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Point Thomson owners opt to stay in game ExxonMobil has until June 15, 2006, to begin development drilling at North Slope field or pay state $20 million Kristen Nelson Petroleum News Editor-in-Chief
It’s hard to tell who blinked, but negotiations between ExxonMobil and the state of Alaska over extending an opt-out date for development drilling at the North Slope’s Point Thomson unit ended when the Alaska Division of Oil and Gas denied a request from operator ExxonMobil for a third extension.
At that point the Point Thomson owners had a choice, Alaska Division of Oil and Gas Director Mark Myers said: Pay the state $10 million and be relieved of further obligations under the unit expansion agreement, or proceed ahead and begin development drilling by the June 15, 2006 deadline — with $20 million due if that deadline is not met.
The owners decided to stay in the game, sticking with the original agreement that calls for Point Thomson development to begin by June 15, 2006, Houston-based ExxonMobil spokesman Bob Davis told Petroleum News Jan. 16.
He said the owners, which include BP Exploration (Alaska), Chevron U.S.A. and ConocoPhillips Alaska, are continuing to have discussions with the state in an attempt to identify a project, but said the same concerns expressed in December about resources, cost and revenues still exist. (See story on page A1 about the impacts a gas pipeline from the North Slope could have on Point Thomson unit economics.) Standalone project not economic ExxonMobil told the state in mid-December that “a standalone project prior to gas sales is not economically viable under the current fiscal system,” and asked for a change in the opt-out date. ExxonMobil is the unit operator at Point Thomson, an undeveloped high-pressure gas condensate field on the Beaufort Sea at the eastern edge of state lands on Alaska’s North Slope.
The development plan the companies have been working on for the field is to produce the condensate, separate the liquid component for shipment down a pipeline which would connect to the existing Badami pipeline, and then re-inject the natural gas. Because the Point Thomson reservoir is at much higher pressure than Prudhoe Bay, production and re-injection would be more costly.
And, work the Point Thomson owners completed recently led to a “significant reduction” in the estimate of liquid reserves at the field, ExxonMobil told the state in December. Opt-out date at issue The state approved a major field expansion at Point Thomson in 2001, contingent on development drilling beginning at the field by June 15, 2006. That date was not at issue in the latest state decision.
What was at issue was an option in the 2001 agreement allowing the unit owners to opt out of the expansion acreage by June 15, 2003, if they found the development uneconomic, by paying the state $8 million to compensate for bids the state could have received on the expansion-area acreage had it been available for lease sales. The core acreage at Point Thomson is held by a long-term agreement with the state that says those leases can be held until transportation exists to move the resource to market.
The state has approved two extensions of the opt-out decision date for the expansion acreage in exchange for increasing the payment from $8 million to $10 million.
In December, ExxonMobil requested an extension of the opt-out date with an increase in the payment of $4 million a year, prorated one-twelfth of the amount a month based on an actual opt-out decision. The $4 million a year would be in addition to the $10 million, prorated through June 15, 2006, when development drilling must begin — or the owners must pay the state $20 million. No proposals that would warrant extension In early January, the Division of Oil and Gas denied the December request to extend the date.
Division Director Mark Myers said in a Jan. 8 letter to R.F. Buckley of ExxonMobil Development Co., the chairman of the Point Thomson unit owners committee, that the division appreciates the “expertise and resources that the owners dedicated” to evaluating the gas cycling project at Point Thomson in coming to the conclusion that “the gas cycling project is currently uneconomic… ” ExxonMobil representatives met with Division of Oil and Gas staff in early December to discuss how the state’s fiscal system might be changed to make a gas cycling project economic.
However, Myers said in denying the deadline extension, the Point Thomson owners had “not made any specific proposals that would warrant a further extension of the contraction election deadline.”
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