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Oil Patch Insider: TransCanada on Arctic gas; RDC conference Nov. 18-19; Buffett cash to build Alaska gas line?
TransCanada, with a financial stake in the Mackenzie Gas Project and the prospect of operating the main gas pipeline to southern markets, but no ownership position, is ideally situated to tell it straight on the project’s chances of surviving.
And Chief Executive Officer Hal Kvisle has never ducked questions about the consequences of further delays in getting the project through the regulatory process.
TransCanada offered its latest blunt assessment through a brief update in its third-quarter earnings report.
The company has backstopped the regulatory costs of the Aboriginal Pipeline Group, which has rights to a one-third equity stake in the pipeline provided it can arrange supporting gas volumes.
TransCanada reported that to date it has advanced C$142 million to the APG.
But it noted that “project timing continues to be uncertain and discussions between the co-venturers group and the Canadian government are ongoing.”
“In the event the co-venturers group is unable to reach an agreement with the government on an acceptable fiscal framework the parties will need to determine the appropriate next steps for the project.
“For TransCanada, this may result in a reassessment of the carrying amount of the APG advances.”
Not that TransCanada, given its goal of becoming the lead shipper of Arctic gas from Alaska and Canada, holds any doubts about the potential of the stranded northern resources.
Chief Operating Officer Russ Girling told analysts Nov. 4 that both Alaska and the Mackenzie reserves could be part of a “larger and larger role” for gas to reduce carbon dioxide emissions over the longer term.
—Gary Park
Buffett has $20B in spare change for major projects During the AGIA legislative debate in spring 2007, the president of a MidAmerican Energy subsidiary told Alaska legislators that even if the first open season for a proposed North Slope natural gas pipeline failed because North Slope producers BP, ConocoPhillips and ExxonMobil would not commit gas to a pipeline they didn’t control, in the end, the producers would sell their gas to an economic project — i.e. to one that offered a competitive tariff.
“Does someone not want to make money here?” Kirk Morgan asked legislators, noting he had never heard the producers say they want to warehouse their North Slope gas.
Morgan, the president of the MidAmerican subsidiary, also said that if MidAmerican built a gas pipeline from Alaska’s North Slope, and if all of the known 35 trillion cubic feet of North Slope gas was committed to that, it wouldn’t be enough gas.
That shortfall of gas was one reason a pipeline had to keep its tariffs low, he said: “We have to encourage new exploration to fill up this pipe so we can extend the life of the project and get a better rate.”
MidAmerican, Morgan said, was “going to design a tariff that … will encourage new exploration and will encourage a long-term commitment of the resource by the North Slope producers.”
But MidAmerican, the utility subsidiary of Warren Buffett’s Berkshire Hathaway, did not submit a bid under AGIA, the Alaska Gasline Inducement Act, explaining its decision in a late 2007 letter to then-Gov. Sarah Palin that “the ongoing (federal) corruption investigations coupled with previous indictments, guilty pleas and convictions draw into question virtually every major Alaskan project participant and government levels from state to federal.”
Those were the words of MidAmerican CEO David Sokol.
In the same letter, Sokol suggested that an alternate way forward be considered, one in which the State of Alaska and the federal government were “teamed with a proven and nonconflicted project development partner,” presumably MidAmerican.
Sokol didn’t offer details and Palin didn’t bite.
Since that time TransCanada has been awarded the AGIA license from the State of Alaska, ConocoPhillips and BP announced their own pipeline project, and Exxon has joined TransCanada’s gas line project, although it has not committed gas to either project.
According to a Petroleum News source, Sokol and his people are keeping a close eye on the progress of TransCanada’s project, especially the upcoming open season. (Sokol would not confirm his company’s interest in the gas line, which was not a surprise since MidAmerican does not normally comment on deals under consideration.)
If ultimately TransCanada cannot get enough gas commitments from North Slope producers, it will not be able to secure financing to build a pipeline.
But Sokol likes AGIA and Buffet is not shy about using his huge cash reserves for megaprojects, as evidenced by Berkshire Hathaway’s recent $26 billion acquisition of the Burlington Northern Santa Fe railroad. In fact, Buffett has said, more than once, that he likes elephant-sized acquisitions.
And he still has $20 billion in cash in his ever-increasing war chest.
Some interesting tidbits from news reports about the railroad purchase:
• In his statement announcing the deal, Buffett said it was “an all-in wager on the economic future of the United States.”
• “I like sizable deals. It is much easier to do one $34 billion deal than three $10 billion deals,” he said in an interview following the announcement.
• Just a few weeks into the 2008 stock market collapse, Buffett wrote an opinion column for the New York Times headlined “Buy American. I am.” In the column he wrote (not for the first time) “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
—Kay Cashman
RDC to hold annual meeting Nov. 18-19 in Anchorage; includes forecasts of North Slope and OCS activi The Resource Development Council held its last annual conference in November 2008, a more uncertain time than usual for the Alaska oil and gas industries.
In the previous five months, oil prices had fallen $100 a barrel, and the collapse of financial institutions worldwide had tightened credit, putting question marks on projects.
A year later, the business landscape is a bit more stable: After falling to $25 a barrel, oil prices are now closer to $75 a barrel (although gas prices remain below $5).
Now, the issue isn’t so much an uncertain present as an uncertain future.
As government and industry leaders prepare for another Resource Development Council conference on Nov. 18 and 19 at the Dena’ina Civic and Convention Center — the 30th meeting of the annual conference — all eyes turn to expected milestones in 2010.
It’s crunch time for oil, gas and the policy that guides them.
BP, ConocoPhillips, Exxon, Pioneer Natural Resource and Shell will give a forecast of the year to come on the North Slope and the waters around it.
The speakers include John Minge, president of BP Exploration (Alaska) Inc.; Ken Sheffield, president of Pioneer Natural Resources Alaska; Helene Harding, vice president of North Slope operations and development for ConocoPhillips Alaska, Inc; Lee Bruce, senior project manager at Point Thomson for ExxonMobil; and Peter Slaiby, vice president of Shell Alaska, who will talk about outer continental shelf activity.
From a broader industry perspective, Bill Popp, president of the Anchorage Economic Development Corp. and Neal Fried, an economist with Alaska Department of Labor, will talk on “The Great Recession and Outlook for Alaska Resource Industries in 2010.”
While oil is still the main moneymaker in Alaska, natural gas is expected to be the future, and the coming year is supposed to bring achievements on that front.
The two competing projects for a multibillion dollar pipeline to market North Slope natural gas have promised to hold open seasons at different points in 2010.
Tony Palmer, vice president of Alaska development from TransCanada, will offer updates on the TransCanada–ExxonMobil pipeline project, a partnership that didn’t even exist last year. Meanwhile, Bud Fackrell, president of Denali: The Alaska Gas Pipeline will talk about that project, a joint venture between BP and ConocoPhillips.
The pipeline project involves major government support. Drue Pearce, federal coordinator with Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, will offer a federal perspective while Mark Myers, Alaska Gasline Inducement Act coordinator for the Alaska Department of Natural Resources, will give the state view.
As those players work toward a big pipeline; other players are working on in-state gas.
Gene Therriault, formerly a state senator and currently the in-state gas coordinator for Gov. Sean Parnell, will provide updates on efforts to increase local gas supplies.
The coming year also promises changes to energy policy.
Pat Pourchot, special assistant to the secretary for Alaska affairs with the U.S. Department of the Interior, and Tom Irwin, commissioner of the Alaska Department of Natural Resources, will talk on “Emerging Energy Policy: Where Does Alaska Stand?”
Meanwhile, David Holt, president of the Consumer Energy Alliance, will offer an industry perspective on the details needed to craft a “common sense” energy policy.
Part of the discussion will focus specifically on Arctic resource policy issues, with speakers including North Slope Borough Mayor Edward Itta; Captain Michael Inman, chief of the Response Division for the 17th Coast Guard District; and possibly Chris Oliver, the executive director of the North Pacific Fishery Management Council.
The coming year promises major federal legislation on climate change. Discussing the implications of it on Alaska is Jeff Leppo, a senior attorney for Stoel Rives LLP; Lynn Westfall, senior vice president of external affairs and chief economist for Tesoro Corp.; and Larry Hartig, commissioner of the Alaska Department of Environmental Conservation.
In addition, Matthew Nicolai, president of Calista Corp.; Margie Brown, president of Cook Inlet Region Inc.; and Marie Greene, president of NANA Regional Corp. will review 2009 and preview 2010 for the Alaska Native corporations.
Finally, the conference will include a panel called “Going on the Offensive: Debunking Myths and Misinformation” featuring Dennis Wheeler, CEO of Coeur d’Alene Mines Corp.; John Shively, CEO of the Pebble Limited Partnership; Eric Fjelstad, a lawyer with Perkins Coie LLP; and Ralph Samuels, vice president of government and community relations for Holland America Line and a former state lawmaker.
The conference will also feature remarks from Gov. Parnell, Anchorage Mayor Dan Sullivan and Gaétan Caron, chairman and CEO of the National Energy Board Canada.
For more information or to register visit RDC online at www.akrdc.org/ or call (907) 276-0700.
—Eric Lidji
‘Chill, baby, chill,’ Sarah James tells Obama, Congress A group of women from Alaska’s North Slope and Canada’s Arctic were in Washington the second week of November, lobbying the Obama administration and members of Congress about Arctic oil and gas development.
The women oppose drilling in the Arctic National Wildlife Refuge and on offshore sites in Alaska.
Sarah James, an Arctic Village resident and spokeswoman for the Gwich’in Nation, said northern people are among the first to be experiencing the devastation of global warming.
James called herself “the other Sarah” from Alaska and said that prominent drilling supporters such as former Gov. Sarah Palin do not speak for Alaska Natives.
James said she had an answer to Palin’s famous cry of “drill, baby, drill”: “Chill, baby, chill.”
—The Associated Press
Second book in Arctic series released Praeger Books has released the second of its three-volume Arctic Security Project series by Barry Scott Zellen.
The publisher’s Nov. 12 press release said the nonfiction book, “Arctic Doom, Arctic Boom: The Geopolitics of Climate Change in the Arctic,” explores the foundations of security, stability and sovereignty in the modern Arctic; examines the challenges and opportunities of a polar thaw; considers the impacts on geopolitics, international security and international commerce; and discusses what a “post-Arctic” world might look like.
The book includes an introduction by former Alaska Governor and U.S. Interior Secretary Walter J. Hickel, and a foreword authored by Professor Daniel J. Moran of the Department of National Security Affairs at the U.S. Naval Postgraduate School.
For more information visit www.greenwood.com/catalog/A2052C.aspx or Amazon, which provides a preview of preface, at www.amazon.com/Arctic-Doom-Boom-Geopolitics-Environment/dp/0313380120.
—Kay Cashman
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