ExxonMobil says it is poised to launch a new $1.3 billion plan to develop the field, the first exploration since 1982. The company plans to build nearly 50 miles of ice road and an ice air strip and start drilling exploration wells this winter, the first wells to be drilled since 1982. Some contractors have been hired and, ultimately, 200 people will be employed on the work, which will prepare for oil production that is scheduled to start in 2014, the company told Reuters.
However, the state says ExxonMobil and its joint venture partners no longer own the Point Thomson leases. The Alaska Department of Natural Resources formally revoked the leases, some of which date back to the 1960s, for what it claims is non-performance by ExxonMobil and the partners.
The leases were revoked after the state rejected the 22nd and 23rd plan of operations submitted by ExxonMobil to the state. The 21 consecutive previous plans were approved by the state but ExxonMobil never carried through on them and they expired.
The Point Thompson field lies along the coast just west of the Arctic National Wildlife Refuge. It is considered a primarily gas field, with associated oil reserves. The Alaska Department of Natural Resources estimates that the field may hold 580 million to 950 million barrels of oil and 490 million to 600 million barrels of natural gas liquids. ExxonMobil holds the position that the field is not economically viable for development until there is a natural gas pipeline, either the Denali pipeline or AGIA, available to transport the gas to markets in Canada or the lower 48. The state maintains that, under the state lease terms, ExxonMobil is obligated to produce the oil reserves in the field or relinquish the leases (State decision documents here).
The company has obtained a couple of permits from the state for surface work: one for water use and one that allows staging of equipment, fuel and a work camp, Exxon will not be allowed to drill any wells or do any subsurface work on what is now referred to as the “former Point Thomson unit,” state officials said.
“They won’t be issued any permits that are contingent on having leasehold rights,” said Nan Thompson, petroleum manager for the department’s Division of Oil and Gas. “So anything they do is at their own risk as to whether they will regain those rights.”
“We have the right to conduct drilling activities under the terms of the leases, which we do not believe have expired,” company spokeswoman Margaret Ross said in an email sent earlier this month.
ExxonMobil is already preparing a rig, has ordered materials and has awarded contracts to Alaska companies doing preparatory work “for the multi-well drilling program”, Ross said.
The state’s efforts to revoke Point Thomson leases started in 2005 when the Division of Oil and Gas rejected ExxonMobil’s 22nd consecutive plan of development for the field. In that plan, ExxonMobil and its partners declared that development would have to wait for a natural gas pipeline, a project estimated at the time to cost over $20 billion.
The state subsequently rejected ExxonMobil’s 23rd plan of development for Point Thomson, which calls for production of at least 10,000 barrels of liquids per day by 2014.
ExxonMobil and its partners have challenged the state’s actions.
The dispute over Point Thomson leases is now pending in Alaska Superior Court. State officials have predicted the issue will be resolved in the courts in about two years and that there will be ready buyers once the leases are put back up for auction.
There’s a lot of political wrangling going on here. All sides agree that Point Thompson is essential for a natural gas pipeline and that tying the leases up in court will delay field development and the availability of natural gas for the pipeline. But the state does have a point: the leases do require development or forfeiture, and ExxonMobil has sat on some of the leases for over thirty years, despite repeated findings that oil production from the field was economical. Until the state actually revoked the leases, ExxonMobil had no intention of doing any exploration or production. ExxonMobil is now playing the bully card, which is status normal for them.
A previous post on this topic is here.