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January 2008

Vol. 13, No. 4 Week of January 27, 2008

Port Authority had partner troubles

State evaluating whether to reconsider AGIA application; organization cites threats to original partners, search for replacements

Kristen Nelson

Petroleum News

The State of Alaska said in early January that an application by the Alaska Gasline Port Authority under the Alaska Gasline Inducement Act was not complete and would not go out for public notice.

The port authority requested reconsideration of its Nov. 30 application and its Dec. 18 supplemental application. The state had not yet responded to the port authority’s request when this issue of Petroleum News went to press.

The state provided an overview of the organization’s difficulties in its letter finding the application incomplete, but the port authority lays out its problems in more detail in its Jan. 10 request for reconsideration.

The state said Jan. 4 that the Dec. 18 submittal “contains significant new information that was not included” in the Nov. 30 application and “attempts to materially change” the original application after the Nov. 30 deadline. The state said the original application did not provide all of the information required by AGIA and also did not demonstrate that the port authority had the financial resources and technical ability to perform the activities specified in its application.

The quest for partners

In its Jan. 10 request for reconsideration, Fairbanks North Star Borough Mayor Jim Whitaker, chairman of the port authority’s board of directors, said the port authority met with numerous pipeline and liquefied natural gas companies over the past year “in an effort to put together a consortium of participants in the AGIA process.” Whitaker said some of those companies “made it clear that, given their present relationship with the North Slope producers, they would not be willing to participate in the AGIA process.”

The major North Slope producers have not participated in the AGIA process and have said they want to build a gas pipeline from the North Slope in order to control project costs, which they would bear as shippers through the pipeline tariff. ConocoPhillips, one of the North Slope gas owners, submitted a proposal for a gas pipeline project to the State of Alaska outside of AGIA — not complying with all of the requirements in AGIA, but also not asking for $500 million in state matching funds and other incentives which the state offers under AGIA. ConocoPhillips said in its proposal that it wants to sit down with the state and negotiate fiscal terms.

The major North Slope natural gas owners — ConocoPhillips, BP and ExxonMobil — have told the state that fiscal certainty from the state is a requirement for a line to move forward, along with certainty in Canada and the federal enabling legislation which passed in 2004.

Pressure not to apply

The port authority said it “has learned there has been significant pressure applied to various companies to dissuade them from submitting AGIA bids,” and cited a Petroleum News August 2007 interview with David Sokol of MidAmerican Energy Holding Co. who told the paper that MidAmerican had been subject to pressure not to apply under AGIA.

The port authority said it “has experienced similar pressures and difficulties in its efforts to submit an application under AGIA.” It initially found a pipeline company to partner with and later added a liquefied natural gas company. Those two companies, however, decided to move forward with an AGIA application without the port authority.

The pipeline and LNG companies then got access from the port authority to proprietary data prepared by Bechtel Corp., but under the condition that if they decided not to submit an application under AGIA, the Bechtel work — including any updated work — would immediately become available to the port authority.

The port authority said the data is the result of work it has done over many years (the port authority was formed in 1999) “and was valued by Bechtel at over $8 million.” The data requested by the port authority’s former partners “consisted of project design, execution planning, cost estimates and other preliminary technical work.”

In mid-October the pipeline company opted out.

The port authority said the pipeline company said in early November it was considering allowing AGIA to fail to see what options the state would make available after the failure of AGIA.

Shortly thereafter the LNG company said it would not submit under AGIA.

Late start

The port authority said that at that point it determined to submit an application itself to ensure that an all-Alaska gas pipeline project was among the applicants. It “immediately served written notice” on its former partners “requesting all of their bid data, as well as access to the updated Bechtel data,” as provided in their agreements. Their former partners refused to provide the Bechtel data prior to the Nov. 30 AGIA application due date.

The LNG company then informed the port authority that it would be submitting an application and the port authority, which didn’t have time “to convert the original Bechtel work product to a usable form in the time available,” referred in its Nov. 30 application to Bechtel data which would be part of the LNG company’s application.

The port authority “also began to assemble another consortium for the application submission.” It said there was interest, but not sufficient time to both prepare an application and negotiate and prepare agreements with new partners, so the port authority focused on its own application and left formation of a new consortium until after its application was accepted.

No application from LNG company

After the application period closed, the port authority learned the LNG company had not submitted an application and it “immediately began a very aggressive campaign to obtain release of the Bechtel data to which it was entitled and had attempted to incorporate into its application by reference.”

The port authority said it had initial discussions with the administration about the difficulty it had had in obtaining technical data. On Dec. 11 the administration requested “additional specific information and clarification” regarding the port authority’s Nov. 30 application.

The port authority said that in order to obtain the Bechtel data it had to “execute an unconscionable agreement made under duress” in which, in exchange for the data, it “waived its legal claims” against its former consortium partners. The data was released at about 5 p.m. Texas time on Dec. 14 although some data was not received until Dec. 17.

The port authority said its staff and consultants “literally worked around the clock to compile in approximately 72 hours the supplemental data” the state had requested.

“Given the extensive scope and significant level of detail in the Bechtel work performed for the AGIA application, a substantially modified application was necessary in order to incorporate the new data,” the port authority told the state.

Changes in scope included a change in the size of the LNG facility and the diameter of the pipe from Delta Junction south.

The state rejected the supplemental application and found the initial application incomplete; the port authority has asked for reconsideration, arguing that if its application is not accepted for further review by the public and the commissioners, it “will have the effect of the sole-source project consideration so soundly rejected by Alaskans and the Legislature through the Stranded Gas (Development) Act.”






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