Ruling not a slam dunk for state

An Alaska Superior Court denied a request by Point Thomson leaseholders Exxon Mobil, BP and Chevron May 1 to stay a state administrative ruling terminating the Point Thomson Unit, but also ordered the Department of Natural Resources to seek termination on the unit through separate judicial action.

The decision by Judge Sharon Gleason was not a clear-cut win for the state. Gleason also ruled that seven exploration and delineation wells drilled since 1977 in the Point Thomson Unit were capable of production under state regulations. This ruling could strengthen a separate legal action by the companies, claiming that a decision last November by the DNR declaring the wells as incapable of production was improper. The state DNR’s action on the wells was part of its decision to terminate the unit.

If the companies prevail on reversing the state decision on the nine wells, Exxon Mobil and its companies could retain at least some leases in the Point Thomson Unit area. Alaska law allows leases beyond their normal expiration date to be held if there are wells drilled on the leases that are capable of production.

The state DNR had argued that since the wells were capped and abandoned, they were incapable of production and could not serve to preserve the leases. Gleason disagreed, indicating that the agency had earlier classified the wells as capable of production.

“The undisputed fact remains that the department certified these wells, and that as a result of these certifications, the wells will be considered capable of producing hydrocarbons,” Judge Gleason said in her ruling.

In their statements to the court, the companies argued that even if the wells were plugged, they could be redrilled to produce.

The court also ordered Exxon Mobil and its partners to pay a $20 million penalty agreed to as part of work commitments in the Point Thomson Unit that were not fulfilled, or to post a $25 million bond while litigation continues.

In addition to the filing for stay of the administrative action on terminating the unit, the companies also have administrative appeals underway on the state action to terminate the leases. They also have court actions contesting the decision to terminate the unit and to declare the wells drilled at Point Thomson as incapable of production.

In a separate action, the companies filed an application to form a new Point Thomson Unit April 16 under a provision that allows the Alaska Oil and Gas Conversation Commission to form units to ensure conservation of oil and gas resources. The normal method of forming units on state lands is through the DNR, but the AOGCC also has authority to form units in some instances.

The filing with the AOGCC was made one day before a state DNR decision terminating the leases was to be effective. The DNR has since extended the termination date while administrative appeals are made.

Eight trillion cubic feet of natural gas and 200 million barrels of liquid condensates have been discovered at Point Thomson, which is 60 miles east of Prudhoe Bay on the North Slope.

The legal status of the Point Thomas leases is importance because gas reserves there constitute just under one-fourth of the 35 tcf of proven reserves underpinning a proposed $30 billion-plus Alaska natural gas pipeline.

11/20/2016 - 7:05pm