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Vol. 13, No. 33 Week of August 17, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Exxon OK with TC Alaska

Says gas line will require support of ANS producers, state, to move forward

Kristen Nelson

Petroleum News

Following early August approval of the TransCanada Alaska AGIA license by the Alaska Legislature, ExxonMobil Corp. said in a statement that the company is ready to work with other parties to move a North-Slope-to-Lower-48 natural gas pipeline project forward.

The Alaska Gasline Inducement Act license provides incentives, including $500 million in reimbursement for authorized work, for moving an Alaska natural gas pipeline project that meets state requirements forward through a Federal Energy Regulatory Commission certificate.

“ExxonMobil is committed to the timely development of Alaska’s North Slope gas resources and we want to be part of the solution,” the company said.

“We continue to believe a successful gas pipeline project will require the support of all three major producers and the State of Alaska. We are ready to work with the state, TransCanada, ConocoPhillips and BP to move forward one of the largest and most complex projects ever undertaken in the United States.”

The company also said it believes “Point Thomson gas is essential for a successful gas pipeline project,” and that ExxonMobil and the other working interest owners “are the only producers that could commit PTU gas to either the TransCanada or Denali pipeline on their proposed schedules.”

The Alaska Department of Natural Resources terminated the Point Thomson unit in April; in early August DNR terminated the leases that had been part of the unit with the exception of a single lease that is still in its primary term.

The Alaska Legislature approved TransCanada Alaska’s AGIA license Aug. 1; as of Aug. 13 the bill had not been signed by either Senate President Lyda Green, R-Matanuska-Susitna, or by House Speaker John Harris, R-Valdez, requirements before the bill can be transmitted to the governor for her signature. The Legislature did not pass the immediate effective date clause for the bill, so it takes effect 90 days after the governor signs the bill.

Massey said Exxon ‘committed’

The statement issued after passage of AGIA reflected testimony Marty Massey, ExxonMobil’s U.S. joint interest manager, gave to Alaska legislators July 10 during the AGIA hearings in Juneau.

He said he knew legislators had questions about ExxonMobil’s involvement: It did not submit an application under AGIA and is not in partnership with BP and ConocoPhillips on the Denali gas pipeline proposal.

“Today, my intention is to demonstrate that we are committed to the timely development of Alaska’s gas resources and we want to be part of the solution,” he said in prepared testimony.

He said ExxonMobil was “ready to work with the administration, TransCanada, ConocoPhillips and BP to advance this project” and “to put in place the ‘necessary ingredients’ for a successful gas pipeline project.”

Massey said ExxonMobil believes a 4.5 billion cubic-foot-a-day line balances tariff, revenue and resources. The study the North Slope producers did in 2001 and 2002 determined that 4.5 bcf a day would provide the best opportunity for an economically viable gas pipeline, based on “a detailed technical evaluation of pipeline hydraulics and cost.”

He also said the producers’ 2001-02 analysis indicated that a 4.5-bcf a day line should provide low cost expansions, keeping the tariff essentially the same up to 5.9 bcf and possibly to 6.5 bcf a day.

Point Thomson essential

Massey told legislators what the company repeated in its August statement: Point Thomson is a critical element for a successful gas pipeline.

Open access is also essential, he said, because additional gas needs to be found to fill the base case 4.5 bcf a day line and with expected low-cost expansions, the line could handle another 20 trillion cubic feet. He said ExxonMobil believes open access will be assured by the need for additional gas, FERC and National Energy Board regulations and additional rules established by Congress and FERC for the Alaska gas pipeline.

Massey told legislators that while ExxonMobil believes there are ample assurances of open access in place, the company is willing to discussion other assurances that would make the state comfortable that explorers would have access to the line for newly discovered gas.

While ExxonMobil is willing to accept price risk, it is not willing to accept fiscal and tariff risk: “At some point we will need to align with the state on fiscal and tariff predictability,” he said in his prepared testimony.

ExxonMobil also wants some control over project cost: Ownership in the line equal to its shipping commitment would mean pipeline profits would come to ExxonMobil, rather than to a third-party pipeline owner.

Massey told legislators ExxonMobil has had discussions with Denali and expects to have more discussions with them.

He emphasized that there won’t be a successful project until the state and the producers align and said he didn’t know if Denali or AGIA would produce that alignment, but said ExxonMobil’s goal was to get that alignment as soon as possible.

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