Overview & Status for:

International Association of Energy Economists

Alaska Chapter

October 25, 2001Anchorage, Alaska

September 2001 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

September 2001 3

Miles

0 5 10 15 20 25

TAPS

Northstar

Endicott

PrudhoeBay

Kuparuk

MilnePoint

NPRA

ANWR

CoastalPlain

(1002 Area)

Colvi

lle R

iver

LJL (April, 1997)

Pt. Thomson

DevelopmentsMajor Discoveries

AlpineLiberty

Badami

Location Map

Alaska Gas Resources & Major Producers

• North Slope discovered resource = 35 Tcf• Prudhoe Bay – 8 Bcf/d of production,

currently reinjected into reservoir• Ultimate ANS resource estimates ~100 Tcf

Alaska Gas Owners

ExxonMobilPhillips

StateOthers

BP

September 2001 4

Preliminary Comparison of Two Pipeline Routes

Southern Route 2,139milesNorthern Route 1,803miles

Pipeline Design Basis

Diameter 52”High pressure 2,500 psiBuried lineThroughput 4-6 bcf/d

Note: Mackenzie Valley Pipeline 1,140miles

September 2001 5

Route Attribute Elements

1. Economics2. Revenues 3. Gas Access4. Jobs5. Environment6. Safety7. Timing

September 2001 6

Total Project Cost ($bn)(4.0bcf/d from Alaska, 0.8bcf/d from MD)

South NorthGas Treatment Plant 2.6 2.7Alaska to Alberta 9.0 6.8Alberta to Market 5.3 5.3NGL Extraction Facilities 0.3

0.3Alaska Project Total 17.2 15.1

Mackenzie Delta Line 2.3 0.9Pt.Thomson Development 1.3

1.3

Notional Toll ($/mcf)(Alaska North Slope to US L-48 Market)

South NorthGas Treatment Plant 0.30 0.32 Alaska to Alberta 1.31 0.97Alberta to Market 0.78 0.78Total 2.39 2.07

All number in US dollars

Price Assumptions• Based after EIA, ~$3.00/mmbtu, escalating with inflation. • View 2000 price spike as an anomaly.

Total Governments* Owners

Project Discounted Cumulative Cash Flows ($bn) (at 15% discount rate)

2000 2005 2010 2015 2020 2025 2030 2035 2040-10.0-8.0-6.0-4.0-2.0

02.04.06.08.0

10.0

EIA Price Scenario

NorthSouth

NorthSouth

• Owner’s investment not repaid. • Additional risk from price and cost uncertainty. • Team is still working to improve economics by

lowering costs.

* Includes Mackenzie Delta Benefits

Element 1: EconomicsNeither Route Is Economic

September 2001 7

Element 1: Economics Gas Price History and Forecast

• Demand growth encouraging• Highly volatile commodity• Intense market competition• Successful project must have competitive cost of supply

1990 1993 1996 1999 2002 2005 2008 2011 20140.001.002.003.004.005.006.007.008.009.00

10.00H

enry

Hub

Gas

Pri

ce (

$/m

mbt

u)

Average ‘90-‘95$1.80/mmbtu

Average ‘96-‘99$2.27/mmbtu

Average ‘00-‘01$4.09/mmbtu

Based after EIA, 2001

September 2001 8

Total Undiscounted RevenueSouth

$66.2bn, MoD

$22.7bn

$1.7bn$23.7bn

State of Alaska

US L-48 StatesUS Federal

$6.9bnCanadian Provinces

$11.2bnCanada Federal

Total Undiscounted RevenueNorth

$68.0bn, MoD

$24.1bn

$1.7bn$24.2

$6.7bn

$11.3bn State of Alaska

US L-48 StatesUS Federal

Canadian Provinces

Canada Federal

Element 2: Revenues Substantial Government Revenues Regardless of

Route

Assumptions:• Both routes include MD upstream and midstream revenues.

September 2001 9

Total State of Alaska Revenues Difference in Alaska State RevenuesNorth vs. South

00.51.01.5

2.02.53.03.5

0 20 40 60 80 100 120ANS Developed Reserves (Tcf)

Del

ta C

um. R

even

ues

($b

n, M

oD)

Current Project

Element 2: Revenues State of Alaska Revenues

0.0

5.0

10.0

15.0

20.0

25.0

South North

Tota

l Rev

enue

s (

$bn,

MoD

)

Royalty

Severance Tax

Ad Valorem Tax

Income Tax 4.0

September 2001 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

September 2001 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?