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Point Thomson Litigation Resolved, Historic Alignment on Gasline

March 30, 2012, Anchorage, Alaska - Governor Sean Parnell announced today that two major milestones have been met in the state’s effort to bring Alaska’s natural gas to Alaskans and markets beyond.

First, the State of Alaska resolved its long-running litigation with ExxonMobil and other leaseholders regarding the Point Thomson field, which holds a quarter of the North Slope’s known natural gas.

And, second, the three major producers – ExxonMobil, ConocoPhillips and BP – delivered a letter today to the governor announcing that they are now aligned with the Alaska Pipeline Project (APP) parties, and working on a gasline project focusing on bringing North Slope gas to tidewater in Alaska.

“Last fall, I told TC Alaska and the producers I wanted to see them pursue a large-diameter line in state to tidewater,” Governor Parnell said. “And, in my State of the State speech in January, I gave a roadmap for commercializing Alaska’s North Slope gas that included a number of critical benchmarks. I said the companies needed to finalize a Point Thomson settlement and align with the APP parties on an Alaska gasline project by the first quarter of this year.

“I am pleased to announce that the parties have resolved Point Thomson litigation and the three CEOs have stated their companies are now formally aligned with the APP parties. They have undertaken work together on the commercialization of North Slope gas with a specific focus on a large-scale LNG project from Southcentral Alaska.”

Point Thomson, located 60 miles east of Prudhoe Bay, is Alaska’s largest undeveloped oil and gas field, holding an estimated 8 trillion cubic feet of natural gas and hundreds of millions of barrels of oil and gas liquids. ExxonMobil is the unit operator at Point Thomson, with BP, ConocoPhillips and Chevron holding the majority of the leases. The state’s legal dispute with the companies resulted from the lack of development at Point Thomson for the past 30 years.

“Today’s settlement lays out strong near-term production commitments and a clear path for full development of Point Thomson’s significant oil and gas resources, and it establishes clear consequences if the companies do not follow through,” said Natural Resources Commissioner Dan Sullivan.

“The companies have agreed to firm timetables for production at Point Thomson. This will result in significant new investment, increased work for Alaskans and increased revenue for state and local government,” Sullivan added.

“The animating principle of this settlement is that the companies must earn their acreage. The more work, more commitment, more investment and more production that occur, the more acreage the companies will retain,” Sullivan said.

Major components of the settlement include:
• Increasing liquids production into the Trans Alaska Pipeline System (TAPS).
• Opening the Eastern North Slope to new development opportunities by adding infrastructure and a 70,000 barrels per day common carrier pipeline connecting to TAPS.
• Incentivizing and laying out a clear path and alternatives for full-field development, each of which will require billions of dollars in investment if pursued.
• Positioning North Slope gas for a large-scale gas pipeline project.
• Providing potential for significant gas volumes for in-state use no later than 2019.
• Requiring a commitment to develop a separate oil reservoir within Point Thomson.

ADDITONAL INFORMATION FROM THE DNR WEBSITE:

On March 29, 2012, the State of Alaska settled its litigation with ExxonMobil and other leaseholders regarding the Point Thomson field on the North Slope.

Point Thomson, located 60 miles east of Prudhoe Bay, is Alaska's largest undeveloped oil and gas field, holding an estimated 8 trillion cubic feet of natural gas and hundreds of millions of barrels of oil and gas liquids. ExxonMobil is the unit operator at Point Thomson, with BP, ConocoPhillips and Chevron holding the majority of the leases.

Point Thomson Settlement Fact Sheet

The Point Thomson settlement between the State of Alaska and ExxonMobil, BP, ConocoPhillips, Chevron, and Leede (the Producers) ends a seven-year legal battle over Point Thomson, the state’s largest undeveloped oil and gas field. Point Thomson leases were first acquired in 1965.

• The settlement requires that by the winter of 2015/ 2016, the Producers will begin producing gas liquids from the field into the Trans-Alaska Pipeline System (TAPS), thereby increasing TAPS throughput.

• The settlement is structured around one critical principle: the companies must earn acreage – the more work, more commitments, more investment and more production that occur, the more Point Thomson acreage the companies will retain.

• The settlement incentivizes efforts to commercialize the North Slope’s vast gas resources by: helping to position Point Thomson for gas development; facilitating the alignment of interests between the major North Slope producers and the state; and installing critical infrastructure for gas sales.

• If the companies do not begin liquids production by the winter of 2015/2016, significant amounts of acreage will automatically return to the state. Beyond near-term liquids production, if the companies do not commit to or sanction a full-field development alterative for Point Thomson, they will lose significant acreage.

• Under the settlement’s mandated development plans, the Producers will invest significant amounts of capital, which will result in numerous jobs, increased economic opportunities for Alaska businesses, and the opening of the Eastern North Slope to development.

Point Thomson Background

Key facts:

• The Point Thomson unit contains 38 leases on roughly 93,000 acres of land.

• Point Thomson’s massive retrograde gas condensate reservoir, located 60 miles east of Prudhoe Bay, is estimated to hold up to 8 trillion cubic feet (TCF) of gas and hundreds of millions of barrels of gas liquids and oil.

• Point Thomson contains approximately 25 percent of the North Slope’s natural gas reserves and is critical to any major gas commercialization project.

• The Point Thomson gas reservoir is challenging to develop because it is highly pressurized – with at least three times the pressure of the Prudhoe, Alpine or Kuparuk fields.
 

Timeline:

• Richfield Oil, Humble Oil and BP Exploration acquired the first Point Thomson oil and gas leases in 1965.

• ExxonMobil discovered commercial quantities of oil at Point Thomson in 1975 and vast gas reserves in 1977.

• The Alaska Department of Natural Resources (DNR) approved the Point Thomson unit in 1977, with ExxonMobil as the unit operator. Today, the other major working interest owners include BP and ConocoPhillips.

• ExxonMobil and other companies drilled 17 wells by 1983 but did not drill any new wells between 1983 and 2009.

• DNR put the unit in default in 2005 after 30 years without development. This began a series of administrative proceedings and legal battles that continued until yesterday.

• In November 2006, the Murkowski Administration terminated the unit after the Producers refused to move the field into production. This matter was appealed to the Alaska Superior Court, but remanded in 2007 to DNR.

• In 2008, on remand, DNR again terminated the unit, rejecting a proposed plan from the Producers to potentially develop the unit.

• The Producers again appealed DNR’s unit termination decision to the Superior Court in 2008.

• The Superior Court reversed DNR’s unit termination in 2010 and ordered it to hold a separate hearing under Section 21 of the Unit Agreement.

• DNR filed a petition for review with the Alaska Supreme Court, which was granted. This petition halted the ongoing Superior Court proceeding. The main issue before the state Supreme Court centered on whether the superior court properly interpreted the applicable law to require a Section 21 hearing. The state Supreme Court was not asked to address whether DNR properly terminated the unit because that issue was still pending before the Superior Court.

• A ruling from the Alaska Supreme Court on the state’s petition for review was still pending as of the settlement.

• The parties to the litigation settled all issues related to the Point Thomson dispute on March 29, 2012.

• Concurrent with the unit litigation, in 2009, DNR Commissioner Tom Irwin allowed ExxonMobil to drill two wells on state leases conditioned upon the Producers commitment to bring these leases into production.

• ExxonMobil has successfully drilled two wells, and has diligently moved forward with its development plan to bring these leases into production. The settlement agreement builds on these work commitments.
 

Key terminology:

Unit: DNR is authorized under state law to aggregate multiple leases overlying an oil and gas reservoir to ensure efficient development, maximize recovery of hydrocarbons, and prevent waste. The termination of a unit does not automatically result in the termination of the leases in the unit.

Gas Cycling: In a cycling operation, gas and liquids are initially produced together and then the liquids are stripped out of the gas and sent down TAPS. The gas is re-injected to maintain reservoir pressure and to allow for the maximum recovery of liquids from the reservoir. The initial development authorized by the Point Thomson settlement is a cycling project.

Gas Blowdown: In a gas blowdown operation, produced gas is not injected into the reservoir to maintain pressure. Instead, the gas is produced, the liquids are stripped out of the gas and sent into TAPS, and the gas is sent to a gas pipeline. Thus, to “blow down” the field, a gas pipeline and a liquids pipeline must be available to transport the hydrocarbons.

Major Gas Sale (MGS): In the context of the Point Thomson settlement agreement, a Major Gas Sale is a large-scale pipeline project with a design throughput of more than 500 million cubic feet of gas per day that results in delivery of gas off the North Slope of Alaska.
Sanction: In the context of the Point Thomson settlement agreement, ”sanction” means that all required state and federal gas line permits have been issued for a Major Gas Sale, and the pipeline sponsors have secured all necessary financing and received full corporate approval to proceed with pipeline construction.

Settlement Overview (pdf)

Settlement Agreement (pdf)

Letter from CEO's of ExxonMobil, ConocoPhillips, BP (pdf)

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