Point Thomson gas wars once again?

Point Thomson gas wars once again?

Alaska’s Division of Oil and Gas has denied an ExxonMobil Corp. application to expand its Point Thomson liquid condensate and gas cycling project, indicating the proposal lacked details.

If built, the project could bring several billions of dollars of work to the North Slope beginning in 2019. Contractors and oil workers have been feeling the effects of sharp cutbacks on the slope due to low oil prices.

The action echoes earlier disputes between the state and ExxonMobil over North Slope gas development, including a lawsuit over Point Thomson that was settled in 2012 and which led to the present project at the field.

Point Thomson is a large gas and liquid condensate field 60 miles east of Prudhoe Bay on the North Slope. Gas reserves are estimated at 8 tcf along with about 200 million barrels of condensates.

The field is now operating in an initial production phase as a natural gas cycling project. Gas is being produced and condensate, a natural gas liquid that is mixed with the methane, the main component of the natural gas, is stripped out of the raw produced gas in production facilities at the field.

Those liquids are shipped to Prudhoe Bay through an oil pipeline built for the project, where they are mixed with crude oil shipped through the Trans Alaska Pipeline System. Because there is yet no gas pipeline from the North Slope to take the produced gas to market it is injected back underground.

In a letter sent Aug. 29 to Cory Quarles, ExxonMobil’s Alaska vice president, state Division of Oil and Gas director Chantal Walsh cited a lack of details in the expansion proposal as well as a lack or assurances by the company that resources are being committed in engineering and planning.

Because of that, the proposal appears out of compliance with the 2012 litigation settlement with the state over Point Thomson. The company was given until Oct. 13 to resubmit its plan with more information and adequate assurances, Walsh said.

ExxonMobil spokesman Aaron Stryk said his company is still reviewing the letter and would not comment. “We have been, and continue to be, in full compliance with the Point Thomson Settlement Agreement,” he said.

ExxonMobil made the proposal as part of its compliance in the settlement, which resolved a lawsuit over disputed work obligations on state oil and gas leases at the field. BP is a major owner at Point Thomson along with ExxonMobil, who is operator.

If an agreement on the expansion plan cannot be reached it would push the dispute back to the courts for resolution, DNR officials told us.

The 2012 agreement committed Exxon and other field owners to develop a gas condensate and gas cycling project at the field as the first stage of a full development program. The initial project was developed, as agreed, at a cost exceeding $4 billion, but technical problems with gas compressors in the field have caused delays in the project reaching a goal of average production of 10,000 barrels per day of liquid condensates, Walsh noted in her letter.

One of the challenges at Point Thomson is that it is a high-pressure gas field with reservoir pressures at 10,000 pounds per square inch, which is about twice as high as the original reservoir pressure at Prudhoe Bay. Compressors built to inject gas back into the reservoir at those pressures are operating at the edge of technology, ExxonMobil has said in the past.

Once the initial production project was completed the settlement committed ExxonMobil to develop one of three alternative expansions of the project. One is to expand gas production to support the Alaska LNG Project, which involves an 800-mile pipeline and LNG export plant in southern Alaska.

Two other alternatives include expanding production of the liquid condensates, or secondly producing the gas and sending it via a new gas pipeline to Prudhoe Bay to repressurize the oil reservoir there, which would produce more oil.

The Alaska LNG Project was the preferred option but that is delayed because of market conditions. ExxonMobil submitted a plan June 30 that includes a combination the other two alternatives. It would expand condensate production to 50,000 barrels per day and also produce and ship 920 million cubic feet of gas per day to Prudhoe Bay to stimulate new oil production.

However, in her Aug. 29 letter Walsh said the plan submitted by ExxonMobil lacked detailed specifics on work to be done and said the company also hedged its commitment of funds for engineering on agreements by Prudhoe Bay field owners on the gas injection plan.

Walsh noted that the ownership of Point Thomson and Prudhoe Bay are different, and Prudhoe owners must consent to any plan for the field. While ExxonMobil and BP are majoeowners at Prudhoe as well as Point Thomson, ConocoPhillips does not own a share of Point Thomson but is a major Prudhoe field owner.

“Overall, the proposed POD fails to paint even the most impressionistic picture of what Exxon will do over the next year and a half to engineer an expansion project,” Walsh wrote in her letter. That makes it inconsistent with the settlement agreement.

On one level the state’s request for more detailed information seems routine but a history of legal disputes between Alaska’s governor, Bill Walker, before he was elected, and ExxonMobil over the Point Thomson project raises questions as to whether Walker is attempting to gain concessions from the company and possibly alter the 2012 settlement.

As a private citizen Walker filed a lawsuit contesting the legality of the state’s Point Thomson settlement, under former Gov. Sean Parnell, that was not successful.

Walker also headed, before he was governor, a municipal group, the Alaska Gasline Port Authority, which had pushed the state to take back the Point Thomson leases and allow it, the port authority, to develop the field.

Walker subsequently ran for governor and was elected in 2014.

The development at Point Thomson is strategically important because it has built new infrastructure, in particular a pipeline, that is opening up access to oil and gas resources east of Prudhoe Bay.

Besides the Point Thomson gas and condensate discovery there are confirmed discoveries of several small oil deposits in the area than can likely be developed because the infrastructure is now available.

Also, Point Thomson is near the Canning River at the northwest boundary of the Arctic National Wildlife Refuge, or ANWR. If Congress were to approve exploration and development in the coastal plain of the refuge, which is adjacent to the state lands at Point Thomson, new oil discoveries might be possible. The existence of the Point Thomson facilities and pipeline could enhance that development.

There are also oil discoveries in nearby offshore waters, in the eastern Alaska Beaufort Sea, that were made years ago by ARCO Alaska and Union Oil Co. of California. Shell was exploring this area in 2012.

 

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