Natural Gas

To say this case is complex is like saying Alaska gets cold in the winter.

ExxonMobil Corp. and Alaska state officials are trying to settle a lawsuit over a North Slope gas field that is needed if the planned 1,700-mile pipeline project to the Lower 48 states is to work.

The supermajor, through its battalion of legal experts, has suggested that an unbiased three-member panel of mediators be seated to hear the case.

The disputed lease is at Point Thomson, which holds–according to some state and federal estimates–as much as one-fourth of the North Slope’s 35 trillion cubic feet of reserves. ExxonMobil has said developing this field is critical if the pipeline, which is planned to take 4 billion cubic feet per day to markets in the Lower 48.

Just about two years ago, state officials decided that ExxonMobil had not lived up to its obligations to develop the field and said they were going to pull the leases. Their reasons–the company has had almost 30 years to do something there and hasn’t done anything.

In December, Superior Court Sharon Gleason said the energy company needs to have a chance to make its case and keep the lease for the 106,200-acre unit. In February, the company filed a development plan with the state–the 23rd in 30 years.

This set off a virtual snowstorm of legal action with the state saying it wants to pull the leases and Exxon filing a lawsuit to keep them. If nothing else, the fight is keeping the coffers of legal firms across the land filled.

To add to the fight, ExxonMobil and its partners announced in late August it had started a massive shipping operation to move equipment and supplies to the drill site, which is about 600 miles to the north of Anchorage. Their plan calls for the company to begin producing about 200 million cubic feet of natural gas per day from the field by 2014.

And to add a little bit of what? to the mix–the state has said the companies can do surface work, but no drilling. The court hearing the case has not ruled on ExxonMobil’s call for a mediation panel, which state lawyers called premature and not needed at this time.

All of this is happening against the backdrop of two competing gas pipelines–TransCanada Corp., has been awarded an exclusive license to build a line from the North Slope to the Lower 48. Their license, by the way, calls for the state to give TransCanada $500 million in state incentives and there are no guarantees the line will be built.

They are going up against a private plan by ConocoPhillips and BP called Denalia–The Alaska Gas Pipeline. In April, the two decided to move ahead with their project.

And watching from the sidelines is ExxonMobil, which is not involved with either project, but is critical with its Point Thomson lease for either project to succeed.

Stay tuned. More to come. This is a story that is slowly developing and will be for quite some time.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

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