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January 2011

Vol. 16, No. 5 Week of January 30, 2011

Two different messages at ‘Meet Alaska’

Exxon calls for focus on safety as a value in Alaska oil fields, Conoco for decisions that will prompt investment, grow industry

Kristen Nelson

Petroleum News

The Alaska Support Industry Alliance’s annual “Meet Alaska” conference held Jan. 21 in Anchorage heard from executives from ConocoPhillips and ExxonMobil — and the focus of those presentations was quite different.

Greg Garland, senior vice president, exploration and production Americas for ConocoPhillips, focused on the need for more oil development to meet resource needs and the impact of decisions on whether more of that development occurs in Alaska.

Randy Broiles, vice president Americas for ExxonMobil Production Co., said “the significant challenge” shared by oil producers and the service and supply industry is the need for “consistent, safe and environmentally responsible performance” as the industry’s license to operate.

Opportunities in Alaska

Garland said ConocoPhillips believes “Alaska has a future that is rich in opportunities,” but said that future “is shaped by the decisions that we make every day,” including investment decisions, policy decisions and permitting decisions.

It is time, he said, “for all Alaskan stakeholders to come together and work together to ensure that we create that very bright future and that Alaska continues to be one of the premier energy producers in the world.”

ConocoPhillips is the largest producer in Alaska, Garland said, and also the state’s largest taxpayer. The company thinks “we can grow the existing fields in Prudhoe, Kuparuk and Alpine,” believes there are development opportunities offshore, and opportunities to develop heavier, viscous oil.

But there are opportunities elsewhere, Garland said, including the shales where development which began to look hopeful in the Barnett shale in 2005 and at the Bakken in North Dakota in 2008, has “just literally exploded” between 2008 and 2010 at Eagle Ford and the Marcellus.

“So my message for you today is threefold: One, the shale’s real; it’s repeatable; and it’s significant,” he said.

Concerns about a shortage of natural gas in the Lower 48 “dissipated in 2009 and 2010,” with a hundred-year’s supply now in place, and indications are that “there’s a lot of gas that can be developed profitably in the 5-6 dollar range” per thousand cubic feet.

And the shales also contain oil — with 70 percent liquids content in ConocoPhillips’ plays at Eagle Ford, in the Bakken and in the north Barnett.

The Alaska quandary

Alaska has resources, Garland said, but the question in the present high-price environment is: Why isn’t there more development in the state?

Since 2003 decline in production has been arrested even in large production states like Texas, but in Alaska production is down 30 percent over the same period.

“There’s a lot of factors for this, but I think the tax structure is one of them. … Frankly the risk-reward balance for companies isn’t here today,” Garland said.

“Under this ACES tax structure, we just don’t see the benefit (of high prices) and so we’re relatively indifferent to investment in Alaska through prices 70 vs. 100 bucks,” he said. And the company has other opportunities such as Eagle Ford where the difference in oil prices makes a difference in economics.

When it comes to investing in development projects in Alaska, you have the “combination of high cost of operating in an Arctic environment; … the long lead times …; the unpredictable federal permitting process; the tax structure … and it makes it a difficult situation.”

Garland called for changes to “make sure we have a spirited investment climate here where companies want to invest” so that production from existing fields can be increased.

Safety as a value

ExxonMobil’s Broiles focused on teamwork and safety and said safe and environmentally responsible performance is a significant challenge.

“The safety record for all goods producing industries in Alaska, including the oil and gas industry, is not what it should be and it’s not what it could be,” Broiles said.

ExxonMobil’s goal is that nobody gets hurt and while Alaska’s safety record is comparable to the Lower 48, Broiles said, he showed a chart demonstrating that ExxonMobil’s safety record, in places with similar environmental conditions, is substantially better.

“So we know it’s possible to operate safely despite the hazards that Mother Nature provides,” Broiles said.

He said Alaska has a wealth of resources, but said “there is understandably heightened interest about how the oil and gas industry operates and about the steps we take to ensure safety and environmental protection,” and to have the opportunity to develop Alaska’s resources, “we have to do so in a manner that protects workers, customers, community members and the environment.”

A continued global demand for hydrocarbons is expected to continue, Broiles said.

“Our challenge at ExxonMobil is to figure out how to meet this growing demand for energy and to do so safely in a manner that safeguards the environment.”

Results of an accident

“A potential accident poses consequences not just for the parties involved but for the entire industry,” Broiles said, calling on industry to “create and implement a culture that treats safety as a value not as a priority: Priorities change; values do not.”

He said ExxonMobil learned how necessary it was to make safety a value with the 1989 Exxon Valdez tanker spill, and noted that Rex Tillerson, the company’s chairman and CEO, told a congressional panel last year that the accident was the lowest point in the company’s history.

“But he also noted that it was a significant turning point,” and that the company reviewed all of its operations and “implemented far-reaching actions that now guide every operating decision we make on a daily basis.”

As an example, he said that in 2006 ExxonMobil terminated drilling on a well off the coast of Louisiana, $200 million and 30,000 feet into the project, because “our drillers decided to stop because they felt the well couldn’t be completed safely.”

He said the company took a lot of criticism for plugging and abandoning the Blackbeard well, but said it was an example of the importance of safety.

“We only proceed with operations when we’re confident that they can be conducted safely because it’s simply not worth taking the risk that jeopardizes health, safety and the environment,” Broiles said.

The company drilled two wells at Point Thomson “without a single person missing a day from work due to a safety injury,” he said.

“The challenge of conducting safe and environmentally responsible operations is the signature challenge facing the industry in Alaska,” Broiles said.






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