Legislators express concern about oil leases
Published Tuesday, December 2, 2008
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Stumble It!FAIRBANKS — Lawmakers tried to figure out Monday why the state won’t grant lease-related concessions to two companies ready and willing to drill for Alaska natural gas.
Two companies want to drill for natural gas in Alaska next year, but their progress has ground to a halt pending resolution of lease issues with the state’s Department of Natural Resources.
Exxon Mobil, operator of the gas-rich Point Thomson unit on the North Slope, and Escopeta Oil, a Texas company that promises fast gas from leases it holds on Cook Inlet, are blocked by lease issues before the state’s Department of Natural Resources.
At least one legislator speculated that the state might be using its influence over the Point Thomson unit as leverage to prod Exxon into committing its gas supplies to a pipeline proposed by TransCanada.
Heavily promoted by Gov. Sarah Palin, the TransCanada line earned the state’s blessing — and $500 million — when the legislature granted a license under Palin’s Alaska Gasline Inducement Act in August. Critics, however, say the gas line is doomed without gas commitments from North Slope producers.
Several lawmakers used the joint House Judiciary and Resource committees hearing to note the discrepancy between Palin’s call for drilling while on the national campaign trail and state-level resistance the oil companies are facing on her home turf.
“Are we open for business in Alaska? We have a governor out there saying ‘Drill, Baby, Drill,’” Rep. Craig Johnson, an Anchorage Republican, asked DNR officials.
Both oil companies face lease issues blocking development of natural gas. Escopeta’s leases expire in a month, while DNR terminated the Point Thomson unit earlier this year due to inaction. At question during the hearing was whether DNR is fostering development of Alaska resources, or whether the state agency is attempting to warehouse leases in order to collect more bonus payments by re-selling them to fresh buyers.
Rep. Ralph Samuels, an Anchorage Republican, pointed representatives from both oil companies and DNR to a bigger theme — how development of the state’s natural gas resources could affect plans to build a large-diameter, transcontinental gas line.
“If this state does not get a gas line, we are all so screwed — and you can’t get it without Point Thomson,” Samuels said. He said DNR is looking for leverage to force producers into supporting TransCanada’s pipeline, which was licensed under the Alaska Gasline Inducement Act. Some say the TransCanada proposal won’t succeed without the assurance of gas, and they add that a producer-backed line, such as proposed by the joint ConocoPhillips/BP Denali project, is more likely to materialize.
“You want Exxon and Chevron and BP and all the rest of the them to put that gas into the AGIA pipeline. Is that the endgame that’s going on here?” he asked.
DNR officials, bound to some degree by court-ordered, high-level negotiations with Exxon, danced around the question.
“When you tell folks what you plan on doing, your leverage can evaporate,” Division of Oil and Gas Director Kevin Banks said.
He defended DNR’s sturdy stance on drawing the line with non-performing leaseholders.
“There comes a time when the state sometimes has to say no,” he said. “We will lose control of how our land is developed.”
Judiciary Committee chairman Rep. Jay Ramras, a Fairbanks Republican, expressed frustration that viable projects are in limbo on DNR’s desk while constituents clamor for better, cheaper energy.
DNR Commissioner Tom Irwin was unable to talk specifics, as an appeal is pending before him on the Thompson unit’s termination. Instead, Banks fielded lawmakers’ inquiries.
He offered a detailed history of Escopeta and Exxon’s leases, laying out the failure of both companies to come through as promised with producing wells.
Banks said the unit containing Escopeta’s Cook Inlet leases will be terminated at the end of December. He stood up to suggestions that DNR should be more willingly to work with producers.
“Our leasing process is pretty clear,” Banks said. “We have to offer leases competitively. If we step out of that role, we become anti-competitive. ... We extend leases willy-nilly because an applicant can tell a pretty convincing story. At times, you just have to say enough is enough. You just have to move on.”
DNR Deputy Commissioner Marty Rutherford assured lawmakers the state is open for business. She noted the state’s leasing program is set up to ensure progress in lease development, thereby promoting the best return for Alaskans.
“As we carry out those and hold people responsible for the commitments they’ve made, it is in fact about getting drilling,” she said. “When people don’t honor those commitments, we also have to be good land managers.”
Ramras said after the hearing that legislators wanted DNR to explain whether the agency is trying to resell leases to raise money through more bonus payments, or if Alaska is going to start drilling for oil and gas, as per Gov. Sarah Palin’s campaign-trail mantra.
“It’s like two locomotives going in two different directions,” Ramras said. “Except, in this case, the DNR locomotive seems to be more powerful than the administration locomotive.”
Exxon is ready to drill wells in 2009, Alaska production manager Craig Haymes said, if the company can secure a DNR permit to build an ice road and put an end to ongoing appeals and litigation over the leases Exxon and 26 others hold at Point Thomson.
The oil giant has committed hundreds of millions of dollars already in advance of drilling at the site, which holds 25 percent of known gas resources on the North Slope.
Haymes said Point Thomson gas will be “essential” to the success of a large-diameter gas pipeline.
“We’re working with all of the agencies,” Haymes testified. “We want to work with the state of Alaska to move forward. It’s in everybody’s interest to drill.”
Escopeta Oil, a Texas independent with leases in the Cook Inlet, ran into roadblocks getting a jack-up rig to Alaska in time to make good on those leases, which expire Dec. 31.
“We’ve done years of work, spent millions of dollars,” company president Danny Davis testified. “We’re staged to do it, but we’re in limbo. ... In about 30 days, we lose everything, and I won’t be back. I’ll just go back to Texas and drill wells there.”
He sent a letter to Gov. Sarah Palin, imploring her intervention with DNR.
In it, he referenced Palin’s recent campaign for national office, and noted that the governor had reached an important crossroad: stay on as governor, or pack up and move to Hollywood.
“If you decide to stay ... Escopeta and others, such as Pacific Energy, sure could use your help in rebuilding the oil and gas industry in the Cook Inlet Basin at a time when both Alaska and America needs it done,” the letter said, as read into the record by Ramras.
“Well, ‘Drill, Baby, Drill’ is pretty explicit,” Ramras said, referring to a widely chanted refrain Palin encouraged in the campaign trail. “We’d sure like to see that brought home.”
Davis estimated that if his leases are extended two years, he could have gas flowing within 18 months — and a lot of it. Land covered by Escopeta and partner Pacific Energy’s leases could hold 4 trillion cubic feet of gas, in addition to oil, he said.
Contact staff writer Rena Delbridge at 459-7518.
Community Discussion
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It really is quite amazing that when these corporations come into Alaska and lock up our gas by NOT following the lease agreements that they signed- how they cry like little girls when they are told to take a hike for non- performance.
In other countries this nonsense does not occur. You sign a lease and you get to work. If you refuse, you are booted out in 12 months.
Of course that nonsense does not happen as there are repercussions for incompetence and non-performance.
So Exxon, go cry your little girl tears back in Houston. You thieving bast&*ds are not welcome here.
Keep Exxon out of Alaska at all costs. Period.
What a bunch of morons you two people are .... who the hell do you think pays the bills? The pure stupidity of people like you is about 98% of the problem.
Get rid of Palin and you will see a huge difference. Brilliant she is not! Now she has steered the resources out of the state and country ... lol. I guess that sums up her foreign affairs expertise and don't forget that she saw a Russian airplane once too.
The cat is out of the bag. Come to Alaska and be supported by oil & gas companies. So oil companies sit on tens of millions of acres of leased drilling tracts while begging for more. All that Alaska drilling doesn't bring down the price of gas and heating oil in Alaska. But oil keeps Alaskans and Alaska government running. Let the migration from the lower 48 to Alaska begin--actually it already has.
You are so right on the sitting part. I've always been supported by locals & tourists. I don't know about Escopeta (that sounds like a salad or a sandwich to me) But I'm with bigmark and Tonto on EXXON. If EXXON wants to do business here as far as I'm concerned, they can eat what they paid the courts off with and pay the original damages over Valdez. Ante Up or go back to Houston EXXON! AS IN PAY THOSE DAMAGES YOU KNOW YOU OWE....TODAY NOT LATER!
In the mean while a South American dictator provides heating assistance to rural Alaska. Better take a look at the 9 billion dollar hit the permanent fund has taken before you think you'll be getting bigger checks next year. Anchorage will expect the rest of Alaska to pay income taxes or State sales taxes to support their city lifestyle. No oil income just means we will all pay for Anchorage and MatSu's "developing economy", while the rest of Alaska keeps the thermostat set at 50 to save money to give to them.
I really detest oil companies. However one has to ask why we let Exxon sit on Thompson for so many years in the first place. Some of the blame is the states fault for continuing to extend. If they are SO ready to drill now give them a new ONE year lease with a performance timetable to move on it and after a year if there is more foot dragging, show them the door.
Its about time alaska stood up for alaska and quit babing these companies like they are the only bussiness in town. I would bet you that any company would drill these leases in a heart beat if they had the chance. Point Thompson has had potential like every other piece of ground on the north slope. But these majors have dictated with all their corporate attorneys on when they want to act. Do your research on how long PT has been in the works. Good job Sarah. The only difference now is there is a leader that will tell the companies to produce up or get out. Oil companies have been in control to long with our resources. Maybe alaska should invest in alaskan companies and show the majors that they need to come in line with alaska's rules. No doubt we will drill and soon. There is gas ready to flow but we need a line.
Just think Rep. Jay Ramras, Something the Newsminer won’t report.
If that former Exxon executive Ken Lay of Enron had gotten California to sign those fraudulent "price gouging" long-term contracts for natural gas in 2001.
Enron may have built that Alaskan Natural gas pipeline for Exxon by now.
I’m sure with Ted Stevens’and Frank Murkowski’s staffer, Andrew Lundquist, running Vice President Dick Cheney’s "Energy Policy Taskforce" could have had this pipeline built by now.
Now you know the rest of the story.
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