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Banned
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Ustwo, as a supporter of development of ANWR, would you be surprised at all to learn that Exxon and it's partners are accused of deliberately avoiding development of proven gas and oil fields bordering ANWR....fields that hold massive amounts of natural gas and oil, for the past 31 years?
Quote:
http://www.adn.com/front/story/384213.html
State rejects Exxon's Point Thomson plan
DORMANT FIELD: Oil firm's commitment to drilling "too risky."
By WESLEY LOY
wloy@adn.com
Published: April 23rd, 2008 12:10 AM
Last Modified: April 23rd, 2008 11:51 AM
Exxon Mobil Corp. can't be trusted to keep its latest promise to develop a huge North Slope oil and gas field that's lain dormant since its discovery decades ago, a top state official decided Tuesday.
The decision denying Exxon's proposed development plan means the fate of Point Thomson -- which figures prominently in plans for a proposed natural gas pipeline -- remains bound up in state court.
Exxon, the top leaseholder in the 106,201-acre field, in February offered a $1.3 billion drilling plan in hopes of halting the state's legal effort to break up the field and possibly lease the acreage to other companies.
Exxon managers touted the plan as an "unconditional commitment" to start producing from the field.
But in a 78-page decision issued Tuesday, state Natural Resources Commissioner Tom Irwin sternly rejected Exxon's development plan -- its 23rd over the years -- saying the company and other leaseholders repeatedly broke past commitments and have engaged in "a constant shell game" for more than two decades.
Irwin, who presided over a court-ordered hearing on the plan in March, questioned the credibility of oil company executives who testified and concluded that allowing the companies "another opportunity to delay development of this valuable state resource is too risky."
Exxon and other Point Thomson leaseholders have 20 days to ask Irwin to reconsider. Then the matter moves back into state Superior Court.
Exxon spokesmen asserted Irwin's decision essentially locks the company's drilling rig out of the field, where Exxon vowed to start work on up to five wells and employ 200 people this winter.
"We're surprised and extremely disappointed," Exxon said in a written statement. "We plan to appeal this action and will pursue all alternatives to protect our rights to develop these resources."
Exxon added that it believes Irwin "has no legal basis" to break up the field's leases and that doing so will lead to years more conflict in court.
Steve Rinehart, a spokesman for BP, the second-largest Point Thomson leaseholder, said his company also was disappointed and that Irwin's decision could delay a natural gas pipeline.
Point Thomson is located on the Beaufort Sea coast next to the Arctic National Wildlife Refuge, about 60 miles east of the giant Prudhoe Bay oil field.
It holds an estimated 8 trillion cubic feet of natural gas -- about a quarter of the Slope's known 35 trillion cubic feet. It also holds several hundred million barrels of crude oil and a liquid form of natural gas known as condensate.
Development of the field would mean huge tax and royalty revenues for the state.
Exxon drilling led to discovery of Point Thomson's gas and oil reserves in 1977. But the company hasn't developed the field because of the lack of a gas pipeline and the field's extreme subsurface pressure, which would require tougher, costlier wells to control, Exxon managers say.
Irwin, in his decision, said Exxon and other leaseholders have looked to "warehouse" Point Thomson while concentrating on projects elsewhere in the world.
Because of its rich natural gas reserves, Point Thomson is considered a vital piece of any pipeline plan to ship gas to the Lower 48 or abroad.
Two pipeline proposals are now on the table -- one from Calgary-based TransCanada Corp. and another from a partnership of Conoco Phillips and BP.
Exxon, which isn't part of either pipeline proposal, told the state when it submitted its latest development plan in February that it would pledge its share of Point Thomson gas to a pipeline project so long as it received terms as good as those of other companies with gas to ship.
But Exxon's plan didn't impress Irwin.
He said its $1.3 billion proposal to produce 10,000 barrels a day of gas condensate beginning in 2014 -- a small amount in the context of total North Slope production now averaging 750,000 barrels a day -- was a "modest" step to exploit a hugely valuable field.
Anyway, Irwin wrote, Exxon and other Point Thomson leaseholders can't be trusted to keep their word. He noted, for example, that the latest plan of development has a loophole giving Exxon an out based on "permitting delays."
"Approval of this plan merely serves as an invitation for Exxon Mobil to abandon this project under the guise of permitting delays or denials," Irwin wrote.
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Quote:
http://www.adn.com/oil/story/356188.html
Exxon seeks truce in fight for Point Thomson's future
NORTH SLOPE: State wants to cancel drilling leases, but oil companies want to settle.
By WESLEY LOY
wloy@adn.com
(03/26/08 00:04:34)
JUNEAU -- Under pressure from the state to either develop or lose a rich North Slope natural gas field, oil companies led by Exxon Mobil are looking to settle the legal battle for control of the long-dormant deposit.
The companies have filed a five-page proposal in state Superior Court in Anchorage laying out a series of steps in a $1.3 billion plan to tap the Point Thomson field, which hasn't produced any oil and gas despite being discovered more than 30 years ago.
If they break their word and don't complete the steps, which run to 2013, the companies consent to a judge breaking up the Point Thomson unit -- the critical state designation binding together the field's leases.
That would greatly aid the state's effort to evict Exxon and other leaseholders.
To back up their settlement offer, top brass with Exxon, Chevron and BP have sent letters to state Natural Resources Commissioner Tom Irwin.
The development plan "has the full support of Exxon Mobil," wrote Morris Foster, president of Exxon Mobil Production Co.
"Chevron's commitment is unequivocal," added Scott Davis, a vice president with Chevron, the third-largest leaseholder in the field after Exxon and BP.
The settlement offer heightens the high-stakes drama between the oil companies and the state, which could accept the development plan or keep working in court for the right to reclaim the field outright.
State officials Tuesday declined to comment.
MURKOWSKI'S OPENING MOVE
Located next to the Arctic National Wildlife Refuge about 60 miles east of Prudhoe Bay, Point Thomson is believed to hold about a quarter of the North Slope's 35 trillion cubic feet of natural gas plus an estimated 300 million barrels of oil.
<h3>Critics including the state's lawyers have accused Exxon of "warehousing" Point Thomson's taxable treasures while concentrating on its other prospects around the world.</h3>
Exxon has cited the field's extreme subsurface pressure and the lack of a multibillion-dollar natural gas pipeline as reasons why it has gone untapped.
In 2006, then-Gov. Frank Murkowski made the opening play in what has become a tense legal chess match, moving to reclaim the more than 100,000 acres of leased state land at Point Thomson with an eye toward offering it to companies more eager to produce.
Gov. Sarah Palin, who succeeded Murkowski, has taken over the match he started.
Exxon and the other oil companies sued the state in an effort to preserve Point Thomson as a cohesive unit and hang onto the leases, which would expire if the unit is dissolved.
EXXON'S PLEDGE
Exxon made another big move last month, unveiling its $1.3 billion plan to drill five wells starting next winter and produce 10,000 barrels a day of liquid natural gas, known as condensate, by 2014.
It's the 23rd development plan Exxon has offered for Point Thomson over the years.
Exxon executives insist this one is different, saying state officials can trust the leaseholders to carry it out fully.
The proposed settlement they filed in court last week has blanks for oil company and state lawyers to sign, resolving the court case.
So, will the state take the deal?
Richard Todd, the assistant attorney general handling the state's Point Thomson defense, wouldn't comment Tuesday.
Neither would Nan Thompson, a Division of Oil and Gas official who helped preside over a recent court-ordered state hearing on Point Thomson's fate.
Thompson also wouldn't say when Irwin will issue his decision from the hearing, in which oil companies urged him to accept the latest development plan to resolve the dispute.
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Quote:
http://www.dog.dnr.state.ak.us/oil/p...son-denial.pdf.
DENIAL OF THE PROPOSED PLANS FOR DEVELOPMENT OF THE
POINT THOMSON UNIT
September 30, 2005
Findings and Decision of the Director, Division of Oil and Gas
Under Delegation of Authority from the
Commissioner, Department of Natural Resources, State Of Alaska
I.
SUMMARY OF DECISION
This is the final Decision of the Alaska Department of Natural Resources, Division of Oil and
Gas (the Division) on the Twenty-second Plan of Development (22
nd
POD) for the Point
Thomson Unit (PTU) submitted by the PTU Operator, Exxon Mobil Corporation (Exxon), on
August 31, 2005. <h3>The Division finds that the PTU Agreement is in default for Exxon’s failure to
submit an acceptable unit plan of development.</h3>
The PTU is underlain by a massive undeveloped gas and gas condensate reservoir that was
discovered nearly 30 years ago, but the PTU oil and gas lessees have determined that production
of the unitized substances is, in their view, not commercially viable. The 22
nd
POD proposes
additional studies to determine if the PTU lessees can design a commercially viable production
project.
The 22
nd
POD states that PTU development is not possible without modifying the current laws
regarding the State’s right to taxes and royalties on oil and gas production and on construction of
a North Slope gas pipeline. The PTU Operator proposed integrating the lessees’ PTU
development obligations into negotiations for a fiscal contract with the State and proposed a two
year delay of the development commitments made by the lessees in connection with an
expansion of the PTU in 2001, both of which would make PTU development uncertain. The
current fiscal contract negotiations may or may not lead to construction of a North Slope gas
pipeline.
The premise that the PTU can only be developed if a North Slope gas pipeline is built is
inappropriate. In addition to dry gas, the unit contains 100s of millions of barrels of hydrocarbon
liquids. These hydrocarbon liquids could be produced using mostly existing oil pipelines
without construction of a North Slope gas pipeline. Therefore, potential PTU development is
not, in fact, limited to dry gas production. In addition, the PTU Agreement, which requires
timely exploration, delineation, development, and production of unitized substances, does not
guarantee the lessees’ commercial success or provide for indefinite extension of the leases.
1. The 22nd POD is disapproved because it does not set out a plan to bring the PTU
into commercial production within a reasonable time frame.
2. Exxon has 90 days to cure the defect in the 22nd POD by submitting a unit plan
that commits to timely development and production of unitized substances.
3. This decision provides notice under Article 21 of the PTU Agreement that Exxon
must initiate development operations within the PTU by October 1, 2007. The
Division will contact Exxon to schedule a hearing on this issue, which will be
held not less than 30 days from the date of this decision.
4. This decision also provides notice under the individual lease agreements that the
PTU leases containing certified wells must commence production in paying
quantities by October 1, 2009.
5. In addition, the Division denies Exxon’s request for a one-year deferral of the
Expansion Agreement commitments. If Exxon does not commence drilling
Point Thomson Unit, Findings and Decision of the Director
Page 2 of 24
Page 3
within the PTU by June 15, 2006, the PTU boundary will contract and the
contracted leases will no longer be held by unitization.
II.
BACKGROUND
The details of the PTU history set out below can be summarized as follows: Some of the PTU
leases were issued over 40 years ago and the unit has been in existence for 28 years. The
Division certified 7 exploration wells within and around the unit area as capable of producing
hydrocarbons in paying quantities, but it has been 20 years since the last well was drilled. The
Thomson Sand Reservoir is known to contain at least 8 trillion cubic feet of gas and 200 million
barrels of gas condensate and oil. The PTU also contains 100s of millions of barrels of oil in the
shallower Brookian reservoirs. The PTU lessees have not yet determined whether they can
commercially produce PTU resources, and they have not committed to timely explore, delineate,
or develop PTU oil, gas, or gas condensate. The unit operator has consistently proposed that
more studies or workshops are needed before putting the PTU into production and, since 1983,
has periodically asserted that production cannot begin until a North Slope gas pipeline is built.
The PTU is located on the North Slope of Alaska. The western unit boundary is approximately 3
miles east of the Badami Unit and 30 miles east of the Prudhoe Bay Unit (PBU), and the eastern
unit boundary lies west of the western boundary of the Arctic National Wildlife Refuge
(ANWR). The southern PTU boundary is onshore, and the northern boundary is offshore in the
Beaufort Sea, adjacent to or near the three-mile territorial sea boundary that separates state from
federal Outer Continental Shelf (OCS) lands. The PTU consists of 45 state oil and gas leases
encompassing approximately 106,200.55 acres. The state owns the entire subsurface estate
within the unit area.
Twenty-five lessees hold working interest ownership in the PTU (PTU Owners), and Exxon is
the designated Unit Operator. Ownership is calculated based on a lessee’s percent of working
interest ownership in each lease multiplied by the lease acreage, as a percentage of the total unit
acreage. On a surface acreage basis, the Major PTU Owners hold 98.9056% of the PTU: Exxon
52.5779%
1
, BP Exploration (Alaska) Inc. (BPXA) 29.1943%, Chevron U.S.A. Inc. (Chevron)
14.3125%, and ConocoPhillips Alaska, Inc. (CPAI) 2.821%. The Minor PTU Owners include
twenty entities that hold the remaining 1.0944% interest in the PTU.
The Division approved the PTU Agreement effective August 1, 1977, with a five-year Initial
Plan of Exploration. The original unit area included 18 state oil and gas leases comprising
approximately 40,768 acres. The PTU Owners drilled 11 wells in and around the unit area
between 1978 and 1983, and the Division certified six of those wells as capable of producing
hydrocarbons in paying quantities under the regulations
2
and the PTU Agreement
3
.
1
Exxon Mobil Corporation holds 43.2361% working interest ownership in the PTU and ExxonMobil Oil
Corporation holds 9.3418%, jointly referred to as Exxon.
2
11 AAC 83.361. Certification of Well Test Results. “For the purposes of 11 AAC 83.301 – 11 AAC 83.395, a
well will be considered capable of producing hydrocarbons in paying quantities, as defined in 11 AAC 83.395,
when so certified by the commissioner following application by the lessee or unit operator. The commissioner will
require the submission of data necessary to make the certification, including all results of the flow test or tests,
supporting geological data, and cost data reasonably necessary to show that the production capability of the well
satisfies the economic requirements of the paying quantities definition.” 11 AAC 83.395. Definitions. “Unless the
context clearly requires a different meaning, in 11 AAC 83.301 – 11 AAC 83.395 and in the applicable unit
agreements, … (4) ‘paying quantities’ means quantities sufficient to yield a return in excess of operating costs, even
Point Thomson Unit, Findings and Decision of the Director
Page 3 of 24
Page 4
On March 26, 1984, the Division approved an application to expand the unit area on condition
that the PTU Owners drill a well on one of the two southern expansion leases by March 31,
1985, and a well on one of the ten northern expansion leases by February 1, 1990. The
expansion added approximately 94,152 acres within 25 leases to the PTU. The PTU Owners
failed to meet both drilling commitments; therefore, the two southern expansion leases and nine
northern expansion leases contracted out of the PTU.
4
In 1998, the Division denied a unit expansion application, which was submitted by Exxon as the
owner of the proposed expansion lease, rather than as the PTU Operator; because it was not
supported by the other PTU Owners. The Division found that adding a lease to a unit where the
owners have demonstrated a lack of cooperation may discourage, rather than encourage, unit
development. The Division’s denial of Exxon’s 1998 PTU expansion application instigated
negotiations between the Division and the PTU Owners to redefine the unit boundary.
Supporting technical data indicated that the Thomson Sand Reservoir extended beyond the
existing unit boundary and that other portions of the unit were not underlain by known
hydrocarbons.
On February 2, 2001, Exxon applied to simultaneously expand and contract the PTU boundary.
On July 31, 2001, the Division and the PTU Owners entered into an agreement in which the
Division approved an expansion of the unit area in return for the PTU Owners’ commitment to
do certain items of work. This agreement also provided that the expansion leases would contract
out of the unit and the PTU Owners would pay the State certain sums of money if the work was
not done. This “Agreement Resolving All Pending Point Thomson Unit Expansion/Contraction
Matters and Proceedings” (Expansion Agreement) identified seven Expansion Areas and one
Work Commitment Area (WCA) outside of the preexisting PTU (All together referred to as
“Expansion Acreage”). The Expansion Agreement included the following work commitments
by the PTU Owners:
1.
WCA Drilling Commitment: Drill a well through the Thomson Sand
interval within the Work Commitment Area by June 15, 2003, or the WCA
acreage would automatically contract out the PTU on that date. Drilling a
new well or deepening the Red Dog #1 Well would have fulfilled the WCA
Drilling Commitment
2.
2006 Development Drilling Commitment: Commence development drilling
in the PTU by June 15, 2006, or all of the Expansion Acreage would
automatically contract out of the unit effective that date, and the PTU
if drilling and equipment costs may never be repaid and the undertaking considered as a whole may ultimately result
in a loss; quantities are insufficient to yield a return in excess of operating costs unless those quantities, not
considering the costs of transportation and marketing, will produce sufficient revenue to induce a prudent operator
to produce those quantities;”
3
PTU Agreement, Article 9, Drilling to Discovery. “Within 6 months after the effective date hereof, the Unit
Operator shall begin to drill an adequate test well at a location approved by the Director, … and thereafter continue
such drilling diligently until the top 100 feet of the Pre-Mississippian formation has been tested or until at a lesser
depth unitized substances shall be discovered which can be produced in paying quantities (to wit: quantities
sufficient to repay the costs of drilling, and producing operations, with a reasonable profit) …”
4
<h3>One of the northern expansion leases remained committed to the PTU because a well drilled on that lease in 1982
was certified as capable of producing in paying quantities</h3>.
Point Thomson Unit, Findings and Decision of the Director
Page 4 of 24....
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