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Providing coverage of Alaska and northern Canada's oil and gas industry
February 2009

Vol. 14, No. 8 Week of February 22, 2009

DNR concludes Point Thomson hearing

ExxonMobil moving ahead with ice roads; Nabors says rig will be ready to move out by mid-March; five to seven days to location

Kristen Nelson

Petroleum News

The Department of Natural Resources finished up its hearing on appeals of the termination of 31 Point Thomson oil and gas leases Feb. 12 and Point Thomson operator ExxonMobil said the company began ice road work after the commissioner’s Jan. 27 interim conditional decision and was working that construction on four fronts.

DNR Commissioner Tom Irwin and hearing officer Nan Thompson concluded questioning witnesses Feb. 12 in the appeal of an August decision by Division of Oil and Gas Director Kevin Banks terminating 31 leases. This is one of a group of actions flowing out of a 2005 decision by then-division director Mark Myers rejecting a plan of development for Point Thomson from unit operator ExxonMobil Production and putting the unit into default.

The Point Thomson issue was rolled into Stranded Gas Development Act negotiations under then-Gov. Frank Murkowski, but when the state Legislature failed to ratify the gas pipeline contract negotiated by the Murkowski administration, then-DNR Commissioner Mike Menge terminated the Point Thomson unit in November 2006, a termination ratified by acting DNR Commissioner Marty Rutherford in early 2007 under the administration of Gov. Sarah Palin.

That decision was appealed by ExxonMobil and the other Point Thomson working interest owners — BP, Chevron and ConocoPhillips are the other major owners — and is currently in Superior Court, following a remand hearing in early 2008 and another decision by Irwin terminating the unit.

Actions and appeals are outstanding on unit termination, lease and permitting issues.

Two leases returned

ExxonMobil argued in its lease-termination appeal that the leases were held beyond the existence of the unit because drilling operations had begun within 90 days of unit termination.

The company set two well conductors at an existing Point Thomson unit pad last fall and had been preparing for winter drilling.

DNR initially refused to issue ice road permits needed to move a rig to Point Thomson, but in a Jan. 27 interim conditional decision Irwin reinstated the two leases containing the bottomhole locations of two wells ExxonMobil has committed to complete by the end of 2010 — conditional on completion of those wells.

DNR issued ice road permits following the interim decision and notified other agencies that it was no longer objecting to permits for work on the two leases.

Thompson told Petroleum News Feb. 17 that she distributed a list of legal issues at the end of the Feb. 12 hearing and the companies asked for a month to file briefs.

She said the record should be complete in mid-March when the briefs are filed.

Irwin commented at the beginning of the Feb. 12 hearing on the large volume of submittals from the companies and said they were looking hard at everything they get.

Thompson said the commissioner would issue a decision in April at the earliest.

“It’s a large record. There is no timeline for a decision in the statute or regulations,” she said.

Winter work proceeds

Dave Hebert, general manager of Nabors Alaska Drilling, told Irwin at the Feb. 12 hearing that modification of the substructure of Nabors 27E is complete and the mast has been raised. Asked if the rig would be ready when the ice road is complete, Hebert said the rig will be commissioned and ready to move out by mid-March, with the move to location expected to take five to seven days.

Craig Haymes, ExxonMobil Production Co.’s Alaska production manager, said in a Feb. 10 affidavit that drilling activities continued during and after the January hearing, with a 15-bed camp and office facility on ExxonMobil’s Deadhorse pad occupied Jan. 15 and surface and intermediate casing for the PTU 15 well delivered in Deadhorse during January, coming by barge from Seattle to Valdez and then in more than 70 truckloads from Valdez to Deadhorse.

He said wellhead equipment is en route to Deadhorse and would arrive by the end of February.

Haymes told Irwin Feb. 12 that ExxonMobil had reached agreement with Savant to use the ice road that the company is building to Badami. ExxonMobil will build from the end of the Savant ice road and also from Point Thomson back, as well as building a new section of ice road that had to be staked out to avoid a polar bear den, and working from the central pad at Point Thomson to a freshwater source.

Facilities critical path

Irwin asked Haymes Feb. 12 if multiple rigs had been considered for Point Thomson.

Haymes said Nabors 27E is the only rig on the North Slope capable of drilling Point Thomson and the plan is to use the rig to drill all nine wells in the proposed initial development.

The critical path to production in 2014 is not drilling but production facilities, Haymes said, with permitting critical to keeping the production facilities on schedule.

Irwin asked whether ExxonMobil would have all nine wells drilled by 2014. Haymes said that if there weren’t weather or permitting issues with the production facilities they would meet the 2014 production date. As for the number of wells, he said, some of the wells may not end up being successful oil wells, although they would eventually produce gas.

The initial production plan is 10,000 barrels per day of condensate and 10,000 bpd of oil and a pipeline capacity of 70,000 bpd; Haymes said the 20,000 bpd of initial production is designed to be expanded.

Issue of leases

Irwin asked whether ExxonMobil would complete the two wells and produce from them if he didn’t award any other leases. Haymes said yes.

What, Irwin asked, if he ordered wells certified capable of producing in paying quantities into production. Haymes said a reasonable time would be required to put those wells into production and the earliest it could happen was 2014 because that was when production facilities would be in place.

Some of the certified wells would take longer, he said, because they were not close to the central pad at Point Thomson and would require additional facilities.

Nan Thompson asked Haymes how long it would take to know that cycling was working successfully once wells were in production.

If the tank — the reservoir — is small, Haymes said, they would know quickly, in a matter of months. If the tank is larger, it would take longer, he said.






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