JANIE LEASK: Thank you. (Applause) Well, we have a number of probing questions here, Jim. The first one is you stated that the Governor wants Alaska to mimic Alberta development example as pertains to among other aspects of their petrochemical industry. How would development of Alaska's petrochemical industry proceed under the Governor's vision? Does this mean that the chemical -- DOW chemical or another petrochemical corporation would built a plant at tidewater?

JIM CLARK: You know, I've got a loud voice so I'll just stand here and answer.....

MS. LEASK: Okay.

MR. CLARK: .....and let you have the microphone.

MS. LEASK: That's fine.

MR. CLARK: I think that what we're looking at is any opportunity we may have particularly on the North Slope. I'm not so sure about tidewater. To build a plant to take off either the heavier liquids or the heavier -- or the more rich gas products. So that's something that we've reserved the right for Alaskans. We are particularly looking at an NGL plant and to see what the opportunities are for that, so it's going to be the market that will decide this, not us. But our job is to make sure we provide the opportunity and that's how we're approaching it.

MS. LEASK: While the State has signed a contract with those North Slope producers on gas, the State stopped negotiating with the pipeline authority on an all Alaska project and also stopped negotiating with Trans-Canada. Is it the State's view these projects should dry up and blow away?

MR. CLARK: I don't know that dry up and blow away is exactly the term I'd use. Our policy is based upon the direction we got. If you look at both the federal legislation and the state legislation the premise was that we would have a negotiated business deal that we put together.

And the other projects because the proponents of the ideas don't have the gas means litigation first. And litigation would take a number of years. And one of the things we're concerned about is what I'll call the window for Alaska's gas. At some point LNG from all over the world is going to be coming into Alaska. I think at some point Alaska's line would be developed, not withstanding the LNG, but it changes our place in line. We have what's called a stacking problem, in terms that there are projects all over the world that could be developed. 6,000 trillion cubic feet of gas around the world. And when we can negotiate a deal as we demonstrably have what is the point of going through 10 years of litigation to do another deal? So basically that's the reason. It's not we don't want anybody to dry up and blow away, we want to find a place for everybody in this and I think we can.

And I think we get this deal going forward, I mentioned a lateral. It may not go to Valdez, but it may go to Kenai where we have a petrochemical industry already. And having represented Alaska Pulp down in Sitka I can tell you when a big plant goes down they don't come back up. And one of the things we're really concerned about is what can we do to provide hope and opportunity to the people in Kenai to keep that petrochemical industry alive.

So we have a lot of ideas. We don't want anybody to dry up and blow away, but on the other idea -- but on the other basis even though I'm a lawyer and probably benefit from it, we don't want to spend 10 years in litigation before we find out whether we can have a gas line. That's the reason we proceeded as we have.

MS. LEASK: You talked about fiscal certainty in the gas contract. How can you assure producers of this given that the Legislature has power to change laws each session?

MR. CLARK: Well, the Legislature has the power to change the law, but there's also a provision both in Federal and State Constitution respecting the sanctity of contracts. So if we enter into a contract you can expect that going forward that same provision would be protected.

We're going to have a very, very interesting constitutional case before this is all over. The framers of our Constitution wrote Article 9 Section 4 which I'd invite all of you to take a look at. And it's important not only what they did do, but what they didn't do. They had in front of them at the time a model state constitutional provision which would have said no contracting away the taxing authority, period, end of story. And they rejected that in favor of Article 9 Section 4 which provides for exceptions and exemptions to be used to induce and monetize natural resource development.

Why did they do that? Back to Statehood in 1958. We didn't have the population to provide the tax base to get us Statehood. The state -- it was recognized that we needed to have the land and the resources that we needed to monetize our resources to make our way. So when you read the whole purpose of the Constitution which was to get Statehood for Alaska and you look at what they did in the Statehood Act and you look at what they were trying to do with the Constitution they wanted to provide a means by which we could monetize our resources over time. And a contract like this is a way to proceed with that.

So we believe that what we're proposing will be challenged, but we also believe very, very strongly that it will be upheld. We're obviously going to find out when the Supreme Court tells us whether we're right or not.

MS. LEASK: Does the contract require the producers to invest in legacy projects such as transportation infrastructure projects, et cetera?

MR. CLARK: I don't know that require to invest, I'm not quite sure what that means exactly. But let me just come at this way, we want them to invest right now. If you call legacy Prudhoe Bay, we want them to invest right now. Why? We are declining at six percent a year. Let me put it this way, last year, last February 2005 we put 975,000 barrels a day through the pipeline. This February we put 876,000 barrels through the pipeline. And what we need is more barrels in the pipeline. We need them now. And over the next five years that's not enough time to explore, develop new fields and bring them that oil into the pipeline. What we need to have happen is that they develop through in-field drilling and use the fields that they already know that are there, and have the incentives to put that oil that they know is there into the pipeline to fill the pipeline over the next five years.

Now if you're talking about a five to 10 year time horizon it'd be sufficient time to do the exploration necessary to develop other new small fields, but the future is going to be with the smaller fields many of which are known, and we need to get those developed and that oil into the pipeline. And that's the target of the incentives that the Governor proposed with the 20 percent tax credit.

MS. LEASK: What happens to Point Thompson under the gas contract? If some other project such as an all Alaska project wants it, will the State help that project get access?

MR. CLARK: Help that project gets access means litigate. And right now as I mentioned before we have got the Point Thompson gas folded into this contract. As I said, we have 35 trillion cubic feet of gas, eight of which is contributed by Point Thompson, so that's right now part of the gas contract.

MS. LEASK: Everybody seems to agree that the ELF needed replacing. Have you considered other alternatives besides the net profits tax?

MR. CLARK: Not really. We -- and it's not like this was a momentary type thing. We spent a lot of time as I mentioned. ELF should have been fixed before. It's been declining for a long time and it was not in my opinion providing Alaska the return it needed. Now, we can argue about when it needed to be changed, but a net profits tax is a progressive type way of taxing the structure because we take out the costs, we take out the capital costs, and we provide a credit which means we participate, take some of the risk of the development in order to get the incentives that we want. It's a much fairer way to go and it provides more revenue to the State.

We started working on that in May of 2003. We refined it obviously as we -- as our negotiations went forward with the producers particularly in the period from August 2005 up until February, but we really believe that that is a system that works. We have adopted the Norway model which has worked spectacularly well for Norway. And so we looked around to see what other -- what was going on elsewhere in the world and what were structures that were working and that's how we rested on that approach.

MS. LEASK: If the FERC open season results in no excess capacity on a line how will the state's citizens get any of the gas they need?

MR. CLARK: Well, one of the things that we're able to do is to make some decisions about where gas ought to go if other than to market. And we'll be looking at that and obviously it won't be us, it'll be future administrations. But future administrations will be looking at that, I'm sure, on a market competitive basis. Where is the best place to put the gas in behalf of the citizens of the state. And as you know there's a duty under the State Constitution to maximize resources for the benefit of the people.

With that broad policy statement the next administration or future administrations will have to make a decision about how best to do that. Does it mean a spur line to Kenai or does it mean sending the gas to market? Which will produce more resources for the benefit of all Alaskans? Somebody will have to look at that in terms of the project that the market puts forward at that time.

MS. LEASK: It has been stated that the gas contract only requires the producers to conduct a four or five year study and then they will decide whether to build a gas line. If this PPT is passed and guaranteed under the gas contract is it possible that the producers can benefit from the tax breaks and credits of the PPT even if after their study they decide not to build a gas line?

MR. CLARK: Well, just remember the PPT -- that's the very reason we want the PPT considered a stand alone legislation. Remember I said there's two pieces. The first is stand alone legislation now and the Legislature should consider that without reference to the gas line. Why? Because we need to change ELF. And so that first decision should be looked at without consideration of the gas line. I think, again, for reasons we thought the ELF needs changing and I think the changes will both incentives and more revenue to the State independent of what happens with the gas line.

Now, yes, they will continue to pay under the gas contract once that's in place, and they'll pay just as if there were no gas line contract.

With respect to how the process works, they will go through the remainder of the process to see if they have a project. And what that means is that they -- after they work out the arrangements with Alaska they have to work out arrangements in Canada. They need to get the permitting through FERC. And at that point they'll see what the costs are in relation to any stipulations FERC may put on. Whatever costs may be associated with going through Canada, they'll be add ons, and those companies will make decision about whether or not to sanction the project. When they sanction the project that means that they're going to build it and they go forward at that point.

And four years is about the time period we expect to have that process complete.

MS. LEASK: By making an equity investment in the gas pipeline the State is going all in and has best on natural resources. Why not diversify?

MR. CLARK: Well, as I mentioned the reason for taking the gas in kind was to increase the internal rate of return sufficiently for this project to make it go. The Governor also has been most interested in having the State participate as an owner from the beginning. As you know he's also talked about ownership in TAPS which is another thing that we're going to get. So he believes that owning these assets gives Alaska a seat at the table with respect to our most important assets, and that is mainly the oil and gas. And that gives us more control, more of a say, and that was something as important as the oil and gas we really need to be there, so it's -- in terms of diversification and I don't know what that means exactly, the interest in other resources or putting our money elsewhere. I'm not quite sure what the rest of the question means, maybe the writer of the question could catch me afterwards and I could answer better 'cause I know I'm fumbling here.

MS. LEASK: Two other questions. Any changes in state government with respect to restructuring or how to manage and accommodate the gas project with respect to any new departments, employees, oversight boards, trading and marketing of gas?

MR. CLARK: Excellent question. What -- we have two very separate functions that we are going to need to manage. One if the pipeline itself and how we manage our ownership of the pipeline. And what I mentioned before that we're putting together a limited liability corporation with the three producers which entity, this LLC, will own the gas pipeline.

We then have a membership interest. And what we're going to do is create a -- we have a statute already drafted that would describe how that -- we manage our ownership. And what we're looking at is the Permanent Fund model. We're looking to have a group of knowledgeable Alaskans who would oversee that ownership to make sure that we get maximum benefit for Alaskans from that ownership. And the management of that obviously after the construction period will be the 12 to 14 percent FERC regulated rate of return that we anticipate. And that will be kind of a management like the Permanent Fund over time as it -- attention will have to be paid all the time, but the changes will take place more slowly.

The other piece is the management of the capacity and the marketing. And that's going to have to be done on a daily basis. We're going to need to put together a corporation which will oversee a group of professionals that we'll have probably in, again, like the Permanent Fund where we have investment managers who watch this stuff on a daily basis and Outside people who are experts in managing capacity and the marketing. And this capacity has to be watched on a daily basis. The fluctuations and the capacity of the line changes. As fields come, as a compressor station goes down, the capacity -- what -- how much gas is going into the pipe changes on that kind of a basis. And so we'll need to have someone on top of that 24 hours a day, seven days a week and we'll have to have a team of professionals to do that.

We don't propose to create a new department for that purpose. We propose to out-source it to the professionals that are going to be needed. And we intend to diversify that group of professionals so we compare results. Is ACME capacity management doing better than Schwartz capacity management? And we'll have a team of professionals to analyze who's doing better and we'll move those accounts around accordingly.

This is a big deal and that question was an excellent question, one that Alaskans should be thinking about as we go forward.

MS. LEASK: And then finally, what is the time line for when the contract will be out for public review and when do you expect Governor Murkowski to call the special session?

MR. CLARK: The one thing that has characterized my performance throughout as the lead negotiator is my inability to prognosticate accurately. So I will favor an answer that is equally inaccurate to every other one I've given so bear that in mind. Please don't mortgage your house on this.

But what I am hoping will happen is that the Legislature will complete the PPT within the next several weeks. We have parallel negotiations going on right now with the producers to complete the gas contract including what we know structurally will be in the contract to -- for fiscal certainty on oil. We are completing negotiations on the limited liability corporation. We are completing the fiscal interest finding that we need to -- that will be a very detailed explanation of the project.

Remember the question before about how does this fit in and how many years will it take before FERC makes its decision? We'll have a very detailed explanation of that so that Alaskans can see how this all works together. And we'll have a package of legislation, a whole package of legislative initiatives that we are working on. Part of what I'm doing here in Anchorage today is working on that package.

And it's like being a short order cook. All of this stuff has to come out at the same time and we're hoping three to four weeks from now we'll be ready to go to public review. As I said the public review period will be what it takes Alaskans to digest this. There will be hundreds of pages of administrative record. There will be 300 pages of contract. There will be probably 150 pages of fiscal interest finding. There's going to be a lot to digest.

When we get done with that period we'll call the special session and at that point then we'll turn it over to the Legislature with any changes that we might have made as a consequence of what we hear during the public review process. So we've got a ways to go but we're intent, absolutely intent on getting there in the next few months.

MS. LEASK: Okay. Please help me thank Jim for coming here. Thank you very much. It was very informative. (Applause) We have a box of plane food here for you.

MR. CLARK: Oh, thank you very much. I appreciate that.

MS. LEASK: You're welcome. If you are a guest joining us here this morning, welcome. Commonwealth North is a membership organization and we appreciate your membership and we'd appreciate your consideration in joining us. There's information by the door of past projects and all that Commonwealth North has done. For our members and guests, please fill out the evaluation cards that you may have. We welcome any suggestions that you might have for either programs, studies, anything that you have seen. We're really interested in knowing what you think. So, please watch your in boxes later on today.

There's an announcement of a great event that Jim talked about on March 28th and with Governor Murkowski, Alberta Premier Ralph Cline (ph) , Yukon Premier Dennis Fenty (ph) and John Vandongin (ph), Administrator of the State for Intergovernmental Affairs for British Columbia. This is a collaborative effort among several different agencies and organizations here in town. You need to make your reservations through the Anchorage Chamber, but is supported by Commonwealth North and a number of other organizations, so thank you all for coming. Enjoy the beautiful day. And we stand adjourned.

END OF PROCEEDINGS