In the first of sporadic teleconferenced “Afternoons with Archie,” Conoco CEO Archie Dunham last Thursday said he finds current natural gas prices “disconcerting,” but was pleased about last week’s electric demand on the East Coast and added he continues to remain “very bullish” on natural gas in the immediate and near terms. Dunham, who had no planned agenda during the 20-minute call, also said that the company’s second quarter earnings had made him “cautiously optimistic” about the rest of the year.

“Gas price depends on the amount of electric demand…which is gone in the last part of August, maybe September,” which then determines “if we have a winner,” Dunham said of current prices. “Ninety days ago, we were very, very concerned about natural gas,” and that scenario has changed with storage at an all-time high. He predicted that natural gas prices could drop in the next two weeks, but said he expected gas to hover around $3.50 in the short term.

Asked about budget plans, Dunham said the board would begin working on next year’s plan in about six weeks, but added that he had no “killer concerns” about what the company faced. “We’re going to have a great 2001,” he said, referring to his optimism about OPEC putting together what he called a cohesive crude oil policy in a region where Conoco holds extensive acreage. He also discounted a question about Conoco’s lack of exploration thus far in 2001, stressing that most of the planned E&P was set for the second half of 2001 — a decision made last year.

“We’ve had a highly sensible exploration program for five years,” said Dunham. Referring to the company’s average 70% success rate, he noted there had been 28 successful wildcats worldwide in the past three years. “We are still very bullish on exploration in 2001…(there will be some) exciting wells drilled in the last half of the year,” including some in the deepwater Gulf of Mexico. “It has been planned that way for 12 months,” he said.

Although he made no reference to it and no questions were asked about it, at a news conference in Calgary on Wednesday Dunham had said that the new Conoco Canada Ltd., formed since the company’s takeover of Gulf Canada Resources Ltd., had to have a stake in the Mackenzie Delta pipeline — even though aboriginal groups were demanding 100% ownership of the proposed pipe. Dunham said the company, which employs about 1,200 former Gulf Canada employees, would be a more active proponent in developing Canadian Arctic gas than its predecessor.

A top priority for the new Conoco Canada, said Dunham, would be to bring Mackenzie Delta gas to market in four to six years, if possible. The Mackenzie Delta producers’ group, which now includes Conoco, is led by Imperial Oil Ltd., and it wants a two-thirds ownership in the pipe. However, it has to have unanimous aboriginal support before it can proceed with construction of the estimated C$3 billion project. Some aboriginal groups are balking at only a partial ownership.

Dunham told reporters he was taking a hard line on the Mackenzie Delta project because of problems Conoco had in the early 1990s in Alaska when it did not get what he thought was full value for its resources because it did not have a stake in the Trans-Alaska pipe.

“The owners of the pipeline, by adjusting the tariffs on the pipeline, could diminish the value of the producing properties, and that’s not going to happen again,” Dunham said. Three weeks after the C$9.8 billion (US$6.3 billion) takeover deal won Canadian government approval and closed on stock exchanges, Dunham declared bringing Mackenzie Delta gas to market to be Conoco’s “number one priority,” and said “the market needs it so we need to strike while the timing is good.”

Gulf Canada ranked second only to Exxon Mobil’s 70%-owned Imperial Oil as an owner of gas properties in the Canadian Arctic. At last count, Conoco’s newly-acquired Canadian assets included 4.2 Tcf of gas reserves in the Delta-Beaufort Sea region, plus extensive holdings of undeveloped drilling prospects. However, the northern reserves do not figure formally on the Canadian companies’ books because they are beyond economic reach in the absence of a pipeline. The last count was in 1989, when the National Energy Board granted Gulf, Imperial and Shell Canada an export license for 10.4 Tcf of Delta-Beaufort reserves. At the time, the NEB’s count was Imperial 5.1 Tcf, Gulf 4.2 Tcf and Shell 1.1 Tcf.

The license expired last year, but not the policy underlying it. The ruling was an early test of Canada’s commitment to energy free trade, following a 1987 decision to end a decades-old practice of holding up to a 30-year supply for domestic consumers off the international market. The 1989 ruling still stands in spirit as a declaration that the Arctic supplies are considered surplus to Canadian needs and available for long-term export commitments. Under current NEB policy, Canadian consumers could only change that view by proving they cannot obtain supplies on comparable terms with U.S. buyers.

Dunham vowed to go to bat for a pipeline link to the Canadian Arctic recently in Washington, DC, where he said he has the connections to make the case heard. “I’m personally a big supporter of President Bush and I’m a good friend of Vice President Cheney, and we’re going to use those relationships to try to accelerate the pipeline schedule.”

Said Dunham, “I think this is going to be a political issue to be settled politically. The producers will be very supportive and I think we are going to be able to put together a project that is good for Alaska, good for the United States, good for Alberta, good for Canada, good for the environment and good for aboriginal peoples,” he said.

Conoco Canada’s newly-appointed president, Henry Sykes, said that north of the border, “I think at some point the federal government is going to have to come on board and say Canada is best served by a pipeline down the Mackenzie Delta and by Canadian reserves.”

While Dunham said he could see the day when pipeline connections to Alaskan as well as Canadian Arctic gas will be needed, he noted is not coming soon enough to build both routes simultaneously. He also suggested that no potential route is dead, including the contested “over-the-top” proposal for a line on the floor of the Beaufort Sea to connect Alaskan and Canadian supplies.

Dunham, echoing Canadian counterparts including Anderson Exploration founder J.C. Anderson, described this summer’s retreat by gas prices into the range of US$3/MMBtu as a passing market adjustment that does not eliminate the known need for long-term additions to North American supplies. Conoco also set its sights on owning an interest in a northern pipeline that reflects its share in reserves and production, in order to protect its interests when transportation services and rates are established.

The Conoco CEO also stressed that other Arctic proposals, including the North Slope proposals under consideration by producers, including a group formed by Exxon Mobil, BP and Royal Dutch/Shell Group, had to work together to develop the resources in both Alaska and Canada. And, he said, the Mackenzie pipe had to be part of the overall plan. “I cannot imagine a politician in Canada agreeing to a pipeline route that did not include Mackenzie Delta gas.”

The Exxon-BP-Shell group is close to completing a $90 million study of two possible routes for a pipe from the Alaska North Slope to the Lower 48, only one of which goes through the Mackenzie Delta. Speaking at the Rocky Mountain Natural Gas Strategy Conference last Tuesday, Robert Malone, regional president of BP, said that in the “next couple of months,” the group plans to begin providing data “so that people can begin to see what we see, even though it’s going to be incomplete.”

The North Slope pipe proposals include a route that would travel the Trans-Alaska Highway, down through the Yukon and into British Columbia and Alberta, with interconnects to the Lower 48. Another route under study would travel from the North Slope to the Mackenzie Delta, down into the Northwest Territories and eventually into Alberta. It would include an underwater segment through the Beaufort Sea.

©Copyright 2001 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.