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Exxon wants state to pay $800 million in damages

Posted: Tuesday, May 13, 2008

Exxon Mobil Corp. wants Alaska to pay $800 million in damages, claiming Monday the state breached a deal when it revoked gas and oil leases on a North Slope oil field.

Separately, Exxon Mobil, based in Irving, Texas, filed a request for reconsideration of a gas field development proposal it submitted but which was rejected by Resources Commissioner Tom Irwin last month.

Both filings were submitted to the Alaska Department of Natural Resources by Exxon Mobil on behalf of itself and its lease partners over the revocation of Point Thomson oil and gas leases. The dispute, however, has broader implications than a battle over a single field.

Development of the field is considered vital to a successful natural gas pipeline project under consideration by the state.

Point Thomson holds nearly one-fourth of the 35 trillion cubic feet of natural gas reserves the state and the industry hope one day to ship in a gas line to Midwestern markets.

Exxon Mobil is the operator with a 36 percent interest in the field; BP PLC has 32 percent; Chevron Corp. has 25 percent; ConocoPhillips has 5 percent; and minority owners hold the rest.

Exxon Mobil officials could not immediately be reached for comment Monday. A spokesman for BP said the state's actions to hold up the development proposal is counter productive.

"The proposal called for real production on a real schedule and it set the stage for the gas line," said Steve Rinehart, spokesman for BP's Anchorage-based offices.

"Now, it could delay for years any gas line coming from the North Slope," he said. "That's not in anyone's best interest."

Exxon initially said its claim for damages, a document that bore only its name but was submitted on behalf of its partners, was submitted as a "precautionary matter."

About four hours later, the department received the request to reconsider its decision to reject the plan last month, said Kevin Banks, the state's director for the oil and gas division.

"I wouldn't call it a threat," Banks said of receiving first the damages claim, then the reconsideration request.

"What it's saying is, 'You can look forward to a response if the decision doesn't go our way ...,"' Banks said.

Exxon Mobil, BP PLC and Chevron purchased leases 31 years ago allowing them to drill at Point Thomson. However, they have not produced any oil or gas from the tracts.

The lack of activity prompted the state to try to reclaim the leases in late 2006 and give other companies the opportunity to move forward with development at Point Thomson.

But a Superior Court judge in December ordered state officials to weigh other options before stripping the leases. Two months later, Exxon submitted its 23rd development plan.

The proposal involved a $1.2 billion gas recycling and condensate production project to be developed over six years. The company said it had already secured a drilling rig and planned to begin development this year.



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