Preliminary Findings and Determination Stranded Gas Development Act May 10, 2006

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Preliminary Findings and Determination Stranded Gas Development Act May 10, 2006 Preliminary Findings and Determination As required by the Stranded Gas Development Act For a Contract between the State of Alaska and BP Alaska (Exploration), Inc. ConocoPhillips Alaska, Inc., and ExxonMobil Alaska Production, Inc. Contract Version dated , 2006 May 10, 2006 I FRANK H. MURKOWSKI, GOVERNOR DEPARTMENT OF REVENUE P.O. BOX 110400 JUNEAU, ALASKA 99811-0400 TELEPHONE: (907) 465-2300 OFFICE OF THE COMMISSIONER FACSIMILE: (907) 465-2389 May 10,2006 The Honorable Frank Murkowski, Governor The Honorable Ben Stevens, President of the Alaska State Senate The Honorable John Harris, Speaker of the Alaska House of Representatives The Honorable Lyda Green, Co-Chair Senate Finance Committee The Honorable Gary Wilken, Co-Chair Senate Finance Committee The Honorable Mike Chenault, Co-Chair House Finance Committee The Honorable Kevin Meyer, Co-Chair House Finance Committee .The Honorable Tom Wagoner, Chair Senate Resources Committee The Honorable Jay Ramras, Co-Chair House Resources Committee The Honorable Ralph Samuels, Co-Chair House Resources Committee The Honorable Vic Kohring, Chair House Special Committee on Oil & Gas Regarding: Transmittal of Preliminary Fiscal Interest Finding and the terms of the proposed Fiscal Contract between the State of Alaska and the Sponsor Group of the Alaska Gas Pipeline Project Dear Governor and Legislators; In accordance with the duties conferred on my office by AS 43.82.400, I am transmitting to you a copy of the Preliminary Fiscal Interest Finding and the proposed Alaska Stranded Gas Fiscal Contract between the State of Alaska and BP Exploration (Alaska) Incorporated, ConocoPhillips Alaska, Incorporated, and ExxonMobil, Alaska Production, Incorporated. In compliance with the requirement of AS 43.82.41 0(2), the financial, technical, market data and other documents supporting the fiscal interest finding are open and available to the public through posting on the following website www.revenue.state.ak.us/Gasline/ContractDocuments By separate action I have given the public notice required by AS 43.82.41 0(1 ). Regards, William A. Corbus Commissioner 04-D2LH y printed on recycled pope Preliminary Findings and Determination As required by the Stranded Gas Development Act For a Contract between the State of Alaska and BP Alaska (Exploration), Inc. ConocoPhillips Alaska, Inc., and ExxonMobil Alaska Production, Inc. Contract Version dated , 2006. May 10, 2006 Contents Section Page Contents .................................................................................................................................. iii Abbreviations ........................................................................................................................ xii Glossary ................................................................................................................................ xvi Executive Summary.......................................................................................................... ES-1 Preliminary Findings and Determination of the Commissioner ..........................................ES-1 Introduction..........................................................................................................................ES-2 Alaska’s Natural Gas Resources..........................................................................................ES-2 SGDA Framework ...............................................................................................................ES-3 Project Description...............................................................................................................ES-3 Summary of the Contract.....................................................................................................ES-5 Guiding Principles ...............................................................................................................ES-6 Alaskans Deserve a Fair Share of the Revenues..................................................................ES-6 Alaskans Need Access to the Gas........................................................................................ES-7 Future Explorers Must Have Access to the Gas Pipeline ....................................................ES-8 The Gas Pipeline Must be Expandable ................................................................................ES-9 The State Should Own a Share of the Pipeline....................................................................ES-9 Alaskans Deserve Pipeline Jobs.........................................................................................ES-10 Other Major Issues.............................................................................................................ES-10 SGDA Principles and Framework .....................................................................................ES-13 Evaluations Section............................................................................................................ES-15 Gas Pipeline Applications..................................................................................................ES-17 Mitigating Project Risk......................................................................................................ES-19 Gas Pipeline Financing ......................................................................................................ES-20 Steps to Move the Project Forward....................................................................................ES-22 1 Background................................................................................................................1 1.1 Alaska’s Long Run Fiscal Outlook .............................................................................1 1.1.1 Future Oil and Gas Production....................................................................................4 1.1.2 Future Energy Prices ...................................................................................................5 1.1.3 Future Alaska Government Appropriations ................................................................6 1.1.4 Non-Oil Revenue.........................................................................................................7 1.1.5 Fiscal Systems .............................................................................................................8 1.2 Alaska North Slope Natural Gas Resources..............................................................12 1.2.1 Volume of ANS Natural Gas Resources and Reserves.............................................13 1.2.2 Impacts of Gas Production on Oil Production...........................................................14 1.2.3 Cost Sharing and Economically Recoverable Oil Resources....................................15 Alaska Department of Revenue FIF-iii Preliminary Fiscal Interest Finding 1.3 History of Attempts to Build Pipeline.......................................................................15 1.3.1 Alaska Natural Gas Transportation Act (ANGTA)...................................................15 1.3.2 Projects under Other Federal Statutes .......................................................................17 1.3.3 Alaska Natural Gas Pipeline Act (ANGPA) .............................................................18 1.3.4 American Jobs Creation Act (AJCA) ........................................................................22 1.4 Stranded Gas Development Act ................................................................................22 1.4.1 History and Purpose of the SGDA ............................................................................23 1.4.2 The Municipal Advisory Group ................................................................................23 1.4.3 Definition of Stranded Gas........................................................................................24 1.4.4 Process Established by the SGDA.............................................................................26 1.5 The State’s Guiding Principles and a Development Concept for the Future ............30 1.5.1 The Governor’s Six Gas Pipeline Principles.............................................................30 1.5.2 The Alaska Development Vision...............................................................................30 1.6 Negotiations with the Sponsor Group .......................................................................32 1.6.1 Due Diligence and Verification.................................................................................33 1.6.2 The Negotiations and Core Issues .............................................................................36 2 Project Description..................................................................................................39 2.1 Overview ...................................................................................................................39 2.2 Physical Components................................................................................................40 2.2.1 Gas Treatment Plant (GTP) .......................................................................................40 2.2.2 Mainline.....................................................................................................................41 2.2.3 Gas Transmission Pipelines.......................................................................................41 2.2.4 Alaska – Alberta Pipeline..........................................................................................41 2.2.5 Natural Gas Liquids
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