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Exxon fights DNR appeal to Supreme Court Legal chess match continues over hugely valuable Point Thomson field; state seeks high court help in avoiding technical hearing Wesley Loy For Petroleum News
Lawyers for ExxonMobil and other oil companies are urging the Alaska Supreme Court not to get involved just yet in the Point Thomson case.
On March 1 the companies filed a 15-page brief opposing a Department of Natural Resources petition to the high court seeking review of a January ruling that went against the state.
Attorneys for the state have told the Supreme Court they believe Superior Court Judge Sharon Gleason got it wrong when she reversed DNR Commissioner Tom Irwin’s termination of the Point Thomson unit.
The state argues Gleason’s ruling erroneously would force a very long, highly technical and extremely expensive hearing under a key section of the Point Thomson unit agreement, which the state struck with the leaseholders in 1977.
But Doug Serdahely, a lawyer for field operator ExxonMobil and himself a former Superior Court judge, wrote in the opposition brief that the “parade of horribles” the state predicts is “baseless speculation.”
Unusual appeal As Petroleum News went to press, the Supreme Court had not yet decided whether to grant the state’s request for a review of the Gleason ruling.
The appeal is somewhat unusual, as the case in Gleason’s court isn’t over.
Serdahely argued appeals from cases that haven’t yet been decided in lower courts is “disfavored because it produces piecemeal appeals and makes unnecessary work for appellate courts.”
Anyway, the state doesn’t have sufficient grounds for an appeal at this point, he wrote.
“Judge Gleason’s rulings were clearly right,” Serdahely said.
If the Supreme Court takes the state’s appeal, this “will derail and delay the prospects for a relatively prompt resolution of this entire controversy,” he wrote.
But the state’s lawyers believe the Gleason decision undermines DNR’s ability to manage state resources in the public interest, and this warrants a review by Alaska’s highest court now.
State on defensive Judge Gleason’s Jan. 11 ruling clearly came as a body blow to the state, which has been locked in an intense court battle with ExxonMobil and the other major leaseholders for control of an undeveloped oil and gas field worth tens of billions of dollars.
The state’s fundamental point is that the oil companies have essentially sat on the property for decades while pursuing other developments elsewhere in the world. So, DNR has taken steps to reclaim the state acreage at Point Thomson, located some 60 miles east of Prudhoe Bay along the vacant Beaufort Sea shoreline.
The oil companies, for their part, have cited the lack of a natural gas pipeline, the extreme technical challenges of the Point Thomson reservoir and low gas prices as reasons for the development delay.
Gleason overturned Irwin’s unit termination — the unit designation is important because it serves to extend old leases that otherwise would expire — based on two findings.
First, she said Irwin, during a 2008 administrative hearing that led to the termination, improperly relied on lawyers and a DNR staffer who previously had fought the oil companies in court, thus creating a less than neutral appearance for Irwin as a decision maker.
Second, Gleason held that the companies should have been granted a hearing under Section 21 of the unit agreement, which requires such a proceeding if the state seeks to change the rate of production at Point Thomson.
State lawyers have argued Section 21 is inapplicable because Point Thomson has no production, nor any production infrastructure.
Despite the continuing litigation over the unit, Irwin allowed the industry to hang onto a pair of Point Thomson leases, provided ExxonMobil drilled two wells.
That’s just what the company has been doing over the past year. And Serdahely is now using that to bolster the company’s legal arguments.
“There is now indisputably a great quantity of ‘infrastructure’ on site — an enormous drilling rig, a gravel pad to support the rig, a completed well and one being drilled, storage tanks, a warehouse, living quarters for the crews, etc., so by DNR’s own logic Section 21 will be applicable to any future hearing,” he wrote in his Supreme Court filing.
Section 21 inconsistency In their Supreme Court petition, lawyers for the state say a Section 21 hearing for the oil companies would be a huge burden for DNR, especially if it can’t use the lawyers and staff best able to assist the department.
Section 21 says a change in the rate of production can’t violate “good and diligent oil and gas engineering and production practices.”
DNR’s lawyers argue a hearing on this point would be arduous, expensive and highly complex, and would extend the Point Thomson litigation for years.
ExxonMobil’s Serdahely, however, argued to the Supreme Court that a Section 21 hearing wouldn’t be so tough, requiring perhaps two weeks to determine the appropriate rate of development and production for the field’s working interest owners — ExxonMobil, BP, Chevron and ConocoPhillips.
“That is hardly an unreasonable burden for an administrative agency seeking to deprive the WIOs of an extremely valuable resource,” Serdahely wrote.
He further pointed out an apparent inconsistency in the state’s position, noting that former state oil and gas Director Mark Myers, in his landmark 2005 decision igniting the state’s move to take back Point Thomson, gave notice that a Section 21 hearing would be scheduled.
Myers later withdrew the notice without giving a reason, Serdahely told the Supreme Court, but in a revised decision “continued to assert that an increased rate of development and production was required, without providing the WIOs the protections of Section 21.”
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