Point Thomson, Alaska headed back to court yet again?

ExxonMobil drilled and tested the PTU-15 and PTU-16 development wells at Point Thomson. (Photo - July 2010) Business Wire photo. Alaska Dispatch.  The long-running war with Exxon Mobil Corp. over one of the nation’s most valuable oil and gas fields may be headed back to court again. But this time, it’s not the state that might be suing.

Natural gas pipeline advocate and former gubernatorial candidate Bill Walker originally thought Gov. Sean Parnell’s administration had inked a decent settlement with the oil giant and its partners — BP Exploration, ConocoPhillips and Leede Operating Co. — over development of the lucrative Point Thomson field on Alaska’s northern coast.

But the deeper he looked, the less he liked it. Unlike past decisions of this magnitude, there’d been no chance for public input.

There’d been no legislative approval. And Walker believes the deal illegally signed away many of the state’s powers to ensure the best course of development for the complicated field, one that would produce the least waste and the greatest return for Alaskans.

He’s asked for an administrative appeal from the state. If he doesn’t get it, his next step could be taking the state and Exxon to court.

Worth $100 billion

Stakes are high: Home to massive quantities of gas and light oil, some believe the reservoir is easily worth more than $100 billion at today’s prices. But because it’s a highly pressurized field, developing it for maximum potential will be costly. Some development proposals could significantly reduce production, potentially leaving tens of billions of dollars of oil in the ground. Opponents of the settlement say it puts Exxon in the driver’s seat, and they might choose the cheapest option for producing petroleum, rather than the one that most benefits Alaska.

State officials have disagreed, saying the settlement will lead to development. If not, Exxon and its partners will be forced to return large chunks of acreage to the state. They also said the Alaska Oil and Gas Conservation Commission, charged with permitting drilling and making sure oil and gas isn’t wasted, retains full decision-making authority.

The deal “stinks” for Alaska, said Craig Richards, an oil-and-gas legal expert for Walker’s Anchorage law firm, Walker & Levesque. It allows Exxon to do very little work to secure long-term rights to a field it’s already sat on for decades. The company has often said the field is too expensive to develop, much to the state’s chagrin. Efforts by the state to wrest control of the field back from the oil companies led to a seven-year court battle that the state Superior and Supreme courts dismissed following the March 29 settlement.

“The state got a really bad deal, but that’s not the biggest issue here,” said Richards. The biggest issue is the deal was finalized in secret so it could not be reviewed, he said. The state did not publicly announce the agreement until a day after the settlement had been signed and the courts had dismissed the case.

“The government is not supposed to give away a $100 billion oil field without a public process and without the opportunity for legislative approval and judicial review,” Richards said.

The settlement nearly slipped by without a challenge. But Walker and Richards, on the final day allowed under law, sought an administrative appeal in an April 17 letter to Dan Sullivan, Department of Natural Resources commissioner.

So far, the state’s answer has been “no.”

Settlements entered into by the state cannot be administratively challenged, said Michael Geraghty, in a brief April 26 reply. As attorney general, Geraghty said he has “broad authority to enter into any settlement of litigation” that he believes is in the state’s best interest.

“The exercise of this authority is not subject to administrative review,” wrote Geraghty, who signed the settlement with Sullivan.

That’s correct, if the law’s been followed, said Richards. He claims it wasn’t, in part because public input and legislative approval were bypassed.

If Sullivan doesn’t agree to an administrative review in the coming days, Walker may ask the state Superior Court to intervene.

Exxon says it’s pursuing gas cycling

Geraghty defended his letter and other state officials presented a rosier view of the agreement at a Senate Judiciary Committee hearing in Juneau on Friday. Sullivan did not appear because he’s been asked to reconsider the settlement.

Joe Balash, Natural Resources’ deputy commissioner, said the settlement requires that Exxon develop the field as the state has long preferred, with gas-cycling that maintains the pressure of the reservoir by re-injecting escaped natural gas. That option is thought to be the best way to develop the field, so most of the light oil can be tapped.

If the operators don’t complete the gas-cycling project, much of the land returns to the state’s control by early 2016. After that initial phase is complete, Exxon has the choice to pursue other developments, such as increasing the light-oil production or winning permits to build a cross-state natural gas pipeline. Complete neither the initial gas-cycling project nor one of the other options, and all the leases return to the state by 2019, Balash said.

The cycling project was agreed to in 2009, but it was wrapped into the settlement. Exxon has drilled two wells and says it’s spent more than $700 million as part of that effort.

On Thursday, the company was serious enough about the settlement and the gas-cycling project to mention them in its 2012 first-quarter earnings call with analysts, according to a transcript of the call at Seeking Alpha.

David Rosenthal, Exxon’s vice president of investor relations for Exxon, told analysts the company plans to start the first step of Point Thompson production in early 2016.

As the settlement agreement stipulates, plans call for daily processing capacity of 200 million cubic feet of natural gas and 10,000 barrels of condensate, or light oil. Rosenthal said in the call that Exxon is working on engineering details and buying equipment.

Rosenthal made no mention of the fabled natural gasline needed to sell stranded natural gas from the North Slope, another mega-project Alaskans have long dreamed of. But he did say “the North Slope holds more than 35 trillion cubic feet of discovered natural gas, and Point Thomson is a key component to the development of this resource.”

Dispute over the details

In his testimony, Richards said building the initial gas-cycling system isn’t required, as he originally thought when he first went over the agreement. Part of the problem is the language in the settlement is vague and the summary statement of the settlement differs from the settlement’s details.

“When I first read it, I thought the (Initial Production System or IPS) was in the bank, but you read and it you realize there are paths with no requirement for an IPS,” Richards said.

Walker and Richards aren’t the only ones who don’t like the agreement.

Mark Myers, the state’s former Division of Oil and Gas director, launched the state effort to regain control of the fields in 2005 because Exxon had not submitted an acceptable plan of development. The decision to terminate the unit and declare the leases expired followed years of delays and broken promises by Exxon. The rejection sparked Exxon’s court challenge.

As Myers reads the agreement, none of the options available to Exxon would lead to maximum development of the field, he said. One option allows Exxon to maintain the majority of its acreage by simply permitting a natural gas line, rather than actually building one, Myers said.

The settlement also sets gas royalty terms for the state without required approval of the Alaska Royalty Oil and Gas Development Board.

“If I were a commissioner I would not have signed this deal,” Myers said.

Geraghty, acknowledging no settlement is perfect for either side, said allegations the deal is illegal are unfounded. He added that no one should be surprised the terms were confidential.

“Of course they’re confidential, all settlement agreements are confidential,” he said.

As for the charge that legislative approval is needed for such a deal, “All I can say is if framers of our constitution had intended for the Legislature to sign off on settlements, they would have said that,” he said.

Contact Alex DeMarban at alex(at)alaskadispatch.com

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