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Vol. 14, No. 24 Week of June 14, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Exxon joins line

Partners with TransCanada in Alaska gas line; state says AGIA not affected

By Kristen Nelson

Petroleum News

TransCanada has a partner in the Alaska gas pipeline project, announcing June 11 that it has reached an agreement with ExxonMobil to work together on the project.

The State of Alaska reviewed the agreement and determined that it does not require the state’s approval as an amendment or modification to TransCanada’s license under the Alaska Gasline Inducement Act.

“TC Alaska’s obligations under the AGIA license will not be impacted by the new partnership, nor is Exxon’s participation contingent upon any action or concession from the state,” the Alaska Department of Revenue and Department of Natural Resources said in a statement.

The companies did not indicate what the percentages are, but said TransCanada will be the majority partner.

TransCanada’s AGIA license provides incentives to move the line through Federal Energy Regulatory Commission certification in exchange for a number of “must haves” the state required to ensure open access to the pipeline and pipeline expansion for new gas discoveries on the North Slope.

ExxonMobil, a major working interest owner at Prudhoe Bay and the operator at Point Thomson, is a major owner of North Slope natural gas. The other major owners, BP and ConocoPhillips, are partners in the competing Denali gas pipeline project.

Governor pleased

Alaska Gov. Sarah Palin called it a historic announcement and said it is “very encouraging, but certainly no surprise, because AGIA was crafted to allow just this type of commercial alignment to take place.”

The governor met in Dallas June 10 with TransCanada Corp. President and Chief Executive Officer Hal Kvisle and ExxonMobil Production Co. President Rich Kruger to discuss the proposed alignment, and said in a statement: “The meeting not only confirmed TransCanada’s commitment to the AGIA license, but also ExxonMobil’s commitment to continue to advance the Alaska Gasline project with TransCanada, including as additional alignments are reached with other stakeholders.”

“TransCanada’s Alaska Pipeline project will connect Alaska’s natural gas resource to new markets. We are pleased that TransCanada and ExxonMobil have reached agreement on initial project terms to progress this exciting initiative,” Kvisle said in a statement.

“TransCanada envisions that our combined activities with ExxonMobil, along with the support of the State of Alaska, the U.S. and Canadian governments, and other interested parties, will result in the timely completion of the project. Today’s announcement is an important step toward that goal,” he said.

“ExxonMobil and TransCanada have the experience, expertise and financial capability to undertake this project,” said ExxonMobil’s Kruger. “We have on-the-ground knowledge of Alaska and Canada, experience working in the Arctic, a strong history of technology and innovation, and the proven ability to build and operate projects of enormous scale in the most challenging environments.”

Administration aware, not involved

Marty Rutherford, DNR deputy commissioner and the governor’s gas line team leader, said the governor met with the companies because she wanted to hear from them that there was an ongoing commitment to AGIA. The teams reviewing the documents had heard from TransCanada that it remained totally committed and from ExxonMobil that it was committed to working with TransCanada on the project, but Rutherford said the governor wanted to hear that directly from the CEOs — and that is exactly what she did hear, Rutherford said, receiving positive commitments — from TransCanada that they retain sole responsibility under AGIA and from ExxonMobil that they are committed to the project.

The administration was aware that TransCanada and ExxonMobil were having discussions Rutherford said, but had no idea what the discussions pertained to. When the companies provided documents to the state in early May the administration established teams and did an intense review of the documents.

Revenue Commissioner Pat Galvin said the state gas line team reviewed all the materials associated with the TransCanada-ExxonMobil alignment and based on that review no action was required by the state.

TransCanada’s obligations under AGIA remain unchanged, he said, and called the alignment a continuation of the process that AGIA was intended to set in motion; basically AGIA is working as it was designed, he said.

Rutherford said if the state had determined that the arrangement between TransCanada and ExxonMobil required a license modification, then it would have had to meet the test that any change must have a positive net present value for the state.

Early investment increased

Tony Palmer, TransCanada vice president of Alaska development, said in a press teleconference that TransCanada and ExxonMobil will jointly advance all aspects of the project, while TransCanada and Foothills will remain the AGIA licensees — with obligations unchanged and remaining with the licensees.

The companies will jointly staff project teams; Palmer said TransCanada would take the lead on the pipeline while ExxonMobil will take the lead on the gas treatment plant.

The initial investment, through the end of the open season next July, will increase from $83 million to $150 million, Palmer said.

Martin Massey, ExxonMobil Production Co.’s U.S. joint interest manager, said ExxonMobil is eager to work with the State of Alaska so the company can become a full participant in the AGIA license.

Massey said ExxonMobil did an analysis, evaluated a number of options and determined that aligning with TransCanada and progressing the project under AGIA provided the best chance of success and the best opportunity to bring all the parties together.

Alignment between all parties — the North Slope producers, TransCanada and the State of Alaska — will be required for project success, Massey said, but TransCanada and ExxonMobil can advance the project for many years.

ExxonMobil is not asking the state to enter fiscal discussions now in order for ExxonMobil to align with TransCanada, he said, but predictable and durable terms are required, and AGIA is the vehicle to address those terms.

For ExxonMobil to become a full participant in the license would require dealing with issues of predictable and durable fiscal terms, Massey said.

Private sector arrangement

Galvin noted that while the AGIA process provides the opportunity for forward progress on the gas pipeline, the Alaska gas pipeline project is fundamentally a private sector commercial arrangement. AGIA ensures that as the commercial interests of the private parties are aligned, the state’s interests are protected, and in the review of the TransCanada-ExxonMobil deal the state’s primary interest was in ensuring that its interests were protected and preserved as established under AGIA.

He said the new partnership is further confirmation to the state that the Alaska gas pipeline is commercially viable.

Natural Resources Commissioner Tom Irwin — he and Revenue’s Galvin share responsibility for AGIA under the statute — said the state agrees with ExxonMobil that AGIA is the best opportunity to move the project forward and said ExxonMobil brings world-class abilities to the project.

Denali’s plans not changed

Scott Jepsen, Denali’s vice president of external affairs, told Petroleum News after the June 11 announcement that Denali is going to continue to stay focused on its 2009 work program and on its open season in 2010.

The company spent $55 million on the project in 2008, he said, and with a broader program in 2009 expects to spend about 50 percent more than it spent last year, with major contractors on board for engineering and execution schedules for both the gas treatment plant and the pipeline.

Denali plans to have a cost estimate shippers can rely on to underpin its 2010 open season.

“Today’s announcement hasn’t changed Denali’s plans or its goals,” Jepsen said.

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