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Thomson owners offer $20M, 20,000 acres Point Thomson unit operator ExxonMobil Production proposes 5-year plan of development with a Thomson Sand reservoir well Kristen Nelson Petroleum News
The long-simmering disagreement between the State of Alaska and the Point Thomson unit owners over development of the field might — or might not — be moving toward resolution.
The state has been trying to get the owners to develop the eastern North Slope high-pressure condensate reservoir for some three decades, with negotiations centered around state approval of plans of development and periodic expansions and contractions of the unit’s acreage. Central to the problem is the lack of a pipeline to move oil to the trans-Alaska pipeline and lack of a gas pipeline from the North Slope.
Negotiations broke down in September 2005.
Mark Myers, then director of the Division of Oil and Gas in the Alaska Department of Natural Resources, found the unit in default because the proposed 22nd plan of development failed to meet regulatory requirements to “provide for the reasonable delineation and timely development of the hydrocarbon accumulations in the unit area.”
The unit operator, ExxonMobil Production, was given 90 days to “cure the default” with an acceptable plan which included development activities, sanctioning of a commercial Point Thomson unit development by Oct. 1, 2006, and plans for beginning of commercial production by Oct. 1, 2009.
The original “cure” date of Dec. 29, 2005, went away after DNR Commissioner Tom Irwin was fired in a dispute with the administration of Gov. Frank Murkowski over negotiations for a gas fiscal contract and Myers and other top DNR officials quit in protest. Mike Menge, the new DNR commissioner, extended the date because of the gas fiscal contract negotiations. Point Thomson gas is necessary for development of a North Slope gas pipeline project.
The final date, Oct. 20, was set to coincide with what would have been the end of a third 2006 legislative special session to consider ratification of the fiscal contract between the state and project proponents BP, ConocoPhillips and ExxonMobil. That special session never occurred. On Oct. 18, Richard Owen, Alaska production manager for ExxonMobil Production, the Point Thomson unit operator, wrote to Menge proposing a resolution of “all matters” associated with the 2002 expansion-contraction agreement.
20,000 acres would be surrendered The Point Thomson unit owners are proposing to surrender 20,000 acres and pay the state $20 million to resolve issues around required wells and development of the unit which were part of the 2002 expansion-contraction agreement.
They have also proposed a new plan of development to replace the plan the state rejected last year.
The unit has been operating under annual plans. The new proposal is for a five-year plan and includes a well to be drilled into the Thomson Sand reservoir in 2009-10, or a $40 million payment to the state if the well is not drilled, unless the owners are “prevented from drilling the well for reasons of force majeure or permitting delays on timely submitted permit applications.”
Owen told Menge that the obligations the unit owners undertook in the 2002 unit expansion “were based on a gas injection development” at Point Thomson. “In 2004, a gas injection development was determined to not be commercially viable.” Since then, Owen said, the Point Thomson working interest owners “have been actively pursuing a gas sales development” for Point Thomson.
Owen said the Nov. 10, 2005, extension to the obligations in the 2002 expansion-contract decision was based on the expectation that a fiscal contract for a North Slope gas pipeline project would be approved, resolving the expansion decision obligations. Since it now appears the Legislature will not approve the contract before the Oct. 20 deadline in the current extension, Owen said Oct. 18, payment of $20 million and surrendering the 20,000 expansion acres is proposed, along with a new plan of development, which, he said, includes “significant commitments” by the Point Thomson working interest owners.
The Point Thomson owners are requesting a five-year term for the new plan of development, from October 2005 (the last date on which there was an approved plan) through September 2010.
Extent of hearing an issue The Department of Natural Resources has a Point Thomson hearing scheduled for Nov. 13 and said the commissioner will have no response to the proposal until the process of gathering information, holding a hearing and considering all the evidence in the matter is complete.
Exxon had suggested in a Sept. 29 letter to Menge that the Nov. 13 hearing “be limited to the submittal of information on any cure Exxon decides to offer.”
Menge demurred.
“Be advised,” he wrote Owen on Oct. 3, “the hearing is not so limited.”
Menge said the hearing would cover both the appeal from the Oct. 27, 2005, plan of development decision and the proposed cure and written submittals due Nov. 3 “should also address both the appeal from the default decision and the proposed cure.”
Surrendered acreage mainly west, south The acreage the unit owners propose to surrender is primarily on the west and south of the Point Thomson unit, along with some acreage on the northeastern corner. Twenty tracts are involved, only four of them complete surrenders, ranging from 637 acres to 2,560 acres in size. The remaining tracts involve partial surrenders from 240 acres to 2,143 acres.
Some of the acreage proposed for surrender is in expansion areas, although only a portion of the 2002 expansion area would be surrendered under the Exxon proposal. Some areas of the pre-2002 unit on the west, south and northeast are offered for surrender. Large areas were added to the unit in 2002 on the north and northwest and only portions of those tracts are on the surrender list.
Owners working with AOGCC In a summary of work performed since Oct. 1, 2005, Exxon said the Point Thomson owners initiated the process of applying for pool rules from the Alaska Oil and Gas Conservation Commission. The owners and AOGCC “agreed to a protocol for the sharing of confidential data with the agency” in April, and in May, a comprehensive Point Thomson review was held for the AOGCC and its consultants. Exxon said the review included previous gas-injection development study efforts and introduced the owners’ work “to assemble a worldwide database of potential Point Thomson analogue reservoirs.”
In the proposed 2005-2010 plan, Exxon said the owners would continue to share confidential technical data with AOGCC in a data room. Once that process is completed, the owners will submit “a request for approval of a conservation order to authorize the desired gas offtake rate from the Thomson Sand reservoir.”
Exxon also said that, while prior studies found “stand-alone gas injection or Brookian development were not commercially viable” and “other studies concluded that neither gas storage nor gas injection followed by gas sales was commercially viable,” the petroleum production tax passed by the Legislature in August “and other changes in market conditions and other potential issues could affect the commercial viability of alternate development scenarios either positively or negatively.”
Screening studies are planned to evaluate the impact of the changes and to determine if more detailed work is warranted.
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