Alaska Supreme Court hears complex Point Thomson lawsuit

Alaska’s Supreme Court held a hearing Feb. 8 on one aspect of a complex lawsuit over state oil and gas leases at Point Thomson, a large gas and condensate discovery east of Prudhoe Bay on the North Slope. It will be some time before the court renders a decision, however.

The court heard arguments over a provision in the Point Thomson Unit agreement that sets standards by which the state, as landowner, can terminate the unit. That action would also lead to termination of the leases, attorneys familiar with the case said on background.

ExxonMobil, BP, Chevron and ConocoPhillips, the major leaseowners, filed a lawsuit to challenge the state’s action in 2007 to terminate the unit and the leases. The state terminated the unit on the grounds that the companies had reneged on lease work obligations agreed to in 2001.

Gov. Sean Parnell has been working toward a settlement of the case and had hoped to secure one before the Supreme Court hearing. Last September the state reached a settlement agreement with one major leaseowner, ExxonMobil, which is also the unit operator, but other major leaseowners BP, Chevron and ConocoPhillips have yet to agree to the deal.

The state high court has agreed to rule on a dispute over interpretation of Section 21 of the unit agreement, one of the issues in the case but an important one, which could be read to require the state to come up with technical data to justify a decision rejecting a plan of development submitted by a unit owners, attorneys familiar with the case said. The companies read Section 21 that way.

The state favors an interpretation that the companies must come up with technical data to support a plan they present to the state.

“Depending on how this decision comes out, the state could be at a tremendous disadvantage in attempting to reject a plan put forth by leaseowners,” one attorney said.

The court’s decision will affect the way the state administers units in all parts of Alaska.

Parnell sees resolution of the dispute as key in developing an Alaska natural gas pipeline project because the legal status of the Point Thomson leases, and the 8 trillion cubic feet of gas reserves identified there, must be clearly established.

In his State of the State speech to the Legislature Jan. 17 Parnell promised to ramp up the state’s legal efforts in the unit termination if a settlement were not reached by the time of the Supreme Court hearing.

“These companies need to agree to resolve the Point Thomson litigation. If no settlement in the state’s interest can be reached with all parties, the state will fight for Alaska’s interests at the Alaska Supreme Court hearing on Feb. 8 in Anchorage,” Parnell said in the speech to the Legislature.

Meanwhile, under an interim agreement with the state, reached while the larger settlement is negotiated, the Point Thomson owners the companies agreed to develop a small gas cycling and condensate production project. That project is now under development and is expected to begin producing 10,000 barrels per day of liquid condensates in 2016.

In return for agreeing to proceed with that, the state agreed to drop action to terminate two leases of 31 leases now held in the Point Thomson Unit.

11/07/2016 - 2:09pm