GOVERNOR FRANK MURKOWSKI: Now it's time to go to work, right?

JON KUMIN: Right.

GOV. MURKOWSKI: All right. Thank you. We had to do a little rehearsal back there because I wasn't sure whether that introduction was going to last through the luncheon or not. But fortunately, Jon, it did not. And as you can tell, I haven't missed too many meals and this is no exception. But the salad was quite good and I highly recommend it. When you luncheon comes, please enjoy.

And let me congratulate Commonwealth North on 25 years of a great contribution to Alaska and the quality of life in Alaska. I think -- now I can recall when Governor Hickel and Governor Egan initially formed this organization. And Alaskans weren't quite sure just what was going to be the outcome, but it certainly has been rewarding and I think very meaningful in sharing, if you will, a notable number of speakers throughout the world who have enlightened us on various points of view. And it's certainly been beneficial, I think, to recognize this organization and the members. Many of you have been here for a long, long time.

I've got a couple of my people that I work with on a daily basis. Margie Johnson is with us. She just has done a tremendous organizational effort on behalf of the a group of 17 Taiwanese that visited Alaska. And as some of you are aware, we had a significant announcement relative to the development of the Beluga coal deposits which are the largest known coal deposits to exist. Tidewater or anywhere in the world. And the prospects for that project are quite favorable and I want to thank you, Margie. You did a great job. She even took them on a trip to Hoonah, which isn't done every day, with one of our Alaska ferries. But that's a long story for another day.

I want to recognize Jim Clark, my chief of staff. Jim and I flew up from Sitka this morning and I might add that the weather is much more conducive to taking a deep breath of fresh air because if you take a deep breath in Sitka this morning you're going to -- you might drown. In any event, it is raining in Sitka.

I also want to, in the interest of full disclosure, indicate that tomorrow Anchorage will be hosting a very significant event. And that is the Council on State Government. And I happen to be president of that organization this year. I think the simple reason was they wanted to hold their convention in Alaska, so they elected me president at the Pittsburgh convention last year. But in any event you will be hosting some 16 or 1700 legislative groups from all over the United States. We'll have several governors here as well. One of the nice things about being governor is you can reach out and we've reached out to the Alaska Railroad and they're hosting them on a very nice tour down to Seward. And many of you are involved in various other activities. But it gives us an opportunity to show Alaska's best, I think, fall colors and an opportunity to share our hospitality. So you'll be seeing a lot of strange faces around but they're inquisitive, they're interested in learning about Alaska and we know how to take care of them.

Prior to coming to Sitka yesterday to speak last night at the Southeast Conference, which I can report to you is a very vibrant group of southeasteners who are not going to be put in the closet for any extended length of time just because the timber industry is in the doldrums. They are very energetic and their recommitment to resource development and quality of life in southeastern Alaska was gratifying to be there. However, prior to that I was in Washington, D.C., testifying at the council -- the Ocean Policy Council for the ocean commission.

And I also had the opportunity to view and extraordinary event, and that was the opening of the American Indian Museum, which is -- it's going to be a must when visitors go to Washington. And I think virtually all the tribal groups in Alaska were there. They passed out little paper fans and they should have passed out baseball hats because it was a very, very sunny day and for those of you who wonder why my face is red, it's simply because of the sun that particular morning when we had this event.

Now, let me talk a little bit about the interaction between the administration and some of the goals and objective of this organization. As you know, our history is rich and our future I think glows with potential. Unfortunately there are a few that don't necessarily see the full potential and sometimes in history people have a tendency to focus on problems, not the answers. And as a consequence I'd like to share with you a review from an article that was written back in 1940 by a very knowledgeable Alaskan historian by the name of C.L. Andrews.

He wrote a book in 1940 and it was the story of Alaska. And as he saw Alaska he said there are pessimists who cannot yet see the future even from the standpoint of seeing what has been accomplished. Now I want to make sure you understand that's not the position of this administration. He acknowledged at that time that Alaska's wealth lay in the natural resources and the beauties of our state. No land in history has poured out its wealth more bountiful than has Alaska at that time. And of course, that was a time when we were kind of reeling off the Guggenheim developments of copper in Cordova and certainly the tremendous impact of our fisheries that was controlled by Del Monte and the Atlantic and Pacific Tea Company, and various other Outside groups. It really took an awful lot out of Alaska and there's pretty much not much to show for that contribution today. But in any event, the wealth then was timber, it was furs, it was fish, minerals. And even then Mr. Andrews saw tourism as a resource when he said another vast and permanent source of profit for future years is the wonderful scenery of our state. For those of you who don't have the same view I do of the Chugach mountains today, why you can clearly see that his prophecy was right on target.

He indicated that the first tourist voyage to Alaska was back in 1882. It was one ship. It had a few passengers but by the late 1800s the total was up to 2000 passengers. Well, I think this year we're close to 900,000, or thereabouts, and we're still counting.

There's a rather interesting item in the governor's residence in Juneau on the panels that some of you may have seen. And it is a cup with walrus tusks coming out and it's a silver cup. And it's commemorating the Harriman expedition to Alaska in 1899. And for those of you who might have had some familiarity with the Harriman expedition, this was the railroad builders who moved from the east and went west until they ran into the Pacific Ocean, then they didn't know where to do because they'd reached their goal. And they wondered what was up north. So they put together a group and chartered a very large steam ship and went north to Alaska, and they took biologists, botanists, scientists, various other groups, to find out really what was up there.

There's a rather humorous story associated with that because they came to a place south of Ketchikan called Cape Fox, which is near the Canadian-Alaska boundary currently. And they went into a village which they could see from the ship anchored, and they saw this village but there was no one there. And so they went a shore and there were all kinds of artifacts around but still nobody showed up.

So they didn't really think it was an abandoned village but they thought that the artifacts that were around were simply too valuable not to pick up. So they gathered all these artifacts and stood by the shore and had their picture taken. And then they got on the ship with the artifacts and of course the artifacts went to all the museums on the east coast, or whatever at that particular time.

Well, a few years ago someone resurrected that picture and clearly identified the artifacts that were lined upon the beach and the event and put two and two together and suggested that these museums that had this had received it kind of on the under side of darkness and that these should be given back. It was a rather curious event because clearly they had ransacked the village. And the reason the villagers weren't there, they were fearful of these guys that came in by boat and they were hiding in the bushes. So justice was done but it took a little while. So that's the story of the big Harriman group. The Harriman group evidently returned some of the artifacts. It was kind of a peace offering to Alaska's Aboriginal people.

But in any event, as we look at today and recognize the significance of changes that have taken place in the last hundred years, we continually are confronted with the reality of just how we can build an economy. And as we look at the natural resource prosperity in our state over that period of time we see it primarily in the area of timber, fishing, mining, and now oil and gas. And each one in turn has carried us basically to where we are in our state today. Whether the multiple gold rushes we've enjoyed or the bountiful years with salmon or halibut or crab harvest, or the thriving timber industry that once stood in southeastern Alaska, we've prospered by the wise us of our resources.

And we've also seen opportunities for marketing. One of the interesting things that came up the other day, we were at the Republican convention in New York and there was a promotion that was put on by ASMI and it was very successful, out on Long Island in New York. And what we were faced with was an opportunity to have a local restaurant put on an Alaska activity featuring Alaska wild salmon.

And when we got to talking about the opportunities for marketing, the entrepreneur, the proprietor said that he went into New York City every morning with his truck to buy fish from the Fulton Market in what is the Brooklyn area. The point is we're going to propose to ASMI, which is the Alaska Seafood Marketing Institute, a suggestion that they go buy a stall at the Fulton Market in New York so that the seafood industry in Alaska would be challenged with having fresh Alaska seafood available for the markets in New York. Anyway, these are some of the ideas that I wanted to share with you to stimulate your appetite anyway for wild Alaska salmon and other things.

Obviously things change. We can't stand still. We have the competition in the marketplace. We have some opponents who don't trust us to use our resources wisely. We have a growing population that needs jobs. One of the activities that I understood when I was in Washington, D.C., was to testify, as I indicated, before the U.S. Commission on Ocean Policy. This is fairly significant because what we're contemplating is setting policy on how we manage the oceans. And as a consequence of that we in Alaska have the feeling that we've managed our resources in an environmentally responsible way, which has also permitted some very, very sound and significant economic development using multiple use management tools and other principals. And we found that there are some, as I've indicated, who feel that one size fits all.

There's a report of the Pugh Commission advocates on ocean zoning and they basically are contrary to the multiple use of resources in their belief and as a consequence they've come up with some suggestions that I think are a little ill defined, of eco system based management with extensive systems of marine reserves, which could have an impact on our fishery economy in our state of Alaska.

So what I basically indicated was in terms of governance of our experience in Alaska shows that we've had a balanced effort between federal, state and local management of ocean resources as the most effective management regime. And we feel that the Pugh (ph) Commission specifically moves in an opposite direction which suggests a centralized ocean policy that would be designated out of Washington, D.C., with a smaller role for the states.

And our feeling is that further adoption of Pugh (ph) recommendations would weaken the role of the regional fisheries management councils and the councils would be sandwiched in between very powerful science committees and centralized decision making powers of NOAH in Washington. In other words, we think we've got a situation where if it ain't broke, don't fix it. But these are important issues because they indicate the extent of external forces to dictate terms and conditions under which our resources will be developed in Alaska.

We have of course a commitment here and have had a long time in recognizing that the historically important industries need our continued help and I think a continued recognition by the state of Alaska that Alaska is somewhat unique in what we developed in our resources. For the most part has to be marketed either in a very, very large scale or in some cases world wide. We have to be competitive.

In other words, what I'm saying is people don't come to do business in Alaska necessarily because they are in love with our beauty or our scenery, they come here because they're looking for a return on equity and we've got to be competitive in that sense. But what we want to do is to ensure an economy and develop an economy that improves our communities, our job opportunities for our children, and we must make some sound decisions along the way and take initiative, and we must choose, if you will, for long term objectives. And some of these choices are not necessarily easy. You elected me to be governor, to lead you through this challenging time in history, and it is a challenging responsibility. I'm anxious to accept that responsibility. And I look forward to it.

I basically feel that Alaska should take its rightful place in the world markets for not only our seafoods, the quality of our seafoods, but we have to do our share. We have to concentrate on marketing. We have to concentrate on quality control. And we have to concentrate on transportation. And we're doing a better job on that. And I think as you look at reports coming in on the seafood industry you'll find that this has been a good year for Alaska seafood industry for the most part. Prices have been good. We've concentrated on quality control. The state, through the delegations, have been able to come up with funding for matching programs, not giveaways, that have been real. And I think they've been supportive.

We want to restore Alaska as a provider for timber for the markets of the world and we think we can do that on a sustainable basis because less than one-tenth of one percent of the commercial timber has been harvested to date. And we have timber of course in the interior and other areas of the state that clearly we can market if we can develop, if you will, enough volume to ensure that the investment can be amortized.

Now I want to build on our past and show the world that we have not only the potential in minerals but the reality of developing new technology which makes our minerals marketable. You've seen the development of the mines. The Pogo mine, the Donlen (ph) Creek, the excitement over Pebble, the recent announcement by the Taiwanese on their interest in the Beluga coal, the Kensington development in southeastern Alaska.

And I also want to tell you that today the years of waiting for a North Slope natural gas pipeline development, in my opinion, will soon be over. Now that's good news but that's not enough. We need a plan to get there. We need the support of Alaskans behind that plan and my plan rests with the recognition of three basic realities effecting our state. The recognition of an abundance of those resources. The recognition that we have to cover the distances to get our resources to market. And the recognition that we have to have access across federal lands.

And the significance of federal land ownership is from time to time a bit of a problem to say the least. The Denali Commission has been very, very helpful and the delegation deserves a lot of credit in recognizing that we need that help in addressing the economic vitality that we have to ascertain to move on with the priorities of the state of Alaska.

I don't have to go into any detail relative to the backgrounds associated with the development of Alaska's resources. But the recognition as we diversify into new growth areas, tourism, national defense, of air freight services, the vast bulk of our publicly owned wealth will come still from the harvesting of those natural resource.

And I'd say to you what in the world is wrong with that? You know, I've heard arguments from time to time on the University of Alaska being a land based university without any land and the appropriateness of the university receiving at least 250,000 acres of land with the state matching the federal government. And I've had the comment, well, the university might develop this. Well, I would ask you, what's wrong with that?

You know, we have a mentality among some in Alaska that development can only come at the expense of our environment. I don't believe that. I think we have the technology, and I think we have a leadership role that we can be proud of. We're doing things better here in Alaska from the standpoint of environmental stewardship than virtually anywhere in the United States. Where else is there a port like Valdez where you have a vapor recovery system? There isn't any. Where do you have the level of security and the level of sensitivity with regard to the movement of oil from the Port of Valdez? There isn't any. You have the tanker escort. You have the organization of the Citizens Advisory Council, which was federal legislation that I passed a long time ago. That's why you have the RCA in both Cook Inlet and Valdez. These are significant contributions to the environmental quality that we're going to insist on maintaining in this state. So I think we have a story to tell.

The one that I sometimes have a difficult time communicating to Outsiders is that when you look out of the airplane when you land at Dead Horse in the wintertime, you see the pickups and you know what you see under the pickups? You see diapers. Don't look so startled. These are under the oil pans to ensure that there won't be dripping of oil. No place else it the world where you've gone that far. And I'm not suggesting the merits of that other than it's something that you can certainly observe very quickly. And you know, some people say well, you know, your oil field is 30, 40 years old. It's the best oil field in the world and you can imagine the technology advancement if we're able to open ANWR or NPRA.

So reality number two is Alaska is far away from the manufacturing industries that drive the world's economy, far from the population centers that consume the manufactured goods. That means developing what we have, transporting it to points of consumption. And the recognition we got to do it competitively. Just as our climate, distance is one of the basic realities we must factor into our economic equation, it just means we have to compete a little smarter, build on our advantages and construct a transportation system that makes economic sense.

Reality number three, perhaps the greatest challenge we face in Alaska is the massive land base that's controlled by the federal government. We've got 365 million acres of that. The federal government controls over 230 million acres. About two-thirds. The state owns 104 and of course the god send if the Native ownership of 40 million acres of land, and the recognition that they are developing that land in a responsible manner.

One of the real ironies of Alaska is it's the largest state in the union, has the smallest percentage of private land. What it is? Well, it's roughly one percent. A great deal of Alaska's natural wealth lies beneath all those millions of acres of federal land. The gold, the copper, the zinc, silver and so forth, are hidden and buried beneath these lands. Perhaps trillions of feet of natural gas. The answer is to push for responsibility federal land management policies that allow us to turn those resources into jobs and revenue for federal, state and municipal services.

We've had, of course, and have continued opportunity of getting good cooperation from the Bush administration. I won't prophesy on the alternative because this isn't a political discussion. But I challenge our opponents to come up with a better plan for building a strong Alaska. My plan, as I've proposed for this developing, is to balance resource development with stringent protections for Alaska's land, water and air. And let me remind you of the comments of C.L. Andrews, the wonderful scenery and tourism potential that he indicated in his book 64 years ago, and his quote was, that there's money in that landscape. And I will not let any development get in the way of that natural resource just as I know you wouldn't either. And I'm talking the natural resource is the beauty.

In conclusion I want to turn to petroleum. Of course that's been our superstar, almost 90 percent of our state budget. And starting with the discoveries in '57 and building through Prudhoe Bay, we have had extraordinary success in building our oil and gas industry. Alaska oil and gas fields have produced more than 15 billion barrels of oil. You remember when they said that Prudhoe Bay would only produce 10 billion barrels of oil. That's through technology. Not to mention the revenues from this production, we've used that to build our schools, our harbors, our airports and so forth.

One of the extraordinary observations that I've had an opportunity to participate in, of course, is the debate over whether to allow future development of Alaska's oil bearing province. And as you know we had the prospects of Prudhoe Bay on the discovery, then Cook Inlet and then the Alaska Peninsula. Well, we're doing something about the Alaska Peninsula. We will have leases in that area next year.

But the interesting thing about speculation on oil now is associated with the question of drilling. And I was looking at the Wall Street Journal and there's an article in here, as prices soar, doomsayers provoke debate on oil's future. And this is the front page of the Journal yesterday. And a gentleman by the name of Colin Campbell, who is a Dr. Campbell, is at the center of this small but suddenly influential band of contrarians known as the Peak Oil Movement. They see cause for alarm in the fact that since the early '80s the world has been pumping more oil out of the ground than it's been generating in new discoveries.

But by as early as next year they say humanity will have reached a point of reckoning. It will have extracted half of the oil it will ever get. Once that peak is reached, Dr. Campbell says, global oil production will start falling, never to rise again. The peak would mark the end of cheap oil. Well, it may be good for the budget, I don't know. But in any event, the lack of understanding and the inability for Alaska to prevail in encouraging development in the most likely areas where we're likely to find it, namely in ANWR and NPRA, speaks for itself. We have had a good record. We've got capacity in our pipeline. As you know, the pipeline is running roughly half of the 2 million barrel capacity. We're looking at potential shortage on the Kenai Peninsula in gas. We're not going to accept the choice of deplanning oil and gas production.

Our choice are, I think, two-fold. And as I indicated, we're not going to accept the fact that some say that oil and gas exploration in ANWR will be precluded permanently by the national environmental groups, or they'll move their efforts over to oppose development in NPRA. You know, it's inconceivable to me that you could have a designated national petroleum reserve, which is what NPRA originally was after the turn of the century, and then not allow oil and gas exploration. Because if you can't drill in a petroleum reserve, where in the world can you drill? But that's some of the concerns that are being expressed now and I maintain that Alaska is a sovereign state. We have the three mile area off shore of ANWR and we will be pushing to initiate a lease program off that area which we think there's engineering technology to do so.

And of course that presents a rather interesting dilemma for the Department of Interior in, you know, the aspects of pool finding and whose oil is it and directional drilling and how you calm that to issue your own position based on if you're drilling out there, drilling somebody else's pool, how do you handle that? It's called right of capture. There's oil and gas law covering it. But we're simply going to move in this area because we think we can do it safely. We think we can prevail under the authority of the state. And the options contrary to that are somewhat limited.

So I submit to you that only by standing up for the rights of this state as a sovereign state, controlling our lives, so to speak, from the standpoint of resource development and what we think is appropriate, are the decisions that we're going to have to continue to be very strong in our unanimity and we must win. We're going to have to prosper by the fruits of that development. There aren't going to be any quick fixes. To some extent we know that natural resource development is slow and serious. It's a high risk business or everybody would be in it.

During the last 20 years -- excuse me, during the last few months of my administration we've I think taken some positive steps to help this process. We have made a determination that Alaska must be competitive internationally. We were last -- among the last oil provinces in the world in providing incentives. Now we're ranked in the middle. As you know, we still have the highest operational costs in the world. But we have a 40 percent exploration benefit if 20 miles from processing, another 20 percent three miles or more, and some tax credits that we think make us competitive, which is necessary, as I indicated, because you got to be competitive in the world market or you simply won't be in it.

And I've been very successful, I think, in working with our legislature to adopt these reasonable incentives and they're going to be applied to exploration and production on the North Slope. We have been busy in our discussions in bringing the producers and the two large pipeline companies to the negotiating table. We're making advances to build that pipeline for moving North Slope natural gas to market. We have the increased amount of exploration acreage that the companies will be allowed to hold, allowing some explorers to work in several frontier areas at the same time. I'm going to be making a significant announcement tonight at the Alliance which I'll hold in abeyance for that, but it will have a significant impact on the economics of doing business in the arctic.

What we have to do is we have to consolidate our state's programs to expedite the permitting, and we've done I think a reasonable job on that, because we want to encourage gas exploration in the frontier areas of the arctic as well as some other areas including Bristol Bay and the Cook Inlet area. Now, what have we done specifically? Well, in areas of resource development we've enhanced the large mine permit within the Department of Natural Resources to make it more effective and more responsive. We've moved the Alaska Coastal Zone Management Planning to natural resources streamlining the process and making it more operative and accountable, and responsible to the coastal areas as opposed to those areas that have no relationship to the coast. We've combined the functions of the habitat division of the Department of Natural Resources. We've developed rational mining rules that allow the state to authorize multiple waste management or disposal activities at a large single mine facility. And I think if you're familiar with the mining industry you'll find that they believe these things are necessary in order for them to develop their mining resources.

The other thing of course is access. We've initiated roads to resources and roads to jobs with the emphasis on building those roads where we're going to generate a return. The lack of transportation is the greatest challenge the mining and oil industries face in bringing new resources to production. This must be addressed if we are to enjoy a productive future. And I've initiated an aggressive program of road design, permitting and construction, and it includes design and permitting for a bridge across the Colville River with a connector to the existing road network at Prudhoe Bay allowing safer and year round access to oil and gas leases, many of which the state holds and will be putting out. A road running west along the northern foothills of the Brooks Range and then north along the Colville River. A road to connect the Yukon and Kuskokwim Rivers. And that's associated with the Donlen (ph) Creek development. All these things we feel are absolutely necessary if we're to take control of our natural resource destiny. And they're not any short cuts. No easy fixes. No magic bag of tricks to solve these challenges. Only hard work, determination and support by Alaskans and strong leadership will see us into the future safely.

This is the job that I was elected to do. I have a solemn responsibility to you to lead us to what I think is the prosperous future of this state and that is a sound economy. And I'm convinced we will prevail. At the end of the day Alaska's greatest resource of course isn't the minerals, it isn't the billion barrels of oil. It's our people. And in order to do that we have an independent creative well educated determined population, and we are up to finding the solution necessary to create the vibrancy and the strong economy.

You folks have put together in your comments on the Commonwealth report putting Alaska's assets to work, and you've challenged me in your letter here to have some reference to the state earning more money and improving regulatory and financial oversight. And my response to that specifically is what we intend to do is to invest as we can, cooperation with the legislature, in non-reoccurring capital projects. Roads, various other things, that can generate a return to the state by making access available so we can get a higher price for our leases and so forth.

Now you also have indicated that you want to have us achieve a sustainable and financial and beneficial returns from our assets. Of course we have some limitations on that because of the way we have to manage our asset funds and our Permanent Fund and so forth. But what we want to do is to establish an Alaska Land and Natural Resource Management Trust, and we're going to need the help and imagination of this organization, and others, to maximize return on land grant holdings.

I want to leave you with just a couple of final thoughts. As you know, we have been in a financial crunch for some time in this state, spending more than we've been generating in revenues. And I'm pleased to forecast that we will be presenting at the end of this fiscal year a balanced budget for the state of Alaska. This will be I think the exception rather than the rule because if my memory serves me correct, we've had to go to the budget reserve 13 of the last 15 years. We will not have to do that in this year of fiscal 2005. And of course you know the reason why. I won't go into that in great detail other than to I guess recognize the reality of the high price of oil and the contribution that means to the state of Alaska.

But in conclusion, I think we are moving in the right direction and we're separating, if you will, some of the difficulties we've had in the past. You know, when we came into office we were looking at a $600 million deficit. The only reason we're able to achieve what we are achieving and reporting to you today with regard to a surplus this year is the combination of course of the price and the fact that we made some tough decisions to cut spending in various areas. Some of those areas were not very popular but we felt they were necessary. And that's what you elected me to do. So I'm not hedging on my commitments to get this economy going and the way to do it is of course through resource development. And it doesn't have to be a sacrifice to the environment.

I'd be happy to take your questions. I notice there's been a number of you busily writing. And that goes with the territory. And thanks for the opportunity to enjoy the tea and salad.