Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
February 21, 2008
Outlook
Alaska
In late 2007, we submitted a proposal to the governor of Alaska to advance the development of the Alaska Natural Gas Pipeline Project. The proposed pipeline would transport approximately 4 billion cubic feet per day of natural gas from the Alaska North Slope to markets in Canada and the United States. We have a 36.1 percent non-operator interest in the Greater Prudhoe Area fields that are expected to be a primary source of natural gas to be shipped in the proposed pipeline. Our proposal was submitted as an alternative to the process the Alaska Legislature established in its Alaska Gasline Inducement Act (AGIA). In our proposal, we stated our willingness to make significant investments, without state matching funds, to advance this project. In January 2008, we received a letter from the governor of Alaska stating our alternative does not give the state a reason to deviate from the AGIA process. We formally responded to the governor’s letter on January 24, 2008. As a result of the lack of engagement by the state of Alaska on our proposal, we are reassessing how best to advance the Alaska natural gas pipeline project. During this reassessment, as an initial step we will continue planning and contracting efforts in preparation for route reconnaissance and environmental studies starting in June 2008. We expect to continue to testify before the Alaska Legislature and engage the Alaska public with our view of the best path forward to advance the gas pipeline project.
Venezuela
Negotiations continue between ConocoPhillips and Venezuelan authorities concerning appropriate compensation for the expropriation of the company’s oil interests. We continue to preserve all our rights with respect to this situation, including our rights under the contracts we signed and under international and Venezuelan law. We continue to evaluate our options in realizing adequate compensation for the value of our oil investments and operations in Venezuela and filed a request for international arbitration on November 2, 2007, with the International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank. The request was registered by ICSID on December 13, 2007.
Canada
On October 25, 2007, the Alberta provincial government publicly announced its intention to make a change to the royalty structure for Crown lands, effective January 1, 2009. Although the government’s proposed change will require legislative and regulatory amendments to become effective and may be further modified before final adoption, there is a high likelihood there will be some form of change to the royalty structure in Alberta. While the precise impact of the proposed change is not determinable at this time, the adoption of the proposed royalty structure could result in a range of outcomes, including a negative adjustment to our Canadian reserve base. This change will impact both our conventional western Canada natural gas business and our oil sands operations.
