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August 31, 2006 --- Vol. 12, No. 56August 2006

DNR extends Point Thomson deadline

At midnight tonight Exxon’s 90-day extension to submit an acceptable plan of development for the Point Thomson unit expires, as does the company’s extension to file an appeal with the State of Alaska.

Today, Mike Menge, commissioner of the state Department of Natural Resources faxed a letter to Exxon granting the company one last extension from the Murkowski administration. The extension is until Oct. 20, a day after the next 30-day special legislative session is expected to end.

“We’re giving the Legislature one more opportunity to take whatever action they see fit regarding the pipeline.html'>gas pipeline contract,” DNR spokesman Dan Saddler told Petroleum News.

The proposed fiscal contract for a North Slope gas line negotiated for the state by the Murkowski administration with oil producers and gas owners BP, ConocoPhillips and Exxon would defer existing requirements for Point Thomson unit plans and development as long as gas from the unit was committed to the gas pipeline.

If the Legislature does not approve the contract during the special session, then the commissioner will hold a Point Thomson unit hearing on Nov. 6, giving unit operator Exxon a chance to either present an acceptable development plan to pull the unit out of default or appeal the decision made by former Division of Oil and Gas Director Mark Myers, which put the unit in default Sept. 30. 2005.

Point Thomson, discovered in 1977, is a high-pressure oil and gas condensate field east of Prudhoe Bay on the western edge of the Arctic National Wildlife Refuge. Up until Exxon filed its 22nd plan of development last year, it had planned to produce liquids by bringing the condensate to the surface and then re-cycling the gas by re-injecting it to maintain reservoir pressure — and to await the building of a gas pipeline from the North Slope to market.

But last year Exxon said gas recycling was not economic and that development needed to be part of a gas pipeline project.

State of Alaska’s denies Nikaitchuq royalty modification

On Aug. 29, Mike Menge, commissioner of the Alaska Department of Natural Resources, signed DNR’s decision to deny Kerr-McGee’s request for reduced royalties on its leases within the proposed Nikaitchuq-area oil field development.

Since Kerr-McGee first applied for royalty modification on Jan. 11 the independent has been purchased by another independent oil and gas company, Anadarko Petroleum.

Although earlier in the year Menge indicated he believed Kerr-McGee’s application qualified under the fiscal system in place at the time, circumstances changed when a new petroleum production tax structure for the State of Alaska was introduced in the Alaska Legislature in May.

The commissioner told Kerr-McGee he was not comfortable making a decision until he knew what the new fiscal regime would look like. In order to qualify for royalty relief an applicant must show a project is not economic without a royalty reduction.

As it turned out, the production tax signed into law Aug. 22 “materially improved” the economics of the Nikaitchuq development, DNR said. In its decision DNR said that “under the PPT and over the life of the project” Kerr-McGee will pay, “on a discounted basis, about $120 million less in taxes than under the previous fiscal regime.”

Kerr-McGee applied for royalty modification on 14 of its Nikaitchuq-area leases.

Editor’s note: Watch for full stories in the Sept. 10 issue of Petroleum News, which will be available online at www.PetroleumNews.com on Sept. 7.

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