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Vol. 12, No. 49 Week of December 09, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

ConocoPhillips goes its own way

Company rejects AGIA, submits own proposal to state for North Slope natural gas project; says it requires no matching funds

Kristen Nelson

Petroleum News

ConocoPhillips did not submit an application under Gov. Sarah Palin’s Alaska Gasline Inducement Act but the company has put a non-AGIA proposal before the state. None of the major gas holders on the North Slope — BP, ConocoPhillips and ExxonMobil — submitted an application under AGIA to move North Slope natural gas to market.

In a Nov. 30 letter accompanying the company’s proposal ConocoPhillips Chairman and Chief Executive Officer Jim Mulva told the governor that the company “is prepared to make significant investments, without state matching funds, to advance the natural gas pipeline project towards our shared objective of seeing the conclusion of a successful open season within 36 months.”

While the company doesn’t want the state’s money, and is willing to meet a number of the requirements in AGIA, it wants something AGIA doesn’t offer — fiscal certainty.

“While we believe our proposal to advance the natural gas pipeline project is a significant step, the ultimate realization of the project depends upon the establishment of natural gas fiscal terms that will apply to the shippers making long-term shipping commitments during the initial open season,” Mulva said.

It is “critically important,” he said, that the “framework for gas fiscal terms” be defined now so that a successful open season can be completed in 2010.

Fiscal certainty was one of the issues that blocked legislative approval of the contract former Gov. Frank Murkowski struck in 2006 with the large North Slope gas holders, BP, ConocoPhillips and ExxonMobil, raising sovereignty and constitutional issues.

The three companies objected to AGIA when the bill was discussed, telling legislators that the bill did not adequately address fiscal certainty and required applicants for the AGIA license to meet specific requirements.

The companies campaigned hard for what they described as a more flexible bill where the state would give applicants an opportunity to say how they would respond to general goals, rather than requiring applicants to meet specific requirements. The companies also said that fiscal terms, covering the whole range of state take from industry, would have to be negotiated.

All three of the companies told legislators before the bill was passed that they would not be able to make applications under AGIA.

A choice

ConocoPhillips said in a summary of its proposal that it is “purposely presenting the State of Alaska with a choice: This proposal provides an alternative path forward for the ANS gas pipeline project which is, in our view, the most certain way to create a vibrant and successful development effort for this project.”

The company said the pipeline shippers “will be required to bear the burdens of multi-billion dollar financial commitments” through their long-term commitments to ship gas on a pipeline. Because of that, “a natural gas pipeline development effort will only be sustainable and ultimately successful if there is recognition of the need for an appropriate balance of risk and reward among the pipeline owners, the state and the producers and prospective shippers.”

The company said it was submitting its proposal “to foster cooperative engagement” with the State of Alaska to help find the balance of risk between the parties.

ConocoPhillips also said it shares the state’s “sense of urgency” to get an ANS gas pipeline project moving. Since 2002, the company said, there have been significant increases in both steel and labor costs. The high-price environment will also affect upstream natural gas exploration and development costs.

Continuing volatility in natural gas prices “creates uncertainty and risk around a long payout project like the ANS gas pipeline.”

What is the project?

ConocoPhillips is proposing a 48-inch high-pressure pipeline to carry some 4 billion cubic feet a day of natural gas from the Alaska North Slope along the Dalton, Richardson and Alaska highways to the Alberta border.

A large-diameter, high-pressure pipeline may possibly be needed to carry approximately 4 bcf per day from Canada to Chicago, although alternatives to new construction are interconnection with the existing Nova Gas Transmission Ltd. system in Alberta for some or all of ANS natural gas.

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