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Point Thomson settlement agreement questioned, defended

Parnell administration says deal it negotiated finally develops field

Posted: June 13, 2012 - 12:04am

Alaska stands to gain big from Exxon Mobil Co.’s Point Thomson settlement agreement, but some think that it could lose big as well.

At a Senate Judiciary Committee hearing in Anchorage Tuesday, the Parnell administration and Exxon officials defended their agreement settling years of lawsuits over the valuable North Slope oil and gas field east of Prudhoe Bay.

“We feel this is a very good agreement for the state,” said Joe Balash, deputy commissioner for the Department of Natural Resources.

Point Thomson has been known to hold huge amounts of hydrocarbons, mostly natural gas but also liquids that have become increasingly important as oil prices have risen while gas prices declined.

Exxon is a major owner of Point Thomson and operates the field on behalf of the other owners. Alaska has spent decades urging its development, before former Gov. Frank Murkowski ran out of patience and tried to take it back from the lease holders for failure to comply with lease terms requiring development. Gov. Sarah Palin continued that effort, as did current Gov. Sean Parnell.

Exxon fought back in court, leading to years of litigation.

While Balash called the agreement a good one, he acknowledged that Alaska didn’t get everything it wanted out of the settlement.

The state’s case was weakened when Superior Court Judge Sharon Gleason ruled that the state failed to follow proper procedures for taking back the leases.

Balash called that ruling “devastating” to the state’s interests.

The state appealed to the Alaska Supreme Court, however, which put the state in a better negotiating position by agreeing to hear the case.

“It was clear that the state’s resolve had not been shaken,” Balash told the senators. “We were going to do whatever it took to get the field into timely production.”

Under the settlement with Exxon, it will begin to produce 10,000 barrels of liquids a day, shipping it to market through the trans-Alaska pipeline.

While that’s only a small portion of the resource there, it means that the field will start producing revenue for the state for the first time since its discovery decades ago.

Judiciary Committee Chair Hollis French, D-Anchorage, questioned how good the agreement was for the state and whether they’d put one over on Alaska.

“You’re up against Exxon Mobil Corp., they look past governments — they see us as a blip in time,” French said.

Balash, though, said settlement means that a company he called “the biggest and best oil company we’ve seen globally,” will handle the technically challenging development.

Given Point Thomson’s unique characteristics, including a remote location outside Prudhoe Bay’s developed infrastructure and incredibly high reservoir pressures, Exxon’s financial and technical capability is important, he said.

Exxon’s Point Thomson Project Manager Lee Bruce told the senators that the company was developing detailed plans for production there.

Bruce said Exxon would be investing “several billion dollars” in the project, including $1 billion already spent.

And the goal, he said, is more than the 10,000 barrels required by the agreement.

“I think this is the first step,” he said. “It also opens up other opportunities for more North Slope oil and gas development.

The project required by the settlement agreement could bring with it revenues for the state, the North Slope Borough, Native corporations and Alaska contractors, and workers.

While gas isn’t being produced and sold yet, and will instead be re-injected in a “cycling” project after liquids are extracted, that may come later.

The settlement project “lays the foundation for future gas monetization,” he said.

Exxon’s decision to rely heavily on Alaska firms to develop Point Thomson was praised by John MacKinnon, executive director of the Associated General Contractors of Alaska.

He said that Exxon had committed to Alaska hire on the project, and were doing that with the subcontractors they’d selected.

“If you want to maximize local hire, maximize local contractors,” he said.

Resource Development Council, which includes Exxon as a member, supports the agreement despite the low production amount, said Rick Rogers, the group’s executive director.

“Getting the litigation behind us clears the way to start working collectively with leaseholders to start making some things happen,” he said.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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