The state of Alaska has rejected a plan submitted by Exxon Mobil to develop natural gas in a reserve at Point Thomson, saying the company's plans are not specific on when it will drill.
Exxon Mobil has made a "mockery" of the state's leases by delaying development for the past 28 years, according to division Director Mark Myers at the Alaska Division of Oil and Gas.
"Therefore, the 22nd (plan of development) is unacceptable," Myers said in a written statement after making his decision Sept. 30.
Point Thomson is located near the western border of the Arctic National Wildlife Refuge and stretches over 106,200 acres. It has 25 lessees, and Exxon Mobil hold the most acreage.
The company must submit a plan every year or plans for multiple years to keep its 45 leases on the unit.
No drilling for development or production has occurred on the unit for 20 years, state officials said.
Exxon Mobil officials did not return phone calls from the Empire. Company spokeswoman Susan Reeves declined to answer specific questions asked by The Associated Press, but forwarded a statement that said the producers are disappointed with the state's denial and they disagree with the decision. The producers plan to appeal.
Carol Lee, petroleum land manager for the Division of Oil and Gas, said Exxon Mobil told her division it cannot produce the gas until a pipeline is built connecting it to markets in the Lower 48, or not until it is commercially viable to produce through alternative methods.
Exxon Mobil's plan also says developing Point Thomson is not possible without first changing the state's tax and royalty laws.
Lee said the company has other options besides waiting for the pipeline, which would be ready between 2012 and 2014 if the state can negotiate a contract with producers this year.
Other options include a cycling process that injects carbon gas into the reserves to extract the natural gas. The company could also produce the several hundred million barrels of oil on the unit and transport it through the existing trans-Alaska oil pipeline, Lee said.
Rep. Harry Crawford, D-Anchorage, said experts estimate the state could generate about $1 billion per year in tax revenue on those reserves that were found through 1998. Crawford said that year was chosen because producers would be less likely to challenge the number of reserves known at that point and it would not discourage producers from further exploration.
About 8 trillion cubic tons of natural gas lie in Point Thomson, but "everyone knows there is more, including Exxon," said Jomo Stewart, spokesman for the Alaska Gasline Port Authority.
"It's the biggest oil company in the world. They do things on their own schedule," Crawford said.
He and other lawmakers have introduced legislation and voter initiatives to tax the gas while it sits in the ground.
According to Myers, the oil company's plan made no timely commitment to develop oil, gas or gas condensate on its leases. The unit agreement for Point Thomson requires an approved plan, so the unit was automatically in default Oct. 1.
Exxon Mobil has until Dec. 29 to submit an acceptable plan of development, which "must contain specific commitments to timely delineate the hydrocarbon accumulations" and develop the resource, according to the statement.
The division said an acceptable plan would include a commitment to begin production by Oct. 1, 2009, and details on fulfilling a previously agreed commitment to drill in 2006.
Failure to meet those obligations could result in Exxon Mobil losing the entire unit, said Lee, adding that the unit could be leased to another company if that is the case.
Penalties are set in place if producers do not drill by next June. They could lose acres gained in a 2001 agreement and pay a fine of $20 million to the state. Similar penalties apply if a 2008 deadline is not met for seven development wells.
Exxon Mobil has an opportunity for a hearing regarding this notice to modify the rate of development. The division will contact Exxon to schedule a hearing this month.
Andrew Petty can be reached at firstname.lastname@example.org. The Associated Press contributed to this story.