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March 03, 2010 --- Vol. 16, No. 17March 2010

CPAI plans spending increase in 2010; Grandview No. 1 a dry hole

ConocoPhillips plans to spend $854 million on exploration and production expenses in Alaska this year, up 5.5 percent from the $810 million the company spent in 2009.

The company also reported that a 2009 North Slope exploration well was a dry hole.

ConocoPhillips recently released an $8.95 billion total E&P budget, part of a larger $10.46 billion spending plan. Budget projections at the beginning of the year rarely match actual spending by the end of the year, but give a peak into a company’s priorities.

ConocoPhillips is focusing more attention internationally. While planning a slight spending increase in Alaska, the company is cutting its Lower 48 exploration and production budget by 39 percent and increasing its international budget by 19 percent.

Alaska remains a near-term priority, though. In 2008, 8.5 percent of ConocoPhillips’ E&P spending went to Alaska, but Alaska generated 14 percent of E&P profits. In 2009, Alaska took 9.1 percent of the budget, but accounted for 28.6 percent of net income.

This year, ConocoPhillips is budgeting 9.5 percent of E&P spending on Alaska, but the continuing trend of spending increases is tempered by how the company is spending it.

ConocoPhillips said Alaska spending would go toward “the Prudhoe Bay and Kuparuk fields, as well as the Alpine field and satellites on the Western North Slope.” That list is standard in ConocoPhillips’ annual reports, but not always identical from year to year. In 2008 and 2007 filings, it also included “exploratory drilling” or “exploration activities.”

ConocoPhillips notably did not drill North Slope exploration wells this winter, and the annual report shows the 2008-09 exploration season was only marginally successful.

Early last year, ConocoPhillips drilled the Grandview No. 1 and Pioneer No. 1 wells in the federal Greater Mooses Tooth unit of the National Petroleum Reserve-Alaska.

In May 2009, ConocoPhillips announced an oil discovery at Pioneer No. 1, as well as from a nearby 2001 well, but did not offer any information about Grandview No. 1.

In its year-end filings, the company noted that of its two Alaska exploration wells in 2009, one was “expensed as a dry hole” while the other “encountered hydrocarbons.”

Although Grandview appears uneconomic, ConocoPhillips seems interested in Pioneer, saying, “We are evaluating the potential for future development of this latest discovery.”

Editor’s note: See full story in the March 7 issue of Petroleum News, which will be available online at noon on March 5 to subscribers at www.petroleumnews.com.

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