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Vol. 16, No. 5 Week of January 30, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

CPAI earns $1.7B in ’10

Oil production down and prices up, Alaska reserves up, Chukchi deal under way

Eric Lidji

For Petroleum News

ConocoPhillips earned $1.73 billion in Alaska in 2010, up 13 percent from 2009, as significantly higher oil prices offset continuing declines in North Slope production.

Although the Houston-based major’s Alaska liquids production fell 8.7 percent to 230,000 barrels per day in 2010, oil prices increased 32 percent to $78.61 per barrel.

ConocoPhillips also produced 82 million cubic feet of natural gas per day in Alaska in 2010, down from 94 million in 2009. ConocoPhillips realized an average price of $4.62 per thousand cubic feet for that natural gas, down from $5.33 in 2009.

Companywide, ConocoPhillips earned $11.4 billion in 2010.

In the Lower 48, the company earned slightly more than $1 billion in 2010.

The figures come from fourth-quarter filings ConocoPhillips released on Jan. 26.

Prior to releasing the financial information, ConocoPhillips announced that it expected its reserve replacement ratio to be 138 percent of 2010 production, and credited the bump to Alaska, Canadian oil sands and Qatar gas fields.

“It came from our existing areas,” ConocoPhillips’ Chief Financial Officer Jeff Sheets said about those additional Alaska reserves during a Jan. 26 conference call with analysts. “It came from Prudhoe and Kuparuk and the western North Slope, really a mix across those three areas.”

ConocoPhillips also announced a deal on its Chukchi Sea property during the call.

“In the Chukchi Sea, we entered into an agreement to farm down 10 percent of our working interest and that agreement is subject to regulatory approval,” Sheets said.

The company could not provide details by the time Petroleum News went to print.

Are oil taxes to blame?

The filing comes as State of Alaska lawmakers are considering changes to the fiscal regime that governs how oil and gas companies are taxed and encouraged to explore in Alaska. On the same day ConocoPhillips released its quarterly report, legislators and executives debated its significance at a forum in Juneau hosted by the Alaska AFL-CIO.

“I think Alaska is at a point it has to decide: Do we want to try to do something to incentivize and mitigate that production decline or not?” the Anchorage Daily News quoted Wendy King, Conoco’s vice president for external affairs, as saying.

While the quarterly report doesn’t break out tax payments for Alaska, King said that as the price of oil rises above $90 a barrel, the government takes almost 80 cents of every dollar earned after operating costs, challenging the economics of certain developments.

Sen. Bill Wielechowski, an Anchorage Democrat, challenged that argument.

He said the fiscal regime in Alaska compares favorably to other areas, and the average production tax rate has been 32 percent, before tax credits, over the past four years.

“Giving away $6 to $7 billion over the next five years with nothing in a return is not a good deal for Alaska,” ADN quoted Wielechowski as saying.

ConocoPhillips, as well as Prudhoe Bay-operator BP, typically releases Alaska-specific tax information in its annual report, which comes out in February or March.

North Slope oil production is about one-third of its 1988 peak of more than 2 million barrels per day. King said production could soon reach the point where big investments are necessary so the trans-Alaska oil pipeline can run with so much less flow than its peak.

North Dakota says its oil production could overtake Alaska’s in less than a decade. King told the Alaska AFL-CIO that Lower 48 oil production and drilling rigs have increased during the recent years of higher oil prices, but that the number of Alaska drilling rigs stayed about the same while production declined 36 percent since 2003.

Production declines continue

While oil production fell year-over-year, it rose quarter-over-quarter, most likely the result of field resuming normal production after planned summer maintenance.

ConocoPhillips produced 238,000 bpd in Alaska in the fourth quarter, up from 215,000 bpd in the third quarter but down from 252,000 bpd in the fourth quarter of 2009.

For natural gas, ConocoPhillips produced 70 million cubic feet per day in Alaska in the fourth quarter, down from 82 million in the third quarter and 95 million in the fourth quarter of 2009.

In the Lower 48, the company produced 160,000 bpd of oil for both the quarter and the year, and 1.7 billion cubic feet of gas per day in 2010, down from 1.9 bcf in 2009.

ConocoPhillips also sold 47 million cubic feet per day of liquefied natural gas in 2010, down from 59 million in 2009. For the quarter, the company produced 32 million cubic feet per day, down from 49 million in the third quarter and 64 million from the fourth quarter of 2009.

The company sold that LNG for $12.13 per thousand cubic feet in 2010, up from $8.45 in 2009.

ConocoPhillips owns an LNG export facility in Nikiski, along with Marathon Oil. Last year, the U.S. Department of Energy extended the facility’s export license until 2013.

ConocoPhillips reported $41 million in Alaska exploration charges for 2010, down from $70 million in 2009. The company also reported $621 million in depletion, depreciation and amortization charge for Alaska in 2010, down from $694 million in 2009.

The Anchorage Daily News contributed to this article.

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