ExxonMobil is moving forward with the construction of a 50-mile ice road and drilling at Point Thomson this winter after Alaska Department of Natural Resources Commissioner Tom Irwin partially reversed his decision to revoke leases at the second largest gas field on the North Slope.
In a written statement following Irwin’s decision to allow Point Thomson leaseholders to keep two of the 31 leases at issue, Exxon spokeswoman Margaret Ross said:
“This decision clears the way for construction of nearly 50 miles of ice roads needed to transport the drilling rig and associated equipment, materials, camps and personnel to the Point Thomson site. This is good news for Alaska and especially for the 50 Alaskan companies and more than 200 people working at Point Thomson today. We are committed and ready to move forward with the Point Thomson project.”
The decision clears the way for Exxon to drill two wells this winter, completing them by 2010, and beginning production in 2014.
Irwin said he was reserving ruling on the other leases and issues until proceedings on lease termination appeals are completed. The commissioner said he changed course after Point Thomson leaseholders unconditionally committed to drilling two wells on two leases, including initiating actual drilling this winter. Irwin said it was in the public interest to issue the ice road permit and process other necessary permits at this time, and said he was holding Exxon to its unconditional commitment to drill and produce from the two wells.
Given Point Thomson’s enormous gas reserves, the field is considered key to the successful development of any gas pipeline project to the Lower 48. Point Thomson is believed to hold a quarter of known gas reserves on the North Slope. In addition, it is believed to hold hundreds of millions of barrels of oil. However, the field is a technically-challenging, high pressure reservoir that will require special expertise to develop.
In a letter to Irwin, RDC noted that rejection of the leaseholder’s drilling plans and the take back of leases would result in extensive litigation, which would delay the project for years and put the ownership of Point Thomson gas in doubt until the issue was resolved in court. Such uncertainty surrounding gas ownership could undermine the 2010 open season for both the Denali and TransCanada gas pipeline projects, RDC cautioned.
RDC also noted that even if the state ultimately prevailed in breaking up the Point Thomson unit and taking back the leases after years of litigation, it would take additional time to re-lease the acreage and seek new lease owners. It would take more time for the new leaseholders to do the extensive engineering and reservoir studies already conducted by the current lease owners to become familiar with the complexities of the unit.
“We applaud Commissioner Irwin’s most recent decision,” said RDC Executive Director Jason Brune. “The decision is clearly a step in the right direction and clears the path for development to quickly move forward,” Brune said. “We are hopeful all remaining issues between the state and the leaseholders will be resolved, and we are confident they are committed to fully developing Point Thomson.”
To date, the leaseholders have spent over $800 million on the project and have proposed a new $1.3 billion plan to produce 10,000 barrels per day of liquid condensates beginning in 2014. The current development plan 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.
Exxon drilled 19 wells at Point Thomson during the 1980s, but the lack of a gas pipeline from the North Slope to Outside markets is a major reason why the gas field has gone undeveloped.
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