The Alaska Department of Natural Resources’ Division of Oil and Gas has told Point Thomson unit operator ExxonMobil Production Co. to try again on the expansion portion of its plan of development for the unit.
The Point Thomson POD included two plans - one for the initial production system now in operation and one for expansion project planning.
Point Thomson development came after a 2012 settlement agreement between the state and the Point Thomson unit working interest owners following a legal battle after the state terminated the unit because of a disagreement with the WIOs on moving the unit into production. Condensate production began from the unit in April 2016.
An Aug. 29 decision, signed by division Director Chantal Walsh, said the state interprets the 2012 settlement agreement between the state and the Point Thomson WIOs as covering only the original 2012-17 plan of development for the initial production system, or IPS. The original IPS POD expired May 1 of this year and the division extended it until Sept. 29.
The division approved the IPS POD portion of ExxonMobil’s submittal based on the unit agreement and state regulations, but said the expansion plan is specific to the settlement agreement, making it a contractual commitment, governed by the settlement agreement and not by the unit agreement and state regulations.
The decision said the expansion project planning POD “is inconsistent with the Settlement Agreement” and contrary to the interests of the state and the public which the division considers when reviewing a POD, but also said the settlement agreement does not prohibit submission of a revised expansion project planning POD and gave ExxonMobil until Oct. 31 to submit a revised POD.
Issues with expansion POD
The division said the settlement agreement requires the working interest owners to “begin engineering and permitting of a Point Thomson Expansion Project” and to submit a POD for the expansion which “includes work plans for evaluation and selection of an option for development of the Point Thomson Reservoir through a Point Thomson Expansion Project.”
The division characterized the expansion POD which ExxonMobil submitted as conditioned on “commercial negotiations and a decision to fund” and said those conditions are “directly contrary to the WIOs contractual obligations under the Settlement Agreement,” which obligates the owners to “begin engineering and permitting” during the 2017-19 POD period and requires that the POD include “work plans for evaluation and selection of an option for development.”
The division said what ExxonMobil submitted is inconsistent with the settlement agreement and “after agreeing to conduct and complete planning work now, the WIOs submitted a POD that would allow them to unilaterally decide to do nothing.”
ExxonMobil’s expansion project planning POD discusses potential expansion of the IPS facilities to increase production to more than 50,000 barrels per day of condensate for sale down the trans-Alaska oil pipeline and 920 million standard cubic feet per day of gas for injection at Prudhoe Bay, with two new wells and conversion of others, but the company said until the Point Thomson WIOs enter a commercial agreement with the Prudhoe Bay WIOs, no work will be funded. ExxonMobil told the division it has not approached the other Prudhoe WIOs to begin discussions.
A commercial agreement is not part of the settlement agreement, the division said, and the lack of an agreement would not prohibit planning work.
The POD also said front-end engineering design work is dependent on the WIOs deciding to fund that work.
“Conditioning the planning work on commercial negotiations and a decision to fund is directly contrary to the WIOs contractual obligations under the Settlement Agreement,” the division said. The POD also lacks the level of detail the WIOs committed to provide with this POD.
“Because of the Settlement Agreement, this Expansion Project Planning POD is not just a regulatory obligation, but a contractual one,” the division said. “To settle the PTU litigation and retain the unit, the WIOs agreed to conduct the planning work for an expansion project, starting now and completing by the end of 2019.”
IPS POD
The division accepted the initial production system POD, but said that while ExxonMobil drilled the wells identified in the settlement agreement it has not met its production obligation of 10,000 bpd of condensate, with data showing that while production has reached 10,000 barrels on some days, average production has fallen short of 10,000 bpd.
ExxonMobil said in its IPS POD that “production was impacted by difficulties with its gas injection compressor,” and the division said during the technical meeting the company “provided additional detail about the compressor and its design flaws and difficulties in relation to this reservoir,” telling the division that “it was conducting maintenance or repairs on the compressor during periods when production ceased or decreased.”
The division said it “is hopeful that Exxon will belatedly achieve the 10,000 barrels per day after further refinement of the compressor system.”
The settlement agreement also required ExxonMobil to identify and pursue debottlenecking work, but, the division said, the company did not identify any such work completed in the 2012-17 POD period.
The IPS POD fails to address permitting for the East Pad, an East Pad well or additional wells, the division said, which indicates ExxonMobil has not fulfilled obligations in the settlement agreement to continue permitting the East Pad, an East Pad well and an additional well.
The division said ExxonMobil does not plan any additional drilling for the 2017-19 POD period, but will consider debottlenecking work.
The division said it is concerned that ExxonMobil did not fulfill requirements for the 2012-17 POD period including sustaining 10,000 bpd production, identifying and pursuing debottlenecking and continuing to permit the East Pad, an East Pad well and an additional well.
“Exxon did provide an extensive explanation of its problems with the compressor and the Division remains hopeful that those problems are now resolved and that Exxon will soon meet its production rate obligation,” the division said.
The proposed POD does provide for continued production, which is a benefit to the state, the division said, adding that unitized production “generally conserves resources, minimizes environmental impacts, and prevents waste.”
Despite concerns, the division approved the IPS POD for Sept. 30, 2017, through Dec. 31, 2019.
