ConocoPhillips and its consortium partners expect to submit regulatory applications this year for the $3 billion (C$4 billion) proposed Mackenzie Valley project, the company said in a regulatory filing Tuesday. The project, which has been anticipated for several years, would be Canada’s first Arctic natural gas pipeline.

ConocoPhillips offered few details in its Form 10-K Annual Report filing with the Securities and Exchange Commission. However, the Houston-based company said the application would be made this year following work with consortium partners that include Imperial Oil Ltd., Shell Canada Ltd. and ExxonMobil Corp.

“In June 2003, we and our co-venturers in the Mackenzie gas project in Canada announced that funding and participation agreements have been reached and a preliminary information package was submitted to relevant regulatory authorities. The Mackenzie gas project involves natural gas production facilities, compression and gathering pipelines in the Mackenzie Delta area, and a pipeline system in the Mackenzie River Valley. The filing of the information package is a key step in the process leading to the submission of applications for the development of the natural gas fields and pipeline facilities. Regulatory applications are expected to be filed in 2004. First gas production is currently targeted to commence in late 2009.”

Last year, an agreement was struck between the Canadian government and the Deh Cho First Nations to combine environmental protection and participation in industry across ancestral lands in the southern Northwest Territories, which, in turn would enable a gas line to be built (see NGI, April 28, 2003).

Overall, ConocoPhillips’ Exploration & Production (E&P) unit has set a 2004 capital budget for continuing operations of $5.4 billion, 19% higher than actual expenditures in 2003. About 26% of E&P’s 2004 capital budget is planned for the United States, with 46% of that slated for Alaska.

“We have budgeted $628 million for worldwide exploration capital activities in 2004, with 17% of that amount, $106 million, allocated to the United States. Outside the United States, significant exploration expenditures are planned in Kazakhstan, Venezuela, the United Kingdom and Norway.

“We plan to spend $656 million in 2004 for our Alaskan operations. A majority of the capital spending will fund Prudhoe Bay, Greater Kuparuk and Western North Slope operations — including additional work on the Alpine capacity expansion project, Orion and West Sak field developments — construction of Endeavour Class tankers, and the exploratory activity,” the company said.

In the Lower 48, “offshore capital expenditures will be focused on the continued development of the Magnolia, Ursa and Princess fields in the deepwater Gulf of Mexico. Onshore capital will focus primarily on developing natural gas reserves within core areas, such as the San Juan Basin of New Mexico and the Lobo Trend of South Texas.”

The latest SEC filing also detailed what ConocoPhillips expects production-wise this year. After adjusting for asset sales, the major said 2004 worldwide production levels will be flat compared with last year. There will be increases, in the Asia Pacific and Latin America, however, they are expected to offset net declines in the United States, Canada and the North Sea.

According to the filing, ConocoPhillips’ anticipated asset sales this year contributed approximately 37,000 boe/d to 2003 production. Last year, the Houston-based producer averaged 1.56 million boe/d, excluding asset sales.

ConocoPhillips also noted that it expects crude oil and natural gas prices to remain elevated through at least the first six months of this year. Worldwide, ConocoPhillips said its average crude oil sales price increased 14% in 2003 to $27.47/bbl, while gas sales prices jumped 47% to $4.07/Mcf.

“U.S. natural gas prices weakened moderately during the second half of 2003 from the very strong levels experienced during the second quarter, but the annual average was significantly higher in 2003 versus 2002,” the filing noted. “Prices weakened in the second half due to a strong buildup of natural gas inventories during the summer and early fall, as mild weather, weak industrial demand and fuel switching reduced natural gas demand. At the same time, high prices and the startup of a mothballed regasification terminal increased LNG imports to the United States. However, natural gas prices rose moderately in December, reflecting continuing concerns about the adequacy of gas supplies in the United States. Supply adequacy concerns are expected to keep prices above historical levels in 2004.”

Planned asset sales for the year include some midstream assets in the Lower 48 states that are not connected with any exploration and production operations, as well as more gas stations. Agreements struck in January to sell gas stations on the East Coast are expected to close in the second quarter.

The company’s restructuring program, prompted by the merger of Conoco and Phillips Petroleum in September 2002, is expected to be completed by the end of the first quarter of 2004, according to the filing. By the end of last year, about 3,000 employees had lost their jobs, with 900 more slated for termination.

ConocoPhillips said its midstream segment’s results are most closely linked to natural gas liquids prices, with the most important factor on the profitability of this segment being the “results from our 30.3% equity investment in Duke Energy Field Services, LLC (DEFS). Higher natural gas liquids prices improved results from this segment in 2003.”

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