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The Alliance ‘Meet Alaska 2003’ 20 th Annual Conference A Capital Market Perspective on Alaskan Energy Issues Thomas A. Petrie, CFA. January 22, 2003. PETRIE PARKMAN & Co. Topics. Commodity Market Environment U.S. Energy Policy Initiatives Capital Market Drivers

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Presentation Transcript

The Alliance ‘Meet Alaska 2003’

20th Annual Conference

A Capital Market Perspective

on Alaskan Energy Issues

Thomas A. Petrie, CFA

January 22, 2003

PETRIE

PARKMAN & Co.


Topics

Commodity Market Environment

U.S. Energy Policy Initiatives

Capital Market Drivers

Alaskan Energy Issues

Conclusions

PETRIE PARKMAN & Co.

i


The Geopolitical Backdrop

  • Iraq

  • Venezuela

  • Saudi Arabia

  • OPEC Dynamics 2003-2007

  • Russia

  • Iran

PETRIE PARKMAN & Co.

1


Commodity Market Environment

PETRIE PARKMAN & Co.

2


World Oil Production – “Hubbert’s Peak”

Predicted production curve

Results match Hubbert’s prediction

Source: Deffeyes, K.S. (2001), Hubbert’s Peak

PETRIE PARKMAN & Co.

3


OPEC Production and Capacity

PETRIE PARKMAN & Co.

4


Commodity Market Environment

PETRIE PARKMAN & Co.

5


U.S. Gas Rig Count vs. 12- Month Gas Strip

Week Ending 1/17/03

1,100

$6.75

1,000

$5.75

900

800

$4.75

Gas Strip ($/Mcfe)

U.S. Gas Rig Count

700

$3.75

600

500

$2.75

400

300

$1.75

01/03/97

03/14/97

05/23/97

08/01/97

10/10/97

12/19/97

02/27/98

05/08/98

07/17/98

09/25/98

12/04/98

02/12/99

04/23/99

07/02/99

09/10/99

11/19/99

01/28/00

04/07/00

06/16/00

08/25/00

11/03/00

01/12/01

03/23/01

06/01/01

08/10/01

10/19/01

12/28/01

03/08/02

05/17/02

07/26/02

10/04/02

12/13/02

Gas Rigs

Gas Strip

PETRIE PARKMAN & Co.

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Lower – 48 Resource Pyramid (Technically Recoverable)

… increasing development costs, increasing technology needs, and increasing uncertainty

In general, movement down the pyramid involves decreasing concentration

Cum Production

881

Reserves- 157

Reserve Appreciation-305

New Fields- 633

Tight Gas 230

Coalbed Methane 74

Shale 52

356 Tcf

Unassessed Portion of Coalbed Methane, Shale

and Tight Gas (300-500?)

(in Tcf)

Geopressured Brine – Up to 24,000 Gas in Place

> 50% of new fields

Gas Hydrates- Up to 300,000 Gas in Place

PETRIE PARKMAN & Co.

7


U.S. Energy Policy

  • Alaska Initiatives Are Likely

  • Gas Development Initiatives Likely

  • LNG to Have a Role?

  • Conservation and Alternative Supply Measures Will Probably be Required to Achieve Actual Passage of an Energy Bill

PETRIE PARKMAN & Co.

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The Longer Term North American Gas Supply Solution

North Slope LNG ?

North Slope Gas

Mackenzie Delta Gas

LNG

Everett

Cove Point

?

LNG to U.S. West Coast ?

Elba Island

LNG

Baja

Lake Charles

LNG from Asia

LNG

LNG

9

PETRIE PARKMAN & Co.


Capital Markets Drivers-

Post Enron & the Iraqi Confrontation

  • Global Economic Malaise

  • Partisan Politics Reigns – 2004 Presidential Campaign is Underway

  • Unsettled Regulatory Framework

  • Continuing Trend of Corporate Consolidation

  • Impaired Capital Formation

PETRIE PARKMAN & Co.

10


Industry Consolidation Trends

  • Conventional resource maturity is a looming reality

  • Production shortfalls are causing majors to undertake significant shifts in their upstream strategies (i.e., focus on ROCE versus production growth)

  • BP / Apache transaction provides the “green light” for additional divestitures by other majors; regional buyers’ markets may develop

  • E&P property divestitures and geographic portfolio realignments likely to accelerate over the 2003-2005 period

  • For the foreseeable future, the independent sector will be characterized by continuing corporate consolidations alongside noteworthy property acquisition transactions

PETRIE PARKMAN & Co.

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North Slope Reconfiguration

New Millennium Players

Mid – ‘90’s Players

British Petroleum

ARCO

Exxon

Mobil

Amerada Hess

Phillips

Unocal

Chevron

Amoco

Oxy

BP

ConocoPhillips

ExxonMobil

Anadarko

Pioneer

Armstrong

Burlington

EnCana

TotalFinaElf

Unocal

ChevronTexaco

PETRIE PARKMAN & Co.

12


Why Capital Formation Is Impaired

  • A “crisis of confidence” continues to impact many if not most investment decisions

  • Extreme sensitivity to corporate governance and management compensation at a time of rapid and unpredictable change in rules and procedures

  • Commodity prices ( particularly oil ) are perceived as more likely to fall than rise, engendering concern about a related decline in energy equity values

  • Investors in recent new issues have not been particularly rewarded for the incremental risk

  • Reacting to the meltdown in the merchant power and pipeline businesses, rating agencies and lenders are behaving much more conservatively

  • A wide gap in the perception of value exists between company management and investors

PETRIE PARKMAN & Co.

13


Alaskan Energy Issues

  • NPRA

  • ANWR

  • North Slope Gas Development

  • Emerging Role for Independents?

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ANWR

  • Highly Politicized ( “Environmental Poster Child” )

  • Meritorious Arguments Lack Lower 48 Traction

  • Exploitation Time Frame Well Beyond Attention Span of Capital Market Decision Makers

  • Perception of Preferable Alternatives

  • Significant Congressional Action Unlikely ( Pre 2004 Election ) Absent a Major Supply Crisis

PETRIE PARKMAN & Co.

15


North Slope Gas Development

  • Stage Set by a Looming Lower- 48 Supply / Concerns

  • Pipeline vs LNG Options?

  • Possible Bi-Partisan Political Support for the Pipeline Option (at a Price)

  • LNG Competitiveness vis a vis Pacific Basin Sources?

  • Canadian Gas Development Issues

  • Gas Pipeline Financing Incentives / (Wellhead Price Protection?)

  • Capital Availability

PETRIE PARKMAN & Co.

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Conclusions

  • The Petroleum sector is on the threshold of the most challenging operating environment seen since the 1970’s

  • Oil and gas companies need to be able to operate in and cope with a wide range of commodity price scenarios

  • Restoration of reliable North American gas supply will require timely execution of an Alaskan gas pipeline complemented by significant LNG projects

  • Capital markets are only now beginning to focus on the looming challenges facing the petroleum sector

  • Alaskan petroleum supply competitiveness faces noteworthy global pressures

PETRIE PARKMAN & Co.

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