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Point Thomson unit owners negotiating unit expansion with state Some of leases in area of unit expire March 31; state unwilling to expand unit which has been in existence 20 years without any production Kristen Nelson PNA News Editor
The Alaska Division of Oil and Gas told ExxonMobil in December that the state has the same concerns with current proposals to expand the Point Thomson unit that it had in 1998 and in 1984:
"There are no firm commitments to explore the expansion area and develop the unit," former Director Ken Boyd said in a Dec. 12 letter.
The state has been reviewing proposals by the Point Thomson unit owners for resizing the unit since late summer, but has not yet submitted a formal application to expand or contract the Point Thomson unit.
In a Nov. 21 draft proposal, unit working interest owners Exxon Mobil Corp. — the unit operator — and working interest owners BP Exploration (Alaska) Inc. and Chevron USA Inc., proposed to the state that the Point Thomson be redefined as a core unit area and three work commitment areas.
The companies said that the proposed core area would have approximately the acreage of the existing Point Thomson unit, some 85,000 acres.
Work commitment area A would contain approximately 21,930 acres; work commitment area B would contain approximately 4,950 acres; work commitment area C would contain approximately 26,500 acres.
Taken together, the companies said, the redefined Point Thomson unit area would consist of all or portions of 50 leases and would cover approximately 136,480 acres. Work proposed for expanded unit In exchange for the expanded unit, the companies proposed that the major owners — ExxonMobil, BP and Chevron — create a common database for work commitment area A by March 31; complete technical evaluation of data and review results with the state within two years of approval of expansion; and initiate deepening of the Red Dog well as a Thomson Sand appraisal well within three years of approval of the expansion or area A would contract out of the unit.
For work commitment area B, an appraisal well would be drilled within three years of approval of the expansion or area B would contract out of the unit.
Operations for development drilling the core area of the Point Thomson unit would begin within five years of the approval of expansion or all of work commitment area C acreage would contract out of the unit.
The major owners proposed a pre-application meeting with the Division of Governmental Coordination during the first quarter of 2001 and the initiation of the permitting process by the end of 2001. The companies told the Division of Oil and Gas that discussions have already occurred "about initial project concepts being considered for the development of Point Thomson" with the U.S. Army Corps of Engineers, Alaska Department of Fish and Game, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency, State Pipeline Coordinator's Office, U.S. Minerals Management Service and the U.S. Geological Survey Biological Research Division. Conceptual engineering begun The companies said that conceptual engineering has begun for Point Thomson development. "Engineering consultants have been appointed and charged with developing the details necessary to support permit applications. We envision that this work will be completed prior to our planned conference with DGC," the companies told the Division of Oil and Gas.
"Also, the major owners have committed to spend over $5.5 million to fund the conceptual engineering for PTU development, and another $1.3 million to fund the preparation of an environmental report and permit applications for PTU development," the companies said.
The companies said that the major Point Thomson unit owners "have already aligned their interests, and proposals to the remaining owners are anticipated shortly." Formal application required In his Dec. 12 letter to the Point Thomson owners, outgoing Director Ken Boyd of the Division of Oil and Gas noted that the division could not decide the unit expansion question until it receives a formal application, and noted that state regulations "prescribe a 100-day process from the receipt of a complete application for unit expansion through issuance of a decision on the application."
He noted that the draft application includes acreage with an expiration date of March 31, and recommended that the lessees submit a completed application by Dec. 20 "to allow sufficient time to process the application before the lease expires."
But Boyd put the companies on notice that the division has the same concerns with the draft proposals for expansion of the unit that it has had with expansion proposals since 1984: "There are no firm commitments to explore the expansion area and develop the unit." He also said that the work commitment areas described "do not appear to be based on the applicant's interpretation of the technical data."
The timing of the work commitments is also a concern: "You propose three-year 'commitments' in Areas A and B where leases expire in less than a year."
In Area C, Boyd said, neither work commitments nor production commitments "justify extending the lease that expires on March 31, 2001." And one lease, with a Nov. 30, 1998, expiration date, is not tied to any action justifying extension, he said.
Boyd said the state was also concerned that: "The term 'initiate operations' is not likely to constitute a material commitment."
He suggested that the additional acreage the Point Thomson owners want included in the unit "would justify the formation of one or more new units" and said that an "application should include more significant and firm commitments to explore and develop the unit than does" the draft, including drilling commitments tied to the expiration date of leases, payment of performance guarantees, approval of participating areas.
"The goal of issuing an oil and gas lease is to get oil or gas production," Boyd said. "The purpose of unitization is to further that goal. The division may be unwilling to expand a unit that is over 20 years old and has not yet formed a participating area to produce oil or gas without definite commitments to explore new prospects and to begin production from already discovered accumulations."
Boyd also cited an Alaska Supreme Court decision which said that the "State's real interest in issuing leases is the receipt of royalties" that only come with production. He said that it may not be in the state's best interest "to extend leases past their primary term without any firm commitment to develop and produce them."
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