Excerpts from Fairbanks Daily News-miner 12-2-08

 

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.

 

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 Aug.  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.

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 lawmaker’ 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.

DNR Marty Rutherford said, "As we carry out those and hold people responsible for commitments they've made, it is a fact about getting drilling." "When people don't honor those commitments, we also have to be good land managers."