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ConocoPhillips gas line — revenues or costs? Senate Resources questions proposal; North Slope oil producer says $9B withdrawn-partner liability an issue with TransCanada Kristen Nelson Petroleum News
Would a ConocoPhillips gas pipeline project cost the state money or bring in revenues?
That was the debate Jan. 23 between Brian Wenzel, vice president of finance and administration for ConocoPhillips Alaska and Sen. Bill Wielechowski, D-Anchorage, when Wenzel presented the company’s gas pipeline proposal to the Senate Resources Committee.
The ConocoPhillips proposal, which Wenzel described as an alternative path forward to a gas pipeline, was not submitted in response to the request for applications under the governor’s Alaska Gasline Inducement Act, or AGIA. ConocoPhillips argued against AGIA in the Legislature last year and said during those discussions that it could not submit a conforming bid under requirements in the legislation.
Wielechowski asked what the net present value — the money to the state — would be under the ConocoPhillips proposal. AGIA evaluates proposals on their net present value to the state and on the likelihood of project success.
Wenzel said such an analysis would depend on factors unknown at this time, such as the amount of gas nominated for shipment in the line, and was not included in the company’s proposal to the administration.
Wielechowski said he’d been told that the prior contract proposal — negotiated by the Murkowski administration in 2005 and 2006 with BP, ConocoPhillips and ExxonMobil — would have had a $10 billion cost to the state. That contract was never approved by the Legislature.
Don’t think about the ConocoPhillips proposal as costing the state money, Wenzel said: It’s not about losing money for the state; it provides to the revenues to the state.
The $9 billion issue Asked by Sen. Tom Wagoner, R-Kenai, about ConocoPhillips just-announced partnership with TransCanada in the Keystone Pipeline (see story this issue), and whether ConocoPhillips has made overtures to TransCanada on the Alaska gas pipeline project, Wenzel said ConocoPhillips is concerned about the withdrawn-partner liability and is not sure how it will affect this project.
Why partner with TransCanada at Keystone if the $9 billion liability is a concern, Wagoner asked.
Wenzel said the withdrawn-partner liability is related to the attempt to build a gas pipeline from the North Slope in the 1970s. When several partners withdrew from future cash calls in that project, there was an agreement that if the project was ever built those partners would be compensated for their cost, $400 million, plus interest. With interest, he said, that total is now $9 billion. The issue is unique to the Alaska North Slope gas project, he said.
Wenzel described TransCanada as a fine company and a partner.
On the Alaska project, the concern is that the withdrawn partners may raise the liability issue. With $9 billion those partners could be expected to spend some money to pursue that, he said.
The tariff is protected, Wenzel said. But ConocoPhillips is concerned that those claimants could find a way to suggest partners in a new Alaska project should bear that cost, which would come out of the profits of pipeline owners.
It hasn’t been resolved to date and it creates uncertainty, he said.
TransCanada told Petroleum News Jan. 24 it has provided information on the withdrawn-partner liability issue to the State of Alaska, and expects the state to release that information in the next few days.
Successful open season a must Wenzel said a successful open season is a must — and, he said, it won’t happen unless there is fiscal certainty. Companies signing ship-or-pay agreements for 20 to 25 years need to know what the state’s tax system on gas is going to be, what the tax rules will be, and how often they will change.
He said AGIA doesn’t work because it doesn’t even provide 10-year fiscal stability. Ten years of fiscal stability was in the governor’s bill, he said, but the contract concept was removed and legislators put on record that they could change the system at any time.
Wenzel said ConocoPhillips isn’t asking for the $500 million in matching funds AGIA provides: it plans to spend $400 million to $600 million of its own money. The goal, he said, is a successful open season. If we’re going to spend $400-$600 million, he said, we need to get to a successful open season. The key is to know the tax rules; without that knowledge, he said, shippers won’t commit gas in an open season.
Asked by Sen. Lesil McGuire, R-Anchorage, if pipeline projects weren’t usually profitable without fiscal certainty and if fiscal certainty was common, Wenzel said on big basin-opening projects fiscal certainty is not unusual. He called the Alaska gas pipeline project “precedent setting” and said we need to look at it for what it is.
As for projects usually being profitable without fiscal certainty, he said that was true — but not for initial infrastructure; not for 25-year commitments. This will be a “very different proposition,” he said with shippers stepping up to the risk of a 20- to 25-year commitment to ship gas or pay.
ConocoPhillips’ proposal is available online at: www.conocophillipsalaska.com/.
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