Legislature(2009 - 2010)Anch LIO Rm 220
06/23/2009 02:00 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Alaska Pipeline Updates | |
| Transcanada Alignment with Exxonmobil | |
| Bill Walker Port Authority Project | |
| Bud Fackrell, Denali Pipeline Project, | |
| Administration Position on Exxon Tc Agreement | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
SENATE SPECIAL COMMITTEE ON ENERGY
ANCHORAGE LIO CONFERENCE ROOM
June 23, 2009
2:06 p.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Lesil McGuire, Co-Chair
Senator Bill Wielechowski, Co-Chair
Senator Hollis French
Senator Bert Stedman
Senator Thomas Wagoner
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Lesil McGuire, Chair
Senator Bill Wielechowski
Senator Bert Stedman
MEMBERS ABSENT
SENATE RESOURCES
Senator Charlie Huggins, Vice Chair
Senator Gary Stevens
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Lyman Hoffman
Senator Albert Kookesh
OTHER LEGISLATORS PRESENT
Senator Joe Paskvan - via teleconference
Senator Gene Therriault
Senator Johnny Ellis
Representative Berta Gardner
Representative Chris Tuck - via teleconference
Representative Cathy Muñoz - via teleconference
Representative Craig Johnson
COMMITTEE CALENDAR
Alaska Gas Pipeline Updates
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
TONY PALMER, Vice President
TransCanada, Alaska Development
POSITION STATEMENT: Presented update of AGIA contract.
MARTY MASSEY, U.S. Joint Interest Manager
ExxonMobil Production Company
POSITION STATEMENT: Commented on EM's alignment with
TransCanada.
BILL WALKER
Alaska Gasline Port Authority (AGPA)
POSITION STATEMENT: Continuing to advance their project.
BUD FACKRELL
Denali Pipeline Projects
POSITION STATEMENT: Said BP and ConocoPhillips formed this
company to build the Alaska gas pipeline.
COMMISSIONER PAT GALVIN
Department of Revenue (DOR)
POSITION STATEMENT: Presented the administration's response to
the agreement between TransCanada and Exxon.
KENNETH MINESINGER
Greenburg Traurig, LLP
States gasline team's outside counsel
POSITION STATEMENT: Took a careful look at TransCanada and EM
agreement and did not see any red flags.
ACTION NARRATIVE
2:06:03 PM
CO-CHAIR LESIL MCGUIRE called the joint meeting of the Senate
Resources Standing Committee and the Senate Special Committee on
Energy to order at 2:06 p.m. Present at the call to order were
Senators Stedman, Stevens, Huggins, Hoffman, French, Wagoner,
Therriault, Dyson, McGuire and Representative Gardner.
^Alaska Pipeline Updates
Alaska Gas Pipeline Updates
2:06:14 PM
CO-CHAIR MCGUIRE said the subject of today's meeting is an
update on the Alaska Gas Pipeline. This will include the recent
alignment of TransCanada-Alaska (TC) with ExxonMobil (EM); an
update from Bud Fackrell with the Denali Project; a briefing
from Bill Walker with the Alaska Gasline Port Authority (AGPA);
and Pat Galvin with the AGIA gas team.
^TransCanada Alignment with ExxonMobil
TONY PALMER, Vice President of Alaska Development, TransCanada,
and Marty Massey, U.S. Joint Interest Manager, ExxonMobil
Production Company, introduced themselves.
MR. PALMER explained that the TC presentation first will deal
with EM entry into the TC project. Second it will address
project-specific issues. Mr. Massey would support the first part
of the presentation, but not contribute to the second part due
to regulatory considerations. EM is actively participating in
the joint project and the joint project team is independent of
EM's producing and marketing interests. The lead manager for the
project is Paul Pike, an EM employee and he will report to the
management committee, which Mr. Palmer said he would chair. Once
discussion about the alignment is complete, Mr. Massey would
excuse himself from the table.
2:09:02 PM
MR. PALMER said there will be immediate integration with EM;
they are already working together to jointly advance the
project. EM is contributing prior study results, particularly
the ANS (Alaska North Slope) producer study report that was
completed in 2001, as well as existing right-of-way data from
TAPS.
TransCanada Alaska and Foothills remain the AGIA licensees, he
stated. The project schedule and scope is unchanged as a result
of the alignment, and their initial open season target is still
to be concluded by the end of July 2010. They are designing a
gas treatment plant and a pipeline from Prudhoe Bay to Alaskan
delivery points, and for LNG via Valdez if customers want to
redeliver to the Lower 48 or to Asian markets and to Lower 48
markets by the Alberta Hub. In addition they are advancing a
proposal for a gas transmission line from Pt. Thomson to the gas
treatment plant; that is outside AGIA and therefore would not be
reimbursable. In the open season package they will advance next
year, customers will have the opportunity to select a piece of
pipe just like they will have the opportunity to select service
on the gas treatment plant, the pipeline to the border, and the
pipeline to Valdez and then continuing on to Canada. That
section of pipe will be offered for service, but there will be
no request for reimbursement under the AGIA provisions.
2:11:59 PM
MR. PALMER said the current TC/EM alignment is not contingent on
any commitments by the state and TransCanada can progress the
project independently if they want using all the jointly
developed assets and information. However, that is not their
intent; their intent is to work jointly with EM to make this
project a success. But if they are not able to do so, all of
those assets will reside with the licensees and TransCanada can
progress the project.
He said the Alaska Natural Gas Pipeline Act (ANGPA) will be used
in Alaska and the Northern Pipeline Act (NPA) will be used in
Canada. Their proposal had a $83-million expenditure through the
open season, but that has increased to $150 million. The
additional spending will be on early execution and construction
planning, additional efforts in regulatory, environmental and
lands issues, as well as the gas treatment plant. He recalled
that this body had appropriated $45 million to date for the
project; it's his expectation based on their "spend" that will
take them through the end of this year and into the first
quarter of 2010 when they will be sitting in a regular session.
They would expect to ask the administration for an additional
authorization at that time.
MR. PALMER said the development costs will be shared by
TransCanada and EM, but TransCanada retains a majority interest
and there will be no change to the state's reimbursement
contribution of $500 million.
2:13:58 PM
To describe how they got to this point, Mr. Palmer said they
were approved by the legislature at the beginning of last August
and they commenced discussions with EM. They went beyond
discussions into negotiations in the fall, and by the first of
May they had concluded an arrangement and were ready to move
forward. They kept the administration apprised that they were in
discussions with EM, but no details were released. In early May
they took it (confidentially) to the governing bodies of AGIA
for approval according to its provisions. The entire transaction
was disclosed to the administration, and everyone agreed that
this did not constitute a project change. TC believes this
alignment constitutes real progress to align all essential
parties necessary for a successful project and that a
combination of the two companies brings unrivaled expertise and
experience to the project. TransCanada and EM share a common
goal - realization of an Alaskan pipeline project.
2:16:34 PM
(Slide 6) Objectives of the two parties:
· Perform work necessary to facilitate completion by the
licensees of the open season in the U.S. and Canada by the
July 2010 target
· Pursue the required regulatory authorizations for pipeline
construction.
He recalled that under AGIA they are going to conduct the
initial open season, but regardless of the outcome, they are
proceeding beyond that with the regulatory work. He explained
that EM and TC have entered into an interim project agreement
(IPA) that will conduct the work for the open season. That
project work will be transferred to the project funding
agreements to the AGIA licensee, and those entities will earn
non-voting interest in the licensee. At this point in time, TC
remains 100 percent a voting interest and the TransCanada
licensee; EM will be earning a non-voting interest in those
entities as a result of completing the work. They will convert
the non-voting interest into voting interest once EM has
resolved its outstanding issues with the state. The project work
will be completed by the IPA parties, and in the event that is
deemed to be qualifying work under AGIA, those expenses will be
passed on to the state in an invoice.
2:19:23 PM
(Slide 7) MR. PALMER said the IPA establishes the basis under
which TransCanada and EM are working together; the project
funding agreements (PFA) are companion agreements that are
executed simultaneously. There is a separate project funding
agreement for U.S. and Canada just like there are separate
licensees for the U.S. and Canada. The PGA provides the bridge
between the licensees and the IPA parties. TransCanada licensees
are the interface with the state and retain all the AGIA
obligations, which stand unchanged as a result of this
transaction. The licensees retain sole discretion over requested
paid reimbursement for qualified expenditures. So, dependent on
what comes forward from those IPA parties, the TransCanada
licensees will have a judgment call as to whether they go
forward as qualified expenditures and the state will deem
whether or not they truly meet the test of qualifying, and if
they do, there will be reimbursement.
2:21:14 PM
SENATOR THERRIAULT asked if EM performed a work task and
TransCanada submits it for reimbursement, does the state have
absolute access to that information - if in fact the state has
paid for it.
MR. PALMER answered "yes." (Slide 8) He said the TransCanada
licensees have the right to all the work provided to them by the
IPA parties for the purposes of meeting the TransCanada AGIA
obligations. That is critical not just for TransCanada to be
able to meet its obligations, but in the event that the project
was somehow stalled, the state has the right to take it over and
gets access to that information.
All the major project components, including regulatory filings
and open season contracts, will be made and entered into in the
name of and on behalf of the AGIA licensees. The FERC prefiling
was made in the name of TransCanada Alaska; nothing has changed
as a result of this alignment. The licensees have the right at
all times to advance alone if they so choose - but, he remarked:
We're not aligning to then come apart shortly
thereafter; we're aligning to make this project a
success, but in the event that we choose to do so,
that we have to do so, we have the right to all the
jointly developed work products and both parties will
retain the rights to the information, but the actual
assets will be retained by TransCanada, the AGIA
licensee. And, of course, if we do come apart, there
must be a reasonable transition period to sole
management by TransCanada. In the event of a
termination the EM guys can't go home the next day. It
has to be a reasonable transition in the circumstance,
and we've agreed to that.
During the term of the PFA, the IPA parties are earning non-
voting interest in the licensee when they transfer the work
product.
(Slide 9) When EM becomes a participant in the licensees, those
non-voting interests will convert to voting interests. The state
reimbursements will follow the costs that are expended by the
parties and the reimbursements will be in proportion to the
participating interests. The IPA includes typical joint venture
terms.
2:24:48 PM
Management Structure of the Company
MR. PALMER said the ownership will be "end-to-end" and they
intend to operate on an integrated basis; they have a fully
integrated team of 70 people already up and running. The bulk of
TransCanada's folks are focused on the pipeline with some
supplement by EM, and the bulk of the people working on the gas
treatment plant are EM staff supplemented by a modest number of
TransCanada people.
EM is the IPA lead, and Paul Pike is responsible for day-to-day
management of the project team. He will report to a management
committee made up of EM and TransCanada participants with Mr.
Palmer as chair. Under Mr. Pike, TransCanada is a sub-IPA lead
for the Canadian portion, but through the open season,
TransCanada is leading the entire pipeline section, and EM is
leading the gas treatment plant. They have tried to apply the
expertise that each company has to the specific areas of the
project.
2:25:14 PM
(Slide 10) The benefits of alignment with EM represent real
progress. EM supports the alignment and is ready to work with
the state to become a full participant in the AGIA licensees.
The combination of TC and EM bring unrivaled expertise and
experience to the project.
MR. PALMER remarked that last year they heard that TransCanada's
cost estimates wouldn't be accurate without having a producer
inside the tent, but that issue is now resolved with EM's
participation. Not only do they provide expertise on the
pipeline side, but they are an absolute industry leader in the
gas treatment field. While EM is involved in developing the cost
estimates across the project, he hoped that similarly situated
producers would also see that a forecast and a cost estimate
prepared by the companies has significant credibility across the
industry.
TransCanada has 2,000-plus pipeline employees responsible for
transporting 20 percent of North American gas every day - a
record he was willing to match with any competitor here or
across North America. While TransCanada expanded its major North
American pipeline system in the 90s, currently it has the $12-
billion Keystone project (1 million barrel/day) oil pipeline,
which they now own 100 percent of under construction. The first
phase will be in service in less than 12 months. From the date
of the announcement to the date of in-service will be just over
four years for the first phase. The second phase is in
regulatory approvals in Canada and the U.S. Assuming those
approvals are obtained on a timely basis, the second phase will
be complete down to the Gulf Coast market by 2012. TC also has a
large $2 billion gas pipeline project from Northwestern Alberta
to Northeastern Alberta, a 42-inch line being constructed in the
winter only. The Bison Project is moving Rockies gas to the Mid-
west and TransCanada was recently granted the authority to
construct a pipeline from Manzanita to Guadalajara.
2:29:51 PM
(Slide 11) EM merits. Mr. Palmer said that some skeptics thought
that TransCanada might not be able to raise the funds to build
the project, but in the last seven months in a very difficult
environment it has raised $7 billion in equity. Unquestionably,
though, EM brings global, financial and project management
strengths to the table. They are the recognized industry leader
in the execution of large complex projects. They are the largest
holder of discovered North Slope natural gas resources as well
as the leader in gas treatment expertise; they have been here
for decades and they are bringing concrete assets to the table -
and they are committed to timely delivery of the project. They
have agreed that it is critical to maintain low costs and the
schedule for the project. TC and EM share a common goal to
realize and Alaskan pipeline project under AGIA, but they need
they full support of the state, U.S. and Canadian governments,
North Slope producers, including ConocoPhillips and BP, and
other interested parties.
2:31:59 PM
SENATOR STEDMAN asked Mr. Massey to clarify that EM has not
signed on to the AGIA "must haves."
MR. MASSEY said EM is working with TC outside of the AGIA
obligations, which remain with TC.
SENATOR STEDMAN expressed concern that clearly EM has no
commitment to the AGIA requirements, and this appears to be a
clever way to get access to some of reimbursement funds, which
was not the intent.
MR. PALMER responded that TC retains all of the AGIA
requirements and is obliged to the state under the AGIA license
- just as they feel the state is obliged to them. The $500-
million reimbursement will first come to TC and ultimately will
flow to TC and EM parties and is exactly the same amount of
money the state has committed. "That is unchanged." EM is keen
to become a full licensee, but they do have some outstanding
issues with the state.
2:34:14 PM
SENATOR STEDMAN directed attention to slide 9 and commented that
the word "when" EM becomes a participant probably should be
"if."
MR. PALMER responded that perhaps he was being too optimistic;
clearly if EM becomes a participant in the licensees the non-
voting interest will convert to voting. Maybe he was
contemplating that would occur, but it has not to date. And if
it doesn't happen, they will not convert.
SENATOR STEDMAN said he doesn't have an issue with reimbursing
TransCanada, but he does have an issue with reimbursement to any
of the other big three producers that have not agreed to AGIA
requirements or accessing any portion of it.
MR. PALMER said he respected Senator Stedman's opinion, but
commented that the work that is being conducted jointly by EM
and TransCanada will improve the information available to them.
EM is already contributing assets that are not reimbursable
including the NS producer study. TransCanada was looking for
someone to advance the gas treatment plant, part of the AGIA
project, and they think they have the best possible party to do
that with ExxonMobil. Their participation improves the
probability of success in the open season. Taking those
considerations into account, TransCanada hopes that EM can
become a full participant. If that is achieved, that will also
be an important step towards the success of this project. For
this project to come to fruition it needs both customers and
regulatory approval. Significant advances have been made on both
those fronts as a result of this alignment.
2:36:45 PM
CO-CHAIR MCGUIRE noted that Senator Ellis had joined the
committee.
SENATOR FRENCH said that slide 9 looks as though the non-voting
shares in the TransCanada licensees at some future date could be
converted into voting interests, but in the original documents
that TransCanada supplied to them the percentage of ownership
each outfit would acquire is kept secret.
2:38:07 PM
MR. PALMER said that certain things are privileged. They are in
a very competitive environment - first there is already a direct
competitor for this project and secondly, they would like to
attract other parties to join in the alignment, and it would be
counterproductive to reveal the current arrangement to the
parties they might be negotiating with.
SENATOR FRENCH asked the conditions for shifting to voting
shares. Is it likely that EM or a subsidiary would then own a
chunk of the license the state granted to TransCanada?
MR. PALMER answered yes, if EM resolves its issues with the
state, they would become a minority partner in the TransCanada
Alaska and the Foothills subsidiary AGIA licensees. He said they
are clearly looking for a commitment of EM's gas to the pipeline
project and that hadn't occurred yet.
SENATOR FRENCH said that brings up the issue of what happens if
another company wants to acquire part of the license that state
awarded under AGIA to TransCanada. Provisions were inserted that
say before any of that license leaves the grantee, there must be
commissioner approval. So, it is curious because the eventuality
of that transfer is buried in the deal that they haven't had
that commissioner approval. He was told by DNR that they looked
it over and decided this arrangement didn't need to be reviewed
by them as being a transfer. He anticipated that DNR's view of
oversight is that it would happen when "that trigger gets
flipped."
2:41:19 PM
MR. PALMER said the administration will be involved as they go
forward, but the department did not think the alignment with EM
triggered a project plan change. However, he preferred that the
DNR respond to that.
SENATOR FRENCH said the arrangement requires that should a
falling apart take place, the work product is passed along to
the state. He asked if EM is able to take that work product as
well and maybe develop its own pipeline.
MR. PALMER replied that TC and EM will jointly have access to
the information - engineering and other studies - but they will
not have access to the assets. If the IPA is able to secure
right-of-way regulatory permits, they will all reside with the
AGIA licensees and would have to be reconstituted by EM if they
were no longer in the partnership and pursuing another project.
2:43:18 PM
SENATOR HUGGINS asked if $75 million of the $150 million could
potentially go to EM.
MR. PALMER replied if the entire $150 million qualified as
expenditures and the state agreed with that, then $75 million
would come back to TransCanada as the licensee and it would be
distributed pro rata between EM and TransCanada based on their
proportionate shares and TransCanada will be in the majority.
SENATOR HUGGINS said assuming that EM got $75 million and then
did not become a voting interest and went their own way, what
happens to the $75 million?
MR. PALMER said that EM would take the money, but TC will retain
the work product, the assets that had been jointly developed,
and as a result both TransCanada and the state would be
obtaining value for the monies they are expending.
2:45:11 PM
SENATOR HUGGINS asked what else EM wants to become a voting
member besides just a part ownership in the pipeline.
MR. PALMER answered that TC and EM are currently aligned on all
aspects of the project in terms of the work that is under way.
If EM resolves the issues with the state and commits its gas to
the project, it will then become a part owner in the license and
have a financial and a voting interest.
SENATOR HUGGINS asked to hear from Mr. Massey about what it will
take to become a voting interest.
2:46:33 PM
MR. MASSEY said TransCanada retains all of the obligations under
AGIA. EM is eager to become an owner in the license and resolve
their issues with the state "and all that goes with that." A key
item is predictable fiscal terms, and so far EM has no
commitment from the administration to address those terms. So
they are coming into this arrangement with that understanding.
EM also understands that the administration has said if EM makes
the case that something needs to change, they will sit and
listen to them. And they will be ready to do that at the
appropriate time. EM has come to understand that AGIA is the law
in the State of Alaska and that is how EM has to address what is
needed from a predictable and durable fiscal terms standpoint.
That is one of the main reasons EM joined TC. He further
clarified:
We have looked at it from the standpoint that we
believe that is going to give us the best chance for
success, really. The best chance for success is
aligning with the State of Alaska and TransCanada, and
really the best chance of success of aligning with the
other parties we need, in particular, ConocoPhillips
and BP. That's why we've done the deal with
TransCanada.
2:48:23 PM
SENATOR HUGGINS said he mentioned that they are looking for two
items - equity and durable fiscal terms.
MR. MASSEY said EM has an understanding with TransCanada in
terms of what equity they would be entitled to under the license
- if they were able to resolve the other matters - the other
matters being the predictable and durable fiscal terms, the
issues in AGIA they have mentioned from time to time - and
TransCanada is requiring that EM commit its gas to their
project. All of those have to be in place before EM's shares
convert from a non-voting to a voting interest.
2:49:17 PM
CO-CHAIR MCGUIRE asked, on that point, if the changes he
envisions to AGIA would have to be in place along with the
fiscal certainty prior to any firm transportation commitments
(FT) EM would make between May and July of 2010.
MR. MASSEY replied that it's always good to resolve issues early
in the life of a project, but TransCanada is obligated to go
forward even if these are not resolved by an open season. The
IPA has been structured such that EM can participate past an
open season if it's not totally successful. The key decision
point is if you are going to construct the project or not -
after getting the regulatory certificate.
CO-CHAIR MCGUIRE said AGIA allows a gas tax to be locked in for
ten years, and asked what fiscal terms EM is looking for. She
also wanted to know what parts of AGIA are untenable for them.
MR. MASSEY said AGIA has a 10-year "moral obligation," but the
legislature could change that. What is needed to go forward
depends on the total package of the deal that is ultimately
struck - that's what he means when he says durable and fiscal
certainty.
2:52:21 PM
CO-CHAIR MCGUIRE asked if there was a failure to get enough FTs
after the first open season to make the project viable, what
would EM do.
MR. PALMER recalled that when AGIA passed, TC testified that it
did not want to go forward beyond an unsuccessful open season,
but that was included in the law. TC had to consider that in
deciding to apply for the license. They did apply for the
license, at least partially, because the state was going to make
a $500-million contribution to the development of this project.
In the event there is an unsuccessful open season, TC will
continue with the regulatory process. In the event that fiscal
certainty issue is resolved a year later, they will "take them
on" and not delay the project. That is one of the strengths of
AGIA. However, he explained that the obligation to continue
means that his shareholders are exposed to risk just like the
State of Alaska is.
2:55:34 PM
CO-CHAIR MCGUIRE observed and questioned that EM will have an
unspecified equity position commensurate with the FT commitment
they might make in July 2010.
MR. PALMER responded that TransCanada and EM as project sponsor
intend to continue the project as pipeline developers.
CO-CHAIR MCGUIRE asked Mr. Massey to respond as producer
shipper.
MR. MASSEY said it's hard as a producer shipper to know what the
pipeline company might do. He understands that under AGIA they
will continue to go forward. The IPA can continue past an open
season essentially on behalf of the AGIA licensees.
SENATOR HOFFMAN stated that on one hand Mr. Massey says he
understands AGIA is the letter of the law, and that is why they
have entered this venture with TransCanada, but on the other
hand he says some things are still unresolved. "So, obviously
you think that AGIA isn't still the complete answer." It seems
as though EM is still in the same position it was before while
AGIA was being developed.
He stated that EM still wants the state to make changes to its
tax structure. That was the downfall of the negotiations they
had under the Murkowski administration and one of the provisions
that the Palin administration insisted on not addressing. That
continues to be their number-one issue. How did he envision that
being resolved and getting the administration on board?
MR. MASSEY responded that AGIA is the law and TransCanada will
execute that project according to its obligations. He also
understands that AGIA is the framework under which the state
wants to address the project and he is hopeful that EM can have
a conversation under that framework about what can be done for
predictable and durable terms to make the project commercially
viable, but he has no commitment from the administration that
that will occur. However, as they have all heard, if EM can
prove to the administration that something needs to be done,
they are willing to listen. EM is willing to move forward on
that basis.
3:00:54 PM
SENATOR THERRIAULT said some detractors have said that TC as the
state's partner is now the message carrier for EM and other
potential producers to pressure the state into changing the tax
structure and give commitment on certainty. Yet TC committed to
the legislature that it would not allow itself to be put into
that position. He asked Mr. Palmer if there is anything in the
agreement with EM that will get TC into the middleman position.
MR. PALMER responded that TC has committed in its application
and through testimony that it will not be party to fiscal
discussions. Those discussions will be between the sovereign and
the producer-shippers and not the pipeline company. The pipeline
company has no role in that, but will be an interested observer.
"I will not participate in it, TransCanada will not participate
in that and our commitment that we made last year stands," he
said.
SENATOR THERRIAULT said on the issue of EM being reimbursed for
some of the work - that TC always spoke about reserving equity
ownership for partners to come on board.
MR. PALMER explained that TransCanada has contracted with
certain large contractors to do the pre-FEED (final engineering
and design) work. Subsequent to the open season, there will be a
separate request for contractors for the actual FEED work; those
may be different parties and the parties that perform the pre-
FEED work may be competitors. That occurs all the time as they
hire engineering and environmental firms. So, the fact that EM
will be reimbursed, while they are not just like a contractor,
they are providing work that is good and valuable for getting
them to a successful open season - in the same fashion that
URF's work is for the gas treatment plant and Colt Worley
Parsons' work is for the pipeline.
3:05:08 PM
SENATOR THERRIAULT said in their initial application TransCanada
always spoke about reserving equity ownership for partners to
come on board.
MR. PALMER affirmed that and said they always described that
they wanted another party to handle the gas treatment plant,
because that wasn't their core area of expertise, and with
regards to the entire project, particularly the pipeline, they
indicated they would be available to talk about an equity
participation to parties that commit a significant threshold
volume.
SENATOR THERRIAULT said in one of his slides he talked about
going up to 100 percent ownership in Keystone and he asked if
TransCanada was actively looking for 100 percent ownership or if
ConocoPhillips was just actively looking for a buyer.
MR. PALMER said he couldn't discuss the details of that
transaction, but TransCanada is in the process of getting
approval for 100 percent ownership.
SENATOR THERRIAULT asked Mr. Massey when the state was apprised
of this arrangement and looked at the details, was there any
discussion about a link between this and Pt. Thomson.
MR. MASSEY answered no.
3:07:04 PM
SENATOR PASKVAN asked if EM retains the right to use its own
work product if it has received $30 million, but does not become
a participant in the TransCanada licensee.
MR. PALMER replied that EM would retain the right to use the
information (engineering and other studies), but not the right
to the assets, either regulatory or physical. Those would remain
with the TransCanada licensees.
SENATOR PASKVAN asked if EM work could be viewed in part as a
contribution for equity ownership under the current agreement.
MR. PALMER answered that EM is earning a non-voting interest
today, and if issues with the state are resolved, their work
will be converted into common shareholding interest at the time.
They are obtaining a financial interest today, but not a voting
interest. If they resolve issues and become a full participant,
that work will in effect cause them to become a voting interest
if they have committed their gas.
3:09:06 PM
SENATOR PASKVAN asked specifically as far as a percentage-vote
equity ownership in the new entity if EM's current work is
viewed in part as a contribution for that equity ownership under
the current agreement.
MR. PALMER answered using his example of $30 million worth of
work. If that were EM's contribution and in the event that they
did resolve things, that $30 million worth of work, if they
become a full participant, would become $30 million worth of
voting shares.
3:10:41 PM
SENATOR FRENCH asked how EM stands in this arrangement in
comparison to a subcontractor that might be hired to do some
engineering work on the pipeline. They might authorize a
subcontractor to do work, for instance, but not take the
information that they performed with them when the contract was
over.
MR.PALMER answered, "To some degree, that's accurate." But major
consulting firms often have proprietary technology; they often
supplement that for a specific job. They will restrict
information they are willing to isolate because they are in the
consulting business on a long term basis and won't preclude
themselves from being in that consulting business as a result of
one particular task they undertake. In many cases they want to
be free to conduct the next piece of work for the next client.
SENATOR STEDMAN said while he is glad Exxon is on board, this
early disbursement seems like a step around the intent of AGIA
that they "cooked up" just to get to the reimbursement. They
hadn't signed on to the AGIA requirements.
MR. PALMER said it's important to remember that EM as a producer
shipper still has issues with the state. However, their
commitment towards developing a high quality cost estimate for
this project is also clear. And they are doing that separately
and distinctly from their producer-shipper role. He believes
this will improve the quality of the work and that will improve
the likelihood of success in the open season. This is what they
are seeking reimbursement for, not the other issues that Mr.
Massey described that he has to resolve in his producer-shipper
role.
SENATOR STEDMAN asked for help in understanding the voting and
non-voting shares.
3:15:05 PM
MR. PALMER answered that the non-voting shares are common shares
in the Canadian section and preferred in the U.S. section.
SENATOR STEDMAN said he would want help with legal expertise on
this issue.
3:16:05 PM
SENATOR WAGONER said the administration spent six weeks
reviewing the agreements between TransCanada and EM. The
legislature granted the license, but it's up to the
administration to administer it.
CO-CHAIR MCGUIRE said this is the point at which Mr. Massey will
have to excuse himself.
SENATOR THERRIAULT said he had a question for Mr. Massey before
he leaves. He said Exxon had always been upright about wanting
fiscal terms, but his response has always been he understands
why he would ask for it, but the state doesn't have the data to
make that decision. As they move towards open season, perhaps
the state will get a much better idea of the cost of the gas
treatment plant and the resulting tariff, perhaps that question
will come much more in focus. So the state will have then the
data it needs to evaluate their requests. Without it, they would
be setting a tax just because somebody asked for it. He asked if
he agreed.
3:18:19 PM
MR. MASSEY responded that as things firm up, you obviously have
better information, but that doesn't mean you can't do it with
that uncertainty - for instance through how the terms might
change associated with the uncertainty and cost. Many ways exist
to address this issue, if you put your mind to it, and it should
be done as soon as possible.
SENATOR THERRIAULT said both Mr. Massey and Mr. Hames have both
said the sovereign made a decision, and from EM's point of view
that is the new lay of the land. And Exxon decided to play. He
asked if they are having good communications with the state
agency now, because they weren't before.
MR. MASSEY said they are having good communication with the
state agencies, but they have made no commitment to enter any
sort of fiscal discussion. He hoped to be able to present that
issue to them.
CO-CHAIR MCGUIRE thanked Mr. Massey for his updates.
3:21:10 PM
MR. PALMER continued his presentation:
(Slide 12) TransCanada map of pipeline project.
(Slide 13) Project schedule. The FERC pre-filing request used to
be in 2011, but that has been advanced to April 2009. FERC
approved it on May 1. The only other change is the Canadian
counterparts to the U.S. timeframes. The open season will be
complete by the end of July 2010, and they will continue to
solicit the market at least every two years.
(Slide 14) Project Accomplishments in June 2008. Alignment was
achieved with issuing the license on December 5; the AGIA
coordinator, Mark Myers, is now in place, and the alignment with
EM is significant. They began work in August last year to
maintain schedule. Pre-FEED contractors have been retained; a
significant number of them are Alaskans. As the project gets
ramped up that number will increase.
3:23:21 PM
(Slide 15) He said again that bringing EM personnel on board
broadens the expertise. They are having ongoing discussions with
potential customers for deliveries in Alaska for the LNG
alternative and for Lower 48 markets by the Alberta Hub, but
those discussions have not turned to negotiations with any other
party but EM. He reminded the committee that when they received
the license last year, they were commencing on a project to be
in service in 2018. This is what has occurred in just the first
year.
3:24:52 PM
On the LNG side, cost estimation and commercial terms are
underway. Their application under AGIA had a 2 bcf/day
alternative, but after discussions with potential customers,
that was revised to 3 bcf/d, and that is what they will be
designing. Potential customers can select Valdez as the delivery
point if that is the best alternative for them or they can
select the one going through Alberta if that is better.
3:25:47 PM
(Slide 16) Mr. Palmer said he was questioned last year about
Canadian regulatory issues and the applicability and feasibility
of the Northern Pipeline Act (NPA), and now EM has reviewed and
endorsed that structure as the Canadian regulatory model for the
project. Re-staffing of that agency is underway and it is
coordinating within the government of Canada and across Canadian
provinces. Multi-department meetings have been completed with
other federal agencies, British Columbia and Yukon, and
individual meetings are underway.
SENATOR THERRIAULT asked when they will be entering into
agreement with FERC on the third-party contractor.
MR. PALMER replied that they are still having discussions with
FERC on that. If TransCanada's preference is honored, that will
come later in 2010 rather than this year.
3:27:06 PM
(Slide 17) He was also asked what relations they have had with
Canadian First Nations; terms and conditions have been in place
for 30 years that give them specific rights. However,
TransCanada has moved forward and they have put proposals in
front of all those right-of-way First Nations to negotiate. Five
of eight have indicated they are ready to discuss and
negotiations have been commenced with some of them.
He was also asked if they would not be able to advance the
project because of the original partnership (ANNGTC withdrawn
partners) in Alaska. But all the individual regulatory assets -
the FERC conditional certificate, the federal right-of-way,
Section 404 water rights - that were owned by ANNGTC have been
returned to government. That Partnership is in dissolution.
TransCanada is seeking mutual releases from all six of the
withdrawn parties and have five in hand; one is remaining - and
he assured them that they were working hard to get it. This has
not in any way stalled the project.
3:29:10 PM
MR. PALMER said that Fort Nelson is about 200 miles from the
Alberta/B.C. border and they described a way the cost could be
commercially averaged downstream into the Alberta section of the
pipeline. That would save 18 cents/mmbtu/day - about $300
million per year. It was not something TransCanada could
provide; first they had to get regulatory approval in Canada. He
described their advancements so far. TransCanada's Alberta
system has been provincially regulated for 50 years. TransCanada
made an application to the government of Canada and the National
Energy Board (NEB) to put into regulation that the system could
go outside of Alberta both physically and commercially, and they
have been successful in getting their decision to advance that.
So it is now federally regulated, a significant advance that
improves the chances of achieving Fort Nelson upside.
TransCanada also is proposing a couple of small pipelines into
the shale gas regions of British Columbia. If they are
successful in completing those projects and can average them
into the Alberta, those are good precedents for the Alaska
project. He couldn't guarantee anything, but they are making
good progress towards that goal.
3:30:43 PM
(Slide 18) FERC required TransCanada to do an in-state gas
study; they have contracted with Northern Economics to do that
and it is now underway. It will be completed and available later
this year. This will assist TransCanada in identifying the five
or more in-state gas locations for off-takes. Their Anchorage
office was opened early in 2009 as agreed in AGIA.
3:31:38 PM
(Slide 19) He said over the next 13 months they will complete
the capital cost estimate (end of March 2010), finalize
commercial terms and precedent agreements to put in front of
FERC and potential customers, advance Canadian First Nations
participation agreements and the Fort Nelson issue, complete the
in-state gas study, continue discussions with potential
customers, and maybe EM will have discussions with the state on
their unresolved issues.
3:33:03 PM
SENATOR WAGONER asked the breadth of their environmental field
work.
MR. PALMER replied it has been somewhat limited so far; the bulk
of the field work will start in 2010 - post open season.
Geotechnical bore holes will be completed this winter.
SENATOR THERRIAULT asked if cap and trade discussions would
affect the pipeline.
3:34:15 PM
MR. PALMER said the carbon legislation might be put in place and
that could have an impact, but that should favor gas, which
should mean an increase in the demand for gas generically - and
therefore increase them demand for this project as well.
SENATOR THERRIAULT asked if anything else is in the works in
D.C. besides Senator Murkowski's initiative to increase the loan
guarantee to $30 billion.
MR. PALMER responded that TransCanada has been supportive of
increasing the federal loan guarantee as well as providing
access to the federal financing banks. It has passed out of
committee, but it still needs to pass the body. That would be
positive for the project. As a rule of thumb for what the value
could be as the federal government moves forward on that front
he said a 1 percent decrease in the interest rate lowers the
toll by 9 cents/mmbtu, about $150 million per year. TransCanada
has not been active on other fronts in D.C. since the last
election.
SENATOR THERRIAULT asked his view of the shale gas development.
MR. PALMER said shale gas will be a significant player going
forward in terms of providing natural gas to markets in North
America, but it doesn't have a dedicated market. Neither does
Alaskan gas. It is a new low cost source of natural gas; so they
will be competing. If this project has gas prices at $6-8 and
can maintain costs at $3 or less, he thinks it can be
competitive. But it is critical to maintain the schedule,
maintain alignment and keep the costs low.
3:38:05 PM
SENATOR THERRIAULT asked what the advantage is for getting FERC
approval for a third party later.
MR. PALMER explained that it is unusual that a prefiling would
occur this early in the game; usually they occur after the open
seasons has been conducted and after a significant amount of
environmental work has been completed. However, FERC strongly
expressed a desire that they prefile early and they did so.
Hiring a third-party contractor needs to be aligned with the
timing of the project, and is a significant cost for any project
proponent. The appropriate time to retain that group is later
rather than now so the cost of the project can be lowered while
meeting all the requirements of FERC.
^BILL WALKER PORT AUTHORITY PROJECT
3:40:11 PM
BILL WALKER, Alaska Gasline Port Authority (AGPA), said they are
continuing to advance a project that gets gas to Alaskans as
quickly as possible at the lowest possible price anchored by an
anchor tenant on the west coast of the U.S., the State of
Hawaii, Asia or the world. Alaska has two options, the ACCO Hub
and a world market. It is fortuitous that TransCanada has the
LNG alternative in its application.
MR. WALKER said they have reviewed the TransCanada filing and
their efforts to advance the LNG option early with FERC.
Legislative intent language continues to be beneficial to the
Port Authority as their partners continue to review this
project.
He said that Sempra LNG just opened its second LNG receiving
terminal in Louisiana on the Gulf Coast and entered into a
contract to bring LNG in from Qatar. Their other terminal is the
only one on the West Coast in Mexico that brings gas into the
California market from there.
He said the Port Authority has used the Governor's AO 242 and
have had talks with Commissioner Irwin to get to an open season
for a pipeline only to Valdez, not the liquifaction piece of it.
They continue to ask the administration for participation and
assistance in that process.
They continue to work with Mitsubishi Corporation, a major
player in the world market that brings over 50 percent of the
LNG into the Asian market. They have been in frequent contact
with terminals on the U.S. West Coast to see if there is more
interest in bringing LNG to the West Coast. The recent
announcement from the Department of Energy that the U.S. has 116
years of self-sufficiency in gas is pretty long-term, but ships
go wherever they are needed to go. That's the beauty of LNG; if
there is a need on the West Coast, one of their partners has the
only receiving terminal. While three are currently being
negotiated in Oregon, two on the Columbia River and one at Coos
Bay, realistically only one will be built. They are encouraged
that an open season is scheduled for July and they will continue
to do what they can to advance getting gas to Alaskans.
SENATOR THERRIAULT asked if TransCanada should be doing
something they are not now doing to accommodate a project to
tidewater.
MR. WALKER answered that they are doing what they said they
would do.
3:46:42 PM
CO-CHAIR MCGUIRE announced a break.
^BUD FACKRELL, Denali Pipeline project,
4:05:41 PM
CO-CHAIR MCGUIRE called the meeting back to order at 4:05.
BUD FACKRELL, Denali Pipeline Projects, said BP and
ConocoPhillips formed this company to build the Alaska gas
pipeline. Nothing has changed, and they are on track.
(Slide 2) Denali is uniquely qualified to deliver this complex
project and has unparalleled North Slope (NS) Arctic and
worldwide construction experience and as well as a strong
balance sheet. They are positioned to conduct their open season
in 2010; the economy has not changed their focus.
4:07:09 PM
(Slide 3) He said it is important to focus on where the gas and
operations are on the North Slope. There are 35 tcf of gas
resources that have been discovered on the NS primarily at
Prudhoe Bay and Pt. Thomson; BP and ConocoPhillips hold leases
on half of that. They also operate 99 percent of the current NS
production; the only field they do not operate that is on
production is the Oooguruk Field that Pioneer operates. So, BP
and ConocoPhillips essentially built the North Slope, its
infrastructure and its gas plants and Denali brings all of that
to bear on this project.
(Slide 4) Regulatory Frameworks. The pipeline will have to be
approved by FERC in the U.S. and the National Energy Board (NEB)
in Canada. AGIA is not an exclusive license to build a pipeline;
Denali can proceed outside of AGIA and that is what they are
doing with their own money. NEB and FERC have a long history of
cross-border projects.
4:08:51 PM
(Slide 5) Denali Terms of Service. Denali is an open-access
pipeline; that's the law. Their project includes a gas treatment
plant and it has distance sensitive rates for local use, and it
will use the FERC-mandated rolled in rates. The design of the
project is efficient for expansion and they plan on soliciting
expansion every two years so those individuals or corporations
who don't have gas initially will have an opportunity to get in
the pipeline. This is important because only 35 tcf have been
discovered, enough for the first 15-20 years at 4.5 bcf/day. So,
more gas will be needed.
Denali will have at least five off-take points in Alaska and
they will look at an appropriate number for Canada.
4:10:05 PM
(Slide 6) Over the last year Denali has spent $100 million. They
have mobilized their project team and have a core team of 80-90
people located in their Anchorage headquarters and Calgary
office. They prefiled over one year ago and have weekly
conversations with FERC. They have also filed a right-of-way for
the federal lands in Alaska with the Bureau of Land Management
(BLM), about a third of the pipeline length and have a
reimbursable service agreement with BLM that allows them to work
together on a regular basis as the right-of-way is progressed.
MR. FACKRELL said they have had a very successful 2008 summer
field program; it was focused on the 200-mile corridor between
Delta Junction and the Canadian border. They did hydrology,
archeology work, contaminated sites and so forth. They also did
spot work up and the down corridor from Prudhoe Bay to Delta
Junction filling in the gaps. They have had continual community
outreach programs in both Alaska and Canada. A piece of it is
working with entities on workforce development. For instance,
they have funded a program with UAF training archaeological
assistants in a field camp rather than in the class room. They
also have agreements with a number of agencies for surveyor
training apprentices and have graduated 10 this summer. This was
a combined effort between the Alaska Department of Labor, the
federal government, the Tanana Chiefs Conference, the Teamsters
and a number of private companies in the state.
MR. FACKRELL said Denali has met with all of the federal and
local state agencies and they have awarded two very important
contracts, one was a contract to Fluor/Worley Parsons on the gas
treatment plant and the second was to Bechtel on the pipeline.
These are important because Denali's workforce is being
augmented with world-class engineering skills.
4:13:38 PM
(Slide 8) They are very focused on their open season in 2010 and
are working on refining the cost estimates that will give
everyone confidence, particularly the shippers. They continue to
work with all departments and agencies and are working with FERC
on pre-filing requirements and are in the process of engaging a
third-party environmental contractor, Argon National Labs. FERC
guides the work they are going to do.
4:14:43 PM
Denali is working with the Alaska DOT on infrastructure
requirements. Existing infrastructure is quite old; it all needs
to be upgraded before turning dirt and moving pipe. Stakeholder
engagement continues to be a major focus in Alaska as well as
Canada. BP and ConocoPhillips have large operations in Canada
and they have been able to "piggyback" on those relationships
and build their own relationships with First Nations and
Aboriginal groups there. Finally, they are progressing their
commercial work getting ready for open season.
4:15:50 PM
SENATOR WAGONER said TransCanada is a Canadian company and
already has the right-of-way by treaty all the way through
Canada. They feel fairly comfortable they will be able to
negotiate with the First Nations. He asked if Denali has a
Canadian partner, and how they will address the fact that
TransCanada has the existing right-of-way.
MR. FACKRELL replied they established an office in Canada eight
months ago and have existing relationships with the Canadian
officials. They have also had very good conversations with the
NEB and other ministries inside Canada on how their project
would proceed.
4:17:47 PM
SENATOR THERRIAULT asked on page 2 when they say "superior
commercial offering" does that mean a lower tariff.
MR. FACKRELL replied an offering includes the tariff and other
terms and conditions. Denali believes they will have the
fundamentals in place to have a superior offer.
SENATOR THERRIAULT asked if FERC would allow a small percent of
added compression before something is determined to be a subsidy
for new shippers.
MR. FACKRELL answered that FERC hasn't issued anything on how
they define "subsidizing tariffs." They have said there is a
presumption of rolled in tariffs. They are going to have to act
on the cases as they come forward. So, they are working up the
engineering for various physical parameters on the pipeline and
are discussing those with shippers. Their base design case has
expansion capability built into it, and they expect when they go
to expansion, those rolled in tariffs might be lower.
4:23:32 PM
(Slide 9) Mr. Fackrell summarized that they are essentially
moving forward and they are on track.
SENATOR FRENCH said he didn't know if it was fair to the other
participants for EM to be able to discuss terms of AGIA with
TransCanada "on the pipeline landscape." What did he think about
a possible change of rules downstream of when his two companies
made their decision to participate in the AGIA application
process?
MR. FACKRELL answered that BP and ConocoPhillips did not submit
an application under AGIA because they didn't believe its
conditions would result in a profitable pipeline project. So
they struck out on their own without any funding, and they are
not bound by the terms of AGIA. He viewed Exxon coming on with
TransCanada as a positive because now they are at the table
playing with everyone else. Nothing else has changed. They are
moving forward to open season; their goal is to attract
customers to the pipeline.
SENATOR FRENCH said he didn't understand if he would agree or
disagree that the deal has been sweetened for another economic
entity.
MR. FACKRELL replied as he understands that, that would mean
they are changing the terms and conditions of AGIA. And if they
were going to do that, other parties might be willing to
participate in it. He said he is always asked, "When are you and
TransCanada going to join together." The problem is that his
owners do not agree with the terms and conditions of AGIA and
that keeps them from joining with TransCanada. "If they were
changed, then it's a bit of a new ballgame."
SENATOR FRENCH asked if it were changed, would that make it more
likely that Denali would join the effort.
MR. FACKRELL replied they would see what happens. Right now they
clearly have two competing projects.
SENATOR WAGONER asked how many of their employees work in Alaska
and Canada.
MR. FACKRELL replied about 75 percent work in Alaska. It's
primarily an Alaskan company based in Anchorage.
SENATOR WAGONER asked for a specific date for their open season.
MR. FACKRELL answered they have committed to commence with it
before the end of the year. He doesn't view this as a race and
wants to be ready with the very best cost estimate and
alignments when they go to open season. If they can do it
earlier than that they will.
4:25:43 PM
SENATOR THERRIAULT asked if he meant they had spent $100 million
so far or what.
MR. FACKRELL replied they have spent $100 million in the last
year - $55 million since June of last year and about $45 million
this year. Their plan in 2009 is to spend about 50 percent more
than they did last year.
SENATOR THERRIAULT said he talked to some contractors in
Fairbanks whose contracts had been cancelled. What was that
about? Also when BP joined the Denali effort there was a
statement about having a target spend of $600 million-plus; was
that up to certification or to open season? Has that planned
expenditure changed?
MR. FACKRELL explained that their program in 2009 is much
broader than what they had in 2008, which was focused on the
field program to close the gap they had between Delta Junction
and the Canadian border. A lot of extra contractors were needed
to do that field work. The focus now is broader - on cost
estimates, putting commercial work together, furthering
engagement with the shareholders along the route - getting ready
for an open season. Maybe they will spend over $100 million at
the end of this year. They are on track with the schedule and
are spending the money they need to.
SENATOR THERRIAULT asked what the total spend will be up to open
season.
MR. FACKRELL replied they hadn't put their budget together for
next year yet, but well over $100 million by the end of this
year.
4:28:55 PM
CO-CHAIR MCGUIRE asked if they will enter into discussions with
TransCanada Alaska and EM this summer and fall to look at
whether or not the project could come together.
MR. FACKRELL answered they haven't had discussions with
TransCanada because they are the AGIA licensee, and his owners
do not agree with its terms and conditions. As long as they
exist as they are today, they probably won't have discussions.
"If it changes, then we'll have to reconsider that."
CO-CHAIR MCGUIRE said one opinion in the Exxon case is that the
state has allowed them to be an equity partner without being
subject to AGIA on some level.
SENATOR WAGONER asked where it leaves everybody if EM commits
its gas to the TransCanada project and BP and ConocoPhillips
commit its gas to their project.
MR. FACKRELL replied, "First of all there's only going to be one
pipeline built here, and as I've stated before there's not
enough gas for two. And we need to get some more discoveries to
fill this one up for 50 years." Denali is a pipeline company,
separate from the shippers of BP and ConocoPhillips. So they
haven't committed their gas to Denali as EM has not committed
its gas to TransCanada. So they are both going about an open
season to attract these customers to have the best commercial
offering possible. All of the pipeline companies - Enbridge,
TransCanada MidAmerican, Denali - have testified that the
shippers are going to want to have some fiscal certainty. So,
they are hoping for something in that arena.
SENATOR WAGONER said the Keystone Project was originally a 50/50
project with TransCanada and ConocoPhillips, and now TransCanada
is going to end up with a purchase agreement for the 50 percent
ConocoPhillips has. How was that set up originally? Did
TransCanada have a separate pipeline company under an LLC to do
the Keystone part of that pipeline?
4:32:36 PM
MR. FACKRELL said he wasn't privy to that information; he worked
for BP before he came to Denali.
SENATOR WIELECHOWSKI asked if BP's and ConocoPhillips' boards
have any influence over Denali.
MR. FACKRELL explained under FERC regulations there has to be a
separation the pipeline company and the shippers. FERC
understands and the rules for open season recognize that
companies can be vertically integrated and have both pipelines
and resources. So they are going through the process of
separating themselves from the shipping arms of the company,
"and so we don't speak for the shippers and they don't speak for
us." TransCanada and Denali both have to submit a compliance
plan and code of conduct for the open season to the FERC for its
endorsement. That ensures that the information to shippers is
shared fairly. In his case, BP and ConocoPhillips does not have
an unfair advantage over anyone else out there in the market and
that will apply to any pipeline company. For that reason they
are being very careful to put up firewalls.
4:34:48 PM
SENATOR WIELECHOWSKI asked with these firewalls in place, Denali
itself has never itself built a pipeline.
MR. FACKRELL replied that Denali is a new company, but the
people on his team have built pipelines - like its operation
manager who built the Caspian Pipeline that goes from the
Caspian Sea to the Mediterranean - they are fine people. Denali
has the two companies that built the North Slope; it already has
Arctic and Alaskan experience.
SENATOR WIELECHOWSKI said the firewall between BP and
ConocoPhillips is an important point.
MR. FACKRELL said most of the people in Denali came from those
two companies.
CO-CHAIR MCGUIRE said they continue to hear rumors about
Enbridge partnering with Denali.
MR. FACKRELL said he wouldn't comment on private conversations.
4:36:51 PM
MR. FACKRELL said Denali is on track, moving ahead to conduct an
open season, and it is positioned to have a superior commercial
offering. They are not requiring anything from the state and the
economy and competition has not changed their focus.
CO-CHAIR MCGUIRE asked how the Prudhoe Bay operating agreement
which links them all together plays out in coming to the open
season.
MR. FACKRELL replied how the separation works is a very
important point. BP operates Prudhoe Bay on behalf of a number
of other companies, and BP has set up an information protocol to
go through to insure that everyone has equal access to the same
information.
4:39:31 PM
CO-CHAIR MCGUIRE asked how one could break off from the
operating agreement if gas could be economically delivered. Who
is obligated or is everyone open to bid on whatever projects
they choose in that first open season?
MR. FACKRELL explained that first of all you have to separate
producer-shippers from the pipeline company. Denali is a
pipeline company, so it has no say in how the owners, shippers
and producers are going to distribute their gas or who they are
going to go to. They make those choices themselves. So, under
FERC regulation Denali has to go out and offer space in their
pipeline to everyone. EM and TransCanada will have to do the
same thing; the shippers on the other side will have to
individually decide what they are going to do in that regard.
The AOGCC inside Alaska has a role in saying how Prudhoe Bay is
produced to insure that the resources are efficiently produced.
FERC ensures that it is fair to all parties. In the end they are
trying to attract customers and they all have to be treated
equally.
CO-CHAIR MCGUIRE asked if one of the open seasons fails, would
the legal question come up about whether or not there was an
obligation by someone to bid for capacity.
4:43:24 PM
MR. FACKRELL replied that it is the role of the shipper-
producers to meet their own obligations, not the role of the
pipeline. "The role of the pipeline is to insure that everyone
has free and open access to bid on space on our pipeline."
SENATOR WIELECHOWSKI said he has heard two interpretations of
the Prudhoe operating agreement. Interpretation one is that no
gas can be bid unless everyone agrees to bid their gas.
Interpretation two is exactly the opposite which is if one
company bids a certain amount, then all the other companies are
required to bid their gas.
MR. FACKRELL said he was sure the shippers and the operators
would answer that question for him.
4:44:19 PM
SENATOR THERRIAULT said he has still heard concerns over the one
withdrawn partner. Is it still a concern?
MR. FACKRELL replied that five of the six had been resolved and
perhaps that one would go away.
CO-CHAIR MCGUIRE thanked him for his presentation and asked him
to keep them updated. She wished them luck.
^Administration position on Exxon TC agreement
COMMISSIONER PAT GALVIN, Department of Revenue (DOR), said he
was asked to present the administration's response to the
agreement between TransCanada and ExxonMobil. He was asked if
the state needed to do anything at this point under AGIA,
Section 210, which requires commissioner approval for any
modification of the license itself. So, he put together a team
on legal issues that may be impacted by this transaction. They
got documents, asked clarifying questions and got both oral and
written answers to better understand the transaction. The legal
team determined that because there was no actual control, no
voting interest that was being created under this agreement,
that it didn't diminish the state's rights under AGIA.
4:49:56 PM
However, if ExxonMobil moved into a voting interest, that
couldn't happen until the state did public notice, notified the
legislature and was approved by the commissioners. So, at the
end of the day they determined no action was required at this
time based on these agreements. The administration is supportive
and excited by this event, and they believe it is in keeping
with AGIA's intent, which was to keep the project moving and
allowing it to advance on commercial terms.
4:51:25 PM
SENATOR FRENCH said he was worried about AGIA losing some of its
integrity if Exxon wants to talk to the state about fiscal
certainty and a couple of other AGIA must-haves to reach sort of
a global solution that would allow them to convert those non-
voting shares into voting shares, acquire a piece of the
license, commit their gas and move forward. Because the AGIA
statutes require the commissioner to bless that transfer should
it occur, he is concerned there may be some sort of slippage of
his role as an umpire of whether or not that transfer is a good
idea.
COMMISSIONER GALVIN responded that there is a whole unending
variety of ways in which they can move forward from here that is
not laid out in any particular way. It is not the
administration's intent to undermine the responsibilities of the
legislature to exercise its right to change statute. He didn't
see the linkage that Senator French was describing. He further
explained:
If there is a recognition by the state at some point
in the future that adjustments to the upstream fiscal
terms are appropriate and are needed by the companies,
that that would be something that the legislature
would be fully involved in, and it wouldn't be
something that we end up being the sole arbiter or
umpire in determining.
SENATOR FRENCH said they are moving towards a strong producer
interest in the pipeline, if not ownership. The legislature
wrestled with this a lot in passing AGIA. He came across a
fascinating presentation called "How AGIA Addresses Competitive
Issues Raised by a Producer-Owned Pipeline" presented in his
Judiciary Committee in May 2007. He felt like he achieved a
trifecta today when Mr. Minesinger walked in, because he is the
person who gave it.
COMMISSIONER GALVIN said a producer being in a position of
influence or control over this project is not precluded by AGIA.
Further, he stated:
The purpose of AGIA was to insure that any project
that comes out of this process would act like a third-
party pipeline regardless of who actually owns it.
That the bulk of the defenses, the bulwarks that have
been built into AGIA, that have been built into those
must-haves, have anticipated that the pipeline is
going to be motivated elsewhere than as an independent
pipeline. The bulk of that has been put in place with
the anticipation of producer involvement in the
decisions of the pipeline. The state's interests are
protected through those contractual obligations that
are imbedded in AGIA regardless of who the owner of
the pipeline will ultimately be.
4:57:37 PM
SENATOR WIELECHOWSKI asked what happens when producers put in a
bid contingent on fiscal certainty or new terms negotiated with
the state.
COMMISSIONER GALVIN replied their view is the same; that the
state has an existing legitimate and sufficient fiscal system.
AGIA provides what they consider to be an adequate durable
upstream inducement. If the producers feel something else is
needed, they need to tell them. The timing of whether that
happens before the open season or after is a matter of other
factors that are going to play out. The state doesn't
necessarily have to set it.
The purpose of AGIA and TransCanada having to come to grips with
the obligation to move the project through the initial open
season, even if it fails, is to protect the state's interest to
see the project continue to advance even after an unsuccessful
open season.
He said the producer's fiscal system doesn't have to take place
until they get to project sanction. Having that unresolved until
that time will not slow the project. But it's in all of their
interests to not have to fret about it that whole time and it
would be nice to have it get out of the way. But there is no
obligation or necessity for the state to put itself in the
position of becoming desperate for a deal. This is a very
important point. If they end up reaching a fiscal deal, it will
be based upon the best information available. That's going to
continue to evolve and the state will be in a better position
moving forward than it is in today.
5:00:27 PM
SENATOR THERRIAULT asked if Mr. Minesinger was part of the team
that evaluated the TransCanada EM deal and if he saw anything
that raised red flags.
KEN MINNESINGER, Greenburg Traurig, LLP, the State gasline
team's outside counsel, answered no; they took a careful look at
it and did not see any red flags. TransCanada and EM have taken
a step towards bringing one of the producers on board, and so
there is minority producer ownership on the project in a sense.
"But AGIA did contemplate that. This isn't a case of something
the administration didn't expect." AGIA was open for any company
to come in and bid - whether it be an independent pipeline or a
producer. The must-haves insured that regardless which company
came in, they would effectively act like an independent pipeline
in various ways - for lowering the tariff, expansion provisions
and so forth that benefit the state. Nothing in this changes
that.
5:03:51 PM
CO-CHAIR MCGUIRE thanked everyone and said they would keep
getting updates. There being no further business to come before
the committee, she adjourned the meeting at 5:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Denali Update - June 23, 2009.pdf |
SRES 6/23/2009 2:00:00 PM |
|
| TC-XOM Alignment Summary.pdf |
SRES 6/23/2009 2:00:00 PM |
|
| TransCanadaExxonPresentation - June 23, 2009.pdf |
SRES 6/23/2009 2:00:00 PM |