Friday, March 16, 2012

BP chief says progress being made on gas deal, oil tax change still needed

Tim Bradner
Alaska Journal of Commerce

BP's Alaska president John Minge said the three major North Slope producers including BP are "on track" to reach agreement to work together on a possible $40 million Alaska gas pipeline, and to settle a contentious lawsuit with the state of Alaska over Point Thomson, a gas and condensate discovery east of Prudhoe Bay.

Minge made his comments in an interview March 14.

Alaska Gov. Sean Parnell has asked the companies to reach an agreement to work toward the pipeline by the end of March, and to agree on a project plan by the end of September. Settlement of the Point Thomson litigation is also needed, the governor said.

“We’re on track to meet the governor’s milestones,” Minge said. ConocoPhillips spokeswoman Natalie Lowman said her company agrees that important progress is being made in talks among the three major producers.

Parnell met with chief executives of BP, ConocoPhillips and ExxonMobil in Anchorage in early January and laid out milestones in his State of the State speech to the legislature in mid-January. The governor favors a large liquefied natural gas export project but left it to the companies to decide the location of the LNG plant, either at Valdez or at a Cook Inlet location.

Parnell also asked the companies to settle the lawsuit that has developed over disputed work commitments at Point Thomson. The state reached agreement with ExxonMobil, a major Point Thomson lease owner, last September but BP, Chevron and ConocoPhillips, which also own leases in the field, have yet to sign off on the deal.

Point Thomson must be settled before any substantial progress can be made on the pipeline because about one fourth of the 35 tcf gas reserves on the slope needed to support the project, about 8 tcf, is in that field. The remainder of the gas is in the Prudhoe Bay field.

Minge also warned that the state Legislature must reduce taxes on oil production, an issue the Legislature is now wrestling with, before a large gas project can move forward. Gas production depends on the underlying oil business to be healthy because that supports the production infrastructure on the North Slope, he said.

"We've made a lot of progress on the big issue, which is an alignment among the three companies and the state of Alaska," as well as the Point Thomson settlement, Minge said in the interview.

"The big question is still where the market is for the gas. It's apparent that there are challenges now for a line to the Lower 48," he said.

Minge said he personally believes a large Alaska liquefied natural gas export project can now be competitive, but the three companies are still exploring all options. Whatever the option selected, “we’ve got a lot of work to do. This is a $40 to $50 billion project,” he said.

Parnell had asked the companies to consider an LNG project instead of a pipeline to Alberta to link with existing pipelines to supply gas to the continental U.S.

The shale gas glut has diminished prospects for that project, which is being worked in by TransCanada Corp. and Exxon Mobil Corp. BP and ConocoPhillips had their own competing pipeline plan, the Denali project, but dropped it because of lack of customers.

Parnell said he believes the Asia LNG market is strong enough to support an Alaska project.