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New York Times: Alaska to Cut Point Thomson Oil Leases

By THE ASSOCIATED PRESS
Published: November 28, 2006
Filed at 12:44 a.m. ET

JUNEAU, Alaska (AP) — Exxon Mobil Corp. is reviewing its legal options in the wake of Alaska’s decision to strip it and other oil companies of their leases in the North Slope’s Point Thomson oil and gas field.

The state said Monday it was revoking the leases after finding Exxon Mobil failed to come up with a viable plan for developing the field’s vast reserves.

Exxon Mobil spokeswoman Susan Reeves said the company was disappointed.

”Exxon Mobil has complied with the Point Thomson lease agreements, the unit agreement and all Alaska statutes and regulations. Any litigation by the state to take back the Point Thomson leases is likely to be protracted,” Reeves said.

Other oil companies being stripped of their leases include BP PLC, Chevron Corp. and ConocoPhillips.

Exxon Mobil has 30 days to appeal the state’s decision to the Superior Court. State officials predict litigation could take as long as three years.

Gov. Frank Murkowski, alongside Natural Resources Commissioner Mike Menge, announced the decision at a news conference in Anchorage on Monday, just one week shy of the end of his administration.

Murkowski said Exxon Mobil, despite being granted numerous extensions over several decades, failed to make good on its obligations as operator of the field.

”Basically Exxon did not choose to meet a development scenario which the state felt was mandated after so many extensions,” Murkowski said.

Reeves, the Exxon Mobil spokeswoman, said the decision was a major setback for an Alaska pipeline project, which would have carried Point Thomson gas.

Murkowski said under the proper lease terms, however, the Point Thomson reserves could be an incentive for companies to develop the state’s long cherished goal of building a natural gas pipeline from the North Slope.

Point Thomson is the North Slope’s second largest natural gas field, after Prudhoe Bay.

It is estimated to hold about 9 trillion cubic feet of gas reserves, more than a quarter of the known gas in all North Slope fields.

The new administration, under Gov.-elect Sarah Palin, will decide the next step. She takes office Dec. 4.

Palin on Monday praised Murkowski’s decision and said she was looking forward to working with the industry.

”I’ve said before that these units are the cornerstone upon which a future Alaska gas pipeline will be built. That starts with strict enforcement of the lease terms for timely development of the Point Thomson oil and gas field,” Palin said in a prepared statement.

The Point Thomson leases could be offered as early as the next state lease sale in October but that could be delayed if Exxon Mobil appeals.

Still, Murkowski said new lease terms could be the driver for the proposed gasline. He suggested that if companies are required to develop the field’s as yet untapped oil reserves using an existing oil pipeline, they would want to achieve economies of scale by developing the gas at the same time.

”This in turn will create an incentive and a need for new Point Thomson leases to construct a new gas pipeline. And likely they would now look on it as a motivation for building sooner rather than later,” Murkowski said.

He said it also could inspire potential new players, like Chevron, Shell and others, to take part in a new gas line contract proposal.

Alaska officials ruled in 2005 that Exxon Mobil was in default for delaying development by submitting a plan without any sure date for production to begin.

The state threatened to revoke the leases but stayed that decision while negotiating a contract with Exxon and two other oil companies for a $25 billion natural gas pipeline that would take gas from the North Slope to Midwestern markets.

The negotiated contract fell through amid worries that Alaska would be giving away too much to the producers. That left Exxon Mobil with an October deadline to update its development plan.

In the plan rejected Monday, Exxon Mobil proposed paying the state $20 million and giving up 20,000 acres to settle its unmet obligations to developing the gas field. The plan included a promise to drill one well in 2009 to better map the extent of the field.

Over the last three decades, Exxon Mobil has filed 22 development plans for the 106,200 acres unit. No commercial oil or gas operations have begun in that time.

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