Alaska editorial: State, Exxon should resolve Point Thomson differences

Posted: Monday, January 05, 2009

Exxon and state officials tell very different tales in defense of their positions in the dispute over the Point Thomson natural gas field. The right and wrong of it is difficult to discern in the thicket of details and counter-arguments, but it's encouraging to hear that the two entities still are talking about how to resolve the dispute in a manner that allows natural gas production sooner than later.

The state has canceled the development leases it granted Exxon, alleging the company has failed to live up to the work commitments it made when it obtained those leases. The company has a long pattern of such failure, state officials said in making that decision.

Exxon claims the state's action is illegitimate and the state's characterization of its past performance is incorrect. Exxon says it met every lease requirement in past plans, and that the state affirmed those facts when it extended the leases multiple times. A key to understanding the company's argument is that the lease terms actually don't require production - they require progress toward that goal. If the work on the field has not led to a producing field yet, Exxon says, that outcome shouldn't be held against it when it did everything it was required to do legally and, in any case, had no pipeline to carry the gas away. It especially should not be denied another lease extension at this moment, the company says, when it is on the cusp of implementing an actual production plan for the first time.

Officials in Gov. Sarah Palin's administration do not claim responsibility for whatever extension approvals Exxon was given prior to their watch, even if they say the record reveals the company's pattern of stalling. But they say the facts in the current dispute are clear. The most recent development plan required Exxon to drill a well within a set time period. The company did not. Under the terms of the leases, that constitutes grounds for cancellation. Case closed.

Of course, no case is closed when billions of dollars are at stake. So Exxon has gone to court. And it has asked Natural Resources Commissioner Tom Irwin to reconsider the cancellation.

Irwin will make that decision later this month.

In the meantime, state officials and Exxon continue to talk about how to resolve this. Let's hope the private discussions are more amicable than those in court, where a private lawyer hired by the state called Exxon's current efforts to work on the Point Thomson leases, which the state has halted, a "public relations ploy."

Some view the timing of all this as suspicious. Could the administration be using its leverage over the Point Thomson leases in a high-stakes game to pressure Exxon into committing to the TransCanada natural gas pipeline project that the state has endorsed under the Alaska Gasline Inducement Act?

The governor and her gas line team told the Daily News-Miner last month that she was not applying such leverage. The state is simply approaching the lease extension issue on the merits, they said. They noted that the current dispute began during the administration of Palin's predecessor in office, Gov. Frank Murkowski, who was no fan of the AGIA process.

Regardless of motives, the dispute endangers timely production of gas from the field. Here again, state officials and the company part ways on what that means for a natural gas pipeline to the Lower 48. State officials assert that a line can be financed on the existing North Slope gas reserves - that Point Thomson gas is not necessary for start-up. The industry generally claims the opposite - that Point Thomson is the linchpin in the whole natural gas line project. Pull it, or fight about it too long, and the wheels come off, they say.

The only rays of hope in this tangled thicket of arguments are the negotiations in which state officials say they continue to engage with Exxon. A breakthrough on that front certainly would be something to toast in this new year.

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