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Tillerson Sure About Shale, LNG; Alaska Frustrates

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Exxon Mobil Chairman and Chief Executive Rex Tillerson is the recipient of this year’s Petroleum Executive of the Year Award, which he will receive at a dinner in his honor next month during the Oil & Money Conference in London. Tillerson met recently with Natural Gas Week to discuss the current state of the oil and gas industry and the outlook for the future. The story of the unconventionals and shales has been some of the best news to come out of North America in decades, and Exxon Mobil Chief Executive Rex Tillerson is an enthusiast – within reason. "The resource base has been well established,” Tillerson told Natural Gas Week. “It is there, there’s no question it’s there, and we understand what it takes to develop it. People will continue to get the unit cost of that development down. It will compete.” Not all parts of all plays will be competitive at all prices, he admits, but a significant part will be. Exxon should know, he continued, as the company is a major holder of unconventional assets in the US, “and they are profitable at today’s prices.” That is not true for all operators in all plays, he cautioned. “The unevenness of how all this emerges is more of a cash flow issue than it is the quality of the investment opportunity. People are just going to have their cash flows out of whack for a while until it irons out. But it’s here, it’s proven, it’s reliable.” The success of the North American tight oil and unconventionals has demonstrated that the resource base is enormous, Tillerson continued. Not only does the technology to develop it exist, the cost curve is going down and likely will drop further. This price decline “will probably stimulate even further efficiencies,” the Exxon chief said. “It is recognized that it is not going to go away.” LNG Giant Exxon was not in the LNG business until its 1999 merger with Mobil took it to Qatar, now the world’s largest LNG exporter. Exxon’s participation there has made it one of the world’s largest LNG players, and today, the company has nine more projects around the world in various stages of development (NGW Jun.15'15). Three are in North America: Alaska LNG, West Coast Canada LNG (WCC LNG) and Golden Pass LNG. Alaska LNG is a joint venture with BP, ConocoPhillips, TransCanada and the state of Alaska. WCC LNG is a partnership with Exxon’s 70%-owned Canadian affiliate Imperial Oil. Qatar Petroleum is Exxon’s partner in Golden Pass, which began as an LNG import terminal. Tillerson pointed out that each has a different cost of supply curve, with different host governments and different sets of hurdles to overcome. Whatever the specific situation at each project, Exxon takes the long view of the market, both supply and demand, cost scenarios and other factors. The company looks at commercial structures and tries to move on the most attractive first. Some of that requires waiting on governments to act. “A lot of it is waiting on government fiscals. That’s the case in Alaska. It’s really part of the case in Canada. Some of it is waiting to work through regulatory processes." Meanwhile, Exxon's Golden Pass project on the Louisiana Gulf Coast is still waiting for clearance from the Department of Energy to export LNG to countries without free trade agreements with the US. That includes key markets in Japan, China and India. The projects all have different elements that their various teams sequence in an effort to make them more competitive. Partners play a role, too. “At what pace are partners prepared to go because everybody’s got to pay their way. In some cases, that can be something that slows or speeds things up. If that’s the obstacle and we are ready to go, we try to work with them,” the Exxon executive said. He declined to say which projects are ahead, as all are being realigned to overcome obstacles and improve their economic viability and profitability outlook in the face of changing global economics. Each project team is working on its venture. Tillerson said Exxon’s management gets updates from the various project teams as needed and offers guidance as appropriate. Maybe a specific host government is not likely to act for a while, so a given project team could redeploy personnel elsewhere and put that venture on slow simmer for a while. Meanwhile, discussions with a potential host government can continue, he said. “Explain to people we are waiting on you. We still want to do it. We haven’t lost interest, but we can’t move any further until you’ve sorted it out. That’s a lot of the type of conversation you have with governments. And how can we help you figure it out. It’s a nice blessing of riches in that regard because we’ve got lots of choices that we can pick and choose which way we would like to go. There are opportunities to high-grade that portfolio, too.” Mercurial Alaska Not every project goes as smoothly or as quickly as Exxon would like. The company and its partners have been trying to develop a means of exploiting the 35 trillion cubic feet of proved natural gas reserves on Alaska’s North Slope almost since the Trans Alaska Pipeline System began moving oil in 1977. Alaska Gov. Bill Walker has raised the most recent obstacles to what is now planned as an LNG export project. Before he was elected governor in a tight race against former Gov. Sean Parnell, Walker headed his own effort to develop a gas pipeline and export project. Asked about Walker’s position, Tillerson replied, “Yeah, this is Alaska. I have been working on Alaska gas since 1985.” He recalls spending three months in Ottawa, Canada’s capital, trying to get some amendments to the old Alaska Natural Gas Transportation Agreement, when it was going to be a pipeline to the US Lower 48. “I have a long history with this, and I always tell every governor of Alaska, ‘You are not waiting on us. You are waiting on you.’ And every governor that comes in decides they’ve got a different way of doing this, which is why it never happens,” he said. Tillerson made no effort to hide his frustration. “You can’t take a project that is going to take five, six, seven years to execute and require $50 billion to $60 billion of capital and decide every two years you’ve got a different way to do it,” he said. “We’ve had two good chances in the last 10 years to get it done, and as soon as you had an election that ended it.” “Alaska is their own worst enemy,” he concluded. Barbara Shook, Houston

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