Legislature(1999 - 2000)
04/23/1999 05:10 PM House WTR
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON WORLD TRADE
AND STATE/FEDERAL RELATIONS
April 23, 1999
5:10 p.m.
MEMBERS PRESENT
Representative Ramona Barnes, Chair
Representative John Cowdery, Vice Chair
Representative Beverly Masek
Representative Gail Phillips
Representative Joe Green
Representative Ethan Berkowitz
Representative Reggie Joule
MEMBERS ABSENT
All members present
OTHER HOUSE MEMBERS PRESENT
Representative Brian Porter
Representative John Coghill
Representative Scott Ogan
Representative Eldon Mulder
Representative Beth Kerttula
Representative Sharon Cissna
SENATE MEMBERS PRESENT
Senator Pete Kelly
COMMITTEE CALENDAR
OVERSIGHT HEARING: PROPOSED PURCHASE OF ARCO, INC. BY BP AMOCO
BP AMOCO AND ARCO TESTIMONY
PREVIOUS ACTION
See House Special Committee on World Trade and State/Federal
Relations minutes dated 4/13/99, 4/15/99 and 4/20/99.
WITNESS REGISTER
KEVIN MEYERS, President
ARCO Alaska
RICHARD CAMPBELL, President
BP Exploration Alaska
ACTION NARRATIVE
TAPE 99-13, SIDE A
Number 0001
CHAIR RAMONA BARNES called the House Special Committee on World
Trade and State/Federal Relations meeting to order at 5:10 p.m.
Members present at the call to order were Representatives Barnes,
Cowdery, Masek, Green, Berkowitz and Joule. Representative
Phillips arrived at 5:11 p.m. She noted the presence of
Representatives Porter, Coghill, Ogan, Mulder, Kerttula, and Cissna
as well as Senator Pete Kelly.
Number 0125
KEVIN MEYERS, President, ARCO Alaska, began by noting that ARCO has
been a major player in Alaska for 45 years. He commented that
ARCO's business in Alaska is in excellent shape and has had
exploration success. ARCO Alaska is developing new fields and,
despite the record low oil prices of recent months, is on track
with regard to stabilizing ARCO's share of North Slope production.
He expressed ARCO's pride in its history in Alaska. He predicted
a bright future for the oil industry in Alaska with continued
efforts to drive down operating and developing costs, and continued
access to exploration acreage, and a continued working partnership
with the state. Having said that, he acknowledged that many
Alaskans were surprised to hear that ARCO had approached BP-Amoco
and proposed a acquisition; many are questioning why. He offered
to answer questions, but noted that he may not be able to answer
them all because for some questions there are no answers yet.
Other questions can't be answered because ARCO has entered what the
Securities and Exchange Commission (SEC) calls the "quiet period."
During the "quiet period," ARCO employees are prohibited from
saying anything that could be construed as urging our shareholders
to approve the joining of ARCO with BP-Amoco. He compared the
"quiet period" to some of the laws and restrictions that keep
legislators from lobbying within so many feet of a polling place
prior to an election. This restriction will apply until ARCO's
proxy statement has been filed and approved by the SEC. The proxy
statement will provide detailed information on this transaction.
He noted that SEC rules do not prevent him from discussing the
impact this merger will have on Alaska which he believed would be
positive.
MR. MEYER believed that combining ARCO Alaska and BP-Amoco would
allow the restructuring of ARCO's Alaskan operations, eliminate
duplication, lower ARCO Alaska's operating costs, and create new
opportunities for growth on the North Slope. All of which will
result in more capital spending, greater ultimate oil recovery,
higher production and more state revenue. Although this merger
will create short-term pain for many, it is also key to a better
future for the Alaskan oil industry. He stated that today's tough
business climate makes continued consolidation of ARCO Alaska's
operations on the North Slope inevitable. In order to remain a
viable industry and attract new investment, operating costs must be
reduced as production continues to decline. Simultaneously, the
record low oil prices of the last few months have had a significant
negative impact on the industry's earnings and cash flow. ARCO
Alaska has emerged from this last year and a half with a new
understanding of what it's going to take to remain competitive in
the oil business. He stressed that being a low-cost producer will
be key to a successful long-term future.
Number 0423
MR. MEYER acknowledged that many are concerned about the merger and
how it will affect the suppliers, the contractors, and jobs. All
those concerns are understandable, but even without this
acquisition change was imminent. When the news of this deal became
public, ARCO and BP were engaged in serious discussions aimed at
establishing a single operator at Prudhoe Bay to achieve some of
those aforementioned cost savings. However, Mr. Meyer emphasized
that this transaction would deliver much more cost savings than a
single operator; "...it better aligns the interest of BP-Amoco with
the remaining PBU [Prudhoe Bay Unit] owners, and it delivers
additional slope-wide cost savings and efficiencies." He returned
to the issue of loss of jobs. Although it will be very difficult
to see those who have made significant contributions go, the only
way to build a better future for Alaska's oil industry is to make
operations as cost effective as possible. He commented that he has
personally seen what can happen when the cost is taken out of
operations. He recalled 1994 when oil prices plummeted to $15 a
barrel and ARCO Alaska's long-term plan showed years of declining
North Slope production, in terms of our share and in terms of the
gross. At that time, ARCO Alaska made some difficult, but
necessary decisions such as the elimination of a large portion of
its work force. He informed the committee, "Since 1994 ARCO Alaska
has eliminated over 900 jobs in the Alaska, that's our employee's
jobs, including more than 200 middle management positions." ARCO
Alaska changed the way it purchases goods and services, forged new
agreements with suppliers and contractors, used technology and
facility sharing agreements all in order to reduce costs. That
resulted in the removal of over 25 percent of ARCO's operating
costs from its Alaska operations which would allow survival of low
oil prices. More importantly, the new cost structure allowed the
pursuit of new projects that were previously not feasible such as
additional drilling in existing fields, the [indisc.] inject and
expansion project, satellite exploration and development, et
cetera. He said that ARCO Alaska's low-cost structure allowed it
to increase its investment in Alaska. ARCO Alaska challenged its
employees to make the most of the new low-cost structure which is
embodied in No Decline After '99, a plan to stop decline in
production.
Number 0664
MR. MEYER said that after ARCO's executive management reviewed
ARCO's global portfolio and ARCO Alaska, they liked what they saw.
Due to this new cost structure, funding for Alaska increased. Over
the last five years, ARCO's capital spending in Alaska has
increased three-fold from ARCO Alaska. Once again this illustrates
the benefits of the reduction of the cost structure, in terms of
increased spending and increased production. "Last year for the
second year in a row, ARCO replaced every barrel we produced in
Alaska in 1998." He also mentioned that ARCO kick-started a new
Alaskan industry when it awarded contracts to two Alaskan companies
for the fabrication of the fist sea lift modules built in Alaska.
Furthermore, the startup of Alpine 2000 will deliver on No Decline
After '99. All this is tangible evidence that low cost operations
result in increased investment and new opportunities. Therefore,
efforts must continue to drive cost out of the system which is "why
combining our Alaska operations with BP's Alaska operations is the
right thing to do." Mr. Meyer said that he believed the merger
would create new investment opportunities on the North Slope. He
acknowledged that the Knowles Administration and this committee
have a responsibility to carefully examine this transaction and he
welcomed their interest and questions. He expressed confidence
that all the concerns identified by the Governor's team can be
addressed. Furthermore, he predicted that state and federal
officials will conclude that this merger is in the best interest of
the state as well as the nation. Over the long term the merger
will result in "more investment in Alaska, more exploration, more
new fields, more production, more state revenue."
MR. MEYER informed the committee that prior to regulatory approval
of this merger, ARCO will continue to operate as an independent
company pursuing its plans for production growth in Alaska. He
said, "Our capital spending program this year will not be reduced.
I am pleased to tell you the Alpine project is on track." He
stated that ARCO Alaska will continue to explore for new fields, to
participate in state and federal lease sales, and bid at the
upcoming National Petroleum Reserve-Alaska (NPR-A) lease sale,
totally independent of BP-Amoco. Furthermore, ARCO Alaska will
continue to support the community service organizations, protect
the environment and the safety of employees. "In short, it's going
to be business as usual until this deal is approved." Mr. Meyer
identified the goal as simply to deliver to BP-Amoco a well run
company with quality assets and tremendous growth potential. With
regard to assets, he clarified that he was not only speaking of the
rock and the steel, but more importantly the employees of ARCO
Alaska.
MR. MEYER, in closing, reiterated that ARCO supports and wants this
combination to be successful. He pointed out that BP-Amoco was
chosen for many easily quantified business reasons; moreover,
BP-Amoco has made a commitment to treat ARCO's employees with
respect and fairness. He noted that departing employees will
receive generous severance packages and enhanced retirement
benefits. Furthermore, ARCO knows BP-Amoco very well. Since the
discovery of Prudhoe Bay more than 30 years ago, BP-Amoco and ARCO
have been partners and competitors. Both share a common commitment
to the development and marketing of cleaner burning fuels, to
operating in an environmentally responsible manner, and to being
good corporate citizens. He emphasized the commonality of a
40-year history of commitment to Alaska.
CHAIR BARNES informed everyone that the testimony of the two
presidents would be completed prior to any questions.
Number 0868
RICHARD CAMPBELL, President, BP Exploration Alaska, commented that
the merger begins a journey towards a new future for Alaska. "Two
great Alaskan companies have taken the first steps towards becoming
a single, more competitive Alaskan company that is positioned for
the challenges and the opportunities of the Twenty-first Century."
He recognized that this merger has come as a shock to many Alaskans
and has spawned concern due to the central role both ARCO and BP
have played in Alaska's economic and social fabric for more than
three decades. He offered assurance that the vital economic and
social role of both companies will continue after the merger. Mr.
Campbell emphasized, "This deal is critical to ensuring the
long-term health and competitiveness of the industry that is the
foundation of Alaska's economy. Both companies believe this will
be good for Alaska. Good for it's communities and people, good for
investment and good for the future of our industry in Alaska." He
explained that the merger will enable the maximization of oil and
gas recovery on the North Slope. The merger will make the company
more efficient, more competitive, and enhance the company's ability
to invest in Alaska. Furthermore, this merger will enhance
Alaska's ability to compete for investments in a low-price
environment.
MR. CAMPBELL said that he hoped the government approval process can
be completed in six to nine months. He acknowledged that this
will not be an easy period for anybody, but he promised that he and
the team will do everything to move the process forward to minimize
the uncertainty for everyone. He also promises that the decisions
made which shape the new organization and its course will be made
in a fair, equitable, and collaborative manner. With regard to the
question of what this merger means to the State of Alaska and its
citizens, Mr. Campbell didn't think he could answer that question
definitively. However, the principles on which the decisions will
be based and the commitments to all Alaskans can be identified as
this moves forward.
MR. CAMPBELL explained, "BP-Amoco is about to spend more than $26
billion to acquire ARCO, in large part to enhance the
competitiveness of Alaskan investments in our global exploration
and production portfolio." He identified that as an expression of
BP-Amoco's confidence in Alaska's potential and future. "As
further evidence, we will invest $5 billion on the North Slope over
the next five years, an increase over the combined Alaskan
investments of BP and ARCO in the past five years." He interpreted
that to mean ongoing business opportunities for Alaskan companies,
continued efforts and programs expanding the role of Alaskans in
all activities. The company will have a bias for Alaskans in its
training, hiring and contracting. The efficiencies gained by the
merger will make Alaska more competitive in a sustained low-price
environment, such as the one experienced for the past year. Mr.
Campbell stated, "ARCO and BP are taking our destinies in our hands
in order to make our Alaskan investment opportunities attractive in
any business environment. In this context, we are not asking for
a review of the tax structure. We will continue to work
cooperatively and collaboratively with all levels of government in
Alaska."
MR. CAMPBELL stated that ARCO's commitments to build the new
"Millennium Class" double-hull tankers for Alaska trade will be
honored. He noted that BP already uses three double-hull tankers
and six double-bottom tankers in its 11-ship chartered fleet.
Furthermore, BP will comply with the Oil Pollution Act of 1990 (OPA
90). The work of the LNG (liquefied natural gas) sponsor group
will also continue. He announced that BP will consolidate its
worldwide gas technologies into Alaska, and will build a
gas-to-liquids pilot plant on the North Slope. In an effort to
commercialize North Slope gas, no stone will be left unturned.
Therefore, the merger will take a quantum leap forward towards
achieving that goal. He noted that BP will continue to be actively
involved in the state and federal lease sales, including the
upcoming NPR-A sale. Furthermore, BP will continue to pursue
exploration and development opportunities in Alaska. He
acknowledged that the combined onshore exploration holdings of both
companies will exceed that allowed. Therefore, BP is prepared to
reduce the amount of onshore exploration holdings in order to
comply with state limits if the state so desires. BP will also do
everything it can to make spare capacity in North Slope facilities
and infrastructure available to others so as to encourage
additional development on the North Slope. Mr. Campbell continued
by saying, "We will increase by 50 percent our financial support of
community organizations in Alaska from the current combined level
of BP-Amoco and ARCO, that is from [$]4 million a year to $6
million a year." BP will continue to encourage its managers, staff
and business partners to participate in and support community
activities and organizations. He further pledged that BP will
honor all current agreements with ARCO's contractors and suppliers,
and treat all business partners with dignity and respect. "The
reasons are simple since we believe a robust and competitive local
contractor market is in everyone's interest."
Number 1294
MR. CAMPBELL recognized that there is a great deal of concern about
the size, influence, power, and competition within Alaska that
could result upon approval of this deal. However, he pointed out
that BP has been responsible and responsive corporate citizens of
Alaska for 40 years which won't change. He commented, "As the
importance of Alaska grows in BP-Amoco's global portfolio, so does
our sense of responsibility to Alaskans. Our bigness, the
experience, the skills, the financial resources and the stability
we bring will be Alaska's competitive advantage, not a competitive
threat. We're not competing against Alaska for shares of a
shrinking pie, we are partnering with Alaska to compete together
for a larger slice of a global investment pie. We will be an even
more powerful ally of Alaska in this quest." In conclusion, he
reiterated that the new combined organizations will maintain the
same high standards of environmental, safety and social performance
that the two companies maintained separately.
REPRESENTATIVE COWDERY requested a rough estimate of the amount of
land leases, in acres, that each of company now holds.
MR. CAMPBELL estimated that the combined total will be 860,000
acres of onshore state lands. He estimated that the offshore total
is 350,[000], but he could not split it unless Mr. Meyer knows
ARCO's amount.
REPRESENTATIVE COWDERY clarified that he was interested in the
amount of land BP and ARCO presently own.
MR. CAMPBELL estimated that BP owns close to 500,000 acres
independently.
MR. MEYERS said that he believed ARCO to hold about the same. He
pointed out that there have been some recent lease surrendering
between the two companies, but he didn't know the actual count. "I
do know the [indisc.] 60 is correct." He clarified that is acreage
that is not unitized or currently under production, although there
is additional acreage that is unitized and under production. He
further clarified that just reflects onshore state land.
Number 1383
REPRESENTATIVE COWDERY foresaw two possibilities. Under one
possibility, the new company could maintain the 500,000 acres which
would result in disposal of the surplus. The second option would
allow BP to keep all the acreage. Representative Cowdery
recognized that currently a statute restricts that, but raised the
possibility of an exemption. He explained his view that more land
out on lease would provide more opportunity to explore and develop.
Representative Cowdery inquired as to who is each company's primary
oil field service contractors.
MR. CAMPBELL commented that both probably use the same companies in
different areas. He identified the oil field service contractors
as VECO Corporation, APC, ASRC in its various forms, Houston
Engineering, Houston Contracting, and others.
MR. MEYERS specified that on the drilling side there is Doyon,
Neighbors, Pools. On the catering side there is Doyon and NANA
Marriot. He turned to the engineering side which utilizes Apple
and Alaska Amble [ph].
MR. CAMPBELL said those are the ones most recognizable in Alaska.
However, there are a whole series of international sales companies
such as Slumberge' [ph], Baker-Hughs, as well as those who also
provide services through local companies.
REPRESENTATIVE COWDERY asked then if the intent, if the merger
occurs, is to continue to use the same contractors with about the
same ratio with the combined companies.
MR. CAMPBELL stated that BP doesn't know the full detail of what
contracts ARCO has, and that knowledge won't be forthcoming until
after the deal is concluded or approved. He restated BP's
commitment to continue all the contracts that ARCO currently has.
REPRESENTATIVE COWDERY inquired as to the affect of this
restriction of leases in Cook Inlet due to Judge Murphy's [ph]
recent ruling.
MR. MEYERS informed the committee that ARCO bid in the Cook lease
sale. Although Cook Inlet is ARCO's origin in Alaska and remains
something that ARCO still has an interest in, ARCO's focus over the
last few years has been on the North Slope. Nonetheless, it is
always of concern when perspective acreage is withdrawn from a
sale. He believed the industry has shown that it can develop in an
environmentally sound fashion. Mr. Meyers said, from ARCO's
perspective, it is always disappointing when acreage is removed
from a sale.
Number 1570
REPRESENTATIVE PHILLIPS recalled Mr. Meyers' statements that the
only way to create a better future for the oil industry in Alaska
is to make the industry more cost effective and this reorganization
of both companies will bring the same for the future of Alaska.
MR. MEYERS agreed and stated his belief that the merger will result
in increased capital spending, and as a result increased
investment. Hopefully, that will lead to increased exploration
leading to more development and new fields which is the ultimate
solution to the decline. He indicated that he wasn't sure that he
answered the question.
REPRESENTATIVE PHILLIPS clarified that she recognized the fact that
Mr. Meyers thought this merger will be the best for the future of
the industry. However, Representative Phillips wanted to approach
the merger from the view of what is best for the future of Alaska.
MR. MEYERS said he believed that from the standpoint of what is
best for Alaska, the answer remains the same. A significant part
of Alaska's economy, as well as a significant part of the state's
revenues come from the oil industry; therefore, improvements to the
longevity and viability of the industry are in the best interest of
the state, in terms of its economy as well as state revenue.
REPRESENTATIVE PHILLIPS recalled Mr. Meyers' comments regarding the
concept of merging in order to increase cost effectiveness as a
single-source provider. She asked, "Was ARCO ever looking at an
ARCO-BP intertwining as that single-source provider without this --
this concept happening that we are looking at today?"
MR. MEYERS answered yes, although he noted it wouldn't have been to
the same extent. He commented, "We were looking at a single
operatorship at Prudhoe Bay." Mr. Meyers pointed out that BP has,
for years, been consolidating operations in that one organization
drills for all the Prudhoe Bay unit which is run by BP-Amoco, one
organization does all the project engineering for Prudhoe Bay which
is run by ARCO, and one organization provides all the road and pad
maintenance for Prudhoe Bay which is run by ARCO. This merger
consolidates all of ARCO's operations across the slope; therefore,
this is the ultimate consolidation in terms of efficiencies, and
removal of redundancies from the two organizations.
Number 1723
REPRESENTATIVE GREEN commented that it has been the "Big Three,"
for the last 22 years. He inquired as to what Mr. Meyers saw as
the relationship between the merged company and Exxon as the other
big investment. He asked if this merger will create any animosity
due to many of the leases that were jointly held with ARCO and
Exxon.
MR. MEYERS acknowledged that ARCO and Exxon, in a large part of the
North Slope, have been very aligned partners with very similar
interests dating back almost to the days of the discovery of
Prudhoe Bay. He said that ARCO has had and intended to maintain a
close partnership because of those aligned interests. Therefore,
from a purely ARCO perspective, one might predict there'll be less
alignment with Exxon in that. However, from a global perspective,
Mr. Meyer believed the merger helps achieve closer alignment
between the interests of the merged BP-Amoco, ARCO entity and
Exxon.
REPRESENTATIVE GREEN expressed concern with Mr. Meyers' last
statement regarding the global perspective, because "we're
selfishly looking at Alaska."
MR. MEYERS clarified that he was referring to the North Slope
global perspective.
MR. CAMPBELL added that there are obviously, relationships with
Exxon on the slope which would continue to be governed by the
relative contracts and agreements in place. He indicated that BP
is involved with Exxon in many parts of the world and enjoys a good
relationship. Mr. Campbell believed it useful, in terms of
relationships, when the two parties at the table are of a roughly
equal size because it usually means that agreements can occur more
quickly.
REPRESENTATIVE GREEN continued by asking whether this merger would
have any affect on the attitude toward partnering, especially
partnering with independents.
MR. CAMPBELL answered that he didn't think the merger changes their
attitude. He informed the committee that BP-Amoco has its own
series of partnerships with other relatively smaller companies on
the North Slope. He suggested that the acreage beyond the
statutory limit of 500,000 acres could potentially provide more
opportunities for partnering with other companies.
REPRESENTATIVE GREEN recalled that for the last several years ARCO
has been fairly active in the Cook Inlet area, which he recognized
as a more mature basin than the North Slope, while BP has been more
of a North Slope operator. Will this merger adversely affect
continued exploration in the Cook Inlet area? Many believe there
remains an awful lot of oil and gas to be found in Cook Inlet.
MR. CAMPBELL agreed that BP has not been active in the Cook Inlet
for some time. He explained that once the deal is concluded and
all of ARCO's data is available then review of Cook Inlet, in terms
of where that acreage would play in BP-Amoco's portfolio in Alaska,
would occur. Clearly, BP-Amoco will uphold all of ARCO's
contractual arrangements in that area.
Number 1953
REPRESENTATIVE BERKOWITZ asked Mr. Campbell what role he believed
the increased holdings will have in BP's global, around the world,
strategy now.
MR. CAMPBELL echoed his earlier comments that Alaska will remain a
large part of BP-Amoco. "The $26 billion that -- that's involved
in making this deal happen is in very -- is in a large part
acquiring additional Alaskan opportunities, which we are clearly
going to follow up on in an -- in an energetic and efficient way."
That is reflected in BP-Amoco's commitment to spend $5 billion over
the next five years.
REPRESENTATIVE BERKOWITZ inquired as to which pricing scheme Mr.
Campbell anticipated BP-Amoco will use in the future; the ARCO, the
BP, an amalgam, or an entirely different pricing scheme. He
clarified that he was speaking in relation to the spot price.
MR. CAMPBELL stated that the spot price is set by an international
market. The market for ANS (Alaska North Slope) in Pad Five, the
western U.S. states, is a global market. Only 35 percent of the
oil in Pad Five is ANS. He explained that the market is set by
lots of other crude that come into that marketplace.
REPRESENTATIVE BERKOWITZ turned the question to refinery prices,
and any other prices where there are currently differences between
ARCO and BP. Representative Berkowitz understood that there are
different returns to the state based on different prices. He
believed that currently, BP has an incentive to go with a higher
price while ARCO has an incentive to go with a lower price. What
will happen in the future?
CHAIR BARNES clarified that Representative Berkowitz was speaking
about tariffs. Under the old Dinkum Sands settlement, one of the
two companies has a lower tariff than the other which affects the
amount of money the state receives.
MR. CAMPBELL surmised that reference is to shipping tariffs.
CHAIR BARNES indicated that it also has to do with the delivery
through the pipeline.
MR. CAMPBELL reiterated his comments about the spot price which is
an international price-setting mechanism. With regard to any
differences between agreements that BP-Amoco has with the state or
ARCO has with the state, he was sure that will be the subject of
discussions the state may want to have with us. He said that
whenever the state reveals what it wants in respect to that, we can
respond.
REPRESENTATIVE GREEN explained that a transaction that takes place
between the crude that comes off of a ship to an end point, whether
it's on the west coast to a refinery, or through the Canal to an
east coast or a gulf coast area. He interpreted the question to be
regarding whether the stream makeup will remain as it is. In other
words, "if it's worth $16 at point A, then you start with reduced
-- reducing certain costs to get it back to the wellhead. And your
trip is a little further than ARCO's trip, and so the -- the net
back is going to be more favorable, hence, the royalty and -- and
the downstream to, as far as the state is concerned."
MR. CAMPBELL responded that he would be speculating if he were to
say more. "Who's to say where the marketplace will go into the
future." He reiterated again that those prices are set by the
global marketplace.
Number 2174
REPRESENTATIVE OGAN referred to the LNG project and the working
group that was formed, which many have a fair amount of anxiety
about. He recalled a meeting with Mr. Campbell, a couple months
ago, during which Mr. Campbell presented a series of charts and
explanations regarding his view of the world market. He was left
with the impression that BP was at least pulling its person out of
Alaska and returning to London. Representative Ogan commented that
many have invested a lot of time over the past couple of years in
developing legislation which spurred the LNG working group, of
which ARCO's a part of now. He asked if the gas pipeline, the LNG
gas pipeline is dead.
MR. CAMPBELL indicated that there is interest in commercializing
all that gas on the North Slope which could happen with LNG, with
gas-to-liquids, with converting it into electricity and bringing it
down by wire out of the North Slope. He believed that the
combination of BP-Amoco and ARCO brings two sets of thinking to
this as well as additional resources. Mr. Campbell pointed out
that BP-Amoco has already committed to building a gas-to-liquids
plant there, which follows one potential course of
commercialization. Furthermore, BP-Amoco is committed to the LNG
sponsor group. Mr. Campbell expressed excitement with regard to
the commitments placing the center of BP-Amoco's gas technology
into Alaska. Although that's relatively small in terms of people,
20 to 25 people, it is all of the expertise that BP-Amoco has in
the gas technology in Alaska. Mr. Campbell assured the committee
that he was going to make sure commercializing North Slope gas is
on the top of that agenda.
TAPE 99-13, SIDE B
Number 0001
REPRESENTATIVE OGAN interpreted that to be in direct competition
with Alaska for which he had some serious concerns. He identified
natural gas as "the ace in the hole in Alaska on the North Slope."
MR. CAMPBELL pointed out that there are going to be gas
developments around the world that will be in competition with
Alaskan gas. Mr. Campbell identified BP-Amoco's task, through
whatever means, as attempting to make Alaskan gas as competitive as
possible. To that end, BP-Amoco will certainly work with "you."
Number 0117
REPRESENTATIVE OGAN expressed concern that internal competition may
be a larger factor than before.
MR. CAMPBELL agreed that internal competition will be present. He
reiterated that his task is to ensure that he does everything
possible to present the case for Alaskan gas. The combination of
BP and Amoco brings a lot of new LNG expertise into that joint
company, given the involvement that Amoco had in LNG. He assured
the committee that BP-Amoco is determined to present the case for
Alaskan gas.
REPRESENTATIVE OGAN turned to what the larger picture would look
like with regard to BP-Amoco's natural gas holdings worldwide,
assuming the merger goes through.
MR. CAMPBELL agreed to provide that information, but wasn't sure he
could do so in its entirety today. He stated that, globally, gas
will represent about 35 percent of our production.
Number 0252
CHAIR BARNES commented that she sees additional competition in the
marketplace for gas with the merger. Chair Barnes believed that
ARCO sought a willing buyer not because ARCO wasn't making money in
Alaska, but rather they couldn't finance other projects around the
world, such as Tan Gu(ph). She recalled that the Tan Gu(ph)
project "has about 11 trillion cubic feet of gas at the onset to go
into a marketplace, which, obviously, displaces some of the 14
million metric tons a year that we, as Alaskans, would have to put
into a gas market if we were going with a natural gas pipeline. "
She then turned to the working group. When ARCO put together the
working group, they came up with the four other partners in
addition to themselves. Both BP and Exxon refused to participate,
and showed no inclination to ever support this working group.
Chair Barnes expressed her belief that it is in Alaska's interest
not to build a gas-to-liquids project at Prudhoe Bay, but rather to
take Alaska's gas to the market down the gas pipeline and out by
tankers into the Asian marketplace. She said, "Now, I want you to
tell me how, with these new holdings you have, plus I think you've
put $11 billion into Australia, that you will look at bringing
Alaska's gas into an Asian marketplace where I believe that is the
only effective place for us to take our gas. And I know that
you're going to say gas-to-liquids, $70 million. I don't think
that means anything to Alaska."
MR. MEYERS turned to the question of why did ARCO do this deal.
He said, "ARCO did not do this deal because we weren't making
money. We had a sound balance sheet. We were making money. The
company was not bankrupt. That was not the issue behind doing the
deal." He agreed with the Chair, in that ARCO wasn't driven to do
a deal because of Alaska. ARCO is very proud of Alaska and what it
has accomplished here, although the same cannot be said worldwide.
He identified the driving force behind this deal as simply the
return to ARCO's shareholders. Upon review of ARCO's performance
and comparison to competitors in the industry, ARCO's performance
has lagged the last few years. He reiterated that the impetus was
what could ARCO do to improve the return to its shareholders. That
resulted in ARCO looking for numerous options, which eventually led
to the conclusion that a merger was the best direction to head. He
felt that information would be helpful for the committee to
consider, although that doesn't answer the Chair's main question.
Number 0560
MR. CAMPBELL disagreed with the Chair "on the worth of $70 million
gas-to-liquids plan on the North Slope of Alaska because I think
bringing that technology here, proving that technology here is a
step forward in investigating whether gas-to-liquids can be part of
commercializing gas on the North Slope for -- for Alaska." He
acknowledged that there is an awful lot of gas on the North Slope.
He pointed out that gas-to-liquids can be done in a modular way.
A plant can be built using 300,000 million [indisc.] cubic feet of
gas per day, which can be added to incrementally. Furthermore, the
existing pipeline could be used as well as Alaskan industry to
build the equipment in Alaska. "LNG requires ... a gas line that
will cost an awful lot of money." He noted that, in terms of
construction, the boom will be short and will not provide ongoing
construction jobs in Alaska.
MR. CAMPBELL turned to Tan Gu(ph) which he said will remain a
competitor for Alaskan gas when it's part of the BP-Amoco
portfolio, as it was when owned by ARCO. Furthermore, there will
be internal competition inside BP-Amoco between those two projects
that will remain. He commented, "We need to work with you to
ensure that the Alaskan gas is going to be more competitive and
that's going to be done through a mechanism of the gas sponsor
group, and whatever other issues and ideas we have between us to
ensure that that is a more competitive scheme."
CHAIR BARNES inquired, with regard to Mr. Campbell's statement that
BP would bring a $70 million gas-to-liquids plant to Prudhoe Bay in
order to try out the technology, as to how many years that would
take.
MR. CAMPBELL clarified that the plant may not be located at
Prudhoe, but will be on the North Slope somewhere. He believed
that the life of that sort of pilot plan will be about 18 months,
in terms of proving the technology at that scale. He specified
that he was referring from the time starting it up.
Number 0753
CHAIR BARNES commented that therein lies the problem. If BP-Amoco
is given 18 months to try the technology, how long does it take to
build the plant; perhaps, that's a three-year period. She pointed
out that in order for Alaskan gas to get into the marketplace and
be competitive, it must occur as early as 2005, and certainly not
later than 2007. Therefore, if this gas-to-liquids project is
allowed to continue without getting Alaska's gas into the
marketplace via pipeline, Alaska is dead in the water. Chair
Barnes didn't believe there is enough time to have BP attempt the
gas-to-liquids process and get Alaska's gas to market through the
pipeline, in a timely fashion, in order that Alaska can be
competitive in the world marketplace.
MR. CAMPBELL expressed his preference to view the work on
gas-to-liquids as something that occurs parallel with the work on
LNG, not at the expense of work on LNG. He reiterated that there
is an awful lot of gas on the North Slope. He used LNG as an
example, in that BP wants to start the LNG project in a relatively
small way and build up the sales. This isn't an either or situation
in his mind, or in the mind of BP.
MR. MEYERS said that Mr. Campbell has hit upon the strategy with
the sponsor group. He explained that one of the sponsor group's
goals is to try to develop a scheme by a smaller project which can
penetrate the market earlier, and then build from there. It is
difficult to place 14 million metric tons a year. Therefore, we're
attempting to find that minimum feasible project scope in order to
penetrate the market and start building from there. At the same
time, ARCO is also looking at its own GTL technology. He agreed
with Mr. Campbell that it doesn't have to be an either or
situation. At this point, from ARCO's perspective, both are worth
maintaining parallel paths.
CHAIR BARNES recalled that Mr. Campbell said that BP would put $5
billion into the North Slope over five years, which is a billion
dollars a year. "I would like to understand how we can have that
guarantee from you. I would also like to understand, just as we
got a guarantee on North Star, I would like it through the state,
in writing from BP, if this merger goes through, that you will --
you will use Alaska workers, Alaska contractors, to the greatest
extent possible. I don't want anymore modules built in Canada and
floated up the McKenzie River. So, I would like to know how you
will assure that these things are going to take place."
MR. CAMPBELL addressed North Star by saying that BP has done
everything it can to fulfill its obligations on North Star. He
said that he has spent $140 million on North Star to this point.
CHAIR BARNES acknowledged that U.S. Fish and Wildlife is holding up
the permitting project. She clarified that she was inquiring as to
how Alaska could receive the same assurances in writing as received
on the North Star project. How can Alaska receive assurances that
once BP becomes this huge operator at Prudhoe Bay, that it will
utilize Alaskan workers, contractors and buy Alaska.
MR. CAMPBELL stated that he would stand on BP's record, in terms of
Alaska purchase and Alaska buy which he believed to be a very good
record. He informed the committee that 85 percent of all the work
BP does on these projects is done in Alaska with Alaskan
contractors.
CHAIR BARNES commented, "Well, let's have BP stand on your record
since you've been here. It has not always been so good because we
are all very ... very aware of the airplanes that fly both ways."
She recalled the out-of-state workers that flew both ways and
reiterated the need for some assurances.
MR. CAMPBELL stressed that policies have been put in place whereby
anyone who works for any new employee of BP-Amoco in Alaska must be
an Alaska resident. He agreed that occurred about a year ago.
Furthermore, there have been incentives to get those people who do
commute to move back into the state.
Number 1085
REPRESENTATIVE PHILLIPS asked Mr. Campbell, "How do you perceive
yourselves to be competitive in Alaska, and how does this new
company view, or what is the philosophy of not having a competitive
market to operate in, in Alaska?" She inquired as to who the new
company, which would own almost all the resource, would be in
competition with in Alaska not worldwide. If BP is positioning
itself to be more competitive in the Twenty-first Century, who will
it compete with?
MR. CAMPBELL clarified that the latter portion of his earlier
comments about competitiveness were aimed at Alaska being
competitive within a BP-Amoco world, and competitive in the sense
of attraction of additional investment into Alaska. Clearly, BP
has made the commitment that it is going to spend $5 billion over
the next five years. That commitment reflects BP's confidence that
efficiencies will be achieved and BP will be competitive. As
evidenced by the last lease sale in Cook Inlet, Alaska is
competitive. He acknowledged that there are differences between
Cook Inlet and the North Slope. He noted that although it is an
extremely expensive place to operate, there are other companies who
are working there, who are partners with BP. There are also
companies who are working there independently. He believed it is
a competitive environment.
REPRESENTATIVE PHILLIPS emphasized that Mr. Campbell's comments
address a concept that Alaska may not have not looked at; that is
Alaska, as a state, has not looked at itself as having to compete
in the global market. She said that notion deserves more
conversation at a later date.
REPRESENTATIVE PHILLIPS recalled Mr. Campbell's statement that the
combined offshore exploration holdings of both companies will
exceed the amount allowed, but BP is prepared to reduce that amount
to comply with state limits if the state so desires. She asked if
Mr. Campbell had made any determination on that yet. With regard
to the comments pertaining to partnering with independents, she
asked if Mr. Campbell had made any serious agreements with any of
these independents at this time. She also asked whether Mr.
Campbell had made the determinations on getting rid of those lands.
MR. CAMPBELL stated that until all the information regarding the
ARCO holdings is available, it is difficult to conclude any study
on what acreage to relinquish. He reiterated the possibility, in
terms of diluting down the interest that would be held by the joint
company, of diluting individual licenses with other companies. In
other words, rather than giving it all up, one could reduce one's
interest by bringing other people in. Mr. Campbell clarified that
he would like to bring that into the conversation with the state,
but he noted that he has not had such conversations with other
companies.
REPRESENTATIVE PHILLIPS commented that she would like to follow-up
on that in the future.
Number 1367
REPRESENTATIVE GREEN expressed excitement "that there were two fab
sites, or other than truckable modules." He asked, "As you move
into these other areas that don't have the larger infrastructure,
do you see maintaining activities in both places? Will they be
concentrated, perhaps, more in one area? Or even a more basic
question, do you anticipate continuing to try and build modules in
Alaska as opposed to going to Louisiana, some other place, or maybe
even some new -- new fab site?"
MR. CAMPBELL said that he believed it to be inherent to BP's
commitment to Alaska-build to encourage additional work in those
yards in Alaska. He indicated the preference of competition in
that. He pointed out that the investment in the North Star yard
allowed the opportunity for those modules to actually be built in
Alaska. That project is progressing in a very positive manner.
He commented that the local industry has illustrated what it can do
and, therefore, is competitively placed for additional work in the
future.
MR. MEYERS pointed out that although ARCO operates the MIX project
on behalf of the Prudhoe Bay unit, BP-Amoco pays 50 percent of the
bill for that project. Therefore, BP-Amoco is the major investor
in the MIX project which some may not realize. Mr. Meyers
identified another part to Representative Green's question with
regard to how busy those yards will be in the future. Regardless
of the entity, there must be new projects in order to keep the
yards busy; new fields have to be found. He explained that
sea-lift modules are large modules, that are only built for 100
million barrel fields and up. The smaller fields can be
accommodated with truckables. He informed the committee that in
order to have large fields, one must have continued access to
acreage. In that sense, the area wide lease sale program plus the
potential resumption of leasing in the NPR-A are good news as is
the potential for mother nature to place oil underneath that
acreage. However, new discoveries must occur in order to keep
those yards filled.
REPRESENTATIVE GREEN commented that he understood the economic
issue, that it's a matter of dollars. Representative Green turned
to the earlier reference to Alaska jobs. He reviewed what happened
over the downsizing years that were experienced with the low crude
price; the merger poses even more lost jobs. When those jobs are
reduced significantly, there's a lot less money in circulation in
the full economy of the state. Although Representative Green
recognized this is a matter of economics, he asked if there will be
a continuation of hiring Alaskans for those jobs left, or will
some out-sourcing occur as is the case with the accounting in
Colorado.
Number 1581
MR. CAMPBELL explained out-sourcing is a way of supplying services
which BP-Amoco utilizes. He acknowledged that BP-Amoco has
out-sourced IT and accounting. However, that doesn't mean that
jobs leave the state, but rather people are transferred from being
employed by ARCO or BP to being employed by somebody else. He said
that he would certainly be looking at the IT area and the
accounting area in terms of out-sourcing.
CHAIR BARNES directed discussion to the MIX module. She
understood that module came in under budget and it's production is
about 110 percent of what it would have been in the Lower 48. If
those are correct figures and Alaska has the fields to develop,
then can Alaska depend on having, whether it be truckables or
sea-lift modules, it built in Alaska.
MR. MEYERS clarified that he hasn't seen the most recent numbers,
but in general the Alaskan workers working at the MIX module have
at least equaled the productivity of those in the Gulf of Mexico.
He noted that there has been discussion regarding the construction
of these really large modules, sea-lift modules, which are about a
2,700-ton module(a nine-story building that moves). One of the big
questions revolved around the weather for working conditions which
is a little nicer in the Gulf of Mexico year around than in Alaska.
Furthermore, could Alaska be as productive? So far, Alaska has
been as productive. Although he reiterated that he hasn't seen the
most recent numbers, he said that he wouldn't be surprised if
production is up to 110 percent now.
MR. MEYERS said that another issue revolved around whether Alaska
would be competitive in terms of a profit basis. He answered yes;
the Alaska contractors, especially those involved with the MIX
project, have worked to make themselves competitive. With regard
to labor rates, as a whole there tends to be higher labor rates in
Alaska which the other two components sort of have to work against.
However, if the productivity's there and one works with the company
in the profit component, he believed Alaskan contractors, as
evidenced by the MIX module, are competitive with the Lower 48. He
described the MIX project as a well designed, well managed, well
engineered project. Similarly, when ARCO has confidence that
Alaskan contractors are going to perform they get the work.
However, the company has an obligation to its shareholders, so if
there's any question about their ability to perform, the company
has to do what's right for its shareholders.
CHAIR BARNES commented that committee members have an obligation to
their shareholders as well. She indicated that Alaskans not only
want a fair market return for their resources, but they also want
to provide jobs and services to Alaskan workers. Chair Barnes
turned to her previous question, how can Alaskans ensure that $5
billion will be spent over five years? She said that such comments
make one inclined not to be as watchful as one should be.
Furthermore, when there are only two real players, the merged
BP-Amoco ARCO and Exxon, there is reason to be concerned and to
protect our shareholders' interest.
MR. CAMPBELL reiterated that the MIX project is a very efficiently
done piece of work and places the Alaskan contractor in good stead
in competing for ongoing work in the state. He commented that he
believed there are more than the two companies that the Chair
mentioned involved in making decisions about what happens in terms
of giving contracts. BP has partners and there are other
independents who are working. Mr. Campbell pointed out that the
committee not only has his commitment of BP-Amoco in terms of
capital expenditure over the next five years, but also the
commitment of BP-Amoco's managing director. He was unsure how much
farther he could go in ensuring everyone that BP-Amoco's managing
director meant what he said.
Number 1884
REPRESENTATIVE PHILLIPS recalled Mr. Campbell's remarks with
respect to honoring all current agreements with ARCO's contractors
and suppliers, and to treat all business partners with dignity and
respect. She asked if BP has placed a time limit on those
contracts with regard to how long they will be honored. In other
words, if a person has a three-year or a four-year contract with
ARCO right now, would BP honor the contract for the length of the
contract?
MR. CAMPBELL responded that the contract would be honored for the
length of the contract.
REPRESENTATIVE PHILLIPS referred to U.S. Senator Roth's recent
introduction of a bill to permanently lock up ANWR for development.
She was sure that will be a major issue for debate in the new
organization, and Alaska will want to be a partner with you on this
in order to ensure that this bill is not passed. She requested
both Mr. Meyer and Mr. Campbell comment.
MR. MEYERS stated that it is not in any of our interests to have
ANWR locked up. He commented that the industry has demonstrated
that it can develop and protect the environment. Furthermore, he
believed it to be in the best interest of all Alaskans to see that
development move forward. Therefore, from ARCO's perspective,
ARCO does not want to see ANWR locked up.
MR. CAMPBELL reiterated that BP will be at the NPR-A sale. He
noted that BP has had a long-run interest in ANWR and, "We will be
with you and that will be an effort."
REPRESENTATIVE PHILLIPS commented that as a state, Alaska has spent
a tremendous amount of money lobbying for ANWR over the years. "We
will want to make sure that you're there with us lobbying in D.C.,
against this."
Number 1988
REPRESENTATIVE JOULE asked if building modules in Alaska for other
locations, for projects like Sakhalin, is doable.
MR. MEYERS said that projects such as Alpine being built in Nikiski
and MIX being built in Anchorage, have demonstrated that the
Alaskan work force can build modules effectively. However, the
success in the world marketplace depends upon their
competitiveness. He noted that just as Alaska wants Alaska hire,
those in Sakhalin would want their modules built in Sakhalin.
Therefore, Alaskan fabricators are going to face the same regional
desire to have modules built locally, but they will also have to
compete. Alaska will have to compete against locally built modules
in Sakhalin, as well as Malaysia, Indonesia, Singapore, and Korea.
Mr. Meyer said that he didn't know the module-building business
well enough to discuss Alaska's competitiveness and deferred to the
experts.
REPRESENTATIVE KERTTULA inquired as to the efforts being made to
keep the ARCO employees working for BP.
MR. CAMPBELL commented that, at this point, about 400 redundancies
would result from the combination of the two companies. He
believed those redundancies will be largely in Anchorage while the
affect on the North Slope will be relatively small. Currently,
there are about 900 ARCO employees and about 400 BP employees on
the North Slope. Therefore, in the combined company there will be
far more ARCO people than BP people in terms of jobs on the Slope.
Mr. Campbell predicted that the combination of the two companies
would result in a mix of employees that's approximately 50 percent
from BP-Amoco and 50 percent from ARCO.
REPRESENTATIVE KERTTULA asked if there will be any assistance for
those BP and ARCO employees, who wish to relocate within Alaska ,
who are going to lose their jobs.
MR. MEYERS echoed Mr. Campbell's comments that the majority of
ARCO's employees will have a job with the new entity. He commented
that during this process, one of his jobs is to make sure that the
number of ARCO employees increases.
TAPE 99-14, SIDE A
Number 0001
MR. MEYERS informed the committee that there are a choice of four
packages to choose from. The minimum package consists of a
six-months salary, from there it becomes more generous. He
explained that there are four packages because some of ARCO's
employees are nearing retirement age and may prefer an enhanced
retirement package as opposed to a lump sum cash payment. With
regard to the relocation aspect, Mr. Meyers was not sure of that
yet. He emphasized that in the past, ARCO's policy has been to
relocate people at least to the point of their origin or an
equivalent distance. However, Mr. Meyers stressed that he hasn't
seen the final details.
MR. CAMPBELL added that the BP-Amoco package is similar.
Number 0136
REPRESENTATIVE OGAN asked Mr. Campbell whether it is true that BP
is paying a rather generous premium to the stockholders of ARCO for
this merger.
MR. CAMPBELL explained that the deal "is an all paper deal whereby
ARCO stockholders will obtain shares in BP-Amoco." He said that,
in line with the marketplace, a premium will be paid, and the level
of that premium will depend upon what the relative share prices are
on that day. He recalled that the day the deal was struck, the
premium was about 20-25 percent which falls in line with other
deals done in the industry.
REPRESENTATIVE OGAN inquired as to whether BP is open to discussing
a premium for Alaska.
MR. CAMPBELL said, "I didn't know Alaska was for sale." Mr.
Campbell commented that he was not sure that he understood
Representative Ogan's question.
REPRESENTATIVE OGAN indicated that BP had to have done something to
sweeten the deal for the stockholders of ARCO. Representative Ogan
said, "You know, Alaska is for sale. We -- we -- we sell our --
the rights to our -- our oil, you know, in our royalty and do a lot
of business, and I just thought maybe see if the door was even open
for a discussion ... sweeten the deal for us."
MR. CAMPBELL pointed out that a large portion of the $26 billion
that is being paid in this deal is in relation to Alaskan assets,
"which we are going to invest a lot of money in developing." He
said, "I think that will ensure an efficient oil industry in Alaska
for the long run, and will sustain production. I think that's
where Alaska wins out."
MR. MEYERS explained that part of the reason these transactions can
occur is because redundancies will be removed from the system.
The cost reductions taken will result in increased earnings to the
shareholders. Therefore, care must be taken when using the word
premium. Mr. Meyers said that he couldn't comment further because
the process is in the quiet period. However, he noted that this
merger will result in a significant reduction in cost; as BP has
quoted, about $1 billion a year. In part, that reduction can
justify what Representative Ogan referred to as the premium.
Number 0392
REPRESENTATIVE GREEN acknowledged that Mr. Meyers and Mr. Campbell
are upstream types. He posed a situation in which ARCO became the
number one marketer in California and performed a marketing ploy
that was very effective. The marketing ploy eliminated credit
cards and reduced the price of their product. Representative Green
understood that BP sold their marketing in the Northwestern area.
He asked if there was any feel as to whether BP would market in
such a case, under ARCO, or their own brand, or a different brand?
This all returns to whether there will be this continued strong
emphasis on North Slope crude being refined and sold on the west
coast.
MR. CAMPBELL answered that he did not know. He reiterated that it
is a global marketplace and the conditions will be set by global
competition.
CHAIR BARNES commented that there are several areas that have not
been covered such as pipeline ownership, tankers, and how the
company would divest itself of the additional acreage if required
to do so. Chair Barnes announced that she did not wish to keep Mr.
Campbell or Mr. Meyer any longer this evening, but would entertain
having them return again. She indicated the need to ensure that,
whatever happens, everyone continues to have a good working
relationship and that the interest of Alaska's stockholders are
protected. She viewed Prudhoe Bay as now having only Exxon and BP
and Alaska doesn't have the same relationship with Exxon as it does
with BP and ARCO. Exxon does not have much of a presence in
Alaska. Chair Barnes thanked Mr. Campbell and Mr. Meyers.
REPRESENTATIVE PHILLIPS expressed appreciation of the
forthrightness of the answers today. She expressed the need to
further discuss Alaska's relationship in the future of the global
market as far as Alaska being that partner, or that player.
REPRESENTATIVE GREEN also appreciated the candid nature of the
answers today.
CHAIR BARNES asked if any other legislator had any further
comments. She thanked Mr. Campbell and Mr. Meyer again.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on World Trade and Federal/State Relations
meeting was adjourned at 6:48 p.m.
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