1 1 2 STATE OF LOUISIANA 3 GOVERNOR'S OFFICE OF COASTAL ACTIVITIES 4 COASTAL PROTECTION AND RESTORATION 5 FINANCING CORPORATION MEETING 6 7 * * * * * * * * * * * * * * * * * * * * * * * * * * 8 9 The Governor's Office of Coastal Activities, 10 Coastal Protection and Restoration Financing 11 Corporation Meeting, was held at the LaSalle 12 Building, LaBelle Room, 617 North Third Street, 13 Baton Rouge, Louisiana, beginning at 10:11 a.m. on 14 Monday, March 15, 2010. 15 16 * * * * * * * * * * * * * * * * * * * * * * * * * * 17 18 19 20 21 22 Reported by: 23 Susan Erkel, Certified Court Reporter 24 25 2 1 A P P E A R A N C E S 2 3 ANGELE DAVIS, DOA/COA 4 GARRET GRAVES, GOCA/CPRA (CHAIR) 5 JOHN KENNEDY/RON HENSON, TREASURER/DESIGNEE 6 LOU BUATT, DNR 7 RICK MCGIMSEY, AG'S OFFICE 8 KING MILLING 9 FRED PREJEAN 10 TED FALGOUT 11 AUBREY TEMPLE 12 JOHN BECKER 13 JH CAMPBELL 14 REPRESENTATIVE JOE HARRISON 15 16 17 18 19 20 21 22 23 24 25 3 1 M E E T I N G 2 MS. DAVIS: 3 This meeting will now come to order. I'll 4 ask Mr. Kline to please call the roll. 5 MR. KLINE: 6 Ms. Davis? 7 MS. DAVIS: 8 Here. 9 MR. KLINE: 10 Mr. Graves? 11 MR. GRAVES: 12 Here. 13 MR. KLINE: 14 Mr. Kennedy? (No response.) 15 Mr. Buatt? (No response.) 16 Mr. Bridges? (No response.) 17 Mr. McGimsey? 18 MR. MCGIMSEY: 19 Here. 20 MR. KLINE: 21 Mr. Milling? 22 MR. MILLING: 23 Here. 24 MR. KLINE: 25 Mr. Prejean? 4 1 MR. PREJEAN: 2 Present. 3 MR. KLINE: 4 Mr. Falgout? 5 MR. FALLOUT: 6 Here. 7 MR. KLINE: 8 Mr. Temple? 9 MR. TEMPLE: 10 Here. 11 MR. KLINE: 12 Mr. Becker? 13 MR. BECKER: 14 Here. 15 MR. KLINE: 16 Mr. Campbell? 17 MR. CAMPBELL: 18 Here. 19 MR. KLINE: 20 Representative Harrison? 21 MR. HARRISON: 22 Here. 23 MR. KLINE: 24 Senator Chaisson? (No response.) 25 Mr. Krutzer? (No response.) 5 1 MS. DAVIS: 2 And Mr. Kline, for the record, Mr. Henson is 3 sitting in for Treasurer Kennedy. 4 MR. KLINE: 5 Also, Lou Buatt is here now for the 6 Department of Natural Resources and Mr. McGimsey 7 with the Attorney General's Office. 8 MS. DAVIS: 9 Well done. The first item on the agenda is 10 approval of agenda. Do we have a motion to 11 approve the agenda? 12 MR. HARRISON: 13 So move. 14 MR. GRAVES: 15 Second. 16 MS. DAVIS: 17 Seconded by Mr. Graves. The agenda is 18 approved. 19 The next item on the agenda is the 20 introduction of new members. Mr. Graves? 21 MR. GRAVES: 22 Madame Chairman, we are happy to joined 23 today by Mr. JH Campbell. He's going to be 24 representing the Congressional District in the 25 Baton Rouge area, Congressman Cassidy's seat. 6 1 We also are going to be joined by Secretary 2 Sherri LeBas with the Department of 3 Transportation. Secretary LeBas, she's going to 4 be taking Secretary (inaudible) on the finance 5 corporations board. 6 MS. DAVIS: 7 Mr. McGimsey, will you please swear in our 8 new member for us. 9 MR. MCGIMSEY: 10 Will the new members please stand? 11 MS. DAVIS: 12 We just have one that is with us today. 13 (Whereupon, JH Campbell is sworn in.) 14 MS. DAVIS: 15 Welcome, Mr. Campbell. We've certainly had 16 an opportunity to work with Mr. Campbell in the 17 past and he is an incredible corporate citizen. 18 And he is very good at bringing his business 19 approaches to government organizations. So 20 we're really glad to have Mr. Campbell here 21 today. 22 Appointment of Chair and Vice-Chair? 23 MR. GRAVES: 24 Madame Chair, the law requires that we re- 25 elect members of the officers of the finance 7 1 corporation annually. The current officers are 2 yourself, as the Chair, and Mr. Ted FALLOUT as 3 the Vice-Chair. I now open nominations for 4 Chair of the Corporation. 5 MR. MILLING: 6 I move that we close the open nominations 7 that would approve the two individuals that have 8 been so nominated. 9 MR. TEMPLE: 10 Seconded. 11 MR. GRAVES: 12 We have a motion to re-elect the current 13 Chair and Vice-Chair by Mr. King and seconded by 14 Mr. Temple. All those in favor signify by 15 saying, "Aye". (All response.) Those opposed, 16 "No". (No response.) Congratulations. 17 MS. DAVIS: 18 Thank you very much, Mr. Graves. 19 The next item on the agenda is a summary of 20 the Gulf of Mexico Energy Security Act by Mr. 21 Kline with the Office of the Governor. 22 MR. KLINE: 23 Thank you, Madame Chair. 24 I'm Chip Kline with the Governor's Office. 25 Madame Chair and Panel Members, if you recall, 8 1 at our last meeting, Mr. Garret Graves, the 2 Chairman of the Coastal Protection and 3 Restoration Authority made this same 4 presentation. But since it's been some time 5 since our last meeting, we thought it would be a 6 good idea to again review the Gulf of Mexico 7 Energy Security Act which too often times, 8 people refer to as GOMESA. 9 Now this presentation lays out the mechanics 10 of GOMESA to help you as panel members 11 understand the revenue stream and the revenue 12 sharing program. 13 In December of 2006, President Bush signed 14 into law the Gulf of Mexico Energy Security Act. 15 Under the law new areas in the Gulf of Mexico 16 were open for oil and gas leasing. Now there 17 are three main components of GOMESA. First, the 18 legislation; updated moratoria designations of 19 areas that are prohibited from offshore 20 production. Second, it established credits for 21 leases in areas that were granted yet later 22 revoked. And finally, it created a revenue 23 sharing program amongst that states of 24 Louisiana, Alabama, Mississippi, and Texas. 25 So on the moratoria designations, this map 9 1 is a bit complex and hard to see but I'll do my 2 best to explain what you're looking at here if I 3 can get my pointer to work. First off, this 4 black line that goes down the center of the map 5 is known as the Military Mission Line. 6 Everything that is on this side is known as the 7 Central Planning Area. Everything on this side 8 is known as the Eastern planning area. The 9 moratorium covers all of the areas in yellow on 10 the map. So the areas include a portion of the 11 Central planning area that is within 100 miles 12 of Florida. So this is again, Central planning 13 area and within 100 miles of Florida, here you 14 can see the Alabama-Florida border here; the 15 Mississippi-Alabama border here; and Plaquemines 16 Parish there (indicating). So again, 100 miles 17 of Florida within the Central planning area; 18 within 125 miles in the Eastern planning area is 19 all east of this line here. And also prohibits 20 any production east of what is known as the 21 Military Mission Line so all of this area here 22 (indicating). 23 Now, on the updated areas that allow 24 production to occur. So what Congress did with 25 GOMESA is they authorized the production in this 10 1 area known as the "181 East" which is this part 2 of the yellow area, right in there and the "181 3 South" (indicating). These two areas are the 4 areas that are eligible for revenue sharing from 5 FY 2007 to FY 2016. 6 Madame Chair, I believe that's ringing? Do 7 you want me to pause so she can. 8 MS. DAVIS: 9 Yes. We've asked our financial advisor to 10 join us today for the meeting so that she could 11 talk about the (inaudible) securitization as 12 well as our (inaudible) to be approved today. 13 So we have Ms. Freda Johnson on the line. 14 Freda, can you hear us. 15 MS. JOHNSON: 16 Yes. I can. Thank you. 17 MS. DAVIS: 18 We'll be right with you, Freda. Mr. Kline 19 is in the middle of giving a presentation and 20 when he concludes his presentation, I believe 21 you're a couple of agenda items down. But we 22 welcome you to participate in the meeting. 23 MS. JOHNSON: 24 Thank you. 25 MR. KLINE: 11 1 So again, the 181 South and the 181 East 2 areas are the areas that eligible for revenue 3 sharing from FY 2007 to FY 2016 which are 4 oftentimes here referred to as Phase I of the 5 program. There have been some suggestions that 6 the revenue received during this time period 7 would be much higher. I think it was estimated, 8 since this last projection, that Louisiana could 9 receive anywhere from 20 to 40 million dollars 10 over the entire 10 year period. Now recently, 11 in conversations with experts and with MMS, we 12 believe that that figure will be lower than once 13 predicted. 14 Fiscal year 2017 and beyond, which we refer 15 to as Phase II of the program, all of the leases 16 issued in the Gulf of Mexico after December 20, 17 2006, which is the date of enactment of the 18 legislation, are eligible for revenue sharing. 19 This is when the state anticipates some of the 20 larger revenues will start coming in. It has 21 been predicted that the state could receive 22 around 80 to 150 million dollars per year and 23 possibly up to 300 million dollars per year from 24 fiscal year 2017 and beyond. 25 Now this slide is very important in 12 1 understanding where we are today with the 2 program and the possibility of bonding out this 3 revenue stream. The Minerals Management Service 4 which is within the Department of the Interior, 5 is the federal agency responsible for 6 implementing and administering the revenue 7 sharing program. According to the draft 8 regulations issued by MMS, they are proposing to 9 implement the program in two phases. 10 The first phase cover the first 10 years of 11 the program, 2007 t0 2016 where again the state 12 could receive -- it has been predicted that the 13 state could received 20 to 40 million dollars. 14 Again, we expect that to be lower. 15 Now, MMS has already issued the regulations 16 for the first phase of the program. The MMS has 17 not yet issued the regulations for the Phase II 18 of the program, which is 2017 and beyond where 19 again, the big revenues come in and these are 20 the revenues we are looking into to bond them 21 our which is the reason all of you are here 22 today. So they have not issued those 23 regulations, just as a side note of the 24 legislation is clear that MMS was to issue the 25 regulations in one year from enactment of the 13 1 bill which would have been in December of 2007. 2 Here we are in March, 2010 and now they're 3 telling us that we should receive the 4 regulations within 90 days. 5 Now this is the very reason that the state 6 and this corporation has been in somewhat of a 7 holding pattern the last couple of months when 8 it comes to this effort, not that we haven't 9 been fully engaged with MMS or our federal 10 partners but I want to emphasize until we are 11 able to get more certainty as to how Phase II of 12 the program will operate, it is going to be, I 13 don't want to say "difficult", but I think we'll 14 have a better feeling about moving forward once 15 we know those regulations are in place. So I 16 think that has to be one of our focuses of the 17 short term is getting MMS to issue the 18 regulations for 2017 and beyond. 19 The mechanics of the revenue sharing 20 program: the legislation provides for 37.5 21 percent of "qualified revenues" from all of the 22 new production beginning after the date of this 23 Act. So all leases issued after the date will 24 be shared with the states in the revenue sharing 25 program, Louisiana, Mississippi, Alabama, and 14 1 Texas. But if you really break it down, the 2 state will receive 30 percent and 7.5 percent 3 will go the parishes and counties in those 4 states. Now the federal share is 62.5 percent. 5 Of that 12.5 percent goes to the Land and Water 6 Conservation Fund which is for wildlife refuges 7 and state parks. 8 Now you may have noticed earlier that I 9 said, "qualified revenues". And if you look 10 here in the bottom right-hand of the screen, 11 you'll see qualified -- what those revenues are. 12 The first is a bonus bid. And what happens is 13 the federal royalty rate is a set rate. And 14 since there is not really an opportunity to 15 offer incentives for the federal government, 16 most oftentimes the Minerals Management Service 17 will accept a bid based upon a bonus payment 18 they offer up front. For example, a lease is 19 offered, a company can come in and offer a bonus 20 bid of say 30 million dollars to try to get MMS 21 to chose their bid over another since the 22 royalty rate they pay on is a set rate. Second 23 is their rental payment. This rental payment is 24 due throughout the entire lease period. And 25 finally you have the royalty payment which are 15 1 payments that are provided to the federal 2 government based upon the actual production of 3 oil and gas. 4 Now these qualified revenues also include 5 RIK sales, which is the royalty in kind. What 6 this is, is the Mineral Management Service will 7 allow oil and gas companies to provide them an 8 actual oil and gas rather than providing cash. 9 So the revenue -- the reason this was done was 10 due to discrepancies on how much royalty a 11 company should be providing to the federal 12 government. So what this is, instead of 13 fighting over how much this is worth, we're just 14 going to give you the actual barrels of oil and 15 allow you to go and sell them. Now this happens 16 if the production is donated in kind and the MMS 17 turns and sells it on the market or what have 18 you, the states will share in the revenue that 19 is generated by that. And one of the state's 20 concerns is that if this does happen, if the 21 company were to give the feds the actual 22 production, depending on the mindset of the 23 presidential administration at the time, it 24 could possibly donate the oil to SPR which is 25 the Strategic Petroleum Reserve which is the 16 1 federal government's oil reserves which is 2 excluded from the revenue sharing program. So 3 this would decrease revenues to the state 4 because no revenue would then be generated by 5 depositing it into the SPR. 6 So if Washington were to determine an 7 increase of 100 to 200 million barrels of oil be 8 deposited in the SPR, you can see how quickly 9 the revenue stream would be affected here. So 10 what the state has done is asked the MMS to 11 revise their proposed rules to not dedicate the 12 Gulf of Mexico oil into the Strategic Petroleum 13 Reserve. It would be required to sell all 14 royalty in kind volume thereby allowing us to 15 have more certainty in our revenue stream. This 16 issue is outlined a bit more thoroughly in a 17 document in your folders and I'll through what 18 each of those documents are in a second. 19 GOMESA specifies what the revenues received 20 in this program can be used for. The funds must 21 be used for hurricane protection and coastal 22 restoration, mitigation of damages to animals 23 and natural resources and mitigation of effects 24 on OCS activities and associated planning and 25 administrative costs. I'd also like to add 17 1 under a constitutional amendment put before 2 voters in 2005 which passed by the largest 3 margin in the history of a constitutional 4 amendment on the ballot, it requires that the 5 revenue from offshore production in federal 6 waters be deposited into Coastal Protection and 7 Restoration Trust Fund which is the fund that we 8 use for all coastal restoration and protection 9 efforts. Now the reason Louisiana did this was 10 to ensure that these funds would be used for 11 their intended purposes and dedicated to our 12 coastal areas. 13 This slide shows the breakdown of the OCS 14 revenues. Of the revenue that is generated, 50 15 percent goes into the US Treasury, 50 percent 16 goes to a special treasure account. Of that 17 money, 75 percent goes to the Gulf producing 18 states, 25 percent goes into the Land and Water 19 Conservation Fund. Of the money that goes to 20 the states, 80 percent would go directly to the 21 states and 20 percent would go directly to the 22 coastal parishes and the coastal area. 23 In terms of the formula used for allocation 24 of funds to the states, it is based upon the 25 inverse distance between the lease and the 18 1 coastline of the state. For example, if this is 2 your leased area here (indicating), state A is 3 Louisiana, state B could be Mississippi, you can 4 see in this depiction that Louisiana would get, 5 excuse me Mississippi would get twice as much 6 money from this lease because again, the 7 distribution is based upon the inverse distance 8 from the lease to the nearest proportion of the 9 state. All eligible tracts are weighted equally 10 which means that the actual production or volume 11 credited is irrelevant in this case. 12 Now in terms of the interstate distribution 13 to the parishes, there are three formulas 14 provided here. Fifty percent is based upon, 15 once again, the distance of that parish or 16 county to the leased area. The other 50 percent 17 is based upon the population and the length of 18 the coastline of that parish. 19 In regard to why each of you have been asked 20 to serve on this panel: the task of this panel 21 was chartered with by Act 249 by Senator Reggie 22 Dupre in 2007. If you reviewed the bullet 23 points here, the legislation created a quasi- 24 public corporation for the purpose of governing 25 or securitizing the Outer Continental Shelf 19 1 revenues. It authorizes the states to sell 2 those revenues to the corporation. So under the 3 law, the state who receives those revenues, 4 sells them to the corporation. The corporation 5 then is tasked with securitizing those revenues 6 and then returning the proceeds from that 7 securitization to the State of Louisiana. That 8 is a why you here formula 1 but there is a 9 diagram in your folders that outlines this a 10 little better. 11 Madame Chair, that concludes my 12 presentation. But if I may, I'd just like to go 13 through quickly what is in the folders in front 14 of you, if I may. 15 MS. DAVIS: 16 That would be great. 17 MR. KLINE: 18 In the folders in front of you, you will of 19 course, find the agenda, you will find a copy of 20 the PowerPoint that I just presented. You will 21 find the Gulf of Mexico Energy Security Act 22 Statute and the legislation that created this 23 corporation, the constitutional amendment that 24 dedicated the revenues to the Coastal Trust 25 Fund, a flow chart that simplifies the effort 20 1 this corporation has been tasked with, a diagram 2 showing the percentages that each state in the 3 revenue sharing program will receive, a letter 4 from Governor Perry of Texas, Governor Riley of 5 Alabama, Governor Barbour of Mississippi, and 6 Governor Jindal of Louisiana, urging MMS to 7 issue the regulations for Phase II of the 8 program and to incorporate the requests made by 9 the states. You'll also find the proposed draft 10 regulations from MMS on page 1. A letter from 11 the State of Louisiana commenting on the draft 12 regulation, the final regulations from Phase I 13 by MMS, and a summary of those regulations. 14 Additionally, you'll find my card, if you have 15 any questions. Otherwise, you can request 16 additional information and I'll be happy to do 17 so. 18 Madame Chair, that concludes my 19 presentation. 20 MS. DAVIS: 21 Thank you. I'd like to open up the floor 22 for members to ask any questions of Mr. Kline as 23 a result of his presentation. Representative 24 Harrison? 25 MR. HARRISON: 21 1 Thank you. You said that on the lower end 2 of expectation is 20 to 40 million, what is that 3 based on? 4 MR. KLINE: 5 I'm sorry. Repeat that. 6 MR. HARRISON: 7 The 20 to 40 million you said is lower than 8 what -- 9 MR. KLINE: 10 I think originally you saw some of the 11 projections were very much exaggerated. I think 12 at the beginning that, you know, it was still 13 said that Louisiana could receive up to 1 14 billion dollars per year in Phase I of the 15 program. So I think that the projection, the 16 initial projections were a little exaggerated 17 which is why I think now you're now starting to 18 see it's just not the case. 19 Mr. HARRISON: 20 Well, my concern is looking at the bonds and 21 the future of the oil expectations could be an 22 issue and knocking that number down. So I'm 23 more concerned about where we are with a 24 legitimate number. 25 MR. KLINE: 22 1 Yes, sir. And we're going to get to that 2 later in the meeting with Dr. Terrell and some 3 financial folks. We have RFPs that we're going 4 to issue that will help us predict what the 5 revenue stream will be for the revenues that 6 we're looking into bonding out. 7 MR. GRAVES: 8 Representative Harrison, if I may, the 9 Mineral Management Service actually did prepare 10 a spreadsheet projecting revenue streams 11 associated with this program in 2005. They 12 reconfirmed those spreadsheets in 2006. While 13 those spreadsheets do not indicate a figure 14 anywhere close to the level of Phase I of the 15 program, they were a bit more optimistic than 16 what we've seen thus far. I think that there 17 have been some trends in the energy industry and 18 offshore, especially linked to the actual 19 hurricanes. They got most of the revenue 20 streams, some production sources were shut down. 21 Some resales were extended. They were extended 22 because of the hurricanes impact to the Gulf and 23 the work needed to done. 24 But the most important thing that we're 25 working on right now with the Mineral Management 23 1 Service director since the last meeting, is that 2 we're trying to get them to put as much 3 certainty into the revenue stream as possible. 4 In the Phase I regulation, there were a few 5 provisions in there that could be construed as 6 to allow the MMS to exercise some discretion 7 with the revenue stream. And we now recognize 8 the challenges they have caused us and we're 9 working with them now to establish more 10 certainty the revenue stream to make obligations 11 for certainty. And again, as Chip noted, the 12 econometrics issue is on the agenda to address 13 the projections. 14 MR. HARRISON: 15 Thank you. 16 MR. MILLING: 17 Have the leases in the 181 East and 181 18 South, have they been issued yet and executed? 19 MR. KLINE: 20 I believe there was a lease sale in -- 181 21 East was lease/sale 224 and I believe the 181 22 South lease/sale was 208 which was issued in 23 March of 2009. So that was last June. Garret, 24 do you know when the lease/sale 224 was? Was 25 that 2008? 24 1 MR. GRAVES: 2 I don't remember when it was. 3 MR. MILLING: 4 So those two leased tracts haven't been 5 leased entirely or do you know? 6 MR. KLINE: 7 Those areas are just now coming on line. So 8 there have been resales that have been -- 9 MR. MILLING: 10 Bottom line in the sense of -- 11 MR. KLINE: 12 These new areas are just now starting to 13 come on line. So the revenues that the state is 14 getting from these two areas are the rental 15 payments and the bonus bids. 16 MR. MILLING: 17 But there has been no exploration as far as 18 you know, Mr. Kline? 19 MR. KLINE: 20 Not that I'm aware of. 21 MR. MILLING: 22 I didn't think so. Okay. Let me make sure 23 I understand this. After 2017, we are entitled 24 to a revenue stream from all leases which were 25 executed after 2006; is that correct? 25 1 MR. KLINE: 2 That's correct. December 20, 2006. 3 MR. MILLING: 4 Can you give us a list of what those are and 5 what's presently unleased. 6 MR. KLINE: 7 Yes, sir. 8 MS. DAVIS: 9 We can provide that for the members. Any 10 other questions? 11 MR. BATT: 12 Did we ever get a response to the letter 13 that the Governors sent to MMS to try to resolve 14 some of these uncertainty issues and impacts our 15 ability to bond this money out? 16 MR. KLINE: 17 We did get a response. It was a response 18 that kind of raised some eyebrows. The only 19 comment that they made on the actual suggestions 20 that were put forth in that letter were that the 21 user fees would be excluded from the revenue 22 sharing program which the state, of course, has 23 issue with. But again, they stated that the 24 rules, the regulations are going to be out, 25 issued within 90 days. 26 1 MR. GRAVES: 2 Just to clarify that. We did receive an 3 initial "receipt" letter that the Secretary sent 4 us back where it showed, it actually stated, 5 that they received a letter from the Governors 6 but they were going to be providing a response. 7 We received a second letter from one of the 8 Assistant Secretary's who had indicated that 9 they were preparing one those. Also again, they 10 made an issue of the user fees being excluded 11 from the revenue stream. We don't agree with 12 that note that they put in there. We agree with 13 the law but then it says, that all oil 14 royalties, bonus bids, and other sums due and 15 payable to the United States from leases entered 16 into, are qualified revenues. So basically, any 17 revenue associated with the leases, in our 18 opinion, should be shared revenue. There was an 19 attempt by MMS to dedicate the revenue stream to 20 administrative costs in the FY 2009 and it was 21 rejected. 22 MR. KLINE: 23 Let me just say that we have spent a lot of 24 time over the last several months reaching out 25 to the other states that participated in this 27 1 revenue sharing program. And let me just say 2 that I think Louisiana is way ahead of the game 3 here when it comes to the possibility of 4 securitizing this revenue stream and as well as 5 realizing the possibilities that a revenue 6 stream of this nature could provide the state. 7 MS. DAVIS: 8 Are there any other questions for Mr. Kline? 9 (No response.) If not, we'll move on to the 10 next item on the agenda, which is the 11 Econometrics presentation by Dr. Dek Terrell of 12 Louisiana State University. Dr. Terrell, 13 welcome. 14 MR. TERRELL: 15 Thanks. 16 MS. DAVIS: 17 Dr. Terrell, give us a just a moment to 18 reconnect with our financial advisor. 19 MR. TERRELL: 20 Okay. 21 MS. DAVIS: 22 Hi, Freda. Sorry for the technical 23 difficulties. Dr. Terrell is getting ready to 24 begin his presentation. 25 MS. JOHNSON: 28 1 Not a problem. Okay. 2 MR. TERRELL: 3 I'm Dek Terrell. I'm Director of the 4 Division of Economic Development at LSU and the 5 Freeport McMoran Professor of Economics. What 6 I'll do is to talk about the general items that 7 come in to play when you try to forecast a 8 revenue stream such as this and some issues that 9 you'd want to take into account when you 10 consider an RFP for forecasting the revenue 11 stream. 12 The first thing that I would say is that you 13 need to make some decisions at the outset from 14 your generating forecast of this caliber. So 15 the first thing and the kind of thing that I 16 would look at is the forecast horizon. Are 17 finding that you want to forecast from 2017 to 18 2020? And in particular, I'm thinking of the 19 Phase II revenues. So are you worried about the 20 revenues stream from 2017 to 2020, 2017 to 2026, 21 or you could even think of forecasting -- 22 creating an infinite horizon forecast, from 2017 23 from now on. It turns out because you're 24 looking at the discounted revenues that 25 forecasts in a later year are not going to 29 1 matter much and that's why you forecast it at 2 pretty long horizons. Of course, the further 3 out you forecast it, the more volume you're 4 going to run into and the more uncertainly 5 you're going to have. 6 The second thing that I think that's going 7 to be really important as far as considering 8 forecast, is whether you're targeting a point 9 estimate or an interval forecast. At first 10 glance, most people want a point. So they want 11 to know exactly what the revenue stream is going 12 to be. The bad news, and one of the things that 13 I'm going to go into in a few minutes, is it's 14 going to be difficult for anybody to tell you 15 exactly what that revenue stream is going to be. 16 There's a lot of uncertainly particularly with 17 forecasting something like oil and gas prices at 18 a horizon of five years, ten years out. So 19 that's something you want to be aware of. The 20 alternative is to produce a minimal forecast 21 where you have a low, medium, and high forecast. 22 The advantage of that is that that would give 23 you a little bit more credibility, perhaps, in 24 terms of the forecast. The disadvantage of that 25 is that it gives you multiple numbers. So 30 1 that's something that's always a concern. 2 Another thing is, I think it's important to 3 be clear on the level of detail that's required 4 in a forecast. Put it in the terms of forecast 5 report that describes methodology and in terms 6 of the forecast, what elements really need to be 7 forecast. Do you need an aggregate forecast of 8 revenues or are you worried about forecasting 9 each one of the elements of that stream in the 10 forecast. 11 Finally, the level of methodological 12 complexity is going to be pretty important. As 13 an econometrician, if I were writing an article 14 for an academic journal, I would probably do a 15 very complicated simulation model to generate 16 these forecasts. That's a nice thing from the 17 standpoint of academic journal article. The bad 18 thing is that the more complex your model, 19 sometimes the more room there is for error and 20 (inaudible) convincing it can be to somebody who 21 really doesn't understand how a forecast is 22 generated. So I think some thought needs to go 23 into the level of complexity that is used in the 24 forecast. 25 So just to give you an idea of what would go 31 1 into some of these forecasts, I thought of the 2 example of oil royalty revenues. And when you 3 think of the Louisiana royalties in a given 4 year, that's going to be the Louisiana share 5 times price times quantity minus allowances. 6 it's actually a little bit more complicated than 7 this based on the presentation you saw before 8 because the Louisiana share is going to depend 9 on the location of the actual production. So 10 you really have a spatial problem in the sense 11 if production is going to occur at different 12 points in Gulf, then some of the production 13 could be, perhaps, closer to Mississippi, some 14 is going to be closer to Louisiana. So you're 15 going to have to think about that and you may be 16 (inaudible) number on production. 17 By allowances, there's an allowance for 18 transportation to market and another allowance 19 in the law. The federal government allows the 20 producers to track that. Those are things that 21 can be pretty easy to calculate but they're 22 things that you want to make sure are calculated 23 in any forecast. 24 Finally, when you get down to forecasting 25 those two elements, if you just take a look at 32 1 the two big elements that you have to forecast 2 are the price of oil and the quantity of 3 production. So it seems rather straightforward. 4 I think the challenge in this time horizon is 5 the forecast accuracy of any time series model. 6 And by times series model, I mean that you have 7 historical data over time for both production 8 and the price of oil over a period of many 9 years, and you're trying to forecast what that 10 value is going to be in the future. The 11 forecast, and in any time series model, the 12 accuracy is going to diminish as you forecast 13 over a longer time horizons. And for some of 14 these forecasts, you're looking at relatively 15 long horizons. 16 The other thing that is important to think 17 about is, you're going to be influenced by 18 numerous future uncertain conditions. So as we 19 think some factors that could influence the 20 price, there are some really big factors that 21 could influence the price of oil. On the supply 22 side, if you look at the historical data over a 23 period of 40 or 50 years, there were wars, the 24 Gulf War I and II, there's the oil prices of the 25 1970s, and those are all inventoriable data and 33 1 would be automatically, at least embedded 2 somewhat into a forecast. There are issues 3 related to taxes on producers that would impact 4 the price. Worldwide reserves -- at times you 5 have significant discoveries in some places. So 6 these are things that are going to be very 7 difficult to quantify that would impact the 8 price of oil in a longer term horizon. 9 On the demand side, if you're worried about 10 consumption and energy substitutes. I think 11 there are a lot of efforts underway to try to 12 reduce consumption of energy, to try to create 13 substitutes for oil and natural gas. In 14 practice, it's going to be very different. All 15 of the forecasts that I see show increases in 16 consumption and a lot of the things that would 17 be substitutes, even if you're looking at 2017 18 to 2025 horizon, it's going to be very difficult 19 to generate a lot of energy substitute. So I 20 think the supply side is probably a little bit 21 more of a concern than the demand side on this 22 thing. 23 In forecasting quantity, you're worried 24 about first focusing on reserves or what are the 25 reserves. There are estimates so you can just 34 1 use the latest industry sources. I did a quick 2 Google search and the MMS estimate of the number 3 barrels of oil in this particular area. The 4 other possibility is to actually bring a 5 geologist in to the forecasting process because 6 an econometrician or a statistician is not going 7 to know as much as a geologist if you want an 8 independent estimate of what are the reserves 9 out there rather than relying on existing 10 estimates. 11 The other thing that you are going to worry 12 about when you forecast quantity, and this is 13 something that I'll come back to in a second, is 14 the effective price for producers. Producers 15 are only going -- their effort to actually bring 16 in those reserves and producing more oil and 17 turn more revenues for the state is going to 18 depend on the effective price of oil for those 19 producers. And that's going to depend on the 20 price of oil. So the thing that we were just 21 talking about forecasting. And also, taxes and 22 royalty rates are an issue and could vary over 23 time. 24 Finally, the other thing that I'll mention, 25 that's the technical issue. The technical issue 35 1 is that if you ask me the question of creating a 2 very short term forecast for the price of oil, 3 I'm going to tell you that that's a very 4 difficult thing to do. The reason that's a very 5 difficult thing to do is because market 6 efficiency and finance, if you ask that, if I 7 can really forecast the price of oil better than 8 the futures markets, I would be trading on that 9 right now and I would be making a lot more 10 money. Econometricly, what that translates into 11 is something called the "unit root" which is -- 12 which is when you have a unit root and 13 (inaudible) it's difficult to forecast. The 14 good news is that when you look at over longer 15 time horizon there are an awful lot of things 16 that are going to be very difficult to predict. 17 It may be that you can't necessarily trade as 18 easily on some of these factors in the long 19 term. So you may see some trend reversion, at 20 least for some of it, you see more trend 21 reversion in the long run. I ran a couple of 22 quick models and you don't see as much evidence 23 for the unit root in the long series in the 24 price of oil. 25 Finally, the positive correlation, and this 36 1 again is just a technical issue -- there's a 2 positive correlation between price and quantity 3 and that's going to increase the uncertainty 4 that we have. If a price high, the producers 5 are going to tend to want to squeeze every 6 barrel of oil they can out of the ground so 7 quantity is also going to be high. If the price 8 is lower than you anticipate, it's also going to 9 be true that's there less incentive to invest in 10 capital, to put forth the effort to produce as 11 much. So quantity would also tend to be low. 12 There are some forecasts that work in the 13 opposite direction where price and quantity are 14 negatively correlated and that reduces your 15 uncertainty. But in this case, that correlation 16 is going to increase in uncertainty. 17 So a lot of what I've done or try to do is 18 just discuss some of the challenges that run in 19 to, not in any way to say that this is a 20 possible problem, but to say that there are a 21 number of challenges that need to be dealt with 22 when you're generating a forecast of this sort. 23 So that leads me to the final slide, which 24 is what I would suggest as the goal approach. 25 And the goal would be to generate the most 37 1 credible set of forecast for the revenue stream 2 that you can possibly generate. That means 3 building the best econometric model that you can 4 generate. And that also means that I would 5 suggest linking new forecasts to existing 6 estimates in forecasts, where possible. That 7 doesn't mean that you always want to use those 8 but I think it's easier to establish the 9 credibility of your forecast as if it's similar 10 to Moody's forecast or it's similar to other, 11 some of the national forecasts. Now the 12 challenge in this case is going to be there are 13 not going to be as many long term, credible long 14 term forecasts for the price of oil. 15 The other thing I would say is that I think 16 there's an argument given the degree of 17 uncertainty to think about high, low, and middle 18 estimates to account for some uncertainty. I 19 don't think you want your high estimate to 20 necessarily build on a massive war in some area 21 but I think you want to consider a realistic 22 high, low to middle scenario compared to other 23 possible forecasts that someone else has 24 created. so that's the general forecast 25 approach that I would suggest. Regardless of 38 1 forecasts, I think there's a lot of work as far 2 as carefully considering where the production is 3 going to occur and what that implies about the 4 share and then trying to create the -- address 5 some of the problems with the price in the 6 market. 7 Thank you. 8 MS. DAVIS: 9 Are there any questions? Mr. Graves? 10 MR. GRAVES: 11 Thank you very much for the presentation. 12 It was very, very helpful (inaudible) from a 13 financing side. 14 There are a few things. On your third to 15 last slide there, it says "forecasting quantity" 16 at the top of it. There's a notation that 17 there's somewhere between .807 to 1.1336 million 18 barrels of reserves. I wanted to clarify that 19 that number I believe is strictly barrels of oil 20 not barrel of oil equivalent and that is limited 21 to the 181 South area whereas this legislation 22 applies to all the production in the Gulf of 23 Mexico. So all of the production of 181 East 24 and 181 South in addition to that, any lease 25 issued after December 2006, we'll be sharing in 39 1 the royalties there as well, in oil and natural 2 gas. And the gas is an important component 3 because right now, with the climate change 4 legislation being considered, natural gas 5 infrastructure being very prevalent and 6 predominantly in the United States, that is 7 going to play very, very important roll in our 8 future energy needs. So we've spent the last 9 few years, I think it was 88 percent of all 10 power plants that are under construction, were 11 to use natural gas as a generating source. And 12 so that's a really important issue. 13 In terms of the total reserves in the Gulf 14 of Mexico, it goes to tens of billions of 15 barrels of oil equivalent that are recoverable 16 today and I expect that number to continue to 17 grow as we recently saw the Freeport find in the 18 tertiary areas of the Gulf of Mexico, in the 19 shallow waters, where you saw this area that had 20 produced already and then they actually went 21 deeper and found a huge undercover reserve on a 22 much bigger scale. So I expect this to continue 23 to be a big issue. 24 Let me ask you a few questions. Number one, 25 you noted a few factors that could influence the 40 1 projections and outcome; war, oil embargo and 2 things long those lines. So some of them are 3 war, oil embargo of the 1970s, consumption 4 trends. You have an issue of the potential 5 technological changes, but don't quote me on 6 that, keeping mind things like environmental 7 standards. We have some of the most stringent 8 environmental standards in the world. And last, 9 realistic, we have the strongest regulatory 10 certainty in terms of production here in the 11 United States, whereas two of the top five 12 producers, excuse me, two of the top five 13 exporters of oil to the United States are 14 Nigeria and Venezuela; two countries that 15 (inaudible) in those areas. Could you talk a 16 little bit about which direction you see those 17 trends going in in terms of some of those 18 factors being in our favor or would those not be 19 in our favor in terms of production in the 20 future? 21 MR. TERRELL: 22 One of the things we want to do, I focused 23 on the price of oil because I think that's a 24 good one think about. If you look at something 25 like natural gas, you really want to think about 41 1 exploring different factors because import or 2 not is not as big an issue in natural gas in 3 terms of reserves and production. When I think 4 about trends and those factors, with regard to 5 consumption, I think there's a lot of work right 6 now. We have large project that we're working 7 on (inaudible). So it's apparent that there's 8 an awful lot of work going into trying to come 9 up with alternative energy sources, trying to 10 reduce consumption of energy. I think the 11 challenge is that radically changing the 12 lifestyle of Americans is difficult. Radically 13 changing the lifestyle around the world is going 14 to be something that's very difficult and you 15 see population growing. So with population 16 growing, most of the numbers that you see are 17 for energy consumption to actually rise and 18 consumption for oil and gas, the demand to 19 potentially rise rather than fall dramatically 20 in the near future. 21 With regard to regulation, I think the one 22 thing to consider, particularly at some of the - 23 - because there is some uncertainty about how 24 different legislation effects things, you have 25 actual political instability that could 42 1 potentially effect the production in some 2 countries. That's definitely not going to be an 3 issue or you would hope that's not an issue in 4 the US. The issue in the US would be more 5 legislation such as cap and trade or significant 6 energy reform legislation that may impose 7 significant taxes on oil and gas production. If 8 you pass legislation that will have an impact on 9 oil and gas producers, that's going to decrease 10 incentive to actually make large scale capital 11 investments. So that could happen and have a 12 negative impact on total revenues. 13 As far as the outcome of political debates, 14 that's obviously hard to predict what's going to 15 happen between now and 2017 on political fate so 16 I hesitate to speculate. 17 MR. GRAVES: 18 Thank you. My point here was that there are 19 a number of factor attributed. I think we 20 raised the question that should there be a 21 change in energy technology. I think it would 22 require a fundamental shift and probably multi 23 if not hundreds of thousands of dollars invested 24 to change the infrastructure of the United State 25 to account in that. And I think that should be 43 1 for some point in the far off future when you 2 see the fundamental change. 3 The second thing that I wanted to ask is, in 4 2055, based on the 2005-2006 projections that 5 MMS gave us, they indicated that in 2055, the 6 revenue due to our state would be in excess of 7 (inaudible) million dollars. You touched on the 8 issue of the further you get out, the more 9 uncertain the economics. Could you talk a 10 little bit about that and what type of an impact 11 the numbers of that range would be in 2055? The 12 possibility of bonding that out and what we 13 would be looking at? 14 MR. TERRELL: 15 I think the challenge is that when you go 16 out to a year like 2055, if you had asked me 17 what's going to happen to consumption of, given 18 the demand for oil and gas by 2017 or 2027, it's 19 pretty easy to say that there's not going to be 20 a dramatic shift in demand for oil and gas, for 21 example, for gasoline for our cars. When you go 22 out to a long run horizon, change in technology; 23 electric cars. It's hard to predict what's 24 going to happen. 25 If you look back 30 years ago in terms of 44 1 computers, for example. When I wrote my 2 dissertation, I ran a program for 30 days on a 3 super-computer that would now run in an hour on 4 an iphone. It's pretty amazing what happens to 5 technology in time. If you go out to 2055, 6 that's when you start talking, thinking about 7 demand for oil and gas potentially being 8 affected by technology in ways that we don't 9 foresee today. There could even be some 10 straightforward applications of existing 11 technology. Maybe the country decides to 12 embrace nuclear energy. There's already 13 technology for some electric cars. So you could 14 see a move for electric cars and that could 15 change the way of the future. As far as natural 16 gas, I think production will go in the opposite 17 direction. You'll see a lot of use for natural 18 gas and alternative energy for transportation 19 and that could increase demand for natural gas. 20 So when you get to really long horizons, you 21 have to be concerned about very dramatic changes 22 in technology influencing the market place. And 23 that's a concern. 24 MS. DAVIS: 25 Mr. Milling? 45 1 MR. MILLING: 2 Let me see how I can express this the best. 3 Your approach on known production, or assumed 4 known production, and I guess anybody who has 5 been involved in the oil and gas industry 6 understands there are two things that can happen 7 when you drill a well and only one of them are 8 really any good. And that being the case, how 9 do you place into your projections the lack of 10 commercial production that could arise under 11 some or a portion of the area under which we 12 would be entitled to receive revenue? 13 MR. TERRELL: 14 I think what you have to rely on is the best 15 industry forecast for the reserves that are 16 available. So I think they're always going to 17 be subject to error and that's where you may 18 want to consider getting a geologist involved. 19 MR. MILLING: 20 And I think that's a given. But it appears 21 to me that clearly when you look at the short- 22 term, we are looking for production that may be 23 developed over the next seven years. It is 24 safer as you go beyond that because you're 25 entitled to a larger geological scope of 46 1 production coming from a series of leases that 2 have been left during this period of time. 3 Would it not be appropriate to develop some 4 concept as to what leases might probably be for 5 (inaudible) and over the short-term so that we 6 can begin to aggregate what that could be and 7 then deal with those risks as opposed to just 8 looking at these two leases in 181? 9 MR. TERRELL: 10 I think what you're going to want to -- I 11 guess there are a couple of answers to your 12 question. The first thing is, once the lease is 13 actually occur, the value of those leases are 14 going to give you an estimate, at least the 15 people in the markets best estimate with 16 reserves, I mean they provide you an estimate. 17 The other thing you pointed out is that on a 18 large scale basis, you're not really worried 19 about production. Just a qualification, even 20 with an entire formation, that formation could 21 come out to be very positive or very negative 22 depending on what you start with. So that's 23 obviously going to be an issue. 24 MR. MILLING: 25 It appears to me that we're dealing with a 47 1 state that a significant potential requirement 2 attach not just for the next few years but 3 clearly over decades? And that cash flow has 4 got to come from this source and what we can't 5 do, I would not think, is to load it up on the 6 front-end and then find we don't have the 7 revenue stream to adequately support that path 8 and at the time, support the construction of 9 platforms which the state is going to have to go 10 through. 11 MR. TERRELL: 12 And that's the one reason that I would 13 recommend considering a high, low, and middle 14 estimate. So that being an interval estimate 15 where you have -- your middle estimate is the 16 expected value in your best forecast based on 17 all available information. Your high estimate 18 is if things come out on the positive side. And 19 again, when I say positive side, I don't mean 20 that there are major wars, major shocks. I just 21 mean on the 90 percent -- on the positive side 22 of what we would expect. And then also a low 23 estimate so that you can feel confident that if 24 you have a negative outcome, this gives you some 25 certainty that you're being covered. You 48 1 wouldn't be so negative that you'd be beyond 2 what you had planned. 3 MR. MILLING: 4 The other factor of course, if the fact that 5 the there are a number of leases that have been 6 signed by the federal government but there's 7 never been exploration developed which obviously 8 also could happen in this case as well. And I 9 assume that's another that you've got to bring 10 into play if you're going to be dealing with 11 this sort of thing on a full-time basis. 12 MS. DAVIS: 13 Representative Harrison? 14 MR. HARRISON: 15 Thank you, Ms. Commissioner. One of the 16 things that we face when you're in state 17 forecasting, and I'm hopeful that we're tying 18 into the group that we have there that puts the 19 status together for our state budget year-in and 20 year-out. We're working on the same principles. 21 We're using the same model, the same methods for 22 those strategies and I was really kind of 23 hopeful that we're tying both groups together 24 because are at this point, tied at the hip for 25 the future of the state of Louisiana. I know 49 1 that looking at substitutes for energy, the best 2 hope is five to six percent over the next ten 3 years from the forecasts that I've looked at and 4 the last Energy Council you and I attended, I 5 think T. Boone Pickens pretty much laid it out 6 that our best hope right now is more natural 7 gas. And that we can develop those strategies 8 to offset our costs there in nuclear energy. 9 But I think the point that I wanted to make was 10 that we're tying both our state forecasting 11 group together with Dr. Terrell and putting a 12 strategy together that works on one common 13 market plan. 14 MS. DAVIS: 15 I think Garret has a comment? 16 MR. GRAVES: 17 Representative Harrison, I just want to make 18 known that the comments made earlier about 19 demands of energy in the future and the 20 infrastructure that we have in place today, that 21 the increased demand, I think there's an 22 absolutely inevitable that natural gas, in fact, 23 we have extraordinary reserves in the Gulf of 24 Mexico and the fact that under the legislation -- 25 the legislation actually identifies the area. 50 1 It doesn't identify a particular energy 2 technology. It identifies the area in the Gulf 3 of Mexico. With changes in the law to be made, 4 they were made in 2005, the offshore is now open 5 for business in terms of alternative energy 6 production as well. And so between natural gas, 7 the proven oil reserves and I think the proven 8 natural gas reserves, and the fact that we 9 should be sharing in any type of revenue since 10 alternative energy production, I just want to 11 say that I think the future is bright for us to 12 harvest whatever energy trends do and no matter 13 what energy source is selected (inaudible). 14 MR. MILLING: 15 Garret, I agree with you. That's 16 (inaudible) significant revenue. I just think 17 it's trying to figure out how you get there on 18 the front-end. 19 MS. DAVIS: 20 And I think we'll have to shed a little bit 21 more light on that type of SFO that we're going 22 to be pursuing. And on a competitive basis, how 23 we're going to tie that directly with our 24 underwriters. 25 Are there any other questions for Dr. 51 1 Terrell? 2 MR. BUATT: 3 Even if we move forward with something like 4 cap and trade or some policy that just simply 5 potentially increases costs. It's going to take 6 a certain amount of energy to fuel the economy. 7 The royalties and what we're getting are a 8 function of quantity and price, correct? So it 9 should wildly vary how much income we're getting 10 from one of those programs or shouldn't on 11 policies such as cap and trade, right? 12 MR. TERRELL: 13 Well, I think you have to think about what 14 kind of legislation. Cap and trade would reduce 15 consumption somewhat. I don't think it would 16 necessarily wildly reduce consumption but it 17 would certainly lower consumption over a period 18 of time. In the longer horizons, there's more 19 of an opportunity to -- 20 MR. BUATT: 21 But they would correlatively increase price, 22 right? So consumption may -- 23 MR. TERRELL: 24 If you think about something like gasoline 25 over the long term. If you think about gasoline 52 1 and the elasticity of demand for gasoline. In 2 the very short run, there's a very steep demand 3 for it. People don't respond very much and just 4 pay the higher prices when gas prices go up. If 5 you think about buying a new car because gas 6 prices are going up by a dollar a gallon, it's 7 hard to pay for that car. But when it comes 8 time to trade in the car, a lot of people will 9 go from a car that gets 20 miles a gallon to a 10 car that gets 40 miles to the gallon. So if cap 11 and trade generates really high prices for 12 energy, over a longer time horizon, there's 13 going to be more elasticity and it will have a 14 bigger impact. 15 I think the other thing that you have to be 16 a little bit careful with in terms of federal 17 policy making is if you have the windfall profit 18 taxes of the late 1970s. One of the things that 19 we teach in economic classes is that, that 20 particular tax led to a reduction, this is the 21 time when we were having an oil crisis in the 22 US. It led to a reduction in domestic 23 production. So even though the price of the 24 product was higher, the domestic production was 25 falling because of windfall property tax. So 53 1 there are other kinds of tax policies that could 2 work in such a way to increase imports, raise 3 the price, and reduce the domestic production. 4 So we want to be a little bit careful about 5 looking at the lower case scenario. 6 MR. BUATT: 7 I think where you get impacted the greatest 8 with cap and trade is just like windfall, is 9 that if Exxon can make 10 percent by drilling in 10 Nigeria, and only make 7 percent in the US 11 because of the taxes and cap and trade, they're 12 going to be drilling in Nigeria. And you're not 13 going to be drilling in the OCS and you're going 14 to see a direct impact of revenue generated to 15 OPEC. So we have to be extremely sensitive to 16 that. I see that being the greatest impact, 17 where the rigs are drilling. They're going to 18 be drilling somewhere. And if they're not in 19 the US Gulf, that's the weak link. 20 MR. TERRELL: 21 And one thing that I'll just quickly mention 22 in response to your point is that that is 23 something definitely we want to be aware of. I 24 do think one advantage though is when you look 25 over long periods of time, so if we're thinking 54 1 about revenue screening over a period of 15 2 years, there is a tendency even with the 3 political process where if you see that, that a 4 lot of production is moving out of the US into 5 another country, that there will be in terms of 6 legislation, a tendency if a law passes and it 7 doesn't seem to be working the way it's intended 8 to work, that tends to change. So when we think 9 of economic equilibria, for any given year, we 10 would certainly be quite concerned as I said 11 earlier, and we do want to be aware of all these 12 sources of uncertainty but we also want to be 13 aware of the fact that -- and you make a really 14 good point of -- producers are going to go where 15 they're going to earn the higher profit. But 16 there's also going to be a tendency of 17 legislatures to at some point see that they need 18 to adjust the policy. 19 MR. GRAVES: 20 In regards to your speaking about Nigeria 21 and I think we're all going to have zero 22 emission vehicles for political stability in 23 Nigeria and that's a very important factor. The 24 (inaudible) can not be operating in conditions 25 where, as we've seen in Venezuela now, the 55 1 government is coming in and taking over their 2 operations, their infrastructure, without paying 3 them. I think we're seeing in Nigeria where 4 there is a culture coming in and being taken 5 hostage and equipment is being commandeered. 6 That's an expensive penalty that's being paid 7 both from a financial perspective, a PR 8 perspective. Imagine the additional security 9 that's needed and all the other factors. And 10 that's my point earlier, to the certainty of the 11 environment in the United States, it may not 12 necessarily be the most profitable place in the 13 world in terms of looking at it on paper, the 14 profit rates are and what the royalty rates are. 15 There's a significant advantage to getting 16 perhaps a little bit lower profit that's 17 guaranteed over a continued period of time. And 18 I think that's why we're seeing and increase 19 (inaudible). I was just pulling up some numbers 20 based upon the Tiger find I believe that they 21 just discovered last year, I believe. I think 22 it's three billion barrels of oil equivalent in 23 that one production area. It's significant 24 volumes here and I think it's really important 25 to point that out, not to mention the oil and 56 1 natural gas. 2 MS. DAVIS: 3 Any other questions of Dr. Terrell? (No 4 response.) If not, we're going to move to the 5 next item on the agenda. Thank you, Dr. 6 Terrell. We appreciate your presentation. 7 Next item on the agenda: Garret Graves and 8 I and our financial advisor, Freda Johnson, 9 who's on the conference -- participating with us 10 via conference call today, have been discussing 11 the best approach towards the next step for us. 12 Of course, we know that we have the challenges 13 that we need more certainty on the investment 14 objectives and that's our number one challenge, 15 I believe. And we've been working closely with 16 Congress to provide the formal products. So we 17 are working diligently on that. And Mr. Graves 18 has been very involved and has made numerous, 19 numerous trips to try to get that resolved. The 20 Governor has written numerous letters. So we're 21 in the process of trying to get resolution to 22 that. 23 In addition, we're still waiting for the MMS 24 draft regulations. And I believe those will be 25 ready and the end of this year, the beginning of 57 1 next year? 2 MR. GRAVES: 3 MMS had indicated to us that they are 4 working on the regulations right now. The 5 original projected date to have those released 6 is December of this year. They're now saying 7 that they think the agency will have it ready 8 within the next 90 days. It is unclear beyond 9 there what type of internal review process the 10 White House and others will get. 11 MS. DAVIS: 12 Thank you, Mr. Graves. So those two 13 outstanding issues, the MMS formal protection as 14 well as the regulations are the two key things 15 that we're waiting on. But while we're waiting 16 for that information, we wanted to go ahead and 17 begin to think about what our next steps could 18 be. So after consultation with our financial 19 advisor, Freda Johnson, she' going to talk to us 20 a little bit about next steps. And then we 21 passed out a solicitation for offers that I 22 believe you all have in front of you, 23 (inaudible) econometrics study or consulting 24 with underwriting services for securitization. 25 Again, we want to be ready when we have this 58 1 information. We want to be ready to go. We 2 want to be first to market. We want to make 3 sure that we're being aggressive and leaning 4 forward because a lot's at stake for our state. 5 So with that, Freda, are you there? 6 MS. JOHNSON: 7 Yes. 8 MS. DAVIS: 9 Freda, can you just tell us, in your 10 opinion, what you believe our next step would be 11 before you talk about the SFO with us. 12 MS. JOHNSON: 13 Certainly. I want to thank everyone very 14 much for letting me participate in this meeting. 15 And I did get part of the meeting so I think I 16 have a general sense of the earlier comments. 17 I tend to think that it would be more 18 productive before any RFP or SFO were issued to 19 at least wait the 90 days to see what the regs 20 will in fact say. I understand from parts of 21 the conversation that I was able to hear, that 22 there may be more specific regulations coming 23 out, in fact, after the 90 days. So I think 24 that until we know what happens in 90 days, I 25 don't think it would be as productive to go out 59 1 with any kind of an RFP. 2 I think that Dr. Terrell and Chip both in 3 the presentations that they made, at least the 4 parts that I heard, understand, clearly have a 5 very strong understanding of the situation, 6 what's at stake here. I particularly like Dr. 7 Terrell's comment about looking for a high, low, 8 and middle estimate. I think we have to be very 9 careful, prudent, and conservative about the way 10 we go about hiring control to help the state 11 move forward. And again, obviously this isn't 12 my choice but given the knowledge base that Dr. 13 Terrell seems to have, I would love to see him 14 be part of this team, whether it's the 15 (inaudible) team or the resource to respond one 16 way or the other. I think a lot of the remarks 17 that Chip made at the very beginning need to be 18 included in any kind of an RFP the state puts 19 out. I think a lot of them are already included 20 but I don't think all of them were at the 21 beginning. So from my knowledge base, which I 22 fully admit is limited, I really think that we 23 need to get some more direction from the feds in 24 terms of these regs that are supposed to be 25 coming out. And I would think that would be the 60 1 next step. 2 MS. DAVIS: 3 And Freda, do you want to just go on and 4 walk us through the steps and then we'll talk a 5 little bit more about the RFP or SFO. 6 MS. JOHNSON: 7 Sure. It's sort of all smushed together -- 8 that's a technical term. When I had my 9 preliminary discussions with the Commissioner 10 and Mr. Graves, they were thinking about issuing 11 an RFP for an econometric consultant to derive 12 projections for the oil revenues and there was 13 great deal of confidence incentive projections 14 would come from the Department of the Interior. 15 So I've looked over what had been written so far 16 in terms of an RFP an econometric consultant and 17 based on inquiries at the Commissioner's request 18 about who out there does these kinds of things, 19 we had been for 20 years the financial advisors 20 to the State of Alaska, and I did pass on to the 21 Commissioner and Mr. Graves, the name of the 22 consultant that the State of Alaska uses for 23 comparable kinds of projections. 24 However, it occurred to me as I was reading 25 through the econometric consulting RFP that the 61 1 (inaudible) put that RFP for investment banking 2 services on a throughly routine basis for all 3 different kinds of debt issues including 4 securitization as we did a tobacco revenue 5 securitization in 2001. And a lot of these 6 investment banking firms, certainly the larger 7 ones, the Morgan Stanley's, the JP Morgan's, the 8 Goldman Sachs' of the world, do financing around 9 the world. I mean we would be dealing with the 10 public finance group, but I'm sure that a larger 11 firm has worked on oil revenue projections in 12 the Gulf over in Saudi Arabia or Abu Dhabi or 13 Indonesia or all around the world. So they may 14 have a greater understanding of who can provide 15 credible, certainly than I do, a greater 16 understanding than I do, who can provide 17 credible econometric consulting services. The 18 people in the room, they feel that they know the 19 (inaudible) firm, this not my primary expertise, 20 so I did not put this all together for you. So 21 the thought occurred to me that since one of the 22 ultimate goals that is being considered here by 23 the corporation is a securitization of the oil 24 and royalty revenues, that why doesn't the state 25 put out a joint or a combined RFP asking for 62 1 both underwriting services as well as 2 econometric modeling services because as I said, 3 so many of the underwriting firms are familiar 4 with the econometric firms that do this very 5 specific kind of oil revenue projection 6 consulting. 7 And so I put together an extremely early 8 first draft, a very rough draft, borrowing from 9 the (inaudible) RFP that the state had used for 10 underwriting purposes in the past and sort of 11 expanding somewhat the econometric portion that 12 already had been written and added to it the 13 underwriting portion that had not -- that the 14 state has used in other circumstances, including 15 the tobacco securitization. And I really think 16 that this kind of an approach could be very 17 productive for the corporation and the state 18 because you get the synergy of the two sets of 19 firms, both the econometric consulting firm and 20 investment banking firm working together to come 21 up with the best possible approach for the state 22 both in the projections of revenues as well as 23 the best way those revenues could be securitized 24 and provide funding for the state for coastal 25 protection and other purposes. 63 1 So I did put a specific time table into the 2 RFP because I think it's still somewhat 3 premature to do that. As I said, I think we 4 should wait and see what these regs say and 5 probably the way -- it should be an appendix to 6 whatever RFP the state puts out. But I do think 7 this kind of approach might prove to be very 8 efficient for the state. If someone has already 9 invented the wheel and knows how to go about 10 doing these things, I don't see why we need to 11 do a lot of research trying to figure out who 12 does this. We have a list and certainly on the 13 investment banking side and they're very hungry 14 these days. And I'm sure they can come up with 15 very credible firms to do the econometric 16 consulting. For example, I added to the 17 econometric RFP that Mr. Graves has given me, 18 references for the consulting firm, financial 19 statements for the consulting firm, so that 20 whichever firm is proposed here, the joint 21 response, we know it has the wherewithal and the 22 experience to provide the services we're looking 23 for. That's sort of where I'm coming from. 24 MS. DAVIS: 25 Thank you, Freda. Mr. Graves? 64 1 MR. GRAVES: 2 3 Madame Chair, two points to clarify. Number 4 one, and I just want to re-emphasize the RFP 5 will actually cover all existing and potential 6 energy sources in the Gulf. I noted that the 7 federal law is technology neutral. It does not 8 specify oil and gas. It would cover any type of 9 energy technology in the Gulf of Mexico. 10 Number two, I wanted to ask, Freda noted 11 that we should perhaps wait until we have 12 regulations before we issue this RFP or SFO. 13 One of the reasons we were interested in doing 14 sooner than later is that we wanted to have this 15 capability available to ourselves as soon as the 16 regulations were finished so we can immediately 17 move toward evaluation (inaudible) and to 18 understand my question, do you believe that we 19 are going to definitively need the final 20 regulations in order to populate and provide 21 details in the RFP to get the type of 22 capabilities or do you think we need that at 23 this time? 24 MS. JOHNSON: 25 Well you made a very good point and one we 65 1 have to be clear. I think that you're 2 absolutely right that we could hire a team 3 before the regulations come out. You would be 4 more familiar with the substance of what would 5 be contained in those regulations than I would. 6 If you think that the regulations will address 7 division of royalties and in any way touch upon 8 projections of royalties, then that might be 9 helpful to the firms responding to the RFP. If 10 you think however, that the regulations are 11 going to be more technical and less informative, 12 then by all means, we can go ahead and issue 13 this RFP in advance of the regulations. And 14 then have the selected team of firms that are 15 chosen, go through the regulations and work 16 within them. 17 MR. GRAVES: 18 Thank you. Other questions? Mr. Kennedy? 19 MR. KENNEDY: 20 Just for clarity, the RFP you're proposing 21 at this time is to get an estimate as Dr. 22 Terrell has indicated about high, low, middle 23 estimate of potential quantities that might be 24 out there from a raw stance regardless of the 25 source of energy that might be used. This is 66 1 not a securitization RFP? 2 MR. GRAVES: 3 That's correct. And again, those of you, 4 I'm the least financial savvy person at the 5 table, (inaudible) would turn perhaps to the 6 Treasurer's office or Mr. Milling, but it's my 7 understanding that we would an econometric study 8 to project the revenue stream. We would then 9 take that report and go market it, go walk that 10 through Wall Street and see what type of 11 response. 12 MR. CAMPBELL: 13 That brings up the suggestion that when 14 looking at the securitization process, due to 15 the fact that you're looking so far out in the 16 future, and the essence is so foggy, the state 17 could be more concerned about getting the short 18 end of the stick and leaving money on the table. 19 So my thought process would be to use some type 20 of a true up every five to ten years in that 21 securitization with the acquiring of all these 22 rights so that the state can participate when it 23 is, so to speak, left money on the table. And 24 you can put that in to part of that because 25 you're looking out so far in advance, there's no 67 1 way any one can project that accurately. But 2 you use a baseline as Dr. Terrell indicated, a 3 high, low, and a middle, the middle would be 4 what you bid out but with the understanding that 5 every five to ten years there's a true up, so 6 that if there's greater production than that 7 middle, the state participates in some way. 8 That's just a suggestion because I don't see how 9 you can do that, you could very easily get very 10 short-sighted on this because you truly don't 11 know what can happen in 45 years. 12 MR. GRAVES: 13 And I believe (inaudible) just a quick 14 question. Is there anything that if we proceed 15 with the RFP as written, is there anything that 16 we would have to ask them to do a true up in 17 terms of the act of securitization mechanism. 18 MR. CAMPBELL: 19 It depends on how you craft it I'm assuming. 20 You would acquire these rights, incentivized 21 obviously to participate because they're taking 22 a bigger risk than any one. The state by the 23 same token wants to make sure that there's a 24 potential sharing that goes beyond the middle 25 essence, so to speak. 68 1 MR. MILLING: 2 I would agree. It's not a bad idea in 3 trying to determine new production as we move 4 forward and how you can craft that so it can 5 become of the reference. 6 One thing I am a little concerned about or 7 at least I want to make sure I understand what 8 you've said, Ms. Johnson. You are suggesting 9 that we do in fact, combine the economics and 10 the underwriting in one proposal? Or are did I 11 miss that? 12 MS. JOHNSON: 13 Well, that was my suggestion. I don't know 14 how the Commissioner or Mr. Graves feels about 15 it. But that was my suggestion just in terms of 16 time to take the most efficient approach for the 17 state in terms of not having to worry about who 18 these econometric consultants are and making 19 sure we had a company on this list, that we 20 advertise this RFP in various publications. I'm 21 sure that we would get a very strong response 22 rather than us having to try to figure out the 23 correct econometric firm to whom we should sen 24 the RFP. But that's just my opinion. 25 MR. MILLING: 69 1 I guess my reaction to that is that it may 2 prove to be successful but sometimes what you're 3 going to end up with is a great underwriter and 4 not quite the same quality evaluator of the 5 economics if you do it that way or vice versa. 6 And somehow we've got to make sure we get the 7 best on both sides of the street but I'm not 8 sure how we do that. 9 MS. JOHNSON: 10 Well then again, that's a very valid point 11 and I agree with it completely. It's one of the 12 reasons that I added to the econometric part of 13 the RFP, a list of at least three references 14 that we could talk to and we should talk to, on 15 the econometric firm as well as financial 16 statements from the econometric firm so we know 17 that this is not sort of fly-by-night operation 18 but a credible firm with credible references. 19 But there may be a better way to do that. 20 MR. MILLING: 21 Okay. Thank you very much. 22 MS. DAVIS: 23 Any other questions? 24 MR. FALGOUT: 25 From experience with LA 1, which is 70 1 (inaudible) where we went out and raised 137 2 million and again that was projected on what 3 kind of energy was going to be going on in the 4 Gulf of Mexico, and how many vehicles were going 5 to travel on LA 1 because it was going to be 6 paid for by tolls and Wall Street is very uneasy 7 about projecting what energy is going to do out 8 in the future. And I agree that having your 9 financial advisor underwriters select who is 10 going to put this package together economically, 11 is important because they have the feeling of 12 what Wall Street is comfortable with. And 13 believe me, they're interest is to get the best 14 person available because they want to see them 15 go through and of course, make money on the 16 sale. So I think putting them together would 17 yield you a better product. 18 MS. DAVIS: 19 Are there any other questions for the 20 financial advisor or for Mr. Graves? (No 21 response.) At this point, I think what we're 22 trying to do is get approval for the draft SFO 23 or RFP and assign a working group, similar to 24 what we do with bond commission and that bond 25 commission working group is comprised of -- Mr. 71 1 Henson, can call out the names? 2 MR. HENSON: 3 Not names but I can tell you we have 4 representative from Treasurers Office, Bond 5 Commission, House and Senate Fiscal Staff, 6 Attorney General and the Commissioner's Office. 7 I believe that's it. 8 MS. DAVIS: 9 Then we would have of course, Mr. Graves or 10 his representative. 11 MR. HENSON: 12 Certainly. 13 MS. DAVIS: 14 And if that is an appropriate -- of that's 15 the way we proceed with our bond commission 16 business, and I thought it would be an 17 appropriate way that we could proceed with this 18 similar to what we did with the tobacco 19 securitization. Again, it has to meet bond 20 commission approval so that working group 21 normally make recommendations to the full body 22 and I think they can do the same for us, if that 23 makes sense. Mr. Campbell, did you have a 24 question? 25 MR. CAMPBELL: 72 1 Have we resolved if there are going to be 2 two different RFPs? One for the securitization 3 process and one for the science? 4 MS. DAVIS: 5 We have not. But what we could do is we can 6 get this working group to make a recommendation 7 to us, working with the financial advisors. 8 MS. JOHNSON: 9 I would endorse that. And I also think it 10 would be helpful for the working group, if they 11 would also sort of work on the RFP itself 12 because as I said, I have put together a very 13 rough first draft and I'm sure that group 14 particularly from Mr. Graves' office will have 15 an excellent addition and suggestions. 16 MS. DAVIS: 17 Would someone be comfortable making that a 18 motion? 19 MR. TEMPLE: 20 I have a question for you. It would be -- 21 that is the current makeup of your board that 22 makes recommendations to bond commission? 23 MS. DAVIS: 24 That is the subcommittee that makes 25 recommendations to the bond commission? 73 1 MR. TEMPLE: 2 Would it be appropriate to have Mr. Milling 3 or Mr. Campbell on there as a non-governmental 4 person as part of the board? 5 MS. DAVIS: 6 Yes, absolutely. 7 MR. TEMPLE: 8 I think that would be appropriate. 9 MS. DAVIS: 10 Yes, if they would like to. 11 MR. TEMPLE: 12 Well, I'd like to volunteer your time. 13 MS. DAVIS: 14 We'll leave that up to them. If they would 15 like to add themselves to that subcommittee, we 16 will be glad to do so. 17 MR. FALGOUT: 18 I move that. 19 MR. CAMPBELL: 20 Second. 21 MS. DAVIS: 22 Are there any other questions or objections? 23 MR. HENSON: 24 Could you please just state the motion so 25 that I fully understand it. 74 1 MS. DAVIS: 2 The motion is to have the normal 3 subcommittee that is used by bond commission 4 plus a member of this financing corporation, if 5 they chose to do so, evaluate the draft RFP and 6 make revisions and make recommendations to this 7 commission in terms of a final RFP -- I'm sorry 8 and somebody from Mr. Graves' office. 9 MR. HENSON: 10 And by this, you mean -- and I realize 11 there's a motion second (inaudible). 12 MS. DAVIS: 13 As you usually do, Mr. Henson. 14 MR. HENSON: 15 Pretty much, Madame Commissioner. If this 16 group should so decide there would be multiple 17 RFPs as opposed to a singular one? 18 MS. DAVIS: 19 That is correct. 20 MR. HENSON: 21 Secondly, would there be a time frame within 22 which they're going to come back to this 23 corporation with a recommendation? 24 MS. DAVIS: 25 Time frame, Mr. Graves? Prior to the next 75 1 meeting. 2 MR. TEMPLE: 3 Is there a time line for that meeting? 4 MR. GRAVES: 5 To a large degree, our fate is in the MMSs 6 hands at this point and obviously we want to be 7 ahead of that curve and we're going to having a 8 meeting next week to talk about this. And so 9 we're going to be in touch with them I guess 10 sometime in about the next 60 days. So it would 11 be at some point after that. 12 MR. CAMPBELL: 13 Just for a point of clarity, this is dealing 14 with the econometrics aspect, as far as the 15 science? 16 MS. DAVIS: 17 The econometrics and the underwriter. So 18 the draft proposal that you have before you is a 19 joint econometrics consulting or econometrics 20 study and an underwriter for services associated 21 with the securitization. Now if this working 22 group comes back and decides that there should 23 be two separate Requests for Proposals or 24 Solicitations for Offers, then they can make 25 that recommendation to us. 76 1 Currently, I have a consultation with our 2 financial advisor -- and let me explain, Ms. 3 Freda Johnson serves as a financial advisor to 4 the State Bond Commission and has agreed to help 5 us as well. And her company, she has a contract 6 up in Finance Associates, with the State Bond 7 Commission. So after consultation with her, she 8 recommended that we combine the econometrics 9 study consulting with the underwriter's 10 services. And Mr. Graves and I had thought it 11 was a good idea to certainly think this 12 subcommittee who is very familiar with working 13 with these types of solicitations or RFPs can 14 make a recommendation to do so or not to do so 15 back to this board. 16 MS. JOHNSON: 17 I agree with the man whose name I do not 18 know and I apologize who said that, you know, 19 all three will know who a good econometric 20 consulting firms are and that was one thought 21 that went behind the combination of the RFP. 22 MR. MILLING: 23 We are now getting into some very technical 24 material and if it's at all appropriate, it 25 might be appropriate for this group to get 77 1 periodic updates as to what we're doing and 2 where we're going so we don't come in here -- 3 MS. DAVIS: 4 Absolutely. 5 MR. MILLING: 6 -- and (inaudible). 7 MS. DAVIS: 8 And we will have that information sent to 9 you well in advance of our next meeting so that 10 you do have the opportunity to review it. So 11 there is a motion and a second. Mr. McGimsey? 12 MR. MCGIMSEY: 13 Freda, maybe it would be helpful if you 14 would (inaudible) the process even if we do get 15 an approved SFO, what would be the next step so 16 far as bond council, bond commission approval. 17 We've got a long way to go before we ever get to 18 a point to where we're actually looking at 19 securitization. 20 MS. DAVIS: 21 And that is a good point, Mr. McGimsey. And 22 I think that's one of the reasons that Mr. 23 Graves and myself have wanted to go ahead and 24 get this next step taken care of so that once we 25 get the certification from MMS, the rules and 78 1 regulations, and hopefully, the potential formal 2 projections, then we have the ability to move 3 expeditiously. Freda? 4 MS. JOHNSON: 5 And I agree completely. Usually when we do 6 these kind formal RFPs we do do, as you pointed 7 out, parallel track with Bond Council. Bond 8 Council would have to be hired as well. In 9 certain circumstances we actually have hired 10 bond council before we hire the underwriter. 11 I have not worked on bond council RFP for 12 this particular transaction but at the very 13 least, they should be parallel tracks because 14 obviously, when the responses come back from the 15 underwriter, I think it would be very helpful to 16 have a bond council already on board that could 17 help us in terms of the legal frame work. 18 If the responses come back, you know, at the 19 same time or around the same time that the 20 federal regs come out, it would be helpful to 21 have a bond council on board to help us work 22 through those proposals. Once you issue your 23 RFP, you would have to give the response about a 24 week to two weeks, you need to give your 25 respondents the ability to ask questions. 79 1 And one of the things that I've proposed as 2 an option here, and you can have the working 3 group determine it, but in certain kinds of 4 situations, the issuer not only allows inquiries 5 to be sent in via e-mail or mail, but actually 6 hold a pre-response deadline conference call to 7 sort of go over a lot of the background 8 information such as Chip did at the beginning of 9 this meeting and to give people a chance to 10 either ask questions on that call or people will 11 not ask questions in front of their competitors, 12 but at least to have that background information 13 prior to submitting their question. 14 So that is something for you to think about. 15 The state has not done that before but other 16 issuers do that in certain circumstances. I'm 17 not necessarily representing a pre-commission 18 conference call but it's something for you to 19 consider. But in any case, you have to give 20 people a chance to ask questions and then you 21 want to give yourself at least a week to two 22 weeks to draft responses to the questions. And 23 then once the responses to the questions go out, 24 given the complexity of this study, I would 25 suggest that we give the respondents more than 80 1 the normal ten days to two weeks to submit their 2 responses. You may want to give them a month to 3 submit their responses. And then you have to 4 give the grading team or the working team, 5 sufficient time to review the responses, get 6 together, exchange ideas about the different 7 responses, afterwards submit grades on the 8 responses. 9 And again, because of complexity of this 10 particular transaction, I think you would want 11 to give them at least three or four weeks. And 12 at that point in time, the grading team or the 13 working group would make a recommendation or go 14 to the corporation first, and if accepted by the 15 corporation, it would then make the 16 recommendation to bond commission at which 17 point, the actual hiring of the (inaudible) and 18 the actual hiring of the team would be 19 accomplished. 20 MS. DAVIS: 21 Thank you, Freda. There's a motion and 22 there's a second. Is there any objection to 23 that motion? (No response.) Since there is no 24 objection to the motion, the motion is approved. 25 What we will do, when we get the 81 1 recommendation from the working group, we will 2 ask them to put together a time line for us 3 which will bring clarity to the process for all 4 the members who are not familiar with the 5 process. And at that point you have, when we 6 come back for our next meeting, we will come 7 back to approve the SFO or the RFPs and a time 8 line if that's appropriate for everybody. 9 There's one last item on the agenda and that 10 is the consideration of Cooperative Endeavor 11 Agreement on Administration of the corporation, 12 similar to what we had when we had the tobacco 13 securitization. Mr. Graves, if you could 14 quickly -- 15 MR. GRAVES: 16 Madame Chair, right now (inaudible) is in 17 effect administering this corporation. Right 18 now, we're doing several other boards, and quite 19 frankly, don't have the capabilities to do this 20 and would like the flexibility to enter the 21 cooperative endeavor agreement but the Treasury 22 Division and the Governor's office to insure the 23 administration of this committee and to ensure 24 that they have their resources covered to them. 25 We'd like to propose a motion that will 82 1 allow the three entities to enter into a 2 cooperative endeavor agreement for the 3 administration of this corporation. The 4 cooperative endeavor agreement would be sent the 5 members prior to express execution of it. 6 MR. TEMPLE: 7 You will need to define that for me just a 8 little bit better. I guess that's part of the 9 lead in to some of my questions that I've got. 10 For example, who has been keeping the minutes 11 and we didn't have any minutes at the last 12 meeting. Should we have those or should we not? 13 MR. GRAVES: 14 The minutes of all the meetings have been 15 transcribed and we're happy to provide those at 16 any time. 17 MR. TEMPLE: 18 Okay, then. Should we be approving those 19 minutes? 20 MR. GRAVES: 21 Yes. 22 MR. TEMPLE: 23 I'd like to see those before we approve 24 them. I guess in the creation, it provided and 25 said that we should do certain things and I 83 1 guess this cooperation agreement might do that, 2 but I think you need to specifically empower 3 individuals such as the Chairman to be able to 4 act for us as a board. Doesn't it call for 5 that? 6 MR. GRAVES: 7 I believe the statute actually covers that. 8 MR. MCGIMSEY: 9 I'd like to cover that real quick. 99.32 10 allows the department for entering these coops 11 with the Treasurer with any other public entity, 12 including the Attorney General, to help them 13 help the commission or the board with their 14 duties and responsibilities. So statutory power 15 kind of fixes a coop as a vehicle to reach out 16 and give this assistance. 17 MR. TEMPLE: 18 Well, I think that takes care of our future 19 if we move that way. It doesn't help us in our 20 past because we've had a couple of meetings and 21 I think we sort of -- we don't need any by-laws 22 that I'm aware of or operate under -- so as we 23 indicated, we must be Robert's Rule of Order. 24 So I'm just making sure, I'm just trying to 25 clarify exactly what our responsibilities are in 84 1 good governance. And I don't know that yet. 2 MR. MCGIMSEY: 3 I'm not sure what your question was. 4 MR. TEMPLE: 5 It's a statement. 6 MR. GRAVES: 7 I'd like to ask another question. Mr. 8 McGimsey, would there be a problem with us 9 (inaudible) contingent, approve and execute a 10 new CEA, contingent upon it being distributed to 11 the corporation members so they can address 12 their concerns that may arise prior to. 13 MR. MCGIMSEY: 14 They can delegate that however they choose 15 to do it. 16 MR. GRAVES: 17 Madame Chair, I'd like to make a motion to 18 allow for the negotiation of a cooperative 19 endeavor agreement among the treasury division, 20 the Governor's office and the Attorney General's 21 office be related to the administration of this 22 corporation. The CEA would be distributed to 23 the corporation members at least one week prior 24 to the execution to address any outstanding 25 concerns of the corporation members. 85 1 MR. BUATT: 2 Second. 3 MS. MILLING: 4 I think this is very good. I would only 5 suggest to you that this is a little bit 6 different than, I think, speaking as somebody 7 who runs them as well, a little bit different 8 than the normal such activities such as those 9 conducted by the CPRA because we are a 10 corporation. We do have some line item 11 responsibilities that we have to deal with. So 12 somehow we ought to get them in with the 13 attorney that we are dealing with them in the 14 normal structure of Louisiana corporations as we 15 move forward. 16 MS. DAVIS: 17 There's a motion and a second. Is there any 18 objection? (No response.) 19 Without objection, that motion is approved. 20 Is there any public comment to come before 21 the corporation? There were no cards submitted 22 so there is no public comment. 23 Do we have a motion to adjourn? 24 MR. GRAVES: 25 So moved. 86 1 MR. BUATT: 2 Second. 3 MS. DAVIS: 4 Without objection, the motion is approved. 5 Thank you very much. 6 7 (THE MEETING CONCLUDED AT 11:53 A.M.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 87 1 C E R T I F I C A T E 2 This certification is valid only for a transcript 3 accompanied by my original signature and official seal 4 on this page. 5 I, SUSAN ERKEL, Certified Court Reporter, in 6 and for the State of Louisiana, as the officer before 7 whom this hearing was taken, do hereby certify that the 8 foregoing 86 pages were reported by me in the 9 voice-writing method, and was prepared and transcribed 10 by me or under my personal direction and supervision, 11 and is a true and correct transcript to the best of my 12 ability and understanding; 13 That I am not related to counsel or to the parties 14 herein; am not otherwise interested in the outcome of 15 this matter; and am a valid member in good standing of 16 the Louisiana State Board of Examiners of Certified 17 Shorthand Reporters. 18 19 ____________________________ 20 SUSAN ERKEL 21 CERTIFIED COURT REPORTER 22 LICENSE NO. 24005 23 24 25 88 1 2 R E P O R T E R ' S P A G E 3 4 I, SUSAN ERKEL, Certified Court Reporter in and 5 for the State of Louisiana, before whom this 6 testimony was taken, do hereby state on the Record: 7 That due to the interaction in the spontaneous 8 discourse of this proceeding, dashes ( -) have been 9 used to indicate pauses, changes in thought, and/or 10 talkovers; 11 That same is the proper method for a Court 12 Reporter's transcription of proceedings, and that 13 the dashes ( -) do not indicate that words or 14 phrases have been left out of this transcript; 15 That any words and/or names which could not be 16 verified through reference material have been 17 denoted with the phrase "(spelled phonetically)." 18 19 20 ____________________________ 21 SUSAN ERKEL 22 CERTIFIED COURT REPORTER 23 LICENSE NO. 24005 24 25