supportive of the merger given                                                                 
that BP-Amoco is committed to local hire and Alaska buy,                                                                        
recognition of local expertise and abilities, continued                                                                         
aggressive exploration and field development in the North Slope                                                                 
and Cook Inlet, reinvestment in Alaska of savings realized from                                                                 
this merger."                                                                                                                   
                                                                                                                                
MARY SHIELDS, General Manage                                                                                                    
Northwest Technical Services                                                                                                    
3330 Arctic Boulevard, Suite 201                                                                                                
Anchorage, Alaska 99503                                                                                                         
Telephone:  (907) 562-1633                                                                                                      
POSITION STATEMENT:  Discussed concerns with the merger.                                                                        
                                                                                                                                
STEPHEN LEWIS, CEO                                                                                                              
PetroStar, Incorporated                                                                                                         
Arctic Slope Regional Corporation                                                                                               
201 Arctic Slope Avenue, Suite 200                                                                                              
Anchorage, Alaska 99518                                                                                                         
Telephone:  (907) 344-2661                                                                                                      
POSITION STATEMENT:  Supported the decision of ARCO and BP to                                                                   
move forward on the merger.                                                                                                     
                                                                                                                                
MATTHEW FAGNANI, President                                                                                                      
Work Safe, Incorporated                                                                                                         
Nana Development Corporation                                                                                                    
341 West Tudor, Suite 106                                                                                                       
Anchorage, Alaska 99504                                                                                                         
Telephone:  (907) 563-8378                                                                                                      
POSITION STATEMENT:  Testified that he did not view "this merger                                                                
as a crisis, but rather an indication of a changing global                                                                      
environment that makes a company reduce costs to provide greater                                                                
benefits to shareholders."                                                                                                      
                                                                                                                                
JACK LAASCH, President and General Manager                                                                                      
Alaska Petroleum Contractors                                                                                                    
6700 Arctic Spur road                                                                                                           
Anchorage, Alaska 99518                                                                                                         
Telephone:  (907) 267-3104                                                                                                      
POSITION STATEMENT:  Supported the proposed BP-Amoco ARCO merger.                                                               
                                                                                                                                
KEN FREEMAN, Executive Director                                                                                                 
Resource Development Council                                                                                                    
121 West Fireweed Lane, Number 250                                                                                              
Anchorage, Alaska 99503                                                                                                         
Telephone:  (907) 276-0700                                                                                                      
POSITION STATEMENT:  Stated that RDC has not developed an                                                                       
official position on the merger, but does not view it with doom                                                                 
and gloom.                                                                                                                      
                                                                                                                                
THERESA OBERMEYER                                                                                                               
3000 Dartmouth                                                                                                                  
Anchorage, Alaska 99508                                                                                                         
Telephone:  (907) 278-9455                                                                                                      
POSITION STATEMENT:  Opposed the proposed BP-Amoco ARCO merger.                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 99-12, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
CHAIR RAMONA BARNES called the House Special Committee on World                                                                 
Trade and State/Federal Relations meeting to order at 5:06 p.m.                                                                 
Members present at the call to order were Representatives Barnes,                                                               
Cowdery, Phillips, Green and Joule.  Representative Berkowitz                                                                   
arrived at 5:20 p.m.  Representative Masek was not present.                                                                     
                                                                                                                                
Number 0243                                                                                                                     
                                                                                                                                
DAVID COBB, Mayor, City of Valdez, testified via teleconference                                                                 
from Valdez.  He commented that the proposed merger has been                                                                    
described by some people as a cataclysmic development.  The                                                                     
proposed merger rivals the construction of the Trans-Alaska                                                                     
Pipeline and the Exxon Valdez oil spill.  While others, including                                                               
the oil industry, describe the proposed merger as the best thing                                                                
for Alaska.  He, as a small-town mayor, did not believe either                                                                  
characterization to be accurate.  "We as the state and as citizens                                                              
can only conclude that this merger is a major change in whether the                                                             
oil industry will do business in Alaska."  There are not enough                                                                 
details known to offer either positive or negative criticisms.                                                                  
Therefore, he expressed the need for this committee, the                                                                        
legislature, and the Governor's office to uncover those details and                                                             
do what is best for the State of Alaska.  Furthermore, the critical                                                             
issues to the state and to local government must be identified.                                                                 
                                                                                                                                
MAYOR COBB stated, as the mayor of a pipeline corridor community,                                                               
that he has several concerns. "First and foremost is the question                                                               
of ad valorem property taxes to pipeline corridor communities.                                                                  
Instead of negotiating with four one hundred pound gorillas, I'm                                                                
now going to have to negotiate with one 720 pound gorilla that owns                                                             
over 70 percent of the bananas.  Now that BP-Amoco may be the only                                                              
producer on the Slope, can I be assured that there will not be an                                                               
accelerated attempt to devalue the pipeline for tax purposes that                                                               
will adversely affect my community?"  He also expressed concern                                                                 
that the state and the legislature do not treat this issue lightly.                                                             
There should be review of the proposed merger through an open and                                                               
frank discussion with BP, Amoco, and ARCO in order to make an                                                                   
educated and informed decision.  BP, Amoco, and ARCO did so for its                                                             
shareholders as well as evaluating the bottom line.  It is                                                                      
appropriate for this committee, the full legislature, and the                                                                   
Governor to do the same for Alaska and its shareholders.                                                                        
                                                                                                                                
Number 0496                                                                                                                     
                                                                                                                                
BILL ALLEN, Chairman and Founder of VECO, informed the committee                                                                
that he started in business with ARCO in the Cook Inlet 31 years                                                                
ago, and is probably the oldest Alaskan service company.  He                                                                    
commented that he has known the ARCO people from the first                                                                      
chairman, Robert Anderson, to the present chairman, Mike Bowlin                                                                 
[ph] as well as those down to the production operators and they are                                                             
all good people.  "BP is a good company.  I think if this is going                                                              
to happen, they're the best ones to do it.  They already have the                                                               
most invested in Alaska and have the money to develop the rest."                                                                
He indicated that BP's $26.5 billion investment for ARCO should                                                                 
provide BP more incentive to keep investing and developing the                                                                  
Slope and other places in Alaska.  He  pointed out that BP has                                                                  
committed to $5 billion over the next five years which is more than                                                             
what would have been spent.  Furthermore, BP will bring in its gas                                                              
expertise and build a liquids-to-gas plant on the North Slope.  Mr.                                                             
Allen stated, "...they'll, one way or the other, develop the gas.                                                               
...they'll continue with the contractors that ARCO have.                                                                        
...they've committed to work Alaskan companies and Alaskan people."                                                             
Mr. Allen stressed that if the merger does not occur, ARCO will be                                                              
weakened and BP will be disappointed.  He predicted that ARCO would                                                             
be purchased by some entity at a reduced price, and it would take                                                               
time to make their deal with BP and the state which could delay                                                                 
things for quite awhile.  Mr. Allen commented that he did not like                                                              
to see ARCO go, but he believed it to be the best of all worlds.                                                                
                                                                                                                                
REPRESENTATIVE COWDERY pointed out that there is a statute                                                                      
regarding the limitations on the acreage of leases.  Representative                                                             
Cowdery believed they are over about 280,000 acres on the land                                                                  
side, but are within the limitations offshore.  He asked Mr. Allen                                                              
if he had any suggestions on how that should be addressed.                                                                      
                                                                                                                                
MR. ALLEN indicated that a new rule or a new law, whatever it                                                                   
takes, should be developed in order for development to progress.                                                                
He noted that ARCO has already leased it and therefore, he said he                                                              
would not hinder that.  He reiterated, "They've got the money to do                                                             
it, and ... with the other $26.6 billion that they're putting in                                                                
here, they're going to have to make this place go."                                                                             
                                                                                                                                
REPRESENTATIVE COWDERY asked whether an exemption on this in the                                                                
statutes in order to assure the development of that in a time                                                                   
certain would be appropriate.                                                                                                   
                                                                                                                                
MR. ALLEN replied yes.                                                                                                          
                                                                                                                                
Number 0816                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN inquired as to Mr. Allen's thoughts regarding                                                              
the attitude of such a large conglomeration of wealth on the North                                                              
Slope and activity in the services industry.  Will the merger help,                                                             
hinder, or change that since one large conglomerate will own all                                                                
the infrastructure?                                                                                                             
                                                                                                                                
MR. ALLEN said that he did not believe it would hurt; the larger it                                                             
is the more there is to maintain.  He believed it would be good for                                                             
the contractors that are present.                                                                                               
                                                                                                                                
REPRESENTATIVE GREEN expressed concern with sole sourcing.  At                                                                  
Prudhoe, sole sourcing was a big concern for cost saving.  He asked                                                             
whether a larger company with the same attitude, perhaps on other                                                               
areas, would work to diminish the competitiveness of service                                                                    
industries there.                                                                                                               
                                                                                                                                
MR. ALLEN answered that he did not think so.  "You know,                                                                        
essentially they -- quite awhile back, they picked up the                                                                       
contractors they wanted, both ARCO and BP.  And that's the                                                                      
contractors that have got the infrastructure and got the time in.                                                               
And I think they'll be fine."                                                                                                   
                                                                                                                                
REPRESENTATIVE PHILLIPS inquired as to Mr. Allen's thoughts                                                                     
regarding the impact of this merger on the current independents as                                                              
well as bringing in more independents to Alaska since the                                                                       
competitor owns so much of the pipeline and the fields.                                                                         
                                                                                                                                
MR. ALLEN commented that the pipeline is the secret.  He eluded to                                                              
the need to be close to the pipeline whatever fields one would                                                                  
develop which could afford an advantage.  Mr. Allen noted, "BP says                                                             
if somebody wants to buy some of the pipeline they can."                                                                        
                                                                                                                                
REPRESENTATIVE PHILLIPS surmised that Mr. Allen did not think the                                                               
merger would hinder independents from being interested in Alaska.                                                               
                                                                                                                                
MR. ALLEN acknowledged that independents may take a closer look                                                                 
before entering Alaska.  He stated that for an independent to                                                                   
participate on the Slope it needs to be large;  it takes large sums                                                             
because it takes such a long development time before there is a                                                                 
return on the investment.  He reiterated Richard Campbell's, BP's,                                                              
comment that BP will sell any part of the pipeline however, the                                                                 
independents may not have the money to purchase it.  He believed it                                                             
would be a major player that enters the Slope.                                                                                  
                                                                                                                                
Number 1195                                                                                                                     
                                                                                                                                
MAYNARD TAPP, President, Hawk Construction Consultants; Member,                                                                 
Alaska Support Industry Alliance, testified next via teleconference                                                             
from Anchorage.  He informed the committee that he is not speaking                                                              
for the Alliance, but as one of its concerned members.  Mr. Tapp                                                                
stated that in order for his company to continue business in                                                                    
Alaska, Alaska must remain competitive in a worldwide oil market.                                                               
He recognized that changes in the oil market and Alaska are                                                                     
inevitable and it is only a matter of time until the North Slope                                                                
will be operated by one company.  "The one company scenario is                                                                  
somewhat frightening only because we are unfamiliar with its                                                                    
operation.  Hopefully, the scenario will offer competitive                                                                      
opportunities for all Alaskan suppliers and contractors.  BP,                                                                   
Amoco, ARCO have been good citizens to the state in the past, and                                                               
I believe they will be in the future."  He cited their announcement                                                             
regarding higher capital expenditures for the next five years as                                                                
well as the development of gas-to-liquids technology on the North                                                               
Slope as a positive indicator as well as the ongoing work being                                                                 
performed by the ARCO sponsored LNG task force.  He believed it                                                                 
important to continue all efforts to promote commercialization of                                                               
Alaskan gas.  Mr. Tapp recognized that consolidation in Alaska will                                                             
be painful for people in the merging organizations as well as for                                                               
the contractor community.  Such a change could lead to disruption                                                               
of the contractors and the ARCO-BP organization.  He expressed the                                                              
need for Alaska to retain its brain trust which has developed in                                                                
the oil industry over the years.  "The State of Alaska needs to                                                                 
maintain vigilance protecting the people and natural resource                                                                   
wealth of the state."                                                                                                           
                                                                                                                                
REPRESENTATIVE COWDERY commented that he has heard different views                                                              
of the feasibility of the gas-to-liquids technology that BP is                                                                  
working on.  Can that be economical?                                                                                            
                                                                                                                                
MR. TAPP said he believed there is a strong possibility.  He hoped                                                              
that the combination of the knowledge base of ARCO and BP would                                                                 
result in a synergy of ideas and possibly a technology leap which                                                               
would make gas to liquids economically feasible.  He informed the                                                               
committee that the presentations by BP and ARCO that he has seen,                                                               
have indicated there is room for both projects with the amount of                                                               
gas that exists on the North Slope.  Hopefully, the economic time                                                               
available would allow development of both projects.                                                                             
                                                                                                                                
CHAIR BARNES commented that it would have to be proven to her that                                                              
both gas to liquids and the gasline are feasible at the same time.                                                              
She pointed out that 50 million metric tons a year has to move into                                                             
the marketplace to make the gasline economically feasible and                                                                   
furthermore, a certain amount of the gas is reinjected into the                                                                 
ground to lift oil.                                                                                                             
                                                                                                                                
Number 1499                                                                                                                     
                                                                                                                                
CARL MARRS, President and CEO of Cook Inlet Region, Incorporated,                                                               
commented that this merger will present a fundamental change in the                                                             
way the oil industry has historically operated in the state.  Such                                                              
a change presents unique challenges which may profoundly alter the                                                              
way all Alaskans, including those in the construction and oil field                                                             
support industry, view and deal with the oil and gas industry.                                                                  
Therefore,  he believed the state should approach this matter with                                                              
due deliberation, prudence and caution.  However, one must keep in                                                              
mind that some change is inevitable, and all change is not bad.                                                                 
                                                                                                                                
MR. MARRS stated:                                                                                                               
                                                                                                                                
     As Alaskans and Americans we embrace the fundamental                                                                       
     principles of capitalism and a competitive market economy                                                                  
     will, notwithstanding rough spots and difficult times                                                                      
     along the road, ultimately lead to the most efficient and                                                                  
     effective distribution of resources for all Americans.                                                                     
     In this case, ARCO, presumably operating in its own best                                                                   
     economic interest, within the demands of the free market,                                                                  
     has decided that it no longer makes economic sense to                                                                      
     continue business as usual on the North Slope with two                                                                     
     competing operators in the Prudhoe Bay Field, a situation                                                                  
     many have long believed to carry inherent inefficiencies.                                                                  
                                                                                                                                
     ARCO's decision to seek a buyer for itself demonstrates                                                                    
     that, in the professional judgment of ARCO's board and                                                                     
     management, it does not make sense for a company its size                                                                  
     with its economic future, to carry on alone.  It is clear                                                                  
     that the wave of consolidation is sweeping the industry.                                                                   
     We as Alaskans cannot stop this trend.  In considering                                                                     
     the consequences of the proposed merger, then we also                                                                      
     need to consider the alternative: If not ARCO-BP merger,                                                                   
     then what?                                                                                                                 
                                                                                                                                
MR. MARRS believed, in an era of declining production and rising                                                                
costs, Alaska's long-term best interest is to preserve the status                                                               
quo even if it results in the reduction of production and revenue.                                                              
He asked whether preservation of some form of the two-operator                                                                  
system will produce a bigger "pie" for all Alaskans or merely speed                                                             
up the decline in the industry overall?  The state should proceed                                                               
cautiously.  He believed, "The goal of the state in any effort to                                                               
limit the potential negative effects of the merger should be to                                                                 
ensure that the 'cure' is not worse than the 'disease'."                                                                        
                                                                                                                                
MR. MARRS expressed the importance of the history of the players in                                                             
this situation.  BP, which has a distinguished history of                                                                       
commitment to and knowledge of the state and the communities in                                                                 
Alaska, has operated in Alaska since the earliest days of Prudhoe                                                               
Bay.  Although BP has vowed to continue its commitment in this                                                                  
regard, Mr. Marrs was not convinced that a major divestiture of                                                                 
some new and unknown player would result in a net benefit to the                                                                
state as a whole.  He expressed concern about the impact of the                                                                 
merger on overall competition in the state, not only in connection                                                              
with North Slope lease sales, but also in connection with the sales                                                             
of goods and services to the industry as a whole.  That is a matter                                                             
of great importance to his industry, as well as all Alaskans,                                                                   
because of the revenues and jobs at stake.  However, on the whole,                                                              
he is cautiously optimistic that everyone may benefit from a                                                                    
stronger and more efficient industry in the years ahead.                                                                        
                                                                                                                                
MR. MARRS commented, "ARCO has been a great supporter of the                                                                    
community and a great operation for businesses in Alaska and for                                                                
Alaska itself."  Mr. Marrs believed, for Alaska, BP to be the best                                                              
company to acquire ARCO.  He did not believe the merger would limit                                                             
other potential mid-sized companies from coming in.  He pointed out                                                             
that the pipeline is tariff regulated pipeline.  Therefore, if                                                                  
somebody else found oil on the Slope and wanted to produce it, the                                                              
oil would be sent down the pipeline on a tariff basis as                                                                        
established by the state's tariff.  In conclusion, Mr. Marrs                                                                    
indicated that Alaska does not have a choice and therefore, he                                                                  
believed BP to be in Alaska's best interest.                                                                                    
                                                                                                                                
REPRESENTATIVE BERKOWITZ asked whether Mr. Marrs felt that the                                                                  
dominance of the consolidated company would have any impact on the                                                              
competitiveness of bidding for future leases.                                                                                   
                                                                                                                                
MR. MARRS believed, as Mr. Allen stated earlier, that the                                                                       
competitiveness of the Slope will continue.  There are three major                                                              
competitors in certain areas, of which CIRI is one.  He did not                                                                 
believe the merger would be detrimental to CIRI in that industry.                                                               
                                                                                                                                
Number 1980                                                                                                                     
                                                                                                                                
DAVID GOTTSTEIN testified via teleconference from San Francisco,                                                                
California.  He informed the committee that he is the President of                                                              
Dynamic Capital Management, but he is testifying as a private                                                                   
citizen.   Mr. Gottstein commented that the state has a long-term                                                               
problem because of the transportation costs in and out of Alaska,                                                               
Alaska's isolation and diversity, and the high labor and                                                                        
construction costs associated with conducting economic activities                                                               
in the state.  Those difficulties make it unlikely that the state                                                               
will be able to draw from whatever economic vibrancy that can be                                                                
generated over time in order to provide a level of state government                                                             
service absent the resources from the North Slope.  Mr. Gottstein                                                               
predicted that if a large enough fund to provide income in                                                                      
perpetuity in the form of an annuity has not been developed by the                                                              
time those resources terminate, Alaska will experience depressed                                                                
levels of state government services.  Therefore, growth is the only                                                             
solution to Alaska's long-term fiscal gap.  He identified the                                                                   
Permanent Fund as the most important asset of the state "and the                                                                
most important way to grow that asset is to increase the asset                                                                  
allocation."   He identified the next best alternative as                                                                       
monetizing the assets in the North Slope.                                                                                       
                                                                                                                                
MR. GOTTSTEIN continued saying that throughout history, most                                                                    
governments have played a role as facilitators in order to help                                                                 
private enterprise extract and exploit resources to their benefit,                                                              
receiving taxes and jobs.  However, Alaska seemed to decide, long                                                               
ago, to take a different perspective.  He explained that Alaska                                                                 
takes the view of an ownership state, in which the assets are "ours                                                             
and we will put out to bid the right to outsource or subcontract                                                                
the production and transmission of our resources to get to market."                                                             
That is a very big difference.  From that perspective, one must                                                                 
conclude that whatever collection of resources is necessary to                                                                  
accomplish that, in our own best interests, is what needs to be                                                                 
reviewed.  Perhaps, the BP-ARCO merger will facilitate that                                                                     
process.                                                                                                                        
                                                                                                                                
MR. GOTTSTEIN informed the committee that he provided                                                                           
Representative Berkowitz with a 10-point plan outlining how Alaska                                                              
can grow.  The state may need to consider owning the gasline in                                                                 
order to get Alaska's gas to market because there are some serious                                                              
economic advantages by doing so, which are detailed in another                                                                  
document.  He emphasized the importance of the state deciding that                                                              
getting the gas to market is critical toward building a fund large                                                              
enough.  In that regard, the interests of both parties must be                                                                  
defined.  "Our interests then are to monetize those assets over the                                                             
long term and to be able to part with some [indisc.] BP to satisfy                                                              
their interests which are returns on capital.  And we don't want                                                                
anybody to unjustly exploit the other."  Both parties need and                                                                  
deserve to be able to meet their goals and interests.  He pointed                                                               
out that BP-ARCO would be a subcontractor, which is of                                                                          
significance.  Mr. Gottstein suggested that the process be slowed                                                               
down, even taking whatever legal action necessary in order to stall                                                             
the merger so that Alaska's interests can be defined.  This would                                                               
allow negotiation of a relationship with BP-ARCO in a manner that                                                               
serves both of parties in the long run.  He explained that because                                                              
BP is buying rights to assets on the North Slope that can be                                                                    
monetized for BP over the long term, BP has an increased vested                                                                 
interest in getting North Slope gas to market.  "That's a very good                                                             
thing."  However, if there is not a definition ahead of time that                                                               
serves both parties, then Alaska will be at BP's mercy and the                                                                  
situation will become one-sided.  Such an environment could place                                                               
Alaska in a position such that Alaska cannot solve its problems                                                                 
even if dividends are lowered, taxes raised, et cetera.  He did not                                                             
believe that raising the asset allocation on the Permanent Fund,                                                                
making the Anchorage International Airport a global logistic                                                                    
center, or other projects that deserve scrutiny will create enough                                                              
economic base to satisfy long-term state revenue needs without                                                                  
monetizing the assets from the North Slope for the purpose of                                                                   
serving the state first and then other participants.                                                                            
                                                                                                                                
Number 2293                                                                                                                     
                                                                                                                                
REPRESENTATIVE COWDERY recalled Mr. Gottstein's testimony regarding                                                             
the state owning the gasline.  Representative Cowdery understood                                                                
that some tax exemptions could possibly make it feasible for the                                                                
state to own the gasline versus the private sector.  However, it                                                                
seems that the bottom line is the market.                                                                                       
                                                                                                                                
MR. GOTTSTEIN commented that there are things that only the state                                                               
is capable of or in a position to accomplish because of the                                                                     
uniqueness of Alaska's position.  He restated his goal, to increase                                                             
the asset allocation on the Permanent Fund.  Mr. Gottstein posed                                                                
the following, "... let's take $5 million of money we've invested                                                               
in U.S. treasuries, which would represent about $300 million a year                                                             
in interest income and then revenue bonds remaining necessary,                                                                  
perhaps another $7-8 billion to construct the line."  A lower cost                                                              
of capital to build the line would result.  Additionally, the state                                                             
"would only need to charge transmission prices high enough to meet                                                              
revenue bond payments, not enough to put full returns on capital to                                                             
the gasline if other private enterprises owned it who weren't in                                                                
the position to extract profits from other assets such that we have                                                             
from the North Slope gas."  Therefore, lowering the transmission                                                                
price lowers the cost of getting it to market and proves the                                                                    
economics.  Furthermore, the transmission prices can be raised as                                                               
gas market prices allow.  "But we can have it much lower in weak                                                                
markets and lower the returns of volatility on capital for the                                                                  
producers on the North Slope by making sure that the gas                                                                        
transmission line costs are kept low because we've, in effect,                                                                  
decided it's in our best interest to do so."  He  indicated that                                                                
just because it's a state-owned asset, does not mean all the other                                                              
activities of operation, construction, and design could not be                                                                  
outsourced.  BP and ARCO could build it and use it.  The key for                                                                
tax purposes is the ownership.  State ownership could result in no                                                              
federal taxes associated with the project.  There are a variety of                                                              
elements that might dramatically reduce the cost of bringing it to                                                              
market and improve the overall global marketability of North Slope                                                              
gas.                                                                                                                            
                                                                                                                                
REPRESENTATIVE PHILLIPS commented that she hoped Mr. Gottstein has                                                              
had the opportunity to read the All Alaska Plan.                                                                                
                                                                                                                                
MR. GOTTSTEIN answered yes, and noted that he has some concerns                                                                 
with the All Alaska Plan that he would be happy to share.                                                                       
                                                                                                                                
REPRESENTATIVE PHILLIPS assured Mr. Gottstein that she would have                                                               
some concerns with his report that she would share with him.                                                                    
                                                                                                                                
CHAIR BARNES interjected that she has a plan as do many others.                                                                 
                                                                                                                                
MR. GOTTSTEIN stressed that most of the plans are not growth plans.                                                             
                                                                                                                                
CHAIR BARNES requested that Mr. Gottstein reflect on the fact that                                                              
there is an awful lot of gas in the world market, and new gas                                                                   
fields are being discovered all the time.  It does not benefit                                                                  
Alaska to build this gasline, if Alaska is not able to get its gas                                                              
into the marketplace prior to other projects such as ARCO's                                                                     
Tangoo(ph) project.  She emphasized that has to be first and                                                                    
foremost.  CHAIR Barnes stated, "Our effort is to make sure that                                                                
whatever we do, that our gas does not get displaced in the world                                                                
marketplace."                                                                                                                   
                                                                                                                                
Number 2425                                                                                                                     
                                                                                                                                
KEITH BURKE, Vice President, Business Development, Natchiq,                                                                     
Incorporated, informed the committee that Natchiq is the third                                                                  
largest employer in Alaska and currently has 2300 employees in                                                                  
Alaska.  Natchiq is one of the largest oil field support                                                                        
contractors in Alaska with $90 million of invested capital in its                                                               
facilities and equipment in Alaska.  Natchiq has been nationally                                                                
ranked in the top 30 percent of the largest oil field service                                                                   
contractors in the United States for several years.  He pointed out                                                             
that Natchiq has had a very good working relationship, with both                                                                
ARCO and BP for a number of years.  "Natchiq is supportive of the                                                               
merger given that BP-Amoco is committed to local hire and Alaska                                                                
buy, recognition of local expertise and abilities, continued                                                                    
aggressive exploration and field development in the North Slope and                                                             
Cook Inlet, reinvestment in Alaska of savings realized from this                                                                
merger.  It is generally our feeling that this merger will reduce                                                               
the overall operating cost of the North Slope and place Alaska in                                                               
a more competitive, positive growth picture for the future of                                                                   
Alaska."                                                                                                                        
                                                                                                                                
REPRESENTATIVE COWDERY inquired as to Mr. Burke's  thoughts on gas                                                              
to liquids; can it compete with the pipeline and the ownership of                                                               
the pipeline?                                                                                                                   
                                                                                                                                
MR. BURKE noted that the producers and those working with the                                                                   
subjects of gas to liquids, a natural gas, or just a gas pipeline                                                               
are struggling with that issue.  He was confident that when it                                                                  
becomes economic through whatever methodology, assuming there is a                                                              
market as the Chair has so noted, there will be a project.  He said                                                             
that whether it will be economic or not is beyond his personal                                                                  
capabilities.                                                                                                                   
                                                                                                                                
REPRESENTATIVE PHILLIPS asked if Mr. Burke felt that the merger                                                                 
will have an effect on independents that may want to invest in                                                                  
Alaska.                                                                                                                         
                                                                                                                                
MR. BURKE specified, as was previously stated, that it is expensive                                                             
to get into the North Slope.  One cannot do that, in his opinion,                                                               
as a minor independent operator in a world economy, in a world                                                                  
market.  This merger illustrates the economic picture in the oil                                                                
industry today.  In this case, it's taking BP $26 billion to stay                                                               
competitive and remain in the business of oil development.                                                                      
Furthermore, it appears to be to ARCO's economic advantage to go                                                                
with this merger to stay economic for its shareholders.  It's very                                                              
expensive to do business in Alaska, and extremely expensive to do                                                               
business on the North Slope.  With regard to Representative                                                                     
Phillips' question, Mr. Burke believed it's ruled by tariffs on the                                                             
pipeline which is under scrutiny.  He did not believe that the                                                                  
merger is going to place anybody at a disadvantage further than                                                                 
they have already been disadvantaged by the cost of doing business                                                              
in Alaska.                                                                                                                      
                                                                                                                                
CHAIR BARNES understood that ARCO's problem was not in Alaska, but                                                              
rather its holdings in other parts of the world.                                                                                
                                                                                                                                
Number 2759                                                                                                                     
                                                                                                                                
MARY SHIELDS, General Manager, Northwest Technical Services,                                                                    
testifying via teleconference from Anchorage, noted that she is a                                                               
past President of the Alaska Court Industry Alliance.  She informed                                                             
the committee that Northwest Tech, as an employee support provider,                                                             
employs between 120 to 200 people at any given time.  Many of those                                                             
work directly with the oil industry.  Northwest Tech holds                                                                      
contracts with BP-Amoco, and with ARCO Alaska, Incorporated.                                                                    
Northwest Tech's relationship with both those companies is greatly                                                              
valued.  She noted that like many in Alaska, she watched "oil                                                                   
prices slide down the slippery slope last fall."  Ms. Shields felt                                                              
that unless there was a dramatic turnaround in prices coupled with                                                              
the opening of the coastal plain, something would have to change.                                                               
The status quo would not continue to work and efficiencies needed                                                               
to be realized for Alaskan operators to continue to compete in a                                                                
global market.  "As we all know, the state of affairs contributed                                                               
to the BP-Amoco merger which is now followed by the ARCO                                                                        
transaction.  Do I hate to see this happen?  Of course I do."  She                                                              
said that she has a high regard for the people in both companies                                                                
many of which she has worked closely with for nearly 15 years.                                                                  
These people are very valuable to Alaska.  However, she understood                                                              
the necessity of the merger.  Furthermore, she did not regret that                                                              
BP-Amoco is the one that made the purchase.  "BP has been involved                                                              
in Alaska Petroleum, exploration and development since the                                                                      
beginning.  Most of its employees as well as the ARCO employees are                                                             
long-time residents of Alaska and have an understanding of Alaska's                                                             
culture.  They are committed to doing the job right,                                                                            
environmentally, safely, and economically."  Ms. Shields said that                                                              
ARCO and BP-Amoco have handled this transaction in a very                                                                       
straight-forward fashion, noting the timely conveyance of                                                                       
information to the Governor and state representatives as well as a                                                              
special meeting with the Alaska Support Industry Alliance during                                                                
which Richard Campbell of BP-Amoco and Kevin Maiers of ARCO Alaska,                                                             
Incorporated answered any and all questions put before them.                                                                    
                                                                                                                                
MS. SHIELDS expressed concern, as the manager of a contract                                                                     
employment firm, about the numbers of people who will be released                                                               
from these companies as the merger moves forward.  She also                                                                     
expressed concern about the status of "our" contract and how                                                                    
competition will be established as the process moves forward.                                                                   
These decisions will affect the health of Northwest Technical                                                                   
Services as well as the health of [indisc.] firm.  She pointed out                                                              
that BP-Amoco-ARCO addressed those concerns both in the newspaper                                                               
and at the Alliance breakfast.  As a citizen of Alaska,  Ms.                                                                    
Shields specified, "... she is always concerned for the health of                                                               
our economy.  What will be the impact, not only on the lease sales,                                                             
but also on the contributions to charitable and arts organizations?                                                             
We have relied heavily upon BP and ARCO for their support over the                                                              
last 20 plus years.  I was delighted to hear that that support will                                                             
also continue."  She echoed Mr. Marrs' and Mr. Burke's testimony                                                                
with regard to looking for Alaskan hire which she believed will                                                                 
happen.  As a member of the Alaska community, both business and                                                                 
social, she applauded both the Governor and the legislature as they                                                             
analyze the change in the business climate resulting from the                                                                   
merging of two of the state's biggest employers.                                                                                
                                                                                                                                
TAPE 99-12, SIDE B                                                                                                              
Number 2981                                                                                                                     
                                                                                                                                
STEPHEN LEWIS, CEO, PetroStar, testified via teleconference from                                                                
Anchorage.  He informed the committee that PetroStar is a                                                                       
wholly-owned subsidiary of the Arctic Slope Regional Corporation.                                                               
PetroStar has maintained a long-standing business relationship,                                                                 
both with ARCO and BP over the past 15 years during which BP has                                                                
been PetroStar's major crude supplier at the refinery.  "PetroStar                                                              
feels confident we will not be adversely affected by this merger,                                                               
support the decision of ARCO and BP to move forward on the merger.                                                              
It is our opinion that the merger should enable the cost per barrel                                                             
produced to be reduced, thereby creating a better economic climate                                                              
for BP to invest in Alaska and also to be competitive in the rest                                                               
of the world."  He believed this would be positive from the state's                                                             
standpoint as further investments are made throughout the world.                                                                
The merger should enhance the position of the producers.  He                                                                    
believed the merger would produce oil cheaper, which would provide                                                              
the companies with larger incentives to invest more money in the                                                                
state.  Mr. Lewis did not believe the merger would adversely affect                                                             
the independents.  He noted that he routinely talks with                                                                        
independents who are looking at the potential of doing business                                                                 
here.  As has been stated, the cost of production on the North                                                                  
Slope is extremely high.  Therefore, independents are probably                                                                  
reviewing areas where the cost of producing is lower.  He indicated                                                             
that as more fields, more production, and more gathering lines are                                                              
built on the North Slope it should enhance the ability for those in                                                             
smaller companies to invest in sales.  Arctic Slope Regional                                                                    
Corporation certainly has a huge interest in the North Slope from                                                               
a bidding standpoint.  After discussions with BP and other                                                                      
companies, he did not feel the merger would adversely affect that.                                                              
                                                                                                                                
MR. LEWIS agreed with the comments of Mr. Marrs and Mr. Burke                                                                   
however, he did not agree with Mr. Gottstein's position that Alaska                                                             
should interfere with the business process of this merger.                                                                      
Interference in that area would only send a very poor message to                                                                
ARCO, BP, and the rest of the industry.  However, he did believe it                                                             
appropriate for the Governor as well as the legislature to look                                                                 
into and understand the merger as well as get assurances that they                                                              
feel are appropriate.  "From our standpoint, we support the                                                                     
business decision they've made."                                                                                                
                                                                                                                                
REPRESENTATIVE PHILLIPS asked Mr. Lewis, as a supplier, if he has                                                               
been given assurance by BP that it will honor the contracts that he                                                             
has with ARCO through the year or through the next five years.                                                                  
                                                                                                                                
Number 2775                                                                                                                     
                                                                                                                                
MR. LEWIS stated that BP is supplying "our" crude oil out of                                                                    
Prudhoe Bay, and we have been given assurances that nothing will                                                                
change.  He felt that it would not adversely affect any of their                                                                
relationships with BP or their crude supply.  He noted that his                                                                 
product sales are tied with the oil companies relative to                                                                       
production, and drilling activities.  Therefore he felt that the                                                                
combined companies should have more incentive to increase                                                                       
production and drilling activities.                                                                                             
                                                                                                                                
REPRESENTATIVE COWDERY recognized that Mr. Lewis, as did most who                                                               
have testified today, supports the merger.  However, as                                                                         
legislators, we have to review all the aspects, including                                                                       
antitrust, and scrutinize the contracts.  The legislature is in the                                                             
process of choosing a law firm that's expert in this area.  He                                                                  
indicated that the Administration would probably do the same, if                                                                
they don't already have such experts.  Such review is good for the                                                              
state, but he did not want to spend money unnecessarily.                                                                        
Representative Cowdery clarified that this process is merely                                                                    
prudent business, and is not against any oil company.                                                                           
                                                                                                                                
MR. LEWIS agreed that it's prudent to review the merger, antitrust                                                              
issues, et cetera.  With regard to hiring a lot of consultants, Mr.                                                             
Lewis believed that there are actual people who work with and in                                                                
the industry, and are very closely aligned with the oil companies                                                               
that could be utilized.  He informed the committee that he has                                                                  
worked in the oil industry in Alaska for 25 years, and knows all                                                                
the companies.  Mr. Lewis said he is willing to share his opinions,                                                             
and noted that there are many others with the same expertise.                                                                   
                                                                                                                                
REPRESENTATIVE GREEN recalled that Mr. Lewis indicated that through                                                             
the merger there would be an economy of scale, an efficiency of                                                                 
size.  The concern for many seem to be regarding whether the merger                                                             
would make such a large entity which would discourage any other                                                                 
competitor from entering that market.                                                                                           
                                                                                                                                
Number 2583                                                                                                                     
                                                                                                                                
MR. LEWIS said that he did not believe it discourages Exxon, nor                                                                
did he believe it would discourage the Chevrons and other large oil                                                             
companies.  "Certainly, there are a number of large oil companies                                                               
out there that look at sales worldwide that are capable of                                                                      
competing with or against BP,...."  The major problem with the                                                                  
North Slope is the cost of drilling wells and getting them into                                                                 
production.  "So I don't know that independents or small people are                                                             
going to have a hard time getting this -- doing this stuff up there                                                             
regardless, but I do think that Royal Dutch Shell and those                                                                     
companies are more than capable of coming in and looking at bidding                                                             
on the fields up there.  We certainly have a high interest in the                                                               
oil companies being competitive up there, and they're not looking                                                               
at it negatively."  Mr. Lewis commented that BP is a much better                                                                
choice as a partner with ARCO than some unknown or some other                                                                   
companies such as Ramco(ph).                                                                                                    
                                                                                                                                
REPRESENTATIVE GREEN commented that several years ago when Conoco                                                               
left its operations at Milne Point, Conoco indicated that because                                                               
of the high pipeline tariff the company could not compete on a                                                                  
barrel for barrel basis.  He asked, "Does the pipeline ownership,                                                               
in your estimation, give any deterrence other than just the fact                                                                
that we're operating in a high cost area, do you think that the                                                                 
pipeline ownership would be such that there would be a competitive                                                              
advantage in addition to the hostile environment?"                                                                              
                                                                                                                                
MR. LEWIS replied that he did not think so and noted, "We've been                                                               
involved for it seems like forever on [indisc.] issues, APUC issues                                                             
relative to pipeline tariffs.  They're highly scrutinized, almost                                                               
[indisc.], I think every tariff filing was suspended.  Burke(ph)                                                                
looks it over carefully, the state certainly looks it over                                                                      
carefully, we do, all of the shippers."  He indicated the need to                                                               
keep in mind that the oil does not compete at Prudhoe Bay, but                                                                  
competes on the west coast and worldwide.  Therefore, it's a net                                                                
back pricing which Mr. Lewis did not view as negative.  Certainly,                                                              
there is opportunity for other people to invest in the pipeline as                                                              
has been the case for some time now.  Entering the pipeline is just                                                             
not an attractive thing to do, unless you have production and can                                                               
be assured to move your oil through the pipeline.  He reminded                                                                  
everyone that the pipeline is, "in effect, a number of pipelines                                                                
from a tariff standpoint."                                                                                                      
                                                                                                                                
Number 2333                                                                                                                     
                                                                                                                                
MATTHEW FAGNANI, President, Work Safe, Incorporated, testified next                                                             
via teleconference from Anchorage.  He informed the committee that                                                              
Work Safe is a wholly-owned subsidiary of Nana Development                                                                      
Corporation and began business in Alaska in 1989.  Work Safe has 10                                                             
full-time employees on staff, four of them being Nana shareholders.                                                             
He explained that Work Safe is a "third-party drug program                                                                      
administrator offering work place drug and alcohol testing and                                                                  
random testing program management.  ... Work Safe is considered a                                                               
third tier vendor in the Alaskan Oil Patch."   He noted that 66                                                                 
percent of Work Safe's business is estimated to come directly from                                                              
the support sector in Alaska's Oil Patch.  ARCO and BP-Amoco have                                                               
their own drug testing program.                                                                                                 
                                                                                                                                
MR. FAGNANI informed the committee that this past January Work Safe                                                             
purchased one of its competitors, Medical Specimen Services, which                                                              
has made a significant difference in the bottom line and                                                                        
shareholder benefits.  It was a good business decision and is an                                                                
example of the positive aspects of mergers.  Mr. Fagnani commented,                                                             
"It is in all of our best interests to take measures that ensure                                                                
that oil producers in the state are healthy and active.  The recent                                                             
oil price plunge has taken its toll on the industry overall.  We                                                                
have seen a significant reduction of activity and production on the                                                             
North Slope, largely due to the drop in oil prices and production                                                               
decline of mature fields."  Currently, there are only three                                                                     
operating drilling rigs which is down from the projected 23.  "When                                                             
drillers aren't drilling, freight is not being hauled, security and                                                             
maintenance are not being needed, and the Alaskan economy suffers.                                                              
BP-Amoco and ARCO recognize the immediate need to tighten their                                                                 
belt."  This was evident early in 1997 and in 1998 with the purely                                                              
economic job force reduction within ARCO.  Similar downsizing                                                                   
occurred at BP in January.  "As BP-Amoco and ARCO consolidate their                                                             
operations, they will undoubtedly realize efficiencies.  Monies                                                                 
freed up from cost savings may well be spent on exploration and                                                                 
production activity, which would mean jobs and contracts to the                                                                 
support industry businesses."  Mr. Fagnani echoed prior comments                                                                
regarding BP-Amoco's commitment to invest $5 billion in North Slope                                                             
development over the next five years which would exceed projected                                                               
capital spending by ARCO and BP-Amoco combined.  BP-Amoco also                                                                  
committed to continuing the ARCO-led gas sponsorship group,                                                                     
relocating its gas technology center to Alaska, and building a $70                                                              
million gas-to-liquids plant on the North Slope.  He emphasized                                                                 
that those commitments clearly illustrate that BP-Amoco plans to                                                                
heavily utilize their newly acquired ARCO assets.                                                                               
                                                                                                                                
MR. FAGNANI did not view "this merger as a crisis, but rather an                                                                
indication of a changing global environment that makes a company                                                                
reduce costs to provide greater benefits to shareholders."  Mr.                                                                 
Fagnani expressed faith in the legislature and the Administration                                                               
to act in the best interest of all Alaska and Alaskans.  It is                                                                  
critical that state leaders review the long-term impacts this                                                                   
merger may have for future generations.  "One thing is certain, is                                                              
things will continue to change."                                                                                                
                                                                                                                                
Number 2130                                                                                                                     
                                                                                                                                
JACK LAASCH, President and General Manager, Alaska Petroleum                                                                    
Contractors (APC), stated that he was present to express his                                                                    
support for the BP-Amoco ARCO proposed merger.  He commented that                                                               
APC has had a very good, long-term working relationship with both                                                               
BP and ARCO.  Mr Laasch's support for the proposed merger is based                                                              
on a number of reasons.  Firstly, "one operator will provide a more                                                             
cost-effective approach to oil production on the North Slope                                                                    
through a single management structure.  ... Efficiencies will be                                                                
realized in all areas of oil production, operation, maintenance,                                                                
safety, quality, administration and many other areas of focus                                                                   
through the consolidation into Slope-wide procedures and processes.                                                             
These efficiencies will benefit the State of Alaska through                                                                     
increased revenues as well as our own employees, the citizens of                                                                
Alaska, with jobs and income."                                                                                                  
                                                                                                                                
MR. LAASCH pointed out that secondly, BP has shown a strong                                                                     
commitment to Alaska hire in the past which he did not doubt would                                                              
continue.  He informed the committee APC has invested considerable                                                              
time and capital into its Anchorage fabrication facility and                                                                    
Nikiski module assembly site.  Therefore, BP's commitment to Alaska                                                             
business development will ensure that this investment will be                                                                   
honored. He was optimistic that, as long as production of oil and                                                               
gas in Alaska is economically attractive, BP-Amoco would, as any                                                                
for-profit corporation, aggressively pursue development of new oil                                                              
fields in Alaska as well as commercialization of North Slope gas.                                                               
Both pursuits will keep APC's facilities busy and Alaskans                                                                      
employed.                                                                                                                       
                                                                                                                                
MR. LAASCH noted that BP has stated it will increase the amount                                                                 
contributed to charitable organizations.  He commented that in his                                                              
more than 20 years' experience with BP, BP has often demonstrated                                                               
its commitment to enhancing the lives of those in the community                                                                 
with their efforts with Boys' and Girls' Clubs to their support for                                                             
the arts.  Alaskans must look to the future.  He believed the                                                                   
merger to be a necessary change for future development in Alaska.                                                               
He urged the committee to approve and endorse the merger.  In                                                                   
conclusion, Mr. Laasch said the merger is right for Alaska,                                                                     
Alaskans, and for Alaska's contractors.                                                                                         
                                                                                                                                
REPRESENTATIVE PHILLIPS asked if Mr. Laasch had the understanding                                                               
that long-term contracts with ARCO currently held by contractors                                                                
and suppliers would be honored by BP.                                                                                           
                                                                                                                                
MR. LAASCH replied yes.  The presentation that Richard Campbell and                                                             
Kevin Maiers made guaranteed that in 1999 there will be no                                                                      
disruption to existing contracts, and that most of the contracts                                                                
will be honored.                                                                                                                
                                                                                                                                
REPRESENTATIVE COWDERY recalled a 1998 publication which predicted                                                              
that such mergers would occur and that in the future there would be                                                             
fewer oil companies due to mergers.  He asked Mr. Laasch how many                                                               
major oil companies might be in existence worldwide in three years.                                                             
                                                                                                                                
MR. LAASCH said that he believed the independents will be around.                                                               
He said, "Survival in this game means that you have to be able to                                                               
react to the economic conditions.  The independents that can do                                                                 
that will survive."  The independents could survive by merging with                                                             
bigger oil companies or merging amongst themselves.  The large                                                                  
players, such as Royal Dutch Shell, Exxon, and BP will definitely                                                               
remain.  Furthermore, he predicted that there will be room for                                                                  
probably a half a dozen other bigger oil companies.  Even still,                                                                
there will be a niche for the independents.                                                                                     
                                                                                                                                
REPRESENTATIVE COWDERY understood Mr. Laasch to mean that there                                                                 
would be six to eight large companies worldwide plus the                                                                        
independents.                                                                                                                   
                                                                                                                                
MR. LAASCH agreed with that understanding.  Currently, it's                                                                     
extremely tough for independents to come to Alaska because of the                                                               
cost to operate on the North Slope.  Even with BP and ARCO present,                                                             
it's difficult for independents due to the infrastructure required.                                                             
He did not foresee that changing as a result of the merger.                                                                     
                                                                                                                                
Number 1845                                                                                                                     
                                                                                                                                
REPRESENTATIVE COWDERY inquired as to who Mr. Laasch would identify                                                             
as the fiercest competitor to this merger worldwide.                                                                            
                                                                                                                                
MR. LAASCH said he had not given that any thought.  He just saw BP                                                              
and maybe Exxon being present.  If one has not been to Alaska                                                                   
before, it is intimidating.  Basically, the big players develop oil                                                             
where they know how to.  BP, ARCO, and Exxon know how to do that.                                                               
He noted that Exxon is the only one that is not currently an                                                                    
operator.  Perhaps, Exxon would want to take a stronger role in the                                                             
future.                                                                                                                         
                                                                                                                                
REPRESENTATIVE COWDERY commented that he would like Chair Barnes to                                                             
invite Exxon for their comments on this merger.                                                                                 
                                                                                                                                
CHAIR BARNES said she would be happy to invite Exxon.                                                                           
                                                                                                                                
REPRESENTATIVE OGAN understood that typically, in mature fields in                                                              
the Lower 48, the independents that come in choose from the fields                                                              
that the large companies have passed up.  He also understood that                                                               
the independents are a bit more innovative and aggressive in the                                                                
development of marginal fields.  Representative Ogan expressed                                                                  
concern that this merger could discourage that.                                                                                 
                                                                                                                                
MR. LAASCH pointed out that there is a difference in Alaska where                                                               
independents can enter the market with lower overheads and lower                                                                
infrastructure.  Conoco is a good example.  Mr. Laasch noted that                                                               
he was present when Conoco was in Alaska.  Conoco had to establish                                                              
its own fire department, [indisc.] department, and develop its PSN                                                              
procedures; drawing only from the resources at Milne Point.  While,                                                             
BP and ARCO had different fields from which they could benefit from                                                             
the economies of scale, meaning they could draw on those resources                                                              
from their different assets.  He acknowledged that independents can                                                             
come to Alaska and probably bring some very good cost savings                                                                   
ideas, but he did not envision their survival.                                                                                  
                                                                                                                                
CHAIR BARNES surmised then that there are two large players left on                                                             
the Slope with the BP-Amoco ARCO buy out plus the Exxon buy-out of                                                              
the other company as well.  The third big player is Alaska.  Chair                                                              
Barnes asked then if Mr. Laasch would agree that the state needs to                                                             
do what it can to protect its interest.                                                                                         
                                                                                                                                
MR. LAASCH replied yes, the state is a big player in this merger.                                                               
He reiterated the importance of what the economy of scale means to                                                              
be competitive which he believed BP has done out of necessity.   He                                                             
indicated that will ensure that there will be jobs for Alaskans and                                                             
contractors in the future.                                                                                                      
                                                                                                                                
Number 1605                                                                                                                     
                                                                                                                                
KEN FREEMAN, Executive Director,  Resource Development Council                                                                  
(RDC), testified via teleconference from Anchorage.  He informed                                                                
the committee that RDC is a non-profit, economic development                                                                    
organization with a broad statewide base and focus.  The members of                                                             
RDC range from individuals to leading companies throughout Alaska's                                                             
basic resource sectors such as oil and gas, mining, timber,                                                                     
tourism, and fishing.  The RDC membership also includes Native                                                                  
corporations, construction, labor, and a number of local                                                                        
communities.  "All of these interests come together under RDC to                                                                
work on common issues, issues which transcend all resource and                                                                  
economic sectors."                                                                                                              
                                                                                                                                
MR. FREEMAN said that RDC applauds the committee, the legislature                                                               
and the Governor for examining the proposed merger.  Although there                                                             
is much information to gather about this merger, once the                                                                       
information is compiled RDC trusts that there will be informed and                                                              
objective decisions.  As has been said, the merger will certainly                                                               
result in change.  He recognized the difficulty in immediately                                                                  
identifying all the potential changes.  However, holding hearings                                                               
and receiving the aid of technical experts in order to prepare a                                                                
comprehensive analysis of the merger allows the legislature and                                                                 
Administration to make informed and thorough decisions.                                                                         
                                                                                                                                
MR. FREEMAN noted that for some time, RDC has felt, "A merger                                                                   
between the North Slope's two major operators was likely                                                                        
inevitable, given declining production and the high cost of                                                                     
exploring, developing and producing oil in the Arctic."  He echoed                                                              
earlier comments that increasing worldwide oil production,                                                                      
declining Alaska production, and lower prices have forced the                                                                   
industry to seek new efficiencies and streamline operations.                                                                    
Therefore, to stay competitive in attracting new investment                                                                     
capital, Alaska producers must do the same which is one of the                                                                  
reasons ARCO officials have given for the merger.  Although RDC has                                                             
not developed an official position on the merger, RDC does not view                                                             
it with doom and gloom.  On the contrary, RDC prefers to believe                                                                
the merger offers hope for reducing redundancies while increasing                                                               
efficiencies.  "If it makes a single operator on the North Slope                                                                
more competitive, internationally, under an increasingly difficult                                                              
global business environment, we believe this is good news for the                                                               
State of Alaska."  He indicated that the resulting company may end                                                              
up with the competitive strength to sustain capital investments                                                                 
over the long term and take advantage of new development                                                                        
opportunities in Alaska.                                                                                                        
                                                                                                                                
MR. FREEMAN pointed out that BP-Amoco has a long and proud record                                                               
in Alaska.  He reiterated comments regarding BP-Amoco's pledge of                                                               
increased investment in North Slope development and continued                                                                   
efforts to commercialize North Slope gas.  Those commitments will                                                               
continue BP's role as a leading investor in Alaska.  Mr. Freeman                                                                
expressed confidence that a combined company will build on its good                                                             
record and will not diminish its commitments to Alaskans.                                                                       
Furthermore, BP and ARCO have been leaders with environmental                                                                   
protection and safety in Alaska as well as worldwide.  A combined                                                               
company has the potential to obtain more experience and strength in                                                             
achieving environmental and safety standards.  He noted that a                                                                  
combined company must continue to follow the same environmental                                                                 
laws and regulations as were followed as two companies.                                                                         
                                                                                                                                
MR. FREEMAN commented that the manner in which the merger comes                                                                 
together in Alaska and is handled by the state will be closely                                                                  
scrutinized by those in the oil and gas business as well as other                                                               
resource sectors in Alaska and abroad that are facing similar                                                                   
economic realities.  He expressed the need to do everything                                                                     
possible to provide competitive advantages for Alaska's projects in                                                             
every resource sector.  Alaska needs to recognize and respond to                                                                
change and new realities.  Mr. Freeman believed it critical for the                                                             
legislature, Administration, and the public to understand what key                                                              
issues should be considered during the acquisition discussion and                                                               
he encouraged everyone to analyze all of the variables before                                                                   
arriving at final conclusions.  Alaska is on the verge of a new                                                                 
millennium that will likely provide unparalleled challenges and                                                                 
opportunities to which Alaska must adapt.  He urged, "the                                                                       
legislature to carefully but expeditiously study the proposal and                                                               
weigh the impact to the state, especially from a long-term,                                                                     
open-minded and informed perspective to send a responsible signal                                                               
to the entire business community, both here in Alaska and                                                                       
elsewhere."                                                                                                                     
                                                                                                                                
Number 1251                                                                                                                     
                                                                                                                                
THERESA OBERMEYER testified via teleconference from Anchorage.  She                                                             
commented that it is election day in Anchorage and asked if                                                                     
everyone had voted.  She announced that her main focus is love of                                                               
country.  She informed the committee that she lives down the street                                                             
from BP and could recall when the building opened.  She noted that                                                              
she has not directly been involved in the oil industry, although                                                                
her husband did work at Alyeska Pipeline for a short time. As                                                                   
Senator Murkowski noted, and as has been reported in the newspaper,                                                             
these issues, will be part of the presidential campaign of the year                                                             
2000.   Ms. Obermeyer indicated that the State of Alaska is the                                                                 
resource state for the future of the country and she was not                                                                    
willing to hand it over to any foreign entity.  She said that she                                                               
would always like to be labeled as the loyal opposition.  She noted                                                             
that she is an educator.  Ms. Obermeyer stressed that she will not                                                              
support this merger.  She reiterated that she would always be                                                                   
someone that raises questions,  although that is not allowed where                                                              
she lives.                                                                                                                      
                                                                                                                                
CHAIR BARNES asked if there was anyone else who wished to testify.                                                              
There being none, Chair Barnes expressed appreciation to everyone                                                               
who shared their time with the committee this evening.  She                                                                     
announced that the next meeting would be held on Friday, April 23,                                                              
1999, at 5:00 in the Finance Committee Room.  At that time, the                                                                 
committee will here from the President of BP, Richard Campbell, and                                                             
the President of ARCO, Kevin Maiers.  In the very near future,                                                                  
Exxon will be invited to participate, as well as some of the other                                                              
players on the Slope.                                                                                                           
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on World Trade and State/Federal Relations                                                                    
meeting was recessed to the call of the Chair at 6:32 p.m.                                                                      

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