Alaska Department of Natural Resources Commissioner Tom Irwin has authorized processing of permits, including an ice road permit, and drilling on two “conditionally reinstated” leases at Point Thomson, allowing ExxonMobil to move forward with drilling this winter.
Irwin issued a conditional interim decision Jan. 27 in pending lease termination appeals for the Point Thomson area.
For the conditional reinstatement of the two leases to become final, however, Irwin is requiring unconditional funding commitments for drilling the two wells for which conductor has been set and for production facilities necessary for “sustained commercial production and transportation of hydrocarbons from these two wells on these two leases to market by 2014.”
Documentation of that funding is required within two weeks.
There are a number of appeals, administrative and judicial, over Point Thomson, a unit formed on the eastern side of the North Slope in 1977 and terminated by Irwin last year for lack of development, a decision which is under appeal in Superior Court.
Irwin’s Jan. 27 decision is on an appeal by the Point Thomson leaseholders of the August termination of 31 unit leases by DNR Division of Oil and Gas Director Kevin Banks. The companies appealed the decision to Irwin; there was a hearing Jan. 12-16.
Irwin said in his decision that the appellants — ExxonMobil was the operator at Point Thomson prior to termination of the unit; other major owners include BP, Chevron and ConocoPhillips — “offered at the hearing that they have unconditionally committed to drilling two wells on two leases, including initiating actual drilling this winter season,” completing two wells by 2010 and beginning production from those wells by 2014.
He said he wasn’t ruling on the other leases and issues in the appeal because the proceedings were not yet complete.
Irwin said in a Jan. 27 statement that he issued the interim conditional decision in response to testimony at the mid-January hearing “that if DNR issued the ice road permit by the end of this month,” ExxonMobil and the other owners “would proceed with their drilling commitments during this winter season.”
He said it was in the public interest to issue the ice road permit and process other necessary permits at this time, and said he was holding ExxonMobil to its “unconditional commitment, made under oath, to drill and produce from these wells.” Failure to abide by those commitments “will result in the automatic termination of these leases according to the lease terms,” he said.
ExxonMobil reviewing decisionExxonMobil spokeswoman Margaret Ross told Petroleum News in a Jan. 27 e-mail that the company has received the decision and is reviewing it “and will respond accordingly.”
“However, we are encouraged that the DNR has progressed the decision regarding Point Thomson leases and will grant the ice road permits allowing mobilization of the drilling rig,” Ross said.
She said ExxonMobil also appreciates that DNR has indicated to other agencies that drilling will be permitted.
“This decision clears the way for construction of nearly 50 miles of ice roads needed to transport the drilling rig and associated equipment, materials, camps and personnel to the Point Thomson site,” Ross said, calling it “good news for Alaska and especially for the 50 Alaskan companies and more than 200 people working at Point Thomson today.”
She said ExxonMobil is “committed and ready to move forward with the Point Thomson Project.”
Ice road permit to be issuedKurt Gibson, deputy director of the Division of Oil and Gas, told Petroleum News late in the day Jan. 27 after the decision was issued that the ice road permit was prepared and would be issued the next morning.
The division will have to approve a plan of operations for drilling, but assuming Exxon is willing and able to comply with the decisions set out in the interim decision, that shouldn’t be a problem, Gibson said.
“At this point the ball is kind of in Exxon’s court,” he said.
“They indicated if the ice road permit could be issued before the end of this month ... they could proceed with their winter drilling program,” he said.
The final agency decision on the appeal of the lease terminations will be made after the hearing record has been closed. The hearing was continued to Feb. 12 to allow Irwin the opportunity to question witnesses who did not appear at the January hearing but presented testimony in writing.
Not a done dealIrwin’s conditional decision definitely has conditions.
“If Appellants provide the documents listed below, the record will be adequate to support reinstatement of the two leases and issuance of permits to authorize drilling of these two wells,” he said in the decision.
Irwin said that if the companies can provide the listed documentation, he finds that ADL 47559 and ADL 47571 “have been extended by the drilling operations savings clause” because of the unconditional commitment to initiation of drilling this winter season, “including drilling a well out of the conductors with a rig capable of drilling through the Thomson Sands on that lease, and completing the drilling of two wells on these two leases, both penetrating the Thomson Sands reservoir, by 2010.”
In addition, Irwin said in his decision, the companies mobilized equipment and materials to the North Slope to support their operations and “unconditionally committed to bring these two wells on the two leases into production by 2014.”
ExxonMobil argued at the January hearing that Point Thomson unit leases were held by drilling operations work it initiated within 90 days of the termination of the unit last year, per the terms of the leases. That work included rig preparation, drill site preparation and installation of conductors through which the first two wells would be drilled.
Irwin said he directed that the ice road permit be issued and all permits pending before DNR necessary for drilling be processed. Local, state and federal agencies will be notified that Exxon is authorized to drill the two wells on the two leases, he said.
Requirements for reinstatementWhen he terminated the Point Thomson unit last year Irwin said that given the history of the unit he did not trust the companies to go ahead with proposed work.
In the conditional interim decision he asks for financial commitments from the participants for work up to and including production and transportation facilities to meet the 2014 production date.
Irwin said that to make the conditional reinstatement of the two leases permanent, the companies must complete the two wells by 2010 and begin “sustained commercial production and transportation of hydrocarbons from these two wells on these two leases to market by 2014.”
Agency approvals must be obtained for all of the work.
And answers and documentation requested during the January hearing must be provided within two weeks, “including the precise well locations, drilling dates and production dates for each well.”
Irwin is also requiring, within two weeks, “a drill rig contract for each well, unconditional AFEs (authorizations for expenditure) for each well signed by all parties, an AFE for the production infrastructure, and affidavits from each Appellant stating its willingness to pay its share of the costs for each well and for the production infrastructure.”
The companies told Irwin at the mid-January hearing that funds were authorized for 2009 work and said money would be available when needed for additional wells and facilities work.
The commissioner wants those commitments formalized now.