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Vol. 13, No. 47 Week of November 23, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

State nixes Pt. Thomson ice road application, says no valid lease

ExxonMobil Production Co.’s application to permit an ice road to move a drilling rig to Point Thomson has been denied by the Alaska Department of Natural Resources, which terminated the unit earlier this year — a decision which the Point Thomson working interest owners, led by Point Thomson operator ExxonMobil, are appealing.

DNR Commissioner Tom Irwin and Dick Mylius, director of DNR’s Division of Mining, Land & Water, told ExxonMobil in a Nov. 14 letter that the application “to construct an ice road to support unauthorized drilling activities in the former Point Thomson Unit area is denied. The state does not allow drilling on its lands by parties who do not have valid leasehold rights.”

In a Nov. 14 statement DNR said the Point Thomson leases expired in August, but despite that fact “ExxonMobil applied for permission to construct an ice road to transport a drilling rig onto the expired lease to drill for oil and gas.”

“It is unfortunate that ExxonMobil’s efforts to force a solution on the Department of Natural Resources over its repeated and strenuous objections may have led honest Alaskans to believe that this drilling effort might actually take place. The state does not allow any party to drill on its lands without the state’s permission,” DNR said.

DNR said ExxonMobil has challenged the state’s Point Thomson decisions in court, and “it is not in the state’s best interests to allow them to proceed until a court determines whether or not the state’s actions were proper.”

Division of Oil and Gas representatives “are actively negotiating with representatives of the companies who previously owned the leases in this area,” DNR said, adding that those negotiations “are not impeding the resolution of the lawsuits by the court.”

No immediate response

ExxonMobil spokeswoman Margaret Ross told Petroleum News Nov. 15 that the company had not received notification from DNR about its application for the ice road permit and would not comment on DNR’s press release.

“ExxonMobil, on behalf of the Point Thomson Unit owners, has complied with the Point Thomson lease agreements, the Point Thomson Unit Agreement and all Alaska statutes and regulations,” she said in an e-mail.

“We have the right to conduct drilling activities under the terms of the leases which we do not believe have expired,” she said.

“The Point Thomson working interest owners are proceeding with the project and the drilling plan while we seek to resolve the dispute with the State over the Point Thomson Unit. We are hopeful that we will resolve the differences to our mutual satisfaction,” Ross said.

She said ExxonMobil “has significant activities under way” with multiple Alaska contractors and expects to have more than 200 new jobs on the project by early 2009.

Issue of which permits

Kevin Banks, acting director of DNR’s Division of Oil and Gas, told Petroleum News Nov. 14 that ExxonMobil applied for a number of permits.

Banks said there are some permits the company could get if the permit “isn’t dependent on a leasehold interest and a plan of operations to drill.” He said seismic permits are an example. DNR issues “permits for seismic all the time, on land not leased to anyone.” Banks said if the ice road were planned, for example, to meet Alaska Oil and Gas Conservation Commission requirements to rehabilitate a drilling site, then ExxonMobil could build the ice road.

But this application was specifically for drilling, so since the company does not have an approved drilling plan of operations, the permit application was denied, he said.

“State oil and gas leases and state law require the state’s permission for all operations on state land,” Irwin and Mylius said. The state rejected ExxonMobil’s proposed 23rd plan of development in April and in August rejected a plan the company proposed “to perform essentially the same drilling program” described in the 23rd plan of development. The 23rd plan was rejected by the commissioner; the plan of operations was rejected by Banks and an appeal of that decision is before the commissioner.

Exxon says it holds leases

ExxonMobil has been moving ahead with plans to drill at Point Thomson while the legal status of the unit and the leases are at issue in Alaska Superior Court and in administrative appeals.

On June 18 ExxonMobil held a meeting with DNR officials prior to applying for permits. Nan Thompson, Division of Oil and Gas petroleum manager, told Petroleum News at the time that DNR would evaluate the permit applications and might issue some permits — depending on what activities were being permitted, what leases were involved and the status of ongoing litigation.

But DNR made clear in a statement at the meeting that if the department issued any of the requested permits, “the applicant should understand that the legal status of the leases continues to be litigated. Any expenditures made by the applicant or others with respect to obtaining permits and/or conducting permitted operations will not be recoverable from DNR, nor may the consideration and/or issuance of permits be considered a waiver of DNR’s rights in any manner.”

Irwin terminated the unit in April and confirmed that decision June 11 after the Point Thomson working interest owners appealed for reconsideration.

ExxonMobil said in June after Irwin denied the appeal for consideration that it would “pursue all alternatives to protect our rights to develop these resources.”

The company also said it believed Irwin “has no legal basis to terminate the unit” and said then that it had “already hired Alaskans, secured a rig and ordered long-lead materials for this purpose.”

—Kristen Nelson

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