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Oil company executive says Alaska offers 'strong cash margins'

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Posted: Friday, April 8, 2011 12:23 pm

Company presentations to stock market analysts invariably stick to the sunny side of the street.

But policy makers in Alaska operating with eyes wide open instead of half-closed need to have a working knowledge of the international self-portraits offered by the oil companies to these specialized audiences.

On March 23 in New York, eight leaders of ConocoPhillips held their annual meeting and conference call with 16 Wall Street analysts, competitive critics who are hired to make informed judgments about profit and loss potential. The account makes for informative reading.

The news coverage about the meeting dealt largely with the company plan to sell $5 billion to $10 billion worth of "noncore assets" over the next two years, using most of the money to buy back $10 billion in stock and invest in its business. Over the last two years, the stock of ConocoPhillips is up more than 80 percent, beating BP and ExxonMobil, the New York Times said.

While the most glowing language in the presentation was about such prospects as the Eagle Ford shale deposits in East Texas, the Permian Basin in West Texas, ("The gift that keeps on giving"), North Dakota, the Alberta tar sands, Australia and other locations,  the ConocoPhillips Alaska situation was also given a positive spin.

The company said the Alpine West (CD5) project is expected to go ahead in 2013-2015 along with the Lookout (CD6) project. Alaska North Slope natural gas and the Ugnu heavy oil resources are among the projects set for 2016 or later. There was next to nothing said about onshore exploration in Alaska.

Future growth in Alaska will be driven by "in-field drilling opportunities, Western North Slope satellites, unlocking heavy oil potential and ANS (Alaska North Slope) gas commercialization," a slide shown to analysts said. The Alaska drilling program for 2011 is expected to increase somewhat over 2009 and 2010 with a cost approaching $340 million or so, according to the slide.

Greg Garland, the senior vice president of  exploration and production in the Americas, said this about Alaska:

Talk about Alaska, we like Alaska. We've been in Alaska a long time. We're the largest producer in Alaska. Last year 240,000 BOE (barrel of oil equivalent) a day, strong cash margins in this area and we have a significant infrastructure position, we've built an extensive operating capability. We have a strong culture of safety and environmental excellence in Alaska and we think we have a strong competitive advantage here. Reserves at 1.6 billion BOE resources, 5.7 billion BOE. We'll invest $350 million in exploitation this year, all at very good returns. We're targeting sanction of our West Alpine project which is CD-5 if we can get the permits this year. And longer term, there's other opportunities. West of Alpine, we've got the heavy oil that we've talked about. We'd like to take a look and see what's in the Chukchi Sea if we can get permits to drill. And then, longer term is North Slope gas and we have 10 Bcf gas. 

Regarding the offshore potential in the Chukchi Sea, another leading ConocoPhillips executive said the company is in a better position than some of its competitors. He didn't mention Shell,  but it's clear that is the company he was talking about when he said another company was "burning" cash with its Chukchi plan.

Larry Archibald, a senior vice president of exploration and business development, said the Chukchi Sea prospects face regulatory hurdles. CEO Jim Mulva said he thinks his company's premise is that nothing is going to happen there before 2013.

"Yes, 2013 at the earliest," said Archibald. "We're actually in a, I guess, enviable position. We're not burning any cash on that operation as we wait for their regulator environment to be sorted out, unlike at least one of our competitors. We're not pregnant in an Arctic drilling fleet. And we're going to wait and see what develops there. And in the meantime, we're getting tolling, extension on our leases there. So we would like to get after it, but it's not urgent. In the meantime, we're going to park things until we see regulatory certainty. "

When the subject turned to North Slope natural gas, a stock analyst asked this: "On transportation capacity and political factors, you've had this Alaskan gas for a long time and dealing with the Alaskan government has been difficult. In the past few weeks the energy picture has changed a little bit with the tragic accident in Japan. And you could make a much stronger case today that we would have thought a few years ago for LNG on the Alaskan coast and sending it to Japan. So that the case for the Alaskan pipeline might be a lot better today than it was a year ago. Can you give us any comment on how do you think the government of Alaska is going to be more helpful in developing that kind of a project?"

Mulva responded:

"Well, it's a -- I'll ask Al to comment here in a moment, his thoughts on this. But it's an indigenous resource. We know that it's been there. It's probably going to be a high cost to the market. We'd like to get it developed, we know Alaska would, but it's going to take some fiscal certainty, maybe some incentives to make this happen. We have and along with other producers up the North Slope, who have looked at certainly a pipeline down the lower 48 or connect a manifold into the Lower 48 to the Canadian system. 

I think that gas long-term is a real winner but still Alaska is going to be pretty high cost. We have looked at, as the other producers, we looked ourselves at LNG export. So whether that changes and leads to the development of our Salt gas, who knows?"

To read the full transcript of the March 23 presentation, click here.

To see the slides from the March 23 presentation, click here. The Alaska slide is on Page 62.

 

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