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Vol. 12, No. 41 Week of October 14, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Superior Court decision on Point Thomson out by end of year, says judge; then likely on to Alaska Supreme Court

An Alaska Superior Court decision on the termination of the Point Thomson unit should be out by the end of the year.

It’s clear to everyone that the probability of an appeal to the Alaska Supreme Court is extremely high, Superior Court Judge Sharon Gleason said Oct. 5 at the end of oral arguments on the appeal of former Point Thomson unit owners against decisions by the Alaska Department of Natural Resources to terminate the unit. Gleason said her goal is to get a decision out as soon as possible so the case can move on to the Alaska Supreme Court. She hopes to have a decision out in November, but said it would definitely be out before the end of the year.

Former Point Thomson unit operator ExxonMobil and other major companies involved in the unit — BP, ConocoPhillips and Chevron — appealed the 2006 decision of former DNR Commissioner Michael Menge administratively. Acting Commissioner Marty Rutherford confirmed his decision early this year.

The venue then moved to state court.

State’s issue is development

The State of Alaska has been pressuring unit owners to develop Point Thomson for years. East of the developed North Slope fields, the unit abuts the Arctic National Wildlife Refuge. Discoveries date back to the 1970s when Point Thomson was unitized. The size of the unit has varied with expansions and contractions, but it has never been developed.

At one time the unit owners planned to develop oil from the high-pressure Point Thomson condensate reservoir and reinject the natural gas. Recently the field’s owners have said oil development would not be economic and the plan was changed to first selling natural gas from the field into a major gas pipeline planned from the North Slope.

DNR’s Division of Oil and Gas has pushed for oil development first and the Alaska Oil and Gas Conservation Commission has expressed concern about loss of liquid resources from the field, which is classified as an oil field, not a gas field, if natural gas is produced first.

POD rejected by state

Because Point Thomson was unitized, the state required a regularly updated plan of development. In 2005 the Division of Oil and Gas refused to approve a POD which called for waiting on a North-Slope-to-market gas pipeline before the field was developed and put the unit in default for lack of an acceptable plan of development.

The division’s decision was appealed to Menge, who held off on a decision, pending legislative approval of a gas line fiscal contract negotiated with the major North Slope gas holders — BP, ConocoPhillips and ExxonMobil. The Legislature did not approve the fiscal contract and in late November of last year Menge voided the Point Thomson expansion acreage, put the entire unit into default and ruled that there are no wells in the unit capable of producing in paying quantities.

The companies appealed the decision and it was confirmed by Rutherford.

Certified wells new issue

Menge upheld the division’s decision finding the unit in default for lack of an approved POD.

But he disagreed with the division’s decision “to the extent it can be read to mean the PTU contains certified wells.” This is one of the issues on appeal, with the companies arguing that the state has “certified” wells — but has no process in regulation to decertify them. Wells are certified by the state as being capable of producing in paying quantities.

The Alaska Gasline Port Authority argued last year before the commissioner made his decision that since all the exploration wells so certified have been plugged and abandoned, there are no wells “capable of producing” on the Point Thomson leases.

The companies argue that the state has violated its own regulatory process by decertifying the wells because it has no process in its regulations for decertification.

And since discoveries have been made at Point Thomson — demonstrated by the certified wells — appellants argue that the state has to go to court to terminate the unit, rather than terminating it administratively.

Exxon: appeal ‘hijacked’

In summarizing some of these issues, attorney John Daum, representing Exxon Mobil Corp., told the court in the Oct. 5 oral arguments that the DNR commissioner had “hijacked” an administrative appeal to make rulings and said the commissioner’s decisions did not follow proper administrative procedures.

The companies are asking the court to vacate the commissioner’s decision decertifying wells and the decision terminating the unit.

Attorney Mark Ashburn, arguing for the state, told the court that the lessees have suggested that they were surprised by the rejection of the 22nd POD. There is nothing surprising about that rejection, he said, since the state has been trying to get the unit into production for 30 years.

—Kristen Nelson

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