Point Thomson’s Promise
At long last, serious work begins on Alaska’s next great oil and gas field
ExxonMobil drilled two wells on Point Thomson’s central pad at the edge of the Beaufort Sea in 2009 and 2010. Almost everything in this July 2010 photo was temporary equipment that has since been removed. ExxonMobil is now working to prepare the pad for installation of permanent development facilities.
After 35 years of frustration, Alaska finally is on a path to achieving production from Point Thomson, one of the richest oil and gas deposits ever discovered in the state.
The production level to start will be modest at 10,000 barrels per day. That barely registers against the nearly 600,000 barrels per day produced overall from Alaska’s North Slope.
But make no mistake, establishing any flow at all from the remote eastern North Slope field will stand as a major victory for the state.
The hope is that the inaugural project at Point Thomson, known as the “initial production system,” will lead to bigger things. Not only does it have the potential to join the likes of Prudhoe Bay, Kuparuk and Alpine as a major producing field, but Point Thomson also could spark development of other prospects in the area.
Coming into the winter, Point Thomson operator ExxonMobil and its contractors were launching major construction work on the ground. The activity stands in stark contrast to the years of inertia and bitter legal conflict between the state and energy giant over the dormant field.
“For the first time, development of Alaska’s eastern North Slope is under way,” Gov. Sean Parnell proclaimed in his Jan. 16 State of the State address to the Alaska Legislature.
The Point Thomson development, he said, means billions of dollars in new investments and hundreds of jobs. It also could mean very significant tax and royalty revenue for the state.
The field encompasses about 93,000 state-owned acres along the Beaufort Sea coast, next to the Arctic National Wildlife Refuge and about 60 miles east of Prudhoe Bay and the trans-Alaska oil pipeline.
Point Thomson is regarded as one of the largest proven, undeveloped fields in North America. The main prize is natural gas, estimated at 8 trillion cubic feet. That’s about a quarter of all the known gas reserves on the North Slope.
Gas, however, is not the first development target. Rather, ExxonMobil plans to produce a liquid hydrocarbon known as condensate. The company estimates the field holds 200 million barrels of recoverable condensate, which pays like crude oil.
ExxonMobil has pledged field startup and first production no later than May 1, 2016.
To make that deadline, a tremendous amount of work must be done.
The project will consist of three gravel well pads, connecting roads and pipelines, a barge dock, airstrip, housing units, fuel storage tanks, and huge industrial modules to process field output.
Pipeline to Badami
ExxonMobil also will lay a new 22-mile “export pipeline” to carry the condensate to the Badami oil field to the west. There, the condensate will enter the existing North Slope oil pipeline network, ultimately flowing down the 800-mile trans-Alaska oil pipeline.
Part of the above-ground Point Thomson line, which will parallel the coast, will feature a thickened steel wall to resist stray bullets from subsistence caribou hunters.
The pipeline will feature a design capacity of 70,000 barrels per day, well above the 10,000 barrels per day of condensate ExxonMobil expects to produce initially. The surplus capacity will accommodate fuller Point Thomson development, and maybe production from other eastern North Slope developments.
After years of effort, ExxonMobil last fall obtained the key authorizations for the field and pipeline, including a wetlands permit from the U.S. Army Corps of Engineers.
During the first winter construction season, ExxonMobil plans to concentrate on building work camps, roads and pads, and the airstrip. Also, the company will install support members along the pipeline right of way. To support the construction activity, ExxonMobil is using a temporary ice road out to Point Thomson.
“Depending on weather conditions, our winter construction season will likely run until late April or early May,” says Kim Jordan, an ExxonMobil spokeswoman in Houston.
The project is hugely expensive. The budget for the pipeline alone is $253 million, and fully developing the field will cost billions.
Abundance of Contractors
About 80 contractors already have a piece of the Point Thomson action.
At the top, Australian firm WorleyParsons in January 2012 announced ExxonMobil had awarded it a contract worth $115 million for engineering, procurement and construction.
“WorleyParsons, working with Fluor, will provide overall project management,” WorleyParsons said. “PND Engineers, based in Anchorage, will provide infrastructure and civil design.”
Lots of companies familiar to Alaskans are involved: Alaska Frontier Constructors, Lynden, Foss, NANA, Doyon, Builders Choice, Flowline Alaska and many others.
ExxonMobil still had not announced who would build the major field modules, or where. Most likely, these will be fabricated Outside and transported by sealift to Point Thomson. ExxonMobil has scheduled module installation and commissioning for 2015.
Point Thomson is coming alive only because the state and leaseholders were able to settle a bitter legal dispute over the field.
The state had anticipated production ever since ExxonMobil, in 1977, discovered oil and gas in what’s known as the Thomson Sand reservoir.
Several successful wells were drilled, and ExxonMobil submitted plans of development for the field on a nearly annual basis. These never led to actual production, however, with ExxonMobil citing such impediments as the lack of a North Slope natural gas pipeline, the field’s extreme subsurface pressure and other technical challenges, and unfavorable state tax treatment.
Growing increasingly impatient, the state’s former oil and gas director, Mark Myers, in September 2005 issued a landmark decision holding ExxonMobil in default, saying the company’s 22nd plan of development was unacceptable.
Myers said the company’s long record of nondevelopment and delay had made a “mockery” of its obligations to the state as owner of the oil and gas estate. And he said the absence of a gas line, or the view that Point Thomson wouldn’t be profitable enough, were poor excuses for not producing at least some of the field’s riches—the hydrocarbon liquids.
Three Alaska governors—Frank Murkowski, Sarah Palin and Sean Parnell—would back the position Myers staked out. The state moved to break up the Point Thomson unit and invalidate the underlying leases, with an eye toward reoffering the acreage for lease.
Predictably, ExxonMobil and its partners headed to court to defend an asset worth billions.
The conflict had reached the Alaska Supreme Court when the state and the oil companies, on March 29, 2012, reached a settlement that closed the case and laid out a schedule for phased development at Point Thomson. While the deal does not guarantee production, state officials say the oil companies will lose acreage at Point Thomson if they renege.
The deal also spawned a reshuffling of Point Thomson ownership with Chevron assigning its sizeable interest to ExxonMobil. The other major leaseholders are BP and ConocoPhillips.
Dan Sullivan, the state’s natural resources commissioner, led negotiations for the settlement, heading off possibly years of further litigation.
“We see this as a very important strategic investment for the state, for three principle reasons,” Sullivan said.
First, extending oil and gas infrastructure eastward to Point Thomson should encourage exploration in the frontier area, he said.
Second, removing the legal cloud over Point Thomson and its vast gas resource helps further the state’s longtime goal of a North Slope gas pipeline. And third, Point Thomson development is expected to generate up to 800 sustained jobs, Sullivan said.
But making Point Thomson produce will be an exceptional challenge. The reservoir is complex, and collecting the condensate is tricky.
An Exceptional Challenge
The field is largely offshore beneath the Beaufort Sea. Rather than build an offshore production island, ExxonMobil will drill extended-reach wells from shore. These wells will angle out to tap the reservoir.
Most of the Point Thomson resources are contained in what’s known as a “retrograde condensate reservoir.” These tend to be deeper, with higher pressures and temperatures, than conventional reservoirs.
The condensate is entrained in the natural gas within the reservoir. The problem is, if gas is withdrawn too quickly, reservoir pressure drops and the condensate can fall out and become trapped forever underground.
ExxonMobil will use a process known as gas cycling to produce the condensate. This involves using two types of wells in tandem. Producer wells will bring up “wet” gas for processing and collection of the condensate. Injector wells will shoot the remaining dry or “lean” gas back down for storage and future sale.
Because of Point Thomson’s high pressure, the wells and other facilities at Point Thomson will need to be much more brawny than the typical oil wells at Prudhoe Bay and other North Slope fields. This makes them more expensive.
During the legal dispute, ExxonMobil went ahead and drilled a pair of wells on Point Thomson’s main, or central, well pad. Drilling and testing wrapped up in October 2010.
Originally, the company had planned to use one of the wells as a producer and the other as an injector. But because of higher than expected levels of acidic “sour gas,” liners must be installed in the wells. While both can be used as injectors, ExxonMobil said it will need a third well to serve as the field’s initial producer.
The sour gas issue could foreshadow many challenges to come. As with any new field, Point Thomson might or might not prove as productive as hoped. According to the state at the time the legal settlement was reached, the condensate project is expected to provide “critical information for the next phase of development.”
Journalist Wesley Loy lives in Anchorage.
Outline of Thomson Sand reservoir.
Location of the Point Thomson unit relative to the Beaufort Sea, Prudhoe Bay and ANWR.
Major features of the planned “initial production system” at Point Thomson.