Putting the Guidance Documents (HOA + MOU) in Context A Presentation to the Fairbanks Chamber of Commerce Department of Natural Resources March 5, 2014 Joe Balash Commissioner Department of Revenue Michael Pawlowski Deputy Commissioner
Where We Are Today? SB 138 Jan- April 2014 GO AGIA: All AGIA and Denali work is contributed to AKLNG with State: ~$330 million passage of enabling legislation (SB 138). APP (TransCanada & EM): State & TransCanada mutually ~$130 million abandon AGIA license. No more reimbursement. Heads of Agreement Denali Stop: does State buy $130 (BP & CP) million of APP ~$200 million data? AGDC ASAP Advancing to 2015 Open Season (sharing w AKLNG) 2
Guidance Documents & SB 138 HOA and MOU Heads of Agreement Describe how SB 138 (HOA) would be used. Describes roadmap to advance project through Senate Bill 138 phased process. Describes understanding Participation in the and consensus on key terms. AKLNG Project. Percentage of State Memorandum of Gas Share and Participation Understanding in the AKLNG Project. (MOU) Legislature Process for Describes agreement to decides whether development of Project transition from AGIA License to advance or Enabling Contracts and to a more traditional not. Legislative oversight and commercial relationship. approval of future contracts. Describes key commercial terms for that relationship. 3
GROSS TAX RATE SETS THE TOTAL STATE GAS SHARE & EQUITY PARTICIPATION VALUE TO SOA ALASKA NORTH SLOPE ROYALTY GAS STUDY SENATE FINANCE COMMITTEE – OBSERVATIONS ON HOA SENATE FINANCE COMMITTEE – OBSERVATIONS ON HOA Total State State Equity State Tax Gas Royalty Gas Gas Share Participation Investment 8% 13% 20% 20% $9B Total State State Equity State Royalty Gas Tax Gas Gas Share Participation Investment 10.5% 13% 22% 22% $10B Total State State Equity State Tax Gas Royalty Gas Gas Share Participation Investment 14% 13% 25% 25% $11.3B 4
OPTIONS IDENTIFIED BY STATE FOR EQUITY PARTICIPATION SENATE FINANCE COMMITTEE – TRANSCANADA PARTICIPATION ALASKA NORTH SLOPE ROYALTY GAS STUDY GTP Pipeline LNG Plant SOA Alone SOA : 25% SOA: 25% SOA: 25% SOA + TC TC: 25% TC: 25% SOA: 25% No Buyback TC: 15% TC: 15% SOA + TC SOA: 25% with Buyback SOA: 10% SOA: 10% 5 * Assumes 25% State equity participation
IMPLICATIONS OF OPTIONS AND POTENTIAL OFF RAMPS SENATE FINANCE COMMITTEE – TRANSCANADA PARTICIPATION ALASKA NORTH SLOPE ROYALTY GAS STUDY TIMELINE: 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 FID PROJECT STAGE: PRE-FEED FEED CONSTRUCTION STATE INVESTMENT SOA GO IT ALONE: $108M $450M $13.2B $43M $180M $6.7B TC NO BUYBACK: Pay TC Dev. Costs of ~$70M Pay TC Dev. Costs of ~$390M (Incl. AFUDC of $5M) (Incl. AFUDC of $50M) TC WITH 40% $43M $360M $9.3B BUYBACK: Pay TC Dev. Costs of ~$70M Pay TC Dev. Costs of ~$230M (Incl. AFUDC of $5M) (Incl. AFUDC of $30M) 6 * Assumes 25% State equity participation
SOA UPFRONT CAPITAL COST EXPOSURE IS SOA ALONE? REDUCED THROUGH TC PARTICIPATION SENATE FINANCE COMMITTEE – TRANSCANADA PARTICIPATION ALASKA NORTH SLOPE ROYALTY GAS STUDY STATE OF ALASKA ANNUAL INVESTMENT TransCanada participation can reduce the State’s investment during peak construction by $1.6B-$2B/YR 7 * Assumes 25% State equity participation
RETAINING MOMENTUM ON PROJECT COULD BE MORE VALUABLE THAN SECURING BETTER COMMERCIAL TERMS TC AS PARTNER SENATE FINANCE COMMITTEE – TRANSCANADA PARTICIPATION ALASKA NORTH SLOPE ROYALTY GAS STUDY Each 5% decrease in Each 1% decrease in equity ratio is ROE is equivalent to equivalent to $200MM $100MM in additional in additional NPV to NPV to State State Each year’s delay in project operation is equivalent to loss of $800MM in NPV to State 8
SUMMARY ON 4 KEY QUESTIONS SENATE FINANCE COMMITTEE – TRANSCANADA PARTICIPATION • Total cash flows • TC can reduce ALASKA NORTH SLOPE ROYALTY GAS STUDY reduced by $4B; SOA investment NPV impact is by$4-$7B marginal • SOA may hit debt limits ECONOMIC going alone CAN THE IMPACT TO STATE GO IT THE STATE ALONE? FROM TC? DOES TC BEAR ANY IS TC A GOOD FINANCIAL PARTNER? RISK? • Change in • Experience financing could • Momentum materially lower • Expansion TC’s ROE & NPV 9
SENATE FINANCE COMMITTEE – OBSERVATIONS ON HOA SENATE FINANCE COMMITTEE – OBSERVATIONS ON HOA ALASKA NORTH SLOPE ROYALTY GAS STUDY ROYALTY & TAXES PRESERVE VALUE TO STATE FROM Total Cash Flow (Through 2041) = $72 Billion VALUE TO SOA 10
Summary The Heads of Agreement (HOA) and Memorandum of Understanding (MOU) provide guidance on how the powers provided in SB 138 will be used. At each stage in the project there are “off - ramps” and decision points for Legislative and public review. Commitments by the State will be made commensurate with progress by the project. 11
THANK YOU Please find our contact information below: Joe Balash Michael Pawlowski Commissioner Deputy Commissioner Department of Natural Resources Department of Revenue Joe.Balash@alaska.gov Michael.Pawlowski@alaska.gov Resources http://dor.alaska.gov/AKGasDocs.aspx www.dnr.alaska.gov/AKgas.htm
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