Exxon ratchets up the heat in gas field fight

Company no longer working with state; a lawmaker calls it a 'bare knuckles' move

Posted: Thursday, April 26, 2007

Exxon Mobil Corp. has ended cooperation with the state of Alaska on studying how much natural gas can be taken from a disputed North Slope gas field, upping the stakes in a battle that could help or hurt Gov. Sara Palin's ability to get the state a gas line.

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One legislator called it a "bare knuckles" move on the company's part.

The Point Thomson field is east of the Prudhoe Bay oil fields and is thought to hold huge amounts of natural gas, which would guarantee the pipeline's profitability.

Exxon and its partners in the Point Thomson Unit, a collection of leases owned by different companies, have held the development rights for years without using them.

Eventually, fed-up state officials canceled the unit and the leases, sparking a legal battle between Exxon, its partners and the state.

Assistant Attorney General Larry Ostrovsky, head of the Department of Law's Oil and Gas Section, said the oil companies failed to live up to their obligations to develop Point Thomson.

"The basic bargain in an oil and gas lease is that a lease does not exist in perpetuity without production," he told the Legislature.

Lease terms typically run five to 10 years, he said. But some Point Thomson leases have been held for more than 40 years without being developed.

The Point Thomson argument is rare in that it unites Alaska's past and present politicians. Former Gov. Frank Murkowski's commissioner of the Department of Natural Resources canceled the leases in the latter days of his administration.

When Palin took over as governor, Marty Rutherford, the new acting resources commissioner, reaffirmed her predecessor's decision. Legislators have also publicly backed the governor. On Tuesday a resolution in support was moved out of the Senate Judiciary Committee.

Exxon Mobil has done everything it was legally required to do, said company spokeswoman Susan Reeves.

Exxon Mobil operates the unit on behalf of partners BP and ConocoPhillips and has "complied with the Point Thomson lease agreements, the Point Thomson Unit Agreement and all Alaska statutes and regulations," Reeves said.

Now, the oil companies have told state officials they'll stop cooperating with a gas offtake study they'd earlier agreed to.

"Representatives of Exxon Mobil and BP have met with me and informed me among other things they would not be resuming this study until such time as legal issues were resolved," said Cathy Foerster, a member of the Alaska Oil and Gas Conservation Commission.

The commission this week sent Exxon Mobil a letter asking further explanation.

Sen. Gene Therriault, R-North Pole, said he was very disappointed that the information about how much gas the field could produce would not be available to the state.

"It's part of the overall bare-knuckles business," he said.

Therriault and Rep. Ralph Samuels, R-Anchorage, have introduced bills to bolster the state's position. Therriault is the Senate minority leader; Samuels is the House majority leader.

Foerster said the companies have extensive data on the Point Thomson area from years of study, including drilling test wells and doing geologic analyses that the state doesn't have.

"We've been really stymied in our efforts to proceed with Point Thomson," she said.

The companies that own that data are not sharing it with the state and can't be forced to do so, she said.

"The data they've got, they got by drilling multimillion dollar wells," she said.

Exxon Mobil representatives said refusal to cooperate with the study could set back the state's efforts to develop Point Thomson for years, according to Foerster.

"They estimate five years of a delay, three years of litigation, and if they didn't prevail, two years for a new operator to get up to speed before things could get back on track," she said.

Ostrovsky suggested Exxon Mobil might be bluffing with its talk of long delays.

"You have to take that in the spirit it is given," he said. "It's in one side's interest to convince the other side they'll be tied up for many decades," he said.

During legislative testimony, Sen. Bill Wielechowski, D-Anchorage, asked Foerster whether other companies would be interested in buying the leases if the state prevails in litigation.

"In my opinion, there would be a lot of them," she said. "If I were a billionaire, I'd be one of them."

It is generally thought that a successful large natural gas pipeline needs to have access to 35 trillion cubic feet of natural gas to pay for the line, and that Point Thomson would, along with the Prudhoe Bay field, provide an important part of that.

It is assumed from wells drilled so far that there are eight to nine trillion cubic feet of proven natural gas there, but there may well be more, Therriault said.

"There's a lot of suspicion, and I believe the companies have quite a bit of information, that that is just the tip of the iceberg," Therriault said.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.

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