Alaska Gov. Sean Parnell said Friday the state has settled a seven-year legal battle with several oil and gas producers over Point Thomson leases. All parties have agreed to enter into a complex settlement agreement to develop the huge natural gas field.

“Ending litigation and reaching alignment are important first steps, but the state of Alaska and the companies still have much work to do,” Parnell said.

Under the terms of the 85-page settlement, the companies — ExxonMobil Corp., ConocoPhillips, BP plc and Leede Operating Co. — must initially begin producing approximately 10 Mb/d of liquid gas condensates, cycle about 200 MMcf/d, and build a common carrier pipeline connecting to the Trans-Alaska Pipeline System (TAPS) by the winter of 2015-2016.

A fifth company, Chevron Corp., said Friday it had ceded its interests, namely 45 leases, in Point Thomson to ExxonMobil. An ExxonMobil spokesman told Dow Jones that the transfer took place to help “facilitate execution” of the settlement agreement with Alaska.

Two wells have already been completed from a central pad in the field. Operators must also drill a west well pad by the end of the 2016-2017 winter season.

“Our primary goal for the settlement was to end what we viewed as the warehousing at the Point Thomson field of Alaska’s resources, and to get a commitment for near-term production going,” said Department of Natural Resources (DNR) Commissioner Daniel Sullivan.

As an incentive, the companies risk losing Point Thomson acreage to the state if it fails to meet the benchmarks, even if the economic climate is unfavorable to develop the leases.

“A simple and powerful principle runs throughout this agreement: the more work, the more commitment, the more investment and the more production that occur, the more Point Thomson acreage the companies will retain,” Sullivan said.

Point Thomson comprises 38 state leases on approximately 93,000 acres and is about 60 miles east of Prudhoe Bay. The field holds about 25% of the known North Slope natural gas reserves, contains an estimated 8 Tcf of natural gas and hundreds of millions of barrels of oil.

After the initial production goals have been met, the state said three expanded development alternatives are possible, which can be met either individually or simultaneously:

The state said that if a major gas sale has not been sanctioned by June 2016, the companies must begin engineering and permitting for either of the two other alternatives. If a major gas sale has not been sanctioned by 2019, the companies must be fully committed to either of the two other alternatives “or lose significant acreage.”

The companies are also required to commit to oil production from the Brookian Formation by 2018 or risk losing acreage there.

In a letter to Parnell on Friday, the CEOs for three of the companies — ExxonMobil’s Rex Tillerson, ConocoPhillips’ Jim Mulva and BP’s Bob Dudley — said the concept of having large-scale LNG exports from south-central Alaska would be explored as an alternative to building a natural gas pipeline to connect to Alberta.

“As a result of the rapidly evolving global market…[and] broadening market access, a south-central Alaska LNG approach could more closely align with in-state energy demand and needs,” the CEOs said. “We are now working together on the gas commercialization project concept selection, which would include an associated timeline and an assessment of major project components including in-state pipeline routes and capacities, global LNG trends, and LNG tidewater site locations, among others.”

Parnell met with the aforementioned CEOs in early January to discuss options for bringing the state’s gas supplies to Asian markets via LNG tankers (see Daily GPI, Jan. 9; Oct. 31, 2011).

Since 2009, ExxonMobil and TransCanada Corp. had been working together on the Alaska Pipeline Project, a proposed 803-mile natural gas pipeline running from Point Thomson to the Canadian border (see Daily GPI, Jan. 18).

The state said a natural gas pipeline starting at the North Slope and coinciding with a major gas sale would likely cost hundreds of millions, possibly billions, of dollars.

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