|
Companies defend Thomson Alaska Supreme Court proceedings continue on disputed North Slope oil, gas field Wesley Loy For Petroleum News
The major stakeholders in the disputed Point Thomson oil and gas field have filed a unified defense of their interests with the Alaska Supreme Court.
The filing is the latest legal twist in the fight for control of the rich field — a fight that continues even as all parties contend they’re trying to settle the matter out of court.
Four oil companies signed onto the 83-page brief filed Aug. 5 with the high court: ExxonMobil, BP, Chevron and ConocoPhillips.
The brief is their reply to the 102-page opening brief lawyers for the Alaska Department of Natural Resources filed on May 5.
The dueling documents lay the foundation for the Supreme Court to decide whether the oil companies have been treated fairly in DNR’s efforts to break up the Point Thomson unit and reclaim the state acreage it encompasses.
But no matter how the court rules, the conflict likely will be far from over barring a settlement.
Origins of appeal The state appealed to the Supreme Court in February 2010 after Superior Court Judge Sharon Gleason reversed former DNR Commissioner Tom Irwin’s termination of the Point Thomson unit.
For months, DNR’s appeal lay dormant as the state and the oil companies, with the high court’s blessing, concentrated on settlement talks.
Now, the appeal is back on track with each side having filed its major written argument.
The state’s appeal is somewhat unusual because it is “interlocutory.” That is, DNR is appealing a midstream ruling from a case that remains undecided at the trial court level. So, once the Supreme Court rules, it will send the matter back to the lower court for further proceedings there.
It’s easy to see how this process could lead to years more conflict, given the complex issues surrounding Point Thomson and the fact that the field is worth billions of dollars.
In reversing the unit termination, Gleason faulted the state on two counts.
First, she held that the Point Thomson stakeholders were wrongly denied a hearing under a key section of the Point Thomson unit agreement.
Second, she said DNR lacked the appearance of impartiality in dealing with the oil companies.
At the heart of the Point Thomson affair is frustration — the state’s frustration that ExxonMobil, as unit operator, and the other companies have yet to produce any oil or gas from the field since its discovery in the late 1970s.
The field, located along the Beaufort Sea coast next to the Arctic National Wildlife Refuge, holds trillions of cubic feet of natural gas plus hundreds of millions of barrels of petroleum liquids.
Point Thomson impatience In 2005, DNR began to insist that ExxonMobil get on with development, and since has declared — twice — that the Point Thomson unit is terminated. DNR also has invalidated the underlying leases. The oil companies are resisting all these moves administratively and in court, with considerable success so far.
In their brief, the four oil companies suggest to the Supreme Court justices that the state’s Point Thomson impatience is misplaced.
“DNR’s argumentative and incomplete statement of ‘facts’ attempts to create the impression that the Point Thomson Unit contains vast quantities of readily accessible oil and gas that the (companies) have inexplicably refused to produce,” the brief says.
It just isn’t that simple, the brief continues, noting the historic lack of a North Slope natural gas pipeline and Point Thomson’s difficult character.
“The PTU contains an estimated 8 trillion cubic feet of natural gas in the Thomson Sand Reservoir, together with a lesser volume of heavier hydrocarbons,” the brief says. “The liquid hydrocarbons in the reservoir consist of a thin layer of heavy oil plus ‘retrograde condensate,’ which is gaseous in the reservoir but becomes liquid at the surface. If all hydrocarbons in the reservoir could be brought to the surface, over 90% of the total volume would be natural gas. The PTU also contains some lighter oil in separate accumulations called Brookian sands.
“As the state has acknowledged, the geology of the PTU makes production of the gas, condensate, and oil located there technologically challenging. The main gas reservoir, 12,000 feet below the surface, is under extreme pressure — over 10,000 pounds per square inch compared to an average of 4,335 psi at Prudhoe Bay. The very high pressures create both drilling risks and production safety issues. In addition, because the condensate is ‘retrograde,’ some liquids will condense deep in the gas reservoir as pressure declines, rather than only at the surface. This presents problems for recovery of both condensate and gas. Finally, the main gas reservoir may be compartmentalized, discontinuous, or poorly connected. Production of hydrocarbons from reservoirs of this nature requires more wells.”
In a footnote, the brief says Point Thomson’s 10,000 psi “would approximately equal the pressure of two 4x4 pickup trucks resting on a person’s thumbnail.”
Right to hearing at issue The company brief goes on to detail other reasons why Point Thomson is a major development risk.
The primary question before the Supreme Court is whether the companies, before the unit was terminated, were due a hearing under Section 21 of the Point Thomson unit agreement.
Section 21 says the state has authority to adjust the “rate” of development and production, but only after the unit operator has the opportunity for a hearing to consider, among other things, whether any rate increase would violate “good and diligent oil and gas engineering and production practices.”
Judge Gleason faulted DNR for failing to give ExxonMobil the hearing.
The state cites numerous reasons why no such hearing was deserved, one being the fact that Point Thomson has no production.
Further, DNR has said a Section 21 hearing would be an arduous exercise involving years of preparation and legions of geology and engineering experts.
But ExxonMobil and the other companies argue Section 21 is a vital contractual protection when faced with “the abrupt and enormous forfeiture that DNR would inflict” on the Point Thomson working interest owners.
| 