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Point Thomson owners opt to pay penalty, drop acreage at Red Dog ExxonMobil tells state companies not happy with permitting progress for gas cycling development project, but believe project could still start up in 2006 Kristen Nelson PNA Editor-in-Chief
Point Thomson unit operator ExxonMobil Production Co. has told the state that the working interest owners at the unit cannot justify drilling in the work commitment area identified in the unit expansion-contraction agreement, and have decided instead to pay the state $940,000 and relinquish the Red Dog leases on the western edge of the unit.
ExxonMobil said in a June 28 draft 19th plan of further development and operation for Point Thomson that under the 18th plan the owners developed a drilling plan and cost estimates to deepen the Red Dog No. 1 well to test the Thomson Sand. Costs to deepen the well “are now estimated to be considerably more than the initial estimates that were used to prepare” the 18th plan of development.
“Incorporating new seismic data and interpretation into the analysis suggests that the prospectivity of the Red Dog area is less than originally anticipated,” the company said. “Based on these findings, the owners cannot justify a deepening of the Red Dog-1 well.” Drilling through Thomson sand required The Point Thomson expansion/contraction plan to which the state gave final approval in May required drilling a well through the Thomson sand interval within the work commitment area on the western edge of the unit by June 15, 2003, or the work commitment acreage would automatically contract out of the Point Thomson unit on that date. Either a new well or deepening the Red Dog No. 1 would have met the requirement.
The state said there is a high probability the expansion areas contain hydrocarbon resources, “but there is a lesser probability that the work commitment area is also underlain by oil and gas.” Hence the drilling requirement.
The $940,000 payment to the state is a drilling extension charge — payment in lieu of unrealized bonus payments during the period that the acreage was withheld from leasing.
The work commitment area contains Permitting not going as quickly as owners would like
ExxonMobil also told the state that permitting for the Point Thomson gas cycling project is not going as quickly as the owners of the unit would like.
A 404 permit was filed with the U.S. Army Corps of Engineers in the third quarter of 2001, the company said, but lengthy inter-agency negotiations resulted in a change in lead agency from the Corps of Engineers to the Environmental Protection Agency.
The EPA issued formal notice in April 2002 that it would conduct an environmental impact statement. The contract with a third-party environmental consultant is under discussion, ExxonMobil said, and is expected to be finalized by the end of September.
“Although federal activity was slower than anticipated with eight months expended between submission of the Environmental Report and issuance of the Notice of Intent (to do an environmental impact statement), the current schedule can still allow development drilling to begin on schedule, no later than 2006,” the company said.
ExxonMobil said that, in response to items discussed with agencies, an additional group of environmental surveys and studies have been undertaken in the 2002 summer season. New operating agreement Under the 18th plan of development, which runs through Sept. 30 this year, the owners also undertook to finalize a new Point Thomson unit operating agreement with all owners.
This new agreement, the company said, “will be far more consistent with the legal and technical requirements for the operation of the unit than the current agreement.” It will be finalized by the major owners. Then the smaller owners will have the opportunity to participate under the new agreement or to remain under the current operating agreement.
ExxonMobil said studies under the 18th plan “have identified sufficient economic incentive” for the major owners” to proceed to the next level of expenditures to fund a project management team and begin preliminary engineering design work with a contractor. 19th plan of development The focus of the 19th plan of development, which runs through Sept. 30, 2003, will be to seek permits necessary to develop the Point Thomson sand — ExxonMobil said the owners will attempt to expedite permitting under the National Energy Policy — and to execute the front-end engineering design in parallel with permitting.
If a North Slope gas sales project materializes, Point Thomson would be an integral part of the gas sales project, ExxonMobil said: “In this case, the cycling project could be converted to gas sales which could result in a later start-up than currently planned for a cycling only project.”
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