“The Economic Impacts Of Alaska Company Ownership In The Natural Gas Industry”

1. “The Economic Impacts Of Alaska Company Ownership In The Natural Gas Industry” Presentation To: Senate Resources Committee Legislative Budget & Audit Committee Hearings: Alaska Natural Gas Pipeline Issues Presentation By: Ken Thompson, President & CEO Pacific Star Energy LLC

2. Discussion Agenda • Vision of Pacific Star Energy • PSE’s value added proposition • Economic impacts of Alaska company ownership in the natural gas industry • Implications and recommendations Socio-economic Benefits Of Alaska Ownership

3. Pacific Star Energy Vision Natural Gas Consortium • PSE will become the “Integrated Natural Gas Consortium of Alaska” 2004-2012 • 10% interest in North Slope gas pipeline project to Alberta, or… • 20% interest in NS gas pipeline from Slope to AK/CN border 2013-2016 • Interest in “hub” gas distribution centers in Alaska • Interest in gas wholesale distribution spur lines • Interest in natural gas processing, niche petrochemicals 2017-2025 • Natural gas field operations, production Note: not planning investment in utility or direct retail distribution Socio-economic Benefits Of Alaska Ownership

4. PSE Segments Gas Project & In-state Hub(s) 34 TCF proven reserves 100+ TCF potential reserves North Slope Gas (Ownership in main trunk-line by final gas pipeline consortium companies including PSE. Ownership in hub distribution facilities and spur pipelines by PSE and partner companies) Gas Pipeline Fairbanks/Delta Junction Gas Trading Hub(s) (PSE) Gas To Fairbanks, Anchorage, Kenai For Power Generation, Home Use, Expansion Of LNG, Petrochemicals, GTL, etc. (PSE, gas supply entrepreneurs, gas distribution companies, etc.) Pipeline Gas To Lower 48 (Pipeline consortium) Gas To Valdez For LNG(AK Gas Development Authority) Socio-economic Benefits Of Alaska Ownership

5. Investment Opportunity For Alaskans • Seed funding for PSE expenses through end of 2005 successfully obtained • Approach additional investors in 4Q 2004 and in 2005 for PSE share of funding for permits, ROW, engineering, etc. in 2006-08 • Early phase of investment for this final business evaluation of gas line is moderate to high risk…so limit to accredited investors • Alaska companies: Native and non-Native, i.e. all Alaskans • Alaska institutions and accredited Alaska individual investors • When pipeline construction is underway in 2009-12 • Terms with Federal and State governments will be known • Gas contracts with customers will be secured • Risk reduced to lower level • Institute financial mechanism for all individual Alaskans who are interested in investing for ownership in the Alaska gas project • Investment trust • Innovative mutual fund Socio-economic Benefits Of Alaska Ownership

6. Pacific Star Energy’s Value-Added Proposition • More profits stay within Alaska for healthy state economy, lessening risk of producer tax increases • Build markets, investments in in-state gas use, infrastructure and value-added gas processing • Assistance in permitting • Enhancement of Alaska hire • Assistance in State, Federal government relationships • Assistance in transportation or marketing of gas owned by smaller producers and the State in-kind royalty gas • Deliver on PSE share of capital investment Socio-economic Benefits Of Alaska Ownership

7. Economic Impacts – PSE Participation In Gas Industry • Incremental benefit of 10% Alaska company interest in pipeline and ancillary businesses • $1.8 billion in profits left within the state • 22,280 total incremental part-time and full-time indirect and direct jobs (650 jobs/year) • $830 million incremental payments to labor • $1.3 billion of total value added to the State economy • Over and above what a 10% interest owned by an Outside company provides Source: Socio-economic study completed by Northern Economics, Inc. for impact over 2004-2040. Socio-economic Benefits Of Alaska Ownership

8. What Investment Is Needed To Secure A 12.5% Interest In The Gas Line? Case below assumes 12.5% investment by the State or by an Alaska consortium of companies to transport State’s 12.5% royalty share of gas. This assumes the State or PSE does not invest in the NS lease conditioning facility and assumes major companies own that facility 100% at $2.5B investment. Expansion cost of lines south of Alberta, $2-3B is also not included in table below for Alaska investment. Gross 12.5% Net Equity Share Of Cost, $BCost,$MMCapital, $MMDebt, $MM From NS To Alberta 11.6 1,450 435 ($108MM/year) 1,015 From NS To Border 6.0 750 225 ($56MM/year) 525 Socio-economic Benefits Of Alaska Ownership

9. Significant Implications • State could provide incentives and/or fiscal certainty to producers…if State value is “given up”, much of this value can be gained back within the economy if the State or Alaska companies have equity ownership • Similar to our Federal delegation passing a “Sense of Congress” regarding encouragement of Alaska company participation, the Legislature should incorporate identical “Intent of The Legislature” in gas pipeline fiscal package • Bottomline: An incremental addition of $1.3B to State economy and 22,000+ new jobs with local ownership Socio-economic Benefits Of Alaska Ownership

10. Recommendations • The State and/or Alaska companies and individuals should own at least 12.5% of the gas line from the Slope to the border or to Alberta • Include “Intent of Legislature” language in any fiscal package to encourage Alaska ownership: It is the intent of the Legislature that-- (1) Alaska Native Corporations, other companies owned and operated by Alaskans, and individual Alaskans should have the opportunity to own shares of the Alaska natural gas pipeline in a way that promotes economic development for the State; and (2) to facilitate economic development in the State, all project sponsors should negotiate in good faith with any willing Alaskan person that desires to be involved in the project. Socio-economic Benefits Of Alaska Ownership