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ConocoPhillips CEO: ExxonMobil Wanted as Partner in Alaska Gasline

ConocoPhillips CEO Jim Mulva is hoping ExxonMobil Corp. joins his company and BP plc on the proposed $30 billion Denali pipeline project, which would connect natural gas fields in Alaska's North Slope to the Lower 48.

BP, ConocoPhillips and ExxonMobil are the three biggest oil and gas producers on the North Slope, but all of their attempts to move a gasline forward have come to naught. Earlier this month BP and ConocoPhillips unveiled Denali -- The Alaska Gas Pipeline, which would carry up to 4 Bcf/d from the North Slope (see NGI, April 14).

ExxonMobil in March had told Alaska officials that it planned to be a co-owner in an Alaska gasline to the extent of its share in the system's throughput. And an ExxonMobil spokeswoman told NGI earlier this month that the company had been invited by the Denali partners to participate in the project but it had not had enough time to consider it before BP and ConocoPhillips made their announcement. In the meantime state officials last week rejected ExxonMobil's latest plan for development of the large oil and gas Point Thomson Unit, a move that continues the long-standing battle with the producer (see separate report, this issue).

Mulva Thursday made clear during a conference call with financial analysts that he expected ExxonMobil to be an active participant in the Denali proposal.

"Obviously it makes a lot of sense for all of us to work be a participant, so we continue to work very closely obviously with BP, but we also work closely in everything that we do with ExxonMobil," Mulva said when asked about the project. "So hopefully in time I would like to see and would hopefully expect...that all three producers are part of the project."

As to the project's actual costs, BP and ConocoPhillips are using "old studies from years ago," Mulva said. "We are working on it very hard, with BP, about what the cost structure is going to be, based on the environmental work, the permits, working towards an open season. We really have only old numbers, and we have to do the work to get the cost structure."

In any case, "from the time we are right here, it will take 10 years...10-plus years" to get the Alaska gasline built, he said. "But we've got to start now, and that's what's being done with BP. "In the next year, or two years-plus," Mulva thought better cost estimates and a time line could be completed. The CEO also said he believed the long-proposed Mackenzie Gas Project, which would carry gas from Canada's Mackenzie Delta south, could be built before the Alaska gasline (see related story).

On nearly every measure the Houston-based oil major delivered a solid quarter. Net income was $4.14 billion ($2.62/share), compared with $3.55 billion ($2.12) in 1Q2007. Revenues totaled almost $55 billion, well ahead of the $41.3 billion a year earlier.

The higher revenue, boosted by strong oil and gas prices, won't lead to increased capital spending, said the CEO. ConocoPhillips has budgeted $15 billion for its capital program this year and in 2009.

"Our capital expenditure as we look at 2008 and 2009 it's still going to be around $15 million dollars," said Mulva. "It may be higher because of cost pressures...If we find at the end of the year that we have more cash flow it's not really going be going toward capital spending; it's going to be toward more distribution to shareholders in a form of share repurchases."

With the "right opportunity," Mulva said the capital budget could be increased to $1-2 billion in 2009.

Daily production from the company's exploration and production segment, including Canadian Syncrude and excluding LUKOIL, averaged 1.79 million boe/d, down sequentially from 1.84 million boe/d in 4Q2007 and the 2.02 million boe/d reported in 1Q2007.

Mulva blamed the production declines on an unplanned shutdown of a nonoperated natural gas processing facility in the San Juan Basin (see NGI, April 7). In addition, volumes were negatively impacted by the absence of one-time 4Q2007 natural gas liquids volume adjustments in the Lower 48. The decreases were partially offset by higher production in the Timor Sea.

U.S. gas production fell in the quarter from a year earlier, which again, Mulva said was partially related to the San Juan facility outage. Total U.S. gas output was 2,063 MMcf/d, down from 2,312 MMcf/d in 1Q2007. Alaska gas production in the first three months fell to 100 MMcf/d from 122 MMcf/d; Lower 48 output dropped to 1,963 MMcf/d from 2,190 MMcf/d.

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