Conoco, Marathon Agree To Gas Deal With Alaska

ConocoPhillips (COP) and Marathon Oil Corp. (MRO) have agreed to drill for natural gas in exchange for the state of Alaska's support of the companies' application to keep exporting Cook Inlet natural gas to Japan or other countries, The Anchorage Daily News reported on its Web site Friday.

Alaska Gov. Sarah Palin said the agreement will benefit the state and its residents in several ways. Not only does it secure local needs but also requires that Conoco and Marathon - the companies that own the liquid natural gas plant on the Kenai Peninsula - develop additional natural gas reserves in Cook Inlet, the newspaper said.

In return, the state is supporting a two-year extension of the federal export license for the Nikiski plant, The News said. The plant converts about 150 to 200 million cubic feet of gas into liquefied natural gas each day. All of it is sold to electric utilities in Japan. It is the only LNG export plant in North America.

The agreement gives other Cook Inlet gas producers the opportunity to use the plant to process their gas, and Conoco and Marathon also have agreed to sell valuable seismic and well data to other companies looking to develop Cook Inlet gas, The News reported.

The newspaper said the U.S. Department of Energy must still approve the export license. It would be effective through March 2011. The current export license expires in 2009.

Jim Bowles, president of Conoco Alaska, said Conoco has agreed to drill two new wells in Cook Inlet in 2008. Marathon will drill at least five wells, company executives said, The News reported.

It also reported that the agreement requires the companies to negotiate with Enstar Natural Gas Co. and Chugach Electric Association to satisfy local gas needs.

If certain local gas supply milestones are not met, the companies will reduce exports. They also have agreed to purchase natural gas from other producers when practical to produce LNG at the plant.

Copyright (c) 2008 Dow Jones & Company, Inc.


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