At their invitation, a presentation to the Kenai Peninsula Borough Alaska LNG Project Advisory Committee on my observations on issues surrounding the AKLNG project.

1. Presentation to the
Kenai Peninsula Borough
Alaska LNG Project Advisory Committee
Brad Keithley
Publisher, Thoughts on Alaska Oil & Gas
June 6, 2018

2. Keithley Presentation (6.6.2018)
Overview
● As an observer, my view of the context
● Why I think AKLNG has the potential to be
successful
● Keys to success
● Areas of concern
● Local issues (focus on PILT)
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3. Keithley Presentation (6.6.2018)
Context
● AKLNG is in competition with other projects (US &
international) for a share of a growing global
market
● Primary global growth is in China
● Important to pace to market opportunity (be
prepared, but within financial reason)
● Alaska LNG has some advantages, but some
disadvantages
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4. Keithley Presentation (6.6.2018)
Why AKLNG has potential for success
● Historic
○ Known (& significantly developed) gas supply
○ Location
○ Motivated owners
● Critical new development: Trump Admin trade
confrontation with China
○ Increasingly motivated buyer
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5. Keithley Presentation (6.6.2018)
Keys to success
● Now that it’s been swept up in the process, successful
outcome of Trump Admin trade confrontation
● Preparation (regulatory, be in a position to move forward
with market opportunity)
● Financing (China or other financial; if other financial,
strength of offtake commitment)
● Cost (must be in competitive range, historically not)
● Ability to execute (effective construction & operation,
related to cost)
● Successful approval by US of China involvement
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6. Keithley Presentation (6.6.2018)
Areas of long-term concern
● Alaska’s financial take (long term revenue)
● Risk of commercial structure (durability of
revenue flow, risk exposure to Alaska as buy/sell
middleman)
● Structure of China’s involvement (potential for
out’s & what happens if they are triggered)
● Engagement & alignment of key players
(importance of producer involvement)
● Who is in “control” and constraints on control
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7. Keithley Presentation (6.6.2018)
PILT (Local issues)
● Context
● Overall level
● Guarantee
● Allocation
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8. Keithley Presentation (6.6.2018)
Context
● General rule: “State property” is exempt from
municipal property tax (AS 29.45.030)
○ “[E]xcept that (A) a private leasehold, contract, or
other interest in the property is taxable to the
extent of the interest”
● While project currently is “state property,” ultimate
ownership and contractual structure is not settled
● PILT is good way of providing needed project
certainty up front
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9. Keithley Presentation (6.6.2018)
Overall level
● Project perspective
○ Level of overall gov’t take constrained by cost
challenge
○ Competition b/w state & local for “gov’t take”
● Property tax is a starting point
○ Broader if PILT covers other potential local taxes
(sales, income) as well
○ But offset by commitment of other state support
● Term & reopener
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10. Keithley Presentation (6.6.2018)
Guarantee
● Direct payment from project
○ In light of recent developments, avoid annual state
appropriation process
● Anticipate potential for state clawbacks
○ Reduced state support in various areas
○ Increase in “local contribution”
○ Potentially include an adjuster to
payment/reopener
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11. Keithley Presentation (6.6.2018)
Allocation among localities
● Short term
○ Construction impact
■ Duration
■ Impacted roads & other infrastructure not
directly charged to project, workforce
● Long term
○ Based on value & impact
■ “Kit”
■ Workforce
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12. Questions
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