Point Thomson lease case on tap for Supreme Court

Assistant Attorney General Richard Todd argued that a lower court judge incorrectly interpreted state law by requiring the Alaska Department of Natural Resources to conduct a hearing to explain what leaseholders must to do to correct their development plan problem when the department determines the a lease holder is not moving toward production.

The four justices heard an hour of arguments at Anchorage West High School, and then took the case under advisement.

Exxon Mobil Corp. estimates that the field on the Beaufort Sea coastline, about 60 miles east of Prudhoe Bay, holds an estimated 8 trillion cubic feet of gas. That's about a quarter of all the known gas reserves on the North Slope. The company estimates that it also contains about 200 million barrels of condensate or liquid hydrocarbons.

The gas is seen as a crucial part of a natural gas pipeline plan long sought for in Alaska.

The case is another chapter in the long saga between Alaska regulators and companies holding leases at Point Thomson. The appeal is an offshoot of state efforts to terminate the production unit at Point Thomson, formed with leases held by Exxon, BP Exploration (Alaska), Chevron USA Inc. and ConcoPhillips.

Exxon became the unit operator for the Point Thomson unit in 1977.

As unit holder, Exxon was to provide yearly plans of development. A few wells were drilled in the early years, but by 1985, Exxon said drilling efforts would be halted but still filed the yearly plans.

In 2005, the state notified Exxon that its development plan for Point Thomson was inadequate and began stripping the companies of their leases. The state terminated the leases and declared them expired after becoming frustrated with a lack of production at the gas fields, where no drilling had occurred for decades.

Exxon challenged the state's termination of those leases.

In December 2007, Exxon appealed in Superior Court. Judge Sharon Gleason ruled DNR could reject development plans, but that rejection does not automatically mean termination of the leases. She sent it back to DNR for remedy.

Two months later, Exxon submitted another development plan. It also asked for a hearing under a different set of department guidelines to show its conduct conforms to industry standards.

The DNR commissioner rejected the hearing, but set up an administrative hearing to determine whether the development plan was adequate and if not, whether that was cause for termination of the leases. Nannette Thompson, a DNR attorney who had earlier advised the commissioner on Point Thomson, was appointed the hearing officer.

In April 2008, the commissioner found the development plan was not viable, and again canceled the leases.

On appeal, Gleason ruled in January 2010 that Department of DNR Commissioner Tom Irwin did not follow proper procedures regarding hearings to which Exxon was entitled.

She also found that Exxon's due process was violated because Irwin appointed Thompson as the hearing officer.

The state appealed to the supreme court.

There was some question whether Wednesday's hearing would be needed. The state Department of Law and Gov. Sean Parnell had been pushing for resolution of the lease issue.

Parnell announced an agreement had been reached with Exxon over the leases last year, but the other leaseholders hadn't signed on. Parnell made it a point when he met with the presidents of the big three oil companies in Anchorage earlier last month, but warned the state would fight for its interests before the supreme court if need be.