Exxon Mobil Corp: Oil Field Lease Jeopardized

Nov. 30, 2006
Alaska state officials accuse the company of reneging on its contract to develop a field rich in natural gas.

While a record-breaking third quarter for oil giant Exxon Mobil Corp. is sure to raise more eyebrows about high fuel prices, the company is facing another battle that could end its lease of an Alaska North Slope oil field.

Irving, Texas-based Exxon, one of IndustryWeek's IW 50 Best Manufacturers for 2006, is contemplating its next move after Alaska's natural resources commissioner said on Nov. 27 he found the company in default of its obligations to develop the Point Thomson oil field in the North Slope region and terminated its and other stakeholders' lease agreement.

The company has not yet decided whether it will appeal the decision to the Alaska Superior Court, says Exxon spokeswoman Susan Reeves. The company has 30 days to fight the ruling.

"We're reviewing the decision," Reeves says.

Exxon has been the primary leaseholder of Point Thomson along with minority owners BP Plc, Chevron Corp. and ConocoPhillips Co. Exxon has submitted several development plans since leases for the area were first issued in the late 1970s, but none has resulted in oil or gas production in commercial quantities, according to a statement released by the Alaska Department of Natural Resources. According to published reports, the leaseholders have delayed production because they say drilling is not economically feasible.

If the leases are revoked, it's expected that Point Thomson will be reopened for bidding, which could include Exxon.

The latest ruling upheld an Oct. 27, 2005, decision by then-Alaska Oil and Gas Division Director Mark Myers that said Exxon's amended 2001 plan of development did not meet its obligations with the state.

"Under the state constitution, I have an obligation to ensure that our natural resources are developed for the benefit of Alaskans, and this decision is an important step in fulfilling that responsibility," said Alaska Natural Resources Commissioner Michael Menge of his recent decision in a Nov. 27 statement.

But Reeves says the company has adhered to all terms of the agreement.

Exxon Mobil Corp.
At A Glance
Exxon Mobil Corp.Irving, TexasPrimary Industry: Petroleum and coal productsNumber of employees: 83,7002005 In ReviewRevenue: $363.137 billionProfit Margin: 9.95%Sales Turnover: 1.75Inventory Turnover: 19.70Revenue Growth: 23.91%Return On Assets: 18.50%Return On Equity: 35.51%

"Exxon Mobil on behalf of the Point Thomson owners has complied with the Point Thomson lease agreements, the Point Thomson Unit agreement and all Alaska statutes and regulations," Reeves told IndustryWeek. "Any litigation by the state to take back the Point Thomson leases is likely to be protracted, and we see this as a major setback for an Alaska gas pipeline project since the gas supply from Point Thomson is critical for the project."

Exxon presented a revised plan in which it would have drilled a new well at the field for the first time since 1983 by 2008 or 2009, according to the Reuters news service. The company also proposed paying a $20 million fine, Reuters reports.

Point Thomson covers 106,000 acres located just west of the Arctic National Wildlife Refuge. The field contains an estimated 300 million barrels of oil and natural gas condensates and 8 trillion to 9 trillion cubic feet of natural gas.

The decision comes more than a month after the company reported another quarter of record profits. Net income totaled $10.49 billion, or $1.77 per share, for third-quarter 2006, an increase of $570 million from the year-earlier period. The company partly attributes the profit surge to higher crude oil and natural gas prices.

Through the first nine months, Exxon continued its exploration efforts, spending $14.8 billion on related projects, a 20% increase over 2005, said Exxon Chairman Rex Tillerson in a statement.

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