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ExxonMobil says Point Thomson not viable as standalone project
Kristen Nelson Petroleum News Editor-in-Chief
The Point Thomson bubble has apparently burst — at least until there is a natural gas pipeline from Alaska’s North Slope to take gas to market.
Field operator ExxonMobil, speaking for itself and other major owners of the undeveloped eastern North Slope field — BP Exploration (Alaska), Chevron U.S.A. and ConocoPhillips Alaska — told the Alaska Division of Oil and Gas in mid-December that “a standalone project prior to gas sales is not economically viable under the current fiscal system.”
ExxonMobil told the state that “completion of engineering and resource evaluation work during the past year has confirmed that development of the resource at PTU (Point Thomson unit) is challenged.”
Resource evaluation work has “resulted in a significant reduction in liquid resources,” the company said. On the cost side, engineering design work and “better identification of permitting and environmental requirements” added costs to the project, although that was balanced because “a cost reduction effort identified changes in scope that reduced costs” back to within the original cost range. Companies exploring alternatives ExxonMobil said the Point Thomson owners have not given up on development and have begun discussions with the state “to explore ideas that could result in a commercially viable project.”
But because the project is not currently economic, the Point Thomson owners are proposing a change in their agreement with the state, which mandates a $10 million payment to the state if the owners determine by Jan. 15, 2004, to relinquish the expansion area.
In the 2001 agreement expanding the unit, the amount was $8 million and the deadline was June 30, 2003. The state extended that deadline in exchange for an increase to $10 million.
The companies are now proposing a sliding deadline: from Jan. 15, 2004, until the required date for the beginning of development drilling, June 15, 2006, the major working interest owners “may at any time provide notification of their election to contract the expansion acreage” and pay the state $10 million, plus an added amount equal to one-twelfth of $4 million for each full month beginning Jan. 16, 2004.
ExxonMobil said the owners’ proposal is “consistent with the basis for the payment schedule” in the state’s 2001 decision approving the unit expansion, “which recites that the payment is intended to compensate the state for delay in receiving bonus payments from leasing the acreage that was not relinquished.”
The proposal would also, ExxonMobil told the state, align the interests of the owners and the state, giving the owners an incentive for early relinquishment of the acreage “if conditions warrant,” an incentive which “is not present if there is a fixed payment that does not increase with time.” Early relinquishment would make the acreage available sooner for the state to offer in an oil and gas lease sale. Point Thomson resource While ExxonMobil said evaluation had led to a “significant reduction” in the estimate of liquid resources at Point Thomson, it did not make the new estimates public.
The Alaska Division of Oil and Gas has listed the Point Thomson resource as 435 million barrels of oil and 8 trillion cubic feet of gas in its last two annual reports, and any information on new reserve estimates provided to the state by the owners in unit discussions is confidential.
Numbers from ExxonMobil earlier this year are in line with the state’s recent published numbers. Houston, Texas-based ExxonMobil spokesman Bob Davis told Petroleum News in August that the field contains roughly 400 million barrels of recoverable condensate, which Davis said is a liquid much like kerosene, plus the 8 tcf of gas.
Davis said in December that the owners were not releasing revised resource figures.
Point Thomson is a high-pressure condensate field, and initial development plans called for producing the oil and reinjecting the gas into the reservoir. Project estimate exceeds a billion dollars Davis told Petroleum News Dec. 31 that the owners spent more than $50 million this year completing engineering and evaluation work for Point Thomson, and have had “preliminary discussions with the state on the project status.”
The owners estimate project costs at in excess of a billion dollars for facilities, infrastructure and drilling, Davis said, in addition to the hundreds of millions of dollars already spent at Point Thomson, which is in its 20th plan of development.
He said that, as the owners have told the state, based on costs, the resource and estimated revenue from the project, it is not economic.
“We do anticipate additional discussions with the state with the goal of identifying a commercial project,” Davis said. Leases held since 1970s There has been a Point Thomson unit since the late 1970s, allowing leaseholders to retain oil and gas leases even though there is no production, until there is a pipeline to take the field’s resources to market.
There have been various expansions and contractions in the unit since it was formed.
The most recent was in 2001, when the unit owners negotiated with the state to expand the unit to include adjacent leases close to expiration, in exchange for a number of commitments, including a long-term plan of development for the unit, development drilling beginning by June 15, 2006, and completion of seven development wells by June 15, 2008.
In exchange for expansion of the unit to include the additional leases, the unit’s owners agreed to pay the state to make up for money the state could have earned by offering the expansion area leases in state oil and gas lease sales if they didn’t meet the agreed-upon development schedule for the unit.
The companies made the first such payment in 2002 when they decided not to deepen the Red Dog No. 1 well in a portion of the expansion acreage and instead paid the state $940,000, and relinquished leases on the western edge of the unit. Unit alignment almost complete Progress is being made on another front.
Alignment of major interests at the field, agreed to by ExxonMobil, BP and Chevron in 2000, and subsequently by ConocoPhillips, is nearing completion, ExxonMobil told the state.
The company said cross assignments are being executed, and said it would submit them to the state for approval as soon as all of the companies had signed.
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