Vol. 18, No. 20 Week of May 19, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

Point Thomson progress

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Work on the ground well under way on Exxon’s long-awaited Alaska project

Wesley Loy

For Petroleum News

ExxonMobil is starting to make real strides on its Point Thomson development on Alaska’s North Slope.

Construction contractors for the oil giant have been focusing on two project components — the central pad, and the pipeline that will tie the field into the existing North Slope oil transportation network to the west.

ExxonMobil is aiming to begin production of natural gas condensate, a light hydrocarbon liquid, by May of 2016.

The initial production level is expected to be 10,000 barrels a day, a small volume in the context of overall North Slope oil production, which currently exceeds 550,000 barrels daily.

But the project is regarded as a key first step toward a potential multibillion-dollar effort to fully exploit one of North America’s largest undeveloped oil and gas fields.

ExxonMobil has two major partners in the field, BP and ConocoPhillips.

The Australian firm WorleyParsons, along with Fluor, is providing overall project management.

Central pad camp set up

Kim Jordan, an ExxonMobil spokeswoman in Houston, told Petroleum News on May 15 that modules for a permanent work camp were placed on their foundations at Point Thomson’s central pad in April.

The work camp was built at a fabrication yard in the Anchorage area, she said.

More infrastructure development is planned for the summer, including the commissioning of the camp, completion and certification of an airstrip, and installation of a permanent service pier, Jordan said.

The field hugs the shore of the Beaufort Sea, about 60 miles east of Prudhoe Bay and just west of the Arctic National Wildlife Refuge.

The project design calls for three drill pads, with the central pad to host the process and compression equipment needed to produce the gas condensate. These heavy industrial modules are not yet on the North Slope as ExxonMobil focuses for now on basic site preparation.

Two wells have been drilled on the pad already, and are in suspended status.

ExxonMobil will produce the condensate through a process known as cycling, where natural gas is brought to the surface for collection of the liquids. The dry gas will then be shot back underground for storage. The project is expected to cycle 200 million cubic feet of gas per day.

It’s a challenging project, for a number of reasons.

The Point Thomson site is remote, and materials and equipment must be brought in by coastal barge or by ice road. ExxonMobil this year built an ice road from the west that was open from February until late April.

With respect to production, ExxonMobil will have to contend with very high pressures in the Point Thomson reservoir. The company says 10,000 pounds per square inch of compression will be required to reinject the gas.

The export pipeline

A vital component of the Point Thomson project is the new 22-mile export pipeline that will carry the liquids production west to Badami, a former BP unit now operated by Savant Alaska. From there, the liquids will move through the Badami pipeline and ultimately end up in the trans-Alaska oil pipeline.

The Point Thomson pipeline will run along the coast to Badami. Like many pipelines in the North Slope oil fields, the Point Thomson line will be above ground and insulated, and will rest on brackets known as “vertical support members,” or VSMs.

Graham Smith, spokesman for the State Pipeline Coordinator’s Office, said lease compliance specialists made three trips to the Slope to check on the pipeline work, which just wrapped up for the season.

“Definitely making some serious progress,” Smith said. “All the VSMs are hammered in.”

The next step will be to lay the actual pipe, and that should occur next winter, he said.

The straight pipe already is in Alaska, stockpiled in Fairbanks, Smith said. The bends have yet to be delivered.

Jordan, the ExxonMobil spokeswoman, said workers installed about 2,200 VSMs. She confirmed that the export pipeline and gathering line will be installed next winter.

The 12-inch export pipeline will feature a design capacity of 70,000 barrels per day, well above the 10,000 barrels per day of condensate ExxonMobil expects to produce initially. The surplus capacity will accommodate fuller Point Thomson development, and maybe production from other eastern North Slope developments.

The budget for the pipeline alone is $253 million, ExxonMobil has said.

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Walker presses court challenge, says Point Thomson deal was improper

Bill Walker, an announced candidate for governor in 2014, is continuing his court challenge of the state’s landmark Point Thomson settlement.

Point Thomson is a rich oil and gas field on Alaska’s eastern North Slope. In March 2012, the state and oil companies holding leases at Point Thomson struck a deal resolving years of legal conflict over the field, and laying out a schedule for its long-awaited development.

The settlement was a major policy objective for Gov. Sean Parnell, who sought to spur production from Point Thomson, and also boost chances for a North Slope natural gas pipeline.

The field holds an estimated 8 trillion cubic feet of gas, or about a quarter of the known reserves on the North Slope, plus large volumes of crude oil and other petroleum liquids.

Walker, however, argues the Point Thomson settlement is a bad deal for the state, and that the Parnell administration took unlawful shortcuts in signing it.

The matter now is pending before the Alaska Supreme Court, where Walker is appealing his loss in a lower court.

Second run for governor

On April 25, Walker announced he will challenge Parnell in the 2014 Republican primary.

The Anchorage attorney and former mayor of Valdez took on Parnell in the 2010 primary, coming in second with about 33 percent of the vote. Parnell took 50 percent and Ralph Samuels tallied 14 percent.

In announcing again for governor, Walker said the state “lacks strong leadership, vision and a roadmap for our state’s future.”

Alaska, he said, has become a state “whereby the major North Slope oil companies now dictate our tax and resource development policy.” He cited a tax bill Parnell pushed through the Legislature this year that “returns billions of dollars each year to the major oil companies without any corresponding requirement that any of that money be spent in Alaska.”

Walker long has been an advocate for a gas pipeline, and for development of Point Thomson.

But he contends the Parnell administration’s settlement with field operator ExxonMobil and its partners was improper, skirting the normal public process and leaving the oil companies with too much control over the field.

‘Citizen taxpayer’

The March 29, 2012, settlement between the state and ExxonMobil, BP and ConocoPhillips ended a seven-year fight for control of the undeveloped Point Thomson field.

The Parnell administration says the deal contains strong terms that will drive the companies to either produce from the field or suffer costly consequences, including the loss of leased state acreage.

ExxonMobil is now working on the early stages of an initial development at Point Thomson. The project will involve producing a modest 10,000 barrels per day of natural gas condensate, with field startup scheduled for spring 2016.

Acting as a “citizen taxpayer,” Walker on May 29, 2012, filed an “administrative appeal” in state Superior Court in Anchorage challenging the Point Thomson settlement, as signed by Dan Sullivan, commissioner of the Department of Natural Resources, and Attorney General Michael Geraghty.

The state moved to have Walker’s lawsuit thrown out, and Judge Catherine Easter granted the motion on Dec. 7, 2012.

Easter, however, didn’t rule on the substance of Walker’s arguments. Rather, she ruled that her court lacked jurisdiction over his administrative appeal. She held that Geraghty had discretion to enter into the Point Thomson settlement, and that Sullivan’s signature on the deal was “not an appealable decision.”

On to the high court

On Jan. 9, Walker appealed Easter’s decision to the Alaska Supreme Court. Walker argues Easter should have kept the case and let it play out.

Walker’s opening brief discusses his numerous problems with the Point Thomson settlement.

“The sweeping scope and economic significance of the Point Thomson Settlement Agreement to the people of Alaska is truly unique,” says the brief, signed by Walker’s law partner, Craig Richards.

In general, Walker says, the settlement is not in the best interests of the state or its citizens.

Walker argues the agreement was “negotiated and executed in secret,” with no opportunity for the public or Legislature to review or object to its terms.

Walker further contends the agreement contains “no firm work commitments” for ExxonMobil and the other working interest owners in the field.

And he says the Parnell administration circumvented the normal procedures, or “checks and balances,” that should apply to many terms in the Point Thomson settlement.

Walker also argues the settlement contains provisions that illegally “contract around” DNR regulations governing the management of oil and gas units.

The state’s argument has been that the attorney general has “broad authority” to settle litigation, and the Point Thomson settlement isn’t subject to challenge.

—Wesley Loy

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