Alaska rejects final Exxon plan for giant gas field

Reuters: Alaska rejects final Exxon plan for giant gas field

Tue Apr 22, 2008 7:45pm EDT
By Yereth Rosen

ANCHORAGE (Reuters) – Alaska on Tuesday rejected Exxon Mobil Corp’s (XOM.N: Quote, Profile, Research) latest plan for the giant Point Thomson natural gas field on the North Slope despite industry warnings of another lengthy setback to development of an Alaska gas pipeline.

Exxon said it will appeal the decision, which terminates the Point Thomson development unit and could lead to the cancellation of the field leases. A spokeswoman said the energy company plans to “pursue all alternatives to protect our rights to develop these resources.”

Chevron Corp (CVX.N: Quote, Profile, Research), which holds a 25 percent stake in Point Thomson, vowed to sue over the decision.

“We are shocked and very disappointed by this decision,” Scott Davis, the Chevron executive overseeing its Alaska business, said in a statement. “With this decision the state has taken a giant step backward in bringing North Slope gas to market.”

Point Thomson, discovered in 1977, is thought to hold at least 8 trillion cubic feet of natural gas reserves and 200 million barrels of liquids and would be a vital source of supply for any Alaska natural gas pipeline project.

The state has accused the oil companies of deliberately delaying development of Point Thomson. The majors reject that charge, saying the giant gas field cannot be put into production until a pipeline is constructed to ship Alaska gas to the rest of the United States.

Field operator Exxon owns about 36 percent of Point Thomson, and BP Plc (BP.L: Quote, Profile, Research) owns 32 percent of the field.

The Alaska Department of Natural Resources ruling said Exxon’s failure to develop the field under 22 previously submitted development plans compromised the credibility of its latest proposal.

“The history of this unit and the evidence offered by the Appellants have convinced me that approving the (development plan) will not result in timely development of these valuable state lands,” DNR Commissioner Tom Irwin wrote.

Alaska Gov. Sarah Palin, a strong critic of the oil industry, welcomed the decision.

“I support the commissioner’s decision because I want development and Alaskans are ready to see real progress at Point Thomson, finally, after 30 years,” she said in a statement.

Alaska and the companies have been sparring over Point Thomson since late 2005 when the state made the first step to break up the field unit and possibly cancel the leases.

The state so far has been successful in early legal battles. Officials concede that a lengthy period of litigation may ensue.

BP and ConocoPhillips both hold stakes in Point Thomson and have been spearheading efforts to build a $30 billion Alaska natural gas pipeline.

Plans for that project still are moving forward, according to BP Alaska spokesman Steve Reinhardt. Still, he cautioned that doubts about the availability of Point Thomson gas could delay or even kill the pipeline.

If the companies are unable to develop Point Thomson, they also will miss out on adding the reserves from the field to their reserve base. All the companies involved have struggled in recently to add oil and gas to keep up with their production, prompting questions about their long-term growth prospects.

Exxon has 20 calendar days to appeal the DNR’s decision. Following an unsuccessful appeal with the DNR, Exxon would have recourse to state courts under Alaska law.

(Additional reporting by Robert Campbell and Michael Erman in New York; Editing by Christian Wiessner)

© Thomson Reuters 2008 All rights reserved