Two out of three ain't bad, but there is still a lot of work ahead for the Alaska Gasline Development Corp.
The state agency in charge of putting together the $43 billion Alaska LNG Project signed a gas sales precedent agreement with ExxonMobil on Monday, meaning two of the three major North Slope natural gas holders have now agreed to key gas pricing and volume terms with AGDC.
Those exact terms are confidential, but Gov. Bill Walker said in a formal statement the agreement "means Alaska is one step closer to monetizing the North Slope's vast and proven natural gas resources."
ExxonMobil operates the Point Thomson gas field and holds a 62 percent stake in the unit (with BP owning nearly all of the remaining share), which sits east of Prudhoe Bay on state land near the edge of the Arctic National Wildlife Refuge. The company also holds a 36 percent interest in the Prudhoe Bay field. With roughly 28 trillion cubic feet of gas available from Prudhoe and another 8 tcf in Point Thomson, ExxonMobil has rights to nearly 15 tcf of North Slope gas.
"This precedent agreement is good for Alaska and ExxonMobil and represents a significant milestone to help advance the state-led gasline project," ExxonMobil Alaska President Darlene Gates said in an AGDC release. "As the largest holder of discovered gas resources on the North Slope, ExxonMobil has been working for decades to tackle the challenges of bringing Alaska's gas to market."
The announcement with ExxonMobil means ConocoPhillips is the only major North Slope producer to not yet sign a preliminary gas deal with AGDC.
BP and AGDC reached a similar agreement in early May on binding price and volume terms; however, there are numerous finer financial and technical points to be addressed before final gas sales agreements are signed.
ExxonMobil's gas sales precedent agreement — like BP's — calls for gas to be sold into to the large North Slope gas treatment plant that would be the start of the 807-mile gas pipeline and LNG export project.
AGDC spokesman Jesse Carlstrom said the state-owned corporation is actively engaged in similar discussions with ConocoPhillips.
Department of Natural Resources Commissioner Andy Mack said in an interview that final gas sales agreements would likely be signed nearly in concurrence with a final investment decision on the overall Alaska LNG Project.
"It brings the firepower and brand name of ExxonMobil to the project," Mack said as AGDC officials begin their major push to attract third-party investors to the project.
In a separate but related development, Mack and Attorney General Jahna Lindemuth also on Monday signed what is being called a "letter of understanding" with ExxonMobil and BP Alaska leaders to suspend key provisions of the 2012 Point Thomson Settlement Agreement as they work on Alaska LNG.
The letter removes the requirement for ExxonMobil, as the Point Thomson operator, to move forward with a plan to expand production at the field in a way that doesn't jive with feeding the LNG project.
Before ExxonMobil signed the letter with the state, the 2012 Settlement Agreement signed by then-DNR Commissioner and current Sen. Dan Sullivan required the company to make a final decision on how to increase production at Point Thomson by Dec. 31, 2019.
Specifically, it prescribes that the company choose to either increase production at Point Thomson to more than 50,000 barrels per day of natural gas liquids, or condensates, and pipe up to 920 million cubic feet of natural gas per day into Prudhoe Bay, or simply grow condensate production to 20,000 barrels per day and reinject the gas into the Point Thomson reservoir.
The current Point Thomson facilities have a production capacity of about 10,000 barrels of condensates and 200 million cubic feet of gas per day. However, the technical challenges of producing gas from and reinjecting into the ultra-high pressure field have hampered ExxonMobil's production ability.
A third, untenable option would be for ExxonMobil and BP to relinquish the leases back to the state, but that would seem unlikely given they spent upwards of $4 billion between 2012 and 2016 to develop the gas field in accordance with the settlement.
In July 2017, ExxonMobil submitted a long-range development plan to the Division of Oil and Gas outlining plans to pipe gas more than 60 miles to Prudhoe for injection into the oil field to aide in oil recovery. That plan was initially rejected, but eventually approved by state regulators.
Despite that, the Point Thomson development was always meant to feed a large gas project.
Some former state officials and Alaska LNG experts have questioned the economics of piping Point Thomson gas to Prudhoe.
Mack characterized all the settlement alternatives other than a major gas project as "suboptimal" for the state and the companies, noting the prospect of moving and injecting gas into Prudhoe is not as attractive as it seemed in 2012.
With Monday's letter, the state retains the ability to reinstate the 2012 Settlement provisions at any time, Mack said, stressing that the preferred option is for the companies to help the state be successful with the Alaska LNG Project.
"The whole idea is to redirect the (Point Thomson) project back to major gas sales," he said.
If at some point state officials decide Alaska LNG is not going to be successful or ExxonMobil backs away from it, the settlement provisions can be brought back with a 30-month window for the company to comply.
Mack said the extra time — versus the 16 months between now and the end of December 2019 — is to allow ExxonMobil to restart its Point Thomson expansion engineering team and work out other related issues with the state.
The engineers that have been working on that project will hopefully be put towards advancing the Alaska LNG Project, he said.
Mack added that the gas sales precedent agreement and the letter "are definitely related," noting the signing of the former is a significant show of commitment by ExxonMobil to the state-led LNG project.
"This is another critically important step, but there's many more steps in this process," Mack said.
Elwood Brehmer can be reached at email@example.com.