By Tim Bradner
Alaska Journal of Commerce

ExxonMobil Corp. has completed a move of equipment 60 miles east of Prudhoe Bay on the North Slope to the undeveloped Point Thomson gas field, and is continuing with preparations to begin drilling on a $1.3 billion development program this winter, a senior company official said Aug. 28.

Craig Haymes, ExxonMobil's Alaska production manager said his company and its partners, which include BP, Chevron and ConocoPhillips, have invested $100 million in the preparations including a $20 million contract for modifications to Nabors Alaska Drilling Co.'s Rig 27-E to enable a rig to handle high reservoir pressures at Point Thomson.

Meanwhile, the companies are still locked in litigation with the state of Alaska in a protracted dispute over termination of the Point Thomson Unit and the validity of state oil gas leases in the field, where an estimated 8 trlllion cubic feet of gas and 200 million barrels of condensates were discovered by drilling in the 1970s and 1980s.

Haymes said the state Department of Natural Resources has issued permits to the company to do surface preparations at the field despite the dispute.

“They've granted every permit we've asked for so far,” Haymes said. ExxonMobil is now preparing applications to the DNR for permission to build a 60-mile winter ice road in November to move a drill rig from Prudhoe Bay to Point Thomson.

Unless the legal dispute is resolved, the company will not be able to actually drill this winter, according to Nan Thompson, DNR's division of support services director, who is managing the Point Thomson dispute for the state. Thompson said ExxonMobil and its partners must have a plan of operations and other permits from DNR to do drilling, and the companies' proposed plan has not been agreed upon and is in dispute.

Meanwhile, Superior Court Judge Sharon Gleason has set Oct. 15 for a status report on settlement discussions. Thompson said she would not comment on whether settlement talks are currently underway, but in a brief filed earlier this summer to Gleason in response to ExxonMobil's request that the court appoint a mediator, the state asked that it be left to pursue settlement negotiations itself. The judge agreed, denying the companies' request.

Exploration and development studies for Point Thomson have been underway since the 1980s, but the remote location, reservoir problems and the lack of a pipeline to move gas to market made any development uneconomic, ExxonMobil has said.

In recent years the companies have worked on a gas cycling project to produce liquid condensates and reinject produced gas.

The dispute with the state began in 2005, when the Department of Natural Resources refused to approve a plan of operations put forth by ExxonMobil and the companies did not conduct the drilling that had been agreed to earlier. In 2006 the state moved to terminate the Point Thomson unit, which led the companies to challenge the action in court.

A proposed pilot gas cycling and condensate production project put forward earlier this year was also rejected by the state, which issued notices that the leases have been cancelled.

State officials say they expect the controversy to be eventually settled because Point Thomson gas reserves are needed for a $30 billion-plus natural gas pipeline being planned. Two North Slope producers, BP and ConocoPhillips, have work on a pipeline underway, and TransCanada Corp. has launched a separate pipeline effort.

In an Aug. 28 press release ExxonMobil said that contractor Crowley Maritime Corp. completed movement of equipment for drilling and ice road construction to the site. Also, Nabors Rig 19-E is being modified with new systems to handle drilling fluids and power. Heavy well casing and wellhead equipment capable of withstanding high pressures are also on order with manufacturers.

Five wells are planned at Point Thomson at costs ranging from $80 million to $120 million each and the first well, planned for this winter, is expected to be near the high end of that range because of its complexity, Haymes said. However, the well will be drilled into the heart of the Point Thomson reservoir and will give the companies, and the state, a great deal of needed data on the reservoir.

“The Point Thomson reservoir is over 12,000 feet deep. The reservoir pressure in 10,200 pounds per square inch, abnormally high for the depth, requiring specialized drilling and well-completion operations to maintain well control. The project will also require high pressure injection and fluid-handling faciltities,” Haymes said.

Haymes said 30 Alaska-based vendors and contractors are at work on the project, employing about 150 people.

Tim Bradner can be reached at tim.bradner@alaskajournal.com">tim.bradner@alaskajournal.com.