Drill Baby Drill! What about Point Thomson?

With Governor Palin criss crossing the country to the chants of drill baby drill, the question has to be asked; doesn't drilling start at home?

For the last ten months, since December of 2007 when Superior Court Judge Sharon Gleason ruled on the state's attempt to cancel existing development leases at Point Thomson, the Palin administration has done everything but chant "Drill baby drill!"

In fact if anything they've been chanting "litigate, baby litigate!"

For the last thirty years, the plans for developing Point Thomson have been sidetracked for one reason or another. Since November of 2006, the State has been trying to revoke the leases for lack of development.

Although Exxon's lack of progress on Point Thomson has been frustrating, there is more to the story than looking at the 22 prior development plans.

To say the State has been losing out assumes there are other companies who have been waiting at the door willing to invest billions on developing Pt. Thomson. But more importantly it ignores the fact that those 22 development plans were approved by the State; and some were approved by prior Directors that didn't care to fondly for the oil & gas industry.

The truth is that there has been no rush to develop Pt. Thomson because of the economics.

Everything from field dynamics, lack of a viable gas pipeline project that would allow for the monetization of the huge natural gas reserves and the cost associated with developing the necessary infrastructure have kept this project from being ripe.

In December of 2007, Judge Sharon Gleason ruled that although the DNR had the right to terminate the Pt. Thomson leases, they couldn't terminate the leases without providing the producers an opportunity to provide a remedy.

In March, Exxon and its partners filed its proposed remedy with the court that promises to spend $1.3 billion and be producing gas condensates by 2014. That is just about the same time we should be getting close to starting construction of a gas pipeline according to some timelines.

In April, DNR Commissioner Tom Irwin rejected Exxon's plan of development (POD). In all of Irwin's 78 page rejection notice, he failed to cite any legal or technical reasons why Exxon's proposal should be rejected. 

"Despite the fact that the plan may present a technically reasonable first step for developing these lands from a conservation perspective, I cannot risk the continued delays in development of this valuable state resource" Irwin wrote on page 31.

So despite the fact that Irwin seems to agree the 23rd plan is a good plan that calls for real action, the substance didn't matter as he predetermined that he could not trust the producers.

Exxon appealed Irwin's decision...to Irwin and was turned down again this summer. The case now goes back to Judge Gleason for her ruling. Both sides have said if they lose, they'll appeal to the State Supreme Court.

The threat of drawn out litigation will result in another five to eight years in court with the delays greatly impacting the Alaska Natural gas pipeline as all major oil producers have testified that without the legal wrangling resolved over Point Thomson, there will be no gas pipeline. 

What's happening today?

Meanwhile Exxon is pushing ahead with developing the field, in direct contradiction to Irwin's rejection claim that he didn't trust they'd follow through on their promises.

Despite the fact that the price of steel increased 50% in July alone and inflation is currently running at 20% on the North Slope, Exxon has unloaded two barges of all the equipment they'll need until the end of the year.  They have contracted with Alaskan firms to build ice roads and do development work in the field and are currently employing 150 contract workers.

In addition, Exxon is currently engaged in data sharing with the Alaska Oil & Gas Commission, including all of their seismic data and the new information they've obtained from the field in the last two years.  

The biggest risk for Exxon's progress at Point Thomson and Alaskan firms contracting to do work is the uncertainty of permits. Curently Exxon needs twenty three different permits to build the ice road and begin drilling operations in the most challenging oil & gas field in the world. As of today, Exxon holds only five permits and are waiting to hear back on a dozen more.

On October 15, 2008 both Exxon and the State of Alaska are scheduled to report back to Judge Gleason on the status of  settlement talks.

If Governor Palin wants to be out selling the policy of drill baby drill to the rest of the country, she should embrace that philosophy at home.

She should immediately direct her Department of Natural Resources to accept Exxon's POD, settle the dispute, move forward on granting them the necessary permits and let them get to the business of developing Point Thomson...which was the entire reason for the threat of revoking their leases to begin with.

It's time to stop the litigation and commit to keeping Alaskans working at Point Thomson to support their effort to drill and develop this critical gas field needed to make the Alaska natural gas pipeline a reality.

(To see pictures of the work at Point Thomson click attachment)  

Suggested Reading:

http://www.andrewhalcro.com/a_must_read