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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2010

Vol. 15, No. 5 Week of January 31, 2010

Exxon Q&A: ‘We don’t really have any bounds’

Rich Kruger, president of ExxonMobil Production Co., talks global investing, Point Thomson, the gas line and even a little hunting

Wesley Loy

For Petroleum News

Following his speech at the Alaska Support Industry Alliance’s annual Meet Alaska conference Jan. 22 in Anchorage, ExxonMobil Production Co. President Rich Kruger sat down with Petroleum News to field a few questions.

Topics included ExxonMobil’s global investment and management style; its Arctic experience and outlook; the lingering court fight between the company and the state over control of the undeveloped Point Thomson field; and prospects for an epic pipeline to develop North Slope natural gas.

Here are excerpts from the interview.

PN: I hear you’re a big hunter. What do you hunt?

Kruger: I’m in Texas, so a lot of birds — ducks, grouse, pheasants, quail, doves. But my passion’s probably white-tailed deer.

PN: Well, you’re from Minnesota, right? Don’t the kids in Minnesota miss school to go hunt when it’s deer season?

Kruger: Absolutely. It’s part of the deal, sure (smiling).

PN: I have a few quick questions and I’ll just rifle them at you if it’s OK.

Kruger: Sure.

PN: Would you tell me, from your standpoint, what ExxonMobil Production Co. is?

Kruger: About 10 years ago, ExxonMobil looked at its view of the future of our industry and concluded that technical excellence and the ability to take on ever more difficult challenges in the energy world — new technologies, harsh environments, larger scale projects — was going to be a premium. So we re-configured the entire corporation into a series of functional companies.

We have an exploration company with a set of geologists who explore the globe. We have a development company that specializes in planning and executing large-scale capital projects. The production company manages all of ExxonMobil’s oil and gas production worldwide, including our involvement here in Alaska.

PN: You know, the perception some people seem to have here locally is that Exxon doesn’t operate many projects, many pipelines, many facilities. Is that a myth?

Kruger: It is a myth. It’s certainly the local view because in Alaska, that is our history. Point Thomson will be our first real opportunity to show what we can do — to bring the best of ExxonMobil’s skills and capabilities to this state. If you go into the Lower 48 and many, many countries around the world, we operate more than we non-operate. Alaska just hasn’t seen that from us.

PN: You’ve worked in a lot of places, the former Soviet Union, Africa, Malaysia …

Kruger: Middle East, Gulf of Mexico.

PN: OK. Do people everywhere have the same expectations and desires of ExxonMobil? In particular, I’m thinking about speed. Is everybody in a hurry, wants their project done right now?

Kruger: It varies. But if I step back and talk ExxonMobil for a minute.

PN: Sure.

Kruger: Our standards are global standards. We don’t operate to a different safety standard in one country where, culturally, they might accept that. We have the highest standards wherever we operate. From an internal standpoint, it makes it easier because as we move people around the world, they don’t have to recalibrate.

When it comes to dealing with our hosts, we hope they want and encourage investment and all the benefits that go with it — the economic benefits, the job growth.

Generally, folks want emphasis on training and education of a local or national workforce.

The pace, that can vary. It depends on government or our host’s priorities.

What’s important for us is when we look at where we invest, we line it up on the fundamentals. We look at the quality of the resource. And that can be oil or gas, it can be conventional or unconventional. We look at the technology that we’ll apply and our confidence in that technology. It may be Arctic, it may be deepwater, it may be liquefied natural gas.

We look at the capital efficiency of the investment. How does it compare with other, comparable projects elsewhere? Will it be profitable over its life?

And last but certainly not least, we look long and hard at the commitment and support of the host — the government, the state, the country. Do we share the same vision and objectives? Are they providing the right incentives to attract the capital? Are they providing the tax and royalty terms that we have confidence will endure over time?

The commitment to stick to a deal is very important to us because we invest shareholders’ money upfront.

PN: People in Alaska are impatient and in a big hurry for certain things. I should say, they’ve waited a while. You could take Point Thomson as an example. But I imagine you feel this kind of pressure other places.

Kruger: Mankind generally looks for progress.

When you take Alaska, you look at the history here and the wealth that oil has brought, and Alaska’s in a transition.

It’s still a very hydrocarbon-rich environment for oil. There’s a lot of existing operations.

But increasingly you can see the value and the contribution that natural gas will provide in Alaska. And it’s like anything — when you can see that prize, we all want to work on it and get it earlier.

The key is working together so that the capital can be attracted, that the investors can be satisfied with it, the government satisfied, and the citizens. I like that there’s a natural impatience to get on with it, because that’s what will bring us all to the table to get that outcome that we all seek.

There’s some added challenges in Alaska. The cost environment here, the Arctic environment, bring along an added complexity. Technology is critical in Alaska. The other thing that’s unique in Alaska is the scale of the projects. There’s no such thing as a small project here. Point Thomson is a massive project. The natural gas pipeline will be one of the world’s greatest undertakings ever for an energy project.

So Alaska needs strong partners, partners you know are going to be there 30 years from now and have the wherewithal to execute these projects.

PN: Does ExxonMobil have other designs on Alaska, such as the Arctic outer continental shelf?

Kruger: I mentioned earlier that we have a global exploration company. We have a lot of experience in the Arctic. Although we’re the non-operator here in Alaska, much of the technology that’s been applied on the North Slope was developed by ExxonMobil scientists and engineers over the past decades. Our partners would acknowledge that. We have a large-scale Arctic operation in Russia off of Sakhalin Island. We’re a big operator in Canada. So we’re comfortable in the Arctic.

As we look for expanding our presence on the exploration side, whether it’s OCS or wherever access is available to us, we’re big enough and ambitious enough, we don’t really have any bounds.

PN: Last question, and I hope you’ll be specific. What projects anywhere in the world occupy the most time on your desk lately?

Kruger: I personally spend as much time planning and thinking about Alaska as I do anywhere else in the world.

Our priorities here are continuing to extract value out of the existing assets. Prudhoe Bay still has tremendous life and value to the state and to the partners. We work very closely with the operator (BP) to help improve Prudhoe’s performance.

We also want to resolve Point Thomson. It’ll be our first official ExxonMobil operation. We want to resolve it for three primary reasons: One, to keep the investment and the momentum going — the jobs and the contractors who are doing an outstanding job for us.

Two, when it’s resolved, it allows the working interest owners to commit or nominate their gas in the upcoming open seasons. The gas pipeline project needs that additional gas to give it the best chance of a successful open season.

And third, as we gather data and information from Point Thomson it will help us plan the right off-take of North Slope gas from Point Thomson, from Prudhoe, to feed that pipeline over the long term so we can get the maximum recovery.

So I spend a lot of time focused on the existing operation in Alaska and the future operation. These are world-scale projects and they’re critically important to ExxonMobil.

PN: Follow-up question: Were you encouraged by Gov. Sean Parnell’s comment that he feels it’s time to settle or resolve the Point Thomson litigation?

Kruger: I think the governor is spot on.

PN: Thanks a lot for your time.

Kruger: Hey, it was nice to meet you. Enjoyed it.






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