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AK Oil Hunter Q&A with James Bowles of Conoco Phillips AK(president). some highlights

But Bowles, in an interview last week, cited many pressures facing his company, including the struggle to maintain production and to fight off new state taxes.

i wonder how often this happens

Q. Tell me about the company's exploratory drilling this past winter.
A. We've just finished up our exploration program this year. We've claimed for some time that we're the No. 1 explorer in the state, and this past year wasn't anything different. We ended up participating in four exploration wells on the Slope, which is a good season. With those four wells, we probably spent a little over $40 million. Two of those wells were out in the National Petroleum Reserve-Alaska. We went 70 miles into NPR-A, the farthest we've ever gone with ice roads in any one season.

Q. So what did you find out there?
A. Well, we found a bunch of rock that we drilled through (laughing).

Q. Okaaay.
A. You may have to wait a year or two before you get the announcement on what happened there. Aside from the drilling, we participated in two seismic surveys this past winter in and around the Kuparuk field. We ended up capturing about 500 square miles of seismic data.

Q. Is that a lot?
A. It's a lot. It's huge. Much more than usual. It's $30 million worth of seismic.

Q. Why did you do it?
A. What we're looking for now is not only the big plays out in NPR-A but smaller oil development possibilities around Kuparuk. One big plus about doing seismic work in that area is you can develop prospects quickly. We may be drilling as soon as next year.

Q. Well, Kuparuk is a declining oil field but you've got big processing plants and pipelines there that I imagine you'd like to keep filled with oil.
A. That's right. Exactly.

Q. Conoco just came out with its first-quarter results and generally the numbers are very positive. I'm wondering, however, about the line showing that "exploration charges" in Alaska jumped from $17 million last year to $85 million this year. What's that about?
A. Since 2000, when we really started actively exploring NPR-A, we've spent well over $200 million. Some of those dollars found some successful potential developments, and some didn't. We've had some dry holes, and that's what you're seeing, some dry-hole write-offs.

Q. That suggests the risk of your business, I suppose.
A. You hit the nail right on the head. It's easy to point to $50 oil. But when you look at the risk and what we're spending that we never see a dollar return on, that's the sort of thing that's really missed a lot of times in our business. If all of our wells were successful, we would have been hugely successful, but we have a lot of activity that never goes anywhere.

Q. Not only that, if all of your wells were successful, I might start a little company myself.
A. (laughs) That's exactly what would happen. That's right.

hmmm..interesting

Q. Your predecessor, Kevin Meyers, told me last year the company hoped just to hold its Alaska production steady. Any change in that outlook?

A. Maintaining flat production on a 20-year-old oil field is a monumental task. We'll continually reinvest just fight to maintain that flat oil production.

We've had a slight decline over time, and short of new field discoveries, it's hard to turn that around to any large degree. Right now, off the Slope, we're the top producer of oil. We're doing about 335,000 barrels a day. In Cook Inlet, we're the top gas producer, about 160 million cubic feet a day.

Wait...i thought oil fields last forever??

How do say PO w/o saying PO. Gee, I think he said it. Now if everyone would listen. Great find Tank, keep em comin.

new conocophillips commercial-just saw it on CNBC. i swear, i thought it was a recruitment commercial for the US navy at first..... there was a boat sailing through rough waters, a helicopter dropping supplies, and a bunch of people climbing up a rocky ledge.... i swear i thought they were SEALs until the conocophillips logo came on and i realized they were probably exploration geologists or something....

"we want YOU for conocophillips.... see the world.... great pay..... and no risk of getting killed by a suicide bomber! apply today!"

Conoco-Phillips has just announced a bid to buy Burlington Resources for $33.8 BILLION dollars(US)!. Burlington Resources is one of the largest producers of natural gas in the US and also has international operations in the North Sea, Algeria, Egypt, China, Peru, and Columbia. BR's stock has soared the last two days about $10/ share up to $86 today.

To me this is a clear signal that Conoco-Phillips sees that it is easier to buy natural gas reserves in the stock market than to spend the money in exploration and drilling in the earth.

The following article has some interesting commentary on the debate between those who think we are running short on natural gas and those like Conoco-Phillips who think the deal makes business sense even if natural gas is $5 per million BTU. Natural gas may be heading back down to $7-8 near term.

Per the quote from: http://news.moneycentral.msn.com/provid ... ID=5345720

"ConocoPhillips' purchase of Burlington confirms I think in the marketplace that reserves are extremely valuable, extremely scarce and easier to acquire in the stock market than they are with the drill bit," Tradition Capital's Halliburton said.

This bid has caused a run-up in prices of other companies with natural gas reserves in anticipation of bids by Big Oil to buy out other natural gas reserves.

very interesting indeed
it's the best investment they can make I suppose

From a Conoco ad in an issue of National Geographic:

It will take an estimated $250 billion to develop the domestic energy the nation will need during the next five years. Small companies can play a role in providing this energy, but many projects require the funds and technology that only large companies can furnish.

For example, in the Gulf of Mexico, Conoco and several other firms - large and small - are developing a petroleum field in over 1,000 feet of water, the deepest water in which petroleum has ever been produced. The total cost of this project will be some $800 million - the bulk of which will be provided by the larger companies, allowing the small firms to join a venture they could not handle on their own.

This year, Conoco expects to spend almost $1.5 billion - two-thirds of it in the United States - to develop energy and related petrochemicals. We also plan to put the additional income from decontrol of crude oil prices into developing more U.S. energy. At a time when some people would limit the size of energy companies, we think it is worth noting the vital contribution that large companies are making.

Date of pub: December 1979. Vol. 156, No. 6.
The more things change, the more they stay the same.

EB -

The exception to the rule you quote is maybe in this case the wholesale increase in Big Oil's propaganda quality and quantity -

For example, I greatly doubt you'd find a contemporary equivalent to this advert that mentions how
"some people would limit the size of energy companies" -
By modern standards that is poor propaganda.

And I'd not be at all suprised to find that the successor organizations to the now-defunct "Gloabal Climate Coalition"
(that comprised the oil majors, auto makers, coal owners and others,
whose function was to fund denial of GW via global propaganda, advocacy and obfuscatory research)
may now have paid hacks as members in key websites, as well as evidently funding shills to work the media to serve the oil corporations.

Fortunately, the bigger they grow, the less agile they become, and the harder they fall . . . .

regards,

Backstop

backstop wrote:The exception to the rule you quote is maybe in this case the wholesale increase in Big Oil's propaganda quality and quantity.

Yes, it also seems like oil propaganda these days is much more idealistic in nature, with taglines about the forthcoming scalability and deployment of hydrogen and biofuel technologies, seemingly accepting a more energy-intense future as a foregone conclusion. At least this 1979 advertisement set some relatively reasonable goals.

Just saw that statement on CNBC...no link yet.

From MSN:

"The improvement in 2005 from 2004 is attributable to extensions and discoveries from our legacy projects in Qatar, the United States and the Asia Pacific region, as well as our re-entry into Libya and our increased equity ownership in LUKOIL," Bill Berry, Conoco's executive vice president of exploration and production, said in a statement. "We remain committed to replacing reserves at competitive finding and development costs."

"The improvement in 2005 from 2004 is attributable to extensions and discoveries from our legacy projects in Qatar, the United States and the Asia Pacific region,

How much of the 230% is new oil?

as well as our re-entry into Libya and our increased equity ownership in LUKOIL,

This is just shifting your loose change from your pocket to your piggy bank. It doesn't change total world reserves. How much of the 230% is old oil?

They replaced it on paper - not production.

Figures lie and Liars figure. Doesn't mean anything until it comes out of the ground.

They key is how those reserves were aggregated. Rather than say we have increased reserves X amount from discovery and recovery, they put all the eggs in one basket, including acquisitions from other companies. Numbers game. Looks like that's a standard way to report though, from what I have seen in other company reports.

Thanks for the heads up on the Conoco story. It answered one of my
lingering questions -- where are the former Enron accounants now working.

Enron comes to mind. I no longer have any faith in corporations to tell us the truth, particularly the energy industry

What are the odds. I had 96 shares of COP at a cost bases of $58 dollars, sold it last friday at $61 and then some bastards in Nigeria start blowing crap up and then COP management decides to come out with the news that oh ya we replaced 230% of our reserves (too bad its mostly natural gas and not oil) and the stock goes up 2 bucks to $63. My timing is terrible. It was all set to fall too had the Nigerians kept there guns in their pants. I was planning on buying in again this week but now i've got to catch it on the way up and hope i don't get run over.

Enron comes to mind. I no longer have any faith in corporations to tell us the truth, particularly the energy industry

Enron and oil companies who report reserves are governed by different rules and laws. Before oil companies can book P1 reserves they are required now to have third party review by companies such as Ryder Scott, DeGulyer McNaughton sign off on those reserves. These third parties are now liable under law for their assessments. In the past third parties were often gently manipulated by O&G companies to be a little more aggressive in their reporting of P1 but given they can now be dragged into court there is very little room to move around the SEC definitions.

That being said you need to look at what their reserve adds really are. In Qatar they are talking about gas. This gas was discovered long ago...but they were not able to report the reserves as P1 until such time as they had full project sanction, government approvals and LNG contracts in place. Similarily much of the reserve adds in SE Asia are from Indonesia gas.....again the wells were all drilled a number of years ago but because the gas sales agreements were not completed until last year the reserves could not be reported. The reserve adds from Libya are truly old reserves, discovered prior to when Conoco and partners, Marathon and Amerada Hess (the old Oasis group) were tossed out of the country by Gadafi. These companies would have wrote those reserves off their books sometime after that and are now merely adding them back.

So in retrospect this is really not new adds but just gas projects which are now closer to realization and oil that they can add back to their books. From a go forward stance it looks good for COPI but in terms of making any difference to Peak Oil....sorry, zilch.

Rockdoc123,

I appreciate the details you add. In particular, the detail that these numbers don't really effect "oil", basically booking more gas. However, whether its SEC rules, old law, new law, personal liability, it doesn't matter. Ken Lay is being tried right now for criminal misleading investors under old SEC rules.

As you point out SEC rules have changed, but would the changes prevent fraud now? No. No amount of rule changes in history have ever prevented fraud. From the inception of the 10 Commandments, society has continually promulgated more and more laws to try and prevent the every so wily criminal mind from doing mischief - to no avail. No matter how many laws we pass, the Ken Lays and Enrons will find ways to mislead.

So, will these new SEC rules prevent fraud in the energy industry? No - or so says the history of mankind. From what I have learned from you and others regarding energy reserves, there is considerable "discretion" as to what constitutes P1, P2, P3 reserves that people, who wanted to mislead, could play with and mislead investors - Shell downgrades for example.
Since there is discretion in what constitutes P1,2 or 3 reserves, new or old SEC rules, there's always room for fraud. Independent auditors don't prevent this fraud, sometimes they participate in it, again, consider Enron.

I'm not saying that's the case here with Conoca, and from what you posted, probably not. But, what you say does nothing to assuage my loss of faith in corporate America to tell the truth and in particular, the energy industry. For example, the recent Denver power outages are interesting. Apparently, the company that is experiencing the natural gas shortages should have plenty of gas in inventory. Maybe the problem isn't with inventory, maybe its with delivery, I don't know. I simply use that as another recent example of an energy company that is having unexplained problems without good answers.

linear wrote:What are the odds. I had 96 shares of COP at a cost bases of $58 dollars, sold it last friday at $61 and then some bastards in Nigeria start blowing crap up and then COP management decides to come out with the news that oh ya we replaced 230% of our reserves (too bad its mostly natural gas and not oil) and the stock goes up 2 bucks to $63. My timing is terrible.

You should have listened to Jim Cramer who said COP has a long way to run yet. All the oil stocks will be going up. These companies own the only resourse more valuable than gold how can they now continue doing well.