PRESENTATION ON ALASKA GAS PIPELINE PROJECT

Transcription

1 PRESENTATION ON ALASKA GAS PIPELINE PROJECT to Alaska State House and Senate Finance Committees April 5, 2006 Analysis of PPT Barry Pulliam & Dr. Anthony Finizza 5th Floor 60 W 5th Street Los Angeles, California Suite K Street Sacramento, California Suite 2825 Three Allen Center 333 Clay Street Houston, Texas Suite E 6th Street Austin, Texas

2 Econ One Research, Inc. 2 An economic research and consulting firm with offices in California (Los Angeles and Sacramento) and Texas (Houston and Austin) We provide consulting services in various industries, including petroleum and natural gas, regulated utilities, electricity, telecommunications, and computer software We have worked for: A number of state governments on energy-related matters, including the States of Alaska, California, Hawaii, Louisiana, New Mexico, New York, and Texas Federal government agencies, including the Department of Justice, the Federal Trade Commission, the Department of the Interior, and the President s Council of Economic Advisors A number of foreign countries and international agencies, including the World Bank, Mexico, Nigeria, Turkey, and Tanzania on matters related to economic development and privatization of state-owned utilities A number of companies in the petroleum and natural gas industries, including BP, Occidental Petroleum, ANR Pipeline, Koch Gateway Pipeline, Sempra Energy, KN Energy Corp., Lyondell-CITGO Refining, Total Petrochemicals U.S.A., Panhandle Eastern Corp., and ONEOK, Inc.

3 Barry Pulliam 3 Senior Economist with Econ One Research, Inc. Masters Degree in Economics from the Claremont Graduate School, with 7 years of experience consulting in the petroleum and natural gas industries Has consulted with or served as an economic expert for the State of Alaska on a number of occasions, including: Several severance tax matters involving the valuation of crude oil Operation of the TAPS Quality Bank in proceedings before the FERC and Alaska PUC Merger and antitrust investigations Recent arbitration between State and ExxonMobil involving crude oil royalties Consulted with the States of California, New Mexico, Texas, and Louisiana on economic issues related to the petroleum industry Consulted with federal government agencies, including the Department of the Interior and the Federal Trade Commission Co-author of two recent studies prepared for the Alaska Department of Natural Resources related to natural gas markets and royalty valuation issues

4 Dr. Anthony Finizza 4 Economist working in conjunction with Econ One Research, Inc. Ph.D. in Economics and Finance from the University of Chicago with over 30 years of experience working in the petroleum industry Chief Economist for ARCO from 975 to 998 At ARCO, Dr. Finizza was in charge of petroleum price forecasting for the company s Long Range Planning Process and conducted scenario-planning exercises with senior management responsible for investment decisions Consulted with the California Energy Commission, the State of Hawaii, and the International Hydrogen Infrastructure Group (a consortium of private companies and the U.S. Department of Energy) on energy-related matters Currently teaches forecasting and modeling at the University of California, Irvine Published articles in Business Economics, The Journal of Corporate Renewal, and The International Journal of Forecasting Senior Fellow with the U.S. Association for Energy Economics Former President of the International Association for Energy Economics

5 5 Oil Price Issues

6 Conclusions/Observations Regarding Oil Price Forecasts 6 Producers are using $40 as a planning base case with $30 as a stress price case. Majors may be using a slightly lower price range than independents, but are moving their views up. This range may actually be lower than their best estimate, but is consistent with their prudent planning approach This range is consistent with recent observed oil asset purchases This range is consistent with publicly available forecasts although the recent EIA AEO 2006 is above this range. (~$54) What really matters is what forecasts are the risk takers using? Forecasters have been humbled (and will continue to be humbled) by their forecasts

7 7 Oil Price Outlook Factors Suggesting Continued Higher Prices (short-term) Strong oil demand, especially in China and rest of Asia Growing Gap Between Global Demand and Global Non-OPEC Supply Non-OPEC oil supply cannot keep up with growing world demand permitting increase in OPEC s market power Factors Opposing Higher Oil Prices (long-term) Conventional oil faces threat from alternative sources of liquids when prices are high Tar Sands: economic at ~$20-30 oil Coal Liquids: economic above $30/bbl Shale Oil: economic above $45-50/bbl Penetration of Alternative Transportation Vehicles Oil s key position in the transportation market will be eroded by Hybrid vehicles, Grid-Connected Hybrid vehicles, Fuel Cell Vehicles A $0/bbl difference in oil prices is a $73 Billion increase in total consumer costs per year

8 8 ExxonMobil Outlook Source: ExxonMobil, The Outlook for Energy, December 2004

9 9 Oil Price Forecasts EIA s Annual Energy Outlook (AEO) January 2006 Forecast of oil prices (through 2030, converted to WTI by Econ One) Include Alternative scenarios, probabilistic forecasts developed by Econ One International Energy Agency (Paris) 2005 Reuters Poll of 8 Oil Analysts for WTI in 200 (March 2006) NYMEX Futures market WTI oil contract traded since early 980s

10 ($2004 Per Barrel) Oil Price Outlook EIA Annual Energy Outlook 2006 $ EIA AEO 2006 WTI Crude Oil Price Forecast Base Case P20 P80 Source: AEO 2006 for Base Case; Econ One for Probabilistic Variance.

11 Alternative Oil Price Forecasts Reuters Poll (March 0, 2006) Price Forecast for WTI in 200 Reuters Poll of 8 Oil Analysts Median Mean Analyst Number Source: Commodities Weekly, Deutsche Bank, 0 March 2006

12 IEA (2005) Oil Price Forecasts 2

13 WTI Prices: History and Market Forecast NYMEX 3/ NYMEX 3/ Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-9 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-0 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-0 Jan- Jan-2 $ WTI Spot With Selected NYMEX Strips WTI Spot NYMEX 3/06 NYMEX 3/05 (Dollars Per Barrel) Source: NYMEX.

14 4 Producer View of Future Oil Prices Producers have been burned by forecasts of high oil prices in the past Producers will test their projects against a price path that is below their Most Likely view They use the official price view as a speed limit to signal caution By high-grading, they will have a suite of projects resilient to price risk Their price view lags the current market price by as much as 5-7 years as prices rise, and by 2 years as prices fall. Current view might be: $35-40/barrel Producers will also stress test their projects at $30/barrel The consequences of error are not symmetrical If a producer underestimates the future path of prices, they will not undertake high risk projects and their returns will skyrocket (the current situation relative to a few years ago) If a producer overestimates the future path of prices, they will be scorned by Wall Street and investors (their position in the late 990s) They will miss opportunities, but these misses will not be fully penalized by the market

15 5 Implied Oil Company Price Views Marubeni acquisition (2/23/06) of Pioneer GOM assets: ~ $40 Norsk Hydro acquisition (9/9/05) of Spinnaker Exploration: ~$35 Statoil acquisition (4/28/05) of EnCana s Deepwater GOM: ~ $30

16 6 Some Examples of Humbling Oil Price Forecasting Energy Information Administration (US DOE) Polls of experts Society of Petroleum Evaluation Engineers

17 7 EIA s Annual Price Outlooks EIA's Annual Energy Outlook Forecast Evaluation Nominal Dollars per Barrel Actual AEO 986 AEO 989* AEO 992 AEO 995 AEO 998 AEO 200 AEO 2004 AEO Year of AEO

18 8 SPEE Annual Delphi Poll Source: Society of Petroleum Evaluation Engineers (SPEE)

19 Historical Crude Oil Prices World Crude Oil Prices $/barrel Real $ $40 Nominal $

20 20 Economics of New Fields

21 Conclusions/Observations Regarding Exploration Impacts Without ANWR opening, expectation of large oil discoveries are unlikely, due to the Field Size Distribution of remaining economic reserves 2 At low prices, 25/20 helps explorer more than 20/20 Incentives are required at low prices (say, $73 M, although alternative approaches could work as well, e.g. production tax holiday ) Sunset provision in tax free barrel allowance in Senate CS not likely to provide incentive due to long-lived exploration-production cycle At low prices, 20/20 and 25/20 preferred over SQ, in order to incent exploration Exploration is still a risky business. Probabilistic results using Industry View of oil prices yields smaller chance of a losing IRR under PPT than under SQ. Higher chance of loss for State under PPT. Under either a 20/20 or 25/20 program, remaining reserves are economic, except for low prices (<$30?)

22 22 Stylized Lifecycle of New Field Exploration and Appraisal Period Development Capital Production Phase Economic Limit 4 years 3 years years Sunset Provision in Senate CS for Tax Free Barrels (if New Exploration follows this pattern)

23 Comparison of Reserves Central North Slope vs. ANWR 23 Undiscovered Technically Recoverable Oil Reserves Central North Slope ANWR Mean Estimate of Reserves (Billions of barrels) Amount in Fields Over B Barrels 0% 22% Amount in Fields Over 500 M Barrels Amount in Fields Smaller than 64 M Barrels 2% 5% 43% % Note: Not all these reserves are economic Source: USGS

24 Size Distribution of Undiscovered Fields in Central North Slope 24 Technically Recoverable Reserves Central North Slope (no ANWR) Number of Accumulations P20 Mean P Field Size (Millions of Barrels)

25 25 Size Distribution of Undiscovered Fields ANWR Technically Recoverable Reserves ANWR Number of Accumulations P20 Mean P Field Size (MMB) 0 Billion Barrels of Technically Recoverable Oil Reserves in ANWR

26 Economic Oil Reserves in Central North Slope Alaska At Alternative Prices 26 Economically Recoverable Reserves Central North Slope Mean Estimate (No ANWR) Billions of Barrels WTI (Real $2006 Per Barrel)

27 27 Expected Discoveries Under Alternative Prices 25 Expected Discoveries under Alternative WTI Prices Central North Slope Fields Number of Accumulations $30 $40 $50 $60 WTI Price ($/barrel)

28 28 Likely Distribution of New Field Discoveries Size of Field Percent 50 MMB 60% 00 MMB 25% 50 MMB 0% 500 MMB 5%

29 How An Explorer Will Look At The Exploration Proposition Calculate the Net Present Value of all outcomes, weighted by the expectation of the outcome EMV= NPV (a successful development project) x (Chance of hitting oil) less NPV (cash flow from undertaking exploration) 29 Expend Exploration Capital 5:6 (83.3%) chance Dry Hole Negative Cash Flow: Exploration expenditures less government credits, allowances, tax sheltering Hit Oil :6 (6.7%) chance* Develop field Positive Cash Flow (Hopefully): Wellhead revenue less Royalty, PPT, Property Tax, Development CAPEX and OPEX, SIT, FIT, and adjusted for government credits, allowances, tax sheltering *The experience in Alaska from is 7.9% according to Wood Mac GOGRR 2004

30 30 Schematic of Cash Flows For This Example Cash Flow From Exploration 00% of Time Cash Flow From Development and Production 6.7% of Time

31 3 Avoiding Gambler s Ruin Say the chance of drilling a successful well is -in-6, or.67 An explorer will want to mitigate the risk of failure by drilling more wells. (Possibly shared.) The chance of failure with one well is.833 (=-.67). The chance of failure with a 6 well program is.334 (=.833^6) No. of Successes Chance Expected Value An explorer can drill six wells with an expected number of successful wells = Total.000

32 32 Illustration of A Failed Exploration Program SQ ELF 20/20 25/20 a Revenue b CAPEX c d Production Tax Tax Credit Producer Cash Flow a-b-c+d (pre SIT/FIT) c-d State Revenue (pre SIT/FIT)

33 33 Oil Production Profiles MB Field Million Barrels Per Year MB 0 00 MB 5 50 MB Years From Start of Development

34 Economics of an 6-Well Exploration Program 50 MM Field (High Cost, Low Productivity) 34 Without $60 M Allowance Price (Real $2006) $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 Explorer NCF NPV0 20/20 25/20 SQ Total State Revenues ($M) NPV

35 Economics of an 6-Well Exploration Program 50 MM Field (High Cost, Low Productivity) 35 With $60 M Allowance Price (Real $2006) $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 Explorer NCF NPV0 20/20 25/20 SQ Total State Revenues ($M) NPV

36 36 Economics of an 6-Well Exploration Program Price (Real $2006) $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 Without $60 M Allowance Explorer NCF NPV0 20/20 25/20 Explorer IRR Total State Revenues ($M) NPV0 SQ

37 37 Economics of an 6-Well Exploration Program Price (Real $2006) $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 Without $60 M Allowance Explorer NCF NPV0 20/20 25/ Explorer IRR Total State Revenues ($M) NPV SQ

38 38 Economics of an 6-Well Exploration Program Price (Real $2006) $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 $ 30 $ 40 $ 50 With $60 M Allowance Explorer NCF NPV0 20/20 25/ Explorer IRR Total State Revenues ($M) NPV SQ

39 39 Comparison of Tax Proposals Producer Net Cash Flow NPV $ M $20 $30 $40 $50 $60 $70 $ WTI Price ($2006) House CS SQ 20/20/$73 M Senate CS

40 40 Comparison of Tax Proposals 000 Total State Revenues NPV $ M $20 $30 $40 $50 $60 $70 $80 WTI Price ($2006) House CS SQ 20/20/$73 M Senate CS

41 4 Impact of Progressivity Producer Net Cash Flow NPV 0 $ M $20 $30 $40 $50 $60 $70 $80 House CS 20/20/60/0 WTI Price ($2006)

42 42 Impact of Progressivity Total State Revenue NPV $ M House CS 20/20/60/ $20 $30 $40 $50 $60 $70 $80 WTI Price ($2006)

43 43 Impact of 25/20 versus 20/20 Producer Net Cash Flow NPV $ M /20/60/0 25/20/60/ $20 $30 $40 $50 $60 $70 $80 WTi Price ($2006)

44 44 Impact of 25/20 versus 20/20 Total State Revenues NPV $ M /20/60/0 25/20/60/ $20 $30 $40 $50 $60 $70 $80 WTI Price ($2006)

45 Exploration Forgiveness - An Alternative to Tax Free Allowance 45 For each new field give a Tax Holiday from the PPT for the first 0 million barrels of production This provides an incentive for new exploration Improves producers cash flow in the early stages of the production process Producers cannot seek royalty relief if they opt for the Tax Holiday Also provides incentive to put the field on early This tax holiday is NOT applied to existing fields The fiscal impact on the State of Alaska will be felt after the field is producing, e.g. seven years after exploration starts

46 46 Tax Free Production 50 MB Field Annual Production 50 MB Field 6 5 Millions of Barrels Production (mmb) Yearly Tax Free Production (mmb) Years From Start of Exploration

47 Typical Cumulative Production Profile 00 MMB Field Cumulative Production 00 MMB Field PPT Tax Holiday Exploration Development Cumulative Production MMB Years From Start of Exploration

48 48 Impact on Producer Economics 000 Producer Cash Flow NPV0 800 $ M $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $ /20/0 M Bbl Forgiveness 20/20/$73 Million Allowance WTI Price ($2006) SQ

49 49 Impact on State Revenues (NPV 0) 600 Total State Revenues NPV 0 $ M $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $ /20/0 M Bbl Forgiveness 20/20/$73 Million Allowance WTI Price ($2006) SQ

50 50 Impact on Small Field Economics 50 MB Field Producer IRR % $30 $40 $50 $60 $70 $80 WTI Price ($2006) House CS w/ 0 MB Forgiveness Instead of $60 Allowance SQ

51 5 Probabilistic Results Producers may look at results on a probabilistic basis Suppose their view of future WTI prices is: Mean (Most Likely) of $40 P20 of $25, P80 of $55 (i.e. $40 ± $5)

52 52 Distribution of Results Producer IRR 35% Producer IRR Distribution of Results PPT(House CS) SQ 30% 25% IRR Median (P50) PPT 7.2% SQ 3.7% IRR (%) 20% 5% P20 9.5% 5.0% 0% 5% 0% PPT SQ 0% 20% 30% 40% 50% 60% 70% 80% 90% Chance IRR < 2% 30% 45% Percentile Chance IRR < 5% 40% 55%

53 Distribution of Results Total State Revenues NPV0 53 Total State Revenues NPV0 Distribution of Results PPT (House CS) SQ $ M Total State Revenues NPV0 ($M) Median (P50) P20 PPT SQ % 5% 25% 35% 45% 55% Percentile 65% 75% 85% 95% Chance Total State Revenues <0 PPT 30% SQ %

54 Conclusions/Observations Regarding Exploration Impacts Without ANWR opening, expectation of large oil discoveries are unlikely, due to the Field Size Distribution of remaining economic reserves 54 At low prices, 25/20 helps explorer more than 20/20 Incentives are required at low prices (say, $73 M, although alternative approaches could work as well, e.g. production tax holiday ) Sunset provision in tax free barrel allowance in Senate CS not likely to provide incentive due to long-lived exploration-production cycle At low prices, 20/20 and 25/20 preferred over SQ, in order to incent exploration Exploration is still a risky business. Probabilistic results using Industry View of oil prices yields smaller chance of a losing IRR under PPT than under SQ. Higher chance of loss for State under PPT. Under either a 20/20 or 25/20 program, remaining reserves are economic, except for low prices (<$30?)

55 55 Existing Fields

56 Effective Severance Tax Rates Over Time 6.0% 4.0% 2.0% 0.0% 8.0% 6.0% 4.0% 2.0% 0.0% (Effective Tax Rate Percent) Historical Projected Status Quo Average: 2.0% FY Average: 7.% FY Average: 6.3% Source: Historical: Alaska Department of Revenue. FY Average: 4.9%

57 Projected Effective Severance Tax Rates* by Field 4.0% 2.0% 0.0% 8.0% 6.0% 4.0% 2.0% 0.0% (Effective Tax Rate Percent) 2030 Average of All Fields Prudhoe Bay Unit (PBU) Kuparuk Alpine * Volumes per DOR Fall 2005 Forecast with Oooguruk projection.

58 Effective Tax Rates and Wellhead Prices Over Time (All North Slope Fields) % Effective Tax Rate $ % 5.0% 970s:.53% $7.85 Wellhead Price 980s: 3.2% $ s: 3.5% $ s: 8.54% $ (Effective Tax Rate Percent) 2.5% 0.0% 7.5% (Wellhead Dollars Per Barrel) 5.0% 0 2.5% 5 0.0% Source: Alaska Department of Revenue.

59 Effective Tax Rates and Wellhead Prices Over Time (Prudhoe Bay Field) % Effective Tax Rate $ % 5.0% 970s:.46% $7.85 Wellhead Price 980s: 3.59% $ s: 4.72% $ s: 3.8% $ (Effective Tax Rate Percent) 2.5% 0.0% 7.5% (Wellhead Dollars Per Barrel) 5.0% 2.5% 0 0.0% Source: Alaska Department of Revenue.

60 Effective Tax Rates and Wellhead Prices Over Time (Kuparuk Field) % Effective Tax Rate $ % 5.0% 970s: n/a n/a Wellhead Price 980s: 9.42% $.0 990s: 2.33% $ s: 3.52% $ (Effective Tax Rate Percent) 2.5% 0.0% 7.5% (Wellhead Dollars Per Barrel) 5.0% 2.5% 0 0.0% Source: Alaska Department of Revenue.

61 Effective Tax Rates and Wellhead Prices Over Time (Alpine Field) % Effective Tax Rate $ % 5.0% 970s: n/a n/a Wellhead Price 980s: n/a n/a 990s: n/a n/a 2000s: 0.5% $ (Effective Tax Rate Percent) 2.5% 0.0% 7.5% (Wellhead Dollars Per Barrel) 5.0% 2.5% 0 0.0% Source: Alaska Department of Revenue.

62 Projected North Slope Crude Oil* Production (FY ) , ,973 bpd =.5 Billion Bbls. 823,46 bpd = 3.0 Billion Bbls. (Barrels Per Day) 800, , , , , , % 9.9% 9.2% 3.4% 7.5% Others 96, % Others 223,56 Alpine 84,34 Alpine 7.8% 64, % Others Kup. Sats. 8,22 77,866 Kup. Sats. 0.6% 87,029 Kuparuk 5.6% 4,006 Kuparuk Kup. Sats. 2.5% 03,34 0.0% 64,323 PB Sats. 63, % PB Sats. 60, ,280 bpd = 5.6 Billion Bbls. 3.0% 6.8% Kuparuk 83,474 Alpine 35,887 PB Sats. 43, ,000 00, % Prudhoe Bay 32, % Prudhoe Bay 285, % Prudhoe Bay 23, Year Average (FY ) 0-Year Average (FY ) 24-Year Average (FY ) * Includes NGLs. Source: Alaska Department of Revenue.

63 Change in Projected Taxes Under a 20/20 Tax DOR Forecast Production (FY )* 63 $,000 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars) FY FY FY Total Difference from SQ ($Million) $3,47 $7,47 $7,97 Annual Average Difference from SQ ($Million) $683 $747 $749 PPT Effective Tax Rate (Percent) 2.2% 2.4% 2.6% SQ Effective Tax Rate (Percent) 7.% 6.3% 4.9% * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

64 Change in Projected Taxes Under a 20/20 Tax DOR Forecast Production (FY )* 64 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $30.40 $28.50 $26.80 FY Total Difference from Status Quo (Million 2006$) $3,47 $2,459 $4,637 $,673 $0 - - Annual Average Difference from Status Quo (Million 2006$) $683 $492 $927 $335 $0 - - PPT Effective Tax Rate (Percent) 2.2%.4% 3.2% 0.7% 7.2% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.2% - - FY Total Difference from Status Quo (Million 2006$) $7,47 $3,64 $,688 $4,56 - $0 - Annual Average Difference from Status Quo (Million 2006$) $747 $36 $,69 $46 - $0 - PPT Effective Tax Rate (Percent) 2.4% 0.3% 3.8% 0.8% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $7,97 $4,824 $30,262 $9, $0 Annual Average Difference from Status Quo (Million 2006$) $749 $20 $,26 $ $0 PPT Effective Tax Rate (Percent) 2.6% 8.7% 4.5% 0.6% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

65 Change in Projected Taxes Under a 20/20 Tax with Costs Increased by 20% DOR Forecast Production (FY )* 65 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $34.80 $32.60 $30.50 FY Total Difference from Status Quo (Million 2006$) $2,659 $,70 $3,878 $95 $0 - Annual Average Difference from Status Quo (Million 2006$) $532 $340 $776 $83 $0 - PPT Effective Tax Rate (Percent).% 0.% 2.2% 9.% 7.% - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.% - FY Total Difference from Status Quo (Million 2006$) $6,002 $2,45 $0,29 $2,687 - $0 - Annual Average Difference from Status Quo (Million 2006$) $600 $24 $,022 $269 - $0 - PPT Effective Tax Rate (Percent).2% 8.8% 2.9% 9.2% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $5,22 $2,29 $27,5 $7,046 - $0 Annual Average Difference from Status Quo (Million 2006$) $634 $89 $,46 $294 - $0 PPT Effective Tax Rate (Percent).5% 6.8% 3.6% 9.0% - 4.9% Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% - 4.9% * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

66 Change in Projected Taxes Under a 25/20 Tax DOR Forecast Production (FY )* 66 $,600,400 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars),200, FY FY FY Total Difference from SQ ($Million) $5,86 $,968 $26,555 Annual Average Difference from SQ ($Million) $,63 $,97 $,06 PPT Effective Tax Rate (Percent) 5.8% 6.0% 6.4% SQ Effective Tax Rate (Percent) 7.% 6.3% 4.9% * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

67 Change in Projected Taxes Under a 25/20 Tax DOR Forecast Production (FY )* 67 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $26.40 $25.0 $24.0 FY Total Difference from Status Quo (Million 2006$) $5,86 $4,480 $7,492 $3,283 $0 - - Annual Average Difference from Status Quo (Million 2006$) $,63 $896 $,498 $657 $0 - - PPT Effective Tax Rate (Percent) 5.8% 4.8% 6.9% 4.% 7.2% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.2% - - FY Total Difference from Status Quo (Million 2006$) $,968 $6,740 $7,656 $7,37 - $0 - Annual Average Difference from Status Quo (Million 2006$) $,97 $674 $,766 $732 - $0 - PPT Effective Tax Rate (Percent) 6.0% 3.6% 7.7% 4.2% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $26,555 $9,286 $42,77 $5, $0 Annual Average Difference from Status Quo (Million 2006$) $,06 $387 $,780 $ $0 PPT Effective Tax Rate (Percent) 6.4%.7% 8.5% 4.0% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

68 Change in Projected Taxes Under a 25/20 Tax with Costs Increased by 20% DOR Forecast Production (FY )* 68 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $30.0 $28.60 $27.30 FY Total Difference from Status Quo (Million 2006$) $4,938 $3,602 $6,64 $2,405 $0 - - Annual Average Difference from Status Quo (Million 2006$) $988 $720 $,323 $48 $0 - - PPT Effective Tax Rate (Percent) 4.5% 3.3% 5.8% 2.2% 7.2% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.2% - - FY Total Difference from Status Quo (Million 2006$) $0,268 $5,040 $5,956 $5,67 - $0 - Annual Average Difference from Status Quo (Million 2006$) $,027 $504 $,596 $562 - $0 - PPT Effective Tax Rate (Percent) 4.6%.8% 6.6% 2.4% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $23,37 $6,0 $39,533 $2, $0 Annual Average Difference from Status Quo (Million 2006$) $974 $255 $,647 $ $0 PPT Effective Tax Rate (Percent) 5.0% 9.5% 7.5% 2.% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

69 Difference in Projected Taxes Between a 25/20 and a 20/20 Tax DOR Forecast Production (FY )* 69 $,000 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars) FY FY FY Total Difference from 20/20 PPT Tax ($Million) $2,398 $4,497 $8,584 Annual Average Difference from 20/20 PPT Tax ($Million) $480 $450 $358 25/20 PPT Effective Tax Rate (Percent) 5.8% 6.0% 6.4% 20/20 PPT Effective Tax Rate (Percent) 2.2% 2.4% 2.6% * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

70 Difference in Projected Taxes Between a 25/20 and a 20/20 Tax DOR Forecast Production (FY )* 70 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $ FY Total Difference from 20/20 PPT Tax (Million 2006$) $2,398 $2,02 $2,855 $, Annual Average Difference from 20/20 PPT Tax (Million 2006$ $480 $404 $57 $ /20 PPT Effective Tax Rate (Percent) 5.8% 4.8% 6.9% 4.% /20 PPT Effective Tax Rate (Percent) 2.2%.4% 3.2% 0.7% FY Total Difference from 20/20 PPT Tax (Million 2006$) $4,497 $3,26 $5,969 $3, Annual Average Difference from 20/20 PPT Tax (Million 2006$ $450 $33 $597 $ /20 PPT Effective Tax Rate (Percent) 6.0% 3.6% 7.7% 4.2% /20 PPT Effective Tax Rate (Percent) 2.4% 0.3% 3.8% 0.8% FY Total Difference from 20/20 PPT Tax (Million 2006$) $8,584 $4,462 $2,455 $5, Annual Average Difference from 20/20 PPT Tax (Million 2006$ $358 $86 $59 $ /20 PPT Effective Tax Rate (Percent) 6.4%.7% 8.5% 4.0% /20 PPT Effective Tax Rate (Percent) 2.6% 8.7% 4.5% 0.6% * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

71 Change in Projected Taxes Under the House Resources CS DOR Forecast Production (FY )* 7 $,600,400 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars),200, FY FY FY Total Difference from SQ ($Million) $5,823 $,578 $3,386 Annual Average Difference from SQ ($Million) $,65 $,58 $,308 PPT Effective Tax Rate (Percent) 5.8% 5.7% 8.4% SQ Effective Tax Rate (Percent) 7.% 6.3% 4.9% * Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

72 Change in Projected Taxes Under the House Resources CS DOR Forecast Production (FY )* 72 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $30.30 $28.30 $25.40 FY Total Difference from Status Quo (Million 2006$) $5,823 $3,794 $8,602 $,703 $0 - - Annual Average Difference from Status Quo (Million 2006$) $,65 $759 $,720 $34 $0 - - House Resources CS Effective Tax Rate (Percent) 5.8% 3.7% 8.4% 0.7% 7.2% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.2% - - FY Total Difference from Status Quo (Million 2006$) $,578 $4,993 $2,52 $4,30 - $0 - Annual Average Difference from Status Quo (Million 2006$) $,58 $499 $2,5 $43 - $0 - House Resources CS Effective Tax Rate (Percent) 5.7%.8% 20.3% 0.9% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $3,386 $7,86 $75,604 $3, $0 Annual Average Difference from Status Quo (Million 2006$) $,308 $299 $3,50 $ $0 House Resources CS Effective Tax Rate (Percent) 8.4% 0.3% 29.2% 2.6% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

73 Change in Projected Taxes Under the House Resources CS Costs Increased by 20% DOR Forecast Production (FY )* 73 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $34.60 $32.30 $29.00 FY Total Difference from Status Quo (Million 2006$) $5,064 $3,035 $7,843 $944 $0 - - Annual Average Difference from Status Quo (Million 2006$) $,03 $607 $,569 $89 $0 - - House Resources CS Effective Tax Rate (Percent) 4.7% 2.4% 7.4% 9.% 7.% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.% - - FY Total Difference from Status Quo (Million 2006$) $0,09 $3,524 $20,043 $2,84 - $0 - Annual Average Difference from Status Quo (Million 2006$) $,0 $352 $2,004 $284 - $0 - House Resources CS Effective Tax Rate (Percent) 4.5% 0.2% 9.3% 9.3% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $28,635 $4,435 $72,854 $0, $0 Annual Average Difference from Status Quo (Million 2006$) $,93 $85 $3,036 $ $0 House Resources CS Effective Tax Rate (Percent) 7.3% 8.4% 28.3%.0% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

74 Difference in Projected Taxes Between the House Resources CS¹ and a 20/20² Tax DOR Forecast Production (FY ) 74 $,000 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars) FY FY FY Total Difference from 20/20 PPT Tax ($Million) $2,405 $4,07 $3,45 Annual Average Difference from 20/20 PPT Tax ($Million) $48 $4 $559 House Resources CS Effective Tax Rate (Percent) 5.8% 5.7% 8.4% 20/20 PPT Effective Tax Rate (Percent) 2.2% 2.4% 2.6% ¹ Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

75 Difference in Projected Taxes Between the House Resources CS¹ and a 20/20² Tax DOR Forecast Production (FY ) 75 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $ FY Total Difference from 20/20 PPT Tax (Million 2006$) $2,405 $,335 $3,965 $ Annual Average Difference from 20/20 PPT Tax (Million 2006$ $48 $267 $793 $ House Resources CS Effective Tax Rate (Percent) 5.8% 3.7% 8.4% 0.7% /20 PPT Effective Tax Rate (Percent) 2.2%.4% 3.2% 0.7% FY Total Difference from 20/20 PPT Tax (Million 2006$) $4,07 $,380 $9,824 $ Annual Average Difference from 20/20 PPT Tax (Million 2006$ $4 $38 $982 $ House Resources CS Effective Tax Rate (Percent) 5.7%.8% 20.3% 0.9% /20 PPT Effective Tax Rate (Percent) 2.4% 0.3% 3.8% 0.8% FY Total Difference from 20/20 PPT Tax (Million 2006$) $3,45 $2,362 $45,342 $3, Annual Average Difference from 20/20 PPT Tax (Million 2006$ $559 $98 $,889 $ House Resources CS Effective Tax Rate (Percent) 8.4% 0.3% 29.2% 2.6% /20 PPT Effective Tax Rate (Percent) 2.6% 8.7% 4.5% 0.6% ¹ Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

76 Change in Projected Taxes Under the Senate Resources CS DOR Forecast Production (FY )* 76 $ 2,000,800 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars),600,400,200, FY FY FY Total Difference from SQ ($Million) $7,955 $6,06 $38,79 Annual Average Difference from SQ ($Million) $,52 $,606 $,59 Senate Resources CS Effective Tax Rate (Percent) 9.0% 9.3% 2.4% SQ Effective Tax Rate (Percent) 7.% 6.3% 4.9% * Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

77 Change in Projected Taxes Under the Senate Resources CS DOR Forecast Production (FY )* 77 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $28.30 $25.50 $23.0 FY Total Difference from Status Quo (Million 2006$) $7,955 $5,76 $0,644 $2,909 $0 - - Annual Average Difference from Status Quo (Million 2006$) $,59 $,43 $2,29 $582 $0 - - Senate Resources CS Effective Tax Rate (Percent) 9.0% 7.0% 2.% 3.3% 7.2% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.2% - - FY Total Difference from Status Quo (Million 2006$) $6,06 $8,92 $25,540 $7,64 - $0 - Annual Average Difference from Status Quo (Million 2006$) $,606 $89 $2,554 $764 - $0 - Senate Resources CS Effective Tax Rate (Percent) 9.3% 5.2% 22.9% 4.6% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $38,79 $2,2 $68,505 $9, $0 Annual Average Difference from Status Quo (Million 2006$) $,59 $505 $2,854 $ $0 Senate Resources CS Effective Tax Rate (Percent) 2.4% 3.6% 26.9% 6.2% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

78 Change in Projected Taxes Under the Senate Resources CS Costs Increased by 20% DOR Forecast Production (FY )* 78 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $32.70 $29.00 $26.30 FY Total Difference from Status Quo (Million 2006$) $6,90 $4,662 $9,590 $,855 $0 - - Annual Average Difference from Status Quo (Million 2006$) $,380 $932 $,98 $37 $0 - - Senate Resources CS Effective Tax Rate (Percent) 7.4% 5.2% 9.7%.0% 7.% - - Status Quo Effective Tax Rate (Percent) 7.% 7.2% 7.% 7.% 7.% - - FY Total Difference from Status Quo (Million 2006$) $4,353 $6,484 $23,832 $5,933 - $0 - Annual Average Difference from Status Quo (Million 2006$) $,435 $648 $2,383 $593 - $0 - Senate Resources CS Effective Tax Rate (Percent) 7.9% 3.4% 2.8% 2.7% - 6.3% - Status Quo Effective Tax Rate (Percent) 6.3% 6.5% 6.2% 6.3% - 6.3% - FY Total Difference from Status Quo (Million 2006$) $34,987 $8,920 $65,33 $6, $0 Annual Average Difference from Status Quo (Million 2006$) $,458 $372 $2,72 $ $0 Senate Resources CS Effective Tax Rate (Percent) 20.0%.4% 25.8% 4.4% % Status Quo Effective Tax Rate (Percent) 4.9% 5.4% 4.7% 4.9% % * Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

79 Difference in Projected Taxes Between the Senate Resources CS¹ and a 20/20² Tax DOR Forecast Production (FY ) 79 $,000 Price: EIA Base Forecast; ANS = $52.70 Real Average (Real 2006 Million Dollars) FY FY FY Total Difference from 20/20 PPT Tax ($Million) $3,484 $6,882 $7,06 Annual Average Difference from 20/20 PPT Tax ($Million) $697 $688 $709 Senate Resources CS Effective Tax Rate (Percent) 7.4% 7.9% 20.0% 20/20 PPT Effective Tax Rate (Percent) 2.2% 2.4% 2.6% ¹ Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

80 Difference in Projected Taxes Between the Senate Resources CS¹ and a 20/20² Tax DOR Forecast Production (FY ) 80 EIA WTI Price Forecast: Fixed $40 FY FY FY Base Low High ANS Price Breakeven Breakeven Breakeven Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $ FY Total Difference from 20/20 PPT Tax (Million 2006$) $3,484 $2,203 $4,953 $ Annual Average Difference from 20/20 PPT Tax (Million 2006$ $697 $44 $99 $ Senate Resources CS Effective Tax Rate (Percent) 7.4% 5.2% 9.7%.0% /20 PPT Effective Tax Rate (Percent) 2.2%.4% 3.2% 0.7% FY Total Difference from 20/20 PPT Tax (Million 2006$) $6,882 $2,870 $2,44 $, Annual Average Difference from 20/20 PPT Tax (Million 2006$ $688 $287 $,24 $ Senate Resources CS Effective Tax Rate (Percent) 7.9% 3.4% 2.8% 2.7% /20 PPT Effective Tax Rate (Percent) 2.4% 0.3% 3.8% 0.8% FY Total Difference from 20/20 PPT Tax (Million 2006$) $7,06 $4,096 $35,05 $6, Annual Average Difference from 20/20 PPT Tax (Million 2006$ $709 $7 $,460 $ Senate Resources CS Effective Tax Rate (Percent) 20.0%.4% 25.8% 4.4% /20 PPT Effective Tax Rate (Percent) 2.6% 8.7% 4.5% 0.6% ¹ Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.

81 Effective Severance Tax Rates Over Time 6.0% 4.0% 2.0% 0.0% 8.0% 6.0% 4.0% 2.0% 0.0% (Effective Tax Rate Percent) Historical Projected Status Quo Average: 2.0% FY Average: 7.% FY Average: 6.3% Source: Historical: Alaska Department of Revenue. FY Average: 4.9%

82 Effective Average Tax Rates at Various Price Levels (FY ) 82 25% 20% (Effective Tax Rate Percent) 5% 0% Average Historical Rate 5% 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) Source: Alaska Department of Revenue.

83 Effective Average Tax Rates at Various Price Levels (FY ) 83 25% 20% (Effective Tax Rate Percent) 5% 0% 5% Average Historical Rate Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) Source: Historical: Alaska Department of Revenue.

84 Effective Average Tax Rates at Various Price Levels (FY ) 84 25% 20% (Effective Tax Rate Percent) 5% 0% 5% Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) Source: Historical: Alaska Department of Revenue.

85 Effective Average Tax Rates at Various Price Levels (FY ) 85 25% 20% (Effective Tax Rate Percent) 5% 0% 5% 20/20 Tax* Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. Source: Historical: Alaska Department of Revenue.

86 Effective Average Tax Rates at Various Price Levels (FY ) 86 25% 20% 25/20 Tax* (Effective Tax Rate Percent) 5% 0% 5% 20/20 Tax* Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. Source: Historical: Alaska Department of Revenue.

87 Effective Average Tax Rates at Various Price Levels (FY ) 87 25% House Resources CS¹ 20% 25/20 Tax² (Effective Tax Rate Percent) 5% 0% 5% 20/20 Tax² Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) ¹ Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. Source: Alaska Department of Revenue.

88 Effective Average Tax Rates at Various Price Levels (FY ) 88 25% Senate Resources CS¹ 20% 25/20 Tax² (Effective Tax Rate Percent) 5% 0% 5% 20/20 Tax² Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) ¹ Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. Source: Alaska Department of Revenue.

89 Effective Average Tax Rates at Various Price Levels (FY ) 89 25% Senate Resources CS¹ House Resources CS² 20% (Effective Tax Rate Percent) 5% 0% 5% 20/20 Tax³ Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) ¹ Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from April 2006; $60 Million exemption over 8 companies for 0 years; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ³ Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. Source: Alaska Department of Revenue.

90 Effective Average Tax Rates at Various Price Levels Impact of Increased Investment (FY ) 90 25% 25/20* 25/20* Investment Increased to $2.5B/Year 20% 20/20* 20/20* Investment Increased to $2.5B/Year (Effective Tax Rate Percent) 5% 0% 5% Average Historical Rate Projected Status Quo (PBU) Projected Status Quo (All Fields) 0% $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 (ANS Price in $2006) * Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. Source: Historical: Alaska Department of Revenue.

91 Projected Government Takes DOR Forecast Production (FY ) 9 Total Government Take (Percent) Alaska Take (Percent) EIA WTI Price Forecast: Fixed $40 EIA WTI Price Forecast: Fixed $40 Base Low High ANS Price Base Low High ANS Price Average ANS Price in Real 2006 Dollars: $52.70 $33.40 $70.00 $40.00 $52.70 $33.40 $70.00 $40.00 FY Status Quo 54.4% 55.3% 53.8% 56.9% 25.9% 26.8% 25.2% 28.2% 20/20 PPT¹ 57.7% 58.% 57.6% 59.4% 3.0% 3.0% 3.% 32.% 25/20 PPT¹ 60.0% 60.3% 59.9% 6.7% 34.5% 34.6% 34.8% 35.7% House Resources CS² 60.0% 59.5% 60.8% 59.4% 34.5% 33.4% 36.2% 32.% Senate Resources CS³ 62.3% 62.0% 62.8% 6.5% 37.4% 36.3% 38.6% 34.3% FY Status Quo 53.3% 55.0% 52.4% 55.0% 24.8% 26.9% 23.7% 26.7% 20/20 PPT¹ 57.2% 57.6% 57.% 58.% 30.9% 30.9% 3.0% 3.5% 25/20 PPT¹ 59.6% 59.9% 59.6% 60.5% 34.5% 34.5% 34.8% 35.2% House Resources CS² 59.4% 58.6% 6.% 58.2% 34.2% 32.5% 37.2% 3.7% Senate Resources CS³ 62.0% 6.2% 63.0% 6.0% 37.8% 36.0% 39.8% 35.4% FY Status Quo 5.9% 54.7% 50.8% 53.3% 23.4% 27.2% 22.0% 25.2% 20/20 PPT¹ 56.9% 57.% 56.9% 57.3% 3.2% 30.9% 3.3% 3.4% 25/20 PPT¹ 59.3% 59.3% 59.3% 59.6% 34.9% 34.3% 35.2% 35.0% House Resources CS² 60.6% 58.2% 65.9% 58.7% 37.0% 32.7% 45.4% 33.5% Senate Resources CS³ 62.7% 60.8% 64.7% 6.3% 39.9% 36.2% 43.3% 37.3% ¹ Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ² Calculated from April 2006; includes transition (50% of capex over st 7 years to maximum of $5 Billion) and 5 BPD exemption; volumes per DOR Fall 2005 Forecast with Oooguruk projection. ³ Calculated from July 2006; includes 6-year transition (00% ) and $73 Million exemption over 7 companies; volumes per DOR Fall 2005 Forecast with Oooguruk projection.