January 4, 2008 / 2:57 AM / 12 years ago

Alaska to support LNG exports for Conoco, Marathon

ANCHORAGE, Alaska, Jan 3 (Reuters) - ConocoPhillips (COP.N) and Marathon Oil (MRO.N) have pledged to supply natural gas to Alaska utilities and help develop Cook Inlet gas projects in exchange for state support of their liquefied natural gas export license, Gov. Sarah Palin said on Thursday.

The two companies want federal approval of an extension to 2011 of a license to export liquefied natural gas (LNG).

ConocoPhillips and Marathon operate the only LNG export processing plant in North America on Cook Inlet at Nikiski in south-central Alaska.

“We’re pleased to announce that the state has reached an agreement with the owners of the LNG plant on key objectives that help ensure both energy supplies and energy security for south-central (Alaska),” said Palin at a news conference.

As a result of the agreement, ConocoPhillips and Marathon have said they will each drill in 2008 new wells in the Cook Inlet.

The Nikiski plant, called the Kenai LNG Facility, opened in 1969. It processes about 40 percent of Cook Inlet’s produced natural gas and exports the equivalent of about 150 million to 200 million cubic feet a day to Tokyo Electric Power Co (9501.T) and Tokyo Gas Co (9531.T).

The plant’s export license expires in 2009. ConocoPhillips and Marathon applied a year ago to the U.S. Department of Energy for a two-year extension of that license.

Cook Inlet, Alaska’s oldest producing oil and gas basin, is small compared to huge fields and reservoirs of the North Slope of Alaska, about 700 miles north. But its relatively modest natural gas output is critical to fueling the state’s most populous areas, including Anchorage.

Selling LNG in Alaska is not always profitable and the price fluctuates wildly, but the companies make money exporting LNG. Alaska held off support for the export license until the companies said they would ensure supply for Alaskans, and give them preference during peak winter demand.

The state had not explicitly opposed an extension of the export license in the past, said Marty Rutherford, deputy commissioner of the Alaska Department of Natural Resources. But it had withheld support until there were solid commitments from ConocoPhillips and Marathon to supply local utilities and to encourage new Cook Inlet development.

Assurances that the LNG plant will continue operating will encourage renewed exploration in Cook Inlet, officials from the companies said.

As a result of the agreement ConocoPhillips is planning on boosting Cook Inlet drilling activities, said Jim Bowles, president of ConocoPhillips Alaska Inc.

The company is considering moving a rig to the Beluga field to drill two wells this year, the first new wells in 10 years, and may drill two or three more wells from its offshore Tyonek platform, the first such wells there in five years, he said.

“Already, it’s kicking off new plans and new thinking as far as gas development,” Bowles said at the news conference.

Marathon will drill at least five wells over the next year, and probably more, as a result of the agreement, said Steven Hinchman, the company’s senior vice president of worldwide production. (Editing by Bernie Woodall and Carol Bishopric)

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