Engineering News

BP, ConocoPhillips Tout Denali JV
Friday, July 11, 2008

Bud Fackrell says the Denali pipeline project proposed by oil giants BP PLC and ConocoPhillips is not a publicity stunt to sway lawmakers away from backing off a proposal by TransCanada Corp.

On Thursday, he tried to convince skeptical state lawmakers that the joint project is legitimate and on a progressive track this summer.

Fackrell, president of the joint venture, addressed them during a legislative hearing on Gov. Sarah Palin's gas line proposal.

Denali is a competing project to Palin's preferred choice, the one proposed by TransCanada Corp. under the state's Alaska Gasline Inducement Act.

Lawmakers have until Aug. 2 to support or reject Palin's recommendation to award TransCanada an exclusive license to TransCanada.

The joint venture came to the party late--about four months after TransCanada submitted its proposal under the AGIA guidelines--but some lawmakers say the project should not be dismissed.

Lawmakers backing the oil companies' effort say they favor this plan because it doesn't require the $500 million in seed money that would go to TransCanada Corp. along with the exclusive license to pursue federal permits.

Doubters say the Denali project sorely lacks details and information, and they wasted little time in questioning the company's intent.

"What I see from Denali is an awful lot of money spent on full-page ads describing a wonderful company who is going to make great opportunities for the state," said Rep. Carl Gatto, R-Wasilla. "I don't have any comfort at all in the ads.

"My feeling is that the public may be getting the exact same feeling, that they are splashy ads. They look good, but they have no substance to them. I want to see an action plan."

Fackrell stressed that Denali is a separate pipeline company and deferred questions about fiscal issues related to natural gas production, royalties and taxes to the parent companies.

Fackrell stuck to a script, reiterating the company's intent to spend up to $600 million on field and engineering work toward a time when it solicits long-term commitments from companies to ship gas; this is known as an open season.

In short, Fackrell told doubters to wait and see.

"I'm not asking you to trust me; I'm asking you to watch me," Fackrell said. "Both of my owners have been here 50 years."

Sen. Bill Wielechowski, D-Anchorage, asked why the Denali project offers no guarantees of progress toward construction or long-term commitments from the oil producers seeking to build the pipeline.

"We've got written commitments; we've got penalties," Wielechowski said of the plan under which TransCanada seeks a license. "We don't have that with Denali. Can you give us any guarantees?"

Fackrell said the commitments are in place and in practice with workers in the field right now.

"The commitment I'd like to give you is this company was formed by two major producers in the state," Fackrell said. "We've stated from the very beginning we are committed to having an open season by 2010. I'm spending $40 million this summer."

Rep. Mike Doogan, D-Anchorage, wasn't satisfied and provided the strongest push back.

He said cost overruns on the producer-constructed, 800-mile trans-Alaskan oil pipeline more than 30 years ago should be a red-flag to anyone backing a line owned by the North Slope leaseholders.

"I'm going to assume that your company is a real company, and frankly that scares me," Doogan said. "When they were finished, the cost overruns were, the kindest number I've seen was 800 percent, but I think the real number was 1,000 percent.

"So I've got some concerns about the majors' abilities to build a pipeline at anything like the initial cost estimates ($30 billion). How much experience does your project team have in building pipeline these kind of projects in a regulated environment like North America."

Fackrell cited the two companies' ownership of more than 50,000 miles of pipeline worldwide, while pointing out BP's pipelines in the Caspian Sea and the Gulf of Mexico as examples of strong project development.

"We are in the business of building projects; that's what I do," Fackrell said. "The companies that can build the pipeline the most efficiently for you are these two companies who have operated on the North Slope for 50 years.

"We know the North Slope. We've proven we can do it. If any two companies can pull it off within the cost estimates, it's these two companies."

Sen. Bert Stedman, R-Sitka, said BP and ConocoPhillips wouldn't risk credibility loss and potential shareholder backlash by investing time and money on a ruse.

"For publicly traded corporations, they would have a whole litany of legal issues if they were running a sham and running a shell corporation to do nothing but running interference," Stedman said. "Not only would they have to answer to shareholders, they'd have to answer to people of the state and federal regulators, recognizing they could still terminate the project if it's deemed uneconomical."

Source: AFX News Limited

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