The state plans to strip oil companies of their leases on the Point Thomson oil and gas field after finding the primary lease holder, Exxon Mobil Corp., in default for failing to come up with a viable plan for developing the field's vast North Slope gas reserves.
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Gov. Frank Murkowski, alongside Natural Resources Commissioner Mike Menge, announced the decision at a news conference in Anchorage on Monday, just one week shy of the end of his administration.
Murkowski said Exxon Mobil, despite being granted numerous extensions over several decades, failed to make good on its obligations as operator of the field.
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"Basically Exxon did not choose to meet a development scenario which the state felt was mandated after so many extensions," Murkowski said.
Exxon Mobil spokeswoman Susan Reeves expressed disappointment in the state's decision. She declined to say if the company would appeal the decision but predicted it would hurt the state in the long run.
"This is a major setback for an Alaska gas pipeline project since the Point Thomson gas is critical for the project," Reeves said.
Murkowski said under the proper lease terms, however, the Point Thomson reserves could be an incentive for companies to develop the state's long-cherished goal of building a natural gas pipeline.
The new administration, under Gov.-elect Sarah Palin, will decide the next step. She takes office Dec. 4.
Palin on Monday praised Murkowski's decision and said she was looking forward to working with the industry.
"I've said before that these units are the cornerstone upon which a future Alaska gas pipeline will be built. That starts with strict enforcement of the lease terms for timely development of the Point Thomson oil and gas field," Palin said in a prepared statement.
The Point Thomson leases could be offered as early as the next state lease sale in October, but that could be delayed if Exxon Mobil takes the matter to court.
The company has 30 days to appeal the state's decision to the Superior Court. State officials predict litigation could take as long as three years to resolve if the matter eventually reaches the state Supreme Court.
Still, Murkowski said new lease terms could be the driver for the proposed gas line. He suggested that if companies are required to develop the field's as yet untapped oil reserves using an existing oil pipeline, they would want to achieve economies of scale by developing the gas at the same time.
"This in turn will create an incentive and a need for new Point Thomson leases to construct a new gas pipeline. And likely they would now look on it as a motivation for building sooner rather than later," Murkowski said.
He said it also could inspire potential new players, like Chevron, Shell and others, to take part in a new gas line contract proposal.
Alaska officials ruled in 2005 that Exxon Mobil was in default for delaying 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 fiscal 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.
The negotiated contract fell through amid worries that Alaska would be giving away too much to the producers. That left Exxon Mobil with an October deadline to update its development plan.
In the plan rejected Monday, Exxon Mobil proposed paying the state $20 million and giving up 20,000 acres to settle its unmet obligations to developing the gas field. The plan included a promise to drill one well in 2009 to better map the extent of the field.
Over the last three decades, Exxon Mobil has filed 22 development plans for the 106,200-acre unit. No commercial oil or gas operations have ever begun in that time.
Point Thomson is the North Slope's second largest natural gas field, after Prudhoe Bay.
It 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.