page Marshall: BP continuing inspections, 13 bypass lines possible on east side

Vol. 11, No. 35 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of August 27, 2006 • $1.50

● PIPELINES & DOWNSTREAM This month’s Mining News inside No reservoir damage AOGCC: no harm from one-time shutdown of Prudhoe eastern operating area

By KRISTEN NELSON John Norman said Aug. 18. Petroleum News However, Norman cautioned, if shutdowns become “a repetitious he Alaska Oil and Gas pattern or cycle then certainly it’s Conservation Commission going to become problematic.”

T does not expect damage to PHOTOS PATRICK JUDY Norman told a joint meeting the Prudhoe Bay reservoir of the Alaska Legislature’s from the Aug. 6 shutdown of the House and Senate Resources eastern operating area. committees that field operator “We’ve asked ourselves what JOHN NORMAN CATHY FOERSTER BP Exploration (Alaska) has told risks might there be to this very the commission they “plan to important reservoir … as a result of a rather abrupt continue waterflood and gas cap injections into the shutdown. And at this time we see no evidence a one- reservoir and we see that as being beneficial because time, temporary shutdown of oil production from the it will allow pressure to be maintained and indeed eastern operating area of the Prudhoe Bay reservoir build up during this period.” will damage that reservoir,” commission Chairman see AOGCC page 20

● NATURAL GAS Back the Mac or pay price Harper says NWT’s failure to clear way for gas line could jeopardize hopes

By GARY PARK the pipeline would be a step For Petroleum News closer toward agreement on a revenue-sharing pact. anadian Prime Minister But opposition to the project This month’s North of 60 Mining News has 17 stories, including the lat- Stephen Harper has put could undermine the chances est on the Bre-X scandal, a report on the progress made at the Pebble C the Northwest Territories’ of federal money being trans- mine sister projects in British Columbia, the fish refuge proposed for collective feet to the fire, ferred to territorial and aborigi- the Pebble mine area, the stepped up interest in B.C. uranium claims, and what BHP Billiton brings to Alaska. linking support for the nal governments, he said. Mackenzie Gas Project to the He said the proposed gas region’s hopes for a greater Bonanza may await explorers in STEPHEN HARPER HERB NORWEGIAN pipeline still faces many obsta- chunk of resource royalties. cles, including competition NPR-A South; miners want BLM He said the NWT’s cherished dream of getting from a pipeline out of Alaska’s North Slope to the to include coal, hard rock leasing direct access to royalty revenue rather than hand- Lower 48, fast-rising construction costs and oppo- outs from the federal government “won’t happen nents who Harper said would risk a “historical As federal regulators plan the opening unless you make sure that projects like the opportunity” to protect their own “narrow inter- of the 9.2 million acres in the southern Mackenzie Valley pipeline come to fruition.” est.” part of the National Petroleum Reserve- Speaking to business and political leaders in the He did not directly mention the Deh Cho First Alaska to oil and gas leasing, one Alaska NWT Legislature Aug. 19, Harper said approval of industry group is urging them to broaden see MAC page 18 their outlook. ● ALTERNATIVE ENERGY The Alaska Miners Association is advocating that the Bureau of Land Management, which oversees all activity in the 23-million-acre National Geothermal powers resort Steve Borell, execu- Petroleum Reserve-Alaska, cast a wider tive director, Alaska net in search of energy development Miners Association New UTC plant uses low-temp water, saves small fortune by replacing diesel opportunities. By SARAH HURST “For several decades, the mining industry has been aware For Petroleum News see COAL page 18

attling sub-zero temperatures is always a chal- SARAH HURST lenge for energy projects in Alaska, but now it’s B also possible to tap into the natural heat source BREAKING NEWS that lies beneath the ground and use it to pro- duce electricity. Bernie Karl, the owner of Chena Hot Canada battle over: Canadian Oil Sands Trust proclaims victo- 4 Springs Resort, charmed and cajoled his way into ry in Canada Southern take over, has no plans to develop Arctic gas winning Alaska’s first geothermal power plant, which was officially unveiled in the presence of U.S. Sen. 5 Legal cloud hangs over sale: Western Gulf of Mexico lease Ted Stevens, Gov. Frank Murkowski and an army sale sets records for number of bids and amount of money bid marching band Aug. 20. The truck-sized plant, nicknamed the Chena Chiller, had already been running for almost two 14 Report out on North Slope pipelines: SPCO says com- weeks before the celebratory event was held. “It’s Gov. Frank Murkowski, Bernie Karl and Sen. Ted mon carrier oil pipelines generally in good shape, minimal corrosion Stevens admire the Chena Chiller geothermal power see CHENA CHILLER page 19 plant at the official opening ceremony. 2 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska ON THE COVER 5 Potential Alaska state and federal oil and gas lease sales No reservoir damage 10 BLM offers 8 million acres in NPR-A

AOGCC: no harm from one-time Acreage includes northeast, northwest planning shutdown of Prudhoe eastern areas, acreage relinquished since 2002 sale, operating area new area north of Teshekpuk Lake Back the Mac or pay the price NATURAL GAS Harper says NWT’s failure to clear way for gas line could jeopardize hopes 3 Galveston oh Galveston.... Geothermal powers resort Holding company subsidiaries take role in first LNG storage facility; get approval for New UTC plant uses low-temp water, saves 1st terminal on U.S.-Canada West Coast small fortune by replacing diesel 4 Battle over: No plans to develop Arctic gas Bonanza may await in NPR-A South; miners want BLM to include coal, hard rock leasing 6 Woodside seeks permits for U.S. LNG port ALTERNATIVE ENERGY Australian company wants to regasify cargoes far off the coast of Los Angeles using special 12 Wind farm would interfere with signals ships; first Shell LNG reaches Mexico 20 Geothermal resources widespread in Alaska 7 Palin, Knowles to consider competing gas line proposals EXPLORATION & PRODUCTION 12 Canadian gas exports take three-way hit 12 Tillerson: World has decades of “sufficient oil” 16 Penn West touts multi-billion barrel deposit PIPELINES & DOWNSTREAM 4 Agrium to continue Kenai operation in ’07 FINANCE & ECONOMY 14 SPCO reports on North Slope pipelines 15 Taking flight in northern Canada Annual report shows Alaska North Slope Mullen spreads wings in remote resource locations, common carrier oil pipelines have some fueled by spate of takeovers; sees Mackenzie corrosion but are generally in good shape pipeline as major prey PRUDHOE BAY TRANSIT LINES GOVERNMENT 8 Regulators propose JPO for upstream 8 Alberta: Probing profits from pollution 9 Prudhoe shutdown could cost state $2B Provincial government and industry launch But with PPT in place state still comes out $308-$999M joint effort to evaluate economics of reducing ahead at Revenue’s $53.60 per barrel price case estimate carbon dioxide emissions into atmosphere 13 BP: bypass lines possible on east side LAND & LEASING 13 Gathering Center 2 loses compression 5 Legal cloud hangs over sale results 16 BP denies it manipulated Alaska data PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 3

● NATURAL GAS Galveston oh Galveston. . . . Holding company subsidiaries take role in first LNG storage facility; get approval for 1st terminal on U.S.-Canada West Coast

By GARY PARK ing LNG successful project — location that offers cause significant adverse environmental For Petroleum News LNG Impel, based in Barbados, is shorter sailing times and lower shipping effects based on a comprehensive study, responsible under the joint agreement for costs for suppliers; community support; the implementation of mitigation measures alveston LNG, a private Calgary- covering 100 percent of the capital cost of and take-away pipe to move the gas into and a follow-up program. The project now based holding company, is suddenly the hub. the North American network. has the backing of the Canadian and British G making waves in the global LNG In return it would gain access to Dubai’s One of those customers could be the Columbia environmental regulators and a scene. 50-year guaranteed tax holiday, part of the Alberta oil sands sector, where Boulton partnership agreement with the Haisla First Through its two wholly owned sub- emirate’s ambition to become the energy said demand for natural gas to power the Nation. sidiaries it has secured a role in construc- trading hub of the Middle East. production “will continue to grow, making Site preparation will start in late fall and tion of the world’s first LNG storage facil- the project attractive to offshore suppliers.” operations are scheduled to start in 2009, ity and has just cleared the final regulatory Kitimat receives permit Canadian Environment Minister Rona with initial send-out capacity of 610 mil- hurdle for its proposed LNG terminal on Separately, on Aug. 22, Kitimat LNG Ambrose said the terminal is not likely to lion cubic feet per day. ● the northern British Columbia coast. said it has received the Canadian govern- The announcements on back-to-back ment environmental permit needed to days give Galveston its highest profile develop its C$500 million terminal and since it was launched in 2003. regasification facility at the Kitimat deep- Its president is Alfred Sorensen, the for- water port. mer president of Duke Energy’s Canadian Kitimat LNG President Rosemary and European business units. Boulton said in a statement that the LNG Impel of Canada issued a state- approval opens the door for her company ment Aug. 21 that it has teamed up with the to build the first LNG terminal on the West United Arab Emirates’ Dubai Multi Coast of Canada and the United States. Commodities Center and Techno Park to She said three pillars are in place for a build the US$1 billion terminal at Dubai. A joint statement said the storage hub, with capacity of 40 billion to 65 billion cubic feet, could turn Dubai into a pricing hub by offering customers the opportunity to store, trade and plan LNG supplies and eventually offer “financial derivatives around LNG and shipping.” Completion of the first three tanks for the Dubai LNG Storage Hub is targeted for 2010-2011 and the remaining six tanks are scheduled to come on line within another two years. An open season to line up stor- age contracts starts Aug. 28 and ends Oct. 4. A spokesman said the facility would free buyers and sellers from “being tied to strict and inflexible supply schedules over long periods of time.” He said the Dubai terminal would give core LNG suppliers and buyers a chance to “capture future value by storing and trading across different months, as seasonal price variations are a key attribute of global LNG pricing.” That’s another advance in the evolution of LNG into a world market with a uniform price like oil and away from the current system of companies finding, producing, storing, liquefying, shipping and regasify- 4 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

NATURAL GAS Agrium to continue Kenai operation in ‘07 Agrium said Aug. 23 that it has successfully obtained sufficient natural gas sup- plies to allow for the operation of its Kenai nitrogen facility in 2007. But the company does expect the plant to “experience an extended shutdown dur- ing the winter months due to seasonally higher demand for home heating,” Agrium said in a press release. “An important consideration in Kenai’s continued operation is the potential future option value due to recent developments in the Cook Inlet that may create longer-term possibilities,” said Mike Wilson, Agrium president and CEO. Agrium said the extension is not expected to impact its guidance for the second half of the year and is anticipated to provide “only a modest contribution to earnings in 2007 … due to a lower anticipated operating rate and higher average gas price than in 2006.” The company said the contracts are with “numerous Cook Inlet gas producers and are subject to strict confidentiality provisions.” The Kenai facility is expected to operate one ammonia and one urea plant at about 75 percent of capacity over the next 12 months. At full capacity they would produce 640,000 tones of urea and the net ammonia capacity would be approximately 280,000 tonnes. —PETROLEUM NEWS Battle over: No plans to develop Arctic gas Canadian Oil Sands Trust is proclaiming victory in the drawn-out battle to take over Canada Southern Petroleum, but whether it ever directly benefits from the big prize of almost 1 trillion cubic feet of Arctic natural gas assets is a moot point. For now, it has locked up 65 percent of Canada Southern’s 14.4 million shares and is giving the other 35 percent until Sept. 6 to tender to its offer. Once the deal is concluded COST plans to unload Canada Southern’s scattered holdings in the Yukon, British Columbia and Alberta that yielded 1,210 barrels of oil equivalent per day in the second quarter. The object of COST’s willingness to pay US$197 million is Canada Southern’s various interests in 184 square miles of Arctic Islands, which embrace seven signifi- cant discovery licenses, one production license, an estimated 927 billion cubic feet equivalent of marketable gas and a possible 13.7 billion cubic feet equivalent of proved and probable reserves. COST, whose sole interest is 35.49 percent of the Syncrude Canada oil sands con- sortium, looks on the gas resource as a price hedge against the gas it consumes at the Syncrude operation. A spokeswoman said the gas represents 25 years of the trust’s projected con- sumption in the oil sands, but even if a way is found to produce and deliver the gas to market COST has conceded it would not be the operator. The best bet for that role is Petro-Canada, which says it has no immediate plans to develop the resource given that the most likely option would be an LNG operation. Adding luster to the Canada Southern holdings was its net carried interests in the gas discoveries in the Melville Island area which allow the owner to avoid paying its www.PetroleumNews.com share of any future development until a project is completed. As of Aug. 19, COST said it had acquired 65 percent of the shares, easily sur- ADDRESS passing its revised target of 50.01 percent and within sight of its original target of Dan Wilcox CHIEF EXECUTIVE OFFICER P.O. Box 231651 66.66 percent. Mary Lasley CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1651 —GARY PARK Kay Cashman PUBLISHER & EXECUTIVE EDITOR EDITORIAL Kristen Nelson EDITOR-IN-CHIEF Anchorage 907.522.9469 Susan Crane ADVERTISING DIRECTOR Editorial Email Amy Spittler SPECIAL PUBLICATIONS EDITOR Anchorage Tim Kikta COPY EDITOR [email protected] Canada CONTRIBUTING WRITER (CANADA) Gary Park [email protected] Ray Tyson CONTRIBUTING WRITER BOOKKEEPING & CIRCULATION Alan Bailey STAFF WRITER 907.522.9469 John Lasley STAFF WRITER Circulation Email [email protected] Allen Baker CONTRIBUTING WRITER ADVERTISING Rose Ragsdale CONTRIBUTING WRITER 907.770.5592 Sarah Hurst CONTRIBUTING WRITER Advertising Email [email protected] Paula Easley DIRECTORY PROFILES/SPOTLIGHTS

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Petroleum News (ISSN 1544-3612) • Vol. 11, No. 35 • Week of August 27, 2006 Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518 (Please mail ALL correspondence to: P.O. Box 231651, Anchorage, AK 99523-1651) Subscription prices in U.S. — $78.00 for 1 year, $144.00 for 2 years, $209.00 for 3 years. Canada / Mexico — $165.95 for 1 year, $323.95 for 2 years, $465.95 for 3 years. Overseas (sent air mail) — $200.00 for 1 year, $380.00 for 2 years, $545.95 for 3 years. “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231651 • Anchorage, AK 99523-1651. PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 5

● LAND & LEASING ALASKA Potential Alaska state and federal oil and Legal cloud hangs gas lease sales Agency Sale and Area Proposed Date over sale results BLM NE NPR-A Sept. 27, 2006 BLM NW NPR-A Sept. 27, 2006 Western Gulf Lease Sale 200 generates surprising $340.9M in DNR Beaufort Sea Areawide Oct. 25, 2006 high bids on 381 tracts after MMS prevails against challenges DNR North Slope Areawide Oct. 25, 2006 DNR Alaska Peninsula Areawide Feb. 28, 2007 By RAY TYSON Sale 200 evidently had little or no influence DNR North Slope Foothills Areawide Feb. 28, 2007 For Petroleum News on the 62 companies that participated in the sale. Not a single bid was withdrawn prior MMS Sale 202 Beaufort Sea March 2007 he U.S. Minerals Management to the sale, Oynes said. He added: “All the DNR Cook Inlet Areawide May 2007 Service, which prevailed against early big names were there. So looking at that and T legal challenges to Western Gulf of the strength of their bids and the number of DNR Beaufort Sea Areawide October 2007 Mexico Lease Sale 200, walked away bids they had, it would be pretty hard to DNR North Slope Areawide October 2007 from the traditional August sale with a sur- detect anybody holding back.” MMS Chukchi Sea 2007 prising $340.9 million in high bids. In fact, Indeed! The $340.9 million high bid BLM NE NPR-A 2007 it was the best Western Gulf showing in total in Sale 200 was 20 percent above the nine years for the number of bids submitted $285.2 million in high bids submitted in the BLM NW NPR-A 2007 and the best perform- 2005 Western Gulf sale and nearly 100 per- DNR Alaska Peninsula Areawide February 2008 ance in eight years for cent greater than the $171.4 million in high DNR North Slope Foothills Areawide February 2008 the amount of money bids placed in the 2004 sale. In total, 541 DNR Cook Inlet Areawide May 2008 bid. bids were submitted on 381 blocks in Sale Still, a cloud of 200. That compares to 346 bids submitted DNR Beaufort Sea Areawide October 2008 uncertainty will hang on 422 blocks in last year’s Western Gulf of DNR North Slope Areawide October 2008 over Sale 200 until Mexico Lease Sale 196. DNR Alaska Peninsula Areawide February 2009 U.S. District Court DNR North Slope Foothills Areawide February 2009 Judge Karl Engelhardt Garden Banks, Keathley rules on the merits of a Canyon receive more than half bids DNR Cook Inlet Areawide May 2009 Chris Oynes, MMS DNR Beaufort Sea Areawide October 2009 lawsuit filed by the Near record commodity prices were no State of Louisiana doubt key drivers in Sale 200, particularly DNR North Slope Areawide October 2009 alleging the federal government failed to in the deep and ultra-deep waters of Garden MMS Sale 209 Beaufort Sea 2009 adequately evaluate Louisiana’s coastlines Banks and Keathley Canyon. These two MMS Sale 211 Cook Inlet 2009 after last year’s devastating hurricanes areas alone received more than half of the DNR Alaska Peninsula Areawide February 2010 before proceeding with the sale. The state bids submitted in the entire sale, and also also wants MMS to guarantee the sale com- produced the stiffest competition and high- DNR North Slope Foothills Areawide February 2010 plies with its coastal zone management est bids, including BP’s sale-high $21 mil- DNR Cook Inlet Areawide May 2010 plans. The judge is expected to hear the case lion for Keathley Canyon Block 58, thought DNR Beaufort Sea Areawide October 2010 in November. to be part of an immense Lower Tertiary DNR North Slope Areawide October 2010 Chris Oynes, Gulf regional director for play that already has produced significant MMS, believes it’s unlikely the court will discoveries elsewhere in the Gulf. MMS Sale 212 Chukchi Sea 2010 side with Louisiana and invalidate the sale. Unlike some earlier Western Gulf sales MMS Sale 217 Beaufort Sea 2011 “There’s a chance that the bids are put in that favored E&P independents in shallow- MMS Sale 219 Cook Inlet 2011 jeopardy,” Oynes said in a post-sale inter- er waters of the Gulf’s continental shelf, MMS Sale 221 Chukchi Sea 2012 view. “But we don’t have any strong indi- Sale 200 was largely a deepwater spectacle cations from the judge that he’s trying to with the majors, foreign companies and void the leases. Right now we are starting to Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, man- large independents dominating. Sixty-seven ages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of proceed with processing the bids and do it percent of all tracts receiving bids are in Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshore in the same normal fashion we always do.” water depths greater than 1,200 feet. and in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaska Bidders clearly took advantage of the so- Temporary injunction shot down region outer continental shelf office, manages sales in federal waters offshore Alaska. called “newly available leases” initially A temporary injunction sought by issued to companies a decade ago during Louisiana to halt Sale 200 just prior to the the deepwater boom and then returned to This week’s lease sale chart event was shot down by the court. Also dis- MMS when they expired. Of the 445 newly sponsored by: allowed was a suit filed by the American available leases offered in the Sale 200, 130 Petroleum Institute claiming the judge’s rul- received bids. Deepwater Garden Banks ing based on evidence heard in November and ultra-deepwater Keathley Canyon PGS Onshore, Inc. could alter the conditions of leases offered accounted for 80 of the newly available in Sale 200. API is not expected to appeal tracts receiving bids. the ruling. All of the legal uncertainty surrounding see CLOUD page 6 6 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● NATURAL GAS Woodside seeks permits for U.S. LNG port Australian company wants to regasify cargoes far off the coast of Los Angeles using special ships; first Shell LNG reaches Mexico By ALLEN BAKER Electricidad, has contracted for 184 billion cubic feet of Initial capacity of the system, called OceanWay, For Petroleum News regasified LNG annually. It will take 3.9 million tonnes of would be 400 million cubic feet of natural gas LNG to provide that much gas. oodside Petroleum Ltd. has filed for permits to daily, with expansion potential up to 1.2 billion build an offshore terminal to bring natural gas to cubic feet of gas daily. BP halts Texas terminal W the California market via ships carrying LNG. BP PLC is stopping work on a proposed $650 million The Australian company has tried to meet Shelf gas field and LNG production plant. LNG terminal planned for an island near Galveston, objections from environmental and other groups opposed The company is aggressively pushing development of Texas, the company said Aug. 22. The terminal would to various West Coast LNG importing schemes by offer- its 100-percent-owned Pluto gas field 118 miles off have had a sendout capacity of 1.2 billion cubic feet daily, ing to unload its long-haul liquefied natural gas carriers Western Australia. That $3.8 billion project is expected to but U.S. terminal projects in the works may end up fight- more than 20 miles offshore onto two special regasifica- start production in 2010 and initially supply 5 million ing to get the LNG cargoes to keep them humming. tion ships that would be built for Woodside. tonnes of LNG, which would convert into 240 billion “This is strictly a business decision that has nothing to Those ships would turn the liquid back into natural gas, cubic feet of natural gas at its destination. do with either politics or litigation,” BP spokesman Neal which would then be sent out in two pipelines that would In full operation, the OceanWay terminal could handle Geary told the Galveston County Daily News. But the reach shore near the Los Angeles airport and hook into the 440 billion cubic feet annually, about 20 percent of company got a black eye locally when 15 workers were onshore pipeline network there. California’s current natural gas consumption. killed at the nearby Texas City refinery last year. Initial capacity of the system, called OceanWay, would In any case, several other LNG terminals are in process be 400 million cubic feet of natural gas daily, with expan- Shell LNG to Mexico in the Gulf of Mexico, and BP faces litigation and other sion potential up to 1.2 billion cubic feet of gas daily. Mexico received its first-ever cargo of LNG on Aug. hurdles for the project, called Bay Crossing. Permits are being sought from the U.S. Coast Guard 17 as the SS Gracilis brought Shell-owned liquefied natu- The company has renewed a three-year lease option and the Maritime Administration for a deepwater port and ral gas from the Nigeria LNG plant in Africa, a 14-day with the Port of Galveston for 185 acres on Pelican Island, from the city of Los Angeles for a natural gas pipeline journey of 6,250 nautical miles. and it can reactivate the project during that period. franchise. The ship docked at Terminal de LNG de Altamira, near Meanwhile, BP is still moving forward with its Crown It’s not clear how long the permitting process might Tampico on Mexico’s northeast coast. Shell owns 50 per- Landing terminal, a similar-size project in New Jersey. take or when Woodside plans to put the system into oper- cent of the Altamira facility, with Total and Mitsubishi That terminal has federal approval but is caught in a legal ation. The applications were filed Aug. 18. each holding a 25 percent stake. Shell has rights to 75 per- fight between New Jersey and Delaware over who con- The company has access to several sources of offshore cent of the terminal capacity and Total 25 percent. trols the river where the dock would be built. That issue gas near Australia, and it operates the huge North West Mexico’s power authority, Comision Federal de is going before the U.S. Supreme Court for a decision. ●

continued from page 5 more than 100 miles westward into the the Wilcox play. bids, Nexen Petroleum Offshore with 25 Keathley Canyon area. In 2004, Unocal In addition to BP’s $21 million bid for blocks on $7.2 million in bids, Hunt Oil CLOUD sought to test the western extent of the play Keathley Canyon Block 58, other top ten with 25 blocks on $4.8 million in bids, through the closely watched Sardinia wild- bids in Sale 200 were Petrobras America’s Cobalt with 24 blocks on $33.1 million in The volume and quality of some newly cat, which turned out to be a duster as a $12.8 million bid for Keathley Canyon bids, Hydro with 23 bids on $25.7 million, available tracts also were key drivers in the commercial find. However, drilling encoun- Block 59 and $10.8 million bid for Keathley and Total E&P with 20 blocks on $11.5 mil- sale, Oynes said, noting that there were tered more than 1,100 feet of porous sand- Canyon Block 147, Shell Offshore’s $10 lion. roughly twice as many of these tracts avail- stones and was said to be an encouraging million bid for Keathley Canyon Block 100, Sale results show that nearly $200 mil- able for lease in Sale 200 compared to last sign because of its thickness and the fact it Hydro Gulf of Mexico’s $9.2 million bid for lion of the $340.9 in total high bids in Sale year’s Western Gulf offering. “Not all of it contained some hydrocarbons. Keathley Canyon Block 327, Cobalt 200 were placed on blocks in waters depths is great (but) that’s a lot of new acreage to BP recently finished drilling its deepwa- International Energy’s $8.3 million bid for roughly between 2,400 and 4,800 feet. take a look at,” he added. ter Kaskida exploratory well, designed to Garden Banks Block 959 and $7.3 million Looked at another way, 153 of the 381 tracts Moreover, he said, oil prices were $10 to test the Lower Tertiary potential on bid for Garden Banks 915, Kerr-McGee and receiving bids in the sale are between these $12 a barrel higher than at the year-ago sale, Keathley Canyon Block 292, located south- Plains E&P’s joint $8 million bid for depths. plus recent discoveries in Garden Banks east of the company’s sale-high $21-million Garden Banks Block 654, Chevron’s $7.7 Sale results also show that deepwater and nearby Green Canyon “would drive bid for Keathley Canyon Block 58 in million bid for Keathley Canyon Block 370, tracts between 2,400 and 4,800 feet were your thinking about hydrocarbon potential” Western Gulf Lease Sale 200. Anadarko and Hess and Hydro’s joint $6.2 million bid the most competitive based on the number in the region. Six of the 10 highest bids in Petroleum, a 25 percent stakeholder in for Garden Banks Block 611. of multiple bids placed on individual tracts. Sale 200 were submitted on tracts in Kaskida, said in its second-quarter earnings In total, 52 tracts between these water Keathley Canyon, a remote region of the call that well data from Kaskida would not Petrobras has most high bids depths received more than one bid. Garden Western Gulf that so far has seen little be released to the public until after the sale. Brazil’s Petrobras won 34 blocks with Banks Block 654 received a sale-high seven exploration activity and produced no “To me Keathley Canyon (bidding) was total bids of $45.5 million to capture first bids and was taken by Kerr-McGee with a announced discoveries. driven by announced discoveries on place based on the total number of high bids bid of $8 million. Keathley Canyon 58, won Walker Ridge in the Central Gulf and submitted in Sale 200. Other top 10 winners by BP with its sale-high $21 million, Trend could stretch 100 miles Alaminos Canyon in the Western Gulf,” in this category are BP with 31 blocks on received four bids that in addition to BP However, geologists believe a large Oynes said, noting that Keathley Canyon is $37.5 million in bids, Hess with 30 blocks included a $9.8 million bid from Petrobras, Lower Tertiary trend that has produced sig- between the two deepwater regions and on $16.8 million in bids, Shell with 28 a $2.4 million joint bid from Chevron and nificant discoveries in Walker Ridge, such therefore qualifies as a candidate to further blocks on $35.4 million in bids, Kerr- Anadarko, and a $1 million bid from Shell as Jack, St. Malo and Cascade, could stretch test the Lower Tertiary trend, also known as McGee with 27 blocks on $17.9 million in Offshore. ●

PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 7

● NATURAL GAS Palin, Knowles to consider competing North Slope gas pipeline proposals Rutherford says TransCanada gas line contract could be finalized in as little as three months By KAY CASHMAN move forward under those terms, it would MidAmerican Energy Holdings Co., a Petroleum News take at least three months to paper the con- pipeline company and gas and electrical tract with TransCanada, but we could start service provider controlled by Warren laska’s Republican governor, Frank the public outreach immediately because the Buffets’ Berkshire Hathaway Inc. Murkowski, ousted in Aug. 22’s pri- commercial terms are fully developed,” Although Palin has said she will consid- A mary election, has vowed to continue Rutherford said. The agreement, she said, er all pipeline proposals, she has strongly to push his fiscal contract for a natural also allows for the North Slope producers to backed the port authority’s idea of an “all- gas pipeline to Canada in the time he has left own part of the pipeline. Alaska” pipeline from Prudhoe Bay to a liq- in office. “It’s a much better deal for the state than uefied natural gas export facility at the port “It’s the only game in town,” he said of the contract the administration has on the of Valdez, the terminus of the trans-Alaska his deal with BP, ConocoPhillips and table now … it doesn’t have nearly the oil pipeline, a project the North Slope pro- ExxonMobil. amount of concessions,” she said. ducers say does not make as much econom- Murkowski came in third in a hotly con- ic sense as a natural gas pipeline from tested three-way race for the Republican Port authority, Mid American proposals Alaska through Canada to the Lower 48. nomination. Sarah Palin, a former Wasilla could be reconsidered On his campaign Web site Knowles said mayor, won the nomination with more than Two other proposals that have been the result of reviewing competing proposals 50 percent of the vote. rejected by the Murkowski administration “will be a pipeline agreement that offers Tony Knowles, a former two-term gover- would probably also be considered by Palin much more to Alaskans than the one now on ● nor, won the race to be the Democratic nom- and Knowles. They were proposals from the the table.” inee for governor in the Nov. 7 general elec- Alaska Gasline Port Authority and —The Associated Press contributed to tion. He beat state Rep. Eric Croft. this report. Critics say the Murkowski administra- tion’s proposed gas pipeline fiscal contract with the three North Slope oil producers and gas owners cedes too much to the compa- nies in incentives without firm commit- ments to build the pipeline, leaving the tim- ing up to producers’ corporate goals. Murkowski said he will call the Legislature back into session once the pipeline deal has been revised and will ask lawmakers to approve it. He leaves office in December. That prospect did not sit well with some legislators. “With Frank Murkowski and Ben Stevens in charge, it’s like the Night of the Living Dead,” said state Sen. Hollis French, D-Anchorage. “We’re being guided by two people whose political careers are over.” Stevens, a Republican from Anchorage and the son of U.S. Sen. Ted Stevens, R- Alaska, is Senate president and is not run- ning for re-election. He is one of the few leg- islative supporters of Murkowski’s contract with the three North Slope oil producers and gas owners. Prior to the election Alaska House Majority Leader John Coghill, R-North Pole, said if the governor loses in the pri- mary, “it will be very difficult to get (Murkowski’s) contract moved forward.” While the new Republican and Democrat nominees haven’t said they won’t support the pipeline contract negotiated by Murkowski with the producers, they both favor re-opening the floor to alternative pro- posals. “The result will be a pipeline agreement that offers much more to Alaskans than the one now on the table,” Knowles said on his campaign Web site. Alternative proposals would likely include the agreement the state has with Canadian pipeline firm TransCanada, which former Alaska Department of Natural Resources Deputy Commissioner Marty Rutherford has said could be completed in as little as three months. In charge of the negotiations with TransCanada when the preliminary com- mercial contract was put together in the spring of 2005, Rutherford and five other DNR officials resigned from the Murkowski administration later that year in protest over the firing of DNR Commissioner Tom Irwin. All seven officials were unhappy with the concessions the administration was mak- ing in contract negotiations with the North Slope producers. “Assuming everyone is still willing to 8 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● GOVERNMENT Alberta: Probing profits from pollution Provincial government and industry launch joint effort to evaluate economics of reducing carbon dioxide emissions into atmosphere

By GARY PARK ment-industry information partnership. If the oil sands sector reaches one forecast goal For Petroleum News Alliance President Eric Lloyd told the Globe and Mail of 5 million barrels per day it would produced that the new study hopes to break a deadlock, which has he Alberta government and its petroleum industry 145 metric tons of CO2 a year, more than the many industry leaders debating whether removing CO2 are trying to turn an environmental minus into an entire province of Alberta produced in 1990. before it enters the atmosphere is an economic strategy T economic plus. without government aid. A joint study will try to figure out ways to turn a duced. The objective is to develop a cost estimate, accurate profit from carbon dioxide, which is the worst contribu- Upgraders contribute 165-198 pounds of CO2 for within 25 percent either way, by early 2007 and give the tor to greenhouse gases and which some environmental- every barrel of bitumen turned into synthetic crude. industry a basis for negotiating deals to start building ists have campaigned to have declared a toxic substance. If the oil sands sector reaches one forecast goal of 5 CO2 capture plants in 2007. In an Environment Canada inventory of 324 facilities million barrels per day it would produced 145 metric The study could also provide leverage for those seek- in 2004, Alberta-based companies took seven of the top tons of CO2 a year, more than the entire province of ing government assistance if it is shown that private 10 spots as the largest sources of greenhouse gases, led profit alone is not sufficient to reduce greenhouse gases. by a coal-fired TransAlta power plant and the Suncor Alberta produced in 1990. Energy and Syncrude Canada oil sands plants. John McDougall, president and chief executive offi- cer of the Alberta Research Council, said earlier this year Penn West plans In trying to head off punitive measures, such as a fed- 160-mile CO2 pipeline eral carbon tax, a government and industry coalition is that environmental challenges will “govern the pace of taking proactive measures. oil sands growth and are as much of an issue facing com- Penn West, which is taking a leading role in seques- The Petroleum Technology Alliance Canada has ten- panies as the shortage of labor. It’s an issue that will have tering CO2 by building a C$750 million, 160-mile dered out a contract to calculate the capital and operating to be addressed.” pipeline to move CO2 from Edmonton to its mature oil costs for operations that would capture, cleanse and Matthew Bramley, a director at the Pembina Institute fields in west-central Alberta, says its own engineering transport CO2 from Edmonton-area industrial facilities, environmental think-tank, said “the spotlight is on work shows it is already feasible to build the infrastruc- notably oil refineries. Alberta to deal with climate change … but this doesn’t ture to transport and inject the gas. The alliance committee includes Suncor, Husky mean the cost of dealing with emissions has to be crip- Penn West expects to take a one-third stake in the Energy, Shell Canada, EnCana, Penn West Energy Trust pling.” pipeline, with an unidentified partner owning and oper- and Enbridge, as well as provincial and federal represen- ating the facility for capturing and processing CO2. tatives. Conventional fields inject CO2 Other pioneering CO2 projects taking place include: On the conventional oil and gas front, measures have • EnCana’s CO2 flood project at Weyburn, Oil sands make solution more crucial been taken to liquefy CO2 and inject the gas into older Saskatchewan, which started operations in 2000 and The challenge to find answers is becoming more oil fields, rebuilding reservoir pressures and recovering expects to recover 130 million barrels over 20 years. pressing as the Alberta oil sands press ahead with more billions of barrels that were once considered lost. • Apache established a similar project at than C$100 billion worth of projects over the next CO2 injections along with a whole range of more effi- Saskatchewan’s Midale field and aims to increase recov- decade. cient drilling methods cold recover an additional 6 bil- eries by 45 million barrels. ARC Energy Trust is a part- Currently, oil sands mining operations spew about 88 lion barrels of oil and 22.5 trillion cubic feet of gas from ner in both Weyburn and Midale. pounds of CO2 for every barrel of bitumen produced, fields in Alberta, British Columbia and Saskatchewan, • Glencoe Resources is drawing high-purity CO2 while thermal projects, which rely heavily on natural according to a recent proprietary report by the Petroleum from petrochemical plants to liquefy and inject into cen- gas, generate 143-176 pounds of CO2 per barrel pro- Technology Alliance Canada and Energy Net, a govern- tral Alberta oil fields. ●

PIPELINES & DOWNSTREAM Regulators propose JPO for upstream Alaska legislators heard Aug. 18 what state regulators are doing or proposing to do in response to the Aug. 6 shutdown by BP Exploration (Alaska) of half of the Prudhoe Bay field, following findings of what the company called unexpected levels of corro- sion in a transit line and a small leak. Alaska Attorney General David Márquez outlined the state’s investigation into the partial shutdown for a joint meeting of the House and Senate Resources committees. “A thorough fact-finding investigation of BP’s management of the North Slope oil field is taking place,” Márquez said. “After the investigation is complete, appropriate legal action will be taken to protect Alaska’s interests.” Márquez also said the state has served subpoenas on BP and other Prudhoe Bay leaseholders to preserve all doc- umentation related to the Aug. 6 event and pipeline corrosion dating to 1996. Commissioner of Natural Resources Mike Menge said the administration propos- es expanding the federal-state Joint Pipeline Office, which oversees common-carrier pipelines in the state including the trans-Alaska oil pipeline, to supervise upstream lines. Menge said this program would tap into companies’ quality control programs. One of the first steps would be to measure the effectiveness of BP’s quality control program. PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 9

● PIPELINES & DOWNSTREAM Prudhoe shutdown could cost state $2B But with PPT in place State of Alaska still comes out $308-$999 million ahead at Revenue’s $53.60 per barrel price case estimate By KRISTEN NELSON PPT makes a difference Petroleum News But those figures, Corbus said, are ith the majority of the State of based on the budget the Legislature Alaska’s revenues coming from approved, and that was based on the old, W royalties and severance taxes economic limit factor-driven severance from crude oil production, the tax. results of shutting down half of Prudhoe The PPT, the petroleum profits tax, Bay — the state’s and the nation’s largest passed by the Legislature and signed by oil field — will be substantial. Gov. Murkowski, makes a big difference. Just how substantial, At an Alaska North Slope Department of Revenue crude oil price of $75.05 (the Commissioner Bill Corbus told closing price Aug. 10, the day a joint House-Senate Resources the Legislature passed the bill), committees meeting in and a full year of production, the Anchorage Aug. 18, depends on new tax was expected to gener- what the price of oil is over the ate $3.7 billion in one-year rev- next few months, and how long enues, almost three times the it takes BP Exploration (Alaska) amount the present system gen- to get the eastern operating area erates. at Prudhoe Bay back online. BILL CORBUS Even at the pessimistic case, The department ran two sce- with 200,000 bpd from Prudhoe narios to provide legislators with some Bay through the end of the fiscal year, the sideboards on what the loss might look PPT produces a revenue increase of like as a result of the Aug. 6 shutdown of $2.002 billion compared to the Revenue the eastern operating area at Prudhoe fol- budget (under the ELF) at futures’ prices lowing discovery of extensive corrosion and $308 million at Revenue’s forecast and a small leak in a transit line. price. The optimistic production forecast, The pessimistic assumption is that with Prudhoe Bay back to 400,000 bpd by Prudhoe Bay will produce at only 200,000 the end of December, is a revenue increase barrels per day (about half the normal of $3.233 billion at futures’ prices and an rate) through the end of the fiscal year, increase of $999 million at Revenue’s June 30, 2007. The more optimistic sce- forecast price. nario assumes that BP will be able to ramp The loss in barrels to the state, on an the field up quickly and have it back to annual basis, is 69 million barrels (of an normal production rates by the end of expected 300 million barrels) under the December. pessimistic scenario, a 23 percent drop, The department also looked at two and a 21 million loss over the fiscal year, price scenarios: the $53.60 per barrel for a 7 percent drop, under the optimistic sce- Alaska North Slope gas delivered on the nario. West Coast that it forecast in its spring Corbus said that no matter the assump- 2006 Revenue Source Book; and a sce- tions, “the loss to the state is substantial.” nario based on futures’ prices, with prices But, due to higher oil prices for the fis- staying above $70 per barrel ANS West cal year to date, and incremental revenues Coast delivery through the end of the fis- from the PPT, he said it is unlikely the cal year. state will have to cut spending to avoid a The loss at 200,000 bpd and futures’ deficit. prices through the end of the fiscal year On the issue of the value to the state of would be $2.041 billion; at 200,000 bpd the shut-in barrels, Corbus said it isn’t just and the department’s forecast price the the time value of money, but also the price loss would be $1.149 billion. of oil. When the shut-in barrels are pro- If production returns to 400,000 bpd by duced — soon or at the end of field life — the end of the year the loss would be $816 isn’t the only issue, he noted, but what the million at futures’ prices and $460 million price of crude oil is when those barrels are ● at the department’s projected price. produced. 10 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● LAND & LEASING BLM offers 8 million acres in NPR-A Acreage includes northeast, Cape Simpson northwest planning areas, Pitt Point acreage relinquished since Beaufort Sea BLM COURTESY Smith Bay 2002 sale, new area north of B C D Teshekpuk Lake A Cape Halkett 165

275 274 163 By KRISTEN NELSON E Mig 273 164 F Petroleum News ua G H kia a k R. r r 272 270 15 N i 268 s he Bureau of Land Management said 10 9 2 1W o 12 11 7 6 5 4 3 n Aug. 23 that it will offer 8,036,486 271 269 8 158 147 265 263 Teshekpuk Lake 160 155 154 151 acres in 696 tracts in the northeast and Atigaru Point T 159 14 156 153 152 150 149 148 B northwest National Petroleum 266 264 262 253 162 161 a Reserve-Alaska at a Sept. 27 lease sale. 126 125 y 259 257255 249 146 145 142 141 138 137 134 133 130 129 Leases on 183,200 acres relinquished 13 124 258 256 254 252 248 144 143 140 139 136 135 132 131 128 127 since the 2002 sale will be reoffered, along 250 157 103 102 with some 373,000 acres north of 247 245 243 241 239 237 123 122 119 118 115 114 111 110 107 106 12 98 101 100 99 Teshekpuk Lake which will be offered for 246 244 242 240 238 236 121 120 117 116 113 112 109 108 105 104 the first time following the January 2006 76 73 72 235 97 96 93 92 89 88 85 84 81 80 77 k 69 233 231 229 227 225 e completion of a revised land use plan for 11 e 79 74 r 70 68 67 234 232 230 228 226 224 95 94 91 90 87 86 83 82 78 75 C 71 the northeast NPR-A planning area. BLM Fish r Nuiqs 49 46 e 66 65 62 61 58 57 54 53 50 v 45 42 said Teshekpuk Lake and areas along the 223 221 219 217 215 213 211 209 i 10 R 51 48 47 44 43 Colville River will not be leased. 210 208 64 63 60 59 56 55 52 220 218 216 214 212 k i k 37 e e 29 v 25 24 21 19 193 191 41 40 r 36 33 32 q 28 205 203 201 199 197 195 C 9N i 4 5 Bid opening set for Sept. 27 1E s 2 3 4 3 2 1W 23 22 20 10 9 8 7 6 5 35 34 31 30 k 27 26 12 11 192 190 39 38 a The bid opening will be at 9 a.m. Sept. 204 202 200 198 196 194 i 8 7 171 18 17 14 m 10 27 at the Z.J. Loussac Public Library in 189 187 185183 181 179 177 175 173 8 g 13

r n e 12 Anchorage. 170 16 15 i v 174 172 186184 182 180 178 176 y T “In order to mitigate possible impacts to i 169 d R u 153 J 151 149 6 biological and subsistence values sur- 167 165 163 161 159 157 155 7 150 148 4 rounding Teshekpuk Lake, BLM has craft- k 168 162 160 158 156 154 152

u r 125 e p 127 ed 11 additional stipulations that will apply 141 139 137 135 133 131 129 iv k 147 6 to biologically sensitive areas,” acting state i R p 146 144 142 140 138 136 134 132 130 128 126 k r director Julia Dougan said in a statement. I 101 e 103 v 121 119 117 115 113 111 109 107 105 5 “Some areas will also need to have anoth- i

R er three years of monitoring and study 120 118 116 114 112 110 108 106 104 102 before we will authorize activities beyond 73 93 91 89 87 85 83 81 79 77 4 k u winter exploration,” Dougan said. k r a 72 k 92 90 88 86 84 82 80 78 r u 67 o s r g o Minimum bids $25, $5 65 63 61 59 57 55 53 51 k 47 o a K 3 i k Minimum bids for high potential tracts 66 64 62 60 58 56 54 52 i 48 37 K are $25 per acre with a 16.67 percent fixed 39 35 royalty rate, for low potential tracts $5 per NATIONAL PETROLEUM 2 acre with a 12.5 percent royalty rate and RESERVE - ALASKA 38 36 34 23 1N $25 per acre minimum bid for tracts A Northeast Plan Area 25 1W 1E 4 5 through G north of Teshekpuk Lake, with a 12 11 10 9 8 7 6 5 4 3 2 16 2 3 Lease Tracts 2006 24 22 16.67 percent royalty rate. Tracts A 5 through G are from 40,000 to 60,000 acres Available Umiat 1S Northwest per tract; the high potential tracts are one- Leased in 1999 NPR-A quarter of a township (approximately Leased in 2002 4 3 5,760 acres per tract); and the low potential 2 tracts are one-half of a township (approxi- Unavailable mately 11,500 acres). High Oil Potential Area 3 Leases have initial terms of 10 years. Low Oil Potential Area The Energy Policy Act of 2005 allowed leases to be extended if a well is drilled 0 4 see NPR-A page 11 Miles PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 11 continued from page 10 NPR-A ARCTIC OCEAN capable of producing in paying quantities, BLM COURTESY renewed for 10 years if there is a discov- 488 Point Bar row ery not capable of producing in paying 485 Bar 484Elso 23 481 row nLagoon483 quantities or extended for 10 years without 486 487 482 22 a discovery for a fee of $100 per acre “pro- 480 Beaufort Sea 479 477 475 vided exploration has been pursued dili- Walakpa Bay 473 471 469 Tangent Point 478 476 21 gently.” 474 472 470 468 467 466 464 t BLM said it has issued a proposed rule- 462 460 458e 456 465 20 463 461 459 eInl457 455 454 making to implement the change in lease s 450 448 446 444 ea D 442 440 438 436 19 Cape Simpson terms and said the final regulations Point Franklin 449 447 445 443 441 439 437 434 432 430 428 426 424 422 420 Pitt P o “should be in effect by this time next 435 418 416 414 384 P 433 431 429 427 18 e 425 423 Admiralty421 419 417 415 413 year.” Those rules “will be applicable to 17 ard 410 408 Smith Bay Bay 406 404 402 400 Bay 398 396 394 390 388 383 412 409 407 405 392 386 D22 all existing leases and all leases issued 403 401 17 A 6 399 397 395 391 l 382 380 r 393 389 a387 385 through this lease sale.” 378 e376 374 372 k iv 370 368 366 362 360 t 358a 358a D21 K 381 In379 377 R er 364 C u aru 375 373 371iv 16 k R 369 h gru 367 365 363 361 359 357 357a D20 356 i W 29 a 354 ade 28 26 25 352 350Me 348 p 27 24 23 346 344 342 338 22 21 340 336 p 334 332 D19 “Some areas will also need to have R 355 353 k 20 19 18 15 N k e 351 17 16 14 o R i e 349 347 15 W 13 R 12 11 10 6 5 g i v r 345 341 9 8 7 n ve 330 C 343 339 337 335 333 331 D18 u r e 328 326 iv another three years of monitoring K r 324 322 320 k 318 316 314 312 e r 329 a 310 308 r306 K he 327 325 323 D17e M ol Kuc 321 319 14 v Teshekpuk Lake and study before we will authorize ip 317 315 313 311 309 i

a s 307 305

un Atqasuk R g 304

M r 302 Cr 300 298 296 r u ee e 294 292 290 k v e 288 286 D16 activities beyond winter r i i 303 v i R 301 299 13 k 297 i a 597 595 ik 295 293 291 i k 593 289 287 285 D15 2 g v 591 589 284 R exploration.” —Acting state director Julia e C u 282 U280 278 R a r 596 594 t 276 274 272 270

592 268 266 i li k 590 588 s D14 a a 283 281 u 12 v 587 279k 277 275 Dougan said in a statement k 585 583s 273 271 269 267 265 e 1 i 581 579 t D13r R g 577 575 573 u 586 i k 571 264 262 584 582 580 260 258 256 254 D12 N 578 576 k 574 572 11 569 567 e 570 263 261 259 257 565 563 561 e 255 253 D11 Northeast NPR-A 559 r 557 555 R 553 Satellite production encouraged 568 566 C i 252 250 248 246 ok C 564 562 560 v 244 242 D10 itk r a 556 e 10 lik 29 vl 551 ee k558 554 552 r 251 549k o 249 247 245 243 241r W R A 240 238 236 r D9 To encourage development of small iv 28 27 26 k 234 232 e i e 25 24 i 230 228 226 v D8 k r 550 548 239 23 224 222 220 218 i 216 P 22 21 20 19 214 R 237 235 18 17 9N R fields in NPR-A whose economic margins 233 231 229 227 16 14 13 r 225 223 221 15 W 12 D711 10 9 8 7 6 5 8 212 210 e 219 217 215 213 208 206 v k i 204 202 200 would not support onsite production facil- k 211 209 198 196u 194 192 190 188 186 207 R r u 205 203 o 8 201 199 p D6 ities, supplemental lease terms apply if a 7 197 g195 193 191 189 184 182 a 187 185 k 180 i 178 176 174 172 To p 183 170 168 166 164 162 160 158 p lease is developed and produced as a A181 179 177 k D5 v 175 173 171 169 7 I 6 a 167 k 165 163 161 159 157 satellite, with separation at a central facil- 156li 154 152 ee k 150 148 146 r

144 142C 140 138 136 134 132 155 R 153 ity on a lease, field or unit not part of the 151 149 147 145 6 k

5 i 143 141 139 137 li 135 D4

130 v 128 a 133 131

e 126 124 122 120 um field or unit that includes this lease. r 118 116 O 129 k 114 112 110 108 106 127 125 123 a D3 121 t 5 119 117 115 113 111 Facility fees may be deducted in calcu- 4 k 109 107 104 e 105 102d 100 98 96 94 u a h 92 90 88 86 84 lating the value of production for royalty; 103 e s 101 99 97 95 I 4 3 M 93 91 89 87 85 83 D2 facility fee or allowance may not exceed 82 South NPR-A 80 78 76 74 72 70 68 66 64 62 81 79 $2 per barrel of oil equivalent; movement 77 75 73 71 69 3 D1 2 67 65 63 61 547 545 er of raw production to the central facility 543 541 539 537 535 iv 60R 58 56 54 52 504846 44 42 40 546 544 uk 1 N 542 540 538 536 Tital 2 from an accumulation point on this lease 534 59 57 55 53 51 49 47 45 43 41 39 0W 29 28 533 532 27 26 25 531 529 527 24 23 22 525 523 521 519 or the unit of which it is a part will be 21 20 19 517 38 36 34 32 3028 26 24 18 17 16 1N 530 528 526 524 15 W 14 13 12 11 10 9 8 7 6 5 regarded as transportation, not gathering; 1S 522 520 518 516 37 35 33 31 29 27 25 23 515 513 511 509 507 505 503 22 20 18 16 14 12 10 8 and the total of all transportation and Ki 1S 514 512 510 ga 506 2 508lik 504 502 21 19 1715 13 11 9 7 facility fee allowances may not exceed 50 501 500 499 496 492 M 498 494 River 490 6 4 ay2 2 be Creek percent of the value of production for roy- 3 NATIONAL PETROLEUM 497 495 493 491 489 5 3 1 alty purposes during that production RESERVE - ALASKA 3 month. 4 Northwest Plan Area e r lv ille R iv 4 Co Two lawsuits pending on BLM's 5 Lease Tracts 2006 decision to open northeast to leasing 5 6 Available

BLM also said there are two pending 6 lawsuits on its decision to open the north- 7 Leased in 2004 east portion of NPR-A to oil and gas leas- 8S 7 29 Unavailable 30 W 28 27 26 25 24 23 22 8N ing, both of which have been fully briefed 21 20 19 18 17 16 15 W and both with decisions pending, one in 2 9 14 13 12 11 10 9 8 7 6 5 the D.C. Federal District Court and one in 061218 10 Miles 9 the Alaska Federal District Court. ●

IS YOUR POSITION SECURED? Make a solid investment in the only all-inclusive guide to Alaska’s oil and gas business environment – Petroleum News’ Dispelling the Alaska Fear Factor. You represent the industry, don’t be left out of the 2006-2008 edition. Call to reserve a page by September 1. Amy Spittler at 907-770-3506. 12 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

ALTERNATIVE ENERGY EXPLORATION & PRODUCTION Wind farm would interfere with signals ExxonMobil CEO Tillerson says world Plans have stalled for a proposed wind farm on Fire Island in Cook Inlet near Anchorage, Alaska after the Federal Aviation Administration found the turbines would has decades of ‘sufficient oil’ disrupt the main air traffic control radar at the nearby international airport. Advances in technology will help quench the world’s thirst for oil for decades to Electromagnetic waves from Chugach Electric Association’s proposed 24-wind- come, Exxon Mobil Corp.’s chief executive said Aug. 22. mill project would be so strong they would warp the signal at Ted Stevens Anchorage Rex Tillerson, speaking at an oil and natural gas conference in Stavanger in west- International Airport, according to radar engineers hired by the Federal Aviation ern Norway, said new technology increased production from oil wells and pushes the Administration. According to the FAA’s engineers, the windmills proposed by the frontier for new oil exploration. state’s largest utility company could generate electromagnetic fields that could blind “We constantly underestimate the potential of technology,” Tillerson was quoted as air traffic controllers to incoming planes, or cause them to see planes where there actu- saying by Dow Jones Newswires. “There are sufficient supplies for decades to come.” ally are none. Officials with the FAA and Chugach said they are continuing to work Tillerson was speaking at the Offshore Northern Seas, an oil industry exhibition together on the problem, though it’s unclear what, if anything, can be done. and conference of more than 1,000 oil experts from about 30 countries, as well as FAA spokesman Allan Kenitzer said the agency is “assessing methods of modify- about 30,000 exhibition visitors. ing the radar to avoid any adverse effects” to airport operations but would not be more Tillerson, who took over as head of the world’s biggest publicly traded oil compa- specific. ny eight months ago, said technology allowing oil companies to drill deeper and far- The original concept was for 33 windmills on Fire Island generating up to 3 ther would ensure that consumers will have no shortage of supplies. megawatts each, which in peak conditions could hit 100 megawatts of power, about a In 1950, he pointed out, the U.S. Geological Survey set the world’s recoverable oil fifth of the energy Anchorage can demand. The utility scaled down the idea to two supplies at around 1 trillion barrels. Now the estimate is three times that. dozen 1.5-megawatt windmills. At the conference opening, Norwegian Prime Minister Jens Stoltenberg also point- —THE ASSOCIATED PRESS ed out the changing estimates of oil supply. Norway is the world’s third-largest oil exporter. “In 1965, the Geological Surveys of Norway ruled out the existence of hydrocar- bons on the Norwegian continental shelf,” said Stoltenberg. “The great breakthroughs of exploration and technology come when people pool their brainpower and curiosi- ties.” Norway and several oil companies are looking to the Arctic Waters of the Barents Sea for new supplies. The Norwegian sector of the sea, which is shared with Russia, could contain one-third of Norway’s undiscovered resources, he said. —THE ASSOCIATED PRESS NATURAL GAS Canadian gas exports take three-way hit Natural gas is getting hammered on all fronts in Canada, with exports to the United States down in all categories — volume, value and prices — in May, the latest months for which statistics are available from the National Energy Board. No change is expected for all of the summer because of record-high storage levels in the U.S. and Canada. Shipments across the 49th parallel for May were 284.4 billion cubic feet, down only 0.7 percent from May 2005, but revenues slipped to C$2.02 billion from C$2.37 billion as average prices fell to C$6.65 per gigajoule from C$7.63. For the first five months of 2006, export volumes were close to 1.44 trillion cubic feet compared with 1.56 tcf a year earlier, however revenues were C$12.52 billion, up C$130 million based on average prices of C$8.04 vs. C$7.34 for the January-May period in 2005. The board said gas prices continued their decline through the summer cooling season as a results of North American storage levels, which were almost 30 per- cent above the five-year average. “Even with the hot weather witnessed across much of the U.S., the demand for natural gas for cooling has been relatively low,” the pricing report said. It also said gas prices remain “substantially disconnected from the traditional pricing relationship with crude oil … that is, rising crude oil prices are not signif- icantly supporting natural gas prices.” Industry sources say the current price of a thousand cubic feet of gas is esti- mated at roughly 1/13th a barrel of oil compared with one-seventh a year ago. The board even doubts that volatility expected in the new hurricane season will cut into excess inventories. An analysis by Earl Sweet, assistant chief economist at BMO Financial Group, cautioned that gas prices, despite a mild recovery, could soften later this summer as the market “focuses on the likelihood of very high inventories by the beginning of the heating season.” —GARY PARK PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 13

● PIPELINES & DOWNSTREAM BP: Bypass lines possible on east side Marshall tells legislators inspections continue, restart of eastern lines possible; replacement pipe ordered

By KRISTEN NELSON Petroleum News Gathering Center 2 loses

egislators had a number of questions for BP Exploration compression, production drops (Alaska) President Steve Marshall at a joint meeting of the Prudhoe Bay production, which had edged up over the L Alaska Legislature’s Senate and House Resources committees 200,000 barrel per day mark, dropped again Aug. 23 when in Anchorage Aug. 18. a compressor went down at Gathering Center 2 in the west- Marshall had come to talk about the decision the company made ern operating area, dropping production by some 90,000 to shut down the Prudhoe Bay field Aug. 6, steps the company is bpd. taking to bring production back online and its North Slope corro- Gathering Center 2 is one of six facilities that process oil, sion program. water and gas from fields in the Prudhoe Bay unit. BP began shutting down the Prudhoe Bay Daren Beaudo, spokesman for unit operator BP, said field Aug. 6 after it found oil-stained insula- overall Prudhoe production dropped to about 110,000 bpd tion on a transit line in the eastern operating and would stay there until the compressor was repaired. area — and later found a leak in the same area Beaudo said there was a mechanical failure in the gas — where crews were checking results of a PATRICK JUDY compressor that could take several days to fix and that only smart pig run which showed 16 anomalies in Gathering Center 1 and the Lisburne Processing Center are 12 locations. Ultimately only the eastern currently operating. operating area was shut in, after an inspection “Maintenance measures will include replacement of the of the western operating area by BP, agencies main working component (compressor bundle) in one of the and its partners was completed. The wall- compressors, which handles natural gas that is produced thickness loss in the western operating area STEVE MARSHALL with oil and water from the Prudhoe Bay reservoirs. did not require shutdown, Marshall said, and Without this gas handling capability, BP is unable to contin- by Aug. 17 production was back to 217,000 barrels per day, more ue oil production at GC-2. “We will work as quickly as pos- than half of the field’s normal 400,000 bpd production. sible to resume full production within our core value of con- He said that while the eastern side of the field remains shut in, ducting the work safely,” Beaudo told Petroleum News. an inspection continues of the eastern transit lines — lines taking sales quality oil from processing centers to the trans-Alaska pipeline — and BP hopes to demonstrate that lines are in good enough con- Marshall said BP has been checking the records for the eastern dition to be able to bring that side of the field back into operation. area lines and found they were maintenance pigged and a smart pig was run. “What ARCO (eastern operating area operator until 2000) Bypass lines was unable to get was good data from that pig.” Bill Hedges, BP Exploration (Alaska)’s manager of corrosion BP had already announced plans to replace 16 miles of the 22 strategy and planning, said he’d talked with someone involved in miles of transit lines on the eastern side of the field and that pipe has that pigging earlier in the week, “and his recollection was that we been ordered and should be on the slope in the fourth quarter. did in fact — or they did in fact — clean the line successfully, suc- Inspections are continuing to determine if some lines can safely be cessfully enough that they were confident at putting a smart tool restarted but the insulation is proving more difficult to remove on into the line. They put the smart tool into the line but the data they the eastern lines, Marshall said. got out was actually very terrifying: it suggested that the entire pipe He also said BP is looking, in parallel, at a plan to install bypass was fully corroded through.” lines on the eastern side, taking oil from Flow Station 1 and Flow Spot checks were done on the line, “and found actually that the Station 2 to the Endicott line, and oil from Flow Station 3 to the line was in very good condition. It raised questions about the tool Lisburne line. — there was some research done — and in fact the tool was subse- In response to a question from Rep. Paul Seaton, R-Homer, quently withdrawn from the market. It was in the early days of Marshall said bypass pipe would be 10-inch and is on the slope, smart pigging,” Hedges said. So while a smart pig was run, he said, sourced from Alyeska Pipeline Service Co. and ConocoPhillips “there is no smart pig data associated with the eastern line until we Alaska. BP needs to acquire meters, valves and fittings for bypass recently ran one in July on the upper section.” lines, and “that activity will proceed in parallel” with inspections of the lines, “so we’ll have two options to pursue there … to restore How will it be different? the entire eastern operating area to production as quickly as we can.” Rep. Gabrielle LeDoux, R-Kodiak, wanted to know how BP BP does have some 17,000 bpd of production on the eastern side would do things differently and Marshall said “we are going to have from the Lisburne Production Center: that transit line had been to operate transit lines in a fundamentally different way. As we smart pigged and found to be in good condition before the problem install new lines we will bring to bear everything we can as a mat- was discovered in the Flow Station 2 transit line. ter of technology: maintenance pigging from day one; smart pig- ging and ultrasonic testing; and whatever other technology we need When FS2 to FS1 pigged? to bring to that aspect of our business.” As to when new procedures would be in place, Marshall said Sen. Kim Elton, D-Juneau, asked Marshall when the Flow new programs will be in place when the replacement transit lines Station 2 to Flow Station 1 transit line — the one which was found are installed. to be so corroded — had actually been pigged, noting that BP had He said BP is also reevaluating its entire corrosion program for said 1992 and then issued a retraction. the future, asking “is our corrosion management strategy robust for Marshall said BP took over the eastern operating area in 2000 the next 50 years?” That question has only come up in the last few and instituted ultrasonic testing on the line. It has the same geome- years as the gas line “has become a more likely proposition” and try, the same fluids as the western area of Prudhoe that BP has oper- BP has “thought about extending the field life way beyond what ated since field startup, and Marshall said BP believed eastern tran- we might have expected when I first came here in 1978.” sit lines would be in about the same condition as lines on the west- Marshall said the company has kicked off a project to look at ern side of the field pigged in 1998. maintenance and infrastructure to see if it is “the sensible thing He said “the ultrasonic testing that we did on those eastern lines to continue operating the way we are or should we look at alter- indeed confirmed that … the line was in good condition. Again, the native ways of doing things.” ● events of the last two weeks show that that was incorrect.” 14 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● PIPELINES & DOWNSTREAM SPCO reports on North Slope pipelines Annual report shows Alaska North Slope common carrier oil pipelines have some corrosion but are generally in good shape

By ALAN BAILEY The recent problems at Prudhoe Bay have raised partic- SPCO does not oversee field gathering lines, Petroleum News ular concerns about the older components of the North such as the Prudhoe Bay transit lines where BP Slope infrastructure. Of the common carrier oil pipelines, n Aug. 16 the Alaska State Pipeline Coordinator’s has found severe corrosion problems. Field the Kuparuk, Endicott and Milne Point lines date back to Office published its annual report on its surveillance gathering lines are considered to be part of an relatively early North Slope development. The Badami, O between July 1, 2005, and June 30, 2006, of Alaska oilfield infrastructure, rather than a common Northstar and Alpine lines are more modern. common carrier pipelines (other than the trans- carrier oil transportation system, and typically The Kuparuk pipeline went into operation in 1981 and Alaska pipeline). On Aug. 4 the agency notified BP of the carries oil from the Kuparuk River field and neighboring results of a June 1 surveillance of BP’s monitoring and sur- lie within the boundaries of an oil and gas fields to the trans-Alaska pipeline. Only certain portions of veillance program for the company’s North Slope common lease or unit. the pipeline can accept a pig and ConocoPhillips cleans carrier oil lines — that report showed BP’s surveillance and these portions monthly with a maintenance pig. The com- monitoring to be satisfactory. focused on corrosion issues and has reviewed the pipeline pany also runs a smart pig through the same portions of the State-regulated common carrier lines cross state rights of operators’ corrosion monitoring and prevention procedures. line every three years, the last run being done in June 2003. way and, as oil transportation systems, have to be available The team observed several aspects of pipeline corrosion The company uses a photographic technique called tangen- for use by anyone who needs to use them. SPCO, an agency monitoring, including the operation of smart pigs and the tial radiography to test unpiggable sections of the line, as within the Alaska Department of Natural Resources, admin- assessment of corrosion coupons. A smart pig is a device well as using techniques such as ultrasonic testing and cor- isters the state’s pipeline right-of-way leases. Lease admin- that passes down the inside of a pipeline and carries instru- rosion coupons. istration includes surveillance of the safe operation of the ments to measure certain characteristics of the pipeline As part of its aerial surveillance ConocoPhillips also common carrier pipelines. wall. A corrosion coupon is a small piece of metal placed in uses an infrared detector to check for leaks on the line. SPCO does not oversee field gathering lines, such as the the pipeline fluid flow to assess the rate of internal pipeline The most significant corrosion issue on the Kuparuk Prudhoe Bay transit lines where BP has found severe cor- corrosion. pipeline appears to be external corrosion, especially at weld rosion problems. Field gathering lines are considered to be All of the pipeline operators have run smart pigs through packs where water can seep into the pipeline insulation. part of an oilfield infrastructure, rather than a common car- their lines in the past three years and all use ultrasonic test- ConocoPhillips monitors this corrosion using tangential rier oil transportation system, and typically lie within the ing, a technique that is similar to a medical sonogram and radiography. And, although there is some internal corrosion boundaries of an oil and gas lease or unit. that enables the internal condition of a pipeline to be in the pipeline, corrosion coupon testing suggests that the On the North Slope ConocoPhillips subsidiaries operate assessed from the outside. Other testing techniques include corrosion rate is quite low. the Alpine and Kuparuk common carrier oil lines. BP sub- radiographic testing and magnetic flux leakage. Operators The Endicott pipeline, built in 1987, carries oil from the sidiaries operate the Badami, Endicott, Milne Point and also conduct regular ground and aerial inspections of the Endicott field to the trans-Alaska pipeline. It is possible to Northstar common carrier oil lines. external conditions of the pipelines. Each pipeline has a run pigs through the entire length of the pipeline and BP last leak detection system that compares the volume of fluids ran a smart pig through the line in the fall of 2005. The pig Focus on corrosion entering the pipeline with the volume of fluids delivered run discovered some metal-loss anomalies but BP has stat- In surveillance visits to the pipelines since June 2005 from the pipeline — a mismatch in the volumes can indi- SPCO’s compliance oversight team has particularly cate a leak. see SPCO page 15 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 15

● FINANCE & ECONOMY Taking flight in northern Canada nesses “fit very well” with Horizon’s goal of providing logistical Mullen spreads wings in remote resource services and support operations to large natural resource devel- locations, fueled by spate of takeovers; sees opments such as oil sands and frontier pipelines — reinforcing the company’s hopes of taking advantage of the Mackenzie Gas Mackenzie gas pipeline as major prey Project. However, Peterson told the Calgary Herald that Horizon is not By GARY PARK ready to gamble its entire future on a Mackenzie pipeline going For Petroleum News ahead, although “we are betting fairly heavily … we think it’s going to go.” rom a Mom-and-Pop operation that started out with a single The current delay of about six months in the regulatory truck in 1949 and struggled to stay afloat through its first two process is not a cause for concern; instead it provides time for decades, Mullen Group Income Fund has spawned a network F Horizon to put its pieces in place, he said. of independently operated businesses which play a major role Whether the Mackenzie proceeds or not, Peterson is full of in Canada’s frontier oil and gas fields and built itself into a power- confidence that Horizon, having built strong ties with the aborig- house that has annual revenues of C$1.235 billion and provides jobs inal communities and established base camps in the Northwest for more than 5,000. Territories, is positioned to capitalize on what could be resource Its latest foray into the north has unfolded over the last three development on a huge scale in Canada’s North. months in a whirlwind series of deals creating Horizon North Even if the immediate prospects of oil and gas exploration Logistics which has its sights fixed on Canada’s resource expansion sputter, the outlook for gold and diamonds could place mining on into northern Alberta, British Columbia and across the 60th parallel an equal footing with petroleum in the two territories and the into the Northwest Territories and Nunavut. more remote the opportunities the more strongly placed Horizon The trigger occurred in June when Mullen pulled off a billion- is. dollar deal to scoop up Producers Oilfield Services, whose assets The Mullen-Producers merger was described by Mullen were then spun off into publicly-traded Horizon. Chairman and Chief Executive Officer Murray Mullen (son of Just a day after making its debut on the TSX Venture Exchange the founder) as a chance to establish one of the largest service on July 25, Horizon made a spate of acquisitions, buying Shanco group income funds in Canada while sticking with the corporate Camp Services, Legacy Industrial Camps and Swamp Mats in cash strategy of allowing divisions to operate as separate entities. and stock transactions worth a combined C$135 million. He said Mullen is “one big ship with 25 independently oper- CEO: company positioned to grow with Canadian North ated speedboats, with operators making sure they are in touch Horizon Chief Executive Officer Ric Peterson said the busi- see MULLEN page 16

continued from page 14 in 1998, to transport oil from the Badami the line in 2003. The company plans anoth- field to the Endicott pipeline for transporta- er smart pig operation in the summer of SPCO tion to the trans-Alaska pipeline. Production 2006, the report says. BP is also trying to from Badami was suspended in 1999 implement a new “guided wave” technolo- ed that “… no features were reported that because of reservoir problems at the field. gy in the Northstar line, to detect defects would compromise safe pipeline opera- The field came back on stream in such as corrosion related wall loss and tion.” In summer 2006 the company is con- September 2005. The entire pipeline is pig- cracks. ducting field verification of the data from gable and BP ran a smart pig through the SPCO has not conducted surveillance on the smart pig, and will schedule any neces- line in 2003. Prior to restarting the line in the Northstar oil pipeline in the period since sary repairs. “Pigging in 2005 indicated 2005 the company conducted field verifica- Jan. 1, 2005. However, the compliance mostly external corrosion-related anom- tion of the 2003 smart pig data and deter- oversight team has reviewed BP’s surveil- alies,” the SPCO annual report said. mined that none of the corrosion features lance reports on the pipeline. And, as part of Increased corrosion in Milne Point found by the pig run threatened safe the June 1, 2006, SPCO surveillance of BP pipeline operations. pipeline monitoring, the SPCO team leader The Milne Point pipeline was built in In September 2005 the SPCO compli- examined the 2003 smart pig data. This data 1984-85 to transport oil from the Milne ance team conducted a field surveillance of indicates some metal loss anomalies but Point field to the Kuparuk pipeline, for the Badami and Endicott pipelines, in part even the more significant of these anom- delivery through the Kuparuk pipeline to to observe the Badami restart. And, as part alies were so small as to be barely within the trans-Alaska pipeline. As with the of the June 1, 2006, SPCO surveillance of the detection limits of the pig instrumenta- Endicott line, pigs can be run through the BP pipeline monitoring, the compliance tion. entire length of the line and BP ran a smart team leader inspected data from the Badami The SPCO annual report can be found at pig through the line in the fall of 2005. The smart pig run. The data indicated some http://www.jpo.doi.gov/Publications/publi- smart pig data indicates that the 10 most internal corrosion-related metal loss anom- cations.htm.● significant pipeline corrosion defects are alies in the pipeline but the compliance external. However, the pig data also appears team signed-off BP’s corrosion monitoring to indicate an accelerated rate of internal program as satisfactory. corrosion since the previous smart pig run four years earlier. Alpine shows no significant corrosion “Four years prior, the pipeline was said The Alpine oil pipeline has been operat- to have had only one internal anomaly iden- ing since November 2000 and connects the tified. Now there are well over a thousand Alpine field to the Kuparuk pipeline for identified and, of these, 144 were identified transportation of the Alpine oil to the trans- as being in the 40 percent to 50 percent and Alaska pipeline. ConocoPhillips cleans the 50 to 60 percent depth range,” the compli- pipeline monthly using a utility pig and uses ance oversight team leader reported, follow- smart pigs to detect corrosion and pipeline ing a review of the smart pig data. “We were integrity problems — the last smart pig run told that the oil producing formation is sim- occurred in June 2005. During regular aeri- ilar to the one that has contributed to prob- al pipeline inspections an infrared detector lems with the GC-2 pipeline.” scans for pipeline leaks. The SPCO report The major Prudhoe Bay oil spill in does not indicate any significant corrosion March resulted from a corrosion-related problems in the Alpine oil pipeline. leak in the Gathering Center 2 transit line The Northstar oil pipeline, connecting and BP has theorized that solids from vis- the Northstar field on Seal Island in the cous oil production had absorbed some cor- Beaufort Sea with the trans-Alaska pipeline, rosion inhibitor that would otherwise have was built in 2000-01. The northern six-mile provided some protection to that line. In its section of the 17-mile pipeline is buried in a report on the June 1 SPCO surveillance of trench in the floor of the Beaufort Sea. The the BP Milne Point pipeline monitoring pipeline wall of the subsea section is thick- program, the SPCO team said “we were er than the wall of the on-land section. told that some flour sand is being con- Additionally, “the Northstar oil pipeline is tributed to the system in a similar fashion equipped with a sophisticated leak detection (to GC-2). They have increased the (pig- system capable of sensing hydrocarbons ging) frequency to quarterly pigging for that could be emitted from a subsea leak,” cleaning purposes.” the SPCO report says. The entire pipeline is The newer Badami pipeline came on line piggable and BP last ran a smart pig through 16 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● EXPLORATION & PRODUCTION PIPELINES & DOWNSTREAM BP denies it manipulated Alaska data Penn West touts BP on Aug. 21 denied allegations that the oil giant manipulated data from inspections of pipelines at Prudhoe Bay in Alaska, where operations were cur- tailed this month following a pipeline leak. The Financial Times reported that the U.S. Environmental Protection Agency multi-billion barrel was probing allegations by BP workers that the company manipulated data to avoid replacing pipelines. “We’ve been working with the DOT (Department of Transportation) and the EPA since we notified them of the original leak two weeks ago,” said Robert deposit in Alberta Wine, a BP spokesman in London. BP would provide any information requested by the investigators, Wine said, By GARY PARK The Penn West leases are and referred other questions to BP’s operation in Alaska. For Petroleum News Alaska Attorney General David Marquez told a special hearing of the state leg- adjacent to properties acquired by islature being held in Anchorage on Aug. 18 that the state had served subpoenas enn West Energy Trust, the largest Shell Canada earlier this year in on BP and other Prudhoe Bay leaseholders to preserve all documentation related producer among Canadian trusts, is a C$2.43 billion takeover of to the Aug. 6 event and pipeline corrosion dating to 1996. P gearing up to become a big-time BlackRock Ventures. The Financial Times quoted unidentified workers as claiming that BP inspect- heavy oil player with a possible stake in production, transportation and ed more areas of known good pipe than bad, creating the impression that the rates of recovery are higher, Andrew said, upgrading. pipeline was in better shape than it really was. while sidestepping any attempt at esti- Its prospects have taken another major Days after the shutdown, the Transportation Department’s Pipeline and mating how large Seal could become. leap forward following an analysis of Hazardous Materials Safety Administration ordered the company to conduct more Earlier this year he said a pilot project 370,000 acres of leases in the Pace River rigorous tests on the so-called transit pipelines, which carry market-ready oil to at Seal indicated production costs could area of northwestern Alberta. the 800-mile trans-Alaska pipeline. DOT engineers have been onsite since Aug. be in the range of C$7-$8 per barrel, Chief Executive Officer Bill Andrew 8. about half the current costs. told a conference call that technical stud- Acting U.S. Transportation Secretary Maria Cino toured BP’s facilities in The Penn West leases are adjacent to ies have identified up to 7 billion barrels Alaska on Aug. 18 and said she was surprised and disappointed by what she had properties acquired by Shell Canada ear- of recoverable oil in the Seal project, seen of the company’s maintenance procedures. lier this year in a C$2.43 billion takeover where production is now about 4,000 bar- “When we look at other operators, this problem has not been found,” Cino of BlackRock Ventures. rels of oil equivalent per day. said. “I think this problem is unique to BP.” The purchase gave Shell 268,000 net Initial plans call for output of 20,000 —THE ASSOCIATED PRESS acres with more than 1 billion barrels of barrels per day within five years, estimated oil initially in place and has although the trust has previously said its given the company enough confidence to goal is in the 100,000 bpd range. aim for 100,000 bpd of production once it Peace River is the least developed of decides how to upgrade the heavy crude Alberta’s three primary oil sands regions, into refinery-ready synthetic crude. which include Athabasca and Cold Lake. Penn West said it is exploring a possi- Relatively easy flow ble upgrading partnership, moving into new territory for trusts which traditional- Andrew said the Seal oil, although ly avoid stakes in long-term capital deeply buried, flows to the surface rela- undertakings. tively easily using primary production Andrew said discussions have methods. Once the near-term target has involved a number of firms, but there is been exploited, Penn West will use sec- “no plan of action right now.” ondary methods, such as steam injection Penn West is also contemplating con- to underground deposits, forcing the oil to struction of a pipeline to deliver heavy the surface. crude from Peace River to upgraders in Although the technique costs more the the Edmonton area. ●

continued from page 15 and it is capable of producing 275 units a year. MULLEN • Swamp Mats manufactures, rents, sells and installs heavy duty oak mats to with the market and their customers.” build roads and work locations in areas The objective, he said, is to pay about where ground conditions do not allow C$400 million in salaries, reinvest in year-round access. It currently has 9,500 assets and distribute up to C$160 million units and can turn out another 60 a day. a year to unit holders, although Horizon Peterson said he is counting on the will operate as a conventional company new operations generating combined because managers did not see it as suited revenue of C$90 million for the full year to the trust model at a time the company ending Oct. 31, with operating margins needs to raise capital to grow. in the 30-35 percent range. The growth was quick in coming with For the second quarter of 2006, the trio of takeovers on July 26: Mullen reported revenues of C$200 mil- • Shanco manufactures, rents and lion, up C$85.8 million from a year ear- sells camps for use on remote locations lier, largely attributable to the 12 new and Legacy provides camp catering businesses added to the stable since services, both of them operating in April 2005. Alberta, B.C., the Northwest Territories Net income was C$38.9 million, an and the Yukon. Shanco’s rental fleet con- increase of C$35.7 million and cash dis- sists of 500 units, which can be config- tributions for the three months were ured into camps for 20 to 500 workers, C$22.8 million. ● PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 17

Companies involved in Alaska and northern Canada’s oil and gas industry Business Spotlight ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS Hunter 3-D A Industrial Project Services Ace Transport Inspirations Acuren USA (formerly Canspec Group) Jackovich Industrial & Construction Supply FORREST CRANE Aeromed ...... 18 Judy Patrick Photography AES Lynx Enterprises Kenai Aviation Agrium Kenworth Alaska Air Liquide Kuukpik Arctic Catering Air Logistics of Alaska ...... 14 Kuukpik/Veritas ...... 10 Alaska Airlines Cargo Kuukpik - LCMF ...... 6 Alaska Anvil ...... 15 Lasser Inc. Alaska Coverall Lounsbury & Associates Alaska Dreams Lynden Air Cargo ...... 3 Alaska Frontier Constructors Lynden Air Freight ...... 3 Alaska Interstate Construction Lynden Inc...... 3 Alaska Marine Lines...... 3 Lynden International ...... 3 Alaska Railroad Corp. Lynden Logistics ...... 3 David Cushman Sr., Alaska Rubber & Supply Lynden Transport ...... 3 Applications Engineer Alaska Steel Co. Mapmakers of Alaska Alaska Telecom...... 11 Marathon Oil Air Liquide Alaska Tent & Tarp Marketing Solutions Alaska Textiles ...... 9 Mayflower Catering America L.P. Alaska West Express ...... 3 MI Swaco Alliance, The Air Liquide is the world’s leading MWH manufacturer of industrial, medical, Alpine-Meadow MRO Sales American Marine ...... 8 and specialty cryogenic and cylinder Arctic Controls N-P gas products, employing nearly 36,000 Arctic Foundations people in 70 countries. From eight R&D centers, researchers of 25 nationalities Arctic Slope Telephone Assoc. Co-op. Nabors Alaska Drilling...... 7 Arctic Structures ...... 13 advance 200-250 patents a year. In the NANA/Colt Engineering past few years Air Liquide’s products Arctic Wire Rope & Supply Natco Canada ASRC Energy Services have been expanded to include hydro- Nature Conservancy, The gen, syngas, steam and energy. Engineering & Technology NEI Fluid Technology Operations & Maintenance In Anchorage the company oper- NMS Employee Leasing ates an air separation plant to produce Pipeline Power & Communications Nordic Calista AutryRaynes Engineering liquid oxygen and nitrogen. Besides its North Slope Telecom ...... 15 cylinder filling plant, Air Liquide pro- and Environmental Consultants Northern Air Cargo Avalon Development vides a full range of industrial, medical Northern Transportation Co. and scientific gas products, along with B-F Northland Wood Products welding equipment products, rentals Northwest Technical Services and repair services. It hosts an annual Offshore Divers ...... 4 summer trade show and barbecue in Badger Productions Oilfield Improvements...... 13 Baker Hughes Anchorage and Fairbanks as a get- Oilfield Transport together for vendors and customers. Bombay Deluxe Restaurant Pacific Power Products Bond, Stephens & Johnson ...... 12,16 PDC Harris Group Broadway Signs David Cushman Sr., Peak Oilfield Service Co. Applications Engineer Brooks Range Supply Penco BW Technologies Perkins Coie David Cushman has been with Air Capital Office Systems Petroleum Equipment & Services Liquide for 26 years. He holds a bache- Carlile Transportation Services Petrotechnical Resources of Alaska...... 20 lor of science degree from Ferris State Chiulista Camp Services PGS Onshore University, Big Rapids, Mich. Off duty, Computing Alternatives ...... 7 Pipe Wranglers Canada ...... 9 he builds and flies planes, plays golf CN Aquatrain ProComm Alaska ...... 8 and enjoys cooking at his Chugiak CONAM Construction Prudhoe Bay Shop & Storage home with wife Pamela. Pamela’s busi- Coldwell Bankers PTI Group ness, Cushman Consulting, provides Colville ...... 5 writing and editing services to engi- ConocoPhillips Alaska neering and construction firms. Construction Machinery Industrial Q-Z Coremongers Kevin McDaid, Business Manager Crowley Alaska QUADCO Kevin McDaid joined Air Liquide 29 Cruz Construction Rain for Rent...... 13 years ago, spending most of that time Dowland-Bach Corp...... 18 Residential Mortgage in Anchorage. He and wife Sherrie have Doyon Drilling Salt + Light Creative three children — Rachel 23, Curtis 21, Doyon LTD Schlumberger and Hannah 17. Following the Aces Doyon Universal Services Seekins Ford and Seawolves hockey games, family Egli Air Haul Spenard Builders Supply dinners and sports activities, and an Engineered Fire and Safety ...... 2 STEELFAB annual moose hunt are favorite activi- ENSR Alaska 3M Alaska ties. We hear the moose, so far, are Epoch Well Services ...... 16 Tire Distribution Systems (TDS) ...... 16 pretty safe. ESS Support Services Worldwide Total Safety U.S. Inc...... 3 Evergreen Helicopters of Alaska TOTE Fairweather Companies, The Totem Equipment & Supply Flint Hills Resources Tubular Solutions Alaska Flowline Alaska UAA Department of Engineering

Friends of Pets Udelhoven Oilfield Systems Services ...... 3 FORREST CRANE Frontier Flying Service Unique Machine ...... 9 Unitech G-M Univar USA Usibelli Grainger Industrial Supply U.S. Bearings and Drives Great Northern Engineering VECO Great Northwest ...... 12 Welding Services Hawk Consultants ...... 8 WesternGeco H.C. Price Xtel International Hilton Anchorage XTO Energy Holaday-Parks Horizon Well Logging All of the companies listed above advertise on a regular basis Hotel Captain Cook with Petroleum News Kevin McDaid, Business Manager 18 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 continued from page 1 COAL of the mineral potential of the southern BLM COURTESY and western NPR-A, which is known as NPR-A South,” said Steve Borell, execu- tive director of the miners group. “That area has an absolutely huge amount of coal, the largest amount that the United States has in one place and more than the coal reserves in Wyoming and Colorado together.” As the nation hurtles toward a seem- ingly inevitable energy crisis, Borell says it is irresponsible of Americans to over- look the energy potential of coal, especial- ly since the technology required to convert coal into a hydrocarbon liquid that burns like gasoline is 70 years old and well proven. “It’s extremely important that BLM opens this area to mineral exploration and coal claims leasing,” Borell said. “It needs to be one of the alternatives in BLM’s plan along with oil and gas leasing.” BLM conducted scoping for the NPR- A South from June to October 2005 and issued a report on its findings late last year. Off limits to mining cations of uranium deposits. coal and hard rock mining. 100 percent of the tungsten we need from BLM said the NPR-A was closed to BLM noted that the world-class Red China.” mineral leasing as part of the creation of Dog deposit is located 40 miles southwest Act of Congress needed A hard, durable metal, tungsten is used Pet-4 in 1923, and that intent was rein- of the planning area boundary, and Red Borell said he realizes that it would in manufacturing such weapons as tanks forced in the Naval Petroleum Reserves Dog is the world’s largest producer of zinc take an act of Congress to open NPR-A and armor-piercing rounds, Borell said. Production Act of 1976, which withdrew concentrate with byproducts of lead and South to coal and mineral leasing, but a “Do we want to be totally dependent on the area from all forms of entry and dispo- silver. recommendation from BLM to do so China for our tungsten?” he asked. sition under public land laws, including “Rocks of equivalent composition and would go a long way toward convincing “We already have an area in Alaska the mining and mineral leasing laws. age extend into the planning area where the Congress to consider the move. size of Texas that is off limits to mineral However, the agency said the southern they exhibit similar mineralization,” the “Do we really want to be dependent on exploration. To say we can’t look in this NPR-A contains known occurrences of agency wrote in its report. other countries for important metals?” he area that was expressly set aside by phosphate rock, metalliferous oil shale, Though public interest in the area’s asked. “We are dependent on other coun- Congress for mineral exploration doesn’t zinc, lead, silver, barite, copper, and fluo- mineral potential is understandable, the tries for about 25 metals that we need. make sense,” he added. rite and nearby areas hold chromium and agency said NPR-A remains off limits to Tungsten is an example. We currently get —ROSE RAGSDALE platinum group elements as well as indi-

continued from page 1 However, Norwegian disclosed that meetings are currently taking place to dis- MAC cuss Ottawa’s latest land claim proposal. Nations leadership which has mounted Northwest Territories Premier Joe the toughest campaign against the Handley agreed with Harper’s comments Mackenzie project in an attempt to on the need for northerners to give uni- advance their land-claims and self-gov- fied backing to the pipeline. ernment negotiations. He said that if projects on the scale of the pipeline stumble there will not be any Deh Cho: Canadian government resource revenue to share. doesn’t own land Harper said a long approval process is Deh Cho Grand Chief Herb slowing resource development in the Norwegian said he was not troubled by north, noting that it takes three years to Harper’s blunt message, arguing the get the required permits for a mine in Canadian government “does not own a Nunavut compared to nine months in grain of dirt in the Deh Cho territory. … Quebec. If Canada thinks they’re going to go “We need to ask why, 30 years after it ahead and push the pipeline through Deh was first proposed, we’re still wondering Cho territory, I think they’re in for a big when, or if, the Mackenzie pipeline will shock.” be approved,” Harper said. ● PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 19 continued from page 1 save him about $1,000 a day. “Bernie’s made a money machine,” Dickie said. CHENA CHILLER At Chena the geothermal resources were

SARAH HURST obvious because of the hot springs. Still, it purring like a kitten in a creamery,” Karl takes a drill program and extensive testing boasted to his guests. To be more precise it to determine the size of any underground was emitting a continuous high-pitched geothermal reservoir. Arctic Drilling has whine, due to the turbine blade spinning at been working at Chena and plans to bring in 15,000 rpm. Next to the power plant stood a a big rig that can go down 6,000 feet. “At few of the old steam engines Karl collects. 1,010 feet we were at 179-and-a-half “I want to show mean and steam versus lean degrees and if the drill hadn’t broken off and clean,” he explained. we’d still be drilling,” Karl said. The hot UTC testing power plant water currently powering the turbine comes from a depth of 700 feet. Karl acquired the geothermal power Geophysicist David Blackwell from plant for his resort, 60 miles northeast of Southern Methodist University in Dallas Fairbanks, by working with Connecticut- recently added a chemical tracer to the well based UTC Power and government agen- that should help to find out how long it takes cies. UTC wants to test its plants at various for the water to come back through the sys- locations around the country before market- tem for a second cycle. The longer it takes, ing them commercially. Chena is particular- the larger the reservoir. A surface manifesta- ly unusual because the plant here has been tion of geothermal energy such as a hot adapted to run on water that comes out of springs isn’t essential in the search for a the ground at a temperature of 165 degrees resource. “You can find geothermal any- Fahrenheit. This is the lowest-temperature where if you get deep enough,” Blackwell water being used in a geothermal plant any- said. “Geothermal systems are kind of like where in the world, according to UTC. mineral deposits — they’re really random.” The concept of the power plant is rela- In the 1970s and ‘80s most geothermal tively simple: it’s refrigeration in reverse. exploration in the United States was done The design of the plant is very similar to by oil companies, but the limitations of that of a centrifugal water chiller, used for power plant technology at the time made air conditioning systems. The hot water in projects uneconomic, and much less was the geothermal plant vaporizes a fluid called known about how to deal with volcano haz- R134a, a standard refrigerant, which has a ards. Today many of the world’s geothermal lower boiling point than water. The vapor power plants are built on volcanoes and sci- builds up pressure to drive the turbine and entists know where to place them so that generate power. Then the water is cooled Ice sculptors created this model of the geothermal power plant for the ice museum at Chena Hot Springs Resort. they are not at risk. Oil companies also lost down and reinjected into the ground so that the incentive to explore for geothermal it can eventually be used again. This is tech- typically customized for each client and Chena Chiller produces 200 kW resources when petroleum was cheap and nically known as an organic rankine cycle. manufacturing it with off-the-shelf compo- Running at full capacity, 500 gallons of plentiful for consumers. Now that oil and It is fuel-free and emission-free. nents so that it will be affordable. UTC hot water and 1,500 gallons of cold water gas prices are high, geothermal is back in “We have taken the Henry Ford expects to sell a plant for about $1 million will go into the Chena Chiller every minute, business. approach to this organic rankine cycle solu- and it will pay for itself in savings in one to produce 200 kW of electricity. At a power tion,” UTC’s Halley Dickie said in a pres- year. Bernie Karl received government Geothermal operates at full capacity cost of 5 to 7 cents per kilowatt-hour, com- entation at Chena. In other words, UTC is grants to help pay for his plant. Geothermal energy has some huge adapting a geothermal power plant that is pared with 30 cents for the diesel fuel gen- erators that Karl previously used, it will see CHENA CHILLER page 20 20 PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 continued from page 1 loses are recovered,” she said. still oil to be produced will put ultimate production is restored, and Foerster said oil recovery “at risk,” he said. Because the commission would not expect that. AOGCC Gas sales another potential risk “gas represents energy in the reservoir … Samuels asked how the commission Norman told legislators that while it is the more oil that can be recovered before would know when production has equal- That continued injection should result in possible that one or more wells may not beginning major gas sales from the reser- ized out to what it would have been. a period of higher production rates when come back at the same production as voir, the less oil then is at risk when Norman said there is “pretty extensive wells are brought back online, he said. before the shut-in, “we don’t think that large-scale gas off-take actually begins in modeling going on now of the entire Commissioner Cathy Foerster said the that will result in any decrease in ultimate the future.” reservoir” and said the commission can operator “has very sophisticated predictive recovery because other wells can be used Because the shutdown delays oil pro- project trend lines which ignore the shut- tools” for forecasting production and the to access and … produce these same duction in relation to future gas sales it down and then superimpose production state uses production data it gets from the reserves” or the operator can do “could possibly have some negative resulting from the shutdown, look at the operator to develop its own predictive tools. workovers on wells as needed. impact upon total ultimate recovery.” differences and draw some conclusions. The state can compare what it has predicted The commission believes, Norman He said he thinks that when the dust “I don’t know that we’ll ever know with actual volumes: “the one line is the said, that another potential risk to ulti- settles “the greatest harm is going to be absolutely, but I think that we’ll be able forecast that we would have seen … would mate recovery from the reservoir “relates done to perception, particularly by those to come in with some level of scientific have predicted had there been no shut-in to the timing synergies of oil production not in Alaska.” and engineering confidence and say this and the other line is the actual which will be and gas pipeline startup.” Producing gas Rep. Ralph Samuels, R-Anchorage, is where we would have been but for this what we see given the shut-in. So using for sale from the reservoir while there is asked if the shutdown could result in a event and this is where we are because of those two lines, we can compare to see if the steeper production decline curve, once this event,” he said. ● continued from page 19 Chena Hot Springs Resort is a Geothermal resources widespread in Alaska CHENA CHILLER showcase for innovation, with greenhouses full of tomatoes and Three major regions hosting geothermal resources are known in Alaska: the advantages over wind power and solar lettuces grown hydroponically (in Aleutian volcanic arc, Southeast Alaska and Central Alaska, which stretches from well- power, too. A geothermal power plant known hot springs such as Chena, Manley and Circle in the Interior west to Pilgrim and operates at full capacity most of the time. liquid nutrients rather than soil), Serpentine hot springs on the Seward Peninsula. Of these the Aleutian arc probably Wind power can only be used about 25 providing a testing ground for contains the greatest resources. A fourth resource is located near Mount Wrangell in percent of the time and solar power has several agricultural projects run by Southcentral Alaska. The resources in Southeast and Central Alaska are probably fault- only a 14-percent utilization rate. In the University of Alaska Fairbanks. hosted rather than volcano-hosted. Alaska, power is needed most in the win- The Aleutian arc encompasses the Aleutian islands them- ter, when there is no potential for solar said. “We have not had a leader such as selves as well as the Alaska Peninsula and the volcanoes in power. Geothermal energy can also be Bernie. ... It is for us to demonstrate to the Cook Inlet. Fumaroles — openings in the earth’s crust that emit used directly, rather than converting it to rest of the country that we don’t have to steam and gas — near Akutan volcano on Akutan Island, as well SARAH HURST electricity. do it all with federal money.” Gov. as another location near Makushin volcano on Unalaska Island The buildings at Chena Hot Springs Murkowski was also full of praise for the are hot prospects, according to Amanda Kolker, a geology Ph.D. Resort have already been heated by water self-described “imposter” with no formal student at the University of Alaska Fairbanks who is research- from the ground for several years. The education who had upstaged the assem- ing geothermal energy. Both areas are close to communities that geothermal reservoir is constantly replen- bled politicians and scientists. “Most peo- could use the power, the villages of Akutan and Dutch Harbor. ished by precipitation, of which there is no ple didn’t believe you could take hot Also part of the Aleutian arc, Mount Spurr and Crater Peak Amanda Kolker, a shortage in Alaska. just 80 miles from Anchorage have seen very limited geother- Ph.D. geology stu- water and make a generator out of it, they dent at the UTC Power is part of the United didn’t believe there was enough heat. mal exploration, but there is probably a system at a depth of University of Alaska Technologies group of companies which You’ve proved them wrong,” he told 1,000 meters, Kolker said in a presentation at Chena. Mount Fairbanks, is include Hamilton Sundstrand, Otis, Pratt Wrangell, which hosts a separate geothermal system, is more researching geot- Karl. hermal systems. & Whitney and helicopter manufacturer Chena Hot Springs Resort is a show- silicic and less explosive than the Aleutian volcanoes, Kolker Sikorsky. Jean Copin of the United case for innovation, with greenhouses full added. Technologies Research Center compared of tomatoes and lettuces grown hydro- More than 30 hot springs have been identified in the central Alaska region, but their Bernie Karl’s adventurous spirit to that of ponically (in liquid nutrients rather than heat source is not known. They are all geologically similar, located near a high-potas- Elisha Otis, who got in an elevator and soil), providing a testing ground for sev- sium pluton that is between 60 and 90 million years old. A pluton is an intrusive igneous ordered the rope suspending it to be cut to eral agricultural projects run by the rock body that crystallized from a magma below the surface of the Earth. The hot water demonstrate the effectiveness of his safe- University of Alaska Fairbanks. The at Chena comes up from within an enclosing pluton of granite. ty brake. marching band from Fort Wainwright led Southeast Alaska is probably the least-explored region, containing 14 known hot visitors past a goat pen and an organic springs, most in remote areas. Their chemistry and temperature estimates are very vari- Goal to sell power to Golden Valley vegetable garden on the way to the power able, and are at at depths of between three and five kilometers. “The geothermal appli- UTC plans to install its first 1-MW plant. cations in Alaska are limitless,” Kolker said. “We need heat here and we’ve got a lot of geothermal power plant at Chena when it A former ice hotel full of elaborate it underground.” The Alaska Energy Authority published a renewable energy atlas of is developed. Karl, who always thinks sculptures, with a working Martini bar Alaska in August. big, would like to produce 20 MW even- where drinks are served in hand-carved California, the world’s fifth-largest economy, is one of the nation’s leaders in the use tually and sell power to Golden Valley ice glasses for $15 each is kept cold of geothermal energy, with nine geothermal power plants providing 6 percent of the Electric Association. Karl told guests that throughout the summer — geothermally, state’s electricity. Nevada has 10 geothermal power plants, Idaho has three, Utah has he invests regularly in UTC because he of course. It now serves as a museum two and Hawaii has one. Most of the geothermal resources in the United States are in has such faith in their products, “and I’m because it didn’t meet the regulations for the western states. One potential obstacle to developing the resources is that many of as tight as a frog’s ass,” he added, causing a hotel, lacking certain features like them are in state and national parks. Nevertheless, it is estimated that there is enough riotous laughter. wheelchair ramps and toilets. The origi- geothermal energy within three kilometers of the earth’s surface to provide a 30,000- “We have had a real problem in the nal ice hotel melted after the first winter. year energy supply for the United States at current usage rates. past to get such partnerships going” for “Forbes voted it the worst business idea —SARAH HURST alternative energy projects, Sen. Stevens for 2004,” said Karl. “So I rebuilt it.” ● 2 Fish refuge for Pebble? Board of Fisheries might recommend the idea to Alaska Legislature

3 Bre-X trial nears end Geologist in gold-salting hoax faces 8 charges of insider trading

5 An eye on Pebble's sisters British Columbia Gibraltar and Prosperity projects moving forward

A special supplement to Petroleum News WEEK OF CORE FROM NOVAGOLD’S GALORE CREEK PROJECT August 27, 2006 PHOTO BY SARAH HURST 2 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● SOUTHCENTRAL ALASKA Fish refuge proposed for Pebble area Board of Fisheries will decide at its Bristol Bay meeting in December whether it should recommend the idea to Alaska Legislature

By SARAH HURST a permit.” For Mining News The Murkowski administration’s streamlined mine permitting process has former State of Alaska employee skewed the state’s bias in favor of eco- has submitted a proposal to the nomic development, according to Matz. A Board of Fisheries requesting it to He wants the lead agency for permitting designate the waters in the vicinity in the waters of the Bristol Bay area to be of the planned Pebble mine as a fish the Department of Fish and Game, not the COURTESY NORTHERN DYNASTY NORTHERN COURTESY refuge. George Matz, who is now retired, Department of Natural Resources, Matz but worked for the state for about 11 told Mining News. One of the problems is years as an analyst, is concerned that that Murkowski transferred the Division Gov. Frank Murkowski’s policies have of Habitat from DF&G to DNR, he removed some of the added. Miners welcomed the move checks and balances because they thought the bias went too far that would ensure in the direction of conservation. fish are protected when a mine is Northern Dynasty has developed. applied for water rights The seven-mem- Vancouver-based Northern Dynasty, ber Board of the company that wants to develop the Fisheries is part of Pebble mine, applied to DNR in July for the Department of water rights in the same area where Matz Fish and Game. The Homer resident George Matz has hopes to create a fish refuge. “What I’m board considers pro- proposed a fish proposing doesn’t foreclose the opportu- refuge for the area posals on individual nity for Northern Dynasty to have water issues every three in southwest Alaska where the Pebble rights, as far as I’m concerned,” Matz years, and in mine project is told Mining News. The fish refuge being considered. December it will would allow the development of the meet in Dillingham mine as long as it adhered to Northern to look at proposals about Bristol Bay fin- Dynasty’s “no net loss” policy towards fish. Any member of the public or organ- fisheries. Matz also wants the company, Above, access to the drill rigs at the Pebble ization can submit a proposal. rather than the state, to pay for the mine The board’s main role is to conserve project is by helicopter at present. At right, a worker at the Pebble project cuts core so infrastructure. and develop the fishery resources of the that half can be sent for assaying. The fish refuge proposal came as state. Usually it looks at questions such as something of a surprise to Northern potential effects on Cook Inlet communi- how to divide up a fishery between sport Dynasty, the company’s chief operating ties and resources. The CIA, as they call fishermen and commercial fishermen. officer, Bruce Jenkins, told Mining themselves, decided that the fish refuge Matz’s proposal is slightly different, News. There was extensive public com- proposal went beyond their organiza- according to Tim Barry, a special assis- DYNASTY NORTHERN COURTESY ment during the recent revision of the tion’s scope, so Matz submitted it as a pri- tant to the commissioner of the Bristol Bay Management Plan, which vate individual. He came up with the con- Department of Fish and Game, because it gave permission for mineral develop- cept of a fish refuge himself, describing it asks the board to make a recommendation ment in the area, Jenkins said. “It speaks as a way of conserving fish while to the Alaska Legislature. A more direct to a lack of knowledge of the extent of enabling the continuation of commercial, approach would have been for Matz to go the public review process,” he added. subsistence and sport fishing in the area. to the Legislature and ask it to create a “This (proposal) seems to be based on “There is some concern that a permit- fish refuge, Barry told Mining News. the premise that the fish aren’t com- driven approach to habitat protection pletely protected unless they do this. Fish refuge Matz’s idea does not necessarily provide the compre- That’s completely wrong.” hensive or precautionary approach that is Matz is an officer with the Cook Inlet “What is needed is (a) conservation-ori- DNR has told Northern Dynasty that needed to adequately protect the pristine Alliance, a Homer-based group of ented management approach that over- a decision on water rights probably habitat that Bristol Bay salmon have Alaskans dedicated to sharing informa- sees all factors that relate to Bristol Bay won’t be taken until all the mine’s per- thrived on,” Matz wrote in his proposal. tion about the Pebble project and its salmon habitat protection, irrespective of mit applications are submitted, in at least a year’s time, according to Jenkins. Northern Dynasty encourages people to raise questions and identify issues and concerns, but the company is disappoint- ed with the false statements about Pebble that have been circulating in advertisements by non-profits such as the Renewable Resources Coalition. Contrary to the ads, Jenkins never said that the Upper Talarik Creek water- shed would be left alone. There has been drilling in that area from the beginning of the project, he told Mining News. For the past two years there has been a pub- licly disseminated plan to build a road and transmission line that would traverse the watershed. What Jenkins actually said was that the watershed would not be used for the mine’s tailing facility. Jenkins also never promised that the mine would not use cyanide. He said that there would not be a cyanide heap leach facility, but there has always been a pos- sibility of in-mill closed-circuit cyanide extraction, as at Fort Knox mine near Fairbanks. This summer Northern Dynasty has about 110 people working at the Pebble property, using four drill rigs with a fifth about to be mobilized, Jenkins said. ● PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 NORTH OF 60 MINING 3

● CANADA Bre-X trial enters final stages Geologist in gold-salting hoax faces 8 charges of insider trading, misleading investors; proceedings stretched over 6 years

By GARY PARK tor pension plans, who wrote off a combined C$215 million. By early September final arguments in the trial For Mining News Felderhof, who has moved to the Cayman Islands, is of former Bre-X Minerals chief geologist John accused of selling C$84 million of Bre-X shares in 1996 decade after more than C$6 billion in shareholders’ Felderhof are expected to wrap up before the while in possession of undisclosed information. value evaporated and six years after a court trial Ontario Superior Court. He is not expected to make an appearance at the trial, A began, what has been described as the world’s largest which is taking place before a largely empty court room. mining scandal has entered its final legal proceedings. after an evaluation by U.S. miner Freeport McMoRan, a To date Felderhof’s only court appearance was in By early September final arguments in the trial of former prospective operator of the mine, found the deposit was October 2005, but he never testified in the current case. Bre-X Minerals chief geologist John Felderhof are expected worthless. to wrap up before the Ontario Superior Court. Felderhof faces C$1 million fine, prison time Felderhof faces eight criminal charges, accused by the Samples had been salted If convicted he faces a fine of C$1 million, two years in Ontario Securities Commission of illegal insider trading and It was disclosed that samples of the gold were salted. God prison and other financial penalties. issuing press releases that misled investors about the size of dust was sprinkled into crushed ore from the Indonesia mine Felderhof’s lawyer Joe Groia said Aug. 21 that his client a gold find in Indonesia, claimed to be about 200 million to enhance the mineral readings. should not be convicted unless the securities commission ounces or 8 percent of the world’s known gold. Some small investors had already pocketed fortunes, but could prove he knew that Bre-X releases were false. Tens of thousands of investors from around the world many lost their life savings and were left to mount futile He said it had to be shown that Felderhof was involved flocked to Bre-X, which started out as a junior mining com- class action suits. in more than just the “innocent act of issuing press releases pany based in Calgary trading penny stocks, climbed during It wasn’t just individual investors who paid the price. two years to over C$286 and plunged back to its beginnings Among the losers were three of Canada’s largest public sec- see TRIAL page 4

● NORTHWEST ALASKA Rock Creek, Big Hurrah get key permits Alaska officials tout authorizations for NovaGold gold mining project near Nome as victory for state regulators, residents By ROSE RAGSDALE The known gold resource at Rock Creek employ and benefit Alaskans. watershed, providing access to the Rock For Mining News straddles acreage about 66 percent owned “I am very happy that we have been Creek mine.” by Alaska Gold and 34 percent owned by able to issue the permits for this project and This is the third mine project to receive ovaGold Resources Inc. has cleared Bering Straits Native Corp. look forward to pouring the first gold in permits during the Murkowski administra- several important permitting hurdles The known gold resource at the Big about a year,” the governor said in a state- tion. The other two are Pogo, near Delta N in its quest to develop the Rock Hurrah site lies within land owned 100 per- ment. “This mine is a result of our ‘Roads Junction, which is now in production, and Creek and Big Hurrah gold mines cent by Alaska Gold, but is surrounded by to Resources’ initiative, which rerouted the Kensington, near Juneau, which is under near Nome. lands owned by Solomon Native Corp. Glacier Creek Road out of the Nome construction. ● The Alaska departments of Natural Alaska Gold’s plans call for two open Resources and Environmental pits, with a mill at Rock Creek to process Conservation issued construction permits ore from both mines. Ore milling rates Contact North of 60 Mining News: for the project Aug. 9. would be about 2.75 million tons per year, NovaGold, owner and operator of the while development rock stripping volumes Editor: Sarah Hurst [email protected] mines, envisions the project becoming its would range from 4.4 million tons per year Phone: 907.248.1150 • Fax: 907.522.9583 first development-stage venture to begin to 5.5 million tons per year. Address: P.O. Box 231651, Anchorage, AK 99523 significant gold production. First gold pro- Total construction costs are estimated at duction at a rate of roughly 100,000 ounces about $40 million, and the mines have a North of 60 Mining News is a monthly supplement of the weekly per year at Rock Creek could begin by late life expectancy of up to five years. newspaper, Petroleum News. It will be published in the fourth or 2006 or early 2007. Discovery of additional reserves could fifth week of every month. The permits from DNR cover fish habi- extend the life of the mines, which are pro- ADDRESS tat, water use authorizations, dam construc- jected to employ 135 workers, and generate Dan Wilcox CEO tion and reclamation plans. an annual payroll of $8.5 million. P.O. Box 231651 Mary Lasley CHIEF FINANCIAL OFFICER DEC’s permit covers waste manage- Anchorage, AK 99523-1651 Permits good for Alaska Kay Cashman PUBLISHER ment and water quality. The project has EDITORIAL Kristen Nelson EDITOR-IN-CHIEF already received DEC certification that the DNR Commissioner Mike Menge Anchorage mine will meet federal and state water praised the state’s Office of Project Sarah Hurst EDITOR (Contractor) 907.522.9469 quality standards. Management and Permitting, and the entire Susan Crane ADVERTISING DIRECTOR Canada Large Mine Permitting section for excel- [email protected] Corps wetlands permit also issued Amy Spittler SPECIAL PUBLICATIONS EDITOR lent performance throughout the permitting Curt Freeman COLUMNIST BOOKKEEPING & CIRCULATION The U.S. Army Corps of Engineers also process. “Alaskans can have every confi- 907.522.9469 Gary Park CONTRIBUTING WRITER (CANADA) issued a key wetlands permit to Vancouver, dence that operations permitted under their Circulation Email [email protected] B.C.-based NovaGold Aug. 21. guidance will be safe, clean and productive Allen Baker CONTRIBUTING WRITER Rose Ragsdale CONTRIBUTING WRITER Alaska officials say the permitting enterprises,” Menge said. ADVERTISING progress means construction could begin The state permits represent an assurance Tim Kikta COPY EDITOR 907.770.5592 on the mines in August. to residents in the Seward Peninsula histor- Judy Patrick Photography CONTRACT PHOTOGRAPHER Advertising Email [email protected] Rock Creek and Big Hurrah are six ical mining district, and throughout Alaska, Forrest Crane CONTRACT PHOTOGRAPHER miles north and 42 miles east of Nome, that modern mineral development can take Steven Merritt PRODUCTION DIRECTOR CLASSIFIEDS respectively. They are being built jointly by place in full compliance with environmen- 907.644.4444 their owner, Alaska Gold Co., a subsidiary tal safeguards, said DEC Commissioner Tom Kearney ADVERTISING DESIGN MANAGER of NovaGold which also owns part of the Kurt Fredriksson. Mapmakers Alaska CARTOGRAPHY FAX FOR ALL DEPARTMENTS Donlin Creek gold project near Crooked Gov. Frank H. Murkowski also hailed Heather Yates CIRCULATION ADMINISTRATOR 907.522.9583 Creek in Southwest Alaska, as well as other the permits as a demonstration of his Toby Arian CIRCULATION SALES REPRESENTATIVE mineral properties in Alaska and British administration’s successful efforts to work Mike Novelli BULK ELECTRONIC SUBSCRIPTIONS MGR Several of the individuals Columbia. with industry to permit projects that will Dee Cashman CIRCULATION REPRESENTATIVE listed above are independent contractors

NORTH OF 60 MINING NEWS is a monthly supplement of Petroleum News, a weekly newspaper. To subscribe to Petroleum News and receive the monthly mining supplement, call (907) 522-9469 or sign-up online at www.PetroleumNews.com. The price in the U.S. is $78 per year, which includes online access to past stories and early access to Petroleum News every week. (Canada/Mexico subscriptions are $165.95; overseas subscriptions are $200) Or, just purchase the online edition of Petroleum News, which also includes the mining supplement and online access to past stories, for $49 per year. 4 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● NORTHERN ALASKA BHP Billiton brings global view to Alaska Mining giant BHP Billiton can draw on experience operating 10 coal mines on four continents, Canada’s largest diamond mine

By ROSE RAGSDALE For Mining News

HP Billiton, the huge international mining compa- ny that Arctic Slope Regional Corp. has enlisted to help explore and develop coal deposits believed to COURTESY BHP BILLITON COURTESY

B BHP BILLITON COURTESY lie beneath its lands in northern Alaska, is an old hand in virtually every aspect of the venture. London-based Billiton is the world’s largest resource development company with 37,000 employees in 100 operations in about 25 countries and nearly $32 billion in revenue and $6.5 billion in profits in 2005 as well as $92 billion in market capitalization. Billiton is a mining industry leader in the production of aluminum, energy and metallurgical coal, copper, Three years of surface reclamation work is under way near manganese, iron ore, uranium, nickel, silver and titanium BHP Billiton’s San Juan underground coal mine near the minerals, and has substantial interests in oil, gas, lique- Navaho Indian Reservation in New Mexico. fied natural gas and diamonds. ASRC has done estimate Company works with indigenous landowners ASRC, however, has developed a resource estimate Among operations that make Billiton uniquely quali- based on its own extensive studies and some drilling fied to join forces with ASRC in the Alaska Arctic are activity. The Alaska Native regional corporation believes two coal mines, the San Juan and La Plata mines, on or the region contains 4 trillion tons of high quality bitumi- near Native American lands in New Mexico, and the nous coal — one-ninth of the world’s known coal Ekati diamond mine in the Northwest Territories. reserves and one-third of U.S. reserves — within the Billiton says it has had considerable success working Northern Alaska Coal Province, a broad belt extending with indigenous landowners, including the Navaho 300 miles eastwards from the Chukchi Sea. Nation in New Mexico and Inuit aboriginal groups in the While ARSC estimates 2 billion tons of high-rank A caribou crossing sign stands out in the snow near the Northwest Territories. Ekati diamond mine, operated by BHP Billiton in Northwest bituminous coal lies in the Western Arctic, the corpora- In New Mexico, BHP Billiton’s subsidiary, New Territories, Canada. tion has concentrated, so far, on one coal deposit in the Mexico coal, supplies two coal-fired power plants, region. This deposit, six miles from tidewater on the which deliver electricity to about 900,000 families and Company works in Arctic Canada Chukchi Sea, contains an estimated 68 million tons of businesses in the Southwest, primarily in Arizona and But why is Billiton interested in coal in Alaska’s arc- measured coal reserves for underground mining, with New Mexico. tic coal? about 23 million tons of coal suitable for surface mining The San Juan and Navaho mines together produce “BHP Billiton is a global resources company and con- nearby. about 15 million tons of coal annually and employ 946 tinues to look for attractive mining opportunities around “We estimate that through continued drilling an addi- people. The mines are on or near the Navajo Indian the world,” said spokesman Illtud Harri. “The company tional 50 to 100 million tons will become proven for this Reservation and about 65 percent of the mines’ work is already working in Arctic Canada and sees the poten- one deposit,” ARSC said. force is Native American. Billiton also funds a number tial for further expansion in Arctic Alaska, in a commod- Western Arctic Coal is a clean-burning variety with of college scholarships for the Navajo community. ity in which the company is already a world leader, as a an average of 0.23 percent sulfur, 3 percent moisture, 7 In the Northwest Territories, Billiton has operated 80 natural business extension.” percent ash and a heating value in excess of 12,000 percent owned Ekati, Canada’s first diamond mine, since Billiton has agreed to undertake an exploration pro- British thermal units per pound, according to a statement it opened in October 1998. The mine currently produces gram on ASRC acreage north of the Brooks Range in the posted on the corporation’s Web site. 6 percent of the world’s diamonds by value or 4 percent western Arctic, inland from the Inupiat communities of In addition to exploration, Billiton has committed to by weight and yields 3 million to 5 million carats annu- Point Lay and Point Hope later this year. continuing ASRC’s environmental studies of the area ally. Responding to questions Aug. 18, Harri told Mining and establishing a community consultation process. Recognized as one of Canada’s top employers, the News that it is too early for Billiton to comment on the Harri said Billiton was to begin meeting with the res- Ekati mine employs up to 2,000 workers and contractors. extent of coal resources in Alaska’s Arctic. idents of North Slope villages in the Western Arctic dur- The mine is operated under a socioeconomic agreement “This project is in its very early stages and requires ing the week of Aug 21. that gives hiring preference to Northwest Territories res- extensive exploration, technical design, and environ- Should exploration results prove positive, BHP idents and aboriginal northerners as well as other bene- mental and community programs before we will be in a Billiton will begin project concept studies to determine fits to residents of the territory. position to comment,” he said. preliminary feasibility and possible mine development. ●

continued from page 3 TRIAL

… he has to know the (gold) results have been tampered with and therefore the press releases are false and misleading.” Commission lawyer Emily Cole rejected that claim, saying the prosecution’s case rests on the authorization of the releases, which created a market for Bre-X shares and enabled Felderhof to profit from the sale of his own shares. She said Felderhof was an experienced geologist and the only Bre-X officer based in Indonesia. As such he bore the responsibility for press releases that boosted the estimates of Bre-X’s gold reserves. David Walsh founded Bre-X in 1989, but the company did not make a profit until 1993 after Walsh took the advice of Felderhof and bought the Indonesian prop- erty. The initial results yielded estimates of 17 million ounces of gold, making it the richest find to that point. Walsh moved to the Bahamas where he died in 1998 at the age of 52 of a reported brain aneurysm. ● PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 NORTH OF 60 MINING 5

● BRITISH COLUMBIA Progress made at Pebble’s sister projects British Columbia: Taseko goes it alone with Gibraltar copper-molybdenum mine, makes headway at Prosperity copper-gold project

By ROSE RAGSDALE met with success. Since March, 62 diamond drill holes, Hunter Dickinson, which is developing the For Mining News totaling 18,000 meters, have been completed. The Pebble copper-molybdenum deposit in drilling program is designed to expand information on n posting third-quarter profits, Taseko Mines Ltd., a southwest Alaska through its Northern mineral resources near current mineral reserves in subsidiary of Vancouver, B.C.-based Hunter Dynasty Ltd. subsidiary, has cited Gibraltar as order to update the geological and mine models. Work, I Dickinson, also shared the latest on its Gibraltar an example of the environmentally responsible so far, is confirming the continuity of the mineraliza- copper-molybdenum mine and its advanced-stage mining practices that the company aims to tion. It is expected that completion of modeling and Prosperity copper-porphyry project, both located in new mine plan development will allow conversion of south-central British Columbia. pursue at Pebble. additional measured and indicated resources to proven Hunter Dickinson, which is developing the Pebble and probable reserves, the company said. copper-molybdenum deposit in southwest Alaska Gibraltar expansion moves apace through its Northern Dynasty Ltd. subsidiary, has cited Feasibility study updated at Prosperity Gibraltar as an example of the environmentally respon- As of Aug. 14, work continued on the $62 million sible mining practices that the company aims to pursue expansion and upgrade to the concentrator facility at At its Prosperity gold-copper project, one of the at Pebble. Gibraltar with engineering and procurement on sched- largest undeveloped copper-gold deposits in Canada, Taseko reported earnings of $4.1 million for the ule, Taseko said. Engineering is about 30 percent com- Taseko said updating the feasibility study was pro- quarter that ended June 30, down substantially from plete, orders have been placed for major components, gressing with completion of scoping level studies for $11.6 million during the same period a year ago. and the tendering process is under way for major con- the mill redesign and mill operating and capital costs. Revenues totaled $54.8 million and $5.2 million, tractors. The project will increase annual production Additional scoping studies are under way to assess respectively, realized from sales of copper and molyb- capacity at Gibraltar to 100 million pounds of copper optimal designs of the tailings impoundment system denum. That compares with $32.3 million and $7.9 mil- from 70 million pounds by 2008. and to review mining and infrastructure costs. Meanwhile, rehabilitation of Gibraltar’s solvent lion, respectively, a year ago. The deposit is an estimated 4.4 billion-pound copper extraction and electrowinning (SX-EW) plant, which In July, Taseko said it voluntarily withdrew from its and 9.2 million-ounce gold resource, at a 0.2 percent began in April, is on schedule and on budget. The plant joint venture with Ledcor CMI Ltd. to operate the Cu cut off, according to a 1998 evaluation by G. is due on line this fall, with 7 million pounds of copper Gibraltar mine. Giroux, P.Eng. in cathode annual capacity. “Taseko will assume responsibility for all matters in The Prosperity Project Environmental Impact connection with the Gibraltar Mine with effect from Originally developed in 1972 by Placer Assessment is also well under way with ongoing Nov. 5, 2006, ” President & CEO Russell E. Hallbauer Development, predecessor to Placer Dome, Gibraltar ground and research work to complete earlier baseline said in a statement July 17. changed hands several times until Taseko acquired the data and studies in the biophysical, socio-economic, “Taseko wishes to take this opportunity to acknowl- operation in 1999. The company placed the mine on edge the significant efforts and expertise of Ledcor standby until operations resumed in 2004, amid strong archeological, and traditional use fields. The environ- throughout the re-commissioning phase and for its copper and molybdenum prices. Average prices real- mental assessment report is scheduled to be substan- exceptional services as a joint venture partner during ized for copper and molybdenum during the quarter tially complete by the spring of 2007, the company the operation of the Gibraltar facility,” Hallbauer ended June 30, were $3.08 per pound and $24.81 per said. added. pound, respectively, Taseko said. Taseko has targeted Prosperity as a major step Taseko said its 2006 drilling program at Gibraltar towards becoming a mid-tier mining company. ●

● CANADA Diamond hunters may join forces Canada’s Stornoway Diamond presses for consolidation with country’s Ashton Mining and Contact Diamond, combo value C$140M By ROSE RAGSDALE Ashton criticizes deal Stornoway’s Thomas said the deal will base and an enhanced profile. allow for greater value for Ashton share- For each common share of Ashton For Mining News The sole exception is Ashton Mining’s holders by removing market valuation Mining, Stornoway offered shareholders management. Robert T. Boyd, president tornoway Diamond Corp. of impediments inherent with the presence of either $1.25 in cash; or one common share and CEO of Ashton, told the company’s Vancouver, B.C., launched an ambi- a single majority shareholder. of Stornoway stock, plus 1 cent in cash, minority shareholders in late July that S tious bid in July that, if successful, She said Ashton also would have subject to a total cash consideration of Stornoway’s unsolicited bid is “opportunis- will create a mid-tier diamond explo- increased liquidity due to a larger number $59.5 million. tic and coercive” and urged them to take no ration and development company in of shares outstanding, a larger shareholder see HUNTERS page 6 Canada. The complex three-way combina- action until further notice. tion of Stornoway with Ashton Mining of Canada Ltd. and Contact Diamond Corp. is valued at C$140 million. Considered a significant consolidation of leading exploration companies in Canada’s growing diamond industry, the transaction would have a market capitaliza- tion of more than C$200 million, enough financial strength to pursue even more acquisitions and mergers, according to Stornoway CEO Eira Thomas. “The Canadian international diamond industry is ripe for consolidation, and we believe that the first mover will command an advantage in accessing financial resources and further merger-and-acquisi- tion opportunities,” Thomas said in announcing the deal July 24. “Small- to medium-size properties are being found and once-marginal projects are becoming increasingly attractive due to depleting industry reserves strengthening prices.” Most of the key players in the proposed combination say they are happy with the deal. That includes Contact Diamond and its 31 percent shareholder Toronto-based Agnico-Eagle Mines Ltd. and British min- ing giant Rio Tinto Ltd., which agreed to tender its 51.7 percent ownership of Ashton Mining through two subsidiaries to the bid. 6 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● NORTH AMERICA Teck Cominco posts profits, possibilities Canadian mining company enjoys soaring prices, strong results at Red Dog, progress at Pogo; walks away from hostile bid for Inco

By ROSE RAGSDALE Red Dog results unseasonably strong said its operating loss at the mine project during the first half of 2006 was $8 million. The operating loss was capi- For Mining News Teck Cominco’s quarterly earnings record is even more talized as development costs. lying high on strong commodity prices, Teck Cominco significant because it occurred during what is normally the Ltd.’s profits soared to record levels in the second company’s weakest period for zinc sales due to the season- Time for other opportunities quarter. ality of shipments from Red Dog mine, Lindsay added. F At Red Dog, zinc production in the second quarter was Teck Cominco made its original offer for Inco May 8, Despite the strong results, the Vancouver, B.C.- offering $6.4 billion in cash and 143 million of its Class B based mining company decided Aug. 16 not to pursue an similar to a year ago because 5 percent higher mill through- put was offset by lower ore grades. Lead recovery, howev- subordinate voting stock. Among other conditions, the bid outstanding hostile purchase offer for Inco Ltd., the world’s was subject to lawful termination of a support agreement second largest nickel producer. er, increased 2.8 percentage points to 61.3 percent. The 2006 shipping season began July 15, with planned ship- between the Inco/Falconbridge Ltd. merger, and Inco’s Teck Cominco disclosed the reversal one day after takeover bid for Falconbridge being withdrawn or termi- announcing plans to sweeten its original buyout offer to ments of 1 million tonnes of zinc concentrate and 216,000 tonnes of lead concentrate, similar to 2005. nated. about C$89 a share. The move came less than 24 hours Inco’s management rejected the offer, which was valued before its bid was due to expire. Commissioning under way at Pogo at C$78.50 per share. Meanwhile, the company reported income of $613 mil- Teck Cominco persisted in hopes of winning over Teck Cominco also reported significant progress during lion, or $2.95 per share, for the second quarter. That’s enough Inco shareholders. On July 21, the company the quarter in commissioning the mine and mill at the Pogo almost triple the $225 million, or $1.11 per share, that it extended the expiration date of its buyout offer to Aug. 16. gold mine it operates near Delta Junction. Installation of the posted for the same period in 2005. Teck Cominco also announced plans Aug. 15 to sweeten its underground ore conveying system is under way. Revenues for the quarter also climbed to $1.546 billion, bid to about C$89 per share. Optimization of the mill grinding and flotation circuits is up 56 percent from $994 million a year ago. Average cash “While we received strong support from a large number ongoing, with recovery surpassing 85 percent. The mill has prices on the London Metal Exchange for copper and zinc of institutional investors, in the end we could not complete reached its design rate of 2,500 tonnes per day for short were $3.27 and $1.49 per pound, respectively, up signifi- the proposed equity offering on terms that made sense for periods of time, but throughput is still limited by tailings fil- cantly from $1.54 and 58 cents per pound, respectively, a Teck Cominco,” Lindsay said in a statement Aug. 16. tration capacity and associated bottlenecks with the paste year ago. “Accordingly, we will not amend or extend our bid for backfill system, with production expected to range between “Over the last 12 months to June 30, we’ve generated $2 Inco. We will now pursue some of the many other opportu- 60-70 percent of design capacity until filter plant modifica- billion of net earnings during a period when LME copper nities we see to grow Teck Cominco and to add value for tions are completed. A third pressure filter has been ordered and zinc prices averaged $2.29 a pound and $0.96 a pound, our shareholders, both through enhancements to our exist- and is expected to arrive on site in the third quarter. Full respectively … significantly higher than those in the previ- ing assets and through acquisitions,” the company president production is anticipated in the first quarter of 2007. ous 12 months,” Teck Cominco President and CEO Don added. ● Lindsay said July 24. Teck Cominco, which owns a 41 percent share of Pogo,

continued from page 5 No majority shareholder ing projects that cover the spectrum from venture partners controlled more than early stage reconnaissance to advanced 304,251 acres of mineral rights in the If the deal is approved by all parties HUNTERS evaluation. NWT and Nunavut. involved, Agnico-Eagle will own 14 per- Ashton has been exploring for dia- Ashton’s most ambitious project is a cent of the new company. Stornoway cur- In response, Ashton formed a special monds in the Slave craton region of the $29 million program currently under way rent shareholders will hold 49 percent, committee of independent directors to eval- Northwest Territories and Nunavut since in Quebec to collect a 10,000 tonne bulk Rio Tinto and Ashton will each hold 15 uate the proposal and other viable alterna- the corporation was established in 1993. sample from the Renard project. percent and Contact will hold 7 percent. tives. Ashton retained National Bank During this time, Ashton has evaluated Ashton’s competitive advantages, In addition, the combined company Financial and Borden Ladner Gervais LLP more than 6 million acres of claims in according to Stornoway, include exten- will own a 50 percent interest in the for advice, and was expected to report to joint venture with 40 different partners. sive diamond exploration experience and Renard diamond project in northern the stockholders by Aug. 25. Ashton also has conducted extensive the acknowledged expertise of its key Quebec, as well as advanced diamond Contact Diamond stockholders will get regional reconnaissance programs personnel, as well as the corporation’s exploration projects in Nunavut, Alberta 0.36 of a Stornoway share for each Contact encompassing 263,500 square miles in comprehensive diamond processing and and along the northern Ontario border share, a deal worth about 45 cents a share. both territories over a variety of geologi- laboratory facilities in North Vancouver, with Quebec. Contact’s controlling shareholder, cal terrains. B.C. These facilities include a five-tonne- In announcing the bid Stornoway said Agnico-Eagle, has agreed to tender its 13.8 per-hour dense media separation plant, an Ashton Mining is widely recognized as million shares, or 31 percent of the compa- Ashton exploration success X-ray sorter unit, a caustic dissolution cir- the leading and pre-eminent explorer in ny, to the bid. cuit and a fully-equipped indicator miner- the Canadian diamond industry. Ashton Ashton’s programs of heavy mineral The transaction also is subject to the sampling, geophysical surveys and al and diamond observation laboratory. approval of Canadian regulators. enjoys an outstanding record of discover- ies and a diversified portfolio of promis- drilling have resulted in the discovery of a total of 15 kimberlites through April Another promising portfolio 2005. Twelve of these kimberlites are dia- Contact Diamond brings to the deal mondiferous and five have been the sub- properties in Ontario, Quebec, the ject of mini-bulk sampling programs Northwest Territories and Nunavut. which collected one tonne of material or Contact has said its overriding objective more. as a company was to rapidly enter into In addition to numerous 100 percent development of a new Canadian diamond owned properties in Nunavut and the mine, whether through discovery, acquisi- Northwest Territories, Ashton is currently tion or joint venture. working in joint ventures or under option In addition to its 100-percent-owned agreements with a number of exploration Timiskaming project in Ontario and companies to seek diamonds in the two Quebec, Contact currently has a total of arctic territories. These include the three joint venture projects with partners Kikerk Lake, Cross Property, Roundrock Trigon and Stornoway. and Star Property joint ventures. Stornoway also has exposure to close As of July 2006, Ashton and its joint to 18 million acres of prospective dia- mond properties in under-explored regions of northern Canada and Africa. Seventeen separate project areas in Nunavut, Alberta, Manitoba, the Northwest Territories and Botswana make up the land package. Since 2000, the company has been involved in the discovery of 62 kimber- lites, 31 of which have proven diamondif- erous. Under the deal, Stornoway’s Thomas will remain CEO and director of the merged company and Catherine McLeod Seltzer will continue as chairman, while Contact Diamond’s CEO Matt Manson will become president. ● PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 NORTH OF 60 MINING 7

● BRITISH COLUMBIA Interest up in B.C. uranium claims One Vancouver junior files exploration application, while others jockey for position to exploit historic prospects in province

By ROSE RAGSDALE Boss International has said the For Mining News Blizzard deposit may be amenable nlike its neighbors to the north and to exploitation by widely used, low east, the western Canadian environmental impact, in situ U province of British Columbia is solution recovery processes, ISL widely regarded as an unlikely place to uncover commercial quantities of recovery, involving only minimal uranium. surface disturbance. But that isn’t deterring a small group of companies from organizing explo- tiating acquisition of the remainder of ration of the few known prospects in the the Cup Lake/Donen Group claims. province. The impetus: The global market for Boss takes on Blizzard uranium has accelerated rapidly in recent Boss International announced acqui- years as stores of uranium worldwide sition July 28 of the Blizzard uranium have been depleted and prices have claim in the Greenwood Mining climbed. Uranium prices have surged Division in south-central British almost fourfold in the past three years. Columbia and certain surrounding min- At least three Vancouver, B.C.-based eral claims in a deal worth $105 million. juniors, International Montoro Resources The company was formed and acquired Inc., newly formed Boss International the Blizzard property in a complex Gold Corp. and International Ranger transaction involving Santoy Resources Corp. have announced plans this summer Ltd., Sparton Resources Ltd. and two to seek commercial uranium deposits in individuals, Anthony Beruschi and separate ventures in British Columbia. Adam Travis. The Blizzard claim contains an his- Ranger pursues Foghorn toric indicated uranium resource. A But only International Ranger has “basal-type”, hydrogenic paleochannel applied for an exploration permit, accord- deposit, Blizzard is estimated to have an ing to Eric Partridge, assistant deputy indicated resource of 1.9 million tonnes minister of Mining and Minerals for the of uranium, grading 0.25 percent to B.C. government. yield 4.73 million kilograms of urani- “This is the first company in a long um, according to results reported in time to express an interest in uranium 1979. exploration in British Columbia,” The property was never placed into Partridge said in an interview. “We under- production due to a moratorium on stand that one other company is thinking exploration and development of urani- about it but they haven’t filed an applica- um resources imposed by the B.C. gov- tion.” ernment in 1980. Partridge said the B.C. government vidual. Ballistic 2 mineral claims in the By the 1990s, that moratorium had has a lot of geoscience data that indicates A new technical report estimated the Greenwood Mining Division in south- expired. But it took a strong uranium there are not a lot of economically viable Foghorn project’s reserve at 1.56 million central British Columbia. The 63-acre market to ignite new interest in uranium deposits of uranium in the province. tonnes, grading 1.76 pounds of U308 ura- Ballistic claims are part of the Cup exploration and development in British An intrepid few, however, appear to be nium per tonne, or 2.75 million pounds, Lake/Donen Group, an historic indicat- Columbia. undeterred. and 2.3 million tonnes, averaging 21.3 ed resource with more than 2.25 million Boss International has said the In addition to seeking an exploration percent CaF2 (fluorite). tonnes grading 0.037 percent to yield Blizzard deposit may be amenable to permit, International Ranger increased its 839,620 kilograms of uranium. exploitation by widely used, low envi- land position in June by optioning about Montoro goes ‘Ballistic’ International Montoro, which owns ronmental impact, in situ solution 5,098 acres in the “Sunrise” group of International Montoro said Aug. 3 it mining properties in four other recovery processes, ISL recovery, claims, adjacent to its Foghorn has completed a cash and stock pur- Canadian provinces including uranium- involving only minimal surface distur- Polymetalic project, from a private indi- chase of the Go Ballistic and Go rich Saskatchewan, said it is also nego- bance. ●

8 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● GUEST COLUMN NUNAVUT Jericho diamond mine opens in Nunavut Environmentalists Tahera Diamond Corp. celebrated the opening Aug. 17 of Jericho, Canada’s third operating diamond mine and the first diamond mining venture to come online in the arctic territory of Nunavut. Just across the Northwest Territories border about 260 miles from Yellowknife, take two hits Jericho will eventually produce 375,000 carats of diamonds a year to yield 2.6 million carats over the initial eight-year life of the mine. Tiffany & Co., a mar- By J.P. TANGEN keting and financing partner in the venture, has first dibs on the mine’s output, as Guest Columnist Mining well as a contract to market any remaining stones for Tahera, a Toronto-based jun- & the law ior mining company. wo judicial rulings have been handed Canadian Prime Minister Stephen Harper attended opening ceremonies and down recently which bode well for The author, J.P. praised the mine’s developers for providing jobs and benefits for the people of T the future of mining activities in Tangen has been Nunavut. Alaska. practicing mining The first concerns the Kensington Mine law in Alaska Open-pit mine will employ 125-175 north of Juneau. In June of 2005, after 17 since 1975. He can be reached at years of trying, the operators obtained all J.P. TANGEN Jericho is expected to employ 125-175 workers in the open-pit mining opera- [email protected] tion. It will process up to 2,000 tonnes of ore a day, with an average yield of 1,700 the permits necessary to start mining. The Southeast Alaska Conservation Council or visit his Web site at carats of diamonds worth $85-$100 per carat at current prices. Last year, rough www.jptangen.com. His opinions do not stones worldwide sold for $84 a carat on average. then sued to challenge the dredge and fill permit issued by the U.S. Army Corps of necessarily reflect those of the publishers One-tenth the size of Ekati and Diavik, Canada’s two other operating diamond of Mining News and Petroleum News. mines in the Northwest Territories, the C$120 million Jericho project is viewed as Engineers. The so-called “404” permit was a potential model for future diamond mining development in the Arctic. Its lower suspended temporarily in order to allow the Corps to make some refinements, and early the EPA should have jurisdiction. This is a capital costs and rapid development timetable bode well for the venture’s prof- novel theory that would change the com- itability. this summer the revised permit was issued. The Federal District Court reviewed the plexion of the statute. —ROSE RAGSDALE amended permit and declared that it met Ironically, the disposal of tailings into the statutory requirements, essentially giv- Lower Slate Lake would enhance the habi- SOUTHCENTRAL ALASKA ing the operators a green light to start min- tat of the lake when the land is reclaimed, ing. The environmental plaintiffs have because at the conclusion of mining opera- declared their intention to appeal; however, tions, the lake will be shallower and have a Full Metal takes Chickaloon coal leases an appeal is, in my opinion, unlikely to be larger surface area than it has now, mean- ing that it will play host to more fish. The A Canadian mining exploration company with projects scattered throughout successful, even in the hands of a liberal environmentalists are shooting themselves Alaska said it plans to seek coal in the sleepy community of Chickaloon. panel of judges from the Ninth Circuit in the foot with this case and have brought Full Metal Minerals (USA) Inc. was the sole bidder for about 35 square miles Court of Appeals. it solely to block mining in Alaska. of coal leases put up for sale by the Alaska Mental Health Trust. The total num- ber of leases offered for sale by the trust covered nearly 47 square miles off the Agency deference ordered by Supreme Court EPA had allowed Red Dog section of the Glenn Highway about 40 miles to exceed discharge limits north of Palmer. Rob McLeod, a founder and In 1984, the United States Supreme Some residents in the lightly populated Court handed down a decision, which has The second case is equally as frivolous. vice president of Full Metal In this case, brought by six environmental- area fear their backyard wilderness will be Minerals, said Aug. 3 that been relied upon extensively by the Ninth sullied by any coal mining nearby. Circuit, and which basically held that ists in Kivalina, the plaintiffs sought to ding Pat Owens, a member of the Chickaloon rising coal prices and the administrative agencies are entitled to great the Red Dog Mine for 1,951 violations of Community Council, said she was disap- potential to market the coal deference in their interpretation of the laws the Clean Water Act. The Federal District pointed a company was interested in the to Asian countries for use in that Congress has charged them to adminis- Court threw out the vast bulk of the claims leases. steel refining attracted the ter. In the Kensington case, the Corps as being without merit on their face. The “It’s like there goes the neighborhood,” company’s interest. reached its decision on a technical matter, remaining claims alleged that the operators she said. and when challenged reexamined the deci- had exceeded the overflow limitations from The company will pay about $91,000 a sion, made appropriate corrections and ren- a water impoundment. EPA had allowed year for the rights to explore the land, said dered its final decision. Red Dog to exceed the discharge limits Mike Franger, a senior resources manager for the trust’s land office. He expects The District Court found then that the because the agency recognized that compli- to complete the sale within the next two weeks. issuance of the permit conformed to the ance was impossible. That, however, did Rob McLeod, a founder and vice president of Full Metal Minerals, said Aug. requirements of law. If the Ninth Circuit not protect the mine from a third-party 3 that rising coal prices and the potential to market the coal to Asian countries for were to reverse the District Court, it would challenge by private citizens. Because vio- use in steel refining attracted the company’s interest. have to find that both the agency and the lations of the same standard had taken District Court were in error. place over 618 days, the allegation was that Earliest exploration this fall there were 618 separate violations. The company at the earliest would start exploring this fall, and would likely Plaintiffs also challenge Ironically, prior to the construction of need to explore for at least two years. He said the company focuses solely on agency jurisdiction the mine, this mineral-laden stream had exploration so any mining would be done by a different company. flowed unimpeded into the Bering Sea; A second reason for believing the therefore, if anything, the attempts to With the proper state and federal permits, however, the leases allow the com- District Court’s decision will stand, howev- pany to mine the coal. The trust would receive 5 percent of any coal sales, impound this stream tended to improve the er, is equally noteworthy. The environmen- quality of the runoff. While this matter is Franger said. tal plaintiffs are concerned about the fact Full Metal Minerals, which focuses on exploring in Alaska, has a dozen other still pending, it seems pretty clear that, that the Kensington Mine will be deposit- once again, the Federal District Court will projects, including drilling for zinc near the town of Chicken and for copper near ing tailings into Lower Slate Lake. The Chignik. be constrained to either go along with the Corps and the EPA take the position that responsible agency’s decision or develop a The Vancouver-based company is also exploring a gold mine in Hatcher Pass this is an activity within the jurisdiction of and a uranium deposit near Elim. The company is a wholly owned subsidiary of substantial justification for not doing so. the Corps, because, under the Clean Water In both of these cases, there is no obvi- Full Metal Minerals Ltd., a Canadian-based company traded on the Toronto stock Act, the Corps is responsible for dredge exchange. ous public benefit that will result from and fill permits. granting the relief sought. Instead, these are —THE ASSOCIATED PRESS Plaintiffs argue, on the other hand that cases that illustrate a degree of anti-mining this is a disposal of a pollutant into the fanaticism that defies reason. ● waters of the United States, and, therefore, PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 NORTH OF 60 MINING 9

● NORTHWEST ALASKA Judge denies most charges against Red Dog Kivalina village plaintiffs still hope to prove one-third of claims that Northwest Alaska mine violated federal Clean Water Act By ROSE RAGSDALE amount of effluent, or treated wastewater, into Red Dog Helvi Sandvik, president of NANA subsidiary NANA For Mining News Creek, which flows into the Wulik River. Development, said Red Dog’s earlier EPA permit Sedwick also found that Teck Cominco made three required impossible levels of compliance. federal court judge has ruled that Teck Cominco illegal discharges at the mine’s ore-loading port on the “The permit limits were very, very, very stringent. Ltd., owner and operator of the Red Dog Mine in Chukchi Sea, about 52 miles from Red Dog. Beyond drinking-water standards,” Sandvik said. A Northwest Alaska, violated the federal Clean Both sides claimed victory after the ruling. Water Act by discharging treated wastewater into a “It’s a huge relief to have this win,” said Enoch New EPA permit due in September nearby stream. Adams Jr., one of the plaintiffs. The EPA, meanwhile, has nearly completed renewal U.S. District Court Judge John Sedwick in Anchorage The plaintiffs’ attorney, Luke Cole, agreed. of Red Dog’s wastewater discharge permit and “is using found that Red Dog exceeded limits set by the federal “We’re very happy. It’s been a slog to get here,” Cole the same discharge levels in the new permit that the law in 618 claims in a lawsuit filed by a half-dozen res- said. “And we’ll prove another 1,500 or so violations at agency set out in the compliance order,” Knapp said. idents of the nearby Arctic village of Kivalina. trial.” Why? Because those levels are “still highly protective However, Sedwick denied the lawsuit’s 1,300-plus of the environment and human health,” he said. other pollution claims in his July 28 ruling. Teck Cominco: Actions were legal The EPA conducted an environmental assessment of The six plaintiffs argued that Teck Cominco, which John Knapp, general manager of the mine, said the mine’s wastewater discharge plan earlier this year owns and operates Red Dog under a development agree- Sedwick’s ruling shows that the lawsuit lacks merit. The and concluded that it will have no significant impact on ment with NANA Development Corp., discharged illegal judge denied two-thirds of the plaintiffs’ claims, he the environment. The new permit is due to be issued in amounts of pollution into the Wulik River, a stream they observed. September, according to Knapp. use for drinking water and subsistence fishing. Teck Cominco was operating the mine under a “com- Teck Cominco argued in its response to the lawsuit Red Dog is situated near Kotzebue on land owned by pliance order by consent” authorized by the U.S. that its pollution permit contained effluent limits that NANA Regional Corp., the Alaska Native regional cor- Environmental Protection Agency because the permit it were “improperly derived and not based on any require- poration for the Northwest Arctic. Kivalina lies 66 miles issued in 1998 set discharge limits “at absurdly low lev- ment of the Clean Water Act.” downstream from Red Dog. els,” Knapp said. Sedwick, however, said whether the limits were proper “The EPA granted permit levels we could attain in the is not the issue. The issue, he said, was whether the compa- Judge cites 618 violations order, and the terms of the order were met,” he said. But ny violated them. Sedwick ruled that the company violated its discharge a compliance order is a legal agreement and does not The plaintiffs seek more than $20 million in damages. ● permit 618 times by pumping more than the permissible protect companies from citizen lawsuits, he explained. —The Associated Press contributed to this report

● NORTH AMERICA NovaGold fights Barrick bid on all fronts Vancouver-based junior has projects in Alaska and British Columbia that the world’s number one gold producer would like to own

By SARAH HURST copper projects and the company’s For Mining News growth potential. There is no rationale for accepting the Barrick bid and many rea-

he board of directors of Vancouver- SARAH HURST sons to reject it,” McConnell added. based NovaGold Resources has T unanimously recommended that Barrick acquired Placer Dome in ‘05 shareholders reject the unsolicited NovaGold and Barrick became part- takeover bid by Toronto-based Barrick ners in the Donlin Creek gold project in Gold. At the same time, in mid-August, Alaska last year when Barrick acquired NovaGold filed a lawsuit against Barrick NovaGold’s former partner, Placer Dome. in the Supreme Court of British Barrick’s offer does not reflect the value Columbia. The lawsuit claims that in of NovaGold’s 70 percent ownership of making a competing bid for Pioneer Donlin Creek and “the likelihood that Metals, Barrick misused confidential Barrick will fail to meet the conditions information belonging to NovaGold. that would allow it to earn an additional 40 percent interest in the project,” NovaGold was already entangled NovaGold said in a release Aug. 14. One in a lawsuit brought by of the conditions is that Barrick must pro- Vancouver-based Pioneer over the duce a bankable feasibility study for Donlin Creek by November 2007. Grace property adjacent to “The offer is an attempt by Barrick to NovaGold’s Galore Creek project salvage its ability to earn an additional 40 in British Columbia. percent interest in the Donlin Creek proj- ect at the expense of NovaGold’s current shareholders,” McConnell said. “We were NovaGold was already entangled in a surprised that Barrick launched its hostile lawsuit brought by Vancouver-based offer for NovaGold, given that our man- Pioneer over the Grace property adjacent agement team had been in active discus- to NovaGold’s Galore Creek project in sions with Barrick for several months in British Columbia. Pioneer owns the sub- an effort to find an amicable solution to surface mineral rights to the Grace prop- Barrick’s concern with the conditions in erty and is unhappy that NovaGold hasn’t the Donlin Creek Joint Venture found any economic value there and Agreement, and to negotiate a possible wants to use the area as part of its tailings joint venture for the Galore Creek project. facility. In response to the lawsuit, NovaGold shared with Barrick confiden- NovaGold made a takeover bid for tial information about the Galore Creek Pioneer, which the latter company resis- project, including non-public exploration ted. When Barrick made its takeover bid information and plans.” for NovaGold in July, the major also offered to buy Pioneer, an offer which NovaGold: other companies interested Pioneer’s management immediately NovaGold has been solicited by and accepted. The gold coloring visible in this core from NovaGold’s Galore Creek project is chalcopyrite, a copper ore. The property also contains gold, which isn’t visible here. has initiated contact with some of the Barrick’s offer of US$14.50 per world’s largest mining companies, who NovaGold share “falls significantly short McConnell, chairman of the special com- and the full board of directors unani- have expressed an interest in considering of providing fair value to NovaGold’s mittee of NovaGold’s Board of Directors mously determined that the Barrick offer alternative transactions, the company shareholders and would deprive them of which has been established to deal with is inadequate and significantly underval- said. It advised shareholders not to tender significant upside potential,” said Gerald the takeover bid. “Our special committee ues NovaGold’s world-class gold and see TAKEOVER page 15 10 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006

● ALASKA Precious prices for precious metals Kinross Gold, Hecla Mining and Coeur d’Alene Mines react to stellar markets with record second-quarter profits

By ROSE RAGSDALE to the resource report at year-end. This ore zone is antic- Kinross is on track to meet its gold equivalent For Mining News ipated to grow in size over the next year as drilling con- production target for 2006 of 1.44 million tinues in the open-ended resource. igher metals prices contributed to record earnings in ounces at a cost of sales of $305 to $315 per In addition, ore-grade intercepts have been intersect- the second quarter across the mining spectrum. ounce for 2006. Capital expenditures are ed about 750 feet and 1,000 feet updip from the mining H Three companies heavily invested in Alaska, Coeur expected to be approximately $285 million. faces in the area known as the 5250 zone. If the ore d’Alene Mines Corp., Hecla Mining Co. and proves to be continuous between the current work area Kinross Gold Corp., posted stronger financial results for and the new intercepts, significant new tonnage could the period and noted how their Alaska properties fared. Greens Creek delivers silver, gold profits for Hecla be added to reserves, extending the life of the already Hecla Mining Co. reported second-quarter income long-lived Greens Creek mine even further, the compa- Fort Knox battles escalating of $9.1 million, or 8 cents per common share, up ny said. costs with high gold output sharply from a loss of $6.4 million during the same Kinross, owner of the Fort Knox mine near Fairbanks, period a year ago. The Coeur d’Alene, Idaho-based Kensington owner pursues posted record earnings of $65.6 million, or 19 cents per company also posted a 125 percent jump in quarterly aggressive mine development program share for the second quarter of 2006, compared with a net sales to set a record of $56.9 million. Coeur d’Alene Mines Corp. posted record earnings loss of $16.4 million in the same period last year. The Hecla said increased prices for gold, silver, zinc and of $32.6 million, or 11 cents per share, in the second results include a $2.9 million pre-tax gain on disposal dur- lead, buoyed its financial results along with the sale of quarter, up dramatically from a net loss of $1.7 million, ing the period. the Noche Buena gold exploration property in northern a year ago. The performance reflected a one-time pre- Kinross revenue totaled $252.3 million in the second Mexico, which generated a pre-tax gain of $4.4 mil- tax gain of $11.2 million on the sale of Coeur Silver quarter, up 45 percent from the same period in 2005. The lion. The gain was partially offset by a charge of $1.2 Valley and pre-tax income of $1.4 million from CSV company sold gold for an average of $625 per ounce, up million for stock option expense. operations at the Galena mine. 48 percent from a year ago. Hecla produced 1.3 million ounces of silver, while Coeur d’Alene officials said the company sold Coeur Kinross produced 385,514 gold equivalent ounces in cutting average cash cost per ounce 24 percent to Silver Valley as part of its strategy to focus future the second quarter of 2006, including 99,437 ounces at the $1.98, and 42,234 ounces of gold at an average total growth on lower cost, longer-life mines. They said Fort Knox mine near Fairbanks. Kinross remains on track cash cost per ounce of $340 during the second quarter. Coeur d’Alene’s performance also benefited from high- to produce approximately 1.44 million gold equivalent Hecla holds a 29.73 percent interest in the Greens er silver production totaling 3.5 million ounces, lower ounces for the year. Creek silver mine, a joint venture with Rio Tinto, on per-ounce cash production costs for silver, and sharply Cost of sales of $311 per ounce on 403,507 gold equiv- Admiralty Island near Juneau. higher realized prices for silver and gold. Gold output alent ounces sold remains in line with projections of $305 Hecla’s share of second-quarter production at totaled 29,097 ounces for the quarter. to $315 per ounce average cost of sales for the full year. Greens Creek included 520,750 ounces of silver at the For the first six months of 2006, the company report- low average total cash cost of negative $2.28 per ed record net income of $47 million, or 16 cents per Fort Knox output rises ounce, made possible by high prices of by-product met- diluted share, compared with a net loss of $2.8 million Production at Fort Knox rose 15 percent during the als: zinc, gold and lead. The mine also contributed for the first half of 2005. Excluding the one- time gain quarter as a result of increased tonnage and a higher 3,750 ounces of gold for Hecla’s account during the from the sale of Coeur Silver Valley, Coeur d’Alene said grade, partially offset by lower recovery as the mine three months that ended June 30. its income for the first six months of 2006 still set a processed a zone of metallurgically complex ore. record of $33.9 million, or 12 cents per diluted share. Revenues from metal sales improved by 84 percent Output down at Fort Knox as the number of ounces sold increased by Silver production has decreased at Greens Creek Construction at Kensington 26 percent and the company realized higher gold from a year ago primarily because of a 25 percent The company had $393.3 million in cash and short- prices. lower silver ore grade, a rehabilitation work program term investments as of June 30. Capital investment dur- Cost of sales increased 28 percent due to the higher completed on major underground intersections in the ing the second quarter totaled $25.7 million, $20.9 mil- number of ounces sold partially offset by the increased mine, as well as less favorable timing for accessing lion of which was spent on the Kensington gold project tonnage processed and increases in the cost of fuel and higher-grade work-faces due to development work. in Southeast Alaska. At Kensington, the company con- freight, along with higher prices for maintenance sup- Mine production was hampered in the second quar- tinued with an aggressive construction schedule. Coeur plies. ter by significant waste haulage and power outages d’Alene aims to complete the project and start produc- Kinross is on track to meet its gold equivalent pro- necessary in order to tie into the public utility services, ing gold near the end of 2007. Recent activity has duction target for 2006 of 1.44 million ounces at a cost the company said. The tonnage mined is expected to focused on construction of the mill building and com- of sales of $305 to $315 per ounce for 2006. Capital improve in the third and fourth quarters of the year. pletion of major earthworks. Kensington is expected to expenditures are expected to be approximately $285 However, the ore grade at Greens Creek would need produce 100,000 ounces of gold annually. million. Aggregate exploration and business develop- to show significant improvement for the mine to Exploration in the second quarter focused primarily ment expense is expected to be about $30 million for achieve its earlier projected level of production for the on existing properties, with an emphasis on reserve the year and reclamation and remediation expenditures year, said Hecla President and CEO Phillips S. Baker development/delineation drilling and discovery of new are expected to be $32 million. Jr. mineralization at Kensington and two other properties. Kinross said its capital investment of nearly $77 Drilling totaled about 23,000 feet at Kensington. million during the first half of 2006 included $21.5 mil- Resource up Coeur d’Alene is a leading silver producer and has a lion in costs related to accessing phase six ore zones at A successful 2006 exploration program at Greens strong presence in gold with mining interests in Fort Knox. Creek, meanwhile, has defined a new resource in the Argentina, Australia, Bolivia, Chile, and Nevada as well West Gallagher Zone that will be calculated and added as Alaska. ● PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 NORTH OF 60 MINING 11

● GUEST COLUMN Alaska project center of $1.5 billion takeover, Greens Creek silver production cost negative $2.28 per ounce, and more

ang on to your hat, the data is exploration efforts are continuing. inch wide vein returned 39.5 grams of beginning to roll in from Alaskan The Additional staking was also completed gold per tonne including a 75 foot sec- H field programs and there are some author which brings the claim block to 68 tion grading 83.4 grams of gold per hum dingers in this month’s data square miles in size. tonne. and several others will be showing up The author Full Metal Minerals said JV partner On the nearby Wackwitz Vein trench- next month. Curt Freeman, METALLICA RESOURCES recently ing discovered a new five-foot wide What’s a “hum dinger”? How about CPG #6901, is a completed drilling at its Bee Creek cop- zone averaging 16.4 grams of gold per an Alaska gold project at the center of a well-known geol- per-gold-molybdenum project on the tonne over 235 feet including 85 feet $1.5 billion corporate takeover by the ogist who lives in Alaska Peninsula. Results are pending. grading 34.8 grams of gold per tonne. In world’s largest gold producer? Or how Fairbanks. He pre- Full Metal Minerals also said JV part- addition, a newly discovered 10 to 15- about 75 feet grading more than 2 pared this column CURT FREEMAN ner TRIEX MINERALS recently com- plus foot wide shear zone 50 feet to the ounces of gold per ton? Or maybe silver Aug. 18. Freeman can be reached by pleted drilling at its Boulder Creek ura- south of the Wackwitz vein returned 2.2 production costs of a negative $2.28 per mail at P.O. Box 80268, Fairbanks, AK nium project on the Seward Peninsula. grams of gold per tonne over 220 feet. ounce? 99708. His work phone number at Results are pending. The company plans to conduct an addi- But wait, there’s more — if you act Avalon Development is (907) 457-5159 tional 2,500 feet of trenching and collect and his fax is (907) 455-8069. His email now you’ll receive free…sorry I’ve got- Eastern Interior a 10,000-ton bulk sample from three of is [email protected] and his web site is ten carried away. Read on and decide if the previously completed trenches. www.avalonalaska.com. KINROSS GOLD announced second ‘hum dinger” says it all! quarter results from the Fort Knox mine Full Metal Minerals said it has started drilling on its Fortymile gold project depth. The 2006 drilling program will near Fairbanks. The mine produced Western Alaska near Chicken. The 800,000-acre property focus on expanding known mineraliza- 99,437 ounces of gold at a cost of $267 is under option from Doyon Ltd. The biggest news in the last month tion along strike and at depth. In addi- per ounce. Production increased 15 per- An initial five drill holes will test the was the unsolicited takeover offer for tion, surface sampling and IP geophysics cent in the second quarter of 2006 when Fish prospect where an extensive 15 to NOVAGOLD RESOURCES made by will be conducted to test for strike exten- compared to the same period in 2005 as 23 meter thick base-metal rich gossan BARRICK GOLD CORP. The two com- sions as well as new mineralized occur- a result of increased tonnage and a high- has been traced for 1,500 meters along panies are currently 70:30 partners, rences. er grade, partially offset by a lower strike, and more than 250 meters of ver- respectively, in the Donlin Creek gold Andover Ventures also said they have recovery as the mine processed a zone of tical relief. Drilling will also test the deposit. On July 24 Barrick offered acquired the Bulk Gold project in the metallurgically complex ore. $14.90 per share, valued at $1.53 billion FREEGOLD VENTURES LTD. LWM sedex prospect where intensely Nome District from ALTAR for the outstanding shares of NovaGold. announced results from trenching at its weathered massive to semi-massive sul- RESOURCES. Mineralization at the fide gossan occurs. Prior to drilling, a NovaGold’s two main assets, the Donlin Dripping Gold zone is defined by a Cleary Hill mine on their Golden detailed ground-based gravity survey Creek gold deposit and the Galore Creek 1,400 foot long soil anomaly with gold Summit project. In the eastern extension will refine the drill target at LWM. copper-gold deposit in British Columbia, values up to 5.3 grams of gold per tonne. of the Cleary Hill, trenching along 185 are the driving forces behind the offer. Arsenopyrite rich, silicified felsic meta- foot strike length of a four-inch to 18- see FREEMAN page 12 NovaGold’s directors have recommend- intrusive float, found within the zone ed that shareholders reject the offer, say- assayed up to 4.5 grams of gold per ing among other things that the buyout tonne, plus greater than 150 grams of sil- does not fully value NovaGold’s assets. ver per tonne. The imbroglio does not look like it will Additional drill targets on the proper- be resolved any time soon. ty include the 2,500 foot-long Dorothy TNR GOLD CORP. said Phase I Creek soil and rock anomaly situated results from drilling at its Shotgun proj- above the Dorothy Creek gold placer ect in Southwest Alaska consisted of and the Hed & Strand Extension target. approximately 3,976.5 feet of diamond- The Hed & Strand Extension target is drilling in 10 drill holes testing anom- along strike and down dip of the past alies at Winchester (1,475.5 feet) and producing Hed & Strand gold-antimony extensions to the Shotgun Ridge zones lode mine. (2,501 feet). Andover can earn a 100 percent inter- Hole 06-45 in the Winchester zone est in the project by incurring $2.9 mil- returned 77.5 feet grading 1.90 grams of lion in exploration expenditures over gold per tonne. Hole 06-43 in the four years, issuing 750,000 shares over Shotgun Ridge zone returned 1.29 grams three years and making option payments of gold per tonne over 690.5 feet. starting at $15,000 for the first year and Mineralized zones at Shotgun Ridge are totaling $500,000 over five years. interpreted to be dipping southwest and LINUX GOLD has begun drilling at would not have been fully tested by pre- its Granite Mountain project on the vious drilling. Estimated Inferred Seward Peninsula. Hole KW06-01 on Resources at Shotgun Ridge are 980,000 the Gossan Ridge prospect was drilled ounces grading 0.93 grams of gold per vertically to 870 feet and encountered tonne at a 0.5 gram per tonne cut-off. sheared and veined altered intermediate BRETT RESOURCES has nearly volcaniclastic andesite country rock and completed core drilling at its Sleitat interbedded felsic rhyolite to rhyodacite Mountain tin project northeast of units. Sericite alteration is more common Dillingham. The program is aimed at in the upper part of the hole while potas- confirming and expanding historic sic alteration increases at depth. Felsic resources as estimated by U.S. Bureau of units are from one to 10 feet thick and Mines (26 million tonnes in the range of well-mineralized with pyrite, pyrrhotite 0.22 percent-0.37 percent tin with 17 and bismuthinite in carbonate-altered grams of silver per tonne). Results are quartz veins and veinlets and as dissemi- pending. nated grains. ANDOVER VENTURES and FULL The mineralized intervals are numer- METAL MINERALS have begun a 750 ous and occur in stacked sets over the meter diamond drilling and surface entire drilled section. It is estimated that exploration program at the Kamishak 80 percent to 85 percent of the entire copper project on the Alaska Peninsula. drilled section is mineralized. The intru- Interpretation of the historic drilling sive rocks are also mineralized with dis- suggests that the previously discovered seminated pyrite replacing biotite and breccia pipe mineralization is open for pyrite and bismuthinite in quartz-carbon- expansion to the west and east and to ate veinlets. Drilling and reconnaissance 12 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 continued from page 11 FREEMAN

Alaska Range NEVADA STAR RESOURCE CORP. said Anglo American Exploration (USA) Inc. has withdrawn from its joint venture on Nevada Star’s MAN Alaska project in the central Alaska Range. The joint venture effort over the last two years consisted of $3 million worth of exploration on the Fish Lake and Dunite Hill prospects. Work funded dur- FREEMAN, CURT COURTESY DEVELOPMENT AVALON ing this period included geophysical and geochemical surveys and 10,281 feet of diamond drilling on the Fish Lake prospect. Nevada Star indicated that it was reviewing the results of the 2006 drilling program prior to determining how to proceed on additional project explo- ration. Full Metal Minerals said it has expanded exploration efforts at its Lucky Shot gold project near Anchorage. The company has added an additional drilling rig to the program and has increased the program from 60 to 80 holes totaling 15,000 meters. Full Metal Minerals said the ALASKA The historic Goodnews Bay Mining Co. platinum dredge on the Salmon River in the Goodnews Bay District in southwest Alaska. This dredge ran every year from 1937 to 1975 and less frequently from 1976 to 1984. It is currently owned by Spokane-based Hanson MENTAL HEALTH TRUST had awarded Industries, which is looking to put it back into operation. At the same time, Vancouver-based Pacific North West Capital is conducting it the 22,647 acre Chickaloon Coal lease lode platinum exploration on Alaska Native corporation Calista’s lands adjacent to Hanson’s holdings. in Southcentral Alaska. These coals exhibit ranks ranging from high volatile Full Metal Minerals announced a Total production costs for the quarter reported that several multi-ounce gold “A” bituminous to semi-anthracite, with 1,000-meter drill program, in six holes, were $1.22 per ounce of silver produced, surface outcrop and rubble samples were the rank of medium to low volatile bitu- is planned at is Coal Creek tin project in down significantly from the $3.54 per recovered during sampling at its minous being the dominant rank. The the southern Alaska Range. The program ounce cost of the year previous figures. Woewodski Island project in Southeast greater proportion of the coals is of high- is designed to upgrade previously esti- Silver production has decreased from a Alaska. Sample grades from metallic value coking quality. mated resources of 4.9 million tonnes year ago primarily because of a 25 per- screen fire assays range from 0.021 Coal was mined from six different grading 0.27 percent tin with minor cent lower silver ore grade, a rehabilita- ounces of gold per ton to 14.27 ounces operations in the Chickaloon area from tungsten. tion work program completed on major of gold per ton. High-grade quartz with 1905 to 1922 and from 1958 to 1960. underground intersections in the mine, visible gold has been located in float and There has been no significant production Southeast Alaska and less favorable timing for accessing narrow bedrock veins along 400 meters and minimal exploration from this high KENNECOTT (70.3 percent) and higher-grade working faces due to devel- of Blue Quartz Creek. Similar narrow quality coal field since. At least four coal HECLA (29.7 percent) announced sec- opment work. veins elsewhere on the island are hosted seams have been identified on surface ond quarter 2006 production from the Mine production was hampered in the in east-northeast trending sub-parallel and at past-producing operations, vary- Greens Creek mine on Admiralty Island. second quarter by significant waste structures up to 10 meters in width. ing in thickness from 1.5 meters to 7 The cash cost per ounce of silver at haulage and power outages necessary in Additional work is under way to deter- meters. They occur within the Greens Creek for the quarter was a nega- order to tie into the public utility servic- mine the extent of mineralization and Chickaloon Formation, a Paleocene to tive $2.28 per ounce of silver (yes, es. This year’s exploration program has develop drill targets. Eocene-aged sedimentary sequence that minus $2.28 per ounce), indicating that defined a new resource in the West NIBLACK MINING announced addi- hosts all the coal measures in the other metals (gold, lead and zinc) more Gallagher Zone that will be reported at tional results from its Niblack massive Matanuska Valley. than paid for the cost of production dur- year end. This ore zone remains open to sulfide project in Southeast Alaska. Coal seams are commonly structurally ing the quarter. expansion. Hole LO-165 intersected three distinct thickened along the hinges of major The average grade of ore mined dur- In addition, ore-grade intercepts have massive to semi-massive sulfide hori- folds. Increased structural deformation to ing the quarter was 13.73 ounces of sil- been intersected approximately 750 feet zons separated by zones of stringer and the east within the Matanuska Valley has ver per ton, down nearly 4 ounces per and 1,000 feet up dip from the mining disseminated mineralization. The entire resulted in a progressive increase in coal tonne over the same period in 2005. faces in the area known as the 5250 interval totals 56.02 meters of 2.94 rank to the east. The company plans to During the second quarter the mine pro- zone. If the ore proves to be continuous grams of gold per tonne, 48 grams of sil- conduct drilling this year in addition to duced 1,751,597 ounces of silver, 12,613 between the current work area and the ver per tonne, 0.92 percent copper and surface mapping, sampling, and possibly ounces of gold, 4,022 tons of lead and new intercepts, significant new tonnage 2.70 percent zinc over a true width of geophysics. 12,408 tons of zinc. could be added to reserves. approximately 53 meters. This hole and COEUR D’ALENE MINES had some several others reported, extend the min- welcome news for its Kensington mine eralization in the Lookout zone to 150 project last month. meters down plunge. First off, the U.S. District Court for Drill hole LO-168, drilled 100 feet up the State of Alaska has dismissed a suit dip of LO-165, intersected 53.19 meters challenging the company’s U.S. Army grading 3.85 grams of gold per tonne, 59 Corps of Engineers 404 permit relating grams of silver per tonne, 0.80 percent to tailings disposal. copper and 3.56 percent zinc. Hole LO- The company also was notified that 171, drilled a further 100 feet up dip of the Kensington project has been chosen LO-165 and LO-168, yielded 3.96 to receive the prestigious 2006 Hardrock meters of 2.86 grams of gold per tonne, Mineral Community Outreach and 71 grams of silver per tonne, 0.63 per- Economic Security Award presented by cent copper and 15.05 percent zinc. the U.S. Bureau of Land Management. In addition, a new zone of base metal The award is given to hardrock mining massive sulfides was intersected at the projects that have shown responsible Mammoth zone where hole LO-174 mineral resource development while intersected 18.65 meters of semi-massive demonstrating an understanding of sus- and massive sulfide grading 0.47 percent tainable development. copper, including 4.33 meters grading Meanwhile back at the farm, capital 1.01 percent copper. Drilling has also investment at Kensington in the second identified a near surface gold-oxide zone quarter totaled $20.9 million. Recent at Lookout where hole LO-175 intersect- activity has focused on construction of ed 27 meters grading 3.12 grams of gold the mill building and completion of per tonne and 89 grams of silver per major earthworks. Development drilling tonne, in addition to 4.60 meters grading during the second quarter totaled 23,000 11.99 grams of gold per tonne and 125 feet. grams of silver per tonne. Additional BRAVO VENTURE GROUP INC. drilling is under way. ● Companies involved in Alaska and DIRECTORY northwestern Canada’s mining industry

The Red Dog mine in northwest Alaska.

Mining Companies Usibelli Coal Mine is headquartered in Healy, Alaska and equipment and tool manufacturers. has 200 million tons of proven coal reserves. Usibelli pro- duced one million tons of sub-bituminous coal this year. Alaska Cover-All Fairbanks Gold Mining/Fort Knox Gold Mine 6740 Jollipan Crt. Fairbanks, AK 99707 Service, Supply & Equipment Anchorage, AK 99507 Contact: Lorna Shaw, community affairs director Contact: Paul Nelson, mgr. Phone: (907) 488-4653 • Fax: (907) 490-2250 Phone: (907) 346-1319 Ace Transport Email: [email protected] Fax: (907) 346-4400 Anchorage, AK 99502 Web site: www.kinross.com E-mail: [email protected] Contact: Henry Minich, owner Located 25 miles northeast of Fairbanks, Fort Knox is Contact: Scott Coon Phone: (907) 243-2852 • Phone: (907) 229-9647 (cell) Alaska’s largest operating gold mine, producing 340,000 Phone: (907) 646-1219 Fax: (907) 245-8930 • Email: [email protected] ounces of gold in 2004. Fax: (907) 646-1253 Specializing in heavy hauling. Equipment includes 85-ton Email: [email protected] lowboy. Rimfire Minerals Corp. National Call Center: 1-800-268-3768 Vancover, BC V6C 1G8 Canada Aeromed International We are the Alaska dealers for Cover-All Building Systems. Contact: Lisa May, Mkt. Coordinator Steel framed, fully engineered, LDPE fabric covered, Phone: (604) 669-6660 Anchorage, AK 99503 Contact: Brooks Wall, director portable buildings in 18 to 270 foot widths and any Fax: (604) 669-0898 length. Email: lisam#rimfire.bc.ca Phone: (907) 677-7501 • Fax: (907) 677-7502 Email: [email protected] Web site: www.rimfire.bc.ca Alaska Earth Sciences Web site: www.ykhc.org Gold and silver projects in Alaska, Yukon, BC and Nevada. Anchorage, AK 99515 Aeromed International is an all jet critical care air ambu- Preferred partner of senior mining firms. Partnered with Contact: Bill Ellis, Rob Retherford lance fleet based in Anchorage. Medical crews are certi- the world’s three largest gold producers. or Dave Lappi, owners fied Flight Nurses and certified Flight Paramedics. Phone: (907) 522-4664 • Fax: (907) 349-3557 Usibelli Coal Mine Air Liquide Email: [email protected] Fairbanks, AK 99701 A full service exploration group that applies earth sciences Contact: Bill Brophy, vp cust. relations Anchorage, AK 99518 Contact: Brian Benson for the mining and petroleum industries providing Phone: (907) 452-2625 • Fax: (907) 451-6543 prospect generation, evaluation and valuation, explo- Email: [email protected] • Web site: www.usibelli.com Phone: (907) 273-9762 • Fax: (907) 561-8364 Email: [email protected] ration concepts, project management, geographic infor- Other Office mation systems and data management. We also provide P. O. Box 1000 • Healy, AK 99743 Air Liquide sells, rents, and is the warranty station for Lincoln, Miller, Milwaukee, Victor and most other welding Phone: (907) 683-2226 see next page 14 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 camp support and logistics, geologic, geochemical and MRO Sales geophysical surveys. Anchorage, AK 99518 Advertiser Index Contact: Don Powell Alaska Frontier Constructors Phone: (907) 248-8808 • Fax: (907) 248-8878 P.O. Box 224889 Ace Transport ...... 4 Email: [email protected] Anchorage, AK 99522-4889 Aeromed International Website: www.mrosalesinc.com Contact: John Ellsworth, President Air Liquide MRO Sales offers products and services that can help solve Phone: (907) 562-5303 Alaska Cover-All ...... 6 Fax: (907) 562-5309 Alaska Earth Sciences ...... 6 the time problem on hard to find items. Email: [email protected] Alaska Frontier Constructors ...... 7 Northern Air Cargo Alaskan heavy civil construction company specializing in Alaska Interstate Construction (AIC) 3900 W. International Airport Rd. Arctic and remote site development with the experi- Alaska Steel Co. Anchorage, AK 99502 ence, equipment and personnel to safely and efficiently Arctic Controls complete your project. Contact: Mark Liland, acct. mgr. Anch./Prudhoe Bay Arctic Foundations Phone: (907) 249-5149 Chiulista Camp Services/Mayflower Catering . . .10 Alaska Interstate Construction (AIC) Fax: (907) 249-5194 601 West 5th Avenue, Suite 400 CN Aquatrain Email: [email protected] Anchorage, Alaska 99501 Construction Machinery ...... 16 Website: www.nac.aero Contact: David Thomas Egli Air Haul ...... 12 Phone: (907) 562-2792 • Fax: (907) 562-4179 Fairbanks Gold Mining/Fort Knox Gold Mine . . . .5 Serving the aviation needs of rural Alaska for almost 50 Email: [email protected] • Web site: www.aicllc.com Jackovich Industrial & Construction Supply ...... 3 years, NAC is the states largest all cargo carrier moving AIC provides cost-effective solutions to resource develop- Judy Patrick Photography nearly 100 million pounds of cargo on scheduled flights to ment industries. We provide innovative ideas to meet Lynden 17 of Alaska’s busiest airports. NAC’s fleet of DC-6, B-727, each requirement through the provision of best-in-class MRO Sales ...... 15 and ATR-42 aircraft are available for charters to remote people and equipment coupled with exceptional perform- Northern Air Cargo ...... 2 sites and flag stops to 44 additional communities. ance. Pacific Power Products ...... 8 Pacific Rim Geological Consulting ...... 12 Pacific Power Products Alaska Steel Co. PTI Group Anchorage, AK 99507 1200 W. Dowling Rimfire Minerals Corp...... 8 Phone: (907) 522-3434 • Fax: (907) 522-1198 Anchorage, AK 99518 Web site: www.pacificdda.com Contact: Joe Lombardo, vice president Unitech of Alaska Other office: Fairbanks, AK 99709 Phone: (907) 561-1188 Usibelli Coal Mine ...... 11 In Alaska, we are distributors for Detroit Diesel, Allison Toll free: (800) 770-0969 (AK only) U.S. Bearings & Drives Fax: (907) 561-2935 Veco and Kohler. We have served Alaska for over 30 years with Email: [email protected] quality products for the petroleum industry. Fairbanks Office: Pacific Rim Geological Consulting 2800 South Cushman Email: [email protected] Contact: Dan Socha, branch mgr. Web site: www.cmiak.com Fairbanks, AK 99708 Phone: (907) 456-2719 Other Offices: Contact: Thomas Bundtzen, president Fax: (907) 451-0449 Fairbanks office Phone: (907) 458-8951 • Fax: (907) 458-8511 Kenai Office: Phone: 907-455-9600 • Fax: 907-455-9700 Email: [email protected] 205 Trading Bay Rd. Juneau office Geologic mapping, metallic minerals exploration and Contact: Will Bolz, branch mgr. Phone: 907-780-4030 • Fax: 907-780-4800 industrial minerals analysis or assessment. Phone: (907) 283-3880 Ketchican office Fax: (907) 283-3759 Phone: 907-247-2228 • Fax: 907-247-2228 PTI Group Full-line steel and aluminum distributor. Complete pro- Wasilla Office Edmonton, AB, Canada T6N 1C8 cessing capabilities, statewide service. Specializing in Phone: 907-376-7991 • Fax: 907-376-7971 Phone: (800) 314-2695 • Fax: (780) 463-1015 low temperature steel and wear plate. Egli Air Haul Email: [email protected] Website: www.ptigroup.com Arctic Controls P.O. Box 169 Anchorage, AK 99501 King Salmon, AK 99613. PTI Group Inc. is the premium supplier of integrated Contact: Scott Stewart, president Contact: Sam Egli remote site services. Offering full turnkey packages or Phone: (907) 277-7555 • Fax: (907) 277-9295 Phone: (907) 246-3554 individual services such as construction, catering and Email: [email protected] Fax: (907) 246-3654 wastewater treatment, PTI delivers above and beyond Website: www.arcticcontrols.com Email: [email protected] client expectations. An Alaskan owned and operated company since,1985, Web site: www.egliair.com Arctic Controls has been highly successful as manufacturer Serving Alaska since 1982, we perform a wide variety of Unitech of Alaska representatives for the state of Alaska in the Process flight operations, including airplane and helicopter Anchorage, AK 99507 Control and Instrumentation field. charter, aerial survey, and specialized operations such as Contact: Debbie Hawley external load work, powerline maintenance, aerial film- Phone: (907) 349-5142 Arctic Foundations ing and videography. Phone: (800) 649-5859 Anchorage, AK 99518-1667 Fax: (907) 349-2733 Contact: Ed Yarmak Jackovich Industrial & Construction Supply Email: [email protected] Phone: (907) 562-2741 • Fax: (907) 562-0153 Fairbanks, AK 99707 Email: [email protected] Contact: Buz Jackovich Email: [email protected] Website: www.arcticfoundations.com Phone: (907) 456-4414 • Fax: (907) 452-4846 UOA is Alaska’s only 24-hour oil spill remediation, environ- Soil stabilization – frozen barrier and frozen core dams to Anchorage office mental and industrial supply company. Specialty areas control hazardous waste and water movement. Phone: (907) 277-1406 • Fax: (907) 258-1700 include sorbents, geotextile, containment berms, drums Foundations – maintain permafrost for durable high 24- hour emergency service. With 30 years of experience, and ice melt. capacity foundations. we’re experts on arctic conditions and extreme weather. U.S. Bearings & Drives Chiulista Camp Services/Mayflower Catering Judy Patrick Photography Anchorage, AK 99518 Anchorage, AK 99501 Anchorage, AK 99507 Contact: Dena Kelley, branch mgr. Contact: Judy Patrick Contact: George B. Gardner, pres/gm Phone: (907) 563-3000 • Fax: (907) 563-1003 Phone: (907) 258-4704 • Fax: (907) 258-4706 Phone: (907) 278-2208 • Fax: (907) 677-7261 Email: [email protected] • Web site: Email: [email protected] Email: [email protected] www.bearings.com The 100 percent Alaska Native owned and operated cater- Website: JudyPatrickPhotography.com U.S. Bearings & Drives has been providing solutions to it ing company on the North Slope, catering and house- Creative images for the resource development industry. keeping to your tastes, not ours. customers for over 25 years. We offer quality components, Lynden name brands and highly trained personnel. CN Aquatrain Alaska Marine Lines • Alaska Railbelt Marine Anchorage, AK Alaska West Express • Lynden Air Cargo VECO Contact: Laurie A. Gray, agent Lynden Air Freight • Lynden International 949 E. 36th Ave., Ste. 500 Phone: (907) 279-3131 Lynden Logistics • Lynden Transport Anchorage, AK 99508 Toll Free: (800) 999-0541 • Fax: (907) 272-3963 Anchorage, AK 99502 Contact: Emily Cross CN Aquatrain has provided Alaska with dependable access Contact: Jeanine St. John Phone: (907) 762-1510 Phone: (907) 245-1544 • Fax: (907) 245-1744 to Canadian and Lower 48 markets for 38 years. Fax: (907) 762-1001 Email: [email protected] Email: [email protected] Construction Machinery The combined scope of the Lynden companies includes 5400 Homer Dr. truckload and less-than-truckload highway connections, Web site: www.VECO.com Anchorage, AK 99518 scheduled barges, intermodal bulk chemical hauls, sched- VECO is a multi-national corporation that provides serv- Contact: Ron Allen, Sales Manager uled and chartered air freighters, domestic and interna- ices, project management, engineering, procurement, Phone: (907) 563-3822 tional air forwarding and international sea forwarding construction, operations and maintenance – to the ener- Fax: (907) 563-1381 services. gy, resource and process industries and the public sector. PETROLEUM NEWS • WEEK OF AUGUST 27, 2006 NORTH OF 60 MINING 15

● SOUTHEAST ALASKA Coeur celebrates Kensington court ruling Judge dismisses lawsuit by environmentalists against regulators who issued permit for Juneau gold mine’s tailings disposal

By SARAH HURST For Mining News Kensington wins he president and CEO of Idaho-based Coeur d’Alene national BLM award Mines has been in Alaska to thank Gov. Frank The Bureau of Land Management will give T Murkowski and his administration for their help in Kensington the 2006 Hardrock Mineral Community staving off a lawsuit that had been threatening the Outreach and Economic Security Award, Coeur Kensington project near Juneau. Dennis Wheeler attended a d’Alene Mines announced in a release Aug. 9. press conference with Murkowski in Anchorage Aug. 7 and ALASKA COEUR COURTESY PHOTOS Traditionally BLM keeps the recipients of its sus- promised that his company would proceed with construc- tainable mineral development awards a secret until tion of the gold mine. they are presented at the National Mining U.S. District Judge James Singleton dismissed a lawsuit Association’s annual banquet in September, but in in early August that had been brought by the Southeast this case the mining company immediately publi- Alaska Conservation Council, the Sierra Club and Lynn cized the news after receiving a letter from BLM Canal Conservation. The environmental organizations were Director Kathleen Clarke. suing the U.S. Army Corps of Engineers and the U.S. Forest The award is presented to “those hardrock min- Service over the Corps’ decision to issue a 404 permit for ing projects that have shown responsible mineral disposal of tailings in Lower Slate Lake. resource development while demonstrating an The State of Alaska intervened in the lawsuit in support understanding of sustainable development,” Clarke of the Corps of Engineers. Without the support of the wrote. “We salute the effort of all employees at Murkowski administration, the Kensington project could Coeur Alaska’s Kensington gold mine for their out- not have gone forward, Wheeler said at the press confer- standing accomplishments and contributions to the ence. Coeur d’Alene spent almost a year trying to negotiate community.” with the environmentalists, but these efforts were futile, The Kensington nomination focused on Coeur according to Wheeler. “In my judgment they had no inten- d’Alene’s “multi-faceted community outreach pro- tion of entering into a collaborative process that resulted in gram that has worked closely over the years with a constructive end for the benefit of the people of Alaska, the Alaskan Native corporations based in Juneau, and they chose instead to file suit,” he said. commercial fishing organizations, environmental “I would genuinely be hopeful that the plaintiffs would groups, and recreational interests,” according to now take a step back ... and recognize that they’ve had Above, an aerial view of construction at Kensington gold mine near Juneau. Below, construction of the mine contin- Coeur spokesman Scott Lamb. Kensington was another day in court, the ruling has gone against them, and ues. The crusher building is in the foreground and the mill is nominated by Goldbelt Inc., the Juneau Native cor- they should be sitting down at the table on behalf of all in the background. poration that is building a dock to transport workers Alaskans to again attempt to settle this in a responsible to the mine. manner for the benefit of the state,” Wheeler said. The envi- “We are honored and humbled to be recognized ronmental organizations immediately announced that they by the BLM with this award,” said Dennis Wheeler, would appeal Judge Singleton’s decision to the 9th Circuit Coeur d’Alene’s president and CEO. “BLM is Court of Appeals. uniquely qualified to determine what constitutes responsible development because of its very charter, Governor: groups opposed to mining which is to sustain the health, diversity and produc- “I would hope this would be the end of litigation, but tivity of some 260 million acres of public lands for what happened here is the Sierra Club, the Southeast the use and enjoyment of present and future gener- Conservation Council and the Lynn Canal Conservation ations. Since its inception, the Kensington mine has groups, as near as I can tell really want to make sure min- been guided by principles that are entirely consis- ing doesn’t occur in southeastern Alaska, and for that mat- tent with this charter.” ter anywhere in the State of Alaska,” Murkowski said. The In 2005 Alaskan miner Jim Olmstead won a dismissal of the lawsuit is “a major milestone in advancing BLM sustainable mineral development award in the mining in Alaska,” he added. “If this project had been 100,000 ounces of gold annually when it begins operations small operator category for his reclamation work. thwarted and stopped by an environmental group, it would next year. Coeur Alaska’s 404 permit allows the mine to This year Alaska’s Chicken Creek mine nominated have clearly terminated any future major mines being discharge approximately 210,000 gallons of tailings per day itself in the small operator category. The winner in developed in the state of Alaska.” into Lower Slate Lake. The lake will be used as a storage that category has not yet been announced. The plaintiffs in the Kensington case and other interest- facility impounding the tailings. After mine closure and —SARAH HURST ed parties have worked to portray the case as a precedent- reclamation, in about 14 years’ time, the lake will have setter that could also apply to other projects, such as the expanded to approximately 62 acres from its current size of 23 acres. The discharge of tailings to the lake impoundment Pebble copper-gold project in southwest Alaska’s Bristol “Congress has deemed it appropriate to delegate to the is limited to the pre-specified volume of 4.5 million tons. Bay region. “If the Kensington mine goes forward as Administrator of Environmental Protection Agency and the Tests on the tailings show that they will not generate an planned, it will help pave the way for Pebble to dump its Secretary of the Army to coordinate their respective juris- acid discharge or metals leachate. Although most aquatic waste in waters we use for fishing. The outcome could put dictions under the Clean Water Act,” Judge Singleton wrote life in Lower Slate Lake will be lost during mining opera- our clean water and subsistence at risk,” said Bobby in his ruling. “This they have done by duly adopted regula- tions, it is expected that the lake will recover over time to Andrew of the Native non-profit organization Nunamta tions to which this Court must defer. The Corps properly provide habitat for Dolly Varden char and other aquatic Aulukestai (Caretakers of our Lands) in Dillingham. issued the permit to Coeur Alaska, Inc. under (section) 404 organisms. Kensington will be a gold mine producing an estimated of the Clean Water Act.” ●

continued from page 9 Barrick responded that the TAKEOVER lawsuit filed against it by NovaGold was “unfounded”, their shares to Barrick until the board of directors of NovaGold has a chance to according to a release Aug. 17. fully explore options that may be finan- The company denies that it used cially superior to the Barrick offer. confidential information Barrick responded that the lawsuit belonging to NovaGold. filed against it by NovaGold was “unfounded”, according to a release to the contrary, Barrick is the operator Aug. 17. The company denies that it of the (Donlin Creek) joint venture and used confidential information belong- is actively managing the project to ing to NovaGold. “The lawsuit appears ensure it remains on track in order to to be a defensive tactic and should meet the terms and milestones as NovaGold actually try to advance the required by the joint venture agree- case, Barrick will vigorously defend ment,” Wilkins added. “In the event that this proceeding,” said Greg Wilkins, any party deems it advisable to contest Barrick’s president and CEO. our interest, we will not hesitate to pro- “Despite NovaGold’s protestations tect our legal rights.” ● 16 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF AUGUST 27, 2006