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Exxon Inks Deal to Transport LNG From North Slope to Alaska


Exxon Mobil Corporation XOM has agreed to the terms and conditions of Alaska Gasoline Development Corp (AGDC) for sale of its natural gas from the Prudhoe Bay and Point Thomson fields. AGDC is a state-owned entity leading the development of the Alaska LNG Project.

The deal follows closely on the heels of a similar commitment made by BP plc BP, also a major North Slope gas owner, in May. The agreements will cumulatively commit 22.7 trillion cubic feet (Tcf) to the project, of the 32 Tcf of gas identified on the slope. Depending on the leases involved, the committed volumes will comprise the state's royalty share of gas, between 12.5% and 16.6% of the gas.

The third major North Slope gas owner, ConocoPhillips COP, is still in talks with AGDC on commitment of its gas to the project. ConocoPhillips' Alaska gas, located mostly in the Prudhoe Bay field, is estimated at about 9 Tcf.

Per the terms of the deal, the state reached an agreement with Exxon to alter some terms of a 2012 lawsuit settlement with the owners of Point Thomson. The largest stakes in the project are held by ExxonMobil and BP.

The parties have not disclosed the financial terms of the agreement. Per AGDC’s estimates, the wellhead price received by the state for its royalty share of gas will be between $1 per million British thermal units (MMBtu) and $2/MMBtu.

It is believed that AGDC is in advanced talks with Chinese companies, including Sinopec Corp SNP as a buyer as well as Bank of China and China Investment Corp. as financiers for 75% of the expected 20 million mt per year of LNG to be exported from Alaska. Final agreements between AGDC and the Chinese companies are anticipated to be inked by the end of December.

AGDC is also in talks with Tokyo Gas Corp., Korea Gas and Petro-Vietnam on the remaining 25% of LNG expected to be exported or 5 million mt per year.

AGDC believes that the ongoing trade war between the United States and China will have no impact on the project and is likely to be resolved before the a final investment decision is made in 2020. Despite the frictions, there are no slowdowns in China’s LNG purchase.

A $43-billion project, Alaska LNG will construct 800-mile, 42-inch diameter gas pipeline from the North Slope to a planned liquefaction plant in Nikiski on the Kenai Peninsula, south of Anchorage. Also, a gas processing plant will be built on the North Slope. It will be primarily required to eradicate carbon dioxide from the Prudhoe Bay gas.

Price Performance

In the past year, Exxon’s shares have increased 2.8% compared with the industry’s 8.7% rise.

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Exxon currently carries a Zacks Rank #3 (Hold).

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