STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES

1 STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES COMMISSIONER'S FINDINGS AND DECISION ON REMAND FROM. SUPERIOR COURT POINT THOMSON UNIT tj 11 /j t1 U U [1 ] I I I 1. TABLE OF CONTENTS BACKGROUND .. _ .. 2 A. Procedural History of Remedy Proceeding~ .. 2 B. Unit History .. , .. , .. , .. , .. , .. 9 J. 2. Early Years: Exploration Drilling 1977 to J 982 .. " 11 Middl~ Years: Studies i1ild First Expansion Agreement 1983-1993 .. 12 3. Later YearS: DNR Struggles to Elicit Development Commitments 1994-2004 .. '1 -4 .. ~ .. 01 .. ' .. A~ ' .. ,..:', .. 11 .. 1> .. ~'. ~ .. _ .. ~ .. ~ ..: .. :" :.. ' 4. COnsideration and Rejection of the 22nd POD 2005 .. 1; . , ;21 OF TnE. 23RD PLAN OF DEVELOPMENt, APPELLAJ'iJTS' PROl>OSEDREMED1'.

2 O .. !I ", 29 A. AppeHants'Pl' .POD MuS{ Be Appellants' Only Proposed Remedy for Failure to Submit an AdeqUate POD~ Not Merely as: the POD .. ,.,.,., .. " ..: .. ~ .. , .. , .. + .. , .. ~ 32 B. AppHcablj: STATE . Law Governs. My ~uatil;in of Whethet App~Uant$. Proposed Ren'led)di:JtbeFonn of the 23rdl>on ism tM Public .. " .. _ .. J4 of Factors Set 11 Me .. , ..3'5 EilvtroIiniemal COStS .and Benefi;ts, .. , .. , .. " .. ,.:, .. "'.H.. , .. 2. (JeolQgic and Engin~ting Cba,rocteriStics: anCf Hyc:b:oc;arbon Potentia1~ .. ,~ ' .. 4 .. ,.. ,.. , ' .. , ,,;, .. , .. ~ _: .. 1"'<1' ~ .. ~ " .. "",f .' . : 3.~ .Prior EXploration .. y.~ .. y .. 39 5~ Othlrr Re1cvan(:Factors.)}

3 ". ~ . ,< .. ;, "''''.; ; .. '.;.;.i., .. 40 a. Commitment of Gas in Season .. " .. A() b. Failure to-OiligentlyDevelop" .. " .. , .. , .. , .., . 4l Co' Unit Operating-Agreement"' .. u,., .. , .. ; .. , .. ,.43 6.~ CQ~ati~:~ ..,;.. , .. j!"~ .. ~ .. ;~ . f.~ ~ .. 4 ~ 4 .. '1 .. , .. ,. ~ ,.46 7~ Prevention of Waste .. , .. , .. 47 8. Protection of An Parties offnterest .. " ..47 a. Appellants' Inferests .. " .. , .. 47 b. STATE 's Interests .. , .. ; .. 48 Permitting Risks .. 49 n. Tenn of POl) .. " .. , .. 5J c. Public futerest .. " . 55 III. LEGAL ISstJES .. H .. " 63 Sectio,p 21 .. , .. !".~.'":~ .. ~~ . ~ .. "., .. ~ .. ' .. < .. ~.~jI ~_~, . ) " C. Material Breach.

4 ;., .. ; .. 67 D. Ilroposed] ~ed Final JudgmetttaiidOrder .. , . ,j , .. 6S: IV. ,~ .. :'l; .. ,.;i .. ~ .. h .. ' .. 72 r L r l, 11 jl d II [1 ) J j I I This is my Decision in the remedy ptoceedirig held as directed by Judge Sharon GieasOD in her December 26, 2007 Decision' on Appeal ("Gleason Decision"). The Gleason Decision affirmed the STATE of ALASKA , DEPARTMENT of NATURAL RESOURCES I ("DNR") decision rejecting the 22nd Plan of Development ("POD") for-the Point Thomson Unit ("PTIJ"). Judge Gleason also found that the due process rights of Corporation, Operator of the Point Thomson Urnt ("ExxonMobil"); SP Exploration ( ALASKA ) Inc., ("BPU">" Chevron , ("Chevronh); Wid ALASKA , Inc. ("COrioco';) (collectively.)

5 ') were violated because they did not have adequate notil::ctIxat: DNR. would invoke th~remedy of unit if it did not approve the 22ndPOO. Judge GJeason directed DNR t() condUct proceedings to allow Appellants to, present and support alternative. remedieS to Unit in light of the fejection of the 22ndPOD. To ,~fford AppelJants the opportunjty 10 ~ept thei,r altematives to unit , 1 invited : AppeJiams submitted a 23m POD Oil Ftbrtici1:Y 1~~2008' as the ptoposed remedy for. ;s rejection ofthc I CQnductedWJ acltniniStrativehearlng March 3 through 7 .zoos: to allQW AppeUimts to explQi:naod support ~proposed remedy. Appelftillta submitted additiotW wrlttelimaterials after the bearing. This record, including the materials deSignated as the: PUJ recordm the oase: before Judge GleasOJl, was the tOr my d~ision.

6 I Letter dated ll1ril)lliy 3, 2OQ8 {R. 3050So-(ijThc It!COrdof thI$ remedy Ploceedingwaa uumbered as pari of the PTU ieCQ(d, beginiWig Wit/;r \lllm~ 30;000. !it tli1~ Decii!iosJi bollr tile hearing eldu"bit and the PTtJ rcconf: >CrI,1I(C Used ~es. "R." is II rCi:Qtd~ite. \' afT iu hearin&-transcript page nWIlber reflll'ellCll. ''{-IE!' stiIndS forhearilig exlubit .. l'[ilBs, R. 30Q00~30019J In Section I of this Decision, L summarize the background of the remand proceeding and the Point Thomson Unit's checkered history. In Section II, I review and analyze the 23rd POD that Appellants proposed as an alternative remedy to unit termination. In Section III, I discuss the legal issues raised during the proceeding, including why Section 21 of the Point Thomson Unit Agreement ("PWA") does Qat apply to this proceeding.))]}}

7 Section IV is a summary oimy Decision. I~ BACKGROUND A. Procedtu'al HistorY' of Remedy Proceeding The factualandprocedUralbackgrourid 6fthe appealed .to' Judge Gleason i$ dctailed in the first sixteen pages the GleasoJ;l P~i8iQn and is not. repeated here, After the Gleason Decision was issued, r wrote to a schedUte for submission (If altetnativetert1edies.) Appellants tesjjoilded, deScribing their vie'V Dfthe approprl~~ procedUres fOf the proceeding.<f JudseGleasoIJ:entere4 another ord(lr retliU1ing Qver th.~ case and settmg Juue-IS as the; deadline fur completion of the: rertland ptoceeding,s lagaiil wrote to AppeUanfSi appolntmg shearing officer~ settmg deadlines fot filing witness listS and brief$ on th~~ in ' corresPQll4ence, and setting a hearing da~e;6 heprin~()flicer con~eneda prehearingconference-on Febma,ry 27,2008 to resolve procediu:a1 is!)

8 :llleS in advance. of the heating to the time available to Appellants. J January 3. 20OS" terior. t1t30305-6} 4 JanWlr)' IB . 2008and FebruaryB, 200S ietlen fo CbilliltiSs'ooer [ 30501~Jit jO~ 16-18; 3~ ] 'Gleason order, Janoacy ~ "January 28, 20081eticr. [ ~lSJ r l [ ,] 11 Ii 11 u ] ] ) J The ALASKA Gasline Port Authority ("AGPA") requested pelmission to offer a fifteen~n1inute opening statement at the hearing and to submit a post-hearing brief. 7 AGPA's request was granted because AGPA amiclIs briefin the underlying proceeding, AGPA's participation for fifteen minutes during the hearing would hot impede AppeUants' opportunity to present their p1"oposed remedy, and its arguments might enhance my understanding of the record.

9 Appellants requested and were granted the opportunity to :file a brief in response to AGPA~s post-hearing brief,8 1 made thirty houts of hearing time available to Appellants. AppelIantS: called fourteen witnesses to testify at the hearing. Tq ensure that Appellants were abletQ fully present their proposed remedy. they were invited to silbriiitany teStimony that could not be presentedaf the hearing by affidaVit after the, hearipg, and they did Appellants offeted256 hearing exhibits) all of which were made pati of the record in thIs case} PUblic ~ommeDt was filed on March S. 2008 by W. FmdI4Y Abbott., and onMarcn 7~ 2008 by Tom Lokosh. Mr. Lokosh'~ coJn:il:ients wereinade It partqf the record. 10Mt'. Abbott's public cotIlI'J1eI1ts.

10 Were, hot niad ~Qf the' .record in thistasebecause they wetefiOt relevant'to the ,esin thisx:~mandr tlledy heari1lg. Abbott alsoflled a. Motion foc' Leave to File Amicus Curiae grief on April 2$ Z008, ailer the deaaIine for post~hea:dng briefs. nThe of Mr. Af)bQtt's originalpubUo cotnttltmts were entirely indudedwitbin liis proposed amicI($' brief. Mr; Abbott's. t'ilings Were numbered 7 February 20, 2008 Jeltel'. [R; 30&64-51 I [k. 313U} .9 (it 3()Ooo:.30345i~0400 .. J64J2; 30S~30504J Ie fa. 309lo:.nl II The Motion included ~ certifleatc of lleMce sboWiJiiHhatApPel18ntB were served. 1 PTUREC 3.!394 ,. ~ as-part of the record, but not considered .in making this Decision because to consider them I would have needed to allow AppeUants the opportunity to I ant operating in tIlls case under the timeline imposed by judge Gleason's January 15, 2008 Order and would not be able to fully consider the comments and AppelJants' response and timely issue; my Decision.)]]