Oil Patch Insider: Conoco reportedly looking for another Chukchi partner

On Jan. 25 ConocoPhillips and Statoil USA announced a deal that gave Statoil a 25 percent working interest in 50 Conoco leases in the Chukchi Sea off the northern coast of Alaska. Three days later a Petroleum News source said Conoco was close to a deal with a second partner on the same acreage.

Although the source, who asked not to be identified, would not reveal the name of the soon-to-be partner, he did say the company will acquire a working interest of “just under 25 percent” in the 50 leases, leaving operator Conoco with a slim ownership majority.

ConocoPhillips was unwilling to confirm or deny the information.

But the sale of additional interest in the leases did not come as a surprise. The hydrocarbon potential in the Chukchi Sea is considered high, but so is the financial and political risk.

And ConocoPhillips is not in a position to take on a lot of risk.

The Houston-based major has faced some tough challenges in the past year, including $34 billion in write-downs on its 20 percent stake in Russia’s Lukoil and its 2005 acquisition of U.S. gas producer Burlington Resources.

To “improve its financial position and increase returns on capital” ConocoPhillips said last fall that during the next two years it would sell about $10 billion of its assets and significantly reduce its worldwide 2010 capital budget.

Proceeds from the sales of its assets, it said, would be used to pay off debt and accelerate the company’s return to its target debt-to-capital ratio of 20-to-25 percent.

Statoil a natural choice

The company, which is two-thirds owned by the Norwegian government, also has extensive offshore Arctic experience.

Following the announcement of the deal with Statoil, Larry Archibald, Conoco’s senior vice president of exploration and development, said “Statoil’s decision to acquire an interest in these leases substantiates ConocoPhillips’ view that world-class hydrocarbon potential exists in the Chukchi Sea of Alaska.”

He also said that Conoco “has had a long-term business relationship with Statoil in many ventures around the world, particularly in Norway, and welcomes its expertise in this harsh operating climate.”

Eni, Statoil frequent partners

Moreover, Eni was a minority bidding partner with Statoil in the February 2008 Alaska Chukchi lease sale.

Eni picked up four leases of its own at the sale and was outbid on nearly 60 other tracts.

But Eni is knee-deep in major investments elsewhere in the world, including its recent commitment to invest $13 billion in Uganda oil and $18 billion in Venezuela oil fields and build a refinery in the petroleum-rich Orinoco region.

And then there is Shell, the major player in the Chukchi, and Spain’s Repsol YPF, which entered Alaska in September 2007, when it joined a Shell-Eni partnership in a block of 64 contiguous outer continental shelf leases in the Beaufort Sea, adjacent to the Chukchi.

At the time, Repsol said “exploration activities” could start in 2009-10, but exploration has been held up by related lawsuits against Shell, the company that has taken the exploration lead in both the Beaufort and Chukchi.

Madrid-based Repsol’s acquisitions did not stop with the Beaufort Sea partnership.

In February 2008, Repsol also bid in the Chukchi Sea oil and gas lease sale, bidding $15.6 million on 104 blocks and was the high bidder on 93 blocks for $14.4 million.

Repsol has not said if it was looking at operating its Chukchi leases, but the company was not partnered with other bidders in the lease sale. Rumors of a potential partnership with Shell, Eni and/or Statoil have made their way to Petroleum News, but none have been confirmed by any of the companies.

—Kay Cashman