Anchorage bid for Cook Inlet gas fields?

The Municipal Assembly has given the go ahead for bids for ConocoPhillips interests to acquire gas supplies for city utility

ALAN BAILEY

Petroleum News

The Anchorage Municipal Assembly has authorized the Municipality of Anchorage to bid for some or all of ConocoPhillips’ interests in Cook Inlet oil and gas leases. A vote approving the authorization followed an Oct. 6 executive session - given the commercial sensitivity surrounding any bid for the properties, the assembly had decided to maintain confidentiality over its discussion leading to the vote. For the same reason, the content of the assembly resolution for the authorization, including presumably any stipulations for municipality bidding, has not been released to the public.

In July ConocoPhillips announce that it was putting its Cook Inlet properties up for sale, in order to focus on its North Slope interests in Alaska. The properties in question consist of a one-third interest in the Beluga River gas field, a 100 percent interest in the North Cook Inlet gas field and an additional 5,700 acres in oil and gas leases. Bids were invited by early October, with the intent of closing the sale in December.

Anchorage Mayor Ethan Berkowitz originally proposed on Sept. 15 that the Assembly should authorize the submission of bids for some or all of the properties. An Assembly resolution reflecting the mayor’s request was reviewed at a public hearing during the Assembly meeting held on Sept. 29, prior to the Oct. 6 executive session.

The municipality is interested in the potential purchase of ConocoPhillips’ interests in Cook Inlet gas fields as a means of developing future gas supplies for Municipal Light & Power, an Anchorage electricity utility wholly owned by the municipality. Municipal Light & Power operates a gas-fired power station on the northeast side of Anchorage and is part-owner of a new gas-fired power station in south Anchorage.

The idea for the proposed bid by the municipality derives from the purchase in 1996 by Municipal Light & Power of a one-third interest in the Beluga River field from Shell. That purchase subsequently brought significant benefit to the municipal power utility by assuring a supply of natural gas at below market prices. The utility has to pay one-third of the field’s operational costs but, in return, is entitled to one-third of the field’s gas production, either for use for power generation or for sale to a third party. ConocoPhillips, as field operator, manages the day-to-day operation of the field.

According to a memorandum from Berkowitz to the Assembly, Municipal Light & Power’s customers have saved an estimated $239 million in gas costs over the years as a consequence of the 1996 purchase.

Were the municipality to buy out all of ConocoPhillips’ interest in Beluga River, the municipality would then own two-thirds of the field. And the Berkowitz memo points out that, if the municipality ends up owning all of ConocoPhillips’ Cook Inlet gas interests, including the North Cook Inlet field, the resulting municipal gas production would likely exceed Municipal Light & Power’s gas requirements. The subsequent need to sell excess gas into the Southcentral gas market would incur some market risk, the memorandum says.

With ConocoPhillips being the operator of both the Beluga River and North Cook Inlet fields, another critical question would presumably revolve around field operatorship, should the municipality acquire the properties. Operating a gas field requires specific expertise and an appropriate support organization. During the Sept. 29 public hearing Assembly Member Patrick Flynn confirmed that field operatorship is one of a number of issues that the Assembly was discussing in executive session.