NEWS BULLETIN

February 22, 2008 --- Vol. 14, No. 24February 2008

ConocoPhillips returns to $1 billion capex budget for 2008

After flirting with the figure late in 2007, ConocoPhillips once again signaled plans to spend more than $1 billion on exploration and production in Alaska this year, according to new filing with the U.S. Securities and Exchange Commission released on Feb. 22.

The year-end financial report shows a capital budget of $1.007 billion in Alaska this year as part of an $11.1 billion company-wide exploration and production campaign.

With the initial release of a company-wide budget back in December 2007, ConocoPhillips announced plans to spend $1 billion in Alaska for the first time in company history.

But Jim Bowles, president of ConocoPhillips Alaska Inc., soon retracted that figure, saying the budget, crafted earlier in the fall, needed to be revised to reflect increases to the state production tax passed in November.

Bowles and other industry leaders argued those tax increases would harm investment in the state and other major oil companies have highlighted budget reductions in response to higher taxes. In late January 2008, Doug Suttles, president of BP (Exploration) Alaska, said his company alone dropped $100 million from its 2008 Alaskan capital budget because of the tax increase.

Although ConocoPhillips now appears to be reviving its original budget estimate, the year-end report released on Feb. 22 also takes measures to temper any excitement about increased spending.

“As a result of increased production taxes enacted by the state of Alaska in the fourth quarter of 2007, we anticipate our 2008 capital expenditures will be less than originally planned, mainly related to reduced project funding on the North Slope of Alaska,” the report said.

The report also refers to “An abandoned project in Alaska resulting from increased taxes, totaling $28 million” but does not elaborate.

In late November 2007, ConocoPhillips cited the new tax for its decision to cancel a $300 million refinery upgrade on the North Slope. The state challenged a connection between the tax and the cancellation.

ConocoPhillips’ $1 billion capital budget for 2008 would go toward production of Prudhoe Bay, Greater Kuparuk and Alpine satellite fields, as well as exploration activities and “further development spending in our Cook Inlet Area.”

In January 2008, the state of Alaska signed a deal with ConocoPhillips and Marathon Oil to support an extension of the export license for liquefied natural gas leaving Cook Inlet. The deal required ConocoPhillips to drill two wells in Cook Inlet this year.

Budgets rarely reflect the actual spending an oil company will do in a given year.

ConocoPhillips originally budgeted $783 million for exploration and production activities in Alaska in 2007, but only spent $622 million in the state last year.

That spending figure for 2007 represents a 24 percent decline from the $820 million ConocoPhillips spent in Alaska in 2006.

Liberty to go for BP corporate sanction in April

BP Exploration (Alaska) will be taking its Liberty project to the BP board for sanction in April, BP spokesman Steve Rinehart confirmed to Petroleum News today. Rinehart characterized the request for board approval as the last of a series of BP internal approval gates that the project has to pass through.

“We have successfully passed the preliminary company gates and we have hope for this last one,” Rinehart said. “We have done a great deal of good work on this project, but it is the board’s decision.”

BP is also still working on the permitting for Liberty with the U.S. Army Corps of Engineers, the North Slope Borough and the State of Alaska, Rinehart said.

The U.S. Minerals Management Service has estimated the potential recoverable resources at Liberty as up to 105 million barrels of crude oil and up to 78.5 billion cubic feet of natural gas, including natural gas liquids. The approximately $1 billion development project would involve drilling extended reach wells to record-breaking distances from an extension of the Endicott satellite drilling island — the Liberty field lies under the waters of the Beaufort Sea, off Foggy Island Bay on Alaska’s North Slope.

In early November MMS made a finding of no significant environmental impact for the Liberty development and production plan, with MMS approval of the plan following in early January.

Editor’s note: See complete stories in March 2 issue of Petroleum News, available to subscribers online at noon, Friday Feb. 29 at www.PetroleumNews.com.


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