Superior judge denies Exxon's appeal stay

Producers ordered to pay $20 million for breach of contract

Posted: Thursday, May 03, 2007

A superior court judge on Tuesday denied Exxon Mobil Corp.'s request to delay the outcome of its appeal to regain leases from the Point Thomson fields.

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Late last year the state terminated Point Thomson leases with Exxon Mobil and its partners, saying the companies failed to meet lease development obligations.

This set off numerous court filings from the oil and gas companies and the state, as the companies asked a state Superior Court to overturn the decision.

The dispute is over the North Slope's second largest natural gas field, after Prudhoe Bay.

Lawmakers have called Point Thomson vital to the success of a prospective gas pipeline to move trillions of cubic feet of natural gas from the North Slope. Point Thomson is estimated to hold about 9 trillion cubic feet of gas reserves, more than a quarter of the known gas in all North Slope fields.

State lawmakers are reviewing Gov. Sarah Palin's Alaska Gasline Inducement Act in the final weeks of the legislative session.

The Irving, Texas-based Exxon Mobil is among nearly a dozen companies interested in the gas line project. A company representative testified before a Senate committee on the bill Tuesday.

The company is Point Thomson's field operator for 45 gas and oil leases shared largely by BP PLC, ConocoPhillips and Chevron Corp.

In her ruling Tuesday, Judge Sharon Gleason also ordered the producers to pay a $20 million penalty for breaching the contract. Or the companies could post a $25 million bond with the court.

Palin hailed Gleason's ruling.

"This decision represents forward progress in our efforts to put these leases in the hands of a company that will responsibly develop them and bring the significant gas reserves in the Point Thomson area to market," Palin said in a prepared statement.

"This ruling tells us that standing up to protect Alaska's interests, in seeing its resources produced, is the right thing to do," said Department of Natural Resources Commissioner Tom Irwin in a prepared statement. "We will continue to stand firm in protecting the states rights in the face of the inevitable barrage of criticism from the state's major producers."

Company officials could not immediately be reached for comment.

On Tuesday, Exxon's Marty Massey reiterated previous testimony from BP and ConocoPhillips in telling state lawmakers AGIA is too restrictive.

Producers also said AGIA lacks assurances that their long-term costs such as royalties and taxes would remain constant and predictable.

"AGIA does not provide for a commercially viable project," Massey told the state Senate Finance Committee. "AGIA is based on flawed economic assumptions. In its current form AGIA will result in less competition.

"In addition the existing prescriptive terms in AGIA will preclude Exxon Mobil from being able to make an open and competitive and conforming proposal."

In his statement, Irwin said producers are seeking to force the Legislature's hand at a change.

"In protecting their shareholders financial interests, the producers are seeking to change the rules because competition means that they may not get a deal on their terms," Irwin said. "I hope they choose to participate in building a gas line and will meaningfully engage in the AGIA process."

State natural resources officials ruled in 2005 that Exxon Mobil was in default for delaying Point Thomson development by submitting a plan without any sure date for production to begin.

The state threatened to revoke the leases but stayed that decision while negotiating a contract with Exxon and two other oil companies for a $25 billion natural gas pipeline that would take gas from the North Slope to Midwestern markets.

Negotiations fell through last year, leaving Exxon Mobil with an October deadline to update its Point Thomson development plan.

The plan the company submitted was rejected in November, and the state - then under Republican Gov. Frank Murkowski - revoked the leases.

In that plan, Exxon Mobil proposed paying the state $20 million and giving up 20,000 acres to settle its unmet obligations to develop the gas field. The plan included a promise to drill one well in 2009 to better map the extent of the field.

In December, the resources department under Palin, the new Republican governor, reviewed the case and upheld the decision from Murkowski's administration.

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