Legislature(2007 - 2008)BUTROVICH 205
01/23/2008 03:30 PM Senate RESOURCES
| Audio | Topic |
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| Start | |
| Conocophillips Presentation by Brian Wenzel | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 23, 2008
3:42 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Lesil McGuire
Senator Bill Wielechowski
Senator Thomas Wagoner
MEMBERS ABSENT
Senator Gary Stevens
OTHER LEGISLATORS PRESENT
Senator Gene Therriault
Senator Hollis French
COMMITTEE CALENDAR
ConocoPhillips Proposal to the State of Alaska
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
BRIAN WENZEL, Vice President
ANS Gas Development
ConocoPhillips
POSITION STATEMENT: Discussed ConocoPhillips AGIA application
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Resources Standing
Committee meeting to order at 3:42:05 PM. Present at the call to
order were Senators Stedman, Wielechowski, Wagoner and Huggins.
^ConocoPhillips Presentation by Brian Wenzel
3:43:13 PM
CHAIR HUGGINS announced the ConocoPhillips presentation and
noted three items from the administration, a letter from
ConocoPhillips Chair and CEO, James Mulva, on the application, a
critique of that and third, nine question posed by the
administration.
3:43:41 PM
SENATOR WAGONER asked if Mr. Wenzel could respond to the nine
questions in writing.
BRIAN WENZEL, Vice President, ANS Gas Development,
ConocoPhillips, said he could answer most of them today, but he
could provide written responses.
CHAIR HUGGINS said they prefer the later for clarification even
if he answers them today.
SENATOR STEDMAN noted the critique of ConocoPhillips application
from the administration, but it doesn't indicate who wrote it or
where it came from. He also noted another document submitted by
the administration that could have been written by anybody.
Considering the magnitude of the issue they are dealing with, he
said, the administration should clearly delineate what is coming
from them or anybody else so as public records are compiled over
the years they know who wrote them and where they came from.
CHAIR HUGGINS concurred. They should have a date, what the
source is and who produced it with an initial at a minimum.
"That's just good professional work."
SENATOR MCGUIRE joined the committee.
MR. WENZEL agreed. The purpose of the public roll-out is so that
Alaskans can realize there is an alternative path forward on
this project.
He started with why ConocoPhillips didn't come in with a
proposal outside of AGIA. It's because AGIA didn't provide
enough flexibility. "It wasn't going to allow us to present what
we felt was the most creative and best project, the best
proposal, to move this project ahead."
The bill became law without sufficient flexibility to allow
ConocoPhillips to put in that best proposal. It also passed with
a provision that said non-conforming applications would be
rejected. So, they were left in a situation where they couldn't
submit a conforming proposal because it wouldn't have been the
best one to move the project forward and they couldn't submit a
non-conforming proposal because they knew they would be
rejected; and that left them with one alternative which was to
submit a proposal outside of AGIA but on the same timing. They
viewed it as the best way to get to a successful open season and
a better path than going forward under AGIA. It was offered in
the vein of competition.
3:48:40 PM
Three important things about their proposal he said are:
ConocoPhillips isn't asking for a state contribution or any
portion of the $500 million, because that is inconsistent with
process of selecting a company that is going to cost $30
billion. Conversely, ConocoPhillips is offering to spend $400
million to $600 million of its own money to move forward to a
successful open season.
Second they want to involve a third-party pipeline company in
the ownership ranks of this pipeline - a non producer.
ConocoPhillips' interests might well be aligned with those of a
third-party pipeline company in terms of expansion.
3:51:50 PM
Third, he said, ConocoPhillips has made an overture to the
administration to sit down up front and set forth a gas fiscal
framework which is critical of moving to a successful open
season. The reason is ConocoPhillips as a pipeline developer
wouldn't be able to receive the necessary nominations at an open
season if some of the risks can't be mitigated. They want to
know what the tax rules would be and how often they would
change.
MR. WENZEL stated this project needs long-term firm
transportation commitments to get financing to build the
pipeline. He explained that the lenders have no interest in
having collateral in a piece of steel; they want to know that
someone is going to pay to move gas down that pipeline. He will
have to ask the shippers for a 20-25 year commitment to do that
- even if it costs more to get it out of the ground than they
can sell it for at the end of the pipeline or even if they can't
get the gas out of the ground in the first place. Their
commitment is day in and day out - to pay the tariff even if
they can't deliver the gas. It's this commitment from credit-
worthy shippers that will allow ConocoPhillips to finance this
project and get the pipeline built.
3:53:19 PM
SENATOR GREEN joined the committee.
3:54:24 PM
MR. WENZEL said ConocoPhillips realizes this gas project has to
move ahead and has elected not to condition it on oil fiscal
stability. This is different than before when the three
producers were working on proposals.
3:55:28 PM
SENATOR STEDMAN asked if the legislature's actions in moving the
structure of the oil tax up to a marginal rate in the 80-90
percent per barrel range lead ConocoPhillips to conclude there
is no reason to have oil fiscal stability on the table - because
you can't go much higher than the low 80s before getting to 100
percent of the marginal revenue.
MR. WENZEL replied that they were very disappointed by the
recent changes to the oil tax and felt it needed to be changed
again.
SENATOR WAGONER referenced ConocoPhillips partnering with
TransCanada on the Keystone Pipeline and asked if they had
talked to them about partnering on this project.
MR. WENZEL replied yes as well as with Enbridge. They are both
viable partners. However, their concern is with TransCanada's
withdrawn partners' liability of $9 billion even though
TransCanada has said it will not affect the tariff. He was still
very unclear about how it would affect a possible ConocoPhillips
partnership with them.
3:59:09 PM
CHAIR HUGGINS pointed out that Tony Palmer, TransCanada's vice
president of Alaska operations, was in attendance. Mr. Palmer
said in an interview that the liability would not be an issue
for the gas pipeline.
SENATOR WAGONER said he has been led to understand the $9
billion liability won't come into play and he thought that would
be the first talking point between ConocoPhillips and
TransCanada. He saw a five-legged stool forming to do this
project, but he saw just two legs talking to one another at this
point. The other two legs are the other two producers. He asked
if ConocoPhillips would bring the other two producers into the
talks and if they would be willing to come.
MR. WENZEL responded that his legal team is concerned about how
they get protected from the withdrawn partners' $9 billion
liability. He agreed with TransCanada's statements that it
wouldn't be in the tariff that would affect the royalty or
production tax value back to Alaska. He said:
However, at the end of the day, if there is any way
that that liability or if there's even uncertainty
about that liability, somehow impairing or impinging
on a partner of TransCanada in this project, that
impacts their profitability, their willingness to
partner with TransCanada, it puts a cloud over the
project. Whether it's going to hit the tariff or not
is not the whole story. It's also a question of
whether it's somehow going to create additional
uncertainty for potential partners in this project.
And if it does, does that leave us in a situation
where again if Alaska chooses not to go down the path
of selecting the ConocoPhillips path and they head
down that path, are we in a situation where we have a
party who needs to construct a project on their own?
Do they have the necessary capital, the necessary
financial ability to make this project happen without
partners? And our view is we want partners involved
here. It only makes it work better. Not only do we
want the administration and the legislature working
with us; we want BP and Exxon. We want a third-party
pipeline company.
He said this is 100 percent a ConocoPhillips' proposal. BP and
Exxon don't agree with everything in the proposal, but it is a
path to move the project toward a successful open season and
that successful open season needs the participation of BP and
Exxon.
4:03:28 PM
SENATOR WIELECHOWSKI said he heard the $9 billion liability is a
non-issue because it relates to a partnership agreement from
many years ago and TransCanada's bid is not being made under it.
He asked Mr. Wenzel to describe the terms of a gas fiscal
contract that would make ConocoPhillips feel comfortable enough
to build a gasline.
MR. WENZEL replied, "For ConocoPhillips the withdrawn partner
liability is not a non-issue." If they were going out to seek
gas nominations or seek partners to participate in this project,
it was a question of what their comfort level was. "It's not
about our comfort level or TransCanada's comfort level. If there
is the perception of uncertainty; if there is the perception of
risk about that liability, we believe it could very easily
prevent a successful open season." He said his legal team is
saying this is a non-starter. That liability needs to be removed
or somehow settled.
With respect to the gas fiscal framework, ConocoPhillips has
proposed to focus on a period of time the system will remain
unchanged. "That's the most important piece in our mind." It
should be consistent with the firm transportation commitments -
25 years.
4:06:52 PM
With respect to the actual system, ACES, ConocoPhillips wants
clarity well in advance of an open season. If that isn't there,
they won't have a successful open season.
SENATOR WIELECHOWSKI asked if he had a rate in mind.
MR. WENZEL replied no; but he would be happy to consider net or
gross. He didn't want to dictate the right answer.
CHAIR HUGGINS asked if he was saying that he wanted some
relationship between tax stability and the FT shipping
commitment timeframe.
MR. WENZEL answered yes.
4:10:08 PM
SENATOR WAGONER said AGIA provides 10 years of tax certainty for
people who commit gas in the first open season and asked why
that wasn't appealing to him.
MR. WENZEL disagreed and said AGIA does not have 10 years of
fiscal stability. The original bill did provide it by contract,
but the word "contract" had been removed. But more than that,
certain legislators put on record that the intention was that
the legislature could change the tax system every year. So, in
his mind the current AGIA bill does not provide any tax
stability in that sense.
SENATOR WAGONER asked what if that verbiage was put back in.
MR. WENZEL answered no, but that Governor Palin's contractual
mechanism to provide fiscal clarity and predictability could
work very well.
CHAIR HUGGINS noted that AGIA would have to be changed in order
for that to happen.
4:11:55 PM
MR. WENZEL went to his first slide and said ConocoPhillips
wanted to partner with the State of Alaska and develop a gas
fiscal framework in advance of an open season to provide shipper
confidence. He said ConocoPhillips was willing to include a
third-party pipeline company in the project. The needs of the
pipeline owners should be balanced with the state's needs.
He said ConocoPhillips is already under way with summer 2008
field work so that they could have people in the field as early
as June 1 looking at route reconnaissance, ancestral lands and
preliminary permitting to make sure they don't miss the first
summer season for working on the project. He said they would
solicit preliminary interest in late 2009 and intended to
advance the project all the way through an open season before
the end of 2010.
SENATOR WAGONER asked if there would be dueling applications at
the FERC if ConocoPhillips continues forward and the state
issues a license to TransCanada.
MR. WENZEL replied you won't see two dual applications to the
FERC because it wouldn't make sense. ConocoPhillips wouldn't go
to a FERC certification process unless it had a successful open
season. "If we have a successful open season, we're definitely
moving to the FERC process and there will be no stopping that."
He stated he couldn't really speculate what would happen if the
state moved forward with an AGIA licensee who felt obligated to
also continue. He thought the state would recognize the need for
a successful open season.
SENATOR WIELECHOWSKI asked his definition of a successful open
season.
MR. WENZEL defined it as having sufficient gas nominations from
highly credit worthy entities for 25 years so that the project
can move forward. If only one producer shows up the project
won't work; all three producers are needed, he said.
SENATOR WIELECHOWSKI asked if he was agreeing to commit
ConocoPhillips' own gas.
MR. WENZEL replied that they didn't commit any of their gas to
this pipeline, but ConocoPhillips is offering something that is
much more valuable - to spend $400 million to $600 million of
its own money to get there. His board would not allow him to
spend that kind of money if it didn't expect it to be a project
they would commit their gas to. Commitments are expected to be
made at the open season.
SENATOR WAGONER asked how much gas ConocoPhillips would commit
at an open season.
MR. WENZEL replied that 8 tcf of gas is theirs, but it's not a
question of what they know is in the ground, it is their
expectations as well.
4:19:05 PM
CHAIR HUGGINS asked him to explain what role gas off-take has in
that.
MR. WENZEL asked if he meant in the state.
CHAIR HUGGINS answered yes.
MR. WENZEL replied their view is that by the time this project
can be built 10 years out, sufficient gas volumes will be
available without new production because they won't be needed
for reinjection to produce oil.
CHAIR HUGGINS commented that would make Alaskans happy.
4:20:08 PM
MR. WENZEL'S slide 3 showed the proposed pipeline route from the
North Slope south and east.
CHAIR HUGGINS asked if he had any recent numbers on escalating
costs of gas treatment plants (GTP).
MR. WENZEL replied he expected it would cost $4 billion to $6
billion. It's a big piece of this project and it's important
that it is not left outside for someone else to complete. "The
pipeline itself isn't going to be worth much unless we've got
the GTP in place also."
CHAIR HUGGINS asked if he was expecting his organization to be
responsible for that.
MR. WENZEL replied yes as a pipeline developer they would be
responsible for the gas transmission lines, the main pipe and
the GTP.
4:21:29 PM
SENATOR WAGONER pointed out they would be getting tax credits
through ACES for investing in those facilities.
MR. WENZEL replied yes, but it depends on how the tax system
works at that time. He continued showing how the pipeline gets
to Alberta where they begin to have some options. Clearly they
could use an existing pipeline if there is sufficient capacity;
they could expand an existing pipeline or they could build a new
one. That determination would be made as they get closer to
Alberta. They want to choose the lowest cost option to transport
that gas to market because that means a lower tariff and a
higher value back to Alaska.
4:22:32 PM
SENATOR STEDMAN asked when ConocoPhillips goes into Alberta
would the 4 bcf/day go to the Lower 48 or get used in the oil
sands and how viable the US loan guarantees are if the gas is
consumed in Canada.
MR. WENZEL replied that Alberta definitely has markets that
might use some of this gas, but Alberta is a net exporter south
and that would satisfy the federal government in terms of
insuring the gas is intend for US markets. He wasn't sure if
ConocoPhillips would use gas in the oil sands, but it would be a
commercial decision.
4:24:50 PM
SENATOR STEDMAN asked if he could clarify the relationship with
the federal loan guarantee.
MR. WENZEL replied that the project would satisfy the conditions
of the US loan guarantees, but he emphasized that
ConocoPhillips's project is not conditioned on using them.
SENATOR STEDMAN asked if the federal loan guarantees would still
be available if all the gas were used in Canada.
CHAIR HUGGINS asked him to get more detail to them on that
question.
MR. WENZEL reiterated that the loan guarantees aren't a serious
matter to ConocoPhillips.
SENATOR WAGONER said the hub in Alberta was the first point of
sale and some of the shippers would probably sell gas there.
MR. WENZEL responded that at the open season, the shippers for
this pipeline would make their gas nominations and indicate how
far they would take it. He emphasized that just getting the gas
to the border of Alberta didn't mean it's on the Canadian hub.
It could bypass the hub and get on another pipeline into the
Lower 48.
4:27:31 PM
SENATOR MCGUIRE asked what kind of fiscal commitments they have
with other projects in the last decade.
MR. WENZEL replied on big infrastructure projects like this,
it's not unusual to have some contractual form of fiscal
stability to give clarity on how the system will work over a
long period of time. They have seen contracts that last for 20
or more years. This is a precedent-setting project because it is
the largest project in North America.
4:28:47 PM
SENATOR MCGUIRE asked if it's unusual to see shippers of gas
find a profitable situation where they do not get a fiscal
commitment because the profit is enough.
MR. WENZEL answered if this wasn't a basin-opening project and
the pipeline was already in place and ConocoPhillips was not
asking for a 25-year commitment, it would be a different issue.
The long term commitment presents a certain obligation for the
producers of gas to step up to this liability. "It's not
variable. It is at least extra dollars based on whatever the
tariff is expected to be. It could be more if costs come in
higher than expected."
4:30:37 PM
MR. WENZEL said slide 4 showed six gas off-takes points for
local uses. This could work very well with projects like ANGDA
and others that have been suggested. In this vein he said there
needs to be an instate gas needs study (required under the
FERC), but it should be done early. It is important to
understand how viable some of those projects are - some of those
companies could then step into the open season process. He noted
one off-take point in Canada that was based on the Municipal
Advisory Group, a group of mayors that got together to look at
instate gas needs. They thought it made a lot of sense to locate
an off-take point in White Horse for gas to get to Southeast
Alaska. He said ConocoPhillips has designed distance-sensitive
rates to each of the off-take points.
4:33:33 PM
Slide 5 indicated jobs for Alaskans ConocoPhillips' project
would provide. It included a $10 million commitment in training
because it has a lot of concern about labor availability,
especially qualified labor. He said ConocoPhillips has a long
history - 50 years - of Alaska hire, buy and build. This project
is so massive they will need all the labor and business they can
find. They will negotiate project labor agreements and provide
for local hiring halls and make sure they have good relations
with all sources of labor in order to move this project ahead.
MR. WENZEL said ConocoPhillips plans to put a project
headquarters in Anchorage and a construction headquarters in
Fairbanks.
4:35:59 PM
Slide 6 was about pipeline expansions and he emphasized that any
pipeline must be expandable. He stated that ConocoPhillips would
conduct non-binding open seasons every two years to the extent
there is sufficient interest; and they would follow up with a
binding open season to insure the interest is still there. He
expected the expansion would come for the most part in the form
of compression as opposed to looping or building a new line.
ConocoPhillips has offered a compromise on the rolled in rates
issue that comes down to what degree do the original shippers on
a pipeline subsidize future expansion shippers. He explained
that AGIA required its applicants to step up to a 115 percent
subsidy of other companies. ConocoPhillips doesn't think that is
appropriate and has offered a compromise in terms of providing a
5 percent subsidy for lower tariffs at the time of the
expansion.
4:37:51 PM
SENATOR WAGONER said slide 6 says ConocoPhillips will seek and
support a less than unanimous voting level on all pipeline
expansion matters among the major pipeline owners in any future
entity agreements. He asked who they see as major pipeline
owners and if those are limited.
MR. WENZEL answered that their proposal has a provision
providing for less than unanimous voting to decide on expansion
of the pipeline to ensure that no one owner could stop it. He
wanted to be sure as the pipeline company moves ahead and other
owners come in, that BP, ConocoPhillips, Exxon and third-party
pipeline companies will be there. Whether there are other
owners depends on whether there have been other expansions and
whether other owners have been allowed into the pipeline. The
major players are the ones who will make the decision to move
this project ahead.
4:40:24 PM
Slide 7 illustrated their streamlined schedule of 10 years if
the project started tomorrow. The first five years were taken up
with permitting activities and construction took up the next
five years. Slide 8 illustrated their planning process.
4:43:29 PM
MR. WENZEL summarized that ConocoPhillips has provided the
administration with an alternative to consider along side the
AGIA application. It brings the financial strength to stand
behind shipping and completion commitments. Its history in
Alaska indicated strong Alaska hire, project construction and
management especially in the Arctic.
ConocoPhillips also brings the rights to produce its own gas
along with the other FTs, he explained and it will spend its own
$500 million, not the state's, to get the project going.
SENATOR WAGONER asked at what point the gas on ConocoPhillips'
lease actually becomes theirs.
4:45:29 PM
MR. WENZEL replied that that gas effectively has several owners
that will share in the benefits of it. Their lease gives
ConocoPhillips the right to produce it and sell it for the best
price they can get and share those proceeds with Alaska in the
form of royalties and production tax.
SENATOR WAGONER asked at what point it becomes their gas and
12.5 percent becomes the state's. Is it still the state's gas
when it's in the reservoir? How is that defined?
MR. WENZEL replied he has no legal answer. The point of
production is the point at which royalties and taxes occur.
Beyond that, when the gas is in the ground, he didn't think that
was relevant because they signed a contract that says they have
a commitment to produce and use the hydrocarbons and when they
do, that's when they pay royalties and production tax.
SENATOR WAGONER stated that is required in the lease.
MR. WENZEL responded that the whole intention of a lease is to
explore and hopefully find something. And then if you find
something, to develop it.
4:47:29 PM
SENATOR WIELECHOWSKI said for AGIA there was a long debate on
what Alaska needed for any gasline project and came up with 20
must haves, 2 of which didn't apply to ConocoPhillips' proposal
and of the remaining 18, 11 didn't get met. And he asked why the
legislature should consider a bid that doesn't meet their must
haves when a very reputable company agreed to meet 100 percent
of the must haves.
MR. WENZEL said he disagreed with his count and said
ConocoPhillips has met and addressed many of the must haves.
Senator Wielechowski might consider they hadn't agreed on
rolled-in rates, but ConocoPhillips has addressed them and found
a better balance in committing 105 percent. He also wanted to
clarify that they were not trying to meet the AGIA requirements;
their intention was to offer the best path to a successful open
season. Getting all the must haves was not their goal. Merely
conducting an open season is meaningless and just building a
pipeline wouldn't bring the gas to market, he said.
4:52:18 PM
SENATOR STEDMAN asked Mr. Wenzel if he was disturbed to see a
definition of insanity just under the name of ConocoPhillips on
an unsigned document from the administration.
MR. WENZEL replied, "It was inappropriate, disrespectful - I
don't understand it. We were very taken aback by that approach.
I think it's disrespectful to the Governor of Alaska for that
phrase to be there."
SENATOR STEDMAN asked if he had concluded that he is not insane
and neither is his board of directors and that ConocoPhillips is
actually a prudently-run multinational oil company.
MR. WENZEL stated yes.
SENATOR STEDMAN said the comments he referred to were on an
attachment called "Overview of ConocoPhillips Proposal to the
State of Alaska." Right under the title in italics was a direct
quote: "Insanity, doing the same thing over and over again and
expecting different results." There was no name or date on it.
Clearly he said comments like that are counter productive and
don't help the citizens of the state of Alaska to get first gas.
They don't help the state's business partners in the oil and gas
industry get the state's gas to market.
SENATOR STEDMAN stated that while legislators didn't agree with
all the issues in their proposal, it was clearly well-thought
out and came from a reputable company.
4:54:32 PM
SENATOR MCGUIRE said she struggles as a lawmaker with what to do
with his proposal from a practical standpoint. Other folks were
considering making an application and the rules were well laid
out. She asked how he would feel if he was in an RFP process and
another company decided to compete outside of the rules. The
proposal was outside the deadline and she didn't know where to
place it.
MR. WENZEL said he appreciated that recognition; however, when
the state was setting up the AGIA process, he didn't believe
there were a lot of qualified applicants. Certain players were
excluded because it was so rigid. Big projects need more
flexibility and AGIA left an out; it says the administration
would decide which bid would qualify and which would be truly in
the best interest of Alaska. The second opening was if the
administration decided another avenue was in the best interest
of the state.
5:01:36 PM
He said in his mind, being qualified under AGIA, didn't
guarantee one a recommendation as a licensee and being
recommended as a licensee didn't guarantee one a license. Those
rules were very clear in AGIA. He would have no qualms if the
administration or the legislature decided to pick another
alternative which appeared to be a better answer for the State
of Alaska.
SENATOR WAGONER asked how much gas ConocoPhillips would commit
at an open season for a 48-inch line.
MR. WENZEL replied that hasn't been determined yet; but he
thought around 1.2 bcf/day.
SENATOR WAGONER asked why ConocoPhillips would partner with
TransCanada on the Keystone pipeline with the $9 billion
liability and not on this one.
MR. WENZEL replied they view TransCanada as a valued partner and
will continue to work with them. On this particular project,
they are concerned that somehow the withdrawn partners would
look at ConocoPhillips to pay for that liability.
5:07:19 PM
SENATOR WAGONER said it sounded like a he said/she said
situation. He hoped to have clarification on that issue in the
next couple of weeks.
MR. WENZEL responded, "It's a he said/she said situation that's
worth $9 billion." For that much money, he said you should
expect those claimants would spend some money to chase it in
court and the project doesn't have time for them to get sued.
SENATOR WIELECHOWSKI asked if he had numbers to share with the
committee in terms of return to Alaska.
MR. WENZEL replied no; those numbers are extremely variable.
It's very dependent on what the gas nominations are and
ultimately the economics are very dependent on what the future
gas prices are going to be.
SENATOR WIELECHOWSKI said his prior proposal to the state under
the Stranded Gas Act would have cost the state $10 billion
(according to the commissioners) and asked what this fiscal
framework would cost the state.
MR. WENZEL replied that this project wouldn't cost the state
anything; but rather it would provide revenues for the state.
It's a completely different perspective. It's as if people think
the project is already there and ConocoPhillips is proposing
that it be scrapped and something else happen. But
ConocoPhillips is proposing to make a project happen and a path
to a successful open season.
SENATOR WIELECHOWSKI said he and his constituents are concerned
if they have to come to fiscal framework terms which are
ultimately going to result in billions of dollars less for the
State of Alaska.
MR. WENZEL stated that ConocoPhillips is talking about a project
that will provide revenue to the state - not cost revenue. He
tried another approach and said at some point they will have to
decide what the gas tax will be on the North Slope. If the
legislature does its job well, it will put a system in place
that aligns the interests of the gas producers and the State of
Alaska by finding a system that provides a "win/win" - that it
provides mechanisms so that if the gas business is profitable
the people of Alaska share in it. If it's not so profitable, and
no money is being made, lets' make sure the taxes come down
proportionately. He said the system should provide clarity and
not need to be changed.
5:13:45 PM
SENATOR STEDMAN said they need to be careful in dealing with the
gas tax structure and clearly it needs an adjustment in order
for this project to go forward because now it is geared to oil
and not gas. The administration is reluctant to address it; but
it must be worked out and it's just a question of time.
The gas structure today clearly will not get us a
gasline. There's no question about that. It's just a
matter of when we are going to sit down as a
legislature and work out the tax structure that is
supported by the administration. And I personally
would like to see us move forward on that faster or
sooner than later. Some would like to see the federal
government force construction of that line and do it
much later. That's just a philosophical argument that
we'll have to deal with here at the table. But if you
measure it from the gas structure today, you're going
to have a benchmark area. You're going to be measuring
from the wrong point.
5:15:21 PM
CHAIR HUGGINS said the DOR had a presentation on Saturday about
gas taxes. He wanted to target some calendar time over the next
couple of years to do it. He hoped it would be fair; the gas
pipeline will depend on it.
5:17:07 PM
SENATOR WAGONER asked how the ACES tax credits affects a
profitable venture and how do the allowable deductions affect a
shipper if the market price falls below the tariff.
MR. WENZEL replied that he hadn't spent a lot of time applying
the ACES proposal to their project. He assumed the tax structure
would change. Marsha Davis' discussion was different than what
he understood. He offered to start the debate with the
administration and stated that it would take more than one
special session. He repeated, "And we need to get started."
5:18:53 PM
SENATOR WAGONER said TransCanada testified that it owns 36,500
miles of pipeline that delivers 30 bcf/day. He asked how many
pipelines that delivers gas ConocoPhillips owns and operates
now.
MR. WENZEL replied that he didn't have that information, but
would get it for him.
CHAIR HUGGINS said he had not been satisfied with communications
they have had with the administration and he hoped it would get
better. He mentioned he was given the nine questions yesterday
from an unidentified administration person.
MR. WENZEL added that he had received them today.
CHAIR HUGGINS asked if he had sat down with the administration
and talked about these questions in any shape or form.
MR. WENZEL replied he hadn't and he knew of no other
representative who had; they have had one face to face
conversation with this administration since November. There had
been some phone calls, but they had received no clarification on
their proposal.
CHAIR HUGGINS asked him to be prepared to answer those questions
and others that might come up. He commented that he and other
members of the committee started asking the administration about
some parameters on gas last January specifically about when they
are going to take up the tax issue. He has been told that a
model would be available in June and he wanted the committee to
see it then.
5:23:04 PM
CHAIR HUGGINS thanked Mr. Wenzel for his presentation and
adjourned the meeting at 5:23:42 PM.
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