Thursday, August 18, 2011

State reaches deal with ExxonMobil on Point Thomson lawsuit

By Tim Bradner
Alaska Journal of Commerce

The state has reached a tentative agreement with Exxon Mobil Corp. in the lengthy and contentious lawsuit over the Point Thomson unit of the North Slope, a natural gas and gas condensate field 60 miles east of Prudhoe Bay.

State Natural Resources Commissioner Dan Sullivan said ExxonMobil, operator of the unit, is now discussing proposed terms of the settlement with other Point Thomson owners, mostly BP and Chevron, who are also involved in the litigation. Terms of the settlement are still confidential, Sullivan said.

Sullivan spoke at a legislative hearing on natural gas issues Aug. 15. Legislators asked how soon information on the settlement would ne available.

"Our interest is that it would be soon. Those discussions are under way now, but we are not driving the timeline anymore," Sullivan said.

"We're aware of the state's testimony on Aug. 15 at the legislative committee hearings," said ExxonMobil spokesman David Eglinton. "We remain committed to working with Governor (Sean) Parnell's administration and the other working interest owners to finalize a settlement. Settling Point Thomson litigation and securing necessary local, state and federal permits is imperative to maintain the pace of Point Thomson development."

Point Thomson is a large gas discovery with an estimated 8 eight trillion cubic feet of gas reserves and an estimated 200 million barrels of condensates, a natural gas liquid, and additional conventional crude oil. Gas reserves at Point Thomson are a critical part of the 36 trillion cubic feet of gas that has been identified on the North Slope, and which would support a planned $40 billion North Slope gas pipeline.

Despite the ongoing lawsuit, ExxonMobil and the state worked out an interim agreement where the companies would retain ownership of some leases in the unit with the rest still disputed. In return, the companies agreed to develop a $1.3 billion gas cycles and condensate production project that would produce 10,000 barrels a day of condensate liquids. Those would be shipped by pipeline to Pump Station 1 on the Trans-Alaska Pipeline System.

The dispute with the state has a long history. Point Thomson gas was first discovered in the 1970s but not developed because of the lack of a pipeline and a way to market the gas. Over the years the state gas pushed ExxonMobil, BP and Chevron to do an interim development project based on liquid condensates in the field along with small oil accumulations that are nearby. In the late 1990s ExxonMobil developed a plan for a gas cycling and 70,000 barrels a day condensate production project and spent considerable sums in project definition and permitting before shelving the project as uneconomic.

A dispute over that decision and ExxonMobil's reluctance to additional work led the state threaten to terminate the leases, which is finally did so in 2007. Subsequent lawsuits filed by ExxonMobil, BP and Chevron has kept the issue in the courts since then.

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Republished with the permission of the Alaska Journal of Commerce