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Alaska-producer deal extends Point Thomson development deadline

Highlights

Expansion of condensate production beyond pilot not feasible

Deadline stayed as long as LNG project progresses

Anchorage, Alaska — Alaska has agreed to extend a key deadline in a 2012 lawsuit settlement with ExxonMobil and BP over development of the Point Thomson gas and condensate field 60 miles east of Prudhoe Bay on Alaska's North Slope.

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The deal was reached to facilitate ExxonMobil's agreement to supply its North Slope gas, both at Point Thomson and in Prudhoe Bay field, to the proposed $43 billion-plus Alaska LNG Project, state Commissioner of Natural Resources Andy Mack said Tuesday.

Point Thomson holds an estimated 8 Tcf of gas and 100 million barrels of liquid condensates and is considered a critical part of the gas supply needed for the Alaska LNG Project.

A letter of agreement finalized Monday among the state, ExxonMobil and BP extends a December 2019 deadline for the companies to expand Point Thomson development beyond a pilot program now underway to produce condensates, which Mack said has been technically troubled.

"We have reached agreement with the state to amend the Point Thomson settlement agreement, aligning milestones with those of the [state-led] LNG project and reducing uncertainty around project schedule and timing," ExxonMobil spokeswoman Julie King said Tuesday in an email.

TIMELINES ALIGNED

"The agreement recognizes the timeline for the state LNG project and better aligns development timelines with those of Point Thomson," King said. "Point Thomson is critical to the success of any LNG project as it provides economies of scale and reduces the cost of supply."

The 2012 settlement was to end several years of litigation over the state's effort to cancel leases at Point Thomson because of the companies' lack of development of gas and oil reserves, which were discovered in 1975.

ExxonMobil, operator at Point Thomson, argued that with no gas pipeline available, the gas resource, although large, could not be developed and oil resources were economically marginal.

The state contended that the companies could have pursued alternative development strategies, such as gas cycling, to allow liquid condensate production. In 2007 the state moved to cancel the leases, arguing the companies had not met development obligations under the leases. ExxonMobil and BP sued to block the action.

TECHNICAL PROBLEMS

After five years and mixed decisions in the Alaska courts ExxonMobil and BP agreed to a pilot condensate production project, although ExxonMobil said its studies, based on a condensate project considered in 1999, showed there were technical problems.

The pilot project was built in 2014 and 2015 at a cost of over $4 billion and, as was predicted, has not performed. Mack said that based on the operational problems an expansion of condensate production from beyond the current pilot is not feasible.

The 2012 settlement gave ExxonMobil and BP three options by the end of 2019. The preferred option was to be producing gas for the Alaska LNG Project, but that project has not yet been agreed on. A second is to expand condensate production and gas cycling, which is now not considered technically viable.

A third alterative, to produce gas and pipe it 60 miles to inject it for pressure maintenance in the Prudhoe Bay reservoir, to produce more oil from that field, has been under study but is now not considered economical, Mack said Tuesday.

"The agreement effectively stays the year-end 2019 deadline as long as the (LNG) project continues to progress," Mack said. "The extension will end when the Alaska LNG Project reaches a final investment decision, or when the Department of Natural Resources notifies the parties that the project is no longer progressing," he said.

"If the extension ends, the companies will have 30 months to reach final investment decision on either of two development options at Point Thomson (Alaska LNG or piping the gas to Prudhoe), or else lose acreage," Mack said.

-- Tim Bradner, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com