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After decades of failed attempts, oil production begins at Point Thomson

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published April 22, 2016

Oil production has begun at ExxonMobil's Point Thomson field near the Arctic National Wildlife Refuge, a complex project that became a reality after decades of failed attempts by the company and court fights with the state. ExxonMobil announced the news on Friday.

Production at Point Thomson is considered critical to the state's long-sought effort to build an 800-mile pipeline that can deliver the North Slope's natural gas to ports where it can be shipped to buyers overseas, because the field contains much of the gas to support the project.

So far, a trickle of oil is flowing. About 5,000 barrels daily of condensate -- the light oil that's similar to kerosene or diesel -- is being dripped from 100 million cubic feet of natural gas. That amount of gas – almost half the gas used in Southcentral Alaska on an average day -- will be extracted daily, then pumped back into the ground after the light oil has been extracted.

The light oil is piped to the trans-Alaska pipeline, mixing with the crude oil and increasing production levels that recently have been around 540,000 barrels of oil daily.

The gas-cycling effort has been a $4 billion undertaking involving about 100 Alaska companies, and thousands of workers who built the equivalent of a small oil-field village on the frozen tundra, complete with a port, airstrip and housing for workers.

Despite the small start, there's potential for growth at the site on the Beaufort Sea about 60 miles east of Prudhoe Bay.

Aaron Stryk, a media relations adviser for ExxonMobil, said production has not yet begun at a well on the western section of the field. That will come on line in a few months, doubling the amount of gas cycling that will occur, and pushing light oil production to 10,000 barrels.

Depending on what ExxonMobil learns from the project's first phase, it's possible condensate production at the field could be increased, to as much as 70,000 barrels of condensate daily, according to the agreement.

But Stryk said ExxonMobil's main focus for the field now is taking steps that will lead to the production and shipping of the natural gas needed to support the $55 billion Alaska LNG project, a project being studied by the state and the North Slope's major oil producers, BP, ExxonMobil and ConocoPhillips.

"The primary course is planning for gas expansion to underpin the development of the Alaska LNG project," said Stryk.

The effort to bring Point Thomson into production dates back decades, in part because the highly pressurized reservoir presented engineering challenges. ExxonMobil discovered gas in commercial quantities in 1975 and over the decades submitted more than 20 development plans that resulted in no production.

In 2006, under Gov. Frank Murkowski, frustrated state officials terminated the Point Thomson unit because it wasn't moving toward development, leading to years of litigation after ExxonMobil challenged the decision in court.

In 2009, the state allowed ExxonMobil to drill two wells, setting the stage for future development. But the dispute wasn't settled until it reached the state Supreme Court, and ended with the 2012 settlement under then-Gov. Sean Parnell.

Alaska U.S. Sen. Dan Sullivan played a key role in negotiating the settlement with ExxonMobil when he was the state's attorney general and Department of Natural Resources commissioner. He called the news of first production "good news" that among other benefits moves Alaska closer to developing the megagas- line project.

"The 10,000 barrels a day of condensate that will soon be flowing down the trans-Alaska oil pipeline will help boost state coffers, will help ensure uninterrupted flow through (the trans-Alaska pipeline), and will open up the eastern North Slope for additional exploration and development," he said.

The state will receive a royalty shore of the oil produced, with the project contributing to royalty revenues that are one of the state's largest chunks of income.

But production taxes paid to the state could be limited. The project is expected to qualify as "new oil," a classification under the state's oil tax system that results in no taxes on oil produced until the price of North Slope crude reaches $73 a barrel, a price the state doesn't expect to see for at least a decade.

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