Legislative Budget & Audit and Senate Resources Committee Decision Making

1. Legislative Budget & Audit and Senate Resources Committee Decision Making October 14, 2004

2. Investment Decision Making • Evaluation of value drivers and project risk • Technical • Commercial • Political • Quantify risks and rewards • Discounted cash flow (DCF) analysis • Monte Carlo analysis • Decision analysis • Corporate overlay • Financial strength • Shareholder expectations • Management judgement

3. Strategic Decision Making • Large and mega projects Analytical data / metrics Commercial arrangements Project management Risk mitigation plan Alignment of all parties Key decision drivers Strategic decision making Unique analysis Gated process Senior management input

4. Typical Project Drivers Oil Wells Gather / Gas Transport Platform NGL Revenue Capital Other Other Value Capex Revenue Fixed Schedule Expense Capital Variable Expense Taxes

5. ANS Gas: What are the Key Drivers? Wellhead Price = Market Price – Costs Costs = Processing + Transportation Wellhead Value Dev Cap Ex Return Finding Cost State take US income tax Operating costs

6. P10 NPV1 P10 Costs P50 NPV2 P90 NPV3 P10 Market Outlook P50 Costs P50 Yes P90 Develop P10 Costs P50 P90 No P90 Key Analytical Tools

7. Definitions of Typical Economic Measures • Total after-tax net cash flow • Total revenues of project less expenses and capital • Discount rate • Rate used to calculate the present value of future cash flows • After-tax discounted net cash flow • The total after-tax net cash flow discounted at the appropriate discount rate • Payout • Elapsed time in years from the date of first investment to the time when net cash flow first becomes positive • Profitability index • Discounted after-tax cash flow / discounted capital investment • Rate of return • Discount rate, expressed as a percentage, at which the net cash flows sum to zero

8. Time (Highly dependent on Project Specific Characteristics) General Project Management Process Key Decision Point AFD • Appraisal • Identify Opportunity • Generate Concepts • Frame Project • Identify key Issues • Risk • Costs • Optimize • Refine Project Concepts • Select alternatives • Mitigate Risks AFE • Define • Define Single Project • Commercial agreements • Finalize cost and plans • Mitigate Risks • Execute • Execute Project • Operate • Operate Project • Evaluate • Optimize Risk and Uncertainty ANS Gas Pipeline $1 B $20 B $125 MM Current Position

9. Potential to Influence Risk Cost and Cost and Opportunities Opportunities Opportunity to influence risk drivers Opportunity to Influence Risk Drivers High High Cost of risk mitigation Cost of Risk Mitigation Low Low Time/Project Time/Project Phase Phase Conceptual Conceptual Feasibility Feasibility Design Design Execute Execute Best opportunity to reduce risk at least cost

10. ANS Gas: Critical Risk Mitigation Elements • Conceptual engineering & environmental / regulatory study • Completed $125 million joint study in 2002 • Study concluded project was technically feasible, but had significant risks • Governments can play a key role in reducing project risk • Work plan proposed to reduce these risks: • State of Alaska fiscal certainty • Passage of Federal legislation • Predictable Canadian regulatory process • Long term favorable market outlook Source: March 2004 State of Alaska Technical Presentation

11. Costs: Pipeline Project Comparison Sources: Senate Energy Staff and COP internal sources US projects since 1997 greater than $100 million New build or expansion Alberta-market Alaska North Slope - Alberta Alaska Gas Pipeline will be much larger / more difficult than other US / Can PL’s Size brings additional risk.

12. ANS Gas: Success Case Timeline Conceptual Project Timeline

13. ANS Gas: Conclusions • ANS pipeline is one of the largest infrastructure projects ever • Size and scale creates significant inherent risks • No single approval metric/criterion • Disciplined process designed to reduce risk • Multiple approval gates • Avoid artificial deadlines that increase cost / risk • Priorities • Develop strong base project • Follow disciplined project management process