SB 318 NORTH STAR OIL & GAS LEASE AMENDMENT  The following is a verbatim transcript of testimony taken on SB 318. CHAIRMAN LEMAN: We'll next take up SB 318. The Committee adopted, yesterday, a Resources Committee substitute and we obviously do not have right now enough people to adopt any other amendments or to report the bill from this committee. I think others will be coming shortly. At least that's my understanding. I'll note that we have Eric Luttrell from BP on line and Commissioner Shively was just here and has just stepped out, but what I'd like to do is, since the CS is essentially is in three sections. There are findings of fact, findings of conclusion, and then there's the section on the amended agreement. I'd like to go through at least the first part that I think we can do now, if all the others are showing up and step through each article of the findings of fact and make sure that what we heard and read is correct. I didn't want to misrepresent anything in the findings that was other than what was said. I recognize that in some cases when your taking directly off a transcript, there's words that are said in a different order when you're speaking that make sense and when you read it in writing don't make so much sense and I'm perfectly willing to pick up those types of corrections to clean it up a little bit if we can as we go along. Because I find that there are a few awkward statements made that at the time they were being said I didn't think they were awkward, but they seem awkward in reading them. Having said that, I'd like to first see if there's any comments on article one, the State's net profit sharing history of the Northstar leases before unitization. Commissioner Shively, are you going to be representing the department here today? Is there anything in that first article that you want to comment on. COMMISSIONER SHIVELY: Mr. Chairman, for the record, my name is John Shively. I'm the Commissioner of Natural Resources. To be fair, we have not had time to do a complete analysis of a 40-page committee substitute for a three page bill. And so I don't want to mislead you or anyone else into saying that we're prepared to complete the exercise that you want to go through tonight. I believe that we do have Ken Boyd, Patrick Coughlin, and Kevin Banks at the LIO in Anchorage, but I would like to make some general comments, if that's acceptable. CHAIRMAN LEMAN: O.K. COMMISSIONER SHIVELY: I think that in general section one of the bill, although it captures some of what was said is unnecessarily of one-sided portrayal of not only what we testified to, but what the facts are. In addition, then, in at least a couple places the material that we delivered to the committee, either in writing or in testimony, has been inaccurately portrayed. And I think most importantly the whole discussion of section one ignores the down side to the State almost totally which is a big part of why we have this agreement in front of you. So, if you want to start through paragraph by paragraph, I believe that Mr. Coughlin will be prepared to tell you those paragraphs we have some questions with and I would be prepared to help. I don't know how valuable the exercise is at this point given that, as I understand it, the sort of critical part, the rewrite of the agreement is not acceptable to BP and therefore the legislation is not acceptable. But we're willing to do whatever you would like. In the interest of time I would suggest that at some time tomorrow we probably could have in writing those places where we think there are misstatements of what we provided the committee and where we think there are omissions. CHAIRMAN LEMAN: That would be fine with me and we don't have enough people here to move the bill today and I'm not interested in rushing a bill through that does not accurately portray what is fact. Certainly holding it till tomorrow will help accomplish that. My understanding in talking with Mr. Luttrell just a few minutes ago was that, while BP may have some problem with the presentation of the findings, they do not object to having findings and so that's why I was interested in stepping through and determining what is factual, what is not, and if it is one sided, then, perhaps, inserting those things that, if you're concerned about, we can insert other things and make it less one sided, if that is indeed the case. COMMISSIONER SHIVELY: I think there is one other sort of substantive problem. There are some things in here which we believe were not ever put in the record, unless the committee has other material. So, that's another problem that we've seen. There are areas that have been covered that as far as we know were not in the record. CHAIRMAN LEMAN: You'll be able to identify those? COMMISSIONER SHIVELY: Yes. CHAIRMAN LEMAN: O.K. Do you have anything else? Questions? CHAIRMAN LEMAN: Mr. Luttrell was there anything you would like to say now. We do have the letter from you that I was just shown minutes ago. Would you prefer to hold off and step through or provide us some other response, point by point on the findings or tomorrow or do you want to do that today or what's your pleasure? ERIC LUTTRELLL: My name for the record is Eric Luttrell. I am the Vice President of Exploration and Development for BP in Alaska. I'm not actually prepared today to have any long conversations about the findings about section one, about the findings of fact. As you know, I told you on the phone we do not see the necessity to have that. If this is something that you think we should, however, be responding to, we will take the time over the next couple of days to go through that carefully to ensure that we correct the inaccuracies that we also saw in the initial reading of it. As I said to you before, I thought it was only appropriate and - that the legislature put findings in here, particularly findings of conclusion. And I note that I've seen a document from one of the Senators suggesting some additional language in the findings of conclusions and I would encourage and work with the legislature to ensure that those are accurate representative [indisc] of the legislature. CHAIRMAN LEMAN: O.K., just trying to think in the interests of time, if you need a couple of days, that may put us beyond tomorrow and would mean that we probably get the information, perhaps, some time over the weekend and could deal with this bill on Monday. SENATOR PEARCE: Did I miss something? I read the letter to say that if there are any changes, BP won't accept it. So I don't know why we're bothering with the findings. MR. LUTTRELL: If you would like, I will read my letter into the record, if you so choose and comment about the letter itself. CHAIRMAN LEMAN: O.K., please do, probably not everybody in the room or people listening have a copy of the letter. So go ahead. MR. LUTTRELL: For the record, Mr. Chairman and members of the committee, BP has reached a negotiated agreement with the State of Alaska to amend the Northstar unit leases. The legislature has been asked to consider and ratify that agreement. Ratification will lead to the early development of Northstar to the mutual benefit of both Alaska and BP. The CS or committee substitute has altered the agreement attempting to reopen negotiations. All of the areas of the original agreement which have been amended in the CS version are areas which were carefully discussed and negotiated to arrive at the balanced agreement. Both we and the DNR sought to explain to your committee the reason for our - for these conclusions. BP will not reopen the negotiations and cannot agree to changes. To be clear, BP and its contractors have heard the concerns of the legislature over local hire and we reaffirm our public commitment to maximize job opportunities for Alaskans and Alaskan contractors represented by Northstar development. CHAIRMAN LEMAN: Mr. Luttrell, do you have just a general opposition to what you call reopening negotiations or do you have specific response to the changes that we are proposing to make in this agreement. You, know the changes we're proposing, in my opinion, represent what was presented to us in committee. At least, it's our interpretation of what was said in committee or presented to us and did not change the substance of the agreement. We haven't changed the terms, the monetary terms. We have changed the effective date and we did change, as I alluded to earlier, the section on local hire just, it just says to the extent allowed by law and then it, you know, I think it helps clarify that language. It provides a little more comfort for committee members. But otherwise I believe that everything else is consistent with the testimony and the presentations. If we have inaccurately interpreted that, I'd like to know those specific areas. Otherwise, I'm wondering if there are fixes we can make to it that would cause you to move from the position or if there really are not changes we can make that would cause that. Is it you're saying it's either that agreement or none. MR. LUTTRELL: Well, as we have discussed on several occasions, our concern is that once we open Pandora's box of making changes in the agreement, we'll be negotiating with 60 different people over the next three weeks and we don't think that's a practical way to go forward. As I said in my letter, we had worked most of these issues very, very carefully both with the Department of Natural Resources and the Department of Law and feel as though they have been address as effectively as practical in the agreement. So our position would be that we would like to see no changes in the amendment to the lease, itself. We are, as I said before, very open and have expected that the legislature would make changes to the findings. CHAIRMAN LEMAN: Commissioner, do you have anything else to add and then I'll just... COMMISSIONER SHIVELY: Mr. Chairman, just one in terms of for the final change on page 40 where they - you ask that I deliver a letter to the revisor of statutes confirming that BP Exploration or its parent entity has made an irrevocable commitment to full funding. I cannot believe that any company would make a fully irrevocable commitment. As things go along, there may be a variety...so I think that's a standard that I probably cannot meet. CHAIRMAN LEMAN: What does project sanction mean to you? COMMISSIONER SHIVELY: Project sanction, to me, means that the Board of Directors has agreed to proceed with the project. And that then BP starts spending money. As I think you probably know from engineering there may come times for a variety of situations that are outside of BP's control where they may choose to stop. So I don't want to speak for them, although I have discussed this issue a little with them. Irrevocable means they have to proceed no matter what with the spending of that money. I don't think they will do that. I think they will spend the money if it makes sense and they want the project, but if oil drops to $6 a barrel or the pipeline has to be shut down or a variety of other things, you're asking them to continue to spend money no matter what the situation is. Although I think risk of that is relatively small, it's not a risk that I assume they would take. CHAIRMAN LEMAN: I don't read that they would have to continue spending the money. I read what's on page 30 would kick in which is if you don't meet the agreement, then you lose the leases which is their drop dead provision that you had in the agreement. MR. LUTTRELL: If I could enter into this conversation briefly, Mr. Chairman. I think the reason the language was written the way it was. Because the agreement was that if we fail to go forward with the project, the leases would go back. So the necessity to change the language did not seem important to me. It didn't seem like it was a big deal, but the committee substitute chose to change the language and I would concur with what Mr. Shively has said. It's almost like we're changing the language for the joy of changing the language. CHAIRMAN LEMAN: Mr. Baldwin, did you have anything you wanted to add to this discussion today? Would you be prepared at a future time to give us specific comments on the findings? We laid out here what at least we believe came out of the transcripts. It's possible. Ann does a wonderful job. I haven't seen too many people do a job that's much better and more timely. But it is possible we could have misinterpreted in pulling things out and then things could be clarified. MR. BALDWIN: We've looked at the references to what we've advised the committee and we feel they are accurately reflected here. COMMISSIONER SHIVELY: Mr. Chairman, just for the record. I did not mean to indicate that any of the quotes were inaccurate. I actually was amazed, as a matter of fact, at how accurate the quotes were. I just felt that they didn't portray the entire picture that the Department presented on this project. CHAIRMAN LEMAN: But if you would provide us something that maybe would help give us a clearer picture, I would certainly appreciate that. COMMISSIONER SHIVELY: We intend to. CHAIRMAN LEMAN: There were one or two places where, John, in your testimony I thought it was just a little bit awkward to where you probably in speaking paused and regrouped or something. You know how a conversation takes place, but in writing it wasn't as clear and if you could specifically look at those I could probably even identify where they are and then maybe we could correct that. That way for someone else who wasn't here at the hearings, reading this at some future time... COMMISSIONER SHIVELY: We will certainly try to do that, but I believe that in terms of the quotes, they were very accurately captured, even if I didn't make sense.