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Exxon says it's moving to develop Alaskan oil and gas field

Exxon Mobil is on track to develop part of the huge, remote Point Thomson oil and gas field east of Prudhoe Bay, as required under a court settlement reached earlier this year with the Parnell administration, the company's senior manager on the project told state legislators Tuesday.

The Senate Judiciary Committee has been holding oversight hearings examining whether the settlement is a good deal for the state. Numerous administrations have tried and failed to force Exxon to develop Point Thomson, which some call Alaska's remaining crown jewel on state lands. So far there's only been minimal activity.

"I'm looking for mousetraps," Sen. Hollis French, an Anchorage Democrat who chairs the committee, said early in the daylong hearing. The agreement "was crafted in secret. It was crafted between the administration and Exxon. That should make the hairs on the backs of the necks of Alaskans stand up."

The new settlement imposes timetables and requirements for work that should gradually lead to production -- or Exxon will have to return leased acreage to the state, according to state officials and their legal advisers.

"We've ended the warehousing of these resources," Joe Balash, deputy commissioner of Natural Resources, told the committee.

Point Thomson holds hundreds of millions of barrels of oil, but the main target there has always been the natural gas, estimated by the state at 8 trillion cubic feet. The field contains about a fourth of the North Slope's recoverable gas, so resolving the legal issues has been considered key to the viability of a large natural gas pipeline.

Exxon is committed to making the project work and has invested more than $1 billion in the last four and a half years drilling two initial wells, with plans to spend billions more, senior project manager Lee Bruce told the committee. Under the agreement, Exxon needs to complete those wells and drill a third. It's applied for all of its major permits but still needs those regulatory approvals to move forward, Bruce said.

The settlement contains provisions for hiring Alaskans, and that's already happening, Bruce said. The project management team numbers 80, but that's just the start, he said. The engineering alone involves 350 people. In 2010, some 1,500 people from more than 150 companies worked on Point Thomson, he said.

Still, for now, Bruce himself is based in Houston. After testifying, he rushed out to catch a plane.

Point Thomson is a high-pressure field and challenging to develop. The wells are being drilled horizontally from land, with the bottom holes about two miles away to reach a reservoir under the Beaufort Sea. Steel for pipe strong enough to withstand high pressures will come from Germany, Bruce said.

Exxon expects superior performance in every area: safety, security, costs, scheduling and the environment, he said. It's working with village and Native corporation leaders in Kaktovik, which is 60 miles away, and soliciting feedback from residents. It consults with whaling captains so its work won't interfere with whaling season. Its pipelines will be elevated at least 7 feet to allow caribou to migrate.

"And we want to build trust with the state of Alaska. We recognize the history that Exxon has had here," Bruce said. He didn't have to say the Exxon Valdez.

Other than at Point Thomson, Exxon hasn't drilled on the North Slope since the 1990s, according to the company. It has had a low political profile since the 1989 spill.

By spring 2016, Exxon expects to be processing 200 million cubic feet of natural gas a day, along with 10,000 barrels of condensate, a sort of light oil. With no big pipeline yet to get the gas to commercial markets, Exxon plans to repressurize it and inject it back into the reservoir through an injection well. For oil and condensate, Exxon plans to build a new pipeline that would connect with an existing pipeline at the Badami oil field to the west. The Point Thomson oil then would be piped and pumped into the trans-Alaska pipeline.

Still, 10,000 barrels a day isn't much oil, French said. If Point Thomson is developed mainly as a gas field, and gas is not reinjected there, more oil would be left in the ground without gas pressure forcing it to the surface. That's one of his concerns with the settlement.

One possibility is for the Point Thomson gas to be piped to Prudhoe Bay and reinjected there, to force more oil from that aging field. The gas later could be produced from Prudhoe. The state owns a portion of the gas, but the percentage isn't the same between the fields or even consistent within Point Thomson, Balash, the deputy commissioner, told the committee.

How would the state ever be sure it got what it was due in royalties if the Point Thomson gas later was produced out of Prudhoe Bay? French asked. That seemed to be an accounting nightmare -- a rat's nest, he said. State officials say those royalty calculations have been done elsewhere successfully.

And while a big gas pipeline could be built, there's nothing in the agreement that requires Exxon or any of the other oil and gas producers to put large quantities of gas through it, French said.

If the pipeline is built, gas will move through it, state officials said.

Sen. John Coghill, a Republican from North Pole on the committee, said the settlement might not be perfect, but it's a big step toward getting a natural gas pipeline.