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Gas kickoff follows very long warm-up BP, ConocoPhillips building on gas pipeline work done in past, although companies say cost estimate will be done from ground up Kristen Nelson Petroleum News
It took a couple of months of hard work to get to the April 8 announcement of the BP-ConocoPhillips joint venture called Denali — The Alaska Gas Pipeline.
But teams under Brian Wenzel, ConocoPhillips Alaska’s vice president of ANS gas development and Angus Walker, BP Exploration (Alaska)’s senior vice president of Alaska gas and midstream didn’t appear two months ago.
Both companies have been working to commercialize Alaska North Slope gas for years.
“I have a team of people who have been working the gas project for a very long time,” Walker told Petroleum News April 15. “They’ve never stopped and they’ve been trying for a long time to find a way of moving this project forward.”
Teams led by Walker and Wenzel negotiated the agreements behind the April 8 announcement, and are now working on setting up the Denali LLC so that staffing can begin.
Walker said “the people who occupy the key positions in that company is a matter of current discussion — it hasn’t been determined yet.”
“We spent the last two months working together to put the governing structure in place and setting it up and getting the name out, the announcement; the next step is actually to put some people in those slots,” Wenzel said.
Once there are people in place at the top they can start staffing their organizations, he said.
Across the starting line Walker said it took an “enormous amount of effort to get to day one. … Now we’re across the start line.”
The project schedule for the next three years continues with Denali LLC organization and staffing, with people in the field doing work along the pipeline route this summer and identification of an Anchorage office within a couple of months, he said.
There will be 150 people working in the Anchorage office by the end of the year and $100 million will have been spent within the first 12 months. Within three years “we’ll have conducted an open season and spent about $600 million,” Walker said.
The decision to use BP as the lead on the gas treatment plant and ConocoPhillips as the lead on the line from the North Slope to Alberta is “to allow us to use the processes and tools and expertise of two companies with great systems already set up,” Wenzel said, and by using existing processes to kick start the project faster without worrying about getting all the people or all the systems moved over to work under an LLC.
The ways the two companies work are not vastly different, Walker said: “The important thing is … our people know our systems and processes; Conoco’s people know their systems and processes. This was a way of dividing this huge project up into component pieces that each one of us could lead.”
But all of the work comes under the umbrella of Denali, he said.
In addition to the gas treatment plant, BP is the designated lead if the line needs to be extended from Alberta into the Lower 48.
Ground-up cost approach A revision of the 2001 $20 billion cost estimate for the project is a crucial step.
Gov. Sarah Palin told ConocoPhillips she didn’t want to get into fiscal discussions until both the administration and the companies had a better idea of the cost, and some sort of fiscal predictability is expected to be necessary before an open season so shippers understand all aspects of the shipping commitment they would be required to make.
Those shippers also need to know the costs.
Wenzel said an updated cost estimate is needed before an open season. That’s roughly 30 months out, but “arguably we’ll have that well in advance of that so we can begin talking to some of the potential shippers in advance of opening that open season.”
It won’t be just the 2001 cost estimate updated for inflation, he said.
“This is intended to be more of a ground-up type approach to reconstitute that cost estimate.”
Field work begins this summer and will continue next summer. “We’ll use each summer field season we can as we move forward,” Wenzel said. And field work has to be done in Canada as well as in Alaska.
“So all those pieces are moving ahead and … both BP and ourselves, we’re working on components that will go into the overall cost estimate which we need to put together a credible package at open season … to provide sufficient comfort to the potential gas shippers that they can make long-term, firm transportation commitments in that open season,” Wenzel said.
What’s different? This isn’t a different project than has been proposed in the past, Walker said.
It’s the approach that’s changed.
He said “previously … people have been working to resolve the many issues associated with the project and then looking to move it forward and what we’ve decided to do is move the project forward and then address the issues as we go.”
Wenzel said “the governor has indicated her willingness, the administration’s willingness, to work with us at some point on fiscal terms and work with us on predictability of a future tax system” once there is an updated cost estimate. “And so this is a mechanism for us to move the project ahead — not lose any more summer seasons — start the project on this full optimized schedule,” and then “come back to the administration at the right time.”
Separate company in Canada On the Canadian side there will be a separate company formed, Walker said. It will be part of Denali, “but you need to have a separate legal entity to do your business in Canada.”
“Part of the reason we’re structuring it with this LLC umbrella here in Alaska is also to allow that entity to focus on providing coordination across the whole project,” Wenzel said. “We’re going to have to find a way for the Alaska piece of the project to coordinate with what’s going on on the Canada side.” The integration between the Alaska portion and the Canadian portion is important for a project this size, he said.
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