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September 2008

Vol. 13, No. 36 Week of September 07, 2008

Supplies to Point Thomson

ExxonMobil prepping road, pad; court fight with state moves toward mediation

Eric Lidji

Petroleum News

Nearly two years since the state first denied a development plan for the Point Thomson unit, and a month since the state terminated the unit on Alaska’s North Slope, work at the field is progressing in two directions: commercially and legally.

On Aug. 28, unit operator ExxonMobil announced it had finished barging in an initial load of equipment and supplies needed to prepare the site for a winter drilling program at Point Thomson, which sits on the western border of the Arctic National Wildlife Refuge.

Meanwhile, the state Department of Natural Resources and the Point Thomson leaseholders, led by ExxonMobil, have been working to resolve the matter both in and out of court, a timeline that could run from a couple of months to possibly a decade.

Point Thomson is seen as a crucial supply source for a future natural gas pipeline.

While the complicated legal matter involves many parties and several different issues, it essentially concerns two decisions by the state: one to terminate the Point Thomson unit and another to take back all but one of the leases making up that unit.

ExxonMobil, the operator of Point Thomson, still considers itself a leaseholder at Point Thomson, saying the state had no legal basis for taking back the leases. The company and the other working interest owners individually appealed each of the 44 leases under dispute in the 45-lease unit. DNR and ExxonMobil agree about a small, incongruous lease along the eastern boundary of the unit that doesn’t expire until 2010.

Over the past two months, ExxonMobil has requested a court-ordered settlement conference between the leaseholders and the state. DNR agrees, but asked for any settlement proceedings to move informally. Both the state and the leaseholders have until mid-October to update the courts on any progress made toward those informal settlements. The state wouldn’t say whether any meetings have been held to date.

Exxon applying for permits

Running concurrently with the legally proceedings, though, ExxonMobil has been applying for permits and mobilizing for a winter exploration program. And while the permits come from various agencies, many would come from the state DNR.

Those concurrent paths have created a unique situation.

In court, DNR is trying to prove ExxonMobil hasn’t done enough over the past 30 years to develop Point Thomson, while outside court, DNR is responsible for permitting some of the development work ExxonMobil hopes to complete this winter.

Those two points will eventually come to a head, according to Nan Thompson, units manager for the Division of Oil and Gas within DNR.

“Some permits, depending on what they want to do, don’t require any subsurface use, or right, or access. … Other permits, obviously ones that involving drilling or any subsurface activity, require an oil and gas lease. … They can’t get a permit for any subsurface activity without an oil and gas lease,” Thompson told Petroleum News Sept. 2.

But because ExxonMobil doesn’t believe the leases have been revoked, it doesn’t see any reason why it should be denied permits to start a drilling program at Point Thomson.

Shipment supports road work

The equipment and supplies recently barged to Point Thomson will let ExxonMobil start building a 50-mile ice road between the existing drilling pads at Point Thomson and the Endicott causeway to the west, and an ice runway.

The shipment by Crowley Maritime Corp. included dozers, trucks and graders, as well as equipment for topography, soil sampling and bathymetry, which measures water depths.

Earlier this year, ExxonMobil laid out a $1.3 billion campaign to delineate the Point Thomson reservoir, and bring it on line by 2014.

The spending includes $20 million in upgrades to Nabors Rig 27E. Although the rig has racked up significant mileage across the North Slope over the past five years, it currently isn’t designed to handle the high-pressure reservoir at Point Thomson.

The upgrades include new drilling mud and electrical systems, as well as special casing and wellhead equipment. ExxonMobil is on schedule to finish by the end of the year.

More than 150 employees

The work program follows a development plan ExxonMobil submitted back in February.

Defending that plan in a March hearing with the state, ExxonMobil Alaska Production Manager Craig Haymes said, “There are no off ramps. There are no decision points. It’s a black-and-white unconditional commitment. It’s a commitment from all of the owners.”

Because the state rejected that plan, ExxonMobil is not contractually obligated to complete its expensive drilling program, even though the company and the 26 other working interest owners at the unit have previous said they “intend to carry out the drilling program as leaseholders.”

ExxonMobil plans to drill up to five wells at Point Thomson in the coming years, initially producing around 10,000 barrels of liquid condensate per day to be sold through new and existing oil pipelines, and around 200 million cubic feet of gas per day to be injected back into the reservoir until a gas pipeline is in operation.

To facilitate that workload, ExxonMobil said it is currently employing more than 150 people at Point Thomson both from within the organization and nearly 40 contracted companies. ExxonMobil said it also held public hearings in North Slope communities to discuss the development plans at Point Thomson.

More permits still needed

ExxonMobil has two state permits related to the activities planned for this winter.

The first allows ExxonMobil to take water from a flooded gravel pit, presumably in order to build the ice road. The other permit lets the company set up a camp and stage ice road construction equipment and fuel at the existing Point Thomson 3 pad.

In both cases, state agencies warned ExxonMobil that issuing the permit did not constitute a position change about the unit or the leases, and told the company to proceed at its own risk.

The company said it has not been denied any state permits related to the activities already under way at Point Thomson, but needs more permits to continue moving towards drilling at Point Thomson this winter.

The state believes ExxonMobil still has work to do at Point Thomson.

“They’ve got a cleanup obligation within a year after the lease is terminated. So there are legitimate reasons they’d be on that PTU No. 3 pad. There was some stuff left there that they’re going to have to clean up,” Thompson said. “So maybe that’s going to get loaded on the barges and taken away. I don’t know. We’ll see the next time somebody’s up there.”






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