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Thomson appealed Unit’s former owners say DNR termination violates their constitutional rights Kristen Nelson Petroleum News
No surprise: The former Point Thomson unit owners have requested reconsideration of Commissioner of Natural Resources Tom Irwin’s April 22 decision terminating the unit.
And, in the event DNR does not reverse its decision, ExxonMobil, as operator, separately requested reimbursement for the $800 million the companies have invested in Point Thomson over the years.
Craig Haymes, ExxonMobil’s Alaska production manager, told the Resource Development Council May 15 that ExxonMobil is not suing the state, but had to follow DNR’s process and submit the claim, although it would like to put it on hold. The goal is not to litigate, Haymes said, but all 17 owners — not just ExxonMobil — want to protect their rights.
As to where Point Thomson is in the process, Haymes said the companies had 20 days to respond to the commissioner’s April 22 decision; that was May 12, he said, and the commissioner has 10 days to respond to the request for reconsideration.
If DNR doesn’t change its mind, all parties will submit documents to Superior Court Judge Sharon Gleason. Haymes said ExxonMobil expects that it could be the first quarter of 2009 before a final decision comes down from the judge. If there isn’t agreement, he said, appeals could last for years — and that’s just over the unit; then there is the issue of leases.
Haymes said the owners want to settle this — they don’t want to litigate.
The working interest owners (Exxon Mobil Corp., BP Exploration (Alaska) Inc., Chevron U.S.A. Inc. and ConocoPhillips Alaska Inc.) argue in their May 12 reconsideration request that termination “will produce years of delay, and will virtually ensure that no one will be in a position to rely on Point Thomson gas in making shipping commitments in any open season on any schedule now proposed,” thus delaying a gas pipeline as well as postponing production of liquids from Point Thomson.
The companies said the termination decision “does not serve the interests of Alaska, follow the law or rest on the facts.” They argue that the proposed 23rd plan of development is “careful and technically sound,” with the commitment to production by 2014 except enforceable by a court order proposed by the field owners.
DNR not cooperative On the subject of the proposed 23rd plan of development, the owners said they have “repeatedly requested DNR, if it has concerns about the plan of development proposed, to identify specifically what it is that DNR desires, so that the owners can evaluate it and comply if at all prudently possible. The owners stand ready and willing to accommodate DNR in every reasonable respect consistent with good and sound oil field engineering and production practices.”
They said DNR has not explained what it wants and has not accepted invitations to meet to discuss its concerns.
As to previous plans of development, the owners disagree with DNR’s characterization of the field’s history.
“No evidence supports the statement that the WIOs failed to carry out the obligations of performance they undertook under any POD or contract, or that the owners engaged in a pattern of refusing or failing to perform prior PODs or contracts.”
They also disagree with DNR’s statement that they made a decision in 1983 to treat Point Thomson as a gas reservoir. They say there is no evidence to support “the statement that DNR expected in 1983 that production would begin in the late 1980s.” And, they said, there is no evidence to support DNR’s statement that efforts to develop the unit “virtually stopped in the 1980s.”
The owners disagree with a number of other conclusions or statements in the commissioner’s decision.
Commitments contractual The owners state that the decision to terminate the Point Thomson unit was an error, arguing that termination of the unit “requires a material breach” of the Point Thomson unit agreement, a contract between the working interest owners and the state. “DNR’s rejection of a POD is not a breach” of this contract, the owners said. “Even if failure to submit an acceptable POD could be considered a breach, it would not be a material breach.”
And if the owners were in material breach of the unit agreement, “the 23rd POD they submitted would be a reasonable cure, which DNR would have a duty to accept.”
The owners argue that DNR applied the wrong legal standard by focusing on whether a remedy was in the public interest “and not on whether there was a material breach and, if so, what remedy is appropriate as a matter of the law of contracts.” They argue that Judge Gleason’s ruling that termination could be considered in an administrative, rather than a judicial proceeding, did not mean DNR could terminate the unit in the public interest. “DNR may have the power to adjudicate the issues in the first instance, but the law to be applied is still the ordinary law of contracts, accept as supplemented by valid regulations not inconsistent with the PTUA (Point Thomson unit agreement).”
The owners argue that DNR violated their rights under the unit agreement “and their rights under the due process and impairment of contracts clauses of the Constitutions of the United States and Alaska by failing to provide an impartial tribunal,” and termination “impairs the obligations” of the state to the owners under the unit agreement, “and takes their property without just compensation, all in violation” of the owners’ rights under the U.S. and Alaska constitutions.
Damages claims The owners said that to avoid any possibility of a waiver of damages claims, ExxonMobil as unit operator has filed with the director of the Division of Oil and Gas a claim for damages arising from the state’s breach of the Point Thomson unit agreement.
ExxonMobil said it is bringing the claim for damages “as a precautionary matter,” because while it believes such claims may be brought in Superior Court, DNR has argued in related proceedings that a claim for damages must be brought in administrative proceedings.
The state’s termination of the unit was a “material breach” of the unit agreement, ExxonMobil said, and has cost the owners the loss of their investment, in excess of $800 million.
And if the state holds a lease sale at Point Thomson it will be transferring “property interests and contractual rights” belonging to the working interest owners to new purchasers, requiring the state “to make restitution” to the operator and working interest owners “by repaying to them any proceeds it receives at any future lease sale of the acreage included in the Point Thomson unit.”
ExxonMobil said the state must hold such proceeds in trust for the operator and the working interest owners.
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