BP, EXXON HIT WITH ANTITRUST SUIT

JOHN R. WILKE and RUSSELL GOLD
Staff Reporters of THE WALL STREET JOURNAL
Submitted by Scott Heyworth
Dec. 20, 2005

Alaska Authority Charges Two Conspire to Withhold Natural Gas From the U.S.

An Alaska state authority charged that BP PLC and Exxon Mobil Corp., the world's largest publicly traded oil companies, are conspiring to withhold natural gas from U.S. markets and reinforce their market power over North Slope supplies.

In an antitrust suit filed late yesterday in federal court in Fairbanks, the Alaska Gasline Port Authority alleged that a series of illegal agreements and acquisitions by the companies has choked the flow of the state's vast gas reserves. It seeks to stop the companies' alleged collusion through a court injunction and unspecified damages.

Exxon and BP spokesman both denied the accusations that the companies were trying to delay exports of gas from Alaska. "This is another sobering reminder of our litigation-crazed society. This suit is frivolous and it's totally without merit," says Exxon spokesman Russ Roberts.

The lawsuit is the latest twist in a 30-year effort to move the estimated 37 trillion cubic feet of natural gas within Alaska's sprawling oil field, enough to satisfy two year's worth of U.S. demand. There is currently no significant natural-gas production in the North Slope; gas now produced by oil wells is injected into underground reservoirs. The dispute comes at a time when U.S. natural-gas prices are soaring.

The port authority, created in 1999 to build a gas pipeline, says it has $18 billion in federal guarantees and the permits to build a pipeline from the North Slope to Valdez in the southern part of the state, where gas would be liquefied and loaded onto tankers. But BP and Exxon favor an alternative, longer pipeline through Canada, a pipeline over which they would have more control, the authority charges.

Talks between the state and producers on building the longer pipeline have stalled. BP and Exxon Mobil, which produced a combined 1.7 trillion cubic feet of gas last year in the U.S., about 9% of the domestic total, have balked at the state's terms; a third producer, ConocoPhillips, agreed to the state's basic terms in October. The natural-gas pipeline disputes aren't related to the battle in Congress over opening the Arctic National Wildlife Refuge to oil and gas exploration.

The Alaska Gasline Port Authority said that BP's refusal to agree to ship its natural gas and Exxon Mobil's failure to develop its huge fields amounts to "warehousing" a desperately needed resource in an effort to drive up prices. "Gas prices are at record highs, and big oil companies still won't move the gas to market," authority Chairman Jim Whitaker said in a statement.

BP and Exxon Mobil argue a pipeline through Canada to the Midwest would increase the value of the gas by delivering it directly to gas-hungry markets. They say that the alternative, shorter route to Valdez -- which allows for a spur to send gas through Canada -- would generate less revenue and expose the $20 billion project to greater risk. BP and Exxon also expect to have a bigger financial stake in the longer pipeline than the one favored by the Alaska Gasline Port Authority.

BP spokesman David MacDowell said, "We are working as fast as we can to get a clear and durable fiscal contract with the state of Alaska so that this natural-gas project can move forward to the next stage." As for the Valdez option, he said, "we've spent millions of dollars over the years trying to make an Alaskan LNG [liquefied natural gas] project work, but it doesn't work."

He defended producers' ownership of pipelines, saying that "no one else is as motivated as the resource owners to build the lowest cost, most efficient transportation system possible."

Exxon says negotiations have been continuing for months and are in an advanced stage. "This is one of the largest, most complex industrial projects ever considered by any industry," says Mr. Roberts, the Exxon spokesman, and negotiations over the voluminous details should run their course, rather than be litigated in the courts.

The delays in exploiting Alaska's natural gas have become a political issue from Alaska to Washington. Walter Hickel, a former Republican governor of Alaska and former U.S. Secretary of the Interior, said the authority's suit "reveals a story of extreme corporate greed that has abused Alaska and punished the American consumer."

Mr. Hickel, a longtime supporter of Alaska gas development, said that "the producers have conspired for years to delay the export of Alaska liquefied natural gas."

House Speaker Dennis Hastert has said he expected energy companies to "do their part to help ease the pain" of high oil and gas prices, and specifically cited BP and Exxon Mobil's failure to come to terms with Alaska over the proposed pipeline.

The authority's legal team includes David Boies, of Boies Schiller & Flexner in New York, and Charles Cole of Fairbanks, the former Alaska attorney general.

In a news conference last night, Mr. Boies said the two companies had illegally conspired to refuse to deal with the authority, as part of a broad effort "to preserve the scarcity that has driven natural-gas prices to historic highs."