May 13, 2008
Commissioner Tom Irwin
Alaska Department of Natural Resources
400 Willoughby Avenue, Suite 500
Juneau, AK 99801
Dear Commissioner Irwin:
The Resource Development Council is writing to express its disappointment in the recent decision rejecting ExxonMobil’s Point Thomson Unit Plan of Development (POD) and to encourage the State to reach a timely resolution with lease owners to allow development to move forward without further delay.
The rejection of the POD has raised a high level of concern among our members over the negative impacts the decision would have on a successful gas pipeline project to the Lower 48. Whether the pipeline is advanced by TransCanada Corporation through the Alaska Gasline
Inducement Act or by North Slope producers under the Denali project, Point Thomson contains an important component of gas volume to be moved by an Alaska gas pipeline.
In your recent decision, you noted a strong desire to avoid risks that would lead to continued delays in the development of Point Thomson resources. In our view, rejection of the POD, termination of the Point Thomson Unit, and the “take back” of leases would result in extensive litigation, delaying the project for years. Moreover, if the state ultimately prevailed in breaking up the unit and taking back the leases, it would take additional time to release the acreage and seek new lease owners. It would take more time for the new leaseholder(s) to do the extensive engineering and reservoir studies already conducted by the current lease owners to become familiar with the complexities of this unit.
At a minimum, rejection of the POD will keep ownership of the gas in doubt until the issue is resolved in court years from now as litigation is likely to extend well into the next decade. Such uncertainty surrounding gas ownership could result in an unsuccessful open season for both the Denali and TransCanada projects, potentially causing both to fail. We strongly believe the public’s interest is not served by going down the dangerous, lengthy and uncertain path of litigation. There is too much at risk.
We were hopeful the state would view the latest POD as the solution to its long-standing dispute with the lease owners over work obligations, especially considering the clear milestones to monitor progress and an agreement to terminate the unit if judicially-supervised benchmarks are not met. We believe these milestones will prove effective in keeping the project on track.
RDC believes the lease owners are fully committed to developing Point Thomson. Under the new POD, the lease owners have proposed a $1.3 billion project to produce 10,000 barrels per day of liquid condensates beginning in 2014. The POD provides for commencement of engineering this year with a drilling program set to get underway by next winter. A drilling rig has already been secured, as well as long lead materials. The POD envisions a phased approach to overcome challenges and risks posed by the reservoir and provides expandability for gas cycling, oil production and major gas sales.
Settling this issue immediately and without delay serves the best interest of Alaska. While we respect the administration for its resolve to assure Point Thomson moves forward in a way that maximizes benefits to the state, RDC urges your office to reach a mutually acceptable accord with the lease owners that will avoid litigation and allow work to begin at Point Thomson this year. An accord that addresses the state’s concerns with regard to future work commitments, removes the uncertainty surrounding ownership of the leases, and advances field development is highly preferable to RDC members over lengthy and costly litigation. Such an accord would be a “win-win” for both the state and lease owners and, at this stage, is critical to the success of any gas pipeline project.
The precedent this decision would set could easily reverberate not just through the oil and gas industry, but through the mining industry and other resource sectors as well, sending a negative message to current and future investors in our state. Resolution of this issue will build momentum for a successful natural gas pipeline project to the Lower 48. It will remove a cloud of uncertainty and help set the stage for a successful open season for the gas pipeline.
RDC very much appreciates your consideration of these comments and remains hopeful an acceptable agreement can be reached between the State and the lease owners.
Resource Development Council for Alaska, Inc.