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Producers 2016: Exxon starts Point Thomson, questions remain The long delayed project came online in 2016 but its fate depends on a gas line ERIC LIDJI For Petroleum News
ExxonMobil - one of the earliest explorers in Alaska, and one of the most important working interest owners on the North Slope - finally became a producer this year.
The company began producing natural gas condensate from the Point Thomson unit in April 2016 and is running a cycling program to extract and market liquids from that production and to inject natural gas back into the field to maintain reservoir pressure.
While the startup was a major milestone in the decades-long history of the North Slope unit, much larger forces at work throughout the region are quickly overshadowing it.
Specifically, ExxonMobil is quickly approaching deadlines where it must decide how it will proceed with developing Point Thomson, which could lead to conflict with the state.
The current Initial Production System promises to produce 10,000 barrels of condensate per day once all required infrastructure is operational. Production began from the Point Thomson unit central pad, which is expected to produce some 5,000 barrels per day of condensate and 100 million cubic feet per day of recycled gas, according to the company. When the west pad comes online, the entire Point Thomson facility will produce 10,000 bpd of condensate and 200 million cubic feet of recycled gas.
Through the first few months of reporting, production rates fluctuated as this commissioning process advanced. The Point Thomson unit produced 47,972 barrels of liquids in April 2016, 7,903 barrels in May 2016, 21,276 barrels in June 2016 and 32,893 barrels in July 2016, according to the Alaska Oil and Gas Conservation Commission.
Field startup While the startup of the field represented the end of a major ordeal in the history of the Alaska oil industry - with some $4 billion invested and some 11 million work-hours expended, according to the company - the milestone is clearly just the beginning of the story. Should a natural gas pipeline ever be constructed from the North Slope to markets outside the state, the natural gas contained at Point Thomson will play an important part.
Until now, the history of the Point Thomson field can be roughly divided into two eras - the decades before a 2012 settlement between Exxon and the state, and the years since.
Now starts a third phase, where Exxon must follow one of two paths.
The settlement actually included three alternatives. Exxon already passed on the first of those: to sanction major natural gas sales by June 2016. That never happened.
Instead, under Gov. Bill Walker, the state is eager to take the lead on the existing AKLNG project, and is unlikely to decide whether to sanction the project before 2018.
The change in leadership could complicate short-term plans at Point Thomson, considering that the state presumably wants Point Thomson gas available for sale.
The other two options are also tricky.
The second path would have Exxon expand the existing liquids operation to produce 30,000 bpd or more by 2019. The third involves integrating certain operations at the Point Thomson unit and the Prudhoe Bay unit to improve recovery.
When Exxon applied for pool rules at Point Thomson, in September 2015, the company argued against expanding condensate production. Given the high pressure of the reservoir and the low expected yield, the company said that an expansion would be uneconomic.
By integrating Point Thomson with Prudhoe Bay - using Point Thomson natural gas for field operations at Prudhoe Bay - Exxon could, according to its internal estimates, accelerate the timeline for gas sales by two years. Still, the company insists that those two years would be unlikely to justify the cost of implementing the integration project.
While the state prefers expanding condensate production until a pipeline can accommodate gas sales, Exxon would prefer to transition directly into gas sales.
The Point Thomson field will provide a foundation for future gas development on the North Slope, ExxonMobil Public and Government Affairs Manager for Alaska Hans Neidig told Petroleum News in an email in early September 2016. We are working to progress planning for a potential gas expansion concept that would be a supply source for the proposed Alaska LNG project, which is now transitioning to a state project.
Pipeline link Even without gas sales, Point Thomson will be important in the near term.
As the easternmost producing field on the North Slope, the unit could improve the economics of several prospects on the eastern side of the North Slope, which is one reason why Exxon built its export pipeline to handle 70,000 barrels per day - more than it expects to need.
But that pipeline quickly ruffled feathers.
When Point Thomson Export Pipeline LLC was making its initial administrative filings in 2015, the Exxon-BP transportation joint venture proposed a $20.39 per barrel tariff for using the 22-mile pipeline connecting Point Thomson to the Badami unit to the west.
The state quickly challenged the tariff, claiming that the company inappropriately used the low production rate expected in the first year of operations as the basis for the rate.
The Regulatory Commission of Alaska approved an interconnection allowing the pipeline to be brought into service and approved the tariff on a temporary and refundable basis.
The parties, including future shipper ConocoPhillips, began settlement talks earlier this year. The matter is proceeding simultaneously at both the state and federal level.
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