ExxonMobil stands by its Point Thomson plan of development

  • A 22-mile pipeline ties the Point Thomson gas field to the Trans-Alaska Pipeline System, but ExxonMobil as the unit operator has had trouble filling it as production has fallen far below the target rate of 10,000 barrels per day of natural gas condensates since the April 2016 startup. (Photo/Courtesy/ExxonMobil)

ExxonMobil Alaska leaders insist the company has complied with a 2012 settlement with the State of Alaska over the long-challenged $4 billion Point Thomson North Slope natural gas project and that current state regulators don’t understand the company’s future plans.

ExxonMobil Alaska Production Manager Cory Quarles wrote to Department of Natural Resources Commissioner Andy Mack on Oct. 12 that the Point Thomson Unit plan of development the company submitted to the department’s Division of Oil and Gas on June 30 is sufficient, despite the division’s claims to the contrary.

Division of Oil and Gas Director Chantal Walsh wrote a six-page letter to Quarles Aug. 29 detailing the multiple ways in which the state believes the company is not making good on its commitments to further develop Point Thomson, as the state argues is required under the Point Thomson Settlement Agreement reached in March 2012.

As a result, and most importantly, Walsh approved ExxonMobil’s plan of development, or POD, for the existing Point Thomson initial production system and rejected the portion of the POD document outlining the company’s work to expand natural gas and condensate production from the unit.

ExxonMobil submitted a single Point Thomson POD to the state on June 30, but division officials determined it contained two PODs because the 2012 settlement does not spell out what the company must do with its current infrastructure at the large eastern Slope gas field after this year.

The settlement does, however, direct the company to start expanding production at Point Thomson by 2019 under one of several scenarios because a large natural gas export project hasn’t been sanctioned yet.

Quarles first wrote that DNR regulations, the Point Thomson Unit agreement, and the settlement with the state all call for a single POD.

“There are not separate PODs for separate projects, but a single POD for a unit or specific participating area,” he wrote.

PODs are submitted annually by the unit operator company for every oil and gas unit in the state and detail the company’s work plan for the coming year. The plans are generally adhered to but not strictly enforced by the state if unforeseen factors, such as changes to a project’s economics from external market forces or technical challenges, arise.

But in the unique case of Point Thomson, development is prescribed by the settlement, which the Division of Oil and Gas considers to be a contract with the state, meaning its terms must be upheld regardless of extenuating circumstances, according to Walsh.

The current facilities at Point Thomson are capable of producing up to 10,000 barrels per day of natural gas condensates — diesel-like fluids that are shipped down the Trans-Alaska Pipeline System — and up to 200 million cubic feet of natural gas per day.

However, the company has been unable to keep production at those levels of late because of technical challenges with the reservoir, which is one of the highest-pressure gas reservoirs on Earth.

The gas so far is being reinjected into the high-pressure reservoir. In the future, ExxonMobil plans to grow production to upwards of 50,000 barrels per day of condensates and 920 million cubic feet of gas and then pipe the gas 62 miles to the west for injection into the Prudhoe Bay field to further enhance oil recovery if the Alaska LNG Project has not been sanctioned by the end of 2019, according to the POD.

Broadly, Walsh contends that ExxonMobil’s use of the words “if” and “would” when discussing future Point Thomson development indicate the company is not committed to what DNR feels are its obligations.

According to Quarles, “the POD addresses all the matters identified in the Settlement Agreement and, contrary to the assertions of the division, is consistent with the terms of the Settlement Agreement.”

The POD states ExxonMobil has to work out commercial arrangements with the Prudhoe Bay working interest owner companies before advancing into detailed engineering and design of the project.

Walsh countered by noting that BP, ConocoPhillips and ExxonMobil collectively own 99 percent of both fields — Chevron holds 1.6 percent of Prudhoe — and therefore Exxon would be, in part, negotiating with itself.

Quarles rebutted that ExxonMobil has obtained approval from the other working interest owners to progress the expansion project through the end of this year.

“All requisite approvals to progress expansion project work to a decision point of year-end 2019 have not been received and thus ExxonMobil has clarified the statues and process for owner approvals,” he wrote. “The POD sets forth a plan to progress that work and that is what the Settlement Agreement requires. The Settlement Agreement neither envisions nor requires certainty of result.”

Quarles included a five-page attachment to his letter outlining the regulatory and high-level technical steps the company would have to take to advance Point Thomson expansion.

DNR’s Ed King, a special assistant to Mack, said the department is reviewing Quarles’ letter and has 60 days to make a determination.

The 2012 settlement with the state also calls for any further disputes over Point Thomson to bypass the typical administrative procedures and be sent directly to state Superior Court.

The Point Thomson Settlement, reached under former Gov. Sean Parnell, ended years of litigation between the state and the company in which the state argued ExxonMobil had not fulfilled its responsibility to develop the leases it held for many years. It also set a course for ExxonMobil to develop Point Thomson and start production by May 2016.

Production started in late April of last year.

Gov. Bill Walker, who’d lost to Parnell in the Republican primary in the 2010 governor’s race, promptly sued the state over the settlement in 2012 on the grounds that it was reached in private negotiations and was not in the best interest of Alaska residents.

He withdrew his appeal to the Alaska Supreme Court in February 2015 shortly after taking office following his defeat of Parnell in 2014.

Last year Walker’s administration deemed the Prudhoe Bay Unit POD incomplete until BP, as unit operator, and the state reached an agreement after a months-long standoff that the company would provide more information on its efforts to further the Alaska LNG Project in future PODs.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
10/18/2017 - 12:50pm

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