Legislature(2013 - 2014)SENATE FINANCE 532
01/27/2014 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Commercial Agreements for Alaska Lng Project; the Heads of Agreement | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
January 27, 2014
9:09 a.m.
9:09:45 AM
CALL TO ORDER
Co-Chair Meyer called the Senate Finance Committee meeting
to order at 9:09 a.m.
MEMBERS PRESENT
Senator Pete Kelly, Co-Chair
Senator Kevin Meyer, Co-Chair
Senator Anna Fairclough, Vice-Chair (via teleconference)
Senator Click Bishop (via teleconference)
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson (via teleconference)
MEMBERS ABSENT
None
ALSO PRESENT
Angela Rodell, Commissioner, Department of Revenue; Joe
Balash, Commissioner, Department of Natural Resources;
Michael Pawlowski, Deputy Commissioner, Strategic Finance,
Department of Revenue; Senator Hollis French; Senator Bill
Wielechowski; Senator Charlie Huggins.
PRESENT VIA TELECONFERENCE
Daniel Fauske, President, Alaska Gasline Development
Corporation.
SUMMARY
PRESENTATION: COMMERCIAL AGREEMENTS FOR ALASKA LNG PROJECT;
THE HEADS OF AGREEMENT
9:13:17 AM
^Presentation: Commercial Agreements for Alaska LNG
Project; the Heads of Agreement
9:13:21 AM
ANGELA RODELL, COMMISSIONER, DEPARTMENT OF REVENUE,
explained the binder, "A Roadmap to Production of North
Slope Gas" (copy on file). She stated that the day's
discussion would highlight the Heads of Agreement for the
Alaska Gasline Development Corporation (AGDC) and
TransCanada. She felt that the project was very important
and exciting for Alaska.
9:15:47 AM
JOE BALASH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
stated that the bodies of agreement were an alignment of
the parties to bring the gas to market, and provide
expertise. He stated that there were key differences in the
liquid natural gas (LNG) project. He stressed that there
were some regulatory issues. He explained that the findings
of the study contributed to the decisions that were
included in the analysis and agreements. He stated that the
main result of the study was the relationship between the
state and the producers, and highlighted some differences.
Commissioner Balash continued to discuss the basic notions
of the "Heads of Agreement" document (copy on file). He
stated that the presentation would include the broad
aspects of the Heads of Agreement (HOA). He remarked that
the HOA demonstrated a fundamental shift in approach. The
state would assert an equity interest in the resource, and
take control of the terms of financing the state's share of
the infrastructure. He felt that the shift would pay huge
dividends to the people of Alaska and to the treasury over
time. He stated that terms and conditions would be
discussed in a broad sense, but would be utilized on a
phased approach. He explained that there would be a set of
broad terms presented, and would seek approval to advance
into the next phase of development and commercialization.
There were many broad things that matter to Alaskans,
regardless of approach or projects: getting liquid natural
gas (LNG) to communities and businesses; identifying terms
that would ensure that Alaskans get jobs associated with
the development of the project; and maximizing value as a
resource owner and incentivize additional exploration and
development beyond the proven resource. He stressed that
the HOA would achieve each of those goals and objectives.
He encouraged the committee to focus on the provisions in
Article 6, which was directed to the regulatory and access
terms for instate use. He stated that page 16, Article 11
outlined the provisions specific to Alaska Hire, training,
and workforce development. He explained that Appendix A
spoke to the principles for expansion of the project.
9:23:16 AM
MICHAEL PAWLOWSKI, DEPUTY COMMISSIONER, STRATEGIC FINANCE,
DEPARTMENT OF REVENUE, presented the PowerPoint, "Heads of
Agreement, a Presentation to the Senate Finance Committee"
(copy on file). He stated that the purpose of the
presentation was an explained of how to read the HOA
document, which was a broad roadmap for the development and
commercialization of North Slope LNG. He stated that there
were some nuances, so he wanted to methodically explain
each section in order to feel comfortable with the
document.
Mr. Pawlowski discussed slide 2, "What is a Heads of
Agreement?"
Definition:
"A non-binding document outlining the main issues
relevant to a tentative partnership agreement. Heads
of agreement represents the first step on the path to
a full legally binding agreement or contract, and
serves as a guideline for the roles and
responsibilities of the parties involved in a
potential partnership before any binding documents are
drawn up."
9:25:24 AM
Mr. Pawlowski looked at slide 3, "The Heads of Agreement is
for the Alaska LNG Project." He stated that the slide was
intended to explain the large scale of the project and its
components. He stated that previous efforts by the state to
commercialize North Slope gas had focused on two of the
components: a treating plant and a pipeline. He stressed
that an LNG project was more complicated by the inclusion
of the liquefaction plant and a storage and loading
facility. He stressed that it was a world class and world
scale project.
Mr. Pawlowski discussed slide 4, "Organization of the Heads
of Agreement."
The Heads of Agreement (HOA) is broken into 16
sections that include:
-Recitals of recent events and understandings between
the parties.
-13 Articles covering guidelines for the development
of the project and the roles and responsibilities of
the Parties to the agreement.
-An appendix articulating access and expansion
principles for the project.
-An exhibit that provides copies of the 3 letters to
Governor Parnell from the Producer Parties and
TransCanada.
Mr. Pawlowski highlighted slide 5, "Guide to who is being
referred to the in Heads of Agreement."
"The Administration"
Includes:
-Department of Natural Resources (DNR)
-Department of Revenue (DOR)
References may also be made to "Commissioners" or the
"State" in the HOA.
"The Parties" or "Party"
Includes:
-The Administration
-The Alaska Gasline Development Corporation
("AGDC") or an AGDC Subsidiary
-TransCanada Alaska Development Inc. ("TADI")
-ExxonMobil Alaska Production Inc. ("EMAP")
-ConocoPhillips Alaska, Inc. ("ConocoPhillips")
-BP Exploration (Alaska) Inc. ("BP")
Mr. Pawlowski explained slide 6, "Guide to who is being
referred to in the Heads of Agreement."
"Alaska LNG Parties"
Includes:
-The Alaska Gasline Development Corporation
("AGDC") or an AGDC Subsidiary
-TransCanada Alaska Development Inc. ("TADI")
-ExxonMobil Alaska Production Inc. ("EMAP")
-ConocoPhillips Alaska, Inc. ("ConocoPhillips")
-BP Exploration (Alaska) Inc. ("BP")
"Producer Parties"
Includes:
-ExxonMobil Alaska Production Inc. ("EMAP")
-ConocoPhillips Alaska, Inc. ("ConocoPhillips")
-BP Exploration (Alaska) Inc. ("BP")
9:30:31 AM
Mr. Pawlowski highlighted slide 7, "Key Recitals."
1. Recognizes changed circumstances in the Lower 48
natural gas markets led Governor Parnell to call for a
change in direction, under AGIA, in the development of
North Slope Gas to an LNG project.
2. Recognizes funding by the State under AGIA has
supported key activities for the LNG project but that
both the Administration and TransCanada believe it is
appropriate to transition from the AGIA license to
focus on the Alaska LNG project.
3. Recognizes that AGDC is pursuing the Alaska Stand
Alone Pipeline ("ASAP") project and that the Alaska
LNG project and ASAP intend to cooperate with one
another.
4. The Alaska LNG Parties wish to ramp up the Pre-FEED
phase of the Alaska LNG project, which is estimated to
cost over $400 million.
Recitals:
The purpose of the Recitals section, found on pages 2
through 4 of the Heads of Agreement, is to provide
context for the agreement, describe recent events and
articulate certain roles, goals and direction for the
Alaska LNG Project and Alaska Stand Alone Pipeline
("ASAP") project currently being advanced by the
Alaska Gasline Development Corporation (AGDC).
Mr. Pawlowski discussed slide 8, "Key Definitions."
1. "Enabling Legislation" describes the key components
of legislation (described in more detail in Article 7)
necessary to advance the project.
2. "MOU" refers to the agreement, referenced in
Article 5.4, between TransCanada and the
Administration to transition from the AGIA license to
a commercial relationship.
3. "Pre-FEED" means the pre-front-end engineering and
design work and activities for the Alaska LNG project
that are sufficient to support filings for the Federal
Energy Regulatory Commission (FERC).
4. "RIK" means Royalty in Kind as described in Article
8.1.1, where in lieu of receiving payments for the
value of the State's royalty, the State takes a share
of the gas produced.
5. "TAG" means "Tax as Gas" as described in Article
8.1.1, where in lieu of receiving payments for
production tax the State would receive a share of the
gas produced.
Definitions:
Article 1 of the Heads of Agreement begins on page 4
and goes through page 7 of the agreement. In Article 1
a reader can find definitions for key terms used
throughout the agreement.
It is important to note that when a term is
capitalized in the agreement it is referring to a
specific term that is defined in Article 1.
Mr. Pawlowski displayed slide 9, "Key Provisions."
Article 2: Principles
1. Recognizes that if Enabling Legislation is
passed that the Parties would negotiate contracts
that would incorporate the principles in the
agreement.
Article 3: Benefits of the Alaska LNG Project
1. Gas to Alaskans: The opportunity for
competitively priced, reliable in-state gas
supply;
2. Jobs to Alaskans: Creating jobs for Alaskans
in the exploration, development, production and
transportation of natural gas.
3. Revenues to the State: Additional revenues to
the State.
4. Opportunities for additional gas development:
Infrastructure enhances opportunities for more
gas development.
Principles and Benefits:
Articles 2 and 3 of the Heads of Agreement are found
on page 8 of the agreement.
Article 2 describes how the Heads of Agreement sets
out the guiding principles upon which the Parties wish
to progress work on the Alaska LNG Project and a
roadmap for project.
Article 3 describes broadly some of the key benefits
of developing the Alaska LNG Project to stakeholders.
9:35:32 AM
Mr. Pawlowski highlighted slide 10, "Key Activities."
1. The development of sufficient information for
evaluating the technical, cost, and schedule aspects
of the Alaska LNG Project.
2. The development of key project services agreements
for the State's gas with TransCanada and AGDC (or an
AGDC subsidiary).
3. The Parties would work to develop mutually
agreeable gas offtake and balancing agreements.
4. The State and each of the Producer Parties would
initiate preliminary, individual LNG or gas sales or
shipping efforts.
1. This may also include the State (directly or
through AGDC or an AGDC subsidiary) working with
each Producer individually to develop agreements
for the disposition of a portion of the State's
LNG (Article 8.3.3).
Alaska LNG Project Work:
Article 4, found on pages 8 and 9 of the Heads of
Agreement, describes what work will be conducted
during the Pre-FEED stage of the project.
The Pre-FEED stage is expected to take between 18 and
24 months.
The Pre-FEED stage would be followed by a review by
each Party, its management and the decision to proceed
to the next stage ("FEED") would be up to each
individual Party.
Mr. Pawlowski discussed slide 11, "Putting Pre-FEED in
Context." He stated that the slide came from Exhibit 1-B on
page 32 of the HOA. He stated that the slide put the phases
into context. He noted that the concept-selection stage of
the project was almost complete. He pointed out that the
developments included several moments where each party made
the determination as to whether the project should proceed.
He stated that the Pre-FEED stage was expected to take
between 12 and 18 months and cost between $4 and $500
million. He remarked that once the Pre-FEED stage was
complete, the expectations of billions of dollars would be
utilized.
9:42:27 AM
Mr. Pawlowski highlighted slide 12, "Key Provisions."
1. State participation in the Alaska LNG Project could
yield significant benefits to the State including:
A. Maximizing the value of the State's resources
for the people of Alaska.
B. Deliver gas to Alaskans.
C. Public transparency of State's approval
process.
D. An opportunity for additional State revenues.
E. Access and pro-expansion principles for the
Alaska LNG Project.
F. Improving alignment of interests between the
State and the Producer Parties.
G. Reducing valuation and other potential
disputes between the Producer Parties and the
State.
2. State will participate in the infrastructure by
entering into agreements with TransCanada and a
Subsidiary of AGDC to carry the State's interest in
the infrastructure.
3. The State's interest should be consistent with the
State's share of the gas (20 percent-25 percent).
State Participation in the Project
Article 5 begins on page 9 of the Heads of Agreement
and concludes on page 11 of the agreement. The Article
describes broadly the reasons for State participation
in the Alaska LNG Project, the Parties support for
State participation and how the State would
participate in the project.
Additionally, Article 5 also describes how the
Administration would participate during the Pre-FEED
stage and provides principles for access to
information during the life of the project.
9:46:20 AM
Senator Hoffman wondered if the 20 to 25 percent would also
include 20 to 25 percent of the construction cost of $45 to
$60 billion. Mr. Pawlowski replied that the percentage
included the construction, with the key being the
investment in the infrastructure consistent with the share
of the gas.
Mr. Pawlowski displayed slide 13, "Key Provisions."
1. At least five Alaskan offtake points for Alaskans
to get their gas.
2. Locations of offtake points will be developed in
consultation with AGDC. AGDC's work on ASAP will
greatly benefit the State and Alaska LNG Project in
developing these locations.
3. Each Party's shares in capacity would be managed on
a proprietary basis; essentially creating "projects
within a project."
4. AGDC and TransCanada's shares of capacity in the
project are committed to provide access to third
parties on terms developed with the State.
Regulatory Framework, Access and Expansion:
Article 6 begins on page 11 and continues through page
12 of the Heads of Agreement. Article 6 describes the
Parties commitment, during Pre-FEED to advance the
Alaska LNG Project under Section 3 of the Natural Gas
Act.
The Article is designed to recognize the availability
of a tailored regulatory framework under Section 3 and
that the access and expansion terms developed for the
project would be consistent with Appendix A of the
Heads of Agreement.
9:49:40 AM
Mr. Pawlowski explained slide 14, "Why expansion principles
are important."
Alaska has significant gas resources on the North
Slope.
Current known reserves are 35 trillion cubic feet
(TCF); USGS estimates of technically recoverable
conventional gas resources are more than 240 TCF.
Pro-expansion guarantees Alaskan land beyond Prudhoe
and Pt. Thomson continue to be explored for gas and
that the gas will get into the line and benefit
Alaskans.
Mr. Pawlowski displayed slide 15, "Appendix A: Pro-
Expansion Principles."
A key foundation for Article 6: Regulatory Framework,
Access and Expansion is found in Appendix A (pages 21-
23) of the Heads of Agreement.
These principles provide high level principles
governing the expansion of any component of the Alaska
LNG Project.
The Appendix commits the Parties to the principle that
components of the Project (treatment plant, pipeline
etc.) can be expanded and a new LNG train can be
installed.
9:53:14 AM
Mr. Pawlowski highlighted slide 16, "Enabling Legislation."
Article 7 begins on page 12 and continues through page
13 of the Heads of Agreement. The article describes in
broad terms the necessary component of "Enabling
Legislation" that the Parties believe is necessary to
advance through Pre-FEED for the AK LNG Project.
The Article describes a two stage process where:
1. General take terms and mechanisms for State
participation are enacted during the 2014
Legislative session.
2. Project enabling contracts are returned to the
Legislature for review in a 2015 legislative
session.
The Timeline:
April 2014: Legislature passes enabling
legislation.
2014 - 2015: Administration and Alaska LNG
Project Parties develop project enabling
contracts, including, but not limited to,
agreements with TransCanada and AGDC for project
services for the State Gas Share, gas offtake and
balancing agreements with the Producer Parties,
and preliminary LNG or gas sales contracts.
2015: Legislature considers project enabling
contracts.
2015-2016: Parties decide whether to advance to
FEED.
Mr. Pawlowski explained slide 17, "Key Provisions."
Royalties and Production Taxes:
Article 8 which begins on page 13 and continues
through page 15 of the Heads of Agreement
describes changes to the State's royalty and tax
system that will facilitate progress on the
Alaska LNG Project by creating a predictable
State Gas Share.
The State Gas Share is the combination of royalty
in kind (RIK) gas and tax as gas (TAG) received
by the State for its Production Tax.
The Article also provides guidance for the range
of Production Tax (~7 percent-13 percent) that
the Parties believe will enable the Alaska LNG
Project to advance.
9:57:28 AM
Senator Dunleavy wondered if there was a provision to
prevent one party from backing out of the project. Mr.
Pawlowski replied that it was a part of the commercial
agreements that get developed during the Pre-FEED stages
resolving exactly what happens for a coalition of the
willing to proceed with participation in the project. He
stressed that the state would retain rights to assets that
allow the continuation of the project. He stressed that the
HOA highlighted why it was so important to keep the
project. He stated that there was a group of invested
parties, but there was no foregone conclusion.
Mr. Pawlowski continued to discuss slide 17:
1. Alaska Statute AS 38.05.182(a) provides that
"royalties on oil and gas shall be taken in kind
unless the commissioner (DNR) determines that the
taking in money would be in the best interest of the
state."
2. The November 2013 "Alaska North Slope Royalty
Study" performed by Black & Veatch identified
potential issues related to the State taking in-kind;
primarily those associated with marketing risk.
3. In Article 8.3.3 the Producer Parties commit, if
asked by the State to "negotiate separately with the
state in good faith to enter into an agreement with
the State regarding the purchase or other disposition
of a portion of the LNG that is made from the State's
deliveries (RIK + TAG) of natural gas to the Alaska
LNG project."
10:01:20 AM
Mr. Pawlowski looked at slide 18, "Key Provisions."
1. The Administration, in consultation with local
governments, will develop payments in lieu of property
tax and impact payments during construction for the
project.
2. Project enabling contracts negotiated between the
Parties will need to be of sufficient duration to
support investment decisions, permit realization of a
competitive economic return, to enable necessary
financing, and to support gas and LNG sales
agreements; all of which are needed by the State as
well as the Alaska LNG Project Parties to advance the
project.
3. General support for the development of necessary
infrastructure and other local, State and federal
permitting requirements.
4. A healthy, long-term oil business.
Other Project Enabling Terms and Additional State
Support for the Alaska LNG Project
Articles 9 and 10, found on page 15 of the Heads
of Agreement detail other terms necessary to
advance the Alaska LNG Project through Pre-FEED
and into FEED.
Those terms include a broad range of continued
State and stakeholder support at the local, state
and federal level for the project.
10:04:28 AM
Mr. Pawlowski highlighted slide 19, "Alaska Hire and
Content; Key Estimates."
Article 11 is found on page 16 of the Heads of
Agreement and provides key direction for the Alaska
LNG Parties in developing the project.
These include guidance to:
-Hire Alaska residents,
-Contract with Alaska businesses,
-Participate with the State Department of Labor
and Workforce Development to update training
plans and provide training, and
-Commit to negotiate in good faith project labor
agreements for the Alaska LNG Project.
Estimated Total Cost: $45 - $65 billion
Jobs:
Producing Fields: 500 - 1,500
Gas Treatment Plant: 500 - 2,000
Pipeline: 3,500 - 5,000
Liquefaction Plant: 3,500 - 5,000
Storage/Loading: 1,000 - 1,500
Peak Construction: 9,000 - 15,000
Operations: ~1,000 jobs in Alaska
Mr. Pawlowski looked at slide 20, "While North Slope gas
commercialization is challenging, working together, we can
maintain the momentum toward our shared vision for Alaska."
He stated that the photo on the slide was of Pt. Thompson.
He remarked that the development of the gas resource at Pt.
Thompson was a key foundational element for the Alaska LNG
project development.
Co-Chair Meyer wondered if there was a timeline in the
presentation. He specifically asked when construction would
occur. Commissioner Balash replied that there were
different phases of the project. He stated that the soonest
phase would occur in 2017 and the longest would be 2018 or
2019.
10:09:42 AM
Co-Chair Meyer stated that there was no discussion of the
actual bill, because the bill was in the Senate Resources
Committee. He expressed concern, because the discussion was
redundant. He felt that the issue was positive, because
there was a partnership between the state and the
producers. He remarked that there was some leverage with
the state's "bullet line." He wondered if there were any
other differences that could be added to the discussion.
Commissioner Balash replied that there were some key
distinctions with regard to why this project was different.
He specifically pointed out that the producers were
behaving differently. He remarked that the settlement
agreement for ending the dispute at Pt. Thompson called for
a couple of very key decision points. He explained that the
structure of the Pt. Thompson was an acknowledgement that
the acreage belonged to the State of Alaska, and if nothing
occurred the property was returned to the state. There was
a certain amount of time that the working interest owners
at Pt. Thompson had to get the field into production
initially and more fully develop the field. The initial
undertaking in the settlement agreement was to bring the
initial production system (IPS) online to produce
condensate through a cycling program, which must be put
into production to deliver hydrocarbons into the pipeline
by 2016. He stated that there would be a period of time
under which the working interest owners must commit to
develop and then commit to more fully invest in the field.
He stated that "fully invested field" was outlined in three
options: 1. expand the cycling program; 2. blow the field
down, and take the gas to Prudhoe Bay for increased oil
recovery; and 3. sanction a major gas sale project. He
stated that of those three options, the third option was
the greatest economic driver. He felt that because of third
option, the working interest owners were highly motivated
to keep the property at Pt. Thompson. He stressed that the
commitment must be made by 2019, which lined up well with
the timelines that had been presented.
Commissioner Balash furthered that Prudhoe Bay was a unique
hydrocarbon system that had produced billions of barrels of
oil, and had the promise to produce trillions of cubic feet
of gas. He explained that the gas had been re-injected for
the recent 20 years to recover more oil. He stated that,
historically, when the companies had evaluated various
opportunities to commercialize North Slope gas, they had to
take into account the oil that would not get produced, if
the gas was blown down and sold. When the company
calculated that particular loss of opportunity, it would
negatively affect the overall economics. The field
economics were currently approaching the turning point in
the field's economics; specifically in the recovery of gas
versus oil. The continued re-injection of Prudhoe Bay gas
would stop returning the same benefit that it had
previously. Therefore, the negative hit on the economics
from the loss of the economics of the oil was disappearing.
Vice-Chair Fairclough stated that she was going to go
offline, because she was boarding a plane.
Commissioner Balash stated that the profiles of oil
production in Prudhoe Bay and a gas blow down circumstance
resulted in the oil losses decreasing. This profile would
result in the desire to produce and sell the gas.
10:17:47 AM
Co-Chair Meyer stressed that the industry did not often
explore for oil, because typically the found gas was
stranded. He felt that the addition of a gas pipeline would
encourage more oil production.
Mr. Pawlowski remarked that the issue was not about what
might happen, but rather what was currently occurring. He
explained that the previous summer had a significant summer
field season conducted. He stated that the companies were
quietly perusing land acquisition for the LNG terminal. He
felt that there were present-day activities that gave more
promise than past activities.
10:19:00 AM
Senator Hoffman looked at slide 11, and noted that there
would be at most 17,000 jobs. He then looked at slide 19,
and noted that the number of jobs was 30,000. He wondered
where the discrepancy was in those numbers and how they
could be reconciled. He also looked at page 19, and
wondered if the Pre-FEED could be put into a concept
section. He wondered what the state was doing to prepare
Alaskans for the new jobs within the timeframe.
Commissioner Balash stated that there had been previous
efforts that prepared Alaska for the jobs. He stated that
there was a strategic workforce training plan that examined
the occupations that would be included in the various
stages of the project.
Senator Dunleavy remarked that there was new idea that gas
would become more valuable than using it as a vehicle to
get the oil out of the ground. He wondered how the efforts
to produce more oil would affect the long-use system of re-
injecting gas. Commissioner Balash responded that the
specifics for any investment decisions would vary case by
case. He stated that the legislature had recently
accomplished was to take what was a moving tax rate with
corresponding moving deductions and stabilized the horizons
so investments could be made with an eye to a longer term.
He stated that some of those decisions would go to the
infield activities at Prudhoe Bay to allow the decision
making to proceed in a more straight forward manner.
10:25:22 AM
Mr. Pawlowski furthered that it was important to
distinguish between the Prudhoe Bay initial producing area,
and the Prudhoe Bay unit. British Petroleum had discussed
the pilot project at the Sag River Formation, which was
another stratum of oil that was within the Prudhoe unit,
but not a part of where the gas was located. He stressed
that there were developments in the unit that were
different than the gas relationships, that he felt would
result in gas and oil production occurring simultaneously.
Co-Chair Kelly wondered if the construction of the project
would qualify for production tax credits. Mr. Pawlowski
replied that there were concerns regarding the definition
of "point of production" for the purposes of the production
tax. He stated that activities upstream of the point of
production were eligible for capital credits.
Commissioner Balash furthered that the way that
progressivity was calculated was related to Alaska's Clear
and Equitable Share (ACES). He stated that the tax rate
that changed under ACES was increased as a function of the
profitability of the oil on a per-barrel basis.
10:29:09 AM
Co-Chair Meyer surmised that most of the gas would be from
Pt. Thompson and blended with gas from Prudhoe Bay. He
wondered what the blended gas royalty would be.
Commissioner Balash replied that the royalties at Prudhoe
Bay were generally and mostly one-eighth royalties or 12.5
percent. At Pt. Thompson the royalties were mostly one-
eighth leases at 16 and two-thirds. He furthered that some
were one-seventh at 14 and six-sevenths. He stated that the
exact ratio for the project that depended on the decisions
made by the Alaska Oil and Gas Conservation Commission
(AOGCC). The operators of the fields would need to secure
off-take allowances from the commission, and those off-take
allowances would potentially be approved in different time
sequences. He stressed that Pt. Thompson had a tremendous
amount of gas at high pressure and would be capable of
rapid production.
Co-Chair Meyer queried the regulatory body that would
oversee the pipeline. Commissioner Balash responded that
the regulatory jurisdiction would be either entirely
Federal Energy Regulatory Commission (FERC) Section 3; some
combination of FERC Section 3 and Section 7; or FERC
Section 3 and Regulatory Commission of Alaska (RCA). He
stated that the jurisdiction of the respective agencies
would dictate that decision. He stated that the state would
see how FERC Section 3 could fit over the entirety of the
project and allow all of the goals of the state.
Co-Chair Meyer assumed that the partnership with
TransCanada would eliminate the AGIA license. Commissioner
Balash replied that the state had agreed with TransCanada
to terminate the license upon passage of the enabling
legislation.
Senator Dunleavy wondered what would happen with the
remaining money for that agreement. Commissioner Balash
replied that there was no obligation to reimburse the
remaining $170 to $200 million that was authorized under
the AGIA license. The information under the license that
had been developed under the license that was pertinent and
relevant to AK LNG would be contributed to AK LNG by the
licensee.
Senator Bishop stated that he would ask his questions in
person.
10:34:32 AM
Senator Olson wondered how far into the project the state
had to participate, before the state did not have the
ability to step away from the project. Mr. Pawlowski
replied that one of the defining characteristics of the
process was that there were multiple points along the path
where the state had the opportunity to take a step away
from the project. The state always had the ability to step
away, but the cost of stepping away would be higher as the
project develops, because the state had invested in the
project.
Senator Dunleavy looked at the AGIA agreement, and wondered
at what stage of the process that current agreement would
cease to exist and merge into this project. Commissioner
Balash responded that he and Commissioner Rodell had signed
an MOU with TransCanada. Under the AGIA statute, he and
Commissioner Rodell were vested with the authority to
abandon the AGIA license. He stated that they outline with
TransCanada stated that the process itself would involve
the passage of the enabling legislation, abandonment of the
license, and execution of a precedent agreement for
transportation service.
Senator Dunleavy surmised that it was a three step process.
Commissioner Balash disagreed, and furthered that the
agreement to terminate the license was triggered by passage
of the enabling legislation.
DANIEL FAUSKE, PRESIDENT, ALASKA GASLINE DEVELOPMENT
CORPORATION (via teleconference), stated that he had no
comments to contribute to the discussion.
ADJOURNMENT
10:40:17 AM
The meeting was adjourned at 10:40 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| headsofagreement senate finance.pdf |
SFIN 1/27/2014 9:00:00 AM |
Alaska LNG Project |
| 012714 Heads of Agreement Presentation Senate Finance revised.pdf |
SFIN 1/27/2014 9:00:00 AM |
Alaska LNG Project |