Anchorage Daily News

I was disappointed with state Natural Resources Commissioner Tom Irwin's recent decision to turn down a $1.3 billion project for Point Thompson development put forth by lease owners in the big North Slope gas and condensate field. We need to keep in mind, however, that this might be part of a broader strategy the state is pursuing.

Click to enlarge

Story tools

Comments

E-mail a friend

Print

Digg this

Seed Newsvine

Send link via AIM

Font size : A | A | A

But the decision still troubled me. I was in an upbeat mood after the announcement by BP and Conoco Phillips that they are moving forward with their Denali gas pipeline project. I believed all the gas pipeline politics were getting behind us. Then Irwin's decision came down, and I felt us sliding back into the bog.

Point Thomson gas is needed for any gas pipeline, whether the Denali project or a separate proposal being made by TransCanada Corp. If there are doubts as to the legal status of Point Thomson, no gas from that field can be committed to a pipeline until the court suits are resolved, which could be years.

The companies involved include Exxon Mobil, BP, Chevron and Conoco. What they propose is a gas recycling and liquid condensate production project that would be the first stage toward full-scale development of the field.

Here's some background: The state and the companies have been engaged in an intense dispute over work commitments at Point Thomson. In 2006 the state ordered the Point Thomson Unit terminated and in 2007 actions were initiated to cancel the leases.

A unit allows oil and gas leases to be grouped for efficiency and for the lease terms to be extended. Because the unit is, in essence, a new lease the state often changes the royalty terms when a unit is formed or enlarged, as has happened at Point Thomson.

In any event, the companies sued. Last December state Superior Court Judge Sharon Gleason halted the unit termination and ordered the parties to try for a resolution. The project proposed by the companies is an attempted remedy.

I've always had a lot of respect for Tom Irwin, particularly for his actions in holding the state to a steady course through the turbulent waters of the Pebble prospect controversy. The commissioner, who knows his stuff about mining, insists on allowing the mine developers to design their project and to follow the proper procedures in applying for state and federal permits.

His Point Thomson decision disturbed me, though. What bothered me is that the decision was subjective -- the commissioner said he doesn't "trust" the companies. I don't think this is the way a major state policy decision should be made.

Despite his rejection, Irwin acknowledged the project proposed by the companies is a good one and even appropriate given the technical complexities of Point Thomson.

The underlying logic in rejecting the project is that Irwin doesn't trust the companies to keep their commitment to really do it because they have broken commitments made in previous years.

However, there are questions as to whether this is actually the case. Each year the companies negotiate annual work plans with the state, called Plans of Development. My understanding is that the vast majority of the work proposed in the plans was done.

Commissioner Irwin does cite several wells that were promised but not drilled. What isn't made clear in his decision is that the well commitments were made under separate agreements involving expansion of the unit. The expansion added leases to the unit to keep it from expiring.

Under these agreements, however, the companies always had the option to not drill the wells at the risk of the state shrinking the unit by taking back the leases that were added. There have been two expansions of Point Thomson, and in both cases acreage was taken back when the companies decided not to drill, as the agreements provided. In the most recent expansion there was also a $20 million penalty provided that was paid when the wells were not drilled.

I can easily see that Irwin and several Division of Oil and Gas directors who had to wrestle with these issues have been extremely frustrated by the slow pace of work at Point Thomson, and I don't blame them. But I'm not convinced there were broken commitments, which is the underlying reason for the Irwin's rejection of the plan.

Aside from this, the real reason Point Thomson hasn't been developed is that the field contains mostly gas and there is no gas pipeline and no way to market the gas. The companies have worked on a project to produce liquid condensates that could flow down the trans-Alaska oil pipeline, but there were serious technical risks. Now, new technology and high oil prices (the condensate would be mixed with oil when sold) mitigate most of these risks, the companies believe.

Aside from my concern over the way this decision was made, my main worry is that continuing lawsuits will cloud chances for gas to be committed to either TransCanada's pipeline or the pipeline planned by BP and Conoco. We can't afford any more delays to the gas pipeline.

However, let's give Irwin a break. This is a game still under way and Irwin's decision might be part of a broader strategy of wringing concessions out of the companies, perhaps in more performance measures and penalties.

If that is the case, my hat is off to Irwin once again. But if his intent is to really take the leases back, then we'd all better settle in for years of lawsuits where the only winners are the lawyers.

Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every fourth Sunday.

ADVERTISEMENT