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Team Objectives

Overview & Status for: International Association of Energy Economists Alaska Chapter October 25, 2001 Anchorage, Alaska. Team Objectives. Assess the economic viability of a pipeline project Focus on route evaluation Cost and environmental considerations

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Team Objectives

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  1. Overview & Status for:International Association of Energy EconomistsAlaska ChapterOctober 25, 2001Anchorage, Alaska

  2. Team Objectives • Assess the economic viability of a pipeline project • Focus on route evaluation • Cost and environmental considerations • Prepare sufficient information to support potential permit applications Safe and Environmentally Responsible

  3. Alaska Gas Resources & Major Producers Location Map Milne Point • North Slope discovered resource = 35 Tcf • Prudhoe Bay – 8 Bcf/d of production, currently reinjected into reservoir • Ultimate ANS resource estimates ~100 Tcf Northstar Endicott Alpine Kuparuk Pt. Thomson Liberty Prudhoe NPRA Bay Badami TAPS Coastal Plain (1002 Area) Developments Colville River Major Discoveries 0 5 10 15 20 25 Alaska Gas Owners ANWR Miles LJL (April, 1997) Others BP State Phillips ExxonMobil

  4. Preliminary Comparison of Two Pipeline Routes Southern Route 2,139miles Northern Route 1,803miles Pipeline Design Basis Diameter 52” High pressure 2,500 psi Buried line Throughput 4-6 bcf/d Note: Mackenzie Valley Pipeline 1,140miles

  5. Route Attribute Elements • Economics • Revenues • Gas Access • Jobs • Environment • Safety • Timing

  6. Element 1: EconomicsNeither Route Is Economic • Price Assumptions • Based after EIA, ~$3.00/mmbtu, escalating with inflation. • View 2000 price spike as an anomaly. Total Project Cost ($bn) (4.0bcf/d from Alaska, 0.8bcf/d from MD) South North Gas Treatment Plant 2.6 2.7 Alaska to Alberta 9.0 6.8 Alberta to Market 5.3 5.3 NGL Extraction Facilities 0.3 0.3 Alaska Project Total 17.2 15.1 Mackenzie Delta Line 2.3 0.9 Pt.Thomson Development 1.3 1.3 Notional Toll ($/mcf) (Alaska North Slope to US L-48 Market) South North Gas Treatment Plant 0.30 0.32 Alaska to Alberta 1.31 0.97 Alberta to Market 0.78 0.78 Total 2.39 2.07 All number in US dollars Project Discounted Cumulative Cash Flows ($bn) (at 15% discount rate) 10.0 8.0 North 6.0 South 4.0 2.0 0 North -2.0 South -4.0 -6.0 -8.0 EIA Price Scenario -10.0 2000 2005 2010 2015 2020 2025 2030 2035 2040 Total Governments* Owners * Includes Mackenzie Delta Benefits • Owner’s investment not repaid. • Additional risk from price and cost uncertainty. • Team is still working to improve economics by lowering costs.

  7. Average ‘00-‘01 $4.09/mmbtu Average ‘96-‘99 $2.27/mmbtu Average ‘90-‘95 $1.80/mmbtu Element 1: EconomicsGas Price History and Forecast 10.00 9.00 8.00 7.00 6.00 Henry Hub Gas Price ($/mmbtu) 5.00 Based after EIA, 2001 4.00 3.00 2.00 1.00 0.00 1990 1993 1996 1999 2002 2005 2008 2011 2014 • Demand growth encouraging • Highly volatile commodity • Intense market competition • Successful project must have competitive cost of supply

  8. Element 2: RevenuesSubstantial Government Revenues Regardless of Route Total Undiscounted Revenue Total Undiscounted Revenue North South $68.0bn, MoD $66.2bn, MoD Canada Federal Canada Federal $11.3bn $11.2bn State of Alaska State of Alaska $24.1bn $22.7bn Canadian Provinces Canadian Provinces $6.7bn $6.9bn US L-48 States US L-48 States $1.7bn US Federal $1.7bn US Federal $24.2 $23.7bn • Assumptions: • Both routes include MD upstream and midstream revenues.

  9. Element 2: RevenuesState of Alaska Revenues Total State of Alaska Revenues Difference in Alaska State Revenues North vs. South 25.0 4.0 Income Tax 3.5 20.0 3.0 Ad Valorem Tax 2.5 15.0 2.0 Total Revenues ($bn, MoD) Severance Tax Delta Cum. Revenues ($bn, MoD) 10.0 1.5 1.0 Current Project 5.0 0.5 Royalty 0 0 20 40 60 80 100 120 0.0 South North ANS Developed Reserves (Tcf)

  10. U.S. Regulatory Enabling Legislation • Creates market-driven, expedited regulatory process for any viable project(s) • Subject to FERC regulation; fair and reasonable terms and conditions; open access • Subject to all environmental laws and regulations; 18 month EIS completion • Producer participation in Senate Energy Committee testimony on October 2 • Senate Energy Bill now going straight to floor • Language developed by producers in current mark up • Creates best possible structure for successful Alaska Pipeline Project

  11. Way Forward • Feasibility study underway – expect engineering to be completed by year-end. • Update of project economics / route attribution comparison to follow • Then open season decision to be made: • Project economic? • Enabling legislation been enacted? • State fiscal certainty progressed? • Route selected?

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