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Vol. 12, No. 4 Week of January 28, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Conoco continues Alaska investments

Alan Bailey

Petroleum News

ConocoPhillips’ Alaska capital investment looks to remain steady at about $800 million in 2007. That was one of the messages delivered by Randy Limbacher, the company’s vice president for exploration and production-Americas, at the Alaska Support Industry Alliance’s annual Meet Alaska conference on Jan. 19. But rising costs mean “we don’t get quite as many projects in for the same amount of dollars,” Limbacher said.

That $800 million compares with ConocoPhillips’ $12.5 billion of upstream capital investment worldwide — Alaska holds about 2 billion barrels of the company’s worldwide proven crude oil equivalent reserves of 11.4 billion barrels, he said. The company’s Alaska operation produces more than 300,000 barrels per day of the company’s total crude oil production of 2.4 million to 2.5 million barrels per day.

The company’s North Slope capital projects continue to consist of development drilling at Kuparuk and Prudhoe Bay; the development of heavy oil at West Sak; and the development of the Alpine field satellites (the Nanuq and Fiord satellites came on line in 2006). Limbacher said the Kuparuk 1J development at West Sak is more than 50 percent complete and should be finished in 2008.

“We’re currently evaluating the next development phase within the northeast West Sak area,” Limbacher said.

Limbacher described the company’s North Slope development projects as “important projects in helping offset some of the decline that we’ve seen on the North Slope.”

But continuing North Slope exploration also figures large in ConocoPhillips’ capital expenditure.

“In the year 2007 we’ll probably drill five exploration wells and we’re looking at 3D seismic programs in the Chukchi and Beaufort Seas,” Limbacher said.

Difficult business climate

ConocoPhillips sees an increasingly difficult worldwide business climate, with much of the world’s petroleum resources only available to state-run oil companies.

“Only about 10 percent of the world’s available hydrocarbons resources are available to companies like ours,” Limbacher said.

At the same time, taxation on the oil industry has been increasing.

“The type of (fiscal) terms that we have available to us to pursue oil and gas projects have changed quite a bit,” Limbacher said, citing Alaska’s change to PPT, the new oil and gas production tax, as an example.

In addition, shortages of skilled labor are pushing up labor costs. And taken together, many of the changes in the business environment are rolling up into an overall increase in the oil industry cost structure.

“Since the ’98, ’99 timeframe, the cost to find, develop and produce a barrel of oil around the world by industry has roughly doubled,” Limbacher said. “… We certainly have some challenges ahead of us.”

Getting gas to market

But Limbacher said that, with his company’s involvement in proposals for both the Mackenzie gas project in Canada and an Alaska North Slope gas pipeline, ConocoPhillips sees the potential of connecting to market about 10 trillion cubic feet of its net gas reserves.

“If you put the two projects together, they’re great opportunities but they both have significant challenges associated with them,” Limbacher said. “…We believe that we’re a world leader in the supply gas to the market place. … We’re the largest supplier of natural gas in North America.”

Limbacher said that ConocoPhillips will be seeking to extend the export license for the Nikiski LNG plant on Alaska’s Kenai Peninsula — the current license expires in 2009. (See related story in this issue.)

And the company is anxious to proceed with the North Slope gas pipeline.

“We’re in a position now where we need to finalize our proposal with the state,” Limbacher said. “This is a project that we want to go forward. It’s a project that we believe can happen. … There are a lot of details that need to come out in the next several weeks and we look forward to seeing them.”

But Limbacher cautioned about major risks such as gas price volatility. One particular risk surrounds the question of the timing of gas pipeline construction, to ensure that people view natural gas as a reliable energy source in the United States. In recent years coal has started to somewhat supplant natural gas as a power generation fuel, he said.

Overall, however, the gas pipeline project has merit.

“When we look at it we take a very long-term view. We think that North America needs this gas,” Limbacher said. “We think that this is a project that’s good for our company. We think that it’s a project that’s good for the state of Alaska. And we want to see it built.”



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