Wednesday, January 30, 2008

DOE Publishes Alaska Oil & Gas Report

The US Department of Energy Office of Fossil Energy has published a lengthy report on the future of oil and gas in the Alaskan Arctic.

The report is long and paints an optimistic picture Alaskan Oil and Gas production out to 2050.

These conclusions are based on some important assumptions. Most important: "state of Alaska and federal fiscal policies remain stable and supportive of the huge investments that will be required. The future prospects become progressively less promising as these assumptions are removed."

The report goes on to point out: "The construction of a 4.5 billion cubic feet per day Alaska gas pipeline by 2015 and the ability to sell gas from the Prudhoe Bay and Point Thomson fields will nearly double the revenue to the stakeholders (state of Alaska, federal government, and industry)".

You hear that "DOUBLE" the revenue to stakeholders. It's also a call to action to develop Point Thomson.

Subtle wording and strategic timing. It's pretty clear the federal view is - Get it done or face a much less profitable future.

Former Governor to Join the Fray

Former Governor Frank Murkowski has surfaced to play an unspecified role in the Alaska Gas Pipeline discussions.

During his term as Alaska Governor, Murkowski was able to work out a deal in principle with the major North Slope producers: ExxonMobil, BP, and ConocoPhillips.

Alaskan voters were not pleased with his efforts since the deal he struck provided an acceptable tax stricture to producers without any commitment to build the pipeline. He subsequently lost the Republican gubernatorial primary to Sarah Palin who went on to win the general election.

Tuesday, January 29, 2008

The Feds Finally Speak Up

The gas pipeline news has been dominated by the lively public dialog between Alaska Governor Sarah Palin and ConocoPhillips.

We haven't heard much from Alaska Senators Ted Stevens or Lisa Murkowski since The AGIA process short listed TransCanada.

Drue Pearce, the Federal gas pipeline coordinator spoke to
the Senate Resources Committee Monday.

Her comments were supportive of the Governor but she held out the possibility of Congressional intervention if Alaska cannot assemble a workable project.

The Alaska Legislator will continue to hear testimony from the Governors AGIA team, TransCanada and ConocoPhillips.

With any luck the process will yield a pipeline project soon, without the need for federal intervention.

Saturday, January 26, 2008

TransCanada in the Spotlight

The sole AGIA approved proposer TransCanada is beginning to draw serious criticism.

The first criticism of the TransCanada proposal comes from ConocoPhillips which refers to a potential $9 billion liability from the last serious attempt to build the Alaska Gas Pipeline.

The potential $9 billion liability is the net present value of a $250 Million liability from 1980 related to TransCanada's participation in the Alaskan Northwest Natural Gas Transmission Co. (ANNGTC).

ConocoPhillips put TransCanada's Tony Palmer, vice-president of Alaska development, on the defensive and force him to admit "We said that ANNGTC is not viable. We're not going to use those old assets" "We're not using the old right-of-way, we're not using any of those existing assets. We did not use them in our application, we will not use them going forward."

TransCanada is receiving more criticism from parties that point out that the TransCanada proposal is conditional. They point out that the TransCanada proposal relies on the State of Alaska to negotiate a tax deal with the major oil companies. In that respect the TransCanada proposal is on equal footing with the rejected ConocoPhillips proposal.

Apparently Governor Palin's team is standing by the selection of TransCanada and has issued a four page response to a commentary by
Andrew Halcro.

The Governor's team calls the Halcro commentary as a "Mischaracterization"

Halcro calls for the State to abandon the AGIA and negotiate with the legal leaseholders.

Looks like the gloves are coming off but Halcro makes the point that the timing is critical.

Taxes Vs. Investment

Conventional wisdom says that when taxes go up investment goes down. Last November the Alaska Legislator passed HB2001 which increased the tax on oil production from 22.5% to 25%.

As of today two of the three major North Slope producers, BP and ConocoPhillips have announced reductions in capital spending. The investment reductions or deferments total over $1 Billion for each.

Those lost investment dollars equal the elimination jobs, goods and services and the taxes collected from those jobs, goods and services.

Higher oil and gas taxes also decrease the economic life span of an oil field.

Something to ponder while as the debate over the Alaska Gas Pipeline rages on.

Friday, January 25, 2008

ConocoPhillips Steps Up the Pressure

Although Alaska Governor Sarah Palin recently declined to consider the ConocoPhillips proposal, ConocoPhillips has stepped the lobbying effort.

Today ConocoPhillips ask the Governor to take a second look at their proposal.

I give ConocoPhillips credit for persistence and consistency in their approach. They have consistently asked for fiscal certainty. It's not going to be easy or cheap to build that long pipeline. It's understandable that ConocoPhillips wants to know what tax structure, or royalty scheme they will be faced with for the life of the project. ConocoPhillips has a duty to their shareholders to make sure that the investment will generate a predictable rate of return over the years.

The Governor's AGIA team posted a note titled "QUESTIONS ALASKANS SHOULD ASK CONOCOPHILLIPS.

The Questions include "What fiscal terms does ConocoPhillips propose?" and "Why does ConocoPhillips continue to link changes in tax and royalty laws to this pipeline project?"

Maybe Question #10 should read "Whats the value of that gas sitting in the ground forever" The question should focus everyone's attention on hammering out an agreement. Neither side wins if the gas is not brought to market.

Even though the Governor has rejected the ConocoPhillips proposal it's good to see this public dialog taking place. The State of Alaska wants to maximize the benefit obtained from production of their natural resource and ConocoPhillips wants to add shareholder value. Eventually I hope both sides can find some common ground.

About The Photos

I enjoy the wildlife, fish and scenery of Alaska. The photos were taken by me from 2001 to 2006 while I was working a construction job in the Alaskan interior.

I hope you enjoy them.

ConocoPhillips Proposal in the Spotlight

The rejected ConocoPhillips Alaska Gas Pipeline proposal is under close review by the Alaska Senate Resources Committee.

In addition to the 3-page letter of January 9th, 2008 the committee is review additional documents from the Governor's office.

It's not clear were this is leading ConocoPhillips but in testimony Wednesday ConocoPhillips raised concerns about a potential $9 Billion liability of TransCananda.

ConocoPhillips referred to the TransCanada liability as a "Stumbling Block".

Conoco's persistence will probably pay off - at the moment they have 0% participation in Alaska Gas Pipeline, a good proposal, and the ear of the lawmakers.

Their partnership with TransCanada on the Keystone Pipeline indicates that they can and will partner with TransCanada to achieve their goal.

Thursday, January 24, 2008

Alaska Gas Pipeline

This Blog tracks the progress of the Alaska Gas Pipeline project. It's a continuation of the ak-gas-pipeline blog I started back in November when the State of Alaska accepted proposals under the Alaska Gas Inducement Act (AGIA).

The AGIA yielded five AGIA bidders and a non-AGIA bid from ConocoPhillips.

From the stack of five AGIA bids, Alaska's Governor, Sarah Palin recently announced that only TransCanada met the Statutory Requirements.

The Governor rejected the ConocoPhillips proposal
, and decline further comment on the other proposals from the Alaska Gasline Port Authority, AEnergia LLC, Sinopec ZPEB and
Alaska Natural Gasline Development Authority (Spur Lines only).

The politics is heating up as Alaskan Lawmakers want to take a closer look at the ConocoPhillips proposal and the Alaska Gasline Port Authority proposal.

The next few months should be full of more news and surprises. Stay tuned.