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AOGCC hears Exxon on forced unitization Company moves ahead with Point Thomson ice road work; rig ready to go; two-well plan of development out for public review Kristen Nelson Petroleum News
State regulators and ExxonMobil worked Point Thomson issues from the North Slope — where ice road construction is reported to have begun — to a hearing room in Anchorage the week of Feb. 9.
ExxonMobil also has a two-well drilling program under 50-day public review for consistency with the Alaska Coastal Management Program.
The project description is two wells, PTU 15 and PTU 16, to be drilled in the Point Thomson area beginning in the spring 2009 winter drilling season, as authorized under Department of Natural Resources Commissioner Tom Irwin’s Jan. 27 conditional interim decision, which allowed drilling on two state leases, ADL 47559 and ADL 47571.
While the wells will be permitted as exploration wells, DNR said, the long-term goal for the wells are that PTU 16 would be used as a production well and PTU 15 will be designed for use as either an injection or production well.
The plan of operations also describes facilities necessary to process and produce hydrocarbons for transportation to market by the end of 2014, with approvals for production and transportation facilities to be addressed in submittals for the production phase of the development, which would be subject to additional ACMP review.
In addition to drilling wells which can ultimately be used for production operations, ExxonMobil plans to obtain reservoir quality and performance information for field development and potential facility expansion planning; and further delineate the hydrocarbon resources of the Point Thomson area including the Thomson Sand, the Brookian and Pre-Mississippian where practical. Well testing, logging and surveys would be conducted.
The PTU 15 and PTU 16 wells would be brought on production by year-end 2014 through construction of production facilities, pipelines and other production infrastructure.
In addition to the two production wells, a disposal well is proposed at the central pad to support drilling and production operations. If drilled the well may reuse the existing PTU 3 well or be a separate well drilled in a more optimal location and not into the Point Thomson horizon.
Each well is expected to require approximately 100 days to drill; drilling this year would begin approximately April 1. Drilling would be in accordance with North Slope Borough permit conditions approved for these wells, which limit drilling into hydrocarbon-bearing zones to Nov. 1 through April 15 of each winter drilling season, and allow year-round drilling above the hydrocarbon-bearing zones.
On the regulatory side Meanwhile, Chair Dan Seamount and Commissioners Cathy Foerster and John Norman of the Alaska Oil and Gas Conservation Commission heard oral arguments Feb. 9 on ExxonMobil’s petition for compulsory unitization of the Point Thomson Sand.
Unitization brings together the owners of all of the leases in a field under a formal agreement to share costs and revenues; it maximizes production from a field by eliminating competition from adjacent leaseholders in the field to see who can produce the most oil or gas the fastest — an uneconomic competition which also lowers overall field production by damaging the reservoir.
Units are typically formed by voluntary agreement among the leaseholders — in Alaska voluntary units are formed under the auspices of DNR. A voluntary unit was formed at Point Thomson under DNR auspices in 1977 and was terminated by DNR Commissioner Irwin last year for lack of production from the field; that decision is under appeal in Alaska Superior Court.
Following unit termination, leases at Point Thomson were terminated by Director Kevin Banks of the Division of Oil and Gas because they were no longer part of a unit and were beyond their primary terms. That decision is under appeal to Irwin, who has issued an interim conditional decision; there was a hearing in January, continued to Feb. 12. The Jan. 27 interim decision reinstated the two leases on which Exxon plans to drill beginning this winter, based on ongoing drilling activity — or in this case, ongoing preparations for drilling. The interim decision required, among other things, that Exxon initiate drilling this winter season; drill a well out of the conductors with a rig capable of drilling through the Thomson Sand; and complete both wells by 2010.
Adjacent leases impacted The AOGCC hearing included a brief overview of Exxon’s drilling plans by John Daum, an attorney with O’Melveny & Myers representing ExxonMobil.
Daum told the commission that once production begins — with gas from the producing well compressed and re-injected through the injection well — pressure will begin to drop in the area of the reservoir from which gas is being produced and increase in the area of the reservoir into which gas is being injected. As the production and injection continues, he said, more and more of the reservoir will be affected. Very quickly, he said, leases other than those on which the wells sit will be affected.
The point, Daum told the commission, is that it would be “almost inconceivable” that the Point Thomson reservoir could be produced without unitization, because failure to unitize is going to affect correlative rights, the rights of adjacent leaseholders.
If the interim decision stands, Exxon and its partners will hold two leases and somebody else will hold the other leases and the wells that Exxon plans to drill will drain gas from those other leases and correlative rights are going to be affected.
That’s why Exxon thinks there needs to be unitization, he told the commission.
And one way or another there will be unitization, Daum said. If Exxon and the other working interest owners prevail in Superior Court the former unit would be restored. The commission could order unitization. Or DNR could change its mind and agree to unitization. There is some indication that DNR’s “thinking is evolving,” he said.
Opposition from DNR Alaska Assistant Attorney General Jonathan Katchen, arguing for DNR, told the commission ExxonMobil’s petition for compulsory unitization was premature because there is no threat the area will be developed on a lease-by-lease basis; that Exxon has made no showing of waste; that considering the petition undermines DNR’s ability to manage state lands; and that the petition was defective because when Exxon filed its petition 12 of the leases included, known as the expansion leases, had expired.
Exxon’s petition for compulsory unitization was filed in April 2007; Katchen said the 12 leases expired in December 2006.
He said there is no evidence that the Point Thomson area will be developed on a lease-by-lease basis and compulsory unitization is designed to prevent wasteful lease-by-lease development or to protect correlative rights, the rights of adjacent leaseholders.
“DNR completely agrees with Exxon that unitization is the proper method of development,” Katchen said, and disagrees with Exxon’s contention that DNR opposes unitization.
There is no showing of imminent waste or threat to correlative rights, he said. Production is years off and Exxon’s frequent changes in plan of development for the field in recent years — from gas cycling to gas blowdown and back to gas cycling — show the field is still in the exploration stage. “They don’t really know how they want to develop this field,” Katchen said, and told the commissioners they shouldn’t consider compulsory unitization until the lessee determines how it is going to develop the field and production operations are close, or alternatively, that ongoing production is causing waste.
DNR’s authority a concern DNR’s authority to manage state lands under the Alaska Land Act is rendered meaningless by the compulsory unitization petition, Katchen said. Statutes cannot be interpreted in a way that renders other statutory provisions meaningless and Exxon’s petition is clearly asking the commission to alter the governance of a voluntary unit because it wants to reconstitute a terminated unit and reinstate plans of development. DNR can’t effectively manage state lands if its decisions to reject a plan of development and terminate a unit agreement can be circumvented in this manner, he said.
Katchen also told the commission that there are three units in default — Arctic Fortitude, Corsair and Kitchen. If DNR doesn’t permit those units to continue to exist, those lessees may follow Exxon’s path and come to the commission for compulsory unitization.
He said DNR is not suggesting the commission lacks the authority to unitize, but in this instance with no ongoing operations and the field still in exploration stages, “we think forced unitization is inappropriate.”
Commission has authority Daum argued that the commission has the authority to form a unit where the owners cannot reach agreement — and in this case DNR, the landowner, cannot reach agreement with the lessees.
He argued that the Legislature can’t have intended to make DNR the sole arbiter of units because it created the commission as a quasi-judicial body and said DNR had the same standing, not more or less, before the commission as any other party.
When DNR comes to the commission it has the same position as any other landowner in the State of Alaska, he said.
And he told the commission that dismissal of the petition would lead to appeal to Superior Court; should that happen, he said, the commission becomes one more case in Superior Court — where Point Thomson issues are already under appeal in two cases.
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