Faced with the prospect of losing "significant acreage" at the Point Thomson field under a 2012 settlement with Alaska, Exxon Mobil said Friday it is considering its options on potential new development scenarios.
The oil company in May took a first step required under that settlement, producing the field's first oil by removing up to 10,000 barrels daily of liquid condensate from natural gas that is produced then re-injected back underground, part of a $4 billion investment in gas cycling.
The crude oil-like liquid condensate is shipped to the trans-Alaska oil pipeline to join the rest of the crude oil moving to Valdez and refineries in the Lower 48 and elsewhere.
But the settlement, signed under former Gov. Sean Parnell following a court battle after decades of delayed development by Exxon and then Exxon Mobil, calls for additional development at the field.
If not, Exxon Mobil and other owners could risk losing nearly half of Point Thomson's 93,000 acres, according to state documents from 2012.
Whether the settlement is as enforceable as the Parnell Administration said in 2012 could be up for debate, however.
Mark Myers, former commissioner of Alaska Department of Natural Resources under current Gov. Bill Walker, asserted Friday that he believes there is too much "wiggle room" in the settlement for Exxon Mobil and other major owners — including chances to challenge the state and keep acreage.
"I would have liked much stronger terms," said Myers, who retired in February.
The company and its other major partners, BP and ConocoPhillips, missed a key milestone on June 1. That's because a project designed to export natural gas off the North Slope had not been sanctioned by that date, as first reported in Petroleum News earlier this month.
The three oil companies and the state have spent more than $500 million in recent years studying a project that would do just that, the $55 billion Alaska LNG effort to transport liquefied natural gas to Asia. But that project is far from being sanctioned — permitted, financed and approved by corporate boards — by any of the partners.
In fact, the oil companies are backing away from the project as low oil prices slam their bottom lines, while the state is taking steps to take over the project lead from Exxon Mobil. The settlement does not explicitly say the producers themselves need to sanction a gas line project. It only says that one must be sanctioned by certain dates to provide the producers with a chance to retain acreage at Point Thomson. The companies have said they will sell their gas to the state on reasonable terms to support a state-led project.
The Point Thomson field, with Exxon Mobil owning 63 percent, is located in northern Alaska near the Arctic National Wildlife Refuge.
The state approved the unit in 1977, with Exxon as operator. But after a lack of development that lasted decades, the state under former Gov. Frank Murkowski declared the unit in default in 2005 and terminated leases the next year, launching the court battle over the field.
The field is expected to provide one-fourth of the natural gas for a project to export North Slope gas, if one is ever built.
With the June 1 deadline passed, Exxon Mobil and partners must begin engineering or permitting work in one of two areas. They can begin work to expand the gas cycling effort by at least 10,000 to 20,000 barrels of oil daily, according to analysis of the project by Parnell's attorney general in June 2012, Michael Geraghty.
They can also begin the engineering or permitting to build a gas line to the Prudhoe Bay oil field 60 miles to the west, a step that could provide natural gas to enhance oil production because the gas would be injected into Prudhoe Bay to pressurize reservoirs and help oil move toward the surface, according to 2012 assessments of the settlement.
Among other benefits, the gas line to Prudhoe Bay would make the unit a central gathering spot for natural gas, a step facilitating a project to export North Slope gas, according to a summary of the settlement.
To prevent nearly half the acreage at Point Thomson from automatically reverting back to the state, Exxon Mobil and the other major owners must, by the end of 2019, choose one of the two development options unless a major gas project has been sanctioned by then, according to an analysis of the settlement from the Alaska Department of Natural Resources in 2012.
Exxon Mobil is evaluating its options, said Lauren Kerr, a spokeswoman for the company.
The company has stressed that it will support a state-led gas line project by selling gas to the state at the right terms, and making the required investments at Prudhoe Bay and Point Thomson.
Kerr said in an emailed statement that the Point Thomson field will provide a "foundation for future gas development on the North Slope."
But "before committing to future investments at Prudhoe Bay and Point Thomson, Exxon Mobil will need gas sales and purchase agreements in place under mutually-agreed and commercially-reasonable terms," she said.
Elizabeth Bluemink, spokeswoman at the Alaska Department of Natural Resources, said, "It is our understanding that Exxon is in the early, pre-permitting stages of gas facility expansion and is setting up meetings with villages, Alaska Native interests and other local stakeholders."
She added that the plans for additional development — plans that would describe Exxon Mobil's intentions for next steps at Point Thomson — aren't scheduled to be provided to the state until next spring or summer.