ENERGY DEVELOPMENT : HOW NORWAY DOES IT Who went to Norway Why we went What we learned

1. ENERGY DEVELOPMENT: HOW NORWAY DOES IT • Who went to Norway • Why we went • What we learned

2. Who Went: 45 Alaskans: • 12 Legislators (Republicans and Democrats) • Oil and Gas Industry Representatives • Renewable Energy Practitioners and Advocates • Local Government Reps • Economic Development Interests/Investors • One Fed

3. Tour Focus: Norway’s Investment in Energy: • Oil and Gas Development for Export • Hydro-Electricity for Domestic Consumption

4. Why We Went:Oil Production in DeclineAlaska’s Economic Future is Uncertain

5. 7 Years of Surplus Ahead; Then What?

6. What We Learned (50K’ view): • Norwegians are not worried about their economic future. • Norway has abundant, affordable electricity for all Norwegians. • Norway has stopped oil and gas production decline.How? • Norway attracts investment capital with investment incentives.

7. “The Norway Model” (50K’ view): • Norway is an Owner and Investorstate. • Makes direct $ investment in its energy development. • Equity ownership = control • Takes calculated risks. Reaps rewards. • Thinks long term: Multi-generation planning

8. NORWAYwith Alaskan cities at corresponding latitudes

9. Norway Today

10. Snapshot of Norway (2010): • Population: 4,888,000 (7x that of Alaska) • Income Per Capita: $88,400 (vs. $43,209 AK) • Income: GDP/PPP: $59,100 (vs. $47,700 U.S.) • Unemployment Rate: 3% • % of Government annual expenditure paid by oil and gas revenues: 10 - 26% (vs. 80-90% AK) • Democratically elected unicameral Parliament. Plus ceremonial monarch.

11. What We Learned:Norway’s version of a Permanent Fund is much bigger than ours.$3 Trillion before oil & gas run out.

12. Norway’s OIL and GAS • Primarily for export • World’s 6th largest oil exporter • Europe’s 2nd largest gas exporter

13. Norway’s Continental Shelf100% of Oil and Gas is Offshore/State-owned

14. Norway’s Oil and Gas Production:Production Decline Delayed for 10 – 20 years

15. We Also Learned:Norway has more jobs in the oil and gas sector than Alaska.

16. How they did it:

17. Started by the Norwegian government to learn the oil business and bring jobs to Norwegians, STATOIL is now a publicly traded private oil and gas giant. Norway earns dividends of $3,000,000,000 per year from its ownership of 68% of STATOIL’s shares.

18. STATOIL is now operating in 34 countries • North American Headquarters in Houston • With 140 Norwegian oil and gas support companies • Norway’s #2 export: Oil and gas support and expertise

19. STATOIL is now in Alaska: • 16 of its own leases in the Chukchi • More leases shared with ConocoPhillips • Offices in Anchorage • Norway’s government will likely receive more $ from production in the OCS off Alaska than the State of Alaska will.

20. A Major Finding: Norway successfully attracts private investment to develop its oil and gas resources: 60+ International oil and gas producers are investing in Norway.

21. How Does Norway Attract Investment Capital? • Norway has a tract licensing and co-investment system that provides investment incentives and aligns Norway’s financial interests with those of the private sector.

22. Norway’s Licensing System: • Norway selects tracts to license after consultation with stakeholders. • Norway conducts initial seismic (2D); results are made public • Norway determines its % investment share in each tract (S.D.F.I.) • Industry applies for 6 year licenses • Application consists of a work plan, financial strength, safety record

23. Norway’s Licensing System (cont.) 7. No bonus bid, no royalty 8. Licenses are awarded based upon work plan and qualifications; 6 years = “Drill or Drop” 9. One license may include several partners including Norway as a co-investor (S.D.F.I.) 10. All information is shared between partners

24. 60+ Oil and Gas Companies Invest in Norway

25. BUT: The #1 investor in Norway’s oil and gas development is…… NORWAY (Via SDFI)

26. What is SDFI?State Direct Financial Interest • State invests and participates directly (the same as a producer) in the development of the resource • Percentage set upfront on a field by field basis • State pays its proportionate share of the exploration and development costs, receives a proportionate share of the production • State substitutes: • Definitive work and investment commitments, for upfront lease bonus • State participation in development decisions and access to information, for passive royalty role • Effect: • State becomes an active participant rather than a passive, back seat driver • Producer investment decisions are no longer distorted by “dead” capital; all investment produces returns

27. What Private Companies Like:Investment Incentives: • Reduced Risk (2D seismic provided by Norway) • Reduced Up-Front Costs (no $ bids) • Shared Risk/CO-INVESTMENT (SDFI) • Alignment between Norway and industry • Tax Stability: 78%; non-progressive. Rapid deductibility of development costs • Predictability: Quick permitting, consistent environmental and safety rules, limited judicial interference.

28. Predictable Environment and Safety Rules and Penalties:

29. BOTTOM LINE: • RETURN ON INVESTMENT: • Predictable: From license to production quickly • Fast: In as little as 2 years

30. Domestic Energy Consumption: HYDROELECTRICITY IS KING

31. Over 100 Years of Hydroelectric • Foundation of Norway’s modern economy • Early 20th century dams still producing • Large build-up post WWII • Electricity is used for heating.

32. Norway’s Hydroelectricity • Grid: To all communities. Owned or controlled by Norwegian government • Electric costs similar across Norway • Co-exists with Norway’s valuable fishing industry

33. Norway’s Global Energy Outlook

34. Most significant lesson learned • Alignment of interests between the State and producers resulting from SDFI (State Direct Financial Interest) creates significant benefits • As an investor, State gains an understanding of investment dynamics • As an investor, State has full access to data and better understands field dynamics and development • As an investor, State participates directly and has the ability to help drive development decisions • Increases State understanding, reduces State suspicion • Norway once used bonus and royalty system, but transitioned away from it because they concluded it impaired investment decisions

35. Implementing SDFI in Alaska • Can be added as an option in new leases • But, that does not reach “low hanging fruit” • Best option in the near term for offsetting production declines/increasing production is by developing viscous, heavy and economically challenged horizons in existing fields • Significant resource, no significant permitting requirements, existing infrastructure, known resource • Challenge is to make SDFI available as an option to help immediately • Important part of Norwegian model: create a professional, non-politicized corporation (similar to Permanent Fund Board) to administer state’s interest

36. A Way Forward • Create a mechanism for converting to SDFI under existing leases (upon mutual agreement) • Focus on new areas: previously undeveloped or underdeveloped horizons (heavy, viscous and economically challenged) • Provide option for converting to SDFI for development of those areas • Key provisions • State exchanges royalty for specified ownership percentage, fixes fiscal terms, becomes a participating owner • Parties (including State) agree to a specified work commitment for the agreed areas • Create a professional, non-politicized corporation (similar to Permanent Fund Board) to administer state’s interest

37. SUMMARY: The Norway Model: • SAVE • INVEST • Co-Investment in Oil and Gas for Export • Invest in Renewable Energy for Domestic Use • PROSPER

38. 7 Years of Surplus Ahead; What Might Norway Do?

39. THANK YOU!