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Supreme help sought Staggered by Point Thomson loss, Alaska officials go for high court review Wesley Loy For Petroleum News
Fresh off a significant setback in its tilt with ExxonMobil for control of the rich Point Thomson oil and gas field, lawyers for the state are now asking for a break in the action while they seek an Alaska Supreme Court review of a key aspect of the case.
The move seemed to dampen recent public statements from Gov. Sean Parnell and Rich Kruger, president of ExxonMobil Production Co., that it’s time the case was settled.
On Jan. 11, Superior Court Judge Sharon Gleason dealt the state a blow when she reversed Department of Natural Resources Commissioner Tom Irwin’s termination of the Point Thomson unit.
Among her findings, Gleason held that ExxonMobil and other leaseholders at Point Thomson were wrongly denied a hearing under Section 21 of the Point Thomson unit agreement, which dates back to 1977.
Section 21 says the state oil and gas director has authority to alter or modify the rate of production under the agreement. But the director can exercise that power only after the unit operator has the opportunity for a hearing to consider, among other things, whether a required increase in the production rate would violate “good and diligent oil and gas engineering and production practices.”
The state’s lawyers had argued unsuccessfully that ExxonMobil didn’t deserve such a hearing in a situation where a field’s production rate is zero.
And that’s really the crux of the conflict between the state and ExxonMobil.
The lack of any oil or gas production from Point Thomson decades after its discovery is the basis for the state’s efforts to break up the unit and potentially put the state acreage up for lease again.
Supreme Court petition In her ruling, Judge Gleason gave the two sides 30 days to file arguments on whether she should turn the matter over to DNR for the Section 21 hearing, or preside herself over what’s known as a trial de novo.
Neither side had filed such arguments by the time Petroleum News went to press.
But the state did, on Jan. 29, make a different sort of filing — a “motion for stay of proceedings” pending the state’s petition to the Alaska Supreme Court for a review of the Section 21 issue.
“A central premise of the Petition will be that this court erred in concluding that a Section 21 proceeding was necessary,” the state’s filing said.
The state also indicated it would challenge Gleason’s finding that DNR had deprived the oil companies of their constitutional rights to procedural due process.
State lawyers asked the Supreme Court for extra time to file the petition, promising to submit it by Feb. 5.
Field’s significance The remote Point Thomson field straddles the Beaufort Sea coastline about 60 miles east of Prudhoe Bay.
While the field contains some oil, it is especially prized for its estimated 8 trillion cubic feet of gas — about a quarter of all the known gas reserves on the North Slope.
Many consider the field a vital component for supporting a proposed multibillion-dollar pipeline to market Alaska’s long-stranded gas.
It was during the administration of former Gov. Frank Murkowski that state officials first made moves to reclaim Point Thomson due to lack of production from the field. Two subsequent governors, Sarah Palin and Parnell, have pressed on with what Murkowski started.
Under pressure from the state, which not only has tried to terminate the unit but has also declared the underlying leases expired, ExxonMobil last year began drilling a pair of wells on two leases Irwin allowed the company to retain even as the court battle rages.
ExxonMobil has said it intends to produce 10,000 barrels a day of gas condensate from Point Thomson by year-end 2014, an output lawyers for the state have characterized as “a minimal trickle of production.”
What does it mean? Aside from ExxonMobil, other major leaseholders at Point Thomson include BP, Chevron and ConocoPhillips.
Kevin Banks, the state’s oil and gas director, said the Supreme Court petition isn’t a sign that settlement talks with ExxonMobil are off.
“Not at all,” Banks told Petroleum News on Feb. 3.
“The state is smarter about the unit now, and we have had many opportunities to talk with the owners and we’re still doing that,” he said.
Banks declined to discuss the forthcoming petition in detail, but he said state officials feel significant questions — including some that “go beyond Point Thomson” — warrant the high court’s review.
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