Point Thomson action likely to go to court -
GAS FIELD: Murkowski is the latest in a string of governors to confront Exxon over dormant state leases.
adn.com
By WESLEY LOY
Anchorage Daily News
Published: December 4, 2006
Last Modified: December 4, 2006 at 01:38 AM
Alaska Gov. Frank Murkowski ranks it among his administration's most important decisions in four years in office -- the move last week to take back state leases in the rich Point Thomson natural gas field.
The action is almost sure to provoke what could be an epic legal battle as Exxon Mobil and possibly other giant corporations holding the leases sue the state to try to keep them.
"Some have questioned our rationale. Some have questioned our sanity," Murkowski said in a speech last week to the Fairbanks Chamber of Commerce.
But experts, and even Murkowski's political rivals, say his Point Thomson decision was long overdue, that Exxon has squandered decades of chances to start pumping oil and gas out of the field, and that the state's prospects in court are excellent.
The state has canceled oil leases before, though never on acreage of such extraordinary value.
Exxon will fight hard to keep the leases that overlay potentially billions of dollars' worth of oil and gas, the experts say, and no one should expect the company to just walk away.
"You will see them giving away free gasoline before that happens," said Mark Cotham, a Houston lawyer who specializes in helping landowners prod oil companies to drill and not just sit on leases.
At stake is more than just the fate of Point Thomson and the jobs, taxes and royalties it could generate for Alaska.
Point Thomson is one of two North Slope oil fields -- the other one is Prudhoe Bay, 60 miles to the west -- that together hold a staggering 35 trillion cubic feet of natural gas. Point Thomson accounts for about a quarter of the total, plus an estimated 300 million barrels of oil.
GOAL OF GOVERNORS
A longtime development dream of Murkowski and many governors before him has been to somehow turn this gas into state revenue. That means building a pipeline project, costing $20 billion or more, to carry the gas to market.
By canceling the Point Thomson leases, some experts believe, the state will have a stronger hand to persuade, or bully, Exxon and other companies holding North Slope gas to finally build that pipeline and produce the gas -- a resource that could fatten state coffers by billions of dollars.
"The Murkowski administration has given the Palin administration a great start here," said Cotham, referring to Sarah Palin, who is to be inaugurated today as Murkowski's successor.
Oil company spokesmen condemned the state's Nov. 27 move to reclaim the Point Thomson leases. They professed surprise, with Exxon's Susan Reeves calling it "a major setback for an Alaska gas pipeline."
The companies remained silent last week on what they'll do next. They have 30 days from the date of the decision to appeal to the state Superior Court.
John Zager, president of the Alaska Oil and Gas Association and Alaska general manager for Chevron, a major Point Thomson leaseholder, declined to comment.
Exxon holds about 53 percent of Point Thomson and is the designated field operator, the company that would take the lead in developing and running the field. Other leaseholders include BP with 29 percent, Chevron with 14 percent, Conoco Phillips with 3 percent and about 20 others with a combined 1 percent.
ARRESTED DEVELOPMENT
The main rub that Murkowski and his predecessors have with Point Thomson is that it was discovered so long ago, yet still hasn't been developed.
Exxon drilled the discovery well in 1977, and a total of 18 wells have been sunk in and around what is known as the Point Thomson Unit, which ties together leases across 106,000 coastal acres near the Arctic National Wildlife Refuge.
But no wells have been drilled for more than 20 years, and Exxon has failed to deliver on numerous commitments to drill or perform other work over the years.
After 22 plans of "development" that never led to any oil or gas production, Murkowski's natural resources commissioner, Mike Menge, last Monday announced the decision to break up the Point Thomson Unit and take back the leases for resale to new bidders who might get on with pumping the field's petroleum riches.
Menge's decision was justified -- and was one long contemplated by state officials, said Jim Eason, an industry consultant in Lookout Mountain, Tenn.
Eason knows Point Thomson well. He once worked as Alaska's oil and gas director and himself had decided, at the tail end of Gov. Wally Hickel's administration in 1994, to get tough with Exxon.
"It was the only decision that I ever took to the governor," Eason said. "We were going to give them an ultimatum: They needed to produce."
Time ran out on the Hickel administration before a formal move to retake Point Thomson could be implemented, and incoming Gov. Tony Knowles gave Exxon more time, Eason said.
But Hickel personally favored taking away the leases, and he repeated those sentiments at a state hearing on Point Thomson last month.
When it comes to state relations with Exxon, one of the world's largest corporations, Point Thomson long has been a major chess piece. At the hearing, Hickel told a favorite story of how he once summoned former Exxon chairman Lawrence Rawl to Alaska and tried to use the 1989 Exxon Valdez oil spill as leverage on Point Thomson.
"Larry," Hickel said he told Rawl in the governor's office in Juneau, "I want Point Thomson back."
Richard Todd, a senior assistant attorney general, said that if Exxon or other leaseholders sue the state, the case might take three years to wind through court. He said Friday that he hadn't received any notification from oil companies of their intent, but he added: "The industry is not happy."
OWNERSHIP ISSUES
Reclaiming oil and gas properties is nothing new in Alaska, the Lower 48 or abroad.
Major oil companies from time to time see their assets "nationalized," or seized by government, in foreign nations. This year, for example, Latin American countries including Ecuador, Bolivia and Venezuela took over oil fields, in some cases sending in troops to do it.
Among the states, Alaska is unique in that most oil and gas is produced on state-owned land. In many Lower 48 states, leases are between private landowners and oil companies, said Cotham, the Houston lawyer.
Like Alaska, some of these private property owners -- people looking forward to royalty payments -- end up disappointed that the oil company leasing their land is away drilling prospects elsewhere, Cotham said.
So many private landowners sue, and often they get action, he said.
"Those sorts of cases are brought almost every day in oil-producing states -- in Texas, Oklahoma, Colorado," Cotham said.
Critics accuse Exxon of concentrating on enormous gas prospects elsewhere in the world while "warehousing" the Point Thomson field -- one of the largest known, unexploited deposits of oil and gas in the country.
Cotham agrees, calling Exxon's inaction on Point Thomson historic.
"Never has so little been done with such a tremendous asset for such a long period of time," he said.
One of Cotham's clients is the Alaska Gasline Port Authority, a coalition of local governments including the city of Valdez and the Fairbanks North Star Borough. The authority's gas pipeline proposal is competing for attention with the one offered by a trio of oil giants -- Exxon, Conoco and BP.
TOUGH NEW TACK
If Point Thomson ends up in court, Eason reckons Exxon will fervently stick with its argument that it can't very well produce on its leases until someone builds a gas pipeline.
Exxon engineers argue that Point Thomson would be hard to develop, that the reservoir is deeper, hotter and under much higher pressure than other North Slope fields.
Such a field would indeed be more difficult and expensive to develop, with stronger pipe, drill bits and more robust equipment necessary, but it's doable, Eason said.
Exxon is the largest owner of North Slope gas, and it and other oil companies negotiated for two years with the Murkowski administration on a contract that would set favorable long-term tax rates as an incentive to build the gas pipeline.
The draft contract, released in May, drew widespread criticism from state lawmakers and others who called it too favorable to the oil companies. Now the 460-page contract, and the fate of the gas line, passes to the Palin administration.
Point Thomson figured prominently in the Murkowski contract, and Eason didn't like what he saw. This summer, he warned the Legislature that under the contract the state would give up nearly all its power to enforce its leases, even agreeing not to terminate the Point Thomson Unit.
Now, clearly, the state has taken a tough about-face on Point Thomson with Menge's decision.
If the state successfully retakes Point Thomson and leases the acreage again, it could lead to drilling and even production, based on prior land turnover on the North Slope and in Cook Inlet, the state's other oil province.
New companies often bring fresh ideas, enthusiasm and motivation, said Bill Van Dyke, acting director of the state Division of Oil and Gas.
An example is Oooguruk, a small oil field under construction on a gravel island in the shallow waters of the Beaufort Sea. The partners in that project, led by Pioneer Natural Resources Co. of Irving, Texas, expect to pump 50 million to 90 million barrels of crude from the field beginning in early 2008 -- partly on acreage once drilled and controlled by Exxon. |
