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State asks for production from Point Thomson unit next to ANWR by 2008 Unit operator ExxonMobil had proposed a commitment to development drilling within five years of expansion approval Kristen Nelson PNA Editor-in-Chief
Apparently the state is expecting to see a pipeline in operation to Point Thomson on the eastern side of the North Slope within the decade, because the Division of Oil and Gas is negotiating with the Point Thomson unit owners for expansion terms which require “sustained commercial production” by June 2008.
A pipeline exists as far as Badami, about half way to Point Thomson, but lack of transportation has kept Point Thomson unit development on hold for years. The unit was formed in 1977 and various expansions, contractions and work plans have been negotiated over the years.
In the past, the state accepted the lack of a pipeline as a reason for delays in Point Thomson development, but the division explicitly stated that it will not accept lack of transportation as an excuse for expansions currently under negotiation: “Inability to place the expansion areas on sustained commercial production by the commitments dates due to the absence of a pipeline will not be considered force majeure.” Discussion started in January This round of discussions began in January when unit operator ExxonMobil Production Co. applied for expansion-contraction of the unit and told the division that unit owners planned to begin development drilling at the field within five years of approval of a plan of expansion-contraction. The largest Point Thomson working interest owners are ExxonMobil, BP and Chevron. The application included proposals for drilling commitments and nonperformance payments and contraction if those commitments were not met.
The ante has been upped, because a proposal from the state in early May includes numerous references not to development drilling, which can be done in advance of transportation being available, but to sustained commercial production — which requires a pipeline.
The areas under discussion have also been divided into expansion areas, which have requirements for sustained commercial production by dates from 2008 to 2012 and work commitment areas which have both drilling requirements and requirements for sustained production by June 15, 2008. Expansion areas require production The division said it is not requiring drilling in the designated ‘expansion areas’ — presumably they have already been adequately explored.
“However,” the division said, “if the acreage were available for leasing in the next Areawide Lease Sale, DNR would impose a higher royalty rate. Therefore, as a requirement for including these leases in the PTU, the royalty rates will be increased and sustained commercial production must commerce by the date specified for each area.”
If sustained commercial production has not begun by the date specified, the acreage will contract out of the unit and the working interest owners will pay “an amount to compensate for the unrealized bonus payments during the period that the acreage was withheld from leasing.”
Expansion area 1, all of one lease and portions of two others at Challenge Island on the northern edge of the unit, requires sustained commercial production by June 15, 2008 or areas not in a participating area will be contracted out of the unit. Participating areas are areas within a unit from which production is occurring. In expansion area 1, the royalty increase would be from 16.66667 percent to 20 percent.
Expansion area 2, north of the existing unit, is the southern portion of one lease. Expansion area 3, east of the unit, is a single lease. Both include the same provisions as the acreage in the Challenge Island area.
At the Sourdough prospect, expansion area 4, a portion of a single lease on the southeastern edge of the unit, the royalty would be increased from 12.5 percent to 16.66667 percent and sustained commercial production would have to begin by June 15, 2010.
At expansion area 5, the Lynx prospect south of the unit, a portion of a single lease would be added to the unit, the royalty rate would remain at 12.5 percent and, as with Sourdough, commercial production would have to begin by June 15, 2010. Work areas require drilling Drilling commitments are required for expansion in work commitment areas. Royalty rates will not be increased, but commercial production must begin by June 15, 2008. As with the expansion areas, if terms are not met, the acreage contracts out of the unit and the state collects an amount to compensate for unrealized bonus payments.
At work commitment area A, Red Dog, two complete leases and a portion of a third on the northwest corner of the unit, a well into the Thomson Sand interval is required by June 15, 2003.
Work commitment area B, northwest of the unit, includes all of three leases and a portion of a fourth. A well must be completed into the Thomson Sand interval by June 15, 2005.
Work commitment area C, north of the unit, includes all of two leases and portions of two others. A well must be completed into the Thomson Sand interval by June 15, 2004. Other areas could be included A letter from Division of Oil and Gas Director Mark Myers accompanying the proposal notes that Atofina, which has acreage adjacent to the Point Thomson unit, has requested that its acreage be included as part of any expansion. Myers said that while the current proposal does not address Atofina’s request, it also does preclude other expansion of the unit.
It might be appropriate, he said, to expand the unit to include Atofina’s leases to the north on terms similar to work commitment area B, with the nonperformance payment based on terms for the Atofina acreage.
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