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Doubts aired about Point Thomson oil, gas field lawsuit settlement

Unregulated development could cost the state billions, legislators told

Posted: April 29, 2012 - 2:59am
Mark Myers, the state's former gas director, gives an evaluation Point Thomson Settlement to the Senate Judiciary Committee on Friday at the Capitol.  Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Mark Myers, the state's former gas director, gives an evaluation Point Thomson Settlement to the Senate Judiciary Committee on Friday at the Capitol.

The Parnell administration may have made a bad decision when it agreed to settle a long-running case over the valuable Point Thomson oil and gas field on the North Slope, the Senate Judiciary Committee was told Friday.

Gov. Sean Parnell recently announced a settlement between the state and Exxon Mobil Co. of the state’s lawsuit against the field’s owners, trying to force them to develop the field.

“It’s the largest remaining crown jewel on state land,” said Mark Myers, a former director of the Division of Oil and Gas, of the undeveloped field.

The field’s operator, Exxon Mobil, has leased, but failed to develop the field for 30 years. Former Gov. Frank Murkowski and then moved to take the leases away, a fight kept up by former Gov. Sarah Palin.

The field is thought to contain hundreds of millions of barrels of oil, possibly a billion barrels.

It also contains about 8 trillion cubic feet of natural gas, about a quarter of the North Slope’s known natural gas reserves.

Exxon sued the state, and has been fighting the lease termination ever since.

The settlement of that case, announced by Parnell in March, is aimed at speeding the way to a big natural gas pipeline to an export terminal on the Gulf of Alaska, Parnell said.

At Friday’s hearing, there was much skepticism of that deal.

Myers warned that the settlement agreement turned over control of how Point Thomson was developed to Exxon, bypassing regulators at the Department of Natural Resources responsible for making sure the state’s interests are protected.

A big concern, he said, was that Exxon might “blow down” the field quickly by using a cheap extraction process that leaves much of the fields oil unrecoverable.

That might boost profits for Exxon, Myers, said, but could cost the state billions in lost revenue in royalties and taxes.

“The numbers are staggering here because of the size of this field and the value of oil,” he said.

Attorney Craig Richards of the Alaska Gasline Port Authority, which had its appeal of the Point Thomson settlement denied by Attorney General Michael Geraghty, said the settlement bypassed state law and violated the Constitution.

Richards said that the agreement binds the state to give Exxon development approvals that it wouldn’t otherwise be able to do under existing laws aimed at ensuring the state’s resources aren’t wasted, Richards said.

“My personal opinion is this agreement is inconsistent with Alaska law,” he said.

He said the Legislature should look into the settlement agreement, and should have done so before it was finalized.

The agreement he said, clears the way to give Exxon many of the powers that a controversial state law from years past, the Stranded Gas Development Act, didn’t provide.

Murkowski has made a strong pitch for a natural gas pipeline under that act, but his pitch had been rejected by the Legislature. That debate also saw several legislators go to prison for taking oil industry bribes.

Richards said the Point Thomson settlement “backdoors” giving many of those same powers to Exxon by a settlement agreement that it couldn’t do directly.

Geraghty denied that.

It is in the state’s interest go settle the issue, so the state can get on with developing its resources, he said. Further litigation would result in more delays, and add possibly more appeals to the Alaska Supreme Court, he said.

“In the meantime, 25 percent of Alaska’s gas is tied up in litigation,” he said.

Geraghty called some of the concerns expressed “just silly.”

The attorney general called them “something I can’t take seriously, and I don’t think any other experienced attorney will either,” he said.

And he told the committee not to give too much weight to the concerns they were hearing from Richards.

“I didn’t hear ‘judge’ before his name,” he said.

Members of the Judiciary Committee did appear to take the issue seriously, however.

Sen. Bill Wielechowski, D-Anchorage, questioned Geraghty’s statement that Department of Natural Resources Commissioner Dan Sullivan had briefed legislators last summer on the settlement negotiations.

Wielechowski read off a list of dates in which his office had contacted Sullivan seeking a briefing, but said it had never been provided.

Rep. Beth Kerttula, D-Juneau, and a former oil and gas attorney with the Department of Law, said she was worried about the agreement.

“I’ve seen just enough of that settlement agreement to see the kind of convoluted terminology that’s in it,” she said.

The Parnell administration should have told lawmakers what they were doing with the settlement before they did it, she said.

“Up until a couple of years ago legislators would have been briefed on what was going to happen before it happened,” she said.

The settlement was defended by Department of Natural Resources Deputy Commissioner Joe Balash, who said it protects the state’s key interest in seeing Point Thomson developed.

“If they don’t put it in production, we get it back,” he said.

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

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