Alaska editorial: State takes a chance on getting better deal on Point Thompson

Posted: Friday, December 08, 2006

This editorial first appeared in The Anchorage Daily News:

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The Murkowski administration did something in its final week that maybe should have been done a while ago. Or maybe not at all. Whatever, Alaskans hope it turns out well.

The Department of Natural Resources denied an appeal from Exxon Mobil, effectively ruling that the company and its partners are in default on their Point Thomson oil and gas leases. That means the state will get back the properties and can re-issue them to willing developers - assuming the state wins the expected legal challenge from Exxon. The litigation could take several years.

Or maybe the new governor can sit down with the company and dangle the return of the leases as leverage to get some real commitments toward developing Point Thomson and building the long-awaited North Slope natural gas line.

Be it negotiation or litigation, this is a high-stakes gamble for the state.

Alaskans are frustrated at Exxon for delaying development of Point Thomson, which was discovered in 1977. Over the years, Exxon has spent more than half a billion dollars on Point Thomson exploration, but it's hesitated to move into production. The company is on its 22nd development plan, and was willing to pay the state $20 million and give back 20,000 acres along the fringe of the field for approval of its latest extension.

The state, however, said enough is too much and rejected the latest development plan. The governor said it's time to let someone else get a chance at developing the properties.

Alaskans are just as frustrated with slow progress by Exxon and its partners on the proposed North Slope gas line. But the gas line needs Point Thomson. Without it, the mega-pipeline could be short on gas - Point Thomson holds about one-quarter of all known reserves on the North Slope. Which means anything that jeopardizes development of Point Thomson - such as drawn-out litigation - could also jeopardize the gas line.

And there is another risk to the lease take-back. Point Thomson is highly pressurized. The hydrocarbon riches are buried beneath thousands of feet of rock, at pressures as high as 13,000 pounds per square inch. That's more than four times the pressure at Prudhoe Bay.

That means it would be very costly to develop Point Thomson as an oil field. It means a developer would have to spend maybe a couple of billion dollars on giant compressors and other equipment to capture the gas, repressurize it and jam it back into the ground. It means burning up maybe $100 million a year worth of gas to run the compressors.

That's a lot of money to spend not to produce gas, though it would maximize oil recovery.

Exxon's argument is that it makes more sense to wait on Point Thomson until there is a gas line, then develop it as an oil and gas field to turn the gas into revenue for the company and the state. But that means losing some oil recovery as the field loses pressure. There are no easy choices.

Exxon will have another argument when it goes to court over the leases. The company had negotiated a fiscal deal with the state for the gas pipeline. True, the public and legislators wanted big changes in the contract before accepting it, but Exxon will make the point: The state took away the very leases that the company promised to develop under its negotiated gas line contract.

Taking back the leases is politically popular, and may be the right move. But it could backfire if it delays a gas line more than it's already been delayed. Let's hope this works.

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