page Palin drops FY10 revenue, spending; 9 nearly $17 shaved from oil forecast

Vol. 14, No. 8 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of February 22, 2009 • $2

PIPELINES & DOWNSTREAM February Mining News inside Pricing not illegal Two reports say high gas prices last year didn’t break the law; a pair of proposed bills would tie Alaska gas prices to Washington state rates

By ERIC LIDJI started to fall across the Petroleum News country. In the early months of

pair of reports say mar- SARAH HURST 2008, Anchorage paid less ket forces, and not ille- than Seattle for a gallon of A gal activity, caused high gas, but by fall, the average gasoline prices in prices in Anchorage were Alaska last year, but consid- more than a dollar above erable public outrage about those in Seattle. pump prices above the JAY RAMRAS BILL WIELECHOWSKI The growing difference national average and a pair of between Alaska and the bills working through the Legislature guarantee Lower 48 prompted two investigations, one by the the issue isn’t over. Attorney General’s office and another by the High gasoline prices last year caused national House Judiciary Committee. frustration, but the mood was heightened in Alaska The two reports describe similar market condi- as prices at the pump stayed high, even as they see GAS PRICES page 25

NATURAL GAS Looks like a gas pipline Prentice: Mackenzie has ‘never been closer’; hint of Deh Cho breakthrough

By GARY PARK to proceed. I continue to be optimistic.” For Petroleum News In January Prentice said an offer of The February issue of North of 60 Mining News is enclosed federal financial support had been made he Mackenzie Gas Project has to the MGP proponents to support infra- received a double dose of good structure and preconstruction costs along AGIA coordinator Myers shares T news, with Environment Minister with unspecified incentives to share the Jim Prentice declaring that Canada risks and rewards. thoughts on gas line; Obama, has “never been closer” to moving ahead He said the MGP is a vital part of Harper taking the high-tech route with the Arctic venture at the same time Canada’s environmental agenda and fits that a major barrier to construction of a in with President Barack Obama’s goal of AS PREVIOUSLY REPORTED in Petroleum News, on JIM PRENTICE pipeline across aboriginal land showed reducing greenhouse gas emissions from Jan. 21, Gov. Sarah Palin named Mark Myers coordinator signs of toppling. coal, which accounts for about 70 percent of U.S. for the Alaska Gasline Inducement Act. Increasingly upbeat about the MGP in recent power generation. In a recent interview with Petroleum weeks, Prentice told a CTV program in Canada he However, Prentice said an Alaska gas project is News, Myers answered the following is confident the environmental phase will be com- lagging far behind the MGP, with environmental questions about the proposed North pleted late this year and the federal government is and other regulatory processes yet to start. Slope natural gas pipeline, and his role “working with the proponents to make sure we in making it a reality. have a fiscal framework that will allow the project Q. Who do you think will ultimately see MAC LINE page 28 own the gas line? TransCanada through LAND & LEASING TC Alaska or North Slope producers BP and ConocoPhillips, who own the com- petitive Denali project? A. “Certainly the state’s committed to Certification dispute grows build it through the AGIA contract with TransCanada. Whether or not the producers will own part of that pipeline, Industry disputes division’s determination for BRPC North Shore well see INSIDER page 22 By KRISTEN NELSON Previous certifications — many dat- Petroleum News ing from decades ago — contain no time limit for the lease extension, although the BREAKING NEWS hat was something of a side issue state does have the authority to order a when the State of Alaska termi- well certified capable of producing in nated the Point Thomson unit in 3 Juggling environment, economy: Alberta revises oil W paying quantities into production. late 2006 for lack of development Banks told Petroleum News Feb. 19 sands strategy with 20-year blueprint; focuses on environment, benefits is starting to draw more attention. that it was not the state’s intention to That issue is certification of wells allow certification to hold leases indefi- 4 Coastal districts want ACMP control: Administration, capable of producing in paying quanti- KEVIN BANKS nitely, but as a step in moving a prospect industry oppose proposal to form board with authority to OK plans ties. into production. Current focus is around a July 10, 2008, letter The July letter apparently went unnoticed last from Alaska Division of Oil and Gas Director 10 More Cook Inlet gas storage: New storage leases for summer, but was challenged by ConocoPhillips, Kevin Banks. Judging from that letter, the division ExxonMobil and Chevron when they became facilities would bolster winter gas supplies, improve gas field economics is changing how it certifies wells judged capable of producing in paying quantities. see CERTIFICATION page 20 2 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska ON THE COVER GOVERNMENT Pricing not illegal 3 Juggling environment, economy

Two reports say high gas prices last year didn’t Alberta takes new stab at oil sands strategy, break the law; a pair of proposed bills would focusing on environment, benefits tie Alaska gas prices to Washington state rates 4 Coastal districts want ACMP control Looks like a gas pipeline 15 British Columbia enters deficit country Prentice: Mackenzie has ‘never been closer’; 15 LB&A OKs renewable fund program hint of Deh Cho breakthrough Certification dispute grows LAND & LEASING Industry disputes division’s determination 12 DNR concludes Point Thomson hearing for BRPC North Shore well ExxonMobil moving ahead with ice roads; Nabors OIL PATCH INSIDER says rig will be ready to move out by mid-March; five to seven days to location 1 AGIA coordinator Myers shares thoughts on gas line 13 Potential Alaska state and federal oil and gas lease sales 22 Financial Times reports oil output near peak 23 Obama, Harper agree to pursue ‘green energy’ NATURAL GAS ALTERNATIVE ENERGY 8 Open house for Beluga-to-Fairbanks EIS 10 More Cook Inlet gas storage needed 7 Looking for biomass fuel alternatives DOG wants to issue new storage leases for facilities that Could wood and other biomass fuels become would boost winter gas supplies, improve field economics a more significant part of the Alaska energy mix? 11 Where from here on Cook Inlet gas? 14 Separating airplanes from wind turbines OUR ARCTIC NEIGHBORS EXPLORATION & PRODUCTION 17 Group analyzes Barents oil spill response 6 Rampart applies for Nenana access permit Workshop participants make 22 recommendations 9 BP has Flow Station 2 flow line spill to improve Norwegian-Russian cooperation 14 MGSC starts carbon disposal well in disputed area after an incident FINANCE & ECONOMY 17 Industry works with Russian reindeer herders 5 UK independent to acquire Bow Valley 17 StatoilHydro funds education in northwest Russia Dana Petroleum to buy Calgary-independent for C$240 PIPELINES & DOWNSTREAM million, assume nearly C$200 million in debt; 6 Enbridge gives Arctic gas cold shoulder impact for Alaska uncertain 8 More oil spill payments expected 9 Palin drops FY10 revenue and spending 18 US Supreme Court to hear Valdez case 16 Oil prices surge on falling inventories

PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 3

GOVERNMENT Juggling environment, economy Alberta government takes new stab at oil sands strategy, focusing on environment and benefits

By GARY PARK with oil sands development, including For Petroleum News cooperation with the industry to develop public infrastructure, he said his group he Alberta government has put out a members welcome any proposals to build 20-year blueprint to better manage its communities that offer employees a “quali- T oil sands, four years after its own initial ty of life that attracts and retains the kinds of missteps in getting to grips with the people we need to operate our facilities.” challenges of exploiting a vast resource — Neil Shelly, executive director of the a blunder that gave the formidable oil sand- Alberta Industrial Heartland Association — s’ critics free rein to influence public opin- a collection of municipalities north of ion. Edmonton where an upgrader-refining cen- Even the industry, through the Canadian ter has been taking shape — said the report Association of Petroleum Producers, made builds on a vision contained in last fall’s a belated concession a month ago, based on provincial energy strategy. the results of its own survey that it needed The focus it puts on creating a value- to do a “better job” of engaging Canadians added industry is a “step in the right direc- and policymakers in a debate on the future tion,” by taking bitumen-in-kind to encour- of the oil sands. age development of upgraders and petro- The government was equally culpable, to foster and encourage value-added devel- chemical facilities and by tackling heavy oil having tried in 2005 to impose a policy that opment to achieve the value chain’s full tolls to discourage shipments to the Chicago gave priority to development of the oil potential; promoting heavy oil pipeline tolls or Houston refinery areas. sands over everything else — the environ- that accurately reflect the costs of shipment; ment, social and health concerns and com- • Marketing and promoting Alberta’s Pace, scale criticized munity infrastructure. energy and environmental expertise on a On the flip side, Simon Dyer, director of For a province unaccustomed to back- global scale to “realize a knowledge-based the Pembina Institute’s oil sands program, lash against resource exploitation this might economy”; said the plan fails to address the No. 1 con- have been a seminal event. • Identifying and targeting “key global cern Albertans identified two years ago — Public and political outrage forced the markets that offer attractive opportunities the pace and scale of development — and government to scrap its approach until for Alberta’s oil sands products to achieve a lacks the substance needed to stand up to Premier Ed Stelmach took office in late more diverse and resilient customer base”; scrutiny. 2006 and created an Oil Sands Sustainable • Encouraging the development of “out- But he welcomed word that oil sands Development Secretariat, under Treasury bound pipeline systems that open new mar- operators will be held accountable for meet- Board President Lloyd Snelgrove, to set a kets for Alberta’s oil sands products”; and ing their schedules to reclaim tailings ponds new direction. • Creating new products “through inte- at the same rate, or faster, than the produc- The result was a 47-page report, entitled gration and cluster development approach- tion of new tailings. “Responsible Actions — A Plan for es,” such as combining bitumen upgrading, The plan urges the government to estab- Alberta’s Oil Sands,” that Snelgrove refining and petrochemical facilities in sin- lish an offset program to secure high-value describes as a “strategic plan for responsi- gle plant complexes to reduce costs and the conservation lands in the oil sands regions ble development of this vast resource.” environmental footprint. to support biodiversity, wetland and envi- He said the plan “balances future energy ronmental management objectives. development with respect for the environ- No specifics in report While making an abrupt about-face from ment, and it outlines how well it will foster Not surprisingly, the report stops short of its stand in 2005, when environmental con- a high quality-of-life for Alberta families, specific proposals, pending further study cerns got the brush off, the government with developing the economy.” and pilot projects. gives equal time to ensuring that the oil Snelgrove said it sets a “new direction Stelmach said discussions aimed at sands “maximize long-term value for all that will guide our decision making for oil moving the strategy forward will take place Albertans through economic growth, stabil- sands development and contains ambitious with the industry and other stakeholders, ity and resource optimization” as the strategies to help us identify and address the but offered no timelines and few details on world’s second-largest oil-source is exploit- economic, social and environmental chal- how that will take place. ed. lenges and opportunities in the oil sands Not surprisingly, either, the report failed That involves a two-pronged approach region.” to appease the critics, but got a passing Facing up to probably the most sensitive grade from the industry. see ALBERTA page 5 issue of all, the government has pledged to Greg Stringham, vice president of the “revise the current environmental impact Canadian Association of Petroleum assessment process to support cumulative Producers, told reporters the strategy tack- effects management.” les many of the issues that were identified In addition, economic, social and envi- during two years of previous consultations, ronmental “report cards” will be imposed meaning that the work leading up to an on the industry, while the government has action plan, followed by an implementation reiterated its commitment to carbon capture plan, has still to be done. and storage projects to reduce the impact of Don Thompson, chairman of the Oil industrial greenhouse gas emissions. Sands Developers Group, which deals with regional issues in northern Alberta, told the Long-term value a goal Edmonton Journal it is “never a bad time to But it’s not all about trying to restore have plans to support an industry that is a some balance to the environmental debate. cornerstone of the Alberta economy.” The report also puts a heavy emphasis in Referring to the goal of identifying one of its six strategies on “maximizing social and infrastructure needs associated long-term value for all Albertans through economic growth, stability and resource optimization.” It says the province “must get the best possible economic return on the long-term development of its energy resources. “Extending our role along the value chain through upgrading and refining bitu- men to transportation fuels and other prod- ucts will further expand our economy.” Some of the key levers include: • Establishing a government-led organi- zation to take oil sands bitumen in-kind rather than in royalties to develop “value- added oil sands products”; • Using regulatory and fiscal approaches 4 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

GOVERNMENT Coastal districts want ACMP control Administration, industry oppose plan to establish coastal policy board with authority to approve district management plans

By KRISTEN NELSON Petroleum News North Slope Borough Mayor Edward Itta said in a Feb. 3 letter he Alaska Coastal Management that the borough supports the Program is back in the Alaska legislation “because it will restore Legislature — and at least one legis- T meaningful local involvement in lator, Rep. John Harris, R-Valdez, who went through the major rewrite of the ACMP, implement checks and the program in 2003, is not happy to see balances and streamline project it. reviews.” Harris asked the program’s manager, Division of Coastal and Ocean Community and Regional Affairs adopted Management Director Randy Bates if he a substitute bill which is the same as the could explain to the House Committee on House version, a bill which that commit- Community and Regional Affairs what tee passed out Feb. 6. The next stop in the the administration was doing to try to Senate is the Resources Committee. work things out so legislators didn’t have In testimony in the Senate Community to see a bill in front of them to amend the and Regional Affairs Committee Feb. 6 work they did a few years ago to suppos- and in House Community and Regional edly streamline the process. Affairs Feb. 10, coastal districts support- Bates said the division, part of the ed the legislation, which is opposed by Department of Natural Resources, began the administration and by industry, repre- a “fairly robust public process” to engage sented by the Alaska Oil and Gas all stakeholders in July. He said the divi- Association and ConocoPhillips Alaska. sion has asked for input on changes and In his sponsor statement for Senate has put some thoughts out in the form of Bill 4, Sen. Donny Olson, D-Nome, chair draft statutes and regulations for conver- of Senate Community and Regional sation purposes and has held meetings to Affairs, said the 2003 changes “unduly talk about proposed changes and ask for impacted local participation in develop- more input. ment reviews and approvals affecting Bates said the division got a number of both state and federal actions in the suggestions on changes, but hasn’t been coastal zone.” able to come to consensus with partici- He said that since the 2003 changes pants on what changes could be achieved. coastal districts have faced “controversy It’s a complicated program that and delay” by DNR in getting approval of www.PetroleumNews.com involves many entities, from communi- district management plans. Such disputes ties to industry, he said, and there is obvi- ADDRESS were formerly handled by the coastal pol- Kay Cashman PUBLISHER & EXECUTIVE EDITOR ously a difference of opinion on how best P.O. Box 231647 icy council, Olson said, but disbanding CHIEF FINANCIAL OFFICER Mary Mack Anchorage, AK 99523-1647 to implement a coastal policy. the council “concentrated all decision- Kristen Nelson EDITOR-IN-CHIEF making power within DNR.” NEWS Districts not happy Susan Crane ADVERTISING DIRECTOR Rep. Reggie Joule, D-Kotzebue, spon- 907.522.9469 The bills reflect changes the coastal sor of House Bill 74, said the bill focuses Theresa Collins MARKETING DIRECTOR [email protected] districts want to see in the program and on restoring checks and balances by or [email protected] Bonnie Yonker AK / NATL ADVERTISING SPECIALIST include establishment of a coastal policy establishing a coastal policy board repre- Heather Yates BOOKKEEPER CIRCULATION board — a smaller and somewhat more senting coastal districts and resource Shane Lasley IT CHIEF 907.522.9469 limited version of the old coastal policy agencies; streamlining project review by Clint Lasley GM & CIRCULATION DIRECTOR [email protected] council done away with in 2003. reincorporating air and water quality con- Somewhat different House and Senate cerns of DEC into the consistency review Marti Reeve SPECIAL PUBLICATIONS DIRECTOR ADVERTISING bills were introduced, but Senate Steven Merritt PRODUCTION DIRECTOR Susan Crane • 907.770.5592 see DISTRICTS page 19 [email protected] Tim Kikta COPY EDITOR

Alan Bailey SENIOR STAFF WRITER Bonnie Yonker • 425.483.9705 Eric Lidji STAFF WRITER [email protected] CORRECTIONS Gary Park CONTRIBUTING WRITER (CANADA) FAX FOR ALL DEPARTMENTS Nikolaevsk east of Anchor Point Rose Ragsdale CONTRIBUTING WRITER 907.522.9583 Ray Tyson CONTRIBUTING WRITER An article in the Feb. 8 issue of Petroleum News titled “Chevron planning Petroleum News and its supple- Nikolaevsk wells” incorrectly described the Nikolaevsk unit as being “10 miles John Lasley STAFF WRITER ment, Petroleum Directory, are west of Anchor Point.” It is actually 10 miles east of Anchor Point. Petroleum Allen Baker CONTRIBUTING WRITER owned by Petroleum Newspapers of Alaska LLC. The newspaper is News regrets the error. Sarah Hurst CONTRIBUTING WRITER published weekly. Several of the Paula Easley DIRECTORY PROFILES/SPOTLIGHTS individuals listed above work for Eschner is Trio Petroleum’s chairman independent companies that con- Judy Patrick Photography CONTRACT PHOTOGRAPHER tract services to Petroleum In the Feb. 15 issue of Petroleum News, Stan Eschner of Trio Petroleum was Newspapers of Alaska LLC or are Mapmakers Alaska CARTOGRAPHY described as a company vice president. Stanford Eschner is actually the compa- freelance writers. Forrest Crane CONTRACT PHOTOGRAPHER ny’s chairman. The news item on Trio was in Oil Patch Insider. Tom Kearney ADVERTISING DESIGN MANAGER Amy Spittler MARKETING CONSULTANT Dee Cashman CIRCULATION REPRESENTATIVE

OWNER: Petroleum Newspapers of Alaska LLC (PNA) Petroleum News (ISSN 1544-3612) • Vol. 14, No. 8 • Week of February 22, 2009 Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518 (Please mail ALL correspondence to: P.O. Box 231647 Anchorage, AK 99523-1647) Subscription prices in U.S. — $98.00 1 year, $176.00 2 years, $249.00 3 years Canada — $185.95 1 year, $334.95 2 years, $473.95 3 years Overseas (sent air mail) — $220.00 1 year, $396.00 2 years, $561.00 3 years “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647. PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 5

FINANCE & ECONOMY UK independent to acquire Bow Valley Dana Petroleum to buy Calgary-independent for C$240 million, assume nearly C$200 million in debt; impact for Alaska uncertain

By ERIC LIDJI per day from 31 fields in 2008. Dana does not currently holders in mid-April. Petroleum News hold any acreage in Alaska. If the acquisition is successful, its impact would likely “The acquisition of Bow Valley is directly in line with ripple back to Alaska. partner in a four-company joint venture exploring the Dana’s successful strategy of growing reserves and produc- “I think it’s encouraging to see a company of that stature North Slope is being acquired by an independent tion in its core operating areas through both exploration and buying Bow Valley. It’s encouraging for the Alaska hold- A U.K. exploration and production company for acquisition,” Tom Cross, chief executive officer of Dana, ings, because that indicates that they’ve got the ability to approximately C$240 million. said in a prepared statement. “Dana already has a working fund the project moving forward,” said Jim Winegarner, Calgary-based Bow Valley Energy Ltd. said on Feb. 16 knowledge of the North Sea assets of Bow Valley which vice president of land for BRPC. that Dana Petroleum Plc. would acquire the company, as form a close fit with Dana’s existing North Sea portfolio.” BRPC hasn’t been in contact with Dana yet, but plans to well as assume nearly C$200 million in debt and other lia- in the future, Winegarner said. bilities. Another twist for Alaska The joint venture hoped to further delineate the North Bow Valley operates producing fields in the North Sea, The deal comes in the wake of weakening markets and Shore and Sak River prospects in Gwydyr Bay this winter but also holds acreage in Alaska through a joint venture led maturing debt that led Bow Valley to form a special com- by drilling at least two wells and possibly a sidetrack. The by Brooks Range Petroleum Corp. Late last year Bow mittee last year and hire acquisition and divestment firm joint venture is also permitting a third prospect in the area Valley froze its interest in an exploration prospect in Scotia Waterous to help examine various options ranging called West Shore. Gwydyr Bay, north of Prudhoe Bay. from partnerships to sale. After Bow Valley froze its interest in North Shore, Bow Valley still holds a 20 percent interest in the Tofkat After months of deliberation, that process lead to the BRPC assumed the company’s stake in the prospect and prospect along the Colville River east of the village of acquisition by Dana. The boards of directors of both com- hoped to continue forward as planned, but a legal dispute Nuiqsut, where the joint venture drilled last winter. panies have unanimously approved the deal, but lenders, with partner TG World Energy Corp. forced the joint ven- Dana, based in Aberdeen, is focused on the British and company shareholders and Canadian regulators must ture to delay drilling at least one year. Norwegian North Sea, and prospects in Egypt. The compa- approve it as well before it can be finalized. The fourth partner in the joint venture is Nabors sub- ny said it produced around 39,400 barrels of oil equivalent Bow Valley plans to hold a special meeting with share- sidiary Ramshorn Investments Inc.

continued from page 3 accurately reflect the costs of shipment and istration is heading with its talk of restrict- ment of pipeline systems to Canadian thus curb the rush to export bitumen to ing imports of “dirty oil,” Alberta is even tanker ports and opening up new interna- ALBERTA United States upgraders and refineries. more anxious to diversify and strengthen its tional outlets. Uneasy about where the Obama admin- customer base by encouraging the develop- to ensure that more of the value-added end of processing raw bitumen remains in Alberta (through upgrading and petrochem- ical projects) and to expand markets outside Alberta for oil sands products (by targeting “key global markets” other than the United States). Stelmach has made a personal crusade out of keeping more of that most profitable end of the oil sands business in Alberta, only to watch as the recession has seen six of seven planned upgraders sidelined. Government now has time But the drastic end to unbridled expan- sion also gives the government time to establish the right conditions for reaping We’re proud to be Alaskan. benefits from the entire value chain. That includes a plan to take some oil As experts in business and the local economy, you can count on us for all your banking needs. sands royalties in bitumen instead of cash. Even last summer, before the big crash, the government called for expressions of Business Checking Accounts Business Visa® Check Card Online Banking for Business interest from companies for processing Three superior checking Free with every business Free access to your accounts bitumen, including proposals to upgrade or solutions checking account anytime, anywhere refine the bitumen within the province or to use it as feedstock for petrochemicals. It is now planning to use all of the levers at its disposal, including “regulatory and fis- CLICK www.northrim.com cal approaches to foster and encourage CALL
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PIPELINES & DOWNSTREAM Enbridge gives Arctic gas cold shoulder

By GARY PARK At the same time Enbridge is moving into the gas field, “I think you have to agree that the economics of For Petroleum News TransCanada, once the unchallenged carrier of gas in (the Alaska and Mackenzie projects) will be Canada, is making bold strides as an oil sands pipeliner by alk about a role reversal: Enbridge believes the “pen- challenged as long as we’ve got a significant pressing ahead with deliveries to the Texas Gulf Coast, dulum of opportunity” for pipeline companies is oversupply and under-demand in the Lower 48.” while Enbridge has shelved its attempts to open up that T swinging to natural gas and TransCanada shows signs —Enbridge CEO Pat Daniel market. of gaining an edge in oil ship- Enbridge said it still expects 2009 per-share earnings ments. the Lower 48. will grow by 20 percent before fading as the dramatic drop Enbridge, which once monopo- “Also there is a fairly significant worldwide (liquefied in oil sands investment takes its toll. lized transportation of crude oil in natural gas) overhang that is sitting behind it with likely “With 2008 behind us, we are now into the steeper part Canada, is pondering a shift to large- PATRICK JUDY more favorably priced gas. So it’s hard to imagine (Arctic) of that growth curve over the remaining four years into scale gas pipelines to fill what it gas being economically viable in the near term.” 2012 and, as I’ve said before, we really now are moving expects will be a slowdown in Daniel said two or three “very exciting opportunities into the sweet spot for our investors,” Daniel said. upstream oil sands development have emerged” in the gas sector, including the proposed “We may find that some of the early (oils sands) projects beyond 2012, Chief Executive Rockies Alliance Pipeline connecting gas fields in the continue on and others get pushed back a year or two,” he Officer Pat Daniel said Feb. 13. Colorado Rockies with Chicago, the potential to tie in new said. “We’ll need a little longer time to assess that as we “It is fair to say we will see some PAT DANIEL deepwater Gulf of Mexico prospects and shale gas plays in determine where commodity prices are going and how delay and push-out beyond our long- the United States and Canada. quickly the cost structure is reacting here in Western range plans on some oil projects and (will turn) to some gas “We’re very active on the gas side already in developing Canada.” projects” to fill the void, he said in a conference call. alternate opportunities,” he said. Daniel said Enbridge had spoken with oil sands produc- But the Arctic does not show up on Daniel’s radar “While the composition of our post-2012 growth is shift- ers about stalling an expansion of its Alberta Clipper sys- screen. ing in response to the business environment, we still expect tem, scheduled to ship 450,000 barrels per day from Alberta “I think you have to agree that the economics of (the to achieve solid long-term growth rates while preserving to Superior, Wisconsin, starting in mid-2010. Alaska and Mackenzie projects) will be challenged as long the safety and income components of this tried and true Ultimately both sides agreed it would be a mistake to as we’ve got a significant oversupply and under-demand in investment value proposition,” he said. stop construction, he said.

E&P Rampart applies for Nenana access permit Rampart Energy Co., formerly known as Babcock & Brown Energy Inc., has applied to the U.S. Army Corps of Engineers for a permit for the construction of an access road for the gas exploration well that the company plans to drill in Alaska’s Nenana basin.

According to Rampart’s permit application the Nenana well, called Nunivak No. 1, will be located about three miles west of the town of Nenana.

On Nov. 17 Doyon Ltd., the Native regional corporation for Interior Alaska, announced that Denver-based Babcock & Brown Energy was joining Doyon, Arctic Slope Regional Corp. and Usibelli Energy to drill “at least one” vertical, 10,500-foot natural gas exploration well in the Nenana basin in the summer of 2009. A gas field at Nenana, if found, could fuel electric power generation, or supply natural gas for Fairbanks or Southcentral Alaska. According to Rampart’s permit application the Nenana well, called Nunivak No. 1, will be located about three miles west of the town of Nenana. Nenana lies on the Parks Highway, about 50 highway miles southwest of Fairbanks. Access to the well site will require construction of a four-mile road that follows an existing cleared and partial- ly graded right of way for the first three miles of its route. The road will require temporary bridges to cross three small rivers to the west of the Nenana River. Access to the road would be by barge across the Nenana River during the summer and by ice road across the river in the winter. Rampart plans to carry out road construction during the winter, in preparation for drilling in the summer. —ALAN BAILEY PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 7

ALTERNATIVE ENERGY Looking for biomass fuel alternatives Could wood and other biomass fuels become a more significant part of the Alaska energy mix, especially for rural communities?

By ALAN BAILEY in Dot Lake near Tok and in the village of plants in Southeast Alaska, there are no “That would be a strong feasibility Petroleum News Tanana. Systems of that type typically put longer any in the state. Perhaps there is concern,” Crimp said. out about 1 million British thermal units scope for the use of small power plants to Meantime, AEA has been pursuing houghts of a bygone era in the of heat per hour and cost about $250,000, generate electricity for villages that are simple rural heating applications for Alaska frontier conjure up images of Crimp said. surrounded by forest, Crimp wondered. wood. T rustic cabins and roaring log fires. More advanced systems use wood A demonstration project is needed to “We’ve found that wood-fired space And many a home in the state still chips or wood residue from sawmills, prove the village-generation concept, he heating of buildings is the low-hanging enjoys the heat from a wood stove. But in rather than firewood. If not burned, the said. A specific power generation applica- fruit,” Crimp said. “We’ve been going the age of central heating and labor-sav- wood residue would end up in a landfill, tion would need a land management plan after that aggressively, working with ing appliances, Crimp said. to ensure a sufficient wood harvest to communities to develop projects.” could the humble AEA and the Denali Commission supply the system and to avoid conflicts Gwen Holdmann, director of the pile of split logs find funded a wood-chip-fired, clean-burning with subsistence and other land uses. Alaska Center for Energy and Power, told a place as a major boiler that heats two schools and the com- There is also a big question regarding the committee that heating represents a energy source for the munity swimming pool in Craig on how to operate the lumber harvest — larger energy load than electricity for future? Prince of Wales Island, Crimp said. The mechanized logging would probably be rural committees. ACEP is a University Not quite. But system was commissioned in 2008, he required. Going out with a chain saw is of Alaska entity that researches and tests Alaska’s rich endow- said. not necessarily the way to supply fuel for technologies that might lower the cost of ment of forest could a power system, Crimp said. energy in the state. make a larger contri- Wood-fired power plants And, although a small village could “There aren’t many renewables that GWEN HOLDMANN bution to the state’s Wood-fired power plants for generat- likely enjoy a sustainable fuel supply, can really directly address our need for energy supplies, Peter Crimp, alternative ing electricity are more complex than larger communities like Dillingham, heat, beyond first converting it to elec- energy and energy efficiency program simple heating systems. And, although where wood grows fairly slowly, could manager for the Alaska Energy Authority, there used to be large wood-fired power find sustainability to be challenging. see BIOMASS page 8 told the Senate Special Committee on Energy Feb. 5. And, to a lesser extent, it is also possible to obtain energy from other biomass sources such as fish oil and domestic waste, he said. Plenty of wood Alaska’s 18,000 to 20,000 square miles of forest could deliver more wood than the current estimated 100,000 cords per year burned for heating in the state, Crimp said. On a sustainable basis, Alaska’s forests could supply wood equivalent to 400 million to 500 million gallons of diesel fuel per year, he said. That’s not nearly enough to support the state’s entire energy demand, but could knock an important dent in the use of other fuels. But wood cutting can conflict with other land uses, Crimp said. And it is important to ensure that there is enough fuel to feed a wood-burning application, taking into account any aesthetic prob- lems involved in cutting the forest. But clearing forest wood can reduce fire risks, enable economic development and enhance habitat, Crimp said. And it is possible to use fallen timber rather than live trees. Greg O’Claray, statewide coordinator for Ketchikan-based Alaska Chip Ltd. described how his company supplies fire- wood for Southeast Alaska from waste lumber gleaned from the forests. O’Claray said that it would be possible to extend his company’s services to western Alaska, to supply fuel for villages there. Alaska Chip is seeking a freight subsidy for barging the wood north, to maintain price parity with firewood in Southeast. Steven Seley Jr., president of Pacific Log and Lumber, told the committee that it would be possible to supply wood chips or firewood to Nome, for example, at prices equivalent to $1.87 to $2.37 per gallon for fuel oil, including transporta- tion costs. Smoke Smoke pollution from burning wood is a big concern — wood smoke has become a problem in Fairbanks in Alaska’s Interior. But smoke results from inefficient burning, Crimp said. A modern wood burning heating sys- tem cuts the smoke and maximizes the energy obtained from the fuel. Commercial high-efficiency firewood burning systems are in use in washeterias 8 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

continued from page 7 these numbers could be achieved in Alaska, she said. IN BRIEF BIOMASS An investigation of the natural growth Open house for Beluga-to-Fairbanks EIS rates of plants in Interior Alaska indicates tricity,” Holdmann said. that these rates are well below the The U.S. Army Corps of Engineers has scheduled public scoping meetings for Wood is expensive to handle and has a breakeven rate required for sustainable an environmental impact statement it is preparing for the Beluga-to-Fairbanks very low energy density compared with a power generation, she said. natural gas pipeline proposed by the Alaska Natural Gas Development Authority. liquid fuel such as diesel. As a conse- And biomass crop usage would Meetings are scheduled in Anchorage March 4 at the Anchorage Sheraton and quence, wood tends to work best as a fuel become a means of stabilizing costs in Wasilla March 5 at the Central Mat-Su Public Safety Building. if it can be sourced near to where it is rather than reducing costs. Sweden, at a Both meetings begin with an open house at 5 p.m. followed by a presentation used, Holdmann said. similar latitude to Alaska, has been at 6 p.m. and public questions and comments from 6:30 to 8 p.m. Although there are emerging technolo- engaged in willow farming since the For more information: www.angdaB2Feis.com. gies for converting wood into liquid fuels, 1970s but, despite refinement of the bio- those technologies are expensive. When it —PETROLEUM NEWS mass technologies, viable operation comes to power generation, biomass such depends on support funding. as wood can be burned directly or con- More oil spill payments expected “It’s expensive and a lot of this would- verted to gas through incomplete com- n’t be happening without some kind of a bustion. However, a big challenge for gas Plaintiffs in the Exxon Valdez oil spill case should be seeing additional money subsidy,” Holdmann said. generation is accommodating woods with soon. However, the University of New York different moisture contents and from dif- A federal judge has approved a second round of punitive damages payments to has been partnering with some Alaska ferent types of tree, Holdmann said. commercial fishermen and Native subsistence fisherman who were harmed in the entities to research the growing of willow 1989 spill outside Port Valdez. Biomass crops and other short rotation crops in Alaska. Lawyers overseeing a $383 million partial settlement from Exxon Mobil Corp. The researchers’ concept is some form of distributed $156 million in December. There is also interest in growing bio- cogeneration power plant, combining the U.S. District Judge H. Russel Holland of Anchorage on Feb. 12 approved a mass crops — fast-growing crops such as use of biomass with the use of coal, second round of payments totaling $62.5 million to 5,331 claimants. willow or alder that can be cultivated for Holdmann said. Court documents don’t specify when payments will be made. power generation. It would typically And the University of Alaska has been require about 500 acres of land to sus- —THE ASSOCIATED PRESS investigating the use of fast-growing tainably grow one of these crops to fuel a grasses. 500-kilowatt generator, Holdmann said. One interesting possibility is the use of However, there are questions regarding what is termed an organic Rankine cycle whether the growth rates assumed for system for small-scale electricity genera- tion, using heat obtained by burning bio- mass or municipal waste — in a Rankine cycle a fluid with a low boiling point such as refrigerant is boiled to drive a turbine generator. Chena Hot Springs has pio- neered the use of a system of this type to generate electricity from relatively low- temperature geothermal water from the springs. “The opportunity for Alaska is that this represents a high-value niche market for this kind of emerging technology,” Holdmann said. “We really have the opportunity here to take a global leader- ship role.” Fish oil In Southwest Alaska we don’t have a lot of trees but we do have a lot of fish, Yvonne Kopy, borough planner for Bristol Bay Borough, told the committee. Bristol Bay Borough is proposing a feasi- bility study for a processing facility to produce fish oil and other value-added fish products. Bristol Bay is home to a huge world- class fishery. But a shift in demand in world fish markets from canned fish to fish fillets has increased fish wastage rates in processing facilities to 50 percent, from the rates of 20 to 30 percent involved in canning fish. “Bristol Bay last year harvested 29 million sockeye salmon. Translated that means over 170 million pounds of sock- eyes were harvested,” Kopy said. “Taking just an average of 30 percent waste, that’s 57 million pounds of waste that’s ground up and flushed back into the river sys- tem” Bristol Bay Borough’s proposed facil- ity would convert that waste into energy, rather than throwing it away. The fish waste would not provide enough energy to fuel a complete power plant, but the borough thinks that a power plant would be viable if fish oil is used in combination with other energy sources such as wood, solar or wind. “With that cogeneration we do believe that it would be possible to operate a fish waste facility 100 percent on renewable clean energy,” Kopy said. The borough has partnered with the University of Alaska Center for Economic Development and the Institute of Social and Economic Research to research the concept. And it might be pos- sible to apply this type of system else- where in Alaska, Kopy said. PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 9

FINANCE & ECONOMY Palin drops FY10 revenue and spending Amended budget shaves nearly $17 from projected price of oil, reduces spending by $445.5 million, adds oil-related lawsuits

By ERIC LIDJI million. claims for penalties and lost revenues” against BP Petroleum News The amended operating budget includes a $100 mil- Exploration (Alaska) related to the corrosion-related oil lion cut to the oil and gas tax credits given for capital and spill that shut down operations at Prudhoe Bay in 2006. ov. Sarah Palin submitted an amended budget to exploration expenses, down to $200 million from $300 The amended capital budget cuts $2 million from a $6 lawmakers on Feb. 18 that reduces both the pro- million. million evaluation of the oil and gas resources on the G jected price of Alaska North Slope oil and general The state has said the reductions don’t indicate a drop North Slope. The evaluation is entering its second phase fund spending for the year. in investment, but rather the lag time for of funding. The budget covers fiscal year 2010, receiving and reimbursing requests from The budget cuts $5 million from the AGIA which begins July 1. The amended budget companies that don’t yet pay taxes. Reimbursement Fund. The new $15 million budget line Unveiling her original budget back in predicts oil prices will Companies that produce oil and gas in brings program funding to $45 million, which is “in line December, Palin projected oil prices average $57.78 over Alaska simply deduct the credits from their with the projection that the costs to get to Open Season would average $74.41 a barrel through the the coming fiscal year. taxes. by the end of FY10 will not exceed $90.0 million.” year, an estimate some lawmakers consid- The new budget officially creates a state The amended capital budget also cuts spending on the ered very optimistic. coordinator position mandated by the Renewable Energy Grant Fund in half, down to $25 mil- With nearly 90 percent of the state’s unrestricted rev- Alaska Gasline Inducement Act, and moves several lion for the fiscal year. Lawmakers recently approved enue coming from the oil industry, accurately guessing recent funding projects into the new office. nearly $100 million in projects from the first round of the the price of the commodity is central to the budgeting fund. (See story page 15) process. Legal funding added The amended budget adds $3 million for the Alaska The amended budget predicts oil prices will average The budget changes also add funding for two legal Natural Gas Development Authority Budget’s spur line, $57.78 over the coming fiscal year. issues related to the oil industry: $1.9 million for the now giving $8 million to the public corporation for the That would bring in around $3.18 billion, down more state to protest “imprudent capital expenditures” on the project. than $2 billion from fall revenue projections. Palin said Strategic Reconfiguration project of the trans-Alaska oil the new budget reduces general fund spending by $445.5 pipeline, and $3.5 million “to continue the pursuit of

E&P BP has Flow Station 2 flow line spill BP Exploration (Alaska) discov- ered a spill at Flow Station 2 flow line 9A early Feb. 18, the Alaska Department of Environmental Conservation said Feb. 19. FS-2 is in the eastern operating area at the Building a better Alaska Prudhoe Bay field on Alaska’s North Slope.

BP spokesman Steve Rinehart told Petroleum News Feb. 19 that the spill was discovered by an operator performing routine rounds about 2 a.m. Feb. 18. Rinehart said the operator saw what looked like steam rising from the pipeline rack about 300 feet from the inlet module at Flow Station 2.

DEC said the spill occurred on a gravel pad; 11 wells were shutin. BP spokesman Steve Rinehart told Petroleum News Feb. 19 that the spill was discovered by an operator per- At CH2M HILL, we are committed to providing our interns with an forming routine rounds about 2 a.m. enriching, educational, and fun experience that offers them “real world” Feb. 18. Rinehart said the operator industry experience and complements their chosen academic field. As part saw what looked like steam rising from the pipeline rack about 300 feet of our commitment, we train and mentor each student—giving them the from the inlet module at Flow Station opportunity to experience all phases of the Alaska oil and gas industry, 2. from production through pipelines to refinery operations. Our goal is to The leak was stopped Feb. 18 and CH2M HILL has long been help build a procession of talented individuals with the potential to develop there is no pooling beneath the leak or recognized as a most- into future leaders and key technologists in our employee-owned company. spread from the leak site or other admired company and indication of large volume, Rinehart leading employer, including Each intern—hired by and assigned to a specific business group—is given said. being named by FORTUNE magazine as one of the 100 the opportunity to work alongside professional engineers and technical Crews are clearing snow and Best Companies to Work For delineating the spill area and size, and one of America’s Most experts on real projects. And when summer comes to an end, several Admired Companies (2008). Rinehart said. The spill appears to be interns are offered jobs in positions throughout the company. We welcome confined to the FS-2 pad. you to join us as we move toward building a better Alaska. He said the spill volume is not determined but preliminary indica- tions suggest it is small. BP is work- Developing People through Challenging Projects ing to reroute the production into other lines. Rinehart said the produc- ch2mhill.com/careers tion is minor, some 1,300 barrels per day; Prudhoe Bay has been producing 391,000 bpd on average in February. EY052008001MKT —PETROLEUM NEWS 10 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

NATURAL GAS More Cook Inlet gas storage needed DOG wants to issue new storage leases for facilities that would bolster winter gas supplies and improve gas field economics

By ALAN BAILEY Petroleum News Storage can improve producer economics laska’s Division of Oil and Gas has been looking into the possibility of additional gas storage facili- A ties in state land in the Cook Inlet basin, division Director Kevin Banks told the Senate Resources • Once a discovery is made and Committee on Feb. 9. There are currently three storage development completed sales begin facilities in operation around the Cook Inlet — at Pretty Creek on the west side of the Inlet and in the Kenai and • Producer has two key sales issues Swanson River fields on the east side of the Inlet. • Storage allows summer offtake “We’re looking at a fourth storage facility and will be working with a potential lessee in the winter of (2009-) - Shut in? - may not be compatible 2010,” Banks said. with conservation And on Feb. 11 Alan Dennis, the division’s royalty manager, told the Regulatory Commission of Alaska that - Sell in summer to LNG plant? the division has been engaged in discussions with sever- - Sell into storage? al entities regarding additional gas storage around the

Cook Inlet. • Presence of clear market AND GAS RESOURCES DIVISION OF OIL OF NATURAL ALASKA DEPARTMENT “We have begun to have conversations with a number opportunities improves exploration of different interested parties,” Dennis said. economics, by allowing the explorer Tight supplies to capture peak load pricing; helps As gas reserves in Cook Inlet gas fields discovered answer: “What do I do if I find gas?” several decades ago have run down, gas supplies in Southcentral Alaska have tightened. And in the cold, dark winter months, when demand for utility gas for 9 heating and power generation soars, gas producers have Optimum returns on investment in a new gas field come from producing the gas as soon as possible, as indicated in the had to run the gas wells at full throttle. During the cold- capacity curve. But lack of access to gas supply contracts and low summer gas demand push sales out into the future. Gas est weather, gas earmarked for the liquefied natural gas storage could enable more gas to be sold early in field life. export facility at Nikiski on the Kenai Peninsula has had “We’ve been approached by a number of different par- “We thought that it was appropriate to approach this to be diverted for utility use. ties to provide additional land leases to provide storage in a more systematic way than just wait for someone to At the same time, new would-be gas producers find it to the basin.” approach us,” he said. difficult to enter the small Cook Inlet gas market to bring In November the division sent a letter to all Cook Dennis said the division has discussed the possibility more gas on line. Inlet producers and utilities, asking them for their views of establishing new gas storage facilities in the Nicolai “The division believes that gas storage is a way to on future gas storage needs, Dennis said. help solve some of these problems,” Dennis said. see GAS STORAGE page 11

ROAD - RAIL - SEA - AIR PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 11

NATURAL GAS Where from here on Cook Inlet gas? Some exploration interest but activity likely to be down in 2009; land access and gas storage will be important in the future

By ALAN BAILEY grams, searching for new reserves Some interest in existing Cook Inlet units, Banks Petroleum News But there is at least some exploration interest out said. And the 15 Cook Inlet wells there. ollowing an active year for Cook Inlet drilling in drilled in 2008 were primarily gas “I met with folks last week who are putting together 2008, things look likely to be quieter in 2009, Kevin wells, aimed at increasing gas some plays near Swanson River and also in the West Banks, director of Alaska’s Division of Oil and Gas deliverability and production from F MacArthur area. … If they can find investors we may told the Senate Resources Committee on Feb. 9. The existing fields. see some more applications for more exploration,” gas producers will probably do some development But Banks is concerned whether Banks said. drilling to ensure that gas production levels can meet oil and gas producers will be moti- The division has been assertive in chasing existing commitments in supply contracts, Banks said in vated to pursue further exploration KEVIN BANKS leaseholders to drill in their leases. In December, frus- response to a question about the impact of the economic this year. trated by delays in planned drilling, the division placed recession on Cook Inlet activity. “Cook Inlet represents for a lot of producers a fairly the Corsair unit in default and refused to extend work “Beyond that, 2009 may be a tough year for us in the marginal development prospect, particularly those who commitments for the neighboring Kitchen unit — both Cook Inlet,” he said. are looking at worldwide opportunities,” he said. In 2008 there were three exploration seismic pro- units lie offshore in the Cook Inlet. In January the divi- see WHERE? page 13 continued from page 10 The availability of gas storage could “Basically those two factors really winter demand. provide a market opening for new pro- impact how an explorer might think about “If there is a substantial difference GAS STORAGE ducers while also providing a market for what they would be willing to pay … to between summer and winter prices in that excess summer gas. Essentially, the develop various fields,” Dennis said. these contracts, that difference in pricing Creek or Lone Creek fields on the west storage could provide producers with an But by providing a summer market for is what will underwrite the cost to devel- side of the Cook Inlet, or in the Kasilof opportunity to capture peak pricing dur- peak gas from any producer, gas storage op gas storage,” Dennis said. field on the east side of the inlet. ing the summer, Dennis said. could help address both factors. In fact, this seasonal price differential However, Dennis stressed that these dis- “The division believes that third-party would ultimately determine how much cussions had not necessarily taken place access is really important,” Dennis said. Fees gas storage is needed, he said. with the field operators. However, there are some significant In an underground storage facility of Contracted supplies Regulation the type that the division would lease, gas questions regarding the fees the division is injected into a depleted gas reservoir Cook Inlet gas is sold through gas sup- would charge for a storage lease operated Dennis also said the division thinks during the summer when utility gas ply contracts in a small, isolated market. for third-party use. In particular, fees RCA regulation of Cook Inlet gas storage demand is low. The stored gas is then pro- Production coming on line from a gas might need to reflect the fact that the would help with storage lease negotia- duced from the reservoir in the winter field operated by a producer new to the commercial value of the storage would tions. when demand is high. region is likely to have to wait for the tend to be positioned out in the future. “We have a strong desire to see an Nicolai Creek storage would have a availability of one of those supply con- “One approach that we’ve discussed is open and competitive market,” he said. notional capacity of 1 billion cubic feet, tracts — that wait would move produc- that we might charge a very nominal fee And the regulatory framework for gas Lone Creek 2 bcf to 3 bcf and Kasilof 4 tion out into the future. initially and once payout occurs the storage involves many landowners, bcf, Dennis said. By comparison, the “In a market where the ability to sell landowner would expect a somewhat including the University of Alaska, Cook Kenai facility, by far the largest of the the gas is constrained because the market higher price,” Dennis said. Inlet Region Inc. and private individuals, existing gas storage units, has a capacity is tied up with long-term contracts, basi- Other possibilities include charging a each of which has rights and obligations. of 6 bcf, he said. cally you have to wait for your place in nominal fee that is contingent on the les- RCA and perhaps the Alaska legislature And the division hopes that a fourth line to be able to sell your gas,” Dennis see providing third-party access. Or the need to determine what the RCA role Cook Inlet storage unit would support said. “… The reality is … that instead of division could simply extract as much should be, Dennis said. third-party users — either gas producers earning the revenue that is associated commercial value as possible from the At the end of Dennis’s RCA presenta- or utilities — rather than a single gas pro- with high production early, you’ve got leases. tion Commissioner Anthony Price under- ducer, Banks said. The current producer- much lower cash flow.” However, a key factor in determining took to conduct an enquiry into the scope operated storage facilities hold a reserve That deferral of the cash flow reduces the viability of establishing these new gas of possible gas storage regulations, as a of summer gas to help individual produc- the net present value of the investment in storage facilities would be the difference prior action to opening an RCA gas stor- ers meet their gas-supply contractual a new gas field, Banks said. And the sea- between summer and winter utility gas age docket. RCA Chairman Robert commitments during the winter. sonal swings in Cook Inlet demand could prices — Cook Inlet utility gas is current- Pickett requested that the scoping docu- worsen this deferral effect by forcing a ly sold at a constant year-round price, ment be completed for presentation at the Deliverability field to shut production down in the sum- although some recently proposed supply first RCA public meeting in March. mer, Dennis said. contracts have included price tiering for Gas storage addresses the issue of gas deliverability — the rate at which gas can be flowed to customers during periods of high demand. In the days of abundant Cook Inlet gas, Delta Means Business winter demand could be met by drawing more gas through existing gas wells, Banks said. But nowadays gas flow has to Alaskan-owned. be boosted by drilling more wells. Delivering leasing solutions for Alaska’s oil and “As we’ve drained those gas fields … to provide deliverability in the wintertime gas, mining and construction industries Deadline driven. more and more straws have to be drilled into the bubble,” Banks said. “That means Results oriented. that those straws are not used during the summer time when there isn’t the same kind of demand.” And the industrial use of Cook Inlet gas has dropped. Years ago, the Kenai Peninsula LNG and fertilizer plants pro- vided a leveling effect on year-round gas demand by consuming excess summer gas. However, the fertilizer plant has 4040 B St. Suite 200 closed and the LNG plant is now running Anchorage, AK 99503 below full capacity. 907.771.1300 By stockpiling summer gas, storage www.deltaleasing.net can help replace some of that demand lev- eling. But Dennis and Banks both pointed out that gas storage available to third par- ties could also play a significant role in the dynamics of the Cook Inlet gas mar- ket. Fleet Vehicles | Industrial Equipment | Remote Camps & Facilities 12 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

LAND & LEASING DNR concludes Point Thomson hearing ExxonMobil moving ahead with ice roads; Nabors says rig will be ready to move out by mid-March; five to seven days to location

By KRISTEN NELSON Commissioner Mike Menge terminated the the interim decision as building a new section of ice road that Petroleum News Point Thomson unit in November 2006, a and notified other had to be staked out to avoid a polar bear termination ratified by acting DNR agencies that it was den, and working from the central pad at

he Department of Natural Resources Commissioner Marty Rutherford in early no longer objecting PATRICK JUDY Point Thomson to a freshwater source. finished up its hearing on appeals of 2007 under the administration of Gov. to permits for work T the termination of 31 Point Thomson Sarah Palin. on the two leases. Facilities critical path oil and gas leases Feb. 12 and Point That decision was appealed by Thompson told Irwin asked Haymes Feb. 12 if multiple Thomson operator ExxonMobil said the ExxonMobil and the other Point Thomson Petroleum News rigs had been considered for Point company began ice road work after the working interest owners — BP, Chevron Feb. 17 that she dis- Thomson. commissioner’s Jan. 27 interim conditional and ConocoPhillips are the other major tributed a list of legal CRAIG HAYMES Haymes said Nabors 27E is the only rig decision and was working that construction owners — and is currently in Superior issues at the end of on the North Slope capable of drilling Point on four fronts. Court, following a remand hearing in early the Feb. 12 hearing and the companies Thomson and the plan is to use the rig to DNR Commissioner Tom Irwin and 2008 and another decision by Irwin termi- asked for a month to file briefs. drill all nine wells in the proposed initial hearing officer Nan nating the unit. She said the record should be complete development. Thompson conclud- Actions and appeals are outstanding on in mid-March when the briefs are filed. The critical path to production in 2014 ed questioning wit- unit termination, lease and permitting Irwin commented at the beginning of is not drilling but production facilities, nesses Feb. 12 in the issues. the Feb. 12 hearing on the large volume of Haymes said, with permitting critical to appeal of an August submittals from the companies and said keeping the production facilities on sched- decision by Division Two leases returned they were looking hard at everything they ule. of Oil and Gas ExxonMobil argued in its lease-termi- get. Irwin asked whether ExxonMobil Director Kevin nation appeal that the leases were held Thompson said the commissioner would have all nine wells drilled by 2014. Banks terminating beyond the existence of the unit because would issue a decision in April at the earli- Haymes said that if there weren’t weather 31 leases. This is one drilling operations had begun within 90 est. or permitting issues with the production of a group of actions TOM IRWIN days of unit termination. “It’s a large record. There is no timeline facilities they would meet the 2014 pro- flowing out of a The company set two well conductors at for a decision in the statute or regulations,” duction date. As for the number of wells, he 2005 decision by then-division director an existing Point Thomson unit pad last fall she said. said, some of the wells may not end up Mark Myers rejecting a plan of develop- and had been preparing for winter drilling. being successful oil wells, although they ment for Point Thomson from unit operator DNR initially refused to issue ice road Winter work proceeds would eventually produce gas. ExxonMobil Production and putting the permits needed to move a rig to Point Dave Hebert, general manager of The initial production plan is 10,000 unit into default. Thomson, but in a Jan. 27 interim condi- Nabors Alaska Drilling, told Irwin at the barrels per day of condensate and 10,000 The Point Thomson issue was rolled tional decision Irwin reinstated the two Feb. 12 hearing that modification of the bpd of oil and a pipeline capacity of 70,000 into Stranded Gas Development Act nego- leases containing the bottomhole locations substructure of Nabors 27E is complete bpd; Haymes said the 20,000 bpd of initial tiations under then-Gov. Frank Murkowski, of two wells ExxonMobil has committed to and the mast has been raised. Asked if the production is designed to be expanded. but when the state Legislature failed to rat- complete by the end of 2010 — condition- rig would be ready when the ice road is ify the gas pipeline contract negotiated by al on completion of those wells. complete, Hebert said the rig will be com- Issue of leases the Murkowski administration, then-DNR DNR issued ice road permits following missioned and ready to move out by mid- Irwin asked whether ExxonMobil March, with the move to location expected would complete the two wells and produce to take five to seven days. from them if he didn’t award any other Craig Haymes, ExxonMobil Production leases. Haymes said yes. Co.’s Alaska production manager, said in a What, Irwin asked, if he ordered wells Feb. 10 affidavit that drilling activities con- certified capable of producing in paying tinued during and after the January hearing, quantities into production. Haymes said a with a 15-bed camp and office facility on reasonable time would be required to put ExxonMobil’s Deadhorse pad occupied those wells into production and the earliest Jan. 15 and surface and intermediate casing it could happen was 2014 because that was for the PTU 15 well delivered in when production facilities would be in Deadhorse during January, coming by place. barge from Seattle to Valdez and then in Some of the certified wells would take more than 70 truckloads from Valdez to longer, he said, because they were not close Deadhorse. to the central pad at Point Thomson and He said wellhead equipment is en route would require additional facilities. to Deadhorse and would arrive by the end Nan Thompson asked Haymes how of February. long it would take to know that cycling was Haymes told Irwin Feb. 12 that working successfully once wells were in ExxonMobil had reached agreement with production. Savant to use the ice road that the company If the tank — the reservoir — is small, is building to Badami. ExxonMobil will Haymes said, they would know quickly, build from the end of the Savant ice road in a matter of months. If the tank is larg- and also from Point Thomson back, as well er, it would take longer, he said. PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 13

continued from page 11 The division has also been discussing the possibility of issuing some new gas LAND & LEASING WHERE? storage leases. It hopes that new gas storage will be operated for the benefit Potential Alaska state and federal oil and sion proposed combining these two of third parties, rather than as part of an gas lease sales units with the nearby proposed individual gas producer’s operations. Northern Lights unit, to encourage the That would open up the possibility of a Agency Sale and Area Proposed Date various unit and lease owners to bring gas utility purchasing gas from produc- a jack-up rig to the Cook Inlet to com- ers during the summer months, to store DNR Alaska Peninsula Areawide May 2009 mence offshore drilling operations. that gas to help meet winter demand. DNR Cook Inlet Areawide May 2009 In the past week the owners of the DNR Beaufort Sea Areawide October 2009 Kitchen unit indicated that they are find- Constrained by size ing investors for exploration in the unit DNR North Slope Areawide October 2009 The Cook Inlet gas market is con- and the owners “are quite excited that DNR North Slope Foothills Areawide October 2009 strained by its size, Banks said. There’s things can happen,” Banks said. But the an annual requirement for about 48 bil- MMS Sale 209 Beaufort Sea 2009 question that division is wrestling with lion cubic feet of gas for the LNG plant, MMS Sale 211 Cook Inlet 2009 is whether sticking with the current unit with much of the remainder of Cook owners will prove to be a quicker road DNR Alaska Peninsula Areawide May 2010 Inlet gas production going to the local to development than “pulling the plug DNR Cook Inlet Areawide May 2010 electric and gas utilities. Gas supply and trying something different,” he said. arrangements tend to be tied up in medi- DNR Beaufort Sea Areawide October 2010 Areawide lease sales um or long term contracts between pro- DNR North Slope Areawide October 2010 ducers and gas users. DNR North Slope Foothills Areawide October 2010 Looking further ahead, the state has However, potential new gas produc- MMS Sale 212 Chukchi Sea 2010 issued its final best interest finding for a ers recognize that the market is some- second 10-year cycle of areawide oil what in flux because of various current MMS Sale 217 Beaufort Sea 2011 and gas lease sales in the Cook Inlet. issues relating to the need for some new MMS Sale 214 North Aleutian basin 2011 “This is something of a milestone for utility gas supply contracts, Banks said. MMS Sale 219 Cook Inlet 2011 us,” Banks said. “The areawide lease So there is the possibility that a new MMS Sale 221 Chukchi Sea 2012 sale schedule is in its 10th year.” investor could enter the market at the The challenges going forward will be margins of the gas supply. Selling gas to Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, man- environmental, he said. There is always the Kenai Peninsula LNG plant may be ages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of the possibility of litigation over the best another possibility for a new producer. Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshore interest finding and the impact of the There is also the future possibility of and in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust listing of the Cook Inlet beluga whales lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaska a gas spur line connecting Southcentral region outer continental shelf office, manages sales in federal waters offshore Alaska. under the Endangered Species Act is Alaska and the Cook Inlet with a main unknown. gas line from the North Slope to Calgary “I hope that we are creating the and the Lower 48. Rather than marking This week’s lease sale chart appropriate mitigation measures in our the demise of gas production in Cook sponsored by: leases to take care of that,” Banks said. Inlet, Banks thinks that, by connecting But one key to encouraging more Cook Inlet to the rest of North America, PGS Onshore, Inc. exploration in the Cook Inlet basin is the a spur line could provide a new incen- opening of more land for oil and gas tive for finding and developing more leasing, especially through coordination Cook Inlet gas — if producers had of land access with the federal govern- access to a pipeline like that they’d see ment, Banks said. an opportunity to produce from new “I think that it’s essential now that we fields at optimum rates rather than hav- start thinking about ways in which ing to defer production to service Cook access to more land can be achieved and Inlet supply contracts, he said. your help in that matter would certainly But new gas storage that increases be welcomed,” Banks told the commit- the flexibility of the Cook Inlet gas mar- tee. “… We want to see access to feder- ket is the most obvious place to look to al lands where we think there is oil and encourage new Cook Inlet gas develop- gas potential.” ment in the near term, Banks said.

14 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

ALTERNATIVE ENERGY EXPLORATION & PRODUCTION MGSC starts carbon disposal well Separating airplanes Midwest Geological Sequestration Consortium has started drilling a well in Decatur, Ill., for a full-scale test of carbon dioxide sequestration in the Mount Simon sandstone at a depth of 6,000 to 7,000 feet below the surface. MGSC is one of seven regional partnerships that the U.S. from wind turbines Department of Energy has created to investigate the relative merits of various MGSC’s mission involves People planning the Fire Island wind farm offshore Anchorage techniques for carbon capture and storage. investigating carbon capture continue to work with the FAA to avoid air traffic control conflicts DOE launched its Regional Carbon and storage options for the Sequestration Partnership program Illinois basin that underlies By ALAN BAILEY increasing the number of turbines would through the Office of Fossil Energy in most of Illinois, southwestern Petroleum News expand the output of the wind farm from 2003 and the Decatur test forms part of the Indiana and western 30 megawatts to 54 megawatts, spread development phase of that program. assenger jet pilots flying into Ted across somewhat similar fixed project The carbon dioxide to be used for the Kentucky. Carbon dioxide Stevens Anchorage International costs. test will come from the Archer Daniels emissions in the region exceed P Airport are familiar with turning The project partners also hope to per- Midland ethanol production facility in 304 metric tonnes per year, above Fire Island, in Cook Inlet just suade the FAA to relax a height restriction Decatur. with most of those emissions offshore the airport, as they position that the agency has imposed on the tur- “Starting in early 2010, up to 1 million attributed to the region’s 126 themselves for final approach. But the bines. metric tonnes of carbon dioxide from the coal-fired power stations. proposal to build a wind farm on Fire The FAA permitted the turbine blade ADM ethanol facility will be compressed Island in close proximity to the airport hub heights to be 65 meters, whereas the into a liquid-like dense phase and injected has resulted in some tricky issues in standard for the machines that the wind over a three-year period,” DOE said. designing the wind facility. farm will use is 80 meters. Using the stan- A monitoring program to ensure that the injected carbon dioxide does not After extensive discussions with the dard height would increase the power escape from the reservoir will include tracking of the underground carbon diox- Federal Aviation Administration, the Fire output of the machines. ide plume. Island project is moving forward, with the “There is a substantial difference in MGSC’s mission involves investigating carbon capture and storage options for start of construction slated for summer the efficiency of the wind capture from 65 the Illinois basin that underlies most of Illinois, southwestern Indiana and west- 2009 and erection of the wind turbines to 80 (meters), and there is not a substan- ern Kentucky. Carbon dioxide emissions in the region exceed 304 metric tonnes planned for 2010. And on Jan. 29 Ethan tial difference in the cost of your installed per year, with most of those emissions attributed to the region’s 126 coal-fired Schutt of Cook Inlet Region Inc. told the capital equipment,” Schutt said. power stations. International Association for Energy —ALAN BAILEY Economics Alaska Chapter about the Radar and VOR equipment project status and about the ways in One of the biggest hurdles that the which the FAA concerns are being addressed. CIRI is the major landowner project had to address was ensuring that on Fire Island and has partnered with the wind farm would not interfere with EnXco to build the wind farm. the air traffic control radar for the airport, The wind turbines will be located in Schutt said. the southern part of the island, away from “That has been resolved,” he said. the flight path into the airport, Schutt However, there is a remaining issue said. with the FAA’s VHF omni-directional radio, or VOR, navigation beacon on the How many turbines? island. “It’s old navigation technology but it’s The FAA has currently permitted 20 still critical for the FAA flight operations feasible wind turbine sites for the project but, although the project is proceeding on at the airport,” Schutt said. that basis, the project partners would pre- The FAA wants the wind farm project fer the economies of scale that could be to bear the $2 million cost of upgrading achieved with more turbines. the beacon to technology that can accom- “The layout and the design that we modate the presence of the turbines. would like to have and are working very “We’re attempting to work with the hard to get to is for 36 turbines, which FAA to build them a replacement VOR would be a much better deal for everyone somewhere on the airport property with involved and including ultimately the the upgraded technology,” Schutt said. ratepayers,” Schutt said. “… We believe we could easily build an Each turbine will be able to generate entirely new system for them and proba- 1.5 megawatts of electrical power. So bly do it at about half the cost and in about half the time.”

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GOVERNMENT British Columbia enters deficit country

By GARY PARK Gas down for a couple of years For Petroleum News The budget estimates gas prices — ritish Columbia, like all other which have fallen more than 33 percent in resource-based economies, is going North America since 2006 — will average B through some painful belt-tighten- C$6.57 per gigajoule for 2008-09 at plant ing and downscaling of projected inlet, then drop to C$5.87 in 2009-10 revenues. before recovering to C$6.21 in 2010-11. In unveiling its 2009-10 budget Feb. “What we will have for the next two 17, the government of Premier Gordon years is a short-term deficit, one that Campbell had to swallow some unpleas- results from a downturn in projected rev- ant realities in conceding that the recently enues,” Hansen said. unthinkable journey into red ink was “In spite of all our strengths as a inevitable. province, we are not immune to the As a result, Finance Minister Colin impacts of the worldwide economic slow- Hansen admitted the province is heading down.” for deficits of C$495 million in the new The Ministry of Energy, Mines and fiscal year and C$245 million in 2010-11 Petroleum Resources, which has provided — a forecast that many observers think is strong incentives in the form of reduced overly optimistic. royalty payments to boost development of However the economy unfolds over unconventional gas resources, is project- the next two years, B.C. is no longer able ing that even an increase in gas production to count on its thriving natural gas sector will not be sufficient to keep overall gas to offset the beating it is expected to take revenues steady. from a resource basket including lumber, Hansen held out hope that as the North pulp, coal, metals, oil and electricity. American economy emerges from reces- A commodity price surge in mid-2008 sion, energy demand is likely to rise. is forecast to generate C$1.38 billion in To that end, he said the province will gas revenues for the 2008-09 fiscal year invest C$110 million over three years to that ends March 31, up from the original “encourage further growth and develop- budget estimate of C$1.17 billion. ment in the energy sector.” But from there, Hansen’s budget For the petroleum industry that states, an expected slump in revenues includes C$94 million for improving from exploration lease auctions will roads in remote areas, such as northeast- result in a C$1.5 billion drop in gas roy- ern B.C, to support development of shale alties and sales of land over the three and tight gas. years to 2011-12, with the other resources On the stimulus side, B.C. has ear- contributing to a further C$1.4 decline in marked C$14 billion for overall infra- revenues. structure spending that is supposed to cre- ate 88,000 jobs.

GOVERNMENT LB&A OKs renewable fund program The Legislative Budget and Audit Committee on Feb. 17 signed off on a pack- age of renewable energy projects slated for $100 million in state funds, despite the reservations of several committee members concerned the program was hurried and perhaps untimely. LB&A originally planned to vote According to House Bill 152, which on the package of projects on Feb. 4, created the Renewable Energy but at that meeting instead decided to randomly review the process for Fund, AEA must present the choosing five of the projects. funding program to LB&A for The Alaska Energy Authority, the review, but does not need a vote of state agency in charge of managing approval from the committee to the funds, chose the programs from a move ahead on funding and list of applicants based on addressing managing the program. high cost areas in the state first, spreading the money evenly across the state and finding projects with matching grants. According to House Bill 152, which created the Renewable Energy Fund, AEA must present the funding program to LB&A for review, but does not need a vote of approval from the committee to move ahead on funding and managing the pro- gram. The LB&A review found a few cases where AEA did not follow its methodol- ogy or was not comprehensive enough in its evaluations, which could increase the risk that projects won’t come in on time or on budget, or produce the intended energy at the projected cost. But the review concluded AEA could mitigate those risks by aggressively man- aging the grant program, including “kill points” that cancel funding if projects don’t pass muster. All but two members of LB&A voted in favor of moving the program forward. Rep. Mike Doogan, a Democrat from Anchorage, and Rep. Bill Stoltze, a Republican from Chugiak, both voted against it, generally concerned about spending $100 million without a statewide energy plan in place to guide overar- ching funding decisions. Other committee members expressed similar concerns, but still voted for the program. —ERIC LIDJI 16 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

FINANCE & ECONOMY Oil prices surge on falling inventories Weaker dollar also supports prices; EIA says crude stocks down 200,000 barrels — analysts had expected 3.5 million barrel growth

By MARK WILLIAMS fewer miles in December — when gaso- secutive day of declines, according to Even with the decline, crude Associated Press Writer line prices bottomed at $1.61 a gallon auto club AAA, the Oil Price Information supplies remain ample and U.S. oil after reaching $4.11 in July — than they Service and Wright Express. Prices are il prices jumped Feb. 19 as new storage sites, including the main did in December 2007. The 1.6 percent 10.6 cents a higher than a month ago, but government data showed oil inven- depot in Cushing, Okla., are decline in driving marks the 14th consec- $1.104 lower than a year ago. O tories fell unexpectedly. brimming with crude, reflecting utive month of declining driving with the Light, sweet crude for April Natural gas storage high the drop-off in demand. Storage decline totaling 115 billion miles. delivery rose $1.83 to $39.24 on the New The lower driving figures reflect that levels have been approaching Meanwhile, natural gas storage levels York Mercantile Exchange. The vast fewer people are working. The Labor in the U.S. dropped less than expected majority of trades have shifted to April, marks last seen in the summer of Department said Feb. 19 that the number last week, and remain well above year- with the March contract expiring Feb. 20. 1990 when Iraq invaded Kuwait. of unemployed workers receiving unem- ago levels. Utilities and industrial cus- Benchmark crude for March delivery ployment benefits jumped to an all-time tomers are some of the biggest users of surged 7.9 percent, or $2.73, to $37.35. Americans has led to growing levels of high near 5 million, while new jobless natural gas. Prices also were getting support by a gasoline in storage. claims remain well above 600,000. The agency said in its weekly report weaker dollar compared with the euro. Total gasoline inventories rose 1.1 The number of people receiving regu- that natural gas inventories held in under- Oil tends to rise when the dollar drops as million barrels the week ending Feb. 13, lar unemployment benefits edged up to ground storage in the Lower 48 states fell investors use the commodity as a hedge or 0.5 percent, to 218.7 million barrels 4.99 million, marking the fourth straight by 24 billion cubic feet to about 2 trillion against inflation. compared with analyst projections of a week those receiving benefits have been cubic feet for the week ended Feb. 13. The Energy Information decline of 1 million barrels. Distillate at a record level. The continuing claims Analysts had expected a drop of Administration said crude stocks inventories, used for heating oil and figure also was higher than analysts between 56 billion to 61 billion cubic decreased 200,000 barrels to 350.6 mil- diesel fuel, declined by 800,000 barrels to expected. feet, according to a survey by Platts, the lion barrels for the week ended Feb. 13. 140.8 million barrels compared with pro- Rising gas prices in January con- energy information arm of McGraw-Hill Analysts had expected stock to grow by jections of a decline of 1.5 million bar- tributed to an unexpectedly large increase Cos. 3.5 million barrels, according to Platts, rels. in inflation at the wholesale level in If there was a sliver of hopeful eco- the energy information arm of McGraw- At the same time, U.S. refineries ran at January. The government said wholesale nomic news, it was the second straight Hill Cos. Inventories have risen more 82.3 percent of total capacity on average, prices increased by 0.8 percent last increase of one measure of economic than 30 million barrels in the prior six an increase of 0.7 percent from the prior month, the biggest gain since last July activity. weeks. week. Analysts expected utilization to and sharply above the 0.2 percent The New York-based Conference slip to 81.35 percent. increase that economists had expected. Board says its January index of leading Crude supplies ample The acceleration was led by a 3.7 per- economic indicators rose 0.4 percent. Even with the decline, crude supplies Traders focused on oil cent surge in energy prices with gasoline Economists surveyed by Thomson remain ample and U.S. oil storage sites, Oil analyst and trader Stephen Schork prices jumping by 15 percent, the biggest Reuters expected no change in the index, including the main depot in Cushing, said traders were focused on the oil data gain in 14 months. which forecasts economic activity for the Okla., are brimming with crude, reflect- even though the gasoline and distillate After three consecutive weeks of ris- next three to six months based on 10 eco- ing the drop-off in demand. Storage lev- inventories were higher than expected. ing daily retail prices that began in late nomic components, including stock els have been approaching marks last “I think this is a great selling opportu- January, gasoline prices began to fall Feb. prices, building permits and initial claims seen in the summer of 1990 when Iraq nity,” he said. 17. for unemployment benefits. invaded Kuwait. The Department of Transportation said Prices at the pump dropped 0.8 cents a January’s gain compares with a 0.2 Yet a stunning drop-off in driving by Feb. 19 that motorists drove 3.8 billion gallon overnight to $1.957, the third con- percent increase in December and a drop of 0.7 percent in November. Those meas- ures were revised down from prior esti- mates.

EIA reported that for its four-week moving average daily crude imports totaled 9.8 million barrels a day for the week ended Feb. 6, down 300,000 barrels from a year ago.

Recession intensity could ease Conference Board economist Ken Goldstein says the “intensity” of the recession could begin to ease in the next few months. There also are signs that 4.2 million barrels a day of production cuts by the Oil Petroleum Exporting Countries, which make up 40 percent of the world’s oil out- put, are taking hold. EIA reported that for its four-week moving average daily crude imports totaled 9.8 million barrels a day for the week ended Feb. 6, down 300,000 barrels from a year ago. In other Nymex trading, gasoline futures fell 1.3 cents to $1.052 a gallon. Heating oil gained 3.2 cents to $1.1788 a gallon, while natural gas for March deliv- ery fell 15.2 cents to $4.062 per 1,000 cubic feet. Gas last traded at these levels on Sept. 27, 2006, when it was at $4.05 per 1,000 cubic feet, Schork said. In London, the March Brent contract rose $1.51 to $41.06 on the ICE Futures exchange.

—Associated Press writers Jake Neubacher in Vienna, Alex Kennedy in Singapore, Ernest Scheyder in New York and Martin Crutsinger in Washington contributed to this report. PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 17

OUR ARCTIC NEIGHBORS

Industry works with Russian reindeer herders Researchers, reindeer herders, local authorities and industry representatives have Group analyzes signed a “declaration of co-existence” between nomadic reindeer herders and the oil and gas industry in the Russian north. The declaration was drafted at an international workshop in December 2007 and was one of the results of the four-year ENSINOR The declaration provides Barents Sea (Environmental and Social Impacts of numerous guidelines for oil Industrialization in Northern Russia) project at the University of Lapland’s Arctic Centre. and gas development The focus is on the Yamal and Nenets aimed at enabling the oil spill response Autonomous Okrugs in northwestern Russia, reindeer herders to Workshop participants make 22 recommendations to improve where most of the Arctic oil and gas development continue with their is taking place, but it is also relevant to other nomadic lifestyle if they Norwegian-Russian cooperation in disputed area after an incident northern regions, the declaration notes. Its first choose to rather than statement is to acknowledge that “fruitful coexis- taking up a sedentary life. By SARAH HURST tence of indigenous livelihoods and oil and gas For Petroleum News extraction is the expressed goal among all three interested sides in reindeer herding, industry and the state administration.” n near-zero visibility, a tanker maneu- The declaration provides numerous guidelines for oil and gas development aimed vers to avoid a fishing vessel near the at enabling the reindeer herders to continue with their nomadic lifestyle if they choose I disputed boundary between Russia to rather than taking up a sedentary life. The guidelines come under the headings and Norway in the Barents Sea. A col- “Timely, faithful and meaningful consultation,” “Transparent and equitable distribu- lision occurs with damage to both vessels, tion of benefits,” “The need for capacity building” and “Environmental performance and the tanker releases 25,000 barrels of of companies.” crude oil into the sea; the fishing vessel —SARAH HURST sinks. This is one of the scenarios ana- lyzed in a report by the Coastal Response Research Center at the University of New StatoilHydro funds education in northwest Russia Hampshire called “Opening the Arctic Norway’s StatoilHydro has held a ceremony to award education grants to Russians Seas: Envisioning Disasters and Framing in the northwestern cities of Murmansk and Arkhangelsk, the company said Jan. 23. Solutions.” StatoilHydro is partnering with Gazprom and Total to develop the first phase of the The report, published in January, Shtokman gas field in the Russian part of the Barents Sea. details the results of a workshop that was “This is a very important occasion for northwest Russia and StatoilHydro,” said held in March 2008. Some of the other Bengt Lie Hansen, president of StatoilHydro Russia. “We’re signing agreements to scenarios were based in Alaska and Nautical charts for the region train local students for opportunities in the region’s emerging oil and gas industry. Canadian waters. Participants who dis- have not been updated in many These programs are not only important for northwest Russia and the schools, but for cussed the Barents Sea incident included StatoilHydro’s efforts to be an Arctic champion. Cooperation between people means representatives of Alaska Clean Seas, the years, with some dating back as that you believe in an idea. We believe in you and I hope you believe in us. Together, Norwegian Coastal Administration, the far as the 1950s, the report says. we can make a difference.” Polar Environmental Center, the Coastal Lie Hansen handed out grants to 10 welding and machine operator students and Response Research Center, the Saami all, in the Arctic, potentially resulting in a two teachers from Murmansk’s Lyceum No. 6. The students are aged 15-18 and many Council and the U.S. Army’s Cold less than optimal environmental of those at the school grew up in orphanages. StatoilHydro is also giving grants to stu- Regions Research and Engineering Lab. response.” dents at Arkhangelsk State Technical University. Jurisdiction is not clear because the The workshop group made 22 recom- “Russia’s offshore technologies are not yet developed and we need cooperation incident occurred in a disputed area, the mendations to improve the response to with technologically advanced companies,” said the university’s Kirill Izmikov, 20, a report says. Various Norwegian and this incident. These included standardiz- 2008 grant recipient and summer intern at StatoilHydro’s R&D centre in Porsgrunn Russian government agencies would ing environmental priorities and sensitiv- last year. attempt to coordinate a rescue that would ity mapping across the Arctic; adopting StatoilHydro recognizes the acute shortage of qualified labor in the country’s far also involve private and voluntary organ- an ecosystem-based approach to protect- north, the company said. “The startup of extensive offshore oil and gas developments izations. The tanker would have to be ing the Barents Sea from pollution; con- in Arctic Russia will demand qualified professionals. In addition to engineers and towed to a port of refuge to avoid sinking. ducting an Arctic oil and gas risk assess- managers, we need skilled workers,” said StatoilHydro Russia’s head of industrial “The damaged vessel will likely con- ment similar in structure to the Arctic development, Benedikt Henriksen. tinue to spill oil while being towed,” the Council’s Arctic Marine Shipping The Shtokman project will create roughly 1,700 new onshore and offshore jobs in report says. “The best response scenario Assessment; creating an oil spill response northwest Russia, according to StatoilHydro. involves stationing a skimmer vessel plan for the entire Arctic; identifying —SARAH HURST behind the vessel as it is towed. … Due to potential ports of refuge; and increasing prevailing winds, the spill will most like- spill response equipment and support ves- ly impact the Russian coastline more than sel availability in the Arctic. the Norwegian one. Responders will place a containment boom around the vessel once in port.” Different priorities There are currently no places of refuge in the region that would accept a damaged ship, the report says. Also, the environ- mental response could be hampered by differing Norwegian and Russian prioriti- zation schemes. “While Norwegian agencies employ a relatively standard system for determin- ing environmental priorities, Russian environmental agencies use varied approaches to identify them,” the report says. “This disparity could cause confu- sion during a joint response. Cultural resources are not well defined, and there- fore important sites may not receive the protection they deserve.” Nautical charts for the region have not been updated in many years, with some dating back as far as the 1950s, the report says. “There is also a general lack of under- standing of the behavior of oil and alter- native response measures in cold water,” it continues. “In many cases, response measures that work well in temperate environments may work poorly, or not at 18 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

PIPELINES & DOWNSTREAM US Supreme Court to hear Valdez case Property case pits city of Valdez against ConocoPhillips over property tax charged on oil tankers; other tanker owners have settled

By WESLEY LOY said he was sur- fees. The city has no sales tax. The case has attracted Outside Anchorage Daily News prised to see the tax case reach the U.S. interest with organizations such as Arguments April 1 he city of Valdez and a major opera- Supreme Court. the World Shipping Council, the U.S. Supreme Court justices will hear tor of oil tankers will clash in the “When we pre- Cruise Lines International arguments April 1 on the Polar Tankers T U.S. Supreme Court in early April vailed in the Alaska Association and the Council on case. over whether the city can levy prop- Supreme Court, we State Taxation filing “friend of the Bill Tanner, a Conoco spokesman at erty taxes on ships visiting Valdez to pick thought that would the company’s Houston, Texas, headquar- court” briefs backing Polar up cargo. be the end of it,” he ters, said Feb. 12 he couldn’t comment. At stake are millions of dollars in taxes said. “This is a very Tankers. BILL WALKER In court papers, lawyers for Polar that Valdez officials say they need for big deal for the Tankers object to the tax on several con- local government and schools, but which city.” enue from the aging Alyeska oil storage stitutional and fairness grounds. the tanker company contends are uncon- While other tanker operators including and loading complex. They say the tax violates the “tonnage stitutional collections. BP, ExxonMobil and Tesoro have reached This year the city expects to collect clause” of the Constitution, which “bars Polar Tankers Inc. appealed to the long-term settlements on the tax with some $8 million in vessel taxes — a big state and local governments from taxing nation’s highest court — and justices Valdez, Conoco for years has paid the tax part of the city’s overall budget of about the privilege of using ports and harbors.” accepted the case in December — after under protest while pressing legal efforts $40 million, said Valdez City Manager The Valdez tax is discriminatory in the Alaska Supreme Court ruled in favor to kill it. John Hozey. that it was written to target essentially of Valdez last April. Valdez, a town of about 4,500 people Property taxes related to the oil one type of vessel — the mammoth oil Polar operates five double-hull tankers at the southern terminus of the trans- pipeline and tankers are the city’s main tankers — plus tugs and other vessels that for parent company ConocoPhillips, the Alaska oil pipeline, began taxing tankers sources of revenue, though it has a variety escort or assist the tankers, Polar’s state’s top North Slope oil producer. and other large vessels in 2000 as a way of other revenue streams such as a raw lawyers write. The tax applies to vessels Bill Walker, an attorney for Valdez, to make up for declining property tax rev- fish tax, a hotel and motel tax, and certain more than 95 feet long, and exempts large commercial fishing boats. Such a tax, the lawyers add, drives up the cost of commerce vital to people in THE ALLIANCE thanks all MEETALASKA 2009 sponsors for their support! other states. Lawyers for the city of Valdez counter that the tax does not violate the DISCOVERY WELL SPONSORS Constitution’s tonnage clause because it is not a true tonnage duty — a tax on a vessel, based on its tonnage, for entering or leaving a port. Rather, the city’s lawyers argue the Valdez tax is “an unremarkable property tax” based on a vessel’s market value, as tempered according to the number of days the ship spends in port. They add that the tax is relatively minor, with Polar Tankers having paid “well under $2 million in the tax years at PLATFORM SPONSORS issue on vessels worth hundreds of mil- lions of dollars, carrying cargo worth bil- lions of dollars.” “It is an unremarkable property tax,” the lawyers wrote in a November brief opposing Polar’s appeal to the high court. The tanker company “paid well under $2 million in the tax years at issue on vessels worth hundreds of millions of dollars, carrying cargo worth billions of dollars.” Tankers use local services The Valdez lawyers argue the tankers

TRANSPORTATION SYSTEMS and their crews use local roads, police and medical services, the airport and other city features. They also invoke the 1989 wreck of the tanker Exxon Valdez, which precipi- tated a huge cleanup that strained the city for three years. Representatives for the city and com- pany declined to say exactly how much Polar Tankers has paid since the tax began, but available information suggests it could exceed $10 million. DERRICK SPONSORS If the Supreme Court rules against the city and strikes down the vessel property AIC, LLC Consulate of Canada FEX/Talisman Pioneer Natural Resources tax, it’s possible the city could owe Alyeska Pipeline COSCO Fire Protection FNBA Port of Tacoma refunds to Polar, said Valdez attorney Bethel Services Inc. Doyon Drilling Halliburton Price Gregory Walker. CH2M HILL Doyon Universal Svcs Intertek Testing Service Sheraton Anchorage But the city isn’t liable for refunds to Conam Construction Era Helicopters LLC Kakivik STEELFAB BP, Exxon and Tesoro under the tax set- Mapmakers Alaska UIC Oilfield Services tlements with those shippers, Walker and ROUSTABOUT SPONSORS MWH Global Worksafe, Inc. Hozey said. Valdez has hired Theodore Olson, a Air Liquide ENSR/AECOM Marathon Oil former U.S. solicitor general, to argue its Alaska Anvil GCI Industrial Telecom Northstar Terminal & Stevedore case to the high court on April 1. Brooks Range Supply Granite Construction/Wilder Network Business Systems The case has attracted Outside interest Calista - First Alaskans Hawk Consultants LLC Northrim Bank with organizations such as the World Chevron Lounsbury & Associates Northwest Technical Services Shipping Council, the Cruise Lines Denali - Alaska Gas Pipeline International Association and the Council on State Taxation filing “friend of the court” briefs backing Polar Tankers. PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 19 continued from page 4 Legislature in 2003. Steve de Albuquerque, director of DISTRICTS health, safety and environment for ConocoPhillips Alaska said in prepared tes- process; restoring the ability of coastal timony on HB 74 that ConocoPhillips districts to establish enforceable policies opposes the changes. “Simply put, we do that do not conflict with state or federal not think ACMP legislative reform is need- law or address matters preempted by state ed at this time and question the need for the or federal agencies; and restoring state significant changes proposed” in the bill. rights by reinstating provisions eliminat- He noted that coastal districts told ed by 2003 legislation. Senate Community and Regional Affairs Administration opposed “that these proposed changes to the ACMP will streamline the permitting process and Bates said the administration opposes save applicants time.” Albuquerque said he the bill because it creates a new oversight is the person in charge of permitting for (800) 485-SNOW [7669] authority and invests it with the ability to ConocoPhillips and he does not believe that www.SafetyOneInc.com override agency authority, rendering the would be the case. Legislature’s establishment of laws moot. He said he is unaware of a single case in The administration also opposes the bill which “any district’s input or concerns were Introducing Safety One International because it is reflective of the desires of only not adequately addressed in the project one leg of a four-legged stool: coastal com- decision.” munities, the public, agencies and industry. Tracked Snow & Tundra Vehicles This bill is specific to only the issues of Districts support changes coastal communities, Bates said, and does- The North Slope Borough was one of a Four Season Use! n’t represent all stakeholders. number of coastal areas supporting the bills. Fiscal notes accompanying the bill show North Slope Borough Mayor Edward a projected $116.6 million cost for DEC Itta said in a Feb. 3 letter that the borough Camoplast because the bill requires DEC to “process supports the legislation “because it will Trooper™ its permits in accordance with the ACMP restore meaningful local involvement in the coastal consistency review procedures ACMP, implement checks and balances and We’re the authorized distributor where permits are currently processed inde- streamline project reviews.” of Camoplast tracked vehicles in pendent from those procedures,” DEC said Enforceable policies were at the fore- Alaska and the western U.S. in its fiscal note. The changes would also front of comments from many districts. Itta require a new half-time position to serve as said that “many of our proposed enforce- New and Used Vehicles • Sales • Service • Parts ACMP lead for DEC responsibility for able policies were denied on the basis that internal and external coordination of ACMP they addressed an agency’s authority. We Financing Available matters, that department said. made an extra effort to focus our proposed The DNR fiscal note is for $165 million policies on matters that were not addressed Hagglunds for fiscal year 2010 for contractual regula- by existing laws, but still they were denied.” tion rewriting and travel for board members The borough supports establishment of BV206 • Bearcat • SUSV to meet at least four times annually; subse- the coastal policy board which would Snow • Mud • Road • Marsh quent years show a $115 million fiscal note, approve changes to ACMP regulations, Tundra • Water • Sand primarily for travel. amendments to coastal district programs We’re the largest distributor of Hag- and overall grant programs. Itta noted the Industry opposed glunds BV206 in North America! board has fewer members than the former Marilyn Crockett, executive director of coastal policy council and would not be Tracks and Parts Currently in Stock! the Alaska Oil and Gas Association, said in responsible for project consistency reviews. prepared comments that AOGA has been Johnny Aiken, director of the North Snow Vehicle Operator actively engaged in the Alaska Coastal Slope Borough department of planning and Management Program since its inception in community services, told House & Winter Survival Training 1977 because virtually all of its members’ Community and Regional Affairs Feb. 10 operations occur in or adjacent to Alaska’s that the borough doesn’t want to stand in the We’re the world’s largest snow- coastal zone. way of development. The North Slope cat operation and winter survival “In the late 1990s and early 2000s it Borough is as dependent on oil and gas as school, helping companies meet became clear that the ACMP had become the state is, he said. OSHA training recommenda- unmanageable in terms of process and Aiken said one thing the borough wants tions. Our knowledge of OSHA scope, leading to confusion, misinterpreta- to see is DEC back in the ACMP consisten- regulations, as they pertain to tions and significant delays in processing cy process. He said an unintended conse- tracked vehicles and winter permits, largely due to the significant evo- quence of removing DEC from the ACMP survival, is unsurpassed. We’ve lution of environmental laws and regula- review process — DEC air and water per- even trained OSHA inspectors! tions. The revisions to the program adopted mits are presumed under the 2003 legisla- by the Legislature in 2003 resolved these Our Basic Operator Training is tion to meet ACMP standards — is that air now offered in Alaska. This thrill- challenges and transformed the program and water issues were removed from proj- ing, fi ve-day class, led by world- into one that provides certainty for the state, ect reviews. renowned snow survival expert, Art Seely, consists of three days of class- local districts and the regulated communi- The effect of an oil spill is one of the bor- room instruction and two days of fi eld winter survival training. ty.” ough’s biggest concerns, Aiken said, and Crockett said the proposed bills elimi- the borough can’t address that under the nate the certainty put into place by the present ACMP program. CUSTOM CLASS DATES STILL AVAILABLE!

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Fairbanks • Anchorage • Prudhoe Bay Delta Junction • Kenai/Soldotna (800) 935-6466 20 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 continued from page 1 North Shore No. 1 well, Banks said the some assurance “that they’ll be able to regulatory changes are necessary to spec- division had determined that by its regu- benefit from expenditures of money to ify a time limit in a certification. CERTIFICATION lations (11 ACC 83.105) and paragraph 7 drill the well.” “I wouldn’t have signed the certifica- of the lease, that the North Shore No. 1 Once a well has been drilled, proving tion if I believed that was true,” he said. “I aware of it in September. well “is economically and physically up a prospect, the operator wants to believe that we do have the authority.” The issue of leases held by wells certi- capable of producing in paying quanti- secure the land position to be able to con- When such a time-limit certification is fied capable of producing in paying quan- ties.” tinue toward development, Banks said. appealed to the commissioner, whether tities came up in 2006 at the end of the But Banks said that the determination “Our point of view is that should be will be up to the commissioner to decide if Murkowski administration when then- “is conditioned” on the well’s “continued encouraged — at the same time it’s not the division has the authority, Banks said. Department of Natural Resources physical and economic capabilities to some sort of latch to lock up the land for- “We don’t want people holding on to Commissioner Mike Menge terminated produce in paying quantities,” and said ever without any progress,” he said. leases forever,” he said. the Point Thomson unit, citing lack of an the determination “is subject to redeter- With the time limit placed on the North And as for recertification, the basis for acceptable plan of development for the mination” of the well’s capability to pro- Shore well certification, what the state recertification is the same as applied in 30-year-old unit. duce in paying quantities and said BRPC would like to do moving forward is to certification, Banks said. Ten wells, on nine leases at Point is to seek the “first redetermination” by “keep the well in certified status and that Thomson, had been certified by the state Aug. 1, 2010. will help secure the lease or unit” until the Conoco: departs significantly as capable of producing in paying quanti- An appeal of the decision was required operator can move on with full develop- In a Sept. 18 letter ConocoPhillips told ties. Those certifications did not contain within 20 days; BRPC did not appeal. ment, given that there may be lack of Banks the July 10 determination “has time limits. And the division’s determination infrastructure to tie into or the need to been brought to our attention” as Menge said in his decision that there appeared to have gone unnoticed by drill a lot more wells, he said. ConocoPhillips owns an interest in the were no leases in the unit capable of pro- majors over the summer. The producers have “taken the tack lease on which the well was drilled. The ducing in paying quantities because the ConocoPhillips, ExxonMobil and that certification means forever,” Banks company said that although it did not certified wells had been plugged and Chevron, however, all protested the deci- said, and that certification “somehow appeal the decision, “the decision departs abandoned. sion in September and October. overrules the state’s ability to see that so significantly from prior decisions on He said that the certified wells were no development occurs.” well certification requests as to warrant longer capable of producing in paying Not a sinecure He noted that the decision to certify a comment and clarification about the quantities, and thus no longer held the Banks told Petroleum News that the well has never been brought before a Division’s intent in issuing such a letter.” leases on which they were drilled. time limit on the North Shore certification commissioner; it’s a policy exercised by “The letter appears to create a new pol- North Shore letter is different than earlier certifications. the division without the commissioner icy and practice that have not undergone The state wants to see “progress and making any kind of decision on appeal the required public process by granting an In a July 10, 2008, letter to Brooks development,” he said. The applicant for about certification. undefined conditional ‘determination,’” Range Petroleum Corp. on the company’s certification, on the other hand, wants Banks said he does not believe that ConocoPhillips said, without referring to the certification incorporated in such let- ters in the past. The company said the let- ter “does not provide information on what criteria will be used as the basis for deter- mining anew in August 2010 that the Stay in the spotlight North Shore #1 well will or will not be ‘capable of producing in paying quanti- ties.’” ConocoPhillips also said that commer- cial arrangements for exploration proper- ties “may hinge the conveyance of lease rights upon receipt of certification that a A Oil & Gas Directory well is capable of producing in paying rctic quantities” and a determination contin- gent on the view the division may take in the future — and subject to reversal — Covering Arctic oil and gas operations and the logistics, construction and service firms that support them “could seriously undermine the viability of such commercial arrangements.” The letter creates additional uncertain- ty, ConocoPhillips said, because it is not clear how the division “might intend to attempt to apply this new practice to other leases or wells.” Exxon: new conditions In a Sept. 30 letter, ExxonMobil Production Co. told Banks it was pleased the division had determined the North Shore No. 1 well capable of producing in paying quantities, but noted “that your letter makes certification of the well sub- ject to new conditions for ‘continued physical and economic capabilities to produce in paying quantities’” and requires BRPC to seek the first redetermi- nation by Aug. 1, 2010, suggesting “that further such ‘redeterminations’ will be required in the future.” ExxonMobil said this appeared to be “contrary to existing lease and regulatory conditions and a significant new policy

A bia by DNR. We are unaware that any well nnual supplement previously certified in Alaska as capable of producing in paying quantities has ever been made subject to such conditions.” Vol. 14, No.1 January-June 2009 The company said DNR regulations do not impose such requirements and “a process of ongoing ‘redeterminations’ appears to be inconsistent with regula- tions that require only a single certifica- Petroleum News has changed the name of its biannual Petroleum Directory to Arctic Oil & Gas tion.” Directory, reflecting an expansion of the magazine’s readership beyond Alaska and northern ExxonMobil said, “other longstanding Canada to include energy companies doing business in the worldwide Arctic and subarctic. lease rights and regulatory protections in turn derive” from certification of a well as Companies must be contracted advertisers in the weekly Petroleum News to be included in the capable of producing in paying quantities, directory. See rate card for details on what qualifies as a contract online at http://www.petrole- ,and are potentially diminished or over- umnews.com/advertisinginfo/RateCard_Theresa_WEB.pdf or email Theresa Collins at ridden by such a new policy.” [email protected] or call in Anchorage, Alaska at 907 522-9469. The company said it was unclear why

see CERTIFICATION page 21 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 21 continued from page 20 in paying quantities. All the wells which drill a new well, but it may take longer to On the Web were certified have been plugged and aban- put the wells on production because most CERTIFICATION doned. Inconsistent findings and statements of them would require flowlines, control See previous Petroleum News coverage: in the Director’s Decision on certified wells lines and mainland roads to connect them the division would implement this policy are hereby disapproved.” to a production facility. The production for a single well. “Certified wells good policy: Consultant finds no decertified wells, says certifica- facilities will not be completed until the “We believe that for both substantive tion encourages exploration, develop- Exxon on well production end of 2014. and procedural reasons such a new policy ment,” in Jan. 25, 2009, issue at Irwin asked during the lease termination For most of the wells, costs could be would need to be established, if at all, on www.petroleumnews.com/pnads/7823322 hearing what would happen if he required comparable to new wells, estimated at $100 a uniform application through public 16.shtml the certified wells at Point Thomson to be million to $150 million per well at Point notice and rule making, not on an ad hoc put on production. Thomson, he said. basis,” ExxonMobil said. containing the lease was dissolved; that ExxonMobil drilling engineering man- Meeks also said in his affidavit that re- “In addition to questions as to the legal DNR’s interpretation of “capable of pro- ager Bill Meeks said in an affidavit that he entering the 10 wells capable of producing authority for these requirements,” ducing oil or gas in paying quantities” was has reviewed the manner in which each of in paying quantities “is not the optimal way ExxonMobil said it also believes the new consistent from the 1960s until the 2006 the 10 wells capable of producing in paying to develop this resource” because the re- approach “will undermine the certainty Point Thomson decision; and that the certi- quantities was plugged. entered wells would have lower delivery that previously existed about the nature of fied well program “has been and remains a “I am confident that we can re-enter potential due to smaller tubing strings. certification, and possibly serve to dis- key component of the state’s oil and gas each of these wells and put them on pro- “They will also have a greater environ- courage or delay development.” resource management, and has been relied duction,” he said. mental footprint than a more centralized Alaska law, the company said, upon by the industry for 46 years.” He provided detail on how each of the development,” he said. “The wells planned “requires that such a major new policy be 10 wells could be re-entered and said that for the nine-well drilling program are implemented through rule making.” The Menge decision given the procedures described, and with- designed to accommodate all types of Chevron, in an Oct. 1 letter, said it had out permitting delays, ExxonMobil may be production from the reservoir and will recently become aware of the July 10 let- In a Nov. 27, 2006, decision terminating able to re-enter and do the described reme- have high production capacity aimed at ter to BRPC and had also seen the the Point Thomson unit, then-DNR Commissioner Menge said: “There is no dial work in less time than it would take to maximizing production. That is a more ConocoPhillips and ExxonMobil letters efficient way to develop the resource.” to the division expressing concern “over existing certified PTU well capable of pro- the apparent departure from existing lease ducing in paying quantities. A PTU produc- and regulatory conditions and deviation tion well has never been drilled. No certi- from prior decisions regarding well certi- fied PTU well exists today.” fication indicating a possible new practice Menge said that because discovery and policy regime.” exploration wells have been plugged and abandoned, none of them are capable of The historic case producing in paying quantities today. With the exception of the Sourdough No. 2, all of The certification issue was argued Jan. the certifications were issued in the 1970s 16 on behalf of BP Exploration (Alaska) by and 1980s, the commissioner said, and all Tom Walsh, a geophysicist and managing of the certified wells have been plugged partner at Petrotechnical Resources of and abandoned. Alaska, whose firm researched certified This issue was not raised when then- wells in the state and who told DNR Director of the Division of Oil and Gas UN Commissioner Tom Irwin and hearing offi- CE U DE Mark Myers put the Point Thomson unit in N R cer Nan Thompson that Menge’s certified A P default in 2005. R well decision changed what had been long- M E The state’s early DL-1 oil and gas lease R S standing DNR policy. S • Commercial Diving forms do not require a plan of development OO S U At a hearing on appeals of 31 Point FF U • Marine Construction Services

R R R for a lease with a well capable of producing R

Thomson lease terminations, Walsh said • Platform Installation, Maintenance and Repair E E E

in paying quantities to be continued beyond E • Pipeline Installation, Maintenance and Repair P more than 100 leases in the state are held P its primary term; new-form leases have this • Underwater Certified Welding beyond their primary terms of wells certi- requirement. • NDT Services fied capable of production. • Salvage Operations “Whatever the merits of the certifica- He said a study of certified wells found • Vessel Support and Operations tions when they were originally issued, the that plugging and abandoning had no suggestions in the Director’s Decision that impact on certification: The state had certi- certified wells exist today or that the prior American Marine fied wells both before and after they were certifications of now non-existent explo- Services Group plugged and abandoned. • Environmental Services ration wells indefinitely extend the term of At a Feb. 12 continuation of the hearing, 6000 A Street, Anchorage, AK 99518 • Oil-Spill Response, Containment and Clean-Up the leases upon which they were drilled or • Hazardous Wastes and Contaminated Site Clean- Walsh said he had investigated 119 certi- that the PTU should be treated as a unit Up and Remediation fied wells, most of which, he said, are now 907-562-5420 with certified wells is disapproved and • Petroleum Vessel Services, e.g. Fuel Transfer in producing units. • Bulk Fuel Oil Facility and Storage Tank reversed in this Commissioner’s Decision,” www.amarinecorp.com • www.penco.org Walsh said he had not seen time limita- Maintenance, Management, and Operations Menge said. “Those suggestions are not [email protected] tions on leases extended by wells capable supported by the facts. There are no certi- of production until the July 2008 determi- Anchorage Honolulu Los Angeles fied wells in the unit capable of producing nation on the North Shore well. One of the benefits of certification, applicability of a reduced discovery royal- ty, has a time limit, Walsh said at the hear- ing, but letters certifying wells do not include a time limit for the extension of the lease. He said that was true of any certified well: “I’ve never seen anything that con- flicts with that.” Thompson asked whether a time limit in a certification letter would override that extension. Walsh said “the only one I’ve seen so far that does that is the ... qualification in the Brooks Range North Shore letter. That’s the first time I’ve ever seen the qualifica- tion on the term.” In a Feb. 4 affidavit Walsh summarized the conclusions he presented Jan. 16. He said that before DNR’s Point Thomson decision whether a well was plugged and abandoned was not relevant in a determination that the well was capable of producing in paying quantities; whether a well was capable of producing in paying quantities was a one-time determination; there was no minimum production rate required; such a determination was recog- nized by DNR as extending the term of the lease beyond its primary term even if a unit 22 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 continued from page 1 Q. What is your “Ultimately it’s in the nation’s best ment to the project and TransCanada’s role as the AGIA interest to see as much natural gas as equal commitment to continue the INSIDER coordinator for the possible come from Alaska. … Natural process in a steady way is huge. state? gas is an important bridge to a renewable “Very often projects that are totally in I don’t know. I think that’s an open ques- A. “It’s to facili- energy future for the nation. A gas line the commercial sector react very strong- tion. Certainly the role of TransCanada tate implementation would help reduce U.S. dependence on ly to very short-term price and profitabil- and the state’s agreement with of the Alaska Gas foreign energy sources and … natural ity changes, instead of taking a long- TransCanada … is well-established, so Line Inducement gas is an environmentally preferred fuel term view. … Governments have the that gas line will certainly move forward. Act,” signed into because of its clean burning nature, its capacity to be able to take a long-term “But there is a lot of opportunity for law in June 2007. MARK MYERS lower carbon footprint.” view, so I think that’s a real positive the producers to be part of the gas line if “The state coor- Q. What about the current global eco- aspect of AGIA, providing stability for they choose to. Certainly we’re not dinator is basically the counterpart of the nomic recession? gas explorers and producers.” going to build two large-diameter paral- federal coordinator, Drue Pearce. A. “We’re in what people describe as Q. Is TransCanada being overly opti- lel pipelines.” “My job has three components: the greatest recession since the Great mistic about its ability to successfully Note: In a December energy confer- “One, to oversee state permitting with Depression. We’ve seen a worldwide negotiate with the First Nations to build ence in Anchorage, the federal coordina- respect to the gas line … to get all the decrease in demand and supply, so one a gas line through Canada? tor for Alaska natural gas transportation agencies together, to make sure there is would expect commodity prices for ener- A. “TransCanada is the leading projects, Drue Pearce, said, “The prevail- not a lot of undue duplication, and do gy, all commodities, to go through a pipeline operator in Canada, and has ing wisdom is that the two proponents what we can to streamline the process. series of tremendous downward pres- good relationships with the First Nations. for the main line will, at some point in … sures. ... Recovery is often very swift, … Certainly there are existing treaty time, get together, since only one main “Additionally, to try to bring parties and because the worldwide population rights along that route, grandfathered in, line can actually be built.” together, like the producers and keeps growing … you’ll see a heavy but still we have to respect the rights of Q. Will producers BP, ConocoPhillips TransCanada, at the right time. ... demand for supplies of energy in the the First Nations, so that will be part of and ExxonMobil commit gas in an open “A third part of the job is outreach on future, which bodes very well for much the discussions that have to occur. But I season held by TransCanada? the project … such as spending time in higher gas and oil prices in the future. … think having a Canadian company work- A. “They have to make up their own Washington, D.C., explaining the proj- “But … no matter what the economic ing in Canada is valuable in respect to minds, but certainly all efforts will be … ect; explaining how important the gas outlook in the short term, there is a con- building those relationships necessary to made to make a reasonable commercial line is to the nation, and how the project tinuity of operations in regard to the gas move the gas line forward. Certainly offer to transport their gas, an offer with dovetails with the goals of the Obama line, and AGIA. there are parties that will want to lever- good profit potential for the companies.” administration. “The state’s $500 million commit- age this pipeline … that must be expect- ed, but it’s part of the job of the AGIA coordinator to try to bring the parties into alignment, so we’ll do the best we can … respecting TransCanada’s skill and knowledge in working with the First Nations.” Q. How serious do you think BP and ConocoPhillips are about a gas pipeline, about selling their North Slope gas? A. “I very much hope they are seri- ous. I think I will find out more in the near future.” Myers also spoke highly of the state’s current fiscal regime and the fact it is spurring “aggressive exploration of oil and gas” in Alaska. Prior to accepting the position of AGIA gas line coordinator in January, Myers was the director of the U.S. Geological Survey, an entity with more than 10,000 scientists, technicians and support staff, and an annual budget of more than $1 billion. USGS’ 400 offices are in every state and in several foreign countries. The agency partners with 2,000 agencies of state, local and tribal government, the academic community, other federal allies, non-governmental organizations, and the private sector. Prior to heading up USGS, Myers was the director of Alaska’s Division of Oil and Gas under the Department of Natural Resources, and the state geolo- gist overseeing the Division of Geological and Geophysical Surveys. He earned a doctorate in geology from the University of Alaska Fairbanks in 1994. Before coming to DNR, Myers served as survey chief for field programs in Canada’s Mackenzie Delta (ARCO, 1985), Alaska’s Cook Inlet (State of Alaska/USGS, 1997) and the North Slope (ARCO, 1999). He also served as sedimentologist for 13 other North Slope field programs. —KAY CASHMAN

Financial Times reports oil output near peak ON FEB. 15, London’s Financial Times reported that the head of Europe’s third largest energy company predicted the world would never be able to pro- duce more than 89 million barrels per day of oil. Christophe de Margerie, CEO of France-based Total, said he had revised

see INSIDER page 23 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 23 continued from page 22 newspaper ads, urg- described green ing the president to technology, and Harper, in an interview with CNN, INSIDER “say ‘no’ to dirty specifically carbon said Canada has been “wrestling oil.” capture and storage, for the last decade or so with our his company’s daily forecast for 2015 oil “What we know as a way to lower desire to have a regulatory regime production downward by at least 4 mil- is that the oil sands emissions without lion barrels because of the current eco- that would diminish our own create a big carbon crippling the econo- carbon emissions. But we’ve been nomic crisis and the collapse in oil footprint,” Obama my. trying to do so in an integrated prices, blaming high costs in areas such said in a Feb. 17 “If Canada and as Canada, and political restrictions in (North American) economy when interview with the BARAK OBAMA STEPHEN HARPER the United States countries like Iran and Iraq. Canadian can collaborate on the United States has not been He noted that national oil companies, Broadcasting Corp. ways that we can sequester greenhouse willing to do so. which control the vast majority of the But he stressed that the U.S. and gases that’s going to be good for every- world’s oil, and independent producers, Canada could mitigate that impact by body,” he said, “because, if we don’t, so. which play a key role in finding new collaborating on ways to capture and then we’re going to have a ceiling at “I think quite frankly that we have a sources, were “substantially limited in store CO2, limiting the release into the some point in terms of our ability to President and an administration that their ability to fund investments in the atmosphere of greenhouse gases that are expand our economies. wants to see some kind of regulation on current (financial) environment,” the blamed for accelerating climate change. “I think it is possible for us to create a this is an encouragement,” he said. Financial Times reported. The message from Obama and those set of clean energy mechanisms that Harper said he does not believe the De Margerie warned that the current who accompanied him to Ottawa, includ- allow us to use not just oil, but also “Buy American” clause in the U.S. stim- oversupply of oil caused by a dramatic ing Carol Browner, the White House coal,” Obama said, noting the U.S. relies ulus package will violate any U.S. inter- reduction in demand would be short- coordinator of energy and climate on coal-fired utilities for half of its elec- national trade obligations, but cautioned lived. change, and Larry Summers director of tricity. “The United States is the Saudi that protectionist trade measures could See full story at the National Economic Council, seemed Arabia of coal, but we have our own quickly turn a global recession into a www.ft.com/cms/s/0/d25b8d2c-fb97- to be loud and clear. homegrown problems in dealing with a depression. 11dd-bcad- The new administration has no inten- cheap energy source that creates a big “I think this is a debate we would 000077b07658,_i_email=y.html. tion of taking any steps that could com- carbon footprint.” rather avoid,” said Harper, who has Obama, Harper agree to promise U.S. energy supplies and exac- Harper, in an interview with CNN, warned that any moves by the Obama erbate the economic crisis. said Canada has been “wrestling for the administration to reopen the North pursue ‘green energy by “We want to make sure that we hit the last decade or so with our desire to have American Free Trade Agreement would curbing carbon emissions ground running with a very important a regulatory regime that would diminish force Canada to use its position as the THE UNITED STATES AND neighbor and ally,” deputy national secu- our own carbon emissions. But we’ve main external energy supplier as a bar- rity advisor Denis McDonough told been trying to do so in an integrated gaining lever. CANADA — with Mexico as an implicit reporters in a briefing Feb. 17. (North American) economy when the partner — are taking an initial step —GARY PARK In his CBC interview, Obama United States has not been willing to do toward a North American “green energy” pact that would highlight carbon capture and storage to combat greenhouse gas emissions, President Barack Obama and Prime Minister Stephen Harper announced in Ottawa Feb. 19. For Canada, the deal spells a reprieve for exports of oil-sands-derived products that are vital to its role as the leading external source of oil and natural gas for the U.S., but face stern political and 0VS
IPNF environmental opposition in both coun- tries. In agreeing to collaborate on research and development, the two countries, working initially through senior govern- ment officials on a United states-Canada Clean Energy Dialogue, will also con- centrate on “smart” transmission grids, which use digital technology to deliver power more efficiently. Obama told a news conference that the overriding issue of climate change is “one of the most pressing challenges of our time,” and said the dialogue will strengthen the search for answers. He said the issue must be confronted for “good, sound economic reasons” and to enhance continental energy security. “But right now there are no silver bul- lets to solve the problem,” Obama said. Both leaders said it was too early to talk about a “harmonized” approach, with Harper suggesting the United States “8F
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reduction in 1990 U.S. emissions by 2050, while Canada’s goal is to cut 2007 emissions by up to 65 percent by 2050. Before arriving in Ottawa, Obama indicated he would not go along with environmental groups and activists, who CQUFBDIFSTDPN mounted an extensive campaign in the run-up to the summit, including full-page 24 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 Business Spotlight Era Helicopters LLC Era Helicopters began in 1948 and 60 years later Era remains at the forefront of the oil and gas support industry with the most technologi- FORREST CRANE cally advanced helicopter fleet. Era also supports the minerals industry, flightseeing tours, fire- fighting operations and environmental support. Brenda Barber has 15 years of experience in the aviation industry. Before joining Era in July 2008, Brenda spent nine of those years as a Part 135 Air Charter Service owner-commercial pilot in Anchorage and on the North Slope. She also served six years in the Air Force Reserves in Oklahoma. While Brenda has a unique talent for roping steers, she also finds adventure in snow- Brenda Barber, Manager Alaska machining, hiking, biking and sport fishing. Marketing

—PAULA EASLEY Companies involved in Alaska and northern Canada’s oil and gas industry

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Marketing Solutions Tubular Solutions Alaska Canadian Mat Systems (Alaska) ...... 27 Mayflower Catering Tutka Canrig Drilling Technologies M-I Swaco Udelhoven Oilfield Systems Services ...... 3 Carlile Transportation Services ...... 10 MRO Sales ...... 12 Unique Machine CGGVeritas U.S. Land MWH Unitech of Alaska CH2M HILL ...... 9 Univar USA Chiulista Camp Services N-P URS Alaska Colville Usibelli ConocoPhillips Alaska Nabors Alaska Drilling ...... 8 Weston Solutions Construction Machinery Industrial NANA WorleyParsons Western Towboat Cosco Fire Protection ...... 26 Natco Canada XTO Energy Crowley Alaska Nature Conservancy, The Cruz Construction NEI Fluid Technology ...... 21 Delta Leasing ...... 11 All of the companies listed above advertise on a regular basis with Petroleum News PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 25 continued from page 1 GAS PRICES tions leading to higher prices in Alaska: unprecedented volatility in world oil prices, an “oligopoly” where just a few refiners in Alaska supply a predictable GASBUDDY.COM COURTESY market, barriers preventing new compa- nies from entering the mix and a jet fuel operation that often takes precedence over the retail gasoline business. But neither investigation found evi- dence of collusion or price fixing. “Both enlightening and frustrating” is how Rep. Bryce Edgmon, a Democrat from Dillingham, described the findings. Many lawmakers agree with his adjec- tives, especially the latter, and wonder how the reports will impact Alaska’s economy, law and people. Prices traced to refineries Alaskans often complain that gasoline is expensive even though all the ingredi- ents, from crude oil, to pipelines and the refineries, are nearby, and the state tax burden is so low. But while complaints began early in 2008, as prices continued to rise, the investigations only began once prices in Alaska seemed to be acting differently than prices nationally. A year ago, Anchorage paid less for a gallon of gas than Seattle. As oil prices peaked in summer, Anchorage paid about 33 cents more than the Pacific Northwest. By November, with oil down $100, Anchorage was paying $1.06 more per gallon of gas than Seattle. Gov. Sarah Palin ordered the Attorney COURTESY HOUSE JUDICIARY COMMITTEE HOUSE JUDICIARY COURTESY General to investigate for illegal activity in gasoline pricing, while then-Speaker of the House John Harris, a Republican from Valdez, asked the House Judiciary Committee to explain this “decoupling” of prices. Both reports traced the prices back to Alaska refineries, as opposed to gas sta- tions. Although there are six refineries in Alaska, only two produce gasoline. The Tesoro refinery in Nikiski produces about 80 percent of it, and the rest comes from the Flint Hills refinery in North Pole, which mainly supplies communities in the Interior. Gasoline sold in Western Alaska and Southeast Alaska typically arrives on barges or planes, creating a unique market in those isolated towns unrelated to Alaska refineries. Alaska drivers consumed some 268 million gallons of gasoline in 2007, the least of any state in the country and only around one-tenth the amount used in Washington state. Alaska refineries are geared toward jet fuel, which accounts for about 60 percent of the petroleum products produced in the state. Gasoline makes up just 15 percent, compared with 45 percent on the West Coast, a key difference cited by the House Judiciary report. Jet fuel is king in Alaska Alaska can have the relative stability of Seattle, but only at a price, according to Rep. Jay Ramras, a Republican from Fairbanks and the prime author of the House Judiciary report. The House Judiciary report said meas- ures to control the price of gasoline in Alaska could lead to one of the refineries shutting down, which could ripple through the Alaska economy, threatening local Air Force bases, the railroad and the two largest airports. Despite holding several public meet- ings last fall, the House Judiciary Committee did not get a “definitive see GAS PRICES page 26 26 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 continued from page 25 GAS PRICES answer” to explain the behavior of gas prices in Alaska last year, but did arrive at a theory that has since drawn some criti- cism, frustration and a bit of surprise. The jet aviation fuel produced in Alaska supports a refueling industry at Ted Stevens Anchorage International Airport, among the largest air cargo oper- ations in the world. Because jet fuel competes on a global ADMINISTRATION ENERGY INFORMATION COURTESY market, Ramras suspects that during peri- ods of high oil prices, the price of jet fuel in Alaska is dropped and the lost profits are made up by increasing the price of other products, like gasoline, diesel fuel and home heating oil, Ramras told fellow members of the House Special Committee on Energy on Feb. 12. “The refineries are laying off the costs when they are losing money in jet avia- tion fuel … onto consumers,” Ramras said. After releasing the report, Ramras received criticism for saying his conclu- sions came from “intuition.” During the committee hearing, Ramras said the report, compiled mostly through public information, is just a “theory,” one he invited others to try and disprove. adjust their output accordingly, causing a outside refiner lucky enough to capture where competitors meet to set prices; An efficient market in Alaska glut of gasoline and lowering the price, 10 percent of the market would have attempts to monopolize a market, such as Ramras said. enough gas for six months, a long time to splitting it between competitors; and The House Judiciary report presented In Alaska, refiners can adjust their out- be locked into one price. predatory pricing. several other explanations for increased put to meet a change in demand, but With more storage at the Port of “To find something ‘unscrupulous’ or prices. rarely have to: The local market is fairly Anchorage, a possibility under proposed ‘unconscionable’ is very difficult to do. The refineries in Alaska are simple, predictable and there is rarely, if ever, too expansion plans, an outside refiner could That’s very extreme kind of behavior meaning they can only produce a limited much supply. stash cheap gas in Alaska and hold it until that’s not really explainable by almost range of products. The Flint Hill refinery As the difference between Alaska and prices spiked. anything else,” said Ed Sniffen, an assis- takes oil from the trans-Alaska oil the Lower 48 grows, though, refineries tant attorney general who wrote the state pipeline, refines what it can, and returns along the West Coast should be able to Illegality hard to find report. “We didn’t find that here because any excess to the pipeline, paying a fee barge fuel products north to compete for you could explain some of these prices for lower quality product. Those conclusions closely track the customers. just with these market conditions.” Tesoro sells a third of what it makes, findings of the Attorney General’s inves- This doesn’t happen because Alaska is Sniffen said small markets often have all heavier products, outside the state at a tigation. a small market without much storage. parallel pricing without collusion, espe- loss. Unlike the House Judiciary report, the Both reports said major gasoline retail- cially considering the fact that gas sta- “A simple refinery, like the Tesoro Attorney General was able to use both ers, like the chain grocery stores, buy tions know exactly what competitors are refinery and the Flint Hills refinery, can subpoenas and Civil Investigative their supply from refineries on long-term charging. adjust their output according to the mar- Demands to collect thousands of pages contracts, which eliminates a ready mar- “You work in a small environment ketplace. A complex refinery cannot,” of documents. ket for outside gas. with few competitors long enough, you Ramras said. The Attorney General did a similar A 10.5 million gallon tanker of gaso- can predict the reactions of your com- As high gas prices changed driving investigation under Gov. Tony Knowles line could supply the Railbelt for 20 days, petitors,” Sniffen told the House Energy habits in the Lower 48, refiners could not from 1999 to 2002. The case went to the according to the Attorney General, and an Alaska Supreme Court, as the state tried Committee on Feb. 12. to get confidential information from The Attorney General report also companies, but the investigation also decided recent gas prices didn’t violate found no signs of illegal activity. the Unfair Trade Practice and Consumer From the start, it seemed unlikely this Protection Act, which sets out 55 illegal investigation would be any different. activities. High prices alone aren’t illegal. The report said that while recent Because Alaska doesn’t have a price gasoline prices might seem “unfair,” gouging law, refineries and retailers can “excessive” or “unconscionable,” terms charge whatever the market will bear for used by the state Supreme Court to fuel products. gauge inappropriateness, the prices can Current state law prohibits collusion, see GAS PRICES page 27 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 27 continued from page 26 Merrick Peirce, a board member for the Alaska Gasline Port Authority, said GAS PRICES the bill would remedy “very obvious price gouging,” but a longer-term solu- be explained by world commodity prices tion would be a gas pipeline allowing and the market structure in Alaska. local consumers to fuel their vehicles New bills in the works with Compressed Natural Gas. Two people calling from Kotzebue, a I want in! But that doesn’t mean the law can’t coastal community in the Northwest be changed. Arctic, said the bill should include “We, as a Legislature, have the right wholesalers to protect rural areas not to add to the 55 acts that are already con- served by Alaska refineries. sidered ‘unfair,’ and then the Supreme Court would be required to accept our Strong industry opposition definition of ‘unfair.’” Sen. Bill Representatives from Tesoro and Wielechowski, a Democrat from Flint Hills testified against SB 54. Anchorage, said Feb. 12. Both made the point that as independ- Senate Bill 54, which Wielechowski ent refineries, Tesoro and Flint Hills sponsored, would do just that, amending must buy the oil they use to make their ACTive Perf the Unfair Trade Practice Act to add a product, and therefore make more Superior Perforating 56th illegal activity related to the sale of money when oil is cheap. COILED TUBING SERVICE refined products. “We make commodities. Jet fuel, Depth Control SB 54 would tie fuel prices in Alaska gasoline, propane, asphalt: they’re all to those in Washington state. Under the commodities. They’re run on commodi- proposed law, the prices Alaska refiners ty markets, and prices are determined charge for gasoline, diesel fuel and heat- through the fundamentals of the com- ing oil could not be more than 10 percent modity market,” said Kip Knudson, above the average price of similar prod- external affairs manager for Tesoro. ucts in Washington. Therefore, he said, independent “We’ve always stepped in to inter- refineries like Tesoro, which don’t pro- vene to help out consumers when issues duce oil, only make a profit when the like this arise,” Wielechowski told fel- cost of the “inputs” are less than the low members of the Senate Special price the companies charge. Committee on Energy. “When gas prices were exceptionally Wielechowski said reduced competi- high, we were actually losing money. It’s tion in Alaska means the local market is a very difficult concept for people to not free, and therefore Tesoro and Flint understand in the marketplace. It’s irri- Hills were “able to set prices at any level tating and frustrating,” Knudson said. that they desire.” Jeff Cook, with Flint Hills, said, *Mark of Schlumberger © 2009 Schlumberger. 09-CT-0016 “Unfortunately,” Wielechowski “Price control legislation will harm con- added, “it’s the people of Alaska who are sumers by causing shortages” because You can only improve what you can measure paying for the exorbitant prices that the bill could force Flint Hill to stop were being charged by these refiners.” refining in Alaska. Measuring and understanding downhole pressure, temperature, and depth Wielechowski said the bill, while Cook said environmental regulations, correlation in real time is now possible. capping prices, also gives refiners “the particularly regarding sulfur, have benefit of the doubt” by tracking prices forced the company to import products, Talisman Malaysia, Ltd. chose ACTive* Perf to minimize perforation damage to Washington, which is typically above and therefore “supplies are tight and and maximize gas production in a well in the South China Sea. Real-time the national average. margins … are small.” Referring to the House Judiciary Flint Hills is currently working with information helped the operator perforate under optimal reservoir conditions, Committee report, and its conclusion the state to find ways to keep the refin- which improved well performance. that Alaskans should subsidize the jet ery open. www.slb.com/active fuel industry at times, Wielechowski Many who oppose SB 54 and HB 68 said, “Alaskans are sick and tired of sub- point to efforts by Hawaii, a state with sidizing large businesses at their similar market constraints as Alaska, to expense. Alaskans are tired of paying cap gasoline prices in 2005. The meas- these huge costs so that large corpora- ure is believed to have driven gasoline tions can pay multimillion-dollar bonus- prices up to the cap, and the law was es to their executives. This is one way repealed the following year. that we can stand up for the consumers of Alaska.” Rep. Pete Petersen, a Democrat from Anchorage and member of House Energy, sponsored House Bill 68, a com- panion to Wielechowski’s bill. HB 68 has been referred to the House Labor and Commerce Committee, but has not been scheduled for a hearing. Following the Attorney General’s report, Petersen released a statement saying, “The truth is, the free market only functions properly when there’s healthy competition. That’s why we have anti-trust laws, and that’s why Alaskans need to be protected at the pump.” Initial public support SB 54 has traction with the public, getting much support at a recent public hearing. One man contrasted gasoline with natural gas, saying if prices for natural gas in Alaska are tied to Henry Hub, an index desired by some producers, then gasoline prices should also be tied to some market in the Lower 48. “You can’t have it both ways,” he said. Another said refiners and wholesalers should be subject to a “profit cap” instead of a price cap. A third said the bias toward air cargo comes at the expense of other industries. 28 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

continued from page 1 MAC LINE

Kvisle not so optimistic In suggesting the MGP is poised to move forward quickly once the regulato- ry approvals and a fiscal framework are in place, Prentice demonstrated a more optimistic mood than Hal Kvisle, chief executive officer of TransCanada, which has an option to take a 5 percent stake in a Mackenzie Valley pipeline. Speaking at an industry conference in Houston earlier in February, Kvisle said regulatory delays that have stretched over years and added to costs have undercut the chances of a gas line from Canada’s North. “I confess to some pessimism on the Mackenzie project,” he said. “It may well not proceed. “I have great sympathy for the current government of Canada, which is doing everything it can to move the project for- ward. But it inherited a mess that’s been building up for a couple of decades.” Hint at Deh Cho breakthrough The other lift for the MGP came from the Deh Cho First Nations, whose land in the lower Northwest Territories covers about 40 percent of the proposed pipeline route, which said progress has been made towards a deal with the MGP consortium covering access to land and benefits aris- ing from that access. A proposal is being taken to the Deh Cho communities that could set the stage for an eventual ratification vote, said Ria Letcher, executive director of the Deh Cho. The tentative hint of a breakthrough comes after years of dashed hopes and Deh Cho threats of legal action, prompt- ing a breakaway by two of the communi- ties (Fort Simpson and Fort Liard) to join the MGP ownership group. BC, Nunavut mineral roundups inside

2 Teck seeks buyer for Pogo gold mine CEO says producer needs cash to shore up core assets in tight credit markets

7 Base metal prices dive hurts northern miners Producers cut supply; analysts pin recovery hopes on demand spurred by stimulus 19 Donlin Creek grows from placer to 30M ozs A brief history of a century of discoveries at one of the world’s largest gold deposits

Former Calista chief geologist Bruce Hickok, pictured above at the Donlin Creek deposit in 1987, played an instrumental role in convinc- A special supplement to Petroleum News inging WestGoldWestGold toto exploreexplore thethe grassroots,grassroots, SouthwestSouthwest AlaskaAlaska goldgold prospect the following year, page 18. WEEK OF February 22, 2009 COURTESY OF ROB RETHERFORD, ALASKA EARTH SCIENCES 2 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

G ALASKA Teck seeks buyer for its share of Pogo In an effort to raise money to pay debt, Teck offers to sell gold assets; acknowledges current discussions with potential buyers

By SHANE LASLEY North of 60 Mining News

urdens of plummeting base metal FILE PHOTO prices, a restrictive credit market B and the need to repay a multi-bil- lion-dollar bridge loan have prompt- ed Teck Cominco Ltd. to move ahead with sales of its gold assets, including its share of the Pogo underground gold mine in Interior Alaska. During a presentation given at the Macquarie Global Base Metals Outlook Conference 2008 in December, Teck President and CEO Don Lindsay said: “Sale of non-core assets provides another good source of raising cash to reduce our debt. We have talked about the possibility of selling our gold assets for some time now, but one key factor in this in the past was that we really didn’t have any imme- diate use for the cash. Obviously that situ- ation has now changed. We kicked off this process by announcing the sale of our interest in the Lobo-Marte resource. Although only $110 million for our share, I suspect many of you had not been very aware of this asset, or assigned much value to it. We have a number of other attractive gold assets, and we are current- ly in discussions with several interested Teck Cominco Ltd. earned C$23 million from its 40 percent share of the 347,219 ounces of gold produced at Pogo Mine in Interior Alaska. parties.” By the numbers 2008, processing more than 2,240 tons In addition to Pogo, Teck is of ore per day or about 218,000 tons for Strong interest in gold assets Pogo, Alaska’s second-largest gold looking for buyers for its Hemlo the year. During a Feb. 17 teleconference producer, recovered 347,219 ounces of gold mine in Canada, its Morelos The recovery rate for the year is Lindsay said Teck has received indicative gold in 2008. This was slightly more reported to be 83.8 percent. About 60 offers for Pogo as well as its other gold than the 340,000 ounces of gold project- gold deposit in Mexico and its percent of the gold is recovered with a assets and the Canada-based miner is in ed by Teck, which owns 40 percent of exploration projects in Turkey. gravity circuit. Overflow from the grav- discussions with potential buyers. the underground mine with the remain- ity plant feeds a flotation circuit; the “We have strong interest in all of these ing 60 percent held by companies within in operating profit during the same three concentrate is then reground and passed assets and indicative offers have been the Sumitomo Group. months of 2007. through a carbon-in-pulp circuit. received,” Lindsay explained. “We are The high-grade gold mine, located advancing discussions with potential pur- about 110 miles southeast of Fairbanks, Higher grades, lower recoveries Drilling continues chasers but these things take time to com- has largely overcome early setbacks that In Teck’s year-end report, the compa- The 41,250-acre, or 16,700-hectare, plete. Unfortunately we won’t be able to it suffered when it first came online in ny said higher-grade ores that it ran Pogo property has an estimated 10-year tell you much more until we complete the early 2007. In 2008 Teck had realized its through the mill at Pogo in the fourth mine life based on current reserves. The transactions and have something to first annual profit from Pogo, reporting a quarter of 2008 were partly offset by high-grade gold deposit occurs as two announce.” profit of C$23 million (after pricing lower mill recoveries primarily in the stacked shallow-dipping quartz vein sys- The Teck CEO indicated that the sales adjustments) for 2008 compared to a sulfide flotation circuit. tems known as L1 and L2. will be completed sooner rather than later, C$1 million loss the year before. The mill recoveries in the last three The layers of mineralization are gen- telling investors the gold asset sales will Operating costs at Pogo decreased to months of the year were 81 percent erally 4 meters to 12 meters, or 13 to 39 likely be completed prior to the liquida- US$464 per ounce during the final three down from 87.6 percent reported for the feet, thick. A deeper third vein system tion of other assets. months of 2008, compared with US$515 fourth quarter of 2007. The average known as L3 also has been encountered In addition to Pogo, Teck is looking for per ounce during the same quarter a year recovery for 2008 was 83.8 percent. and further drilling is under way to buyers for its Hemlo gold mine in Canada, earlier. The company got US$798 per Teck said metallurgical test work is determine its significance. Drilling con- its Morelos gold deposit in Mexico and its ounce for the 89,000 ounces it sold in being completed to identify the problem. tinues to expand and define the high- exploration projects in Turkey. the fourth quarter of 2008, raking in $5 The 2,500-metric-ton-per-day mill at grade gold deposit at Pogo. G million, up 150 percent from $2 million Pogo ran at near its design capacity in PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 3

G ALASKA Junior focuses on growth at Livengood International Tower Hill targets a 10-million-ounce gold resource at Alaska project in ’09 outlining an attractive project for the majors

By SHANE LASLEY Mining News

he gold resource at International Tower Hill’s Livengood project has T grown by more than 350 percent over the past year. A Jan. 28 resource estimate of 6.8 million ounces of gold makes the project one of the largest new gold discoveries made anywhere in the world in the last decade. HILLS MINES LTD. TOWER INTERNATIONAL International Tower Hill Mines Ltd. President and CEO Jeff Pontius told Mining News the original target of a 7 million-ounce gold resource by mid-year 2009 has been bumped to 8 million ounces after the most recent estimate came within a fraction of the company’s original goal. The junior is targeting a gold resource in excess of 10 million ounces by year-end, placing it in the top 10 percent of new gold discoveries glob- ally. Exploration expands As the encouraging results rolled in, the aggressive junior continued to expand its exploration program at the bulk ton- nage gold project located about 75 miles, or 120 kilometers, north of Fairbanks, Alaska, first adding a winter drill pro- gram and then adding extra drills. The junior originally had a C$5 mil- lion exploration budget for 2009, but on Feb. 12, International Tower Hill said it has succeeded in securing an agreement to raise another C$5 million. Pontius said the company’s focus this year is on rent estimate. Pontius explained that the Livengood and nearly all of the junior’s blocks not included in the estimate have Contact North of 60 Mining News: exploration budget will be used to expand good drilling around them but could not Publisher: Shane Lasley • e-mail: [email protected] the property’s resource estimate. be included because of the way the Phone: 907.229.6289 • Fax: 907.522.9583 After the junior announced it had suc- resource model works. ceeded in securing a finance agreement, The company anticipates results from Pontius said, “We are going to expand our its winter drilling program near the mid- work in 2009 with the additional money. North of 60 Mining News is a monthly supplement of the weekly dle of the second quarter. Using the data, newspaper, Petroleum News. It will be published in the fourth or We are going to move from the 16,000 the explorer will complete a new resource fifth week of every month. meters in the current plan to 34,000 model that will be the foundation of a pre- meters of RC and core drilling this year.” liminary economic analysis of the Shane Lasley PUBLISHER & NEWS EDITOR ADDRESS deposit. P.O. Box 231647 Rose Ragsdale EDITOR-IN-CHIEF (contractor) Two drills to turn this winter Pontius said he anticipates having Anchorage, AK 99523-1647 During the winter program, the com- results of the preliminary analysis by Mary Mack CHIEF FINANCIAL OFFICER NEWS pany plans to complete about 9,000 July. ADVERTISING DIRECTOR Susan Crane 907.229.6289 meters of reverse circulation drilling adja- Theresa Collins MARKETING DIRECTOR [email protected] cent to the currently outlined resource. Core rig tagged for deeper drilling Heather Yates BOOKKEEPER The first reverse circulation drill started This summer, International Tower Hill CIRCULATION turning Feb. 6 and a second RC rig was plans to add a core rig to its exploration Bonnie Yonker ALASKA /NATIONAL REPRESENTATIVE 907.522.9469 expected to be drilling by the end of program at Livengood. While the two Clint Lasley GM & CIRCULATION DIRECTOR [email protected] February. reverse circulation rigs will be used to Marti Reeve SPECIAL PUBLICATIONS DIRECTOR Two primary focus areas will be north- ADVERTISING continue expanding the breadth of the Steven Merritt PRODUCTION DIRECTOR Susan Crane • 907.770.5592 east and southwest of the main body of shallower bulk-tonnage gold resource, the [email protected] Curt Freeman COLUMNIST mineralization. The company said these core rig will target a deeper zone believed areas are bordered by the high-grade Core to be feeding higher-grade mineralization Sarah Hurst CONTRIBUTING WRITER Bonnie Yonker • 425.483.9705 [email protected] zone and are expected to add significant- discovered with RC drilling. Allen Baker CONTRIBUTING WRITER ly to the property’s mineral resource. “We have defined a northwest trending Tim Kikta COPY EDITOR FAX FOR ALL DEPARTMENTS In addition, drillers will drop back zone of higher-grade mineralization that inside the outlined resource area to incor- Judy Patrick Photography CONTRACT PHOTOGRAPHER 907.522.9583 porate two areas not included in the cur- see ITH page 4 Forrest Crane CONTRACT PHOTOGRAPHER Several of the individuals Tom Kearney ADVERTISING DESIGN MANAGER listed above are Mapmakers Alaska CARTOGRAPHY independent contractors Amy Spittler MARKETING CONSULTANT Dee Cashman CIRCULATION REPRESENTATIVE

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 FEBRUARY 22, 2009 continued from page 3 potential mine at Livengood. Though the project lies along the Elliot ITH Highway only about 35 miles, or 56 kilo- meters, beyond the power grid, the grid appears to have roots to it. This looks like lacks excess power. Pontius anticipates it could be a feeder system. We have using onsite natural gas-fired electricity intersected some very good grades in this generation as the most likely power zone,” Pontius explained. “We will come source for a mine at Livengood. in with a core program to look at that at Pontius said liquefied natural gas depth for a high-grade feeder that I trucked down from Alaska’s North Slope assume is going to be a key aspect to the HILLS MINES LTD. TOWER INTERNATIONAL would be a good short-term solution. For deposit.” the long-term, the company hopes to Metallurgy appears promising obtain natural gas from the “bullet line” being considered to supply gas from the International Tower Hill reports initial North Slope to Alaska markets. metallurgical work indicates the gold in “Livengood would be a hub-point both the oxidized and non-oxidized parts where the two lines would split, one that of the deposit is recoverable with a cyanide goes down to Anchorage and one that solution and that recovery is significantly goes to Fairbanks, so that would be a enhanced with even minor oxidation of the great long-term solution for us,” Pontius rock. explained. Tests indicate that Livengood’s miner- Drillers brave the cold as they kick off the 6,000 meter to 7,000 meter winter drill program alization is amenable to cyanide extraction at International Tower Hill's Livengood gold project north of Fairbanks, Alaska. Livengood; a major target with an average overall gold recovery of Two of the top brass of the 77 percent for the oxidized, or partially estimate (based on a 0.50 g/t cutoff grade) target. The Core zone has an estimated International Tower Hill team were part oxidized, material and 56 percent for the at Livengood is divided virtually evenly indicated resource of 68.8 million metric of the AngloGold team that discovered non-oxidized material. About half of the between the indicated resource category, tons at an average grade of 1.03 g/t gold, the Livengood deposit. In 2006 Anglo material included in the October 2008 3.41 million ounces, and the inferred or 2.28 million ounces of gold, and an sold the project, along with five other resource estimate was classified as oxi- resource category, 3.39 million ounces. estimated inferred gold resource of 65.2 Alaska targets, to International Tower dized or partially oxidized. This is a significant increase from the million metric tons at an average grade of Hill in exchange for a stake in the junior. The junior said metallurgical results 1.899 million-ounce inferred gold 0.93 g/t gold, or 1.95 million ounces of Anglo currently owns 14.55 percent indicate that heap leaching may be a viable resource reported a year ago (also using a gold, based on a cutoff grade of 0.70 g/t interest in International Tower Hill. method for gold recovery at Livengood. 0.50 g/t cutoff grade). gold. Company geologist Heather Kelly told The company said additional tests are cur- International Tower Hill’s 2008 explo- Mining News that Pontius was the North rently in progress in order to assess any ration program –183 core and reverse cir- XRF increases efficiency American exploration manager for increase in recoveries with finer grinding. culation holes and 41,063 meters of The use of a handheld XRF analyzer AngloGold who initiated the Tintina With deeper and higher-grade ore being trenching – outlined an indicated gold assisted in rapid and efficient expansion Project, as well as leader of the Alaska discovered, the company is investigating resource of 128.6 million metric tons of of the gold resource at Livengood, exploration effort. Myers conducted the the viability of a gravity mill. Samples cur- ore averaging 0.83 grams of gold per ton, according to International Tower Hill technical analysis and targeting work on rently at the lab are being tested for the with an additional inferred resource of management. The handheld device gives the Tintina Belt study for AngloGold and ore’s gravity component. The junior antic- 142.1 million metric tons at an average on-site crews an early indication of min- has led the Alaska exploration effort with ipates results from this metallurgical work grade of 0.74 g/t gold, based on a cutoff eral content, allowing them to more effi- International Tower Hill from 2006 on. sometime in March. grade of 0.50 g/t gold. ciently direct exploration efforts. International Tower Hill intends to Included in the overall resource, the Resource mushrooms in 2008 “(The XRF data) is a really good early focus on Livengood in 2009 with the goal company reported discovery of the high- indication. With the turnaround times that of attracting a major to develop the rapid- The 6.8 million ounce gold resource er-grade Core zone in the Money Knob (assay) labs have been going through for ly expanding gold target. The junior the last couple of years, you can wait a believes the property will be a compelling long time to get your final assays back to target for one of the global giants. The see how much gold is in a hole,” Pontius junior also looks forward to bringing in a said. “This has been important about major to develop Livengood so it can turn directing our drilling to make sure we are to investigating other promising targets. following up areas that look like they are “The fact that Livengood is so favor- well-mineralized. It’s been very impor- ably located along a paved highway some tant to leading to the successes that we 70 miles northwest of Fairbanks is a huge have had and as efficient as we have been positive for its potential near-term devel- at adding ounces to the deposit.” opment into a large mining project. I International Tower Hill Vice would expect that the Livengood project President of Exploration Russ Meyers will grow to a compelling acquisition tar- estimated that the use of XRF at get for a major gold company in the near Livengood saved the company about term and that the company will then con- C$600,000 in geochemistry costs in tinue on with the exploration and devel- 2008. opment of its other very attractive explo- ration assets,” Kelly said. “ITH has a very Exploring power options robust pipeline of projects which will As resource ounces rapidly build at the receive greater exploration effort follow- deposit, International Tower Hill has ing the monetization of the Livengood begun exploring power options for a project.” G

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G GUEST COLUMN Alaska mining industry sees quiet month Opportunities still exist in depressed economic climate, but government intervention can sometimes make things worse, not better

By CURT FREEMAN For Mining News The

he Alaska mining industry was rela- author tively quiet over the last month with The author T most of the news coming from pro- Curt Freeman, grams completed in 2008. In addition, CPG #6901, is a some programs have already started in well-known geol- 2009 but details are not ready for prime ogist who lives in time gossip. A couple items that did catch Fairbanks. He pre- my eye from the bigger world markets pared this column CURT FREEMAN underscore the fact that opportunities still Feb. 13. Freeman can be reached by exist in this depressed economic climate mail at P.O. Box 80268, Fairbanks, AK and serve to magnify the pitfalls of govern- 99708. His work phone number at ment intervention in the private sector. Avalon Development is (907) 457-5159 and his fax is (907) 455-8069. His email The “opportunity knocks” item was a is [email protected] and his web site is report from Japan where a company report- www.avalonalaska.com. ed that it expects to earn $150,000 this year from the sale of gold recovered from incin- cent of NovaGold’s outstanding shares. erated sludge from one of its sewage dis- MILLROCK RESOURCES announced posal plants. The facility, located in a busy results from drilling at the Daniel’s Creek manufacturing district, reported assays as prospect and surface sampling at the high as 1,890 g/t gold from the incinerated Koyana prospect at its Bluff project near sludge! The 2008 exploration program consisted of of 142.1 million tonnes at an average grade Nome. Five holes totaling 403.26 meters On the “be careful what you wish for” geological mapping, 22 reverse circulation of 0.74 g/t gold (3.39 million ounces), were drilled at Daniels Creek with a goal side of the ledger is the report of inflation holes totaling 2,656.3 meters and 24 based on a cut off grade of 0.50 grams of of substantiating historic drill results report- rates in Zimbabwe reaching a mind-numb- trenches totaling 1,243.6 meters. The gold per tonne. At a cut off grade of 0.30 ed by BHP BILLITON and expanding the ing 231 million percent! Inflation rates drilling and trenching successfully tested a g/t gold the indicated resource comes in at estimated boundaries of the reported miner- were so bad that the government (other- previously identified, strong gold-arsenic 223.4 million tonnes grading 0.64 g/t gold alization. Highlights of the drilling at wise known as “root cause of the prob- soil anomaly that measures over 2,600 (4.6 million ounces) along with inferred Daniels Creek include 5.94 meters grading lem”) decided to revalue the Zimbabwe meters long and 660 meters wide. resources of 279.4 million tonnes grading 1.397 grams of gold per metric ton in hole dollar by knocking 12 zeros off the Geological mapping identified a strong 0.57 g/t gold (5.12 million ounces). BLF1001 and 1.37 meters grading 3.819 Zimbabwe dollar! That means one trillion east-west structural trend with veining that Perhaps most important, higher grade g/t gold in hole BLF1003. Significant former Zimbabwe dollars are now valued is interpreted to control thicker, higher resources grew by 65 percent relative to nugget effect was noted in the drilling at one Zimbabwe dollar! Gold mines oper- grade zones. previous resource estimates and these high- results and additional drilling will be ating in the country also were authorized to In addition, Millrock Resources report- er grade zones remain open to expansion to required to determine the true grade and sell their gold to anyone rather than just to ed that it purchased a 100 percent interest the northeast, southwest and south. In addi- thickness of mineralization. At the Koyana the Zimbabwe central banks, further has- in the Estelle gold project from London- tion, many of the holes completed in the prospect, work completed in 2008 extend- tening the flight of wealth from this once based HIDEFIELD GOLD PLC, and second half of 2008 bottomed in significant ed mineralization 500 meters to the south- prosperous nation. MINES TRUST CO., a privately held mineralization, suggesting good potential east to what is now known as the Koyana As we in the United States look for Alaska-based company. The consideration for expanding the deposit at depth. The Beach showing. Grab samples of quartz- solutions to our own financial problems, paid for the 100 percent interest is company also announced commencement carbonate-arsenopyrite veins returned sig- we need to be mindful of just how bad $125,000 and issuance of 1.25 million of its 2009 Phase-1-reverse-circulation-drill nificant gold values ranging from 8.8 to things really can get. Millrock shares. A 2.5 percent royalty will program which is scheduled to complete 35 38.6 g/t gold. be payable upon production. This agree- infill drill holes totaling 6,000-7,000 meters Western Alaska Millrock Resources also announced ment replaces the previous agreement within key infill and step-out zones adja- drilling results at its Divide project near between the parties and eliminates cent to and within the known resource In a series of financial transactions Nome. Significant results include 15.24 NOVAGOLD RESOURCES announced that Millrock’s $5 million work commitment on zone. meters grading 3.1 g/t gold in hole SELECT RESOURCES it had closed its previously announced $75 the project. announced that DIV3004, 1.52 meters grading 9.9 g/t gold ASARCO million financing and converted the re-evaluation of 1989 drilling by in hole DIV3019, 10.67 meters grading 1.2 Eastern Interior at its Shorty Creek gold project near remaining balance of a $20 million bridge g/t gold in hole DIV3002 and 6.10 meters AURAMET TRADING LLC INTERNATIONAL TOWER HILL Livengood has indicated one hole with an loan with to grading 1.8 g/t gold in hole DIV3012. In MINES LTD. announced a year-end update 80-foot-thick near-surface interval that stock. Auramet subsequently announced addition, trenching results include 22.86 of mineral resources at its rapidly expand- averages 2.2 g/t gold, including a higher- the sale of the converted shares to a series meters grading 2.2 g/t gold in trench ing Livengood gold project. The updated grade interval averaging over 4.5 g/t gold of institutional investors, including DIV2016T, 16.76 meters grading 1.5 g/t indicated gold resource is 128.6 million over 30 feet. The lower 50 feet of this same NovaGold’s largest shareholder, gold in trench DIV2008T and 15.24 meters ELECTRUM STRATEGIC RESOURCES tonnes at an average grade of 0.83 g/t gold hole averages over 0.6 g/t gold and the hole grading 1.1 g/t gold in trench DIV2012T. LLC, giving the latter company 28.7 per- (3.41 million ounces) and inferred resource see FREEMAN page 6 6 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING

G GUEST COLUMN Bright spot surfaces in grim outlook Provision in economic stimulus package aimed at cleaning up abandoned mine lands may blunt pressure for mining law reform

By J. P. TANGEN For Mining News Mining On Feb. 13, however, when the American Reinvestment and Recovery & the Act passed, it provided for $1.5 billion for abandoned mine cleanup on he hardships that the economic crisis federal lands. According to at least one report, if the full total were is imposing on Americans across the law spent on AML cleanup, it would translate into between 34,000 and T country at all economic levels and in The author, 97,000 new jobs, something we all can applaud. all regions cannot be overstated. The J.P. Tangen has mining industry is not immune and may been practicing have been a bellwether for many as risk mining law in J.P. TANGEN there was no legal reason for not leaving mined, have unsuccessfully sought “good capital began to dry up over a year ago Alaska since 1975. He can be reached at the waste of mining behind when moving Samaritan” protection so they could enter anticipating the spreading disaster. [email protected] or visit his Web site at on to more promising locations. As public on the contaminated lands, remedy the The entire horizon is not entirely black, www.jptangen.com. His opinions do not objection wound its way through the law- insult and profitably and lawfully recover however. Gold as an intuitive store of necessarily reflect those of the publishers making process, the old ways became ille- the remaining values. wealth has continued to hold its ground of Mining News and Petroleum News. gal and then nonexistent. Bonding The key to resolving this complicated well, and prognosticators are fairly consis- replaced promises, and responsible parties issue has remained concealed until the tent with their anticipation that gold will and Health Administration. The result found themselves on the short end of current stimulus package emerged from pass through the $1,000 per ounce level being that in 2008, the smallest number of superfund inquiries. Congress. On Feb. 13, however, when the soon and remain there. mining-related deaths occurred since Nonetheless, an open sore has long fes- American Reinvestment and Recovery Other more tentative commentators records have been kept. tered and has been the bane of all respon- Act passed, it provided for $1.5 billion for project that metal mining, in general, will Where it was contended that mining sible mining operators. That lesion is the abandoned mine cleanup on federal lands. lead us out of the recession, because as a polluted the air and water, responsible so-called abandoned mine lands or AML. According to at least one report, if the full basic industry, mineral commodities are response to environmental regulations has Mining operations from one end of the total were spent on AML cleanup, it fundamental to construction of all sorts. It made the industry an environmentally American West to the other, dating back would translate into between 34,000 and is fair, I think, to surmise that America friendly neighbor across the state and into the 19th Century, did scar the earth 97,000 new jobs, something we all can will build its way out of this crisis, across the nation. and did leave hundreds of trickles of acid applaud. whether we are building schools, parks, Where it was said that mining tore up mine drainage sterilizing the soil. In some Today’s mining industry does not need bridges or highways. the earth, reclaimed site after reclaimed instances, the contaminated sites were mining law reform. The mining law of There is one other tiny silver lining in site is evidence that mining is a transient massive. 1872 is often pointed to as a relic, as if to this dark cloud as well. Over the past 30 use whose footprint can be and is being Everyone, inside the industry and out, imply that it hasn’t been modified and years, Congress has levied many assaults successfully erased from the countryside has called for their cleanup. Opponents of amended many times, although it has. on the domestic mining industry. The as deposits are mined out and native vege- mining have sought to lay an extraordi- AML, however, has been a painful thorn industry has met the attacks in many tation and wildlife re-establish a home in nary punitive tax on mining operations in in our side. Now, perhaps we can put that ways. Where the allegations were that formerly mined areas. order to fund AML cleanup. Mining com- ancient curse behind us while forging a mining was a dangerous industry, we Historically, mining has scarred the panies, recognizing that such abandoned new image for a strong, healthy, vibrant weathered the creation of the Mine Safety earth. In the days before strict oversight, sites might once again be profitably industry for the new millennium. G continued from page 5 sected 115 feet of over 0.87 grams of gold Bacon, J.F. Slack, J.N. Aleinikoff, and J.K. beneath overburden on Gold Hill itself. per tonne. The company currently is seek- Mortensen is available for downloading at FREEMAN ing joint venture partners to assist in explo- http://pubs.usgs.gov/pp/1760/a/. Southeast Alaska ration of the project. UCORE URANIUM announced the dis- was terminated in mineralization at a 220 The U.S. GEOLOGICAL SURVEY Alaska Range covery of additional light and heavy rare foot depth. The company also reported that recently released data on research conduct- MAX RESOURCES CORP. announced earth element mineralization at its Bokan drilling in 1990 returned several holes with ed in the Mt. Veta area of the Fortymile final drilling assays from its Gold Hill Mountain project near Ketchikan. New significant gold over significant widths, District. Included in this work were some molybdenum project in the Valdez Creek assays from the Geoduck zone include drill including hole RH19 which intersected 235 surprising findings on mineralized and district. The company completed a 10-hole hole LM08-46, which returned 1.2 meters feet of over 0.49 g/t gold, the upper half of unmineralized core from the LWM and diamond drill program (7,664 feet) in 2008. grading 3160 parts per million yttrium, which includes 70 feet of over 0.87 g/t gold Fish Creek prospects on FULL METAL Significant results included 605 feet grad- 3768 ppm zirconium, 515 ppm niobium, starting at surface. Hole RH16 intersected MINERAL’s Fortymile project under lease ing 0.026 percent molybdenum including 5737 ppm light rare earth elements and 170 feet of over 0.50 g/t gold at the top of from DOYON LTD. New results presented 160 feet grading 0.043 percent molybde- 1701 ppm heavy rare earth elements. This the hole, and 110 feet of over 0.59 g/t gold include uranium-lead age dates, whole rock num in hole 08-1, 670 feet grading 0.032 mineralization appears to be structurally in the lower third of the hole. RH18 inter- and trace element analyses, petrographic percent molybdenum in hole 08-5, 1,000 continuous with the rare earth element- sected 175 feet of over 0.45 g/t gold which data and lead isotope data. The report, enti- feet grading 0.043 percent molybdenum in bearing I&L Zone about 2 kilometers to the includes 90 feet grading over 0.53 g/t gold tled, “Mesozoic magmatism and base-metal hole 08-6 and 510 feet grading 0.050 per- northwest. As was the case in the I&L while hole RH15 intersected 125 feet of mineralization in the Fortymile mining dis- cent molybdenum in hole 08-6. The pro- zone, mineralization in the Geoduck zone over 0.58 grams of gold per tonne, the bot- trict, eastern Alaska — Initial results of pet- gram has expanded the identified mineral- is abnormally enriched in the more eco- tom 60 feet of which averaged over 0.76 rographic, geochemical, and isotopic stud- ized system to the north and northeast and nomically valuable heavy rare earth ele- grams of gold per tonne. Hole RH17 inter- ies in the Mount Veta Area,” by C. Dusel- has shown that mineralization extends ments. G PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 7 NORTH OF 60 MINING

G ALASKA, NORTHWEST CANADA Base metal price slump stings industry Drop in industrial metal values hammers Alaska, Northwest Canada producers, explorers; analysts hope stimulus will hasten recovery

By SHANE LASLEY Mining News

he plummet in base metal prices in 2008 will be felt across Alaska and T Northwest Canada’s mining sectors. Miners of the far north reaches of North America enjoyed a bounty when base metal prices reached record values in 2007, carrying into 2008. The escalation of base metal prices was driven by expanding markets in China and India, as well as a building, retail and technology boom in the West. Mines producing the industrial metals enjoyed unprecedented returns from the ore shipped to a hungry market, and SHERWOOD COPPER CORP.) (FORMERLY MINING CORP. CAPSTONE investors bought up the stocks of junior explorers searching across the vast north- ern expanse for zinc, copper, lead and other base metals demanded by global markets. Over the past year these essential met- als have lost about 65 percent of their value as worldwide economic meltdown has resulted in weakened demand and growing stockpiles. Base metals important to industry Base metals are important elements to In October 2007 the first load of high-grade copper concentrates from Capstone Mining Corp’s (formerly Sherwood Copper Corp.) Minto Alaska and Northwest Canada’s mining Mine in Yukon Territory departs the Skagway Ore Terminal in Southeast Alaska on its way to smelters in Asia. industry. Some of the world’s largest and most important deposits of these industri- There are currently no producing alu- dict when value will return to the junior they are letting their stock prices recover al metals can be found in the region, and minum or nickel mines in Alaska and mining sector. Most of the juniors explor- for as long as they can before raising junior explorers continue to discover Northwest Canada, though multibillion- ing Alaska and Northwest Canada have money for the 2009 exploration season. other potential sources of these essential dollar Japanese conglomerate Itochu seen their stocks begin to recover since The full effect of the economic downturn minerals. Corp. has agreed to invest $40 million in the beginning of 2009. see BASE METAL page 8 Zinc is the largest contributor to the Pure Nickel Inc. for exploration of the Many of the juniors have indicated economics of Alaska’s mining industry. Man high-grade nickel-copper-platinum The Red Dog mine in Northwest Alaska group element property in Interior is the world’s largest zinc producer. The Alaska. zinc-lead mine, operated by Teck The Man project is not the only project Cominco Ltd., accounts for about 80 per- in the region that has drawn interest from cent of the zinc produced in the United Asia. In June China-based Jinduicheng States. Molybdenum Group, Ltd. and Northwest Zinc and lead are also important con- Nonferrous International Investment tributors as by-product credits to the eco- Company Ltd. closed a deal to buy Yukon nomics of the Hecla Mining Co.’s Greens Zinc Corp. The Vancouver-based compa- Creek silver mine near Juneau in ny is in the final phase of constructing a Southeast Alaska. mine at the silver-rich Wolverine zinc- Capstone Mining Co. (formerly copper-lead-silver-gold deposit in south- Sherwood Copper Corp.) operates the eastern Yukon. The Wolverine Mine is Minto copper mine, Yukon’s only produc- scheduled to begin production in 2009. ing hardrock mine. When Minto went into production in 2007, copper was sell- Juniors hit hard ing for nearly US$4 a pound. The red Junior exploration companies have metal now sells for around $1.50 a pound. been hit especially hard by the credit cri- There are several other copper projects sis and subsequent financial meltdown. in various stages of exploration and Many of Alaska and Northwest Canada’s development in Alaska and Northwest top explorers watched their stock prices Canada. The Pebble project in Southwest plummet more than 90 percent in 2008 as Alaska is the world’s largest known investors abandoned this sector. deposit of copper. Northern Dynasty The hit on base metal explorers has Minerals Ltd. estimates the massive been twofold. In addition to the drop in metal deposit contains 48 billion pounds base metals prices, the meltdown in the of copper and 1.9 billion pounds of financial services industry has dried up molybdenum. Northern Dynasty and 50- credit available to the junior explorers. 50 partner Anglo American PLC plan to Exploration companies with gold proper- seek permits to develop the massive ties have fared much better than base metal deposit, which also hosts a signifi- metal explorers. cant quantity of gold, in late 2009 or early Financial experts are reluctant to pre- 2010. 8 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 FILE PHOTO

The Red Dog zinc-lead mine in Northwest Alaska, operated by Teck Cominco Ltd., accounts for about 80 percent of the zinc produced in the United States. continued from page 7 – for example, General Electric down 67 agree that prices will remain low in 2009. Most analysts pin the hope of base percent, the collapse of Bear Stearns and Base metal stockpiles have increased metal price recovery on the economic BASE METAL Lehman Brothers filing bankruptcy – the substantially since mid-year 2008 as a stimulus plans being implemented by junior mining sector, with the potential of result of the worldwide economic slow- China and the United States, the top two on these far north explorers probably will high rate returns on investment, is looking down and the subsequent drop in consumers of industrial metals, respec- not be known until the second quarter of a lot more attractive. demand for consumer goods. tively. the year. Frederick Sturm, executive vice pres- Forecasters say it will take time for One market analyst told Mining News Plans to stimulate demand ident and chief investment strategist for the stimulus plans to have any real effect that considering the hit many of the blue Analysts are reluctant to make any long- Toronto-base Mackenzie Financial Corp. on base metal prices, citing the need for chip stocks have taken over the past year term base metal price forecasts, but most advised miners attending the Northwest an increase in consumer spending to bol- Mining Association’s annual meeting in ster the demand side of the equation. December to scale back their projects to Analysts predict it will take until at least meet the lower demands of market con- the third quarter of 2009 for the effects ditions. of the Obama stimulus plan to fuel con- Many producing base metal mines sumer spending. have reduced production or shut down The infrastructure portion of the plan altogether as a result of reduced demand could have a more immediate effect on and/or the economics of projects due to the industrial metals, especially zinc, low prices. which is used to galvanize many of the Production cut-backs seem to have items needed in building projects. stabilized the escalating zinc stockpiles, Metals analysts say it is hard to calculate but surpluses of aluminum, nickel and what effect the $787 billion stimulus copper continue to grow. It is anticipated plan will have on base metals until they that in addition to production cuts, a rise have more details on the spending, espe- in demand will be needed to reduce the cially the dollars to be spent on infra- mounds of base metals. structure. G PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 9

Base metals; essential building blocks of modern civilization FORREST CRANE Man has used base metals for at least 9,000 years and his ability to make use of these essential metals has gone hand-in-hand with the development of modern civilization. Today, virtually every element of human endeavor involves the use of industrial metals in one form or another. “I generally like to point out to people that when you look around, probably 90 percent of what is above the ground used to be below the ground and got here principally through mining,” Hunter Dickinson Ltd. President and CEO Ron Theissen said in the company’s January newsletter. Copper is one of the oldest metals ever used and has been one of the important materials in the development of civilization. Electrical uses of copper, including power transmission and generation, building wiring, telecommunication and elec- tronic products, account for about three quarters of modern copper use. Zinc, primarily used for corrosion protection, is the world’s fourth commonly used metal. Over half of the zinc in the U.S. is used for galvanizing iron and steel. Alloys are the second most common use of zinc. Zinc oxide is widely used as a white pigment in paints, and as a catalyst in the manufacture of rubber. Lead-acid batteries account for 88 percent of the use of lead, another metal pro- duced at the Red Dog Mine along with zinc. Nickel’s properties have made it an important alloy metal. About 85 percent of nickel use is in alloys, mostly in stainless steel production. Nickel is a key part of Man has used base metals for at least 9,000 years and his ability to make use of these essential many common rechargeable battery systems – used in electronics, power tools, metals has gone hand-in-hand with the development of modern civilization. Today, virtually transport and emergency power supply. every element of human endeavor involves the use of industrial metals in one form or another. The ability of molybdenum to withstand extreme temperatures without signif- icantly expanding or softening makes it useful in applications that involve intense heat. More than 43 million kilograms, or 102,500 tons, of molybdenum is used as an alloying agent each year in stainless steels, tool steels, cast irons, and high-tem- perature superalloys. Because virtually every product humans use contain, or requires tools, equip- FORREST CRANE ment or products made up of base metals, the demand for these essential metals is closely related to global economic conditions and the demand for consumer goods. The recent global recession has resulted in a worldwide slowdown in buy- ing. In order to keep in stride with lowered consumer demand, mining companies are trying to put the brakes on base metal production, but as global economic con- ditions improve, the market will once again demand an increased supply of these essential building blocks of modern civilization. —SHANE LASLEY STEVEN MERRITT 10 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 Mineral Roundup in northern B.C.

Here’s a look at mining companies tal spending, including an expansion of an NI 43-101-compliant inferred gold extend mine operations at the Kemess active during 2008 in northern British the mine. resource estimate of 1.04 million ounces South camp by 12 years. After Northgate Columbia. HAWTHORNE GOLD CORP. com- consisting of 32.4 million metric tons at a received the negative review in October pleted surface and underground rehabili- gold grade of 1.0 g/t. The junior is also 2007, the company wrote off its $32 mil- Producing mines tation of the historic Table Mountain exploring the Taurus II property for lion investment in the project. mine site in 2008. In April, potential additional gold for mill feed. BARRICK GOLD CORP. closed the THOMPSON CREEK METALS CO. HAWTHORNE acquired CUSAC GOLD NORTHGATE MINERALS CORP. Eskay Creek Mine in the first quarter of operates the Endako Mine, a molybde- MINES LTD. and immediately consolidat- produced 185,162 ounces of gold and 2008 after 12 years of operation and pro- num producer for more than 40 years. ed the Cassiar Gold Camp near Highway 51.9 million pounds of copper from the duction of more than 3.5 million ounces Located near Fraser Lake in northern No. 37 by staking and incorporating Kemess South Mine in 2008. Located in of gold and 170 million ounces of silver. British Columbia, Endako includes three 56,300 hectares, or 23,361 acres, sur- north-central British Columbia, the The mine, which employed 800 workers open pits, a mill and a roasting facility, rounding the existing mine into its work Kemess South complex consists of an at peak production, was located in north- and is operated as a joint venture, with plan. Table Mountain has a permitted and open-pit mine, a 52,000-metric-ton-per- western British Columbia near Stewart. Thompson Creek holding a 75 percent operating mill and tailings facility, 13 day mill and camp for 400 full-time In 2007, Eskay Creek produced 68,000 interest and Japan-based SOJITZ CORP. adits-portals and about 25 kilometers, or employees. In March, the British ounces of gold at total cash costs of nega- having the remaining 25 percent. The 16 miles, of underground infrastructure. Columbia government accepted a review tive $188 per ounce of gold, net of silver miner produced 25 million to 26 million The junior intends to begin production in panel recommendation that Northgate not by-product credits. Ongoing exploration pounds of moly in 2008. Due to a sharp late 2009. Hawthorne is completing a be allowed to proceed with development by KENRICH-ESKAY MINING CORP. on drop in molybdenum prices last year, digital geological model of all previous of the nearby Kemess North deposit. The claims optioned from ST. ANDREW Thompson Creek decided recently to mining operations and exploration proj- miner had hoped to produce 4.1 million GOLDFIELDS LTD. and by HATHOR scale back planned 2009 production at ects at Table Mountain and the nearby ounces of gold and 1.5 billion pounds of EXPLORATION LTD. as well as Barrick Endako and curtail $300 million in capi- Taurus Project. The Taurus deposit hosts copper reserves at Kemess North and Gold on 300,000 acres of claims in and around the historic Eskay gold camp bodes well for additional mineral produc- tion in the area.

Advanced stage Gifjg\Zkfij;\m\cfg\ij8jjfZ`Xk`fef]:XeX[X exploration projects

REDCORP VENTURES LTD. and its subsidiary, REDFERN RESOURCES LTD., are pursuing the reopening of the Tulsequah Chief project, an underground zinc-copper-lead-gold-silver mine that G;8:)''0 closed in 1957.The junior estimated N_\i\k_\nfic[Ëjd`e\iXc`e[ljkipd\\kj enough mineral reserves at Tulsequah for eight years of production, with a strong likelihood that more ore may be found at greater depth and immediately adjacent to the known orebody. Redfern continued construction of infrastructure and facili- @ek\ieXk`feXc ties for a 2,000-metric-ton-per-day mine in 2008 and worked to obtain permits for an unusual transportation system on the :fem\ek`fe# Taku River in Alaska. The junior propos- es to move ore produced at Tulsequah to Juneau, where it would be transferred to KiX[\J_fn conventional vessels bound for the Skagway Ore Terminal. The ore then @em\jkfij

see B.C. ROUNDUP page 11 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 11 continued from page 10 cast to average 88 million pounds of cop- per and 217,000 ounces of gold. Terrane B.C. ROUNDUP modified its plans in late 2008 to mini- mize project risk in 2009. The junior deposits. Collectively, these contain intends to begin construction in the third measured, indicated and inferred quarter. resources of 107.9 million metric tons, SABLE RESOURCES LTD. is focused 123 million metric tons, and 2.572 billion on the development and exploration of its metric tons, respectively. The Lost Fox 58 square kilometers of gold- and silver- deposit was recently assessed in a full

COURTESY OF REDCORP VENTURES LTD. OF REDCORP COURTESY related properties in the Toodoggone MARSTON bankable feasibility study by region of northern British Columbia, CANADA LTD. indicating very attractive which hosts low-grade, large tonnage rates of return for the development under copper-gold porphyry deposits, such as a variety of production and coal price sce- NORTHGATE MINERAL’s Kemess narios. Fortune is seeking potential strate- Mine, and high-grade, low-tonnage gold- gic partners and is evaluating potential silver epithermal deposits, such as transactions for advancing the Mount SABLE’s Baker and Shasta mines and the Klappan project. nearby historic Cheni mine. Sable owns a COPPER FOX METALS is focused on fully-permitted 250-t/d mill and support- developing the Schaft Creek Project 45 Despite significant advances in 2008, Redcorp Ventures Ltd. has suspended project con- ing infrastructure. During the past year, kilometers, or 28 miles, west of the struction activities indefinitely at the Tulsequah Chief zinc-copper-lead-gold-silver project in northwestern British Columbia because of uncertainty related to development costs. Sable has pursued underground develop- Stewart-Cassiar Highway in northwestern ment, mill rehabilitation, an 8,000 metric- British Columbia to first production in TERRANE METALS CORP. modified CORP., and has rapidly advanced the ton bulk sample extraction, tailings facili- 2013. According to a September 2008 its development plan in late 2008 for the project toward production in 2012. A ty expansion, and other improvements to pre-feasibility study, Schaft Creek, one of Mt. Milligan porphyry-style copper-gold March 2008 feasibility study outlined a meet new regulatory compliance require- the largest copper-gold deposits in deposit in central British Columbia in conventional truck-shovel open pit mine ments. Canada, hosts a measured and indicated response to the recent credit crisis. at Mt. Milligan with a 60,000-metric-ton- SHERWOOD COPPER CORP., which resource of 1.4 billion metric tons con- Terrane purchased the project in 2006 per-day copper flotation concentrator at a merged with Capstone Mining Co., in taining 4.76 billion pounds of copper, 4.5 after the previous owner, Placer Dome capital cost of $917 million. Annual pro- November, acquired the high-grade million troy ounces of gold, 32.5 million Inc., was acquired by BARRICK GOLD duction over a 15.3-year mine life is fore- troy ounces of silver, and 255.2 million see B.C. ROUNDUP page 12 pounds of molybdenum, with potential for expansion. Copper Fox has earned 70 percent of the 93.4 percent interest it has the right to acquire in the project from TECK RESOURCES LTD. Copper Fox is currently preparing a bankable feasibility study of a 100,000 t/d open pit mine with a mine life of 22-plus years. If the study results are positive, Teck has the right to partner with Copper Fox in the project. IMPERIAL METALS CORP. acquired the Red Chris copper-gold deposit in northwestern British Columbia in 2007. Exploration since indicates the copper- gold deposit 18 kilometers, or about 11 miles, southeast of Iskut, B.C., is likely much larger than a 2005 resource esti- mate of 446 million metric tons, grading 0.36 percent copper and 0.29 grams per metric ton gold. Imperial is working to develop Red Chris as an open pit mine with a 30,000 t/d process plant and a 25- year mine life with known reserves. Development of the deposit is contingent upon several factors, including construc- tion of a power line to the area, currently being considered by the B.C. government. In 2008, the project cleared both provin- cial and federal environmental reviews, but MiningWatch Canada challenged the project in the courts. In December, the Supreme Court of Canada agreed to hear an appeal in the case, a process expected to take a year. Galore Creek, one of the largest and highest-grade undeveloped porphyry- related copper-gold-silver deposits in North America, spent 2008 in a holding pattern. NOVAGOLD RESOURCES INC. and TECK COMINCO LTD., 50-50 own- ers of the project, abruptly curtailed proj- ect construction in late 2007 when cost projections for the venture nearly doubled earlier estimates, leaping to potentially $5 billion. A January 2008, NI 43-101-com- pliant report estimated the Galore Creek deposit contains 785.7 million metric tons of measured and indicated resources at a 0.21 percent copper equivalent cut-off grade, grading 0.52 percent copper, 0.37 g/t gold, and 4.4 g/t silver; and 357.7 mil- lion metric tons of inferred resources, grading 0.36 percent copper, 0.18 g/t gold, and 3.7 g/t silver. After months of working to develop a more cost-effective plan with a new feasibility study, the part- ners opted in early 2009 to put the project on care and maintenance indefinitely. Teck cited difficulties related to low met- als prices and tight credit markets as key factors in the decision.. Available now at the low price of $78.00 per year. Order now! 12 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

Mineral Roundup in Nunavut Territory Junior exploration and development companies have hatched in September had fizzled by November. In early become the driving force behind much of the mining February 2009, Tahera said it had determined that any activity in the Nunavut Territory in recent years. In 2008, plan for restructuring or liquidating the company would major mining companies also increased their presence, not result in any return for its stockholders. as they did in 2007, by conducting exploration work and by making strategic alliance agreements with the juniors. Advanced exploration Indian and Northern Affairs Canada is the primary gov- & development projects ernment regulator in Nunavut under the Nunavut Land Claims Agreement. In February 2008. INAC’s Nunavut AREVA RESOURCES CANADA INC. with partners Region Mining Recorder’s Office Feb. 16 said it issued DAEWOO INTERNATIONAL CORP. and JCU CANADA 120 prospecting permits for 2009, down 43 percent from EXPLORATION COMPANY LTD. are exploring the the 214 permits issued a year ago and the lowest number Kiggavik property, 75 kilometers, or 43 miles, west of since 2004. Baker Lake and the Sissons site, about 17 kilometers, 11 Here’s a look at mining companies active during 2008

NUNAVUT GEOSCIENCE, INDIAN AND NORTHERN AFFAIRS AND NORTHERN INDIAN GEOSCIENCE, NUNAVUT miles, southwest of Kiggavik. Kiggavik consists of 17 in Nunavut. Workers watch their footing as they head into the under- mineral leases totaling 3,972 hectares, or 9,811 acres, and ground portal at Meliadine West where Comaplex Minerals all currently on Crown land. Sissons consists of 22 min- Producing mines Corp. completed a bulk sample program for the Meliadine gold project in Nunavut Territory, which one study said could pro- eral leases totaling 14,730 hectares, or 36,383 acres, on duce 2.29 million ounces of gold over a mine life of 9.5 years. both Crown and Inuit-owned land. Eighteen claims make Early in 2008, TAHERA DIAMOND CORP., owner up the St. Tropez block to the north of the Kiggavik and operator of Jericho Diamond Mine – Canada’s third, million in the third quarter of 2007. However, financial property. Geological resources on the properties are cur- and Nunavut’s first diamond mine – filed bankruptcy and losses were reported as a result of operational difficulties, rently estimated at 52,000 metric tons uranium, or 134 sought creditor protection. Tahera opened the Jericho in a high Canadian dollar, higher oil prices and an early clo- million pounds U O at an average grade of 0.23 percent 2006 and recovered and processed 155,000 metric tons 3 8 sure of the ice-road in 2006. In February 2008, Tahera uranium. Recoverable reserves are currently estimated at (average grade of 0.79 carats per metric ton) during the suspended its mining operations, but continued ore pro- about 44,000 metric tons uranium, or 114 million fourth quarter of 2007, resulting in production of 122,500 cessing and diamond recovery until high-grade ore stock- carats valued at US$11.6 million, compared with US$8.4 piles were exhausted. A plan sponsorship agreement see NUNAVUT ROUNDUP page 13

continued from page 11 Companies have various early-stage significant baritic-zinc-lead SEDEX al claims at the site of the historic projects underway. Among them: mineralization. In April, a NI 43-101 Polaris-Taku mine exceeding 1 million B.C. ROUNDUP COLUMBIA YUKON report estimated inferred resources at ounces of gold. EXPLORATIONS INC. has been explor- Akie of 23.6 million metric tons grading TASEKO MINES LTD. acquired the Kutcho Project in May from Western ing the Storie molybdenum deposit for 7.60 percent zinc, 1.50 percent lead and Aley niobium project in northern British Keltic Mines Ltd. in an effort to diversi- the past three years, since acquiring 13 grams per metric tons silver with a 5 Columbia in November 2007 in hopes fy its assets. Kutcho hosts a high grade rights to do so from Calgary-based percent cutoff. China-based TONGLING of diversifying its mineral production copper-zinc-gold-silver deposit in north- Eveready Resources Corp. Storie is NONFERROUS METALS GROUP and complementing its 1 million pounds western British Columbia about 120 located 6 kilometers, or about 4 miles, HOLDINGS CO. LTD. recently pur- of annual production from the Gibraltar kilometers southeast of Dease Lake. The south of the former Cassiar mining camp chased a 13 percent stake in Canada Mine farther south. A similar metal to new owner resumed the permitting near Highway 37 in northwestern British Zinc for $4.9 million, providing capital molybdenum, niobium also is used in process and engaged local First Nations Columbia. The property has a historic to advance the Akie project. steel-making. Discovered in 1980 by and stakeholders in consultation, while NI 43-101-compliant inferred mineral SEABRIDGE GOLD INC. completed COMINCO, the Aley deposit could sup- studying lower-cost ways to advance resource of 101.6 million metric tons an NI 43-101 preliminary economic port a mine producing 8 million to 12 Kutcho’s toward production. Capstone grading 0.067 percent moly, or 0.112 assessment of its gold-copper KSM million pounds of niobium annually recently updated a resources estimate for percent MOS2, and is open along strike Project in the Iskut-Stikine River region, based on historic exploration. Kutcho, saying it contains more than 12 to the east, north and west and to depth. about 65 kilometers, or 40 miles, north- HARD CREEK NICKEL CORP. is million metric tons of ore, at a 3.7 per- In 2009, Columbia Yukon intends to west of Stewart, in December. The developing the Turnagain project, a cent copper-equivalent grade, with more update a NI 43-101 mineral resource miner envisions a 30-year mine life, giant, disseminated nickel-sulphide than 492.4 million pounds of copper, estimate for Storie based on results of recovering more than 19 million ounces deposit located in Northcentral British 653.8 million lbs. of zinc, 121,000 recent extensive drilling; complete nec- of gold and 2.85 million pounds of cop- Columbia in preparation for a turn- ounces gold and 10.86 million ounces essary studies; and obtain partners for per from the Kerr, Sulphurets, and around in nickel prices. Although the silver in contained metal. developing the property. Mitchell zones. deposit has potential for further expan- CANADA ZINC METALS CORP. is CANARC RESOURCE CORP. is sion, a large resource with more than Early stage exploring the Akie Project in northeast- developing the New Polaris gold project 580,000 metric tons of recoverable nick- exploration projects ern British Columbia. The property cov- as an 80,000-ounces-per-year operation el has already been identified. The proj- ers 6,400 hectares, about 15,814 acres, with an eight-year mine life in north- ect has potential to produce 20,000 met- Northern British Columbia has expe- about 20 kilometers, or 12.4 miles western British Columbia, 60 kilome- ric tons, or 44 million pounds of nickel rienced a spurt in mining exploration in southeast of the Cirque property, a well ters, or 37 miles, east of Juneau near the annually with an estimated mine life of recent years due high commodities defined zinc-lead asset owned 50-50 by B.C. - Alaska border. Canarc has esti- 29 years. prices and heightened interest in under- TECK RESOURCES and KOREA ZINC. mated a resource on 2,956 acres of explored regions of the province. Akie hosts the Cardiac Creek deposit, crown-granted and modified grid miner- Sources: Companies listed

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Making Connections For The Future Anchorage Fairbanks 7RORII6WUHHW‡$QFKRUDJH$. 9DQ+RUQ5RDG‡)DLUEDQNV$. 3‡) 3‡) PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 13 continued from page 12 NUNAVUT ROUNDUP pounds. U3O8. In 2007, AREVA collected engineering and environmental data at Kiggavik and Sissons to support a pre- feasibility study. Following completion of the study, AREVA and its joint venture partners elected to initiate a feasibility study in 2008. Based on a November 2008 project description, three Kiggavik deposits and the Andrew Lake deposit at Sissons would be mined via truck-shovel open pit, while the End Grid deposit would be developed as an underground mine. Studies to date support a proposed mine life of about 17 years, with pre- OF CANADA AFFAIRS AND NORTHERN INDIAN GEOSCIENCE, NUNAVUT operation construction requiring three years and any post-operation decommis- sioning requiring five years. With submis- sion of a project description in November 2008, the Kiggavik Project entered the Nunavut regulatory review process and is awaiting a decision on its conformity with the Kivalliq Land Use Plan. If the project receives conformity, its description will be forwarded to the Nunavut Impact Review Board for an environmental impact review. AGNICO-EAGLE MINES LTD. contin- ued development of its Meadowbank Project, located 75 kilometers, or 43 Mining related activity picked up considerably during the summer at Milne Inlet near Baffinland Iron Mine Corp.’s Mary River iron project, miles, north of Baker Lake, in 2008 with Nunavut’s single largest mining exploration program in 2008. C$9 million of aggressive exploration that identified significant mineralization out- is estimated to have a combined resource gram. In 2008, Baffinland completed a rounds, but excludes, the existing wholly side the currently known reserve and of more than 10 million ounces of gold. two-year, C$90 million project of bulk owned mining leases. resource. The company also established a In one of the largest exploration programs sampling as well as road construction SABINA SILVER CORP. is advancing project office in Baker Lake and obtained in Nunavut, Newmont spent US$33 mil- from site to tidewater, expansion of its the Hackett River Project, located 104 Type A Water License for the project from lion drilling up to 80,000 meters with 12 camp to a year-round facility with 200- kilometers, or 62 miles, south-southwest the Nunavut Water Board. Current plans core drills in the belt in 2008 in a half- worker capacity and ongoing geotechnical of Bathurst Inlet in the West Kitikmeot call for mining three of the four gold dozen areas including the Doris, Madrid and geo-mechanical studies. The company Region in Nunavut. Hackett River is one deposits that have been discovered along and Boston deposits. The Nunavut Water also expanded its land holdings through a of the largest undeveloped silver-zinc the Meadowbank trend, a 25-kilometer- Board issued a Type A water license to joint venture with Nunavut Tunngavik deposits of its type in the world with indi- long shallow feature encompassing Newmont for the proposed mining proj- Inc. to include Inuit-owned land covering 35,000 hectares, or 86,500 acres, of land. ect. 16,695 hectares, or 41,236 acres that sur- see NUNAVUT ROUNDUP page 14 Meadowbank has proven and probable COMAPLEX MINERALS CORP. is gold reserves of 3.5 million ounces, how- advancing the Meliadine Project about 25 ever, results from 2008 drilling will be kilometers, or 16 miles, northeast and incorporated into a new resource estimate northwest of Rankin Inlet in Nunavut, due in early 2009. The project is still on toward feasibility and production. The track for first production in 2010. Calgary-based junior recently reported ADVANCED EXPLORATIONS INC. is positive results of a NI 43-101-compliant advancing its Roche Bay Magnetite preliminary assessment of the gold prop- Project located 60 kilometers, or 37 miles, erty, which it co-owns with MELIADINE southwest of Hall Beach on the Melville RESOURCES LTD., a private company Peninsula in northern Nunavut. The held by a Denver investment fund. Roche Bay iron deposit was discovered in Comaplex completed an underground the 1950s and has a non-NI 43-101-com- bulk sample program on the Tiriganiaq pliant historic resource estimate of 1 bil- Deposit during the summer of 2008. lion metric tons of iron ore. Located near Results were incorporated into the scop- a natural deepwater harbor, Roche Bay ing study. In late 2008 after extensive enjoys transportation efficiencies that drilling over three deposits on Meliadine could enhance its prospects for develop- East and Meliadine West, Comaplex Welcome to the neighborhood ment. In 2008, Advanced Explorations reported an independent estimate for the focused on developing a preliminary eco- property of 2.16 million ounces gold in nomic assessment and a pre-feasibility indicated resources and 1.65 million study of the project, now pending comple- ounces gold in inferred resources. tion. The Toronto-based junior also updat- Meliadine could produce 2.29 million ed its business plan for the Roche Bay ounces of gold over a mine life of 9.5 project and is currently considering mov- years, using a combination of open pit ing from a traditional iron-pellet operation and underground mining, according to the to a granulated pig iron (nugget) business. study. Comaplex plans to begin regulatory NEWMONT MINING CORP. of permitting for the project as soon as pos- Canada Ltd. acquired the Doris North sible. Being a good corporate citizen means being Project 130 kilometers, or 81 miles, BAFFINLAND IRON MINES is a good neighbor, and as a good neighbor southwest of Cambridge Bay in the Hope advancing the Mary River Iron Ore proj- we’ve made taking care of the environment Bay greenstone belt of Nunavut with its ect, located 160 kilometers, or 99 miles, a top priority. That’s why we have supported US$1.53 billion purchase of MIRAMAR south of Pond Inlet. The project is voluntary reclamation programs to sustain MINING CORP. in March. The property Nunavut’s single-largest exploration pro- vibrant and thriving plant and animal communities. Nobody told us to do it. Nobody had to, because at Fort Knox Mine

being a good neighbor is just part of the job. kinross.com 14 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 continued from page 13 ture for bodies termed the Eastern Sheet Complex. Stornoway engaged SRK NUNAVUT ROUNDUP CONSULTING (CANADA) INC. to pro- vide a conceptual resource study of the cated resources totaling 47.1 million met- complex based on existing diamond ric tons grading 4.67 percent zinc, 149.9 recovery data, which outlined the poten- g/t silver, 0.32 percent copper, 0.68 per- tial for 24.1 million to 40.3 million carats cent lead and 0.32 g/t gold and an addi-

COURTESY OF NUNA LOGISTICS COURTESY of diamonds in 12.4 million to 16.0 mil- tional inferred open resource totaling 12.4 lion metric tons of kimberlite, using a dia- million tons grading 3.77 percent zinc, mond content of 235 ± 30 carats per hun- 142.4 g/t silver, 0.27 percent copper, 0.52 dred metric tons. A mini-bulk sample was percent lead and 0.31 g/t gold. Sabina extracted for DMS processing to provide envisions an open pit and underground additional insights into the grade, dia- operation with a mine life of about 14 mond value and overall economic poten- years and use of the proposed Bathurst tial of the property. Results are pending. Inlet Port and Road to transport mine out- At the 420,870-hectare Qilalugaq project, put about 82 kilometers, or 51 miles, to more till samples were collected in 2008 tidewater. In January 2008, Sabina filed a to help identify the source bodies. Type A water license application with the Stornoway also reported encouraging Nunavut Water Board, triggering the per- results from work on the Nanuq, Nanuq mitting for the project, which is ongoing. North and Churchill properties. During This year, Sabina is focused on reducing the 2008 field season, Stornoway under- costs and following up on high copper took ground geophysical surveys over 20 values being encountered near surface in targets optioned from BAYSWATER the Jo Zone at Hackett River with C$4.5 URANIUM CORP. that had been selected million in spending on a 6,700-meter drill from an airborne survey previously under- program to test 11 targets. taken by that company. Stornoway also STARFIELD RESOURCES INC. is collected 115 till and sediment samples advancing the Ferguson Lake Project from the property. The sample results from exploration to development. A full were used to prioritize targets for follow- scoping study was completed last spring, up work, which could include drilling. and Starfield is working on an energy- efficient hydrometallurgical flow sheet to recover nickel, copper, cobalt, palladium Early stage and platinum from the potential massive exploration projects sulphide ore. The Ferguson Lake property, located 160 kilometers, or 99 miles, south UNOR INC. is the operator on the of Baker Lake, consists of 261 minerals 86,700-hectare Asiak River and 126,100- claims over 622,270 hectares, or 1.54 mil- hectare Coppermine properties and the lion acres. Nickel, copper, cobalt, plat- This map is a conceptual illustration of the Bathurst Inlet Port and Road project, a 50/50 joint 211,130-hectare Lac Rouviere joint ven- venture between Nuna Logistics Ltd. and Kitikmeot Corporation of Nunavut. Canada’s min- ture with CAMECO CORP. The properties inum and palladium-bearing semi-massive ing industry has lobbied the government for support in building the proposed transporta- to massive sulphides occur in lenses inter- tion infrastructure that could help to open up the Far North to development of its abundant are located 50 kilometers, or 32 miles, cepted in drill hole intersections over 15.5 mineral resources. southeast of Kugluktuk; 100 kilometers, kilometers, or 9.6 miles, of east-west further define the low-sulphide, high- central Ferguson Lake area, and conduct- or 60 miles, south of Kugluktuk; and 110 strike length across the property. During grade PGE mineralization in the West ed grassroots surface exploration to evalu- kilometers, or 67 miles, southwest of the 2008 drilling season, Starfield zone. Additional drilling for this target is ate gold potential of its 207 active claims Kugluktuk, respectively. Cameco owns 19 punched 51 diamond drill holes totaling warranted and planned for the future. surrounding the Ferguson Lake Project. percent of UNOR. In 2008, a detailed 19,902 meters to upgrade additional Starfield also initiated exploration on Pending results, a small-scale drill pro- (150-meter flight line spacing) airborne resources to the indicated status, and to three geophysical targets away from the gram to test targets will be considered for magnetic-gamma-ray spectrometer survey the 2009 season. (1,490 line-kilometer) was completed STORNOWAY DIAMOND CORP. is over the northern parts of the Coppermine pursuing advanced exploration of 5.04 property. Ground geophysical surveys million acres in Nunavut, including the (160.75 kilometers) were conducted and, Aviat and Qilalugaq diamond projects on as a result of this work, a new conductor the Melville Peninsula with partners was discovered on claim CM 56. The HUNTER EXPLORATION GROUP and Wolf Creek conductor was extended to BHP BILLITON and the Churchill the north. Drilling at hole HB-08-60 inter- Diamond Project as a partner with sected a 6.4-meter radioactive interval on SHEAR MINERALS LTD. Exploration the western fault boundary of the Hot work in 2007 and 2008 at Aviat led to a Creek graben. Assays of samples from revised geological model and nomencla- this interval indicate a peak content of 0.105 percent U3O8 over 0.7 meters. Geological, geophysical and drill data confirm the importance of this structure as a secondary control of mineralization. Imaging studies (using natural electro- magnetic field information) indicate major basement uplift in the centre of the prop- erty. On the Lac Rouviere Option and Joint Venture, UNOR must incur explo- ration and development expenditures of C$3 million by March 31, 2010. In 2008, progress was made on the mapping and prospecting that started in 2007, particu- larly in the western half of the property which is mainly till-covered. During this work, 123 radioactive boulders and 21 bedrock occurrences were discovered. A cluster of 16 radioactive fault-rock boul- ders were found in the southeastern part of the property, at the contact between the Lady Nye Sandstone and the granitic basement. One of these boulders returned values of uranium up to 345 parts per mil- lion, high values of arsenic (1,270 ppm), and high values of nickel (873 ppm); these latter elements are commonly found within Athabasca unconformity deposits. A total of 110.7 kilometers , or 68 miles, of ground geophysics was undertaken on

see NUNAVUT ROUNDUP page 15 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 15 continued from page 14 ects – Darby, Barrow and Nanuq North – in Nunavut. The junior also conducted NUNAVUT ROUNDUP grassroots exploration work in 2008 with HUNTER EXPLORATION GROUP on the Lac Rouviere property. prospecting permits and claims. On the NEWMONT CANADA MINING LTD. Darby Project, Indicator followed up on is also exploring Kiyuk Lake, an early- earlier discoveries and found more kim- stage gold exploration property with mul- berlite boulders. It acquired 32 prospect- tiple arsenic anomalies in lake sediments ing permits covering 495,000 hectares, and several gold showings in boulders 200 kilometers southwest of the Darby and outcrops. The 2008 field program was project. A till sampling program was a follow-up of the previous year’s geo- undertaken in the 2008 field season. In physical and prospecting program. partnership with PEREGRINE Several targets were drill tested; results DIAMONDS LTD. and Hunter Exploration have not been released. Group, Indicator explored the Nanuq ADRIANA RESOURCES INC. is pursu- North property 300 kilometers northeast ing the Bear Valley uranium project, of Baker Lake. Late in the field season, a which covers 350 square kilometers, or OF CANADA AFFAIRS AND NORTHERN INDIAN GEOSCIENCE, NUNAVUT reverse circulation drilling program tested about 135 square miles, along the eastern five targets and resulted in the discovery edge of the Hornby Bay Basin. Part of a of a new kimberlite, NQN-001. Plans for larger exploration program that included an aggressive 2009 exploration program work on Adriana’s MIE nickel-copper- A communications satellite erected by Toronto-based UNOR Inc. at one of its 2008 summer exploration camps in Nunavut Territory. will include more drilling. platinum-group elements project and the INTREPID MINES LTD. and its part- UNOR LTD. UNAD joint venture project with ples, showing 2,873 kilograms of explored numerous targets over ner, AURA SILVER RESOURCES INC., INC. , Bear Valley is also a joint venture hypabyssal, fine- to medium-grained more than 300 million acres in Nunavut are exploring the Greyhound polymetallic with UNOR. In 2008, the project under- macrocrystic kimberlite was collected in 2008 and recovered significant quanti- property about 40 kilometers, or 25 miles, went a detailed (150-meter flight line from 12 holes drilled into Tuwawi, and ties of diamonds and kimberlites in vari- north of Baker Lake. Samples from vol- spacing) airborne magnetic-gamma-ray analyzed for microdiamonds by caustic ous prospects, including Amaruk, Qavvik, canogenic massive sulphide, or VMS- spectrometer survey (1,810 line-kilome- fusion. The largest stone recovered was Tuktu-1B and Victoria Island. style, mineralization discovered in 2007 ters) covering the UNAD-JV flown in 0.237 carats. INDICATOR MINERALS INC. is DIAMONDS NORTH RESOURCES 2008. The processing of the data is con- exploring for diamonds on three key proj- see NUNAVUT ROUNDUP page 16 tinuing. CAMECO CORP. explored the Aberdeen and Turqavik uranium deposits in 2008 with a 1,500-meter diamond drill and in-fill prospecting program; sampling of outcrops and boulders covering 1,039 field stations; and detailed mapping over selected outcrops. Pervasive hematite alteration in TUR-003 was identified to a depth of 280 meters where the drill hole ended, and a single boulder of mafic vol- canic rock with hematite alteration and sooty pitchblende mineralization was dis- covered during the ground prospecting and mapping program. Interpretation of the results is ongoing. COMMITTEE BAY RESOURCES LTD. holds more than 360,000 hectares of land in the Committee Bay greenstone belt with prospective geology and controls more than 85 percent of the belt. More than 40 zones on the belt have gold potential, including the Three Bluffs Deposit, which has a near-surface high- grade inferred mineral resource of 1.9 million metric tons at 8.0 g/t gold for 487,000 contained ounces. Using a lower cutoff grade, this inferred mineral resource converts to 5.1 million metric tons grading 4.0 g/t Au for 657,000 ozs. Exploration work in 2008 consisted of mapping, sampling, prospecting, ground geophysical surveys, and drilling. CORSA CAPITAL LTD. and partner, KAMINAK GOLD CORP., are pursuing the SY gold project covering 101,170 hectares, or 250,000 acres, in the Archean Yathkyed greenstone belt. The mineral rights to the property do not include dia- mond rights, which are held by INDICATOR MINERALS INC. and HUNTER EXPLORATION GROUP. There is a 2 percent net smelter royalty/gross over-riding royalty payable to Hunter Exploration Group. CORSA CAPITAL LTD. is the project operator for explo- ration programs at the property. In 2008, exploration work began in August and consisted of prospecting and soil/till sam- pling. DIAMONDEX RESOURCES LTD. is exploring the 425,000-acre Brodeur Project optioned from KENNECOTT in 2005. Kennecott had spent C$9.5 million between 2001 and 2005. Diamondex operated exploration programs 2005-2008 to complete an earn-in by spending C$6 million by the fourth quarter of 2007 to acquire 100 percent interest in project. In 2008, Diamondex released details of microdiamond results from drill core sam- 16 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 continued from page 15 greenstone belt. Historical drilling on the property intersected mineralization at NUNAVUT ROUNDUP depths of up to 50 meters in felsic and intermediate volcanics. OZ Minerals contained 2.4 percent zinc, 8.2 percent recently said it will defer several capital lead, 1.0 percent copper, 10 grams per projects and make C$185 million in cuts metric ton gold and 51 g/t silver. During to operating cost budgets as a result of a 2008, an airborne EM and magnetic sur- review of capital and operating expendi- vey was completed. Based on results of ture budgets in 2009. Feasibility studies this survey and prospecting results from of the Izok Lake and High Lake projects 2007, the 2008 field work focused on will be deferred, and OZ Minerals said it additional prospecting and evaluating the will focus in Canada on further explo- potential of the area using litho-geochemi- ration. cal analyses. Fifty-five assay samples and PEREGRINE DIAMONDS LTD. fol- 146 litho-geochemical samples also were AFFAIRS AND NORTHERN INDIAN GEOSCIENCE, NUNAVUT lowed up in 2008 on promising 2007 collected for further analysis. Sabina Silver Corp. explored its property at Hackett River in 2008 from this snug-looking camp. exploration results by acquiring an addi- KAMINAK GOLD CORP . became the Hackett River hosts one of the largest undeveloped silver-zinc deposits of its type in the world. tional 114 claims, bringing its Nanuq first company to be awarded rights to drilling at Lac Cinquante and testing of Canoe Lake/Bamako; Silvertip and Regan property 225 kilometers, or 140 miles, explore for uranium on privately-held northeast of Baker Lake to a total area of Inuit-owned land in Nunavut with the new targets is currently proposed for the Lake; and other properties scattered 2009 field season. across northern Nunavut’s Interior. One 314,000 hectares, or about 776,000 acres. signing of an exploration agreement with On the 300,000-hectare Flint Lake (225 NUNAVUT TUNNGAVIK INC. for the his- LAURENTIAN GOLDFIELDS LTD. property was optioned to Zinifex Ltd. last with partner TERRANE METALS CORP. spring, and North Arrow is hoping to kilometers, or 140 miles, west-southwest toric Lac Cinquante, now known as the of Clyde River) and the 655,000-hectare Angilak property. Kaminak spun out its pursued the Maze Lake Project 55 kilo- option others. meters, or 32 miles, west of Whale Cove NORTHROCK RESOURCES INC. is Kimmirut (75 kilometers, or 47 miles, uranium interests into a new company, north of Kimmirut) properties, Peregrine KIVALLIQ ENERGY CORP. in 2008. Located in the eastern part of the exploring the Bathurst Inlet area with , of which with partner BHP BILLITON was granted NTI is a shareholder. The Angilak proper- Kaminak greenstone belt, the property partner ROCKGATE CAPITAL CORP. on shows significant indication of gold min- property comprising155 contiguous min- 12 five-year (Flint) and 39 three-year ty hosts the near-surface Lac Cinquante (Kimmirut) prospecting permits in uranium deposit and numerous untested eralization. Large zones of pervasive car- eral claims including 149 active and 6 bonate alteration with disseminated sul- pending claims, totaling 161,186 hectares, February. The 2008 exploration program occurrences of uranium, copper, silver on Kimmirut included geologic mapping, and gold. Historic resource estimates (NI phide mineralization occur along the or 398,129 acres. In August 2008, northeast-trending structural splays. Rockgate transferred these properties to prospecting, ground scintillometer surveys 43-101 noncompliant) suggest uranium and geochemical sampling. One till sam- resources of 11.6 million pounds at an During 2008, Laurentian Goldfields Northrock Resources Inc., its former prospected and collected 80 till samples wholly-owned subsidiary. Northrock is ple from a target on the Kimmirut block average grade of 1.03 percent U3O8. The and 395 rock grab samples collected. primarily focused on the Bathurst Inlet returned 150,000 grains of uraninite. property also has gold and base metal Additional results are pending. Peregrine potential. Field work in 2008 successfully Results are pending. uranium properties and Turner Lake poly- NORTH ARROW MINERALS INC. is metallic properties. The Turner Lake 2008 is planning a field program to evaluate the re-established historical work and show- Flint Lake property and additional work ings including survey grids, trenches, and exploring seven precious and base metals program included surface exploration and properties in Nunavut on 191,000 21 diamond drill holes covering 2,913 on the Kimmirut property in 2009. mineral occurrences. A geophysical anom- Peregrine and BHP also conducted heli- aly representing the Lac Cinquante urani- hectares, or 472,000 acres, including meters. Sixteen holes were drilled in the 19,000 ha, or 47,000 acres, of Inuit- Main showing, with 14 holes testing its copter-borne magnetic/electromagnetic um deposit and its possible strike exten- surveys over the Chidliak Project area last sion to the southeast was identified owned lands held by Nunavut Tunngavik gold zone. Five holes tested the Nickel Inc. Projects include Anialik, an under- Knob showing 2 kilometers south of the summer. In addition to its diamond poten- through ground surveying. Collars for 123 tial, the Chidliak property, located 150 diamond drill holes were re-located and explored greenstone belt near the Arctic Main showing for copper, nickel, gold, Ocean; Oro Property in Hope Bay District platinum and palladium mineralization. kilometers, or 93 miles, north of Iqaluit, historical drill core was re-logged and hosts anomalies of platinum, palladium, sampled. A program of confirmation along strike from the Doris North Project; Zones up to 10 meters thick of semi-mas- sive to massive sulphides were intersect- lead, zinc and copper. The metals anom- ed. Analytical results from the 2008 pro- alies were prospected, mapped and geo- gram are pending. chemical samples were taken concurrently OZ MINERALS LTD. was formed in with diamond exploration. SHEAR MINERALS LTD. 2008 through the merger of two major with part- STORNOWAY DIAMOND CORP. Australian mining companies, ZINIFEX ners INTERNATIONAL SAMUEL LTD. and OXIANA LTD. With this merger, and EXPLORATION CORP. OZ Minerals took over numerous zinc , undertook a field and copper development and exploration program in 2008 on the 809,371-hectare projects in Nunavut. OZ Minerals Limited Churchill Diamond Project (Churchill and and NORTH ARROW MINERALS INC. Churchill West properties) that consisted entered into an agreement to allow OZ of drilling, ground geophysical surveys, Minerals to earn up to a 70 percent inter- till sampling, and the collection of a 26.1- est in the 15,909-hectare Canoe Lake metric-ton mini-bulk sample. Work property located within the High Lake focused on continued exploration of new and promising indicator mineral trains and geophysical anomalies, as well as the evaluation of a system of significantly diamond-bearing, vertically emplaced kimberlite dykes. Forty targets were tested with a reverse circulation drill, resulting in the discovery of two new kimberlites. Shear also completed 14 diamond drill holes and tested 10 targets, which led to discovery of the Kahuna Breccia kimber- lite. A total of 54 diamonds, including three macro diamonds (>0.5 mm in two dimensions), were recovered. Prospecting also resulted in the discovery of 24 new kimberlite float occurrences, plus seven new outcrop-subcrop kimberlite expo- sures. More grab and till samples were collected and all results are pending. The junior also conducted ground gravity and ground penetrating radar test surveys over the Kahuna and Notch kimberlite trends and ground magnetic surveys over select- ed areas. Future work will include prospecting, geophysics and drilling along prominent structural trends and associated kimberlite to examine grade variability and search for zones of higher tonnage potential. SILVERMET INC. continued to explore the Muskox Property in 2008 in

see NUNAVUT ROUNDUP page 17 PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 17

continued from page 16 results. Phase 2 drilling results extended boulders were discovered 18 kilometers, an exploration program in 2008, focus- the copper-moly zone to depth. Assays or about 11 miles, from the nearest ing on drilling 13 diamond drill holes NUNAVUT ROUNDUP returned up to 4.35 percent copper and known kimberlite and in an area distinct completed for a total of 3,172 meters on 0.087 percent molybdenum over 4.0 from all previous discoveries. Two kim- the Mountain Lake, Dismal Lake and ongoing efforts to earn a 70 percent meters. These drilling results extend the berlite clusters were discovered earlier in Kendall River properties. Ground resis- interest in the 53 claims covering 33.4 deposit dimensions to a strike-length of 2008 and the second cluster is 40 kilo- tivity surveys were completed at square kilometers, mostly on Inuit- 900 meters and indicate mineralization is meters, or 25 miles, from this third dis- Mountain Lake and Dismal Lake to owned lands, from PRIZE MINING open at a depth of 200 meters downdip. covery. extend previously existing grids. Of the CORP. and MUSKOX HOLDINGS LTD. A TEM survey is planned to test conti- TERRAX MINERALS INC. operates 13 drill holes, the partners completed The Muskox Intrustion is located 90 nuity and target additional mineralization the Needle gold property, which consists four to followup a radioactive zone inter- kilometers, or 56 miles, south of at depth. of two claims covering 2,090 hectares, sected in 2007; three at Dismal Lakes Kugluktuk. Silvermet has encountered TANQUERAY RESOURCES LTD.’s or about 5,000 acres. KAMINAK GOLD West to infill between target areas drilled significant copper, nickel, cobalt, plat- Baker Lake gold property, 45 kilometers, CORP. optioned Needle to TerraX, in 2007; three at Kendall River on a pre- inum, palladium and gold mineralization or 28 miles, west of Baker Lake, covers which funded a C$650,000, five-hole viously untested occurrence of radioac- in previous exploration. Work undertak- 117,998 hectares, or about 292,000 exploration program in 2008. Needle has tive boulders and three in the Jenny Lake en in 2008 included ground geophysical acres, and spans a 70-kilometer-by-10 numerous high-grade surface gold show- area. The target stratigraphy was inter- (magnetic, electromagnetic) surveys over kilometer area within the Archean ings hosted by banded iron formation sected in each hole, but no new zones of several areas and detailed gravity sur- Woodburn Group, also known as the with geology considered similar to the significant or continuously anomalous veying of an area associated with prior Tanqueray Option under option to past-producing Lupin Gold Mine. radioactivity were encountered. drill results. The junior also acquired FORUM URANIUM LTD. for the urani- Needle contains more than a dozen Analytical results from geochemical satellite imagery of the entire intrusion um and diamond rights. The underlying untested gold occurrences with historical samples of core are pending. and surrounding area, including detailed rocks of the Mum claims also are con- assays greater than 10 g/t gold. Four of In January 2008, TRUE NORTH (1 meter) imagery of the area. sidered to have komatiitic nickel, plat- the five holes drilled last year intersected GEMS staked six additional claims SKYBRIDGE DEVELOPMENT inum, and palladium potential. In 2008, mineralization grading up to 2.47 g/t comprising 18.95 square kilometers, or CORP. formed in January 2007 and Tanqueray tested gold and silver show- gold over 3.25 meters. Hole TXR08-005, 7.32 square miles, contiguous to its began trading on the ings on Jaeger Vein and Jaegar South drilled to test reported historical zinc and existing claims on the Beluga property, Toronto Stock Exchange in May with 12 drill holes of which 11 intersect- lead mineralization, did not intersect any which now covers 38 km2, or 14.67 2008. The company’s main property in ed their intended targets. Results are significant mineralization. square miles. The company also Nunavut is Blue Caribou, which consists pending. TRIEX MINERALS CORP. and acquired eight prospecting permits in of 23,515.63 hectares, or 58,082 acres, TECK COMINCO LTD., operator of PITCHSTONE EXPLORATION LTD. the Crooks Inlet area. True North col- on 23 contiguous claims of both Crown Darby diamond project, increased its have a 50:50 joint venture agreement for lected surface samples from a new sap- land and Inuit-owned. Located 473 kilo- exploration budget on that project in exploring four main properties in the phire prospect named the Kikturiaq meters, or about 293 miles, southwest of 2008 by 18 percent. Darby, which is Hornby Bay Basin, Mountain Lake, (Mosquito) occurrence, which was dis- Kugluktuk, the property hosts a quartz- owned by INDICATOR MINERALS Dismal Lake, Dismal Lakes West (Sandy covered in 2007. The samples included rich, high-grade copper and molybde- INC. and HUNTER EXPLORATION Creek) and Kendall River, 100 kilome- several sapphires, the largest a near- num prospect with accessory silver and GROUP and optioned to Teck, comprises ters, or 60 miles, west and southwest of complete crystal weighing 27.85 grams, gold. In 2007 ALYRIS GOLD CORP., 273 mineral claims covering 280,242 Kugluktuk. The Mountain Lake uranium or 139.24 carats. The company also working for Skybridge confirmed the hectares, or about 692,000 acres. Teck deposit contains the only identified ura- focused on prospecting and mapping mineralization. Skybridge undertook a Cominco can earn a 51 percent interest nium resource in the basin with an within the new permits and claims, and two-phase drill program, using the in Darby by spending C$14 million inferred mineral resource of 8.2 million collecting samples from sapphire occur- results from 2007. Phase 1 drilling before June 2010. Following prospecting pounds U3O8, averaging 0.23 percent rences. totaled 3,600 meters and intersected early in the season, the partners U3O8 contained in 1.6 million metric Sources: Nunavut Geoscience, broad intervals of chalcopyrite with announced that additional kimberlite tons of rock. The companies completed companies listed strong showings of copper in assay 18 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

G ALASKA PDAC honors Donlin Creek gold discovery Garnett, NovaGold will be recognized for role in the discovery and exploration of the massive mineral find in Southwest Alaska

By SHANE LASLEY Mining News

he Prospectors and Developers Association of Canada is set to recognize Richard Garnett and T NovaGold Resources Inc. for their role in the dis- covery and exploration of the multimillion-ounce Donlin Creek gold deposit in Southwest Alaska. The Thayer Lindsley Award for an international min- eral discovery will be presented to the explorers March 2 at the organization’s 2009 International Convention, Trade Show and Investors Exchange. This annual award, which honors the memory of one of Canada’s greatest mine finders, recognizes an individ- ual or exploration team credited with a recent significant SCIENCES ALASKA EARTH OF ROB RETHERFORD, COURTESY mineral discovery anywhere in the world. WestGold explores Donlin WestGold was introduced to the Southwest Alaska gold project by Bruce Hickok, Calista Corp. land depart- ment vice president, in 1988. Prior to going to work for Calista, Hickok had researched the property with Alaska Earth Sciences, the geological firm he co-founded. After becoming con- Anxious to expand the gold resource outlined by WestGold's 1988 and 1989 exploration at the Donlin Creek prospect in vinced of the potential at Donlin, Hickok encouraged Southwest Alaska, Placer Dome had the first drill turning on the property in April 1994 and had about six drills turning by fall. WestGold to explore what he believed would be an excit- ing grassroots gold discovery. identified several areas of mineralization, including Meanwhile, Garnett pioneered the use of an offshore In 1988, convinced Hickok was onto something, Lewis, which is now the primary focus of the current crawler to mine the placers off the beaches of Nome in WestGold acquired the exploration rights to the Donlin resource at Donlin. 1989. His innovative design is still being used to recover Creek prospect, owned by Calista, an Alaska Native WestGold employed a reverse circulation drill rig dur- placer diamonds off the coast of Namibia, and is consid- regional corporation. That same year, WestGold also ing its second season on the property. The drilling con- ered by many as the best mining system for marine plac- acquired placer gold deposits off the shore Nome, Alaska. ducted in 1989 led to the first gold resource calculation at er deposits. WestGold, led by Garnett, began exploring the Donlin the deposit, but it was the last year of WestGold’s explo- Creek property in 1988. During the first year, the compa- ration at Donlin. The explorer went out of business the Placer Dome revives exploration ny completed an extensive grassroots exploration pro- following year and despite the encouraging results only Rob Retherford, another co-founder of Alaska Earth gram that included trenching, rock and soil sampling, limited exploration was carried out until Placer Dome Sciences, took over the role of land department vice pres- mapping, drilling and airborne surveys. The program picked up the prospect in 1995. see DONLIN GOLD page 19

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judypatrickphotography.com PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 19

A brief history of the world-class Donlin Creek gold deposit The discovery story of the multi- million-ounce gold deposit at Donlin Creek began in 1909 when prospec- tors rushed through the region fol- lowing news that gold had been dis- covered on the George River about 50 miles to the southwest. For the

next 25 years, hand and hydraulic SCIENCES ALASKA EARTH OF ROB RETHERFORD, COURTESY placer mining continued on Donlin Creek in Southwest Alaska. In 1941 Robert Lyman started the modern era of placer mining on Donlin Creek. Signing away his entire winter salary, the hardworking miner put a down payment on a HD- 10 Allis Chalmers tractor and a Gould pump marking the first mech- anized placer operations on the creek. Lyman, the second-largest placer gold producer in the Kuskokwim region, continued his operation until 1956. The first hint of the lode source of RC drill rig falls through Donlin Creek on it’s way to begin Placer Dome’s exploration of the multimillion-ounce gold deposit in the spring of 1994. the Donlin Creek placers surfaced in 1955 by United States Geological Survey geologist, W.H. Cady. During his mapping and geological survey of the central Kuskokwim region of Southwest Alaska, Cady noted rhyolitic dikes that later led to further interest in the lode source at Donlin. When Calista Corp. was formed as a result of the Alaska Native Claims Settlement Act in 1971, it selected the land covering the Donlin Creek deposit as part of its settlement. Calista hired Resources Associates of Alaska to survey its lands for mineral potential. In 1974 the geological firm found gold bear- ing quartz veins at Donlin. Returning the following year, Resource Associates found gold val- ues ranging from 2 ppm to 20 ppm in trenches dug at the prospect. While early hints of lode poten- tial were being investigated above Donlin Creek, Robert Lyman’s sons –following in their father’s footsteps – had returned to mine the placers in the valley below. The Lyman heirs mined another decade before interest once again returned to the lode Over the 20 years since WestGold, led by Richard Garnett, first explored Donlin Creek in 1988. Recent drill results have identified measured and source of the Donlin Creek placers. indicated gold resources of 31.7 million ounces with an additional 4.2-million-ounce inferred gold resource. The worlds of the Donlin Creek placer miners and the explorers for continued from page 18 Placer Dome director of property acquisi- joint venture agreement with Placer the lode source converged in 1986. tion Richard Duncan long to grab the Dome, agreed to spend $12 million over That year Calista’s newly hired lead DONLIN GOLD prospect. 10 years to earn a 70 percent interest in Anxious to follow up on WestGold’s Donlin Creek. geologist, Bruce Hickok, and his ident for Calista after Hickok, his former former partner, Rob Retherford, work, Placer Dome had the first drill turn- partner died in an avalanche in 1991. ing on the property in April 1994 and had NovaGold outlines 31.7 million ounces went to Donlin to follow up on Retherford, convinced that Calista held a about six drills turning by fall. Over the Much of NovaGold’s senior manage- Resource Associates’ earlier find- significant deposit at Donlin, presented next six years, Placer Dome spent about ment team was part of Placer Dome’s ings. the project to Placer Dome in the fall of $30 million outlining a 13-million-ounce Alaska Exploration Group at the time the Hickok and Retherford’s investi- 1993. gation confirmed the soil anomalies gold resource. company acquired Donlin Creek. After looking over the previous work NovaGold Resources Inc., in a 2001 discovered a decade earlier. While done at Donlin Creek, it did not take the pair was scouring the hills, the see DONLIN GOLD page 20 Lyman brothers were drilling a bench above Donlin Creek in search of additional placers. When the Lymans discovered silvery clay they called on the geologists to take a look. The arsenopyrite laden clay convinced the geologists that Donlin Creek deserved further investiga- tion. The following year, WestGold began exploring what would become one of the world’s largest known gold deposits. —SHANE LASLEY 20 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

G ALASKA Aussie miner finds opportunity in Alaska Black Range Minerals grabs near-development -stage coal project in Southcentral Alaska; seeks other mining investment in North

By SHANE LASLEY ate the underground potential at upper coal. “We are a diverse resources Mining News Jonesville. Those programs will likely start “We have been in discussions with a company. Once you have local at breakup or soon thereafter, Haynes number of Japanese and Chinese groups n an effort to discover projects outside knowledge in a district, then said.” about the quality of the coal to see if there Australia’s highly competitive mining opportunities arise, and yes, we The historic coal project also has per- is a ready market, and there is a strong indi- I sector, Perth-based Black Range are certainly interested in other mits in place to construct a box-cut and cation that yes, we would find a buyer for Minerals Ltd. began investigating the opportunities, not just in coal but develop a trial underground mining opera- the coal; so it’s really now a process of United States for new regions to explore. In tion. in the base and precious metal finding how much coal there is and 2008, the miner from Down Under nar- “There is a permit in place for us to put whether we can economically extract that sectors as well, here in Alaska.” rowed its search to Alaska, discovering a in a box-cut and to extract 17,000 tons of coal and export it to a suitable market,” near-production coal project in the —Black Range Minerals managing director, coal from underground,” Haynes Haynes said. Southcentral region of the state. Mike Haynes explained. “The timing on that will be During his recent visit to Alaska, Black somewhat dependent on the results of our Looking for more opportunities Range Minerals Managing Director Mike drilling program.” Jones Coal Mine. Haynes also said competition for explo- Haynes told Mining News, “Alaska fell According to Haynes, Black Range Black Range has agreed to issue the 15 ration projects in Australia is fierce, and, into a group of five anticipates starting a bulk sample program million shares at the time of the lease trans- while many of its contemporaries are look- or six other states in the next 12-18 months but it will be fer and will pay the lease holders the US$2 ing to the geologically similar Africa, that we believe are dependent on the earlier programs at the million when commercial-scale mining Black Range has chosen to look north. He highly prospective project. begins on the properties. The current lease said the company will be looking for other and have reason- Additional permits would be required to owners also will retain a 2 percent “adjust- opportunities while it is here. able mining law, commence commercial-scale mining. and we perceived Alaska to be a little bit ed gross value” royalty on all production “Australia is quite a competitive envi- less competitive than some of the lower 48 from the project. Infrastructure in place ronment; it is probably home to some of the best explorers in the world, and there is an states such as Nevada. So, six or eight Drilling starts in spring In addition to having all the permits in months ago, we came up here looking into place to explore and complete early-stage active capital market for raising money for the resources sector as a whole; in base and According to Black Range, it has the mining, the project also has good infra- exploration within Australia. But that cre- precious metals but also in the coal sector, right to reprocess tailings from the historic structure for extracting the coal and getting ates a lot of companies and creates a lot of and eventually that led us to identifying the mine and estimates about 500,000 metric it to market. competition for projects within Australia. Jonesville Project.” tons of clean coal could be recovered from The Jonesville Project is readily accessi- For the last five or seven years, I have been tailings. The project currently has permits ble from several minor roads that extend involved in projects that are more focused The deal in place to start tailings reprocessing. The from the sealed Glenn Highway, which on identifying opportunities that are out- In January the Western Australian company plans to begin drilling the tailings itself passes a short distance to the south of side Australia where things are less com- exploration company said it had agreed to in the spring. the project. A fully operational rail line petitive and possibly (have) cheaper acqui- pay 15 million shares of its common stock “We are just designing a combination of connects the town of Palmer about 20 kilo- sition prices than projects in Australia,” and US$2 million for 100 percent interest a drilling and trenching program to access meters, or 12 miles, to the southwest of the Haynes explained. “We are a diverse in the Jonesville project, located about 60 the quantity and quality of the tailings at project to the port of Seward 300 kilome- resources company. Once you have local miles, or 100 kilometers north of the Jonesville project with the view of ters, or 190 miles, further south where knowledge in a district, then opportunities Anchorage. The advanced-stage coal proj- eventually reprocessing them. At the same ships can be loaded to take the coal to mar- arise. And yes, we are certainly interested ect is comprised of two leases covering time or immediately following that pro- ket. in other opportunities, not just in coal but 1,450 acres and includes the historic Evan gram, we are looking at a reasonable size Black Range is currently looking in the base and precious metal sectors as diamond drilling program to further evalu- toward Asia for buyers of the Jonesville well, here in Alaska.” G

continued from page 19 escalated the inferred resource by 161 per- After eight years of exploration, cent to 6.2 million ounces of gold. DONLIN GOLD NovaGold has outlined one of the After eight years of exploration, largest undeveloped gold deposits in NovaGold has outlined one of the largest NovaGold President and CEO Rick undeveloped gold deposits in the world. Van Nieuwenhuyse and NovaGold Vice the world. Recent drill results have identified measured and indicated Recent drill results have identified meas- President of Strategic Development Greg ured and indicated gold resources of 31.7 Johnson are both former members of the gold resources of 31.7 million million ounces grading about 2.5 grams Placer Dome Alaska Exploration Team, ounces grading about 2.5 grams per per metric ton, with an additional 4.2-mil- and founding members of NovaGold. Van metric ton, with an additional 4.2- lion-ounce inferred gold resource. Nieuwenhuyse was the vice president of million-ounce inferred gold resource. exploration for Placer Dome and Johnson Construction targeted for 2012 was a geologist at the Donlin Creek proj- tributed to the explorers’ success at Donlin Barrick Gold Corp. purchased Placer ect. Another member of the Placer Dome Creek. NovaGold had a phenomenal 2001 Dome in 2006, taking control of Placer Alaska Exploration Group was NovaGold season at Donlin Creek. The 42-hole pro- Dome’s stake in Donlin Creek. Barrick Vice President of Exploration Joe gram that year increased the measured and also tried to buy out NovaGold, but the Piekenbrock. indicated gold resource at Donlin by 92 junior resisted the gold giant’s overtures. This continuity, in large part, has con- percent to 4.4 million ounces of gold, and The aggressive takeover bid by Barrick and NovaGold’s resistance caused con- tention between the Donlin Creek part- ners. In late 2007 the two companies set aside their differences and formed the Donlin Creek LLC, a 50-50 partnership between the junior and the major to advance the development of the multi-mil- lion-ounce gold property. Working together the partners have developed a preferred project design for the world-class gold project and are work- ing on a feasibility study expected to be complete by April. The partners foresee a mine at Donlin producing about 50,000 metric tons per day using onsite diesel and wind cogeneration for power. Using this design, Donlin Creek would operate for more than 20 years and potentially pro- duce 1 million to 1.5 million ounces of gold per year. The companies plan to start permitting by the end of 2009 and begin construction in 2012. G Companies involved in Alaska and DIRECTORY northwestern Canada’s mining industry

The Red Dog mine in northwest Alaska.

Mining Companies Alaska Cover-All cessing capabilities, statewide service. Specializing in 6740 Jollipan Crt. low temperature steel and wear plate. Anchorage, AK 99507 Fairbanks Gold Mining/Fort Knox Gold Mine Contact: Paul Nelson, mgr. American Tire Corp. Fairbanks, AK 99707 Phone: (907) 346-1319 • Fax: (907) 346-4400 P.O. Box 518 Contact: Lorna Shaw, community affairs director E-mail: [email protected] Chino, CA 91708-0518 Phone: (907) 488-4653 • Fax: (907) 490-2250 Contact: Scott Coon Contact: Abraham Hengyucius, President Email: [email protected] • Web site: www.kinross.com Phone: (907) 646-1219 • Fax: (907) 646-1253 Phone: (626) 698-0002 • Fax: (626) 698-0151 Located 25 miles northeast of Fairbanks, Fort Knox is Email: [email protected] E-mail: [email protected] Alaska’s largest operating gold mine, producing National Call Center: 1-800-268-3768 Website: www.americantire.us 340,000 ounces of gold in 2004. We are the Alaska dealers for Cover-All Building As the 1st U.S. manufacturer producing 63” giant OTR tires, American Tire Corporation (ATC) manufac- Systems. Steel framed, fully engineered, LDPE fabric Rimfire Minerals Corp. tures all sizes of OTR tires for oilfield, mining, con- covered, portable buildings in 18 to 270 foot widths Vancover, BC V6C 1G8 Canada struction, and port handling industries on west coast and any length. Contact: Ahnna Pildysh, Mkt. Coordinator USA. All ATC-made OTR tires have performance- Phone: (604) 669-6660 • Fax: (604) 669-0898 Alaska Earth Sciences guaranteed warranty and product liability insurance. Email: [email protected] • Web site: Anchorage, AK 99515 Arctic Foundations www.rimfire.bc.ca Contact: Bill Ellis and Rob Retherford, owners Anchorage, AK 99518-1667 Gold and silver projects in Alaska, Yukon, BC and Phone: (907) 522-4664 • Fax: (907) 349-3557 Contact: Ed Yarmak Nevada. Preferred partner of senior mining firms. E-mail: [email protected] Phone: (907) 562-2741 • Fax: (907) 562-0153 Partnered with the world’s three largest gold produc- A full service exploration group that applies earth sci- Email: [email protected] ers. ences for the mining and petroleum industries provid- Website: www.arcticfoundations.com ing prospect generation, evaluation and valuation, Usibelli Coal Mine Soil stabilization – frozen barrier and frozen core dams exploration concepts, project management, geographic Fairbanks, AK 99701 to control hazardous waste and water movement. information systems and data management. We also Contact: Bill Brophy, vp cust. relations Foundations – maintain permafrost for durable high provide camp support and logistics, geologic, geochem- Phone: (907) 452-2625 • Fax: (907) 451-6543 capacity foundations. Email: [email protected] • Web site: www.usibelli.com ical and geophysical surveys. Other Office Austin Powder Company Alaska Frontier Constructors P.O. Box 8236 P. O. 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Anchorage, AK 99515 601 W. 5th Avenue, Suite 400 301 Calista Court Contact: Paul Sander, manager Anchorage, AK 99501 Suite A Phone: (907) 522-5200 • Fax: (907) 522-1645 Contact: David Gonzalez Anchorage, AK 99518 Email: [email protected] Phone: (907) 562-2792 • Fax: (907) 562-4179 Phone: (907) 279-5516 • Fax: (907) 272-5060 Website: www.3m.com E-mail: [email protected] Web site: www.calistacorp.com Serving Alaska for over 34 years, 3M Alaska offers total Web site: www.aicllc.com solutions from the wellhead to the retail pump with a AIC provides cost-effective solutions to resource CH2M HILL broad range of products and services – designed to development industries. We provide innovative ideas 949 E. 36th Ave., Ste. 500 to meet each requirement through the provision of improve safety, productivity and profitability. Anchorage, AK 99508 best-in-class people and equipment coupled with Contact: Emily Cross Air Liquide exceptional performance. 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C North Pole, AK 99705 2800 South Cushman Anchorage, AK 99507 Phone: (907) 488-1266 • Fax: (907) 488-077 Contact: Dan Socha, branch mgr. Contact: Joe Obrochta, president E-mail: [email protected] Phone: (907) 456-2719 • Fax: (907) 451-0449 Contact: Monique Henriksen, VP Environmental analytical soil testing for GRO, DRO, Kenai Office: Phone: (907) 278-2208 • Fax: (907) 677-7261 RRO, and UTEX. Field screening and phase 1 and 2 205 Trading Bay Rd. E-mail: [email protected] site assessments also available. Contact: Will Bolz, branch mgr. The 100 percent Alaska Native owned and operated Phone: (907) 283-3880 • Fax: (907) 283-3759 Full-line steel and aluminum distributor. Complete pro- see next page 22 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 catering company on the North Slope, catering and Contact: Sunny Munroe housekeeping to your tastes, not ours. Phone: (867) 874-5134 Advertiser Index Cell: (867) 444-2441; (403) 829-9707 Construction Machinery E-mail: [email protected] • Web site: www.ntcl.com 5400 Homer Dr. 3M Alaska...... 12 NTCL, Canada’s largest and oldest northern marine Anchorage, AK 99518 Air Liquide transportation company, ships dry cargo and fuel to Contact: Ron Allen, Sales Manager Alaska Analytical Laboratory...... 16 communities and resource exploration projects along Phone: (907) 563-3822 • Fax: (907) 563-1381 Alaska Cover-All...... 19 the Mackenzie River, the Beaufort Sea coast and Email: [email protected] • Web site: www.cmiak.com Alaska Dreams Alaska’s North Slope. Other Offices: Alaska Earth Sciences ...... 8 Fairbanks office Alaska Frontier Constructors Oxford Assaying & Refining Corp. Phone: 907-455-9600 • Fax: 907-455-9700 Alaska Interstate Construction (AIC)...... 2 3406 Arctic Blvd Juneau office Anchorage, AK 99503 Alaska Steel Co. Phone: 907-780-4030 • Fax: 907-780-4800 Contact: Gene Pool, manager American Tire Corp...... 5 Ketchican office Phone: (907) 561-5237 Phone: 907-247-2228 • Fax: 907-247-2228 Arctic Foundations...... 9 Fax: (907) 563-8547 Wasilla Office Austin Powder Co. E-mail: [email protected] Phone: 907-376-7991 • Fax: 907-376-7971 Calista Corp. We have offered full service assaying & refining serv- CH2M HILL ice to Alaska’s gold miners for over 28 years. We also Equipment Source, Inc. Chiulista Camp Services/Mayflower Catering . . . . 6 buy sell and trade gold silver & platinum. 1919 Van Horn Construction Machinery ...... 24 Fairbanks, AK 99701 Equipment Source Inc. Pacific Rim Geological Consulting Contact: Jennifer Wormath, marketing and sales Fairbanks Gold Mining/Fort Knox Gold Mine . . . 13 Fairbanks, AK 99708 Contact: Thomas Bundtzen, president Phone: (907) 458-9049 • Fax: (907) 458-7180 Foundex ...... 16 Phone: (907) 458-8951 E-mail: [email protected] Frontier Plumbing Supply...... 12 Web site: www.equipmentsourceinc.com Fax: (907) 458-8511 Fubar Equipment ...... 17 Alaskan distributor for Kubota Engine, Kubota Email: [email protected] Generators, Carlin Burners, Engineered Performance GPS Environmental ...... 23 Geologic mapping, metallic minerals exploration and Ducting, ABC Mine and Tunnel Ventilation. Jackovich Industrial & Construction Supply. . . . . 13 industrial minerals analysis or assessment. Manufacturer of portable heaters, EnviroVacs, Judy Patrick Photography ...... 18 Emergency-Showers, Light Towers. Lynden...... 15 Panalpina MRO Sales 4305 Old International Airport Rd., Suite A Foundex Pacific Nature Conservancy, The Anchorage, AK 99502 2261 Cinnabar Loop North Star Equipment Services (NSES)...... 4 Contact: John Hodel, business unit manager Anchorage, AK 99507 Northern Air Cargo Phone: (907) 245-8008 Contact: Howard Grey, manager Northern Transportation Co. Fax: (907) 245-8018 Phone: (907) 522-8263 • Fax: (907) 522-8262 Oxford Assaying & Refining Corp...... 7 E-mail: [email protected] E-mail: [email protected] • Website: Pacific Rim Geological Consulting ...... 7 International and domestic freight forwarding and www.foundex.com PacWest Drilling Supply/Taiga Ventures ...... 20 logistics services. Integrated solutions for supply chain Other offices: Panalpina ...... 3 management. Specialists in oilfield and mining projects. Surrey, BC Canada Rimfire Minerals...... 8 Contact: Dave Ward Shaw Alaska Salt+Lite Creative...... 8 Phone: 604-594-8333 2000 W. International Airport Rd, C-1 Email: [email protected] Shaw Alaska...... 4 Anchorage, AK 99502 Drilling services relating to exploration, geotechnical Taiga Ventures/PacWest Drilling Supply ...... 20 Contact: Jane Whitsett, office director investigations and wells. Tutka LLC...... 23 E-mail: [email protected] URS ...... 23 Phone: 907-243-6300 • Fax: 907-243-6301 Frontier Plumbing Supply, Inc. Usibelli Coal Mine Website: www.shawgrp.com 981 Van Horn Rd. Shaw Alaska is a subsidiary of The Shaw Group, one of Fairbanks, AK 99701 the World’s largest providers of engineering, design, Contact person: Bill Vivlamore, President Lynden Air Freight • Lynden International construction, environmental, infrastructure, fabrication Phone: (907)374-3500 Lynden Logistics • Lynden Transport and manufacturing services. Fax: (907) 374-3570 Anchorage, AK 99502 E-mail: [email protected] Contact: Jeanine St. John Taiga Ventures Website: www.frontierplumbing.com Phone: (907) 245-1544 • Fax: (907) 245-1744 2700 S. Cushman Other Office: Email: [email protected] Fairbanks, AK 99701 8630 Toloff St. The combined scope of the Lynden companies includes Mike Tolbert - president Anchorage, AK 99507 truckload and less-than-truckload highway connections, Phone: 907-452-6631 • Fax: 907-451-8632 Frontier Plumbing is your Alaskan Owned Full Line scheduled barges, intermodal bulk chemical hauls, Other offices: Supplier of Plumbing, heating and Industrial Piping scheduled and chartered air freighters, domestic and Airport Business Park Products. international air forwarding and international sea for- 2000 W. International Airport Rd, #D-2 warding services. Anchorage, AK 99502 Fubar Equipment, LLC Phone: 907-245-3123 905 Vicki Way Email: [email protected] Wasilla, AK 99654 MRO Sales Web site: www.taigaventures.com Contact person: Raquel Armstrong, Owner Anchorage, AK 99518 Remote site logistics firm specializing in turnkey Phone: (907)376-7834 Contact: Don Powell portable shelter camps – all seasons. Fax: (907) 376-7843 Phone: (907) 248-8808 • Fax: (907) 248-8878 E-mail: [email protected] Email: [email protected] Website: www.mrosalesinc.com Teck Cominco Serving the Mining industry with heavy equipment 3105 Lakeshore Drive service and repair on all makes of heavy equipment, MRO Sales offers products and services that can help solve the time problem on hard to find items. Building A, Suite 101 also, welding and fabricating. Serving Alaska for over Anchorage, AK 99517 30 years, from North to South, East to West, we do Contact: James Kulas our best. Get fubared, you’ll like it. North Star Equipment Services (NSES) 790 Ocean Dock Rd. Phone: 907-426-9129 • Fax: 907-426-2108 GPS Environmental Anchorage, AK 99510 Email: [email protected] Industrial Water/Wastewater & Mining Equipment Contact: Bryan Davis, business development Website: www.teckcominco.com 7750 King St. Phone: 907-263-0120 • Fax: 907-272-8927 Teck Cominco is a diversified mining company that has Anchorage, AK 99518 E-mail: [email protected] been investing in Alaska for over 30 years. Teck Contact: Paul Schuitt Website: www.northstarak.com Cominco manages both Red Dog and Pogo Mines. Phone: (907) 245-6606 • Cell: (907) 227-6605 Specializing in VSM and module pile installations Fax: (928) 222-9204 including drilling and driving needs. Heavy lift, turn- Tutka, LLC (formerly PSSI) Email: [email protected] key crane operations, 20 to 300 ton capacity. 6250 Tuttle Place, Unit #5 Web site: www.pgsenvironmental.com Forklifts to 97,000 lbs. Anchorage, AK 99507 GPS Environmental, LLC is a manufacturer’s represen- Contact: Crystal J. Nygard, principle tative company representing companies that manu- Northern Air Cargo Phone: (907) 272-8010 • Fax: (907) 272-9005 facturer water treatment, wastewater treatment, 3900 W. International Airport Rd. Email: [email protected] mining equipment and modular camps. Anchorage, AK 99502 Other offices: Contact: Mark Liland, acct. mgr. Anch./Prudhoe Bay 3002 Industrial Ave. Jackovich Industrial & Construction Supply Phone: (907) 249-5149 • Fax: (907) 249-5194 Fairbanks, AK 99701 Fairbanks, AK 99707 Email: [email protected] • Website: www.nac.aero Website: www.tutkallc.com Contact: Buz Jackovich Serving the aviation needs of rural Alaska for almost Tutka, LLC (formerly PSSI) provides environmental and Phone: (907) 456-4414 • Fax: (907) 452-4846 50 years, NAC is the states largest all cargo carrier safety technical consulting services to oil & gas, mining, Anchorage office moving nearly 100 million pounds of cargo on sched- utility, environmental, engineering and transportation Phone: (907) 277-1406 • Fax: (907) 258-1700 uled flights to 17 of Alaska’s busiest airports. NAC’s industries. 24- hour emergency service. With 30 years of experi- fleet of DC-6, B-727, and ATR-42 aircraft are available ence, we’re experts on arctic conditions and extreme for charters to remote sites and flag stops to 44 addi- URS Corp. weather. tional communities. 560 E. 34th St., Suite 100 Anchorage, AK 99503 Judy Patrick Photography Northern Transportation Co. Contact: Jon Isaacs, Alaska vice president Anchorage, AK 99501 Alaska: 3015 Madison Way Phone: (907) 562-3366 • Fax: (907) 562-1297 Contact: Judy Patrick Anchorage, AK 99508 E-mail: [email protected] Phone: (907) 258-4704 • Fax: (907) 258-4706 Contact: Laurie Gray, agent Website: www.urscorp.com Email: [email protected] Phone: (907) 279-3131 • Cell: (907) 229-0656 URS Corporation provides comprehensive integrated Website: JudyPatrickPhotography.com Phone: (800) 999-0541 • E-mail: [email protected] services to the petroleum industry, including NEPA per- Creative images for the resource development industry. Canada: 42003 McKenzie Hwy. mitting support and regulatory compliance, engineer- Hay River, NWT X0E0R9 ing design and construction management, field studies, Lynden Contact: John Marshall environmental monitoring and contaminated site Alaska Marine Lines • Alaska Railbelt Marine Phone: (867) 874-5167 • Cell: (867) 875-7600 cleanup. Alaska West Express • Lynden Air Cargo Fax: (867) 874-5179 • E-mail: [email protected] PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009 NORTH OF 60 MINING 23

G ALASKA Red Dog aims to rebound from dismal 2008 After reporting a fourth-quarter loss due to weak metals prices, Teck calls for a ramp-up of production at the zinc-lead mine in 2009

By SHANE LASLEY Mining News FILE PHOTO he Red Dog Mine, the largest zinc producer in North America, posted a T loss of US$71 million (after deprecia- tion and pricing adjustment) for the fourth quarter, down dramatically from the US$174 million profit (after depreciation and pricing adjustments) that it reported for the final period of 2007. But mine operator Teck Cominco Ltd. appears to be making the best of a bad sit- uation by planning to ramp up production at the Northwest Alaska lead-zinc mine in 2009 even as it scaled back, closed or sold mines around the planet and reduced its worldwide work force by about 14,000 people. Lower prices, production wallop mine Teck blamed the dismal results on sig- nificantly lower zinc and lead prices. Zinc sold for an average of US54 cents a pound in the fourth quarter, less than half its aver- age price of US$1.19 a pound during the same three months of 2007. Likewise, average lead prices tumbled 62 percent in the fourth quarter to US$0.56 a pound from US$1.46 a pound a year earlier. As a result, a negative pricing adjustment of $92 mil- expects to result from closure of the zinc concentrate available for sale. The SEIS ends in February and Teck antici- lion during the fourth quarter, compared Lennard Shelf and Pend Oreille mines. company anticipates selling 85,000 metric pates a permitting decision by the U.S. with $49 million for the same period in The increased volume of zinc and lead tons of zinc in the first quarter, another Environmental Protection Agency in the 2007, took a big chunk out of any potential from Red Dog is not anticipated to be 80,000 metric tons of zinc in the second third quarter. The company said parties profits at the mine. available to the market until the latter half quarter and whatever is left in the third that commented on the SEIS during the Teck also said the mine incurred a 14 of the year. Due to sea ice conditions at Red quarter. By then, new production will have public comment period have the right to percent decrease in zinc production during Dog’s Arctic location zinc and lead laden begun replenishing Red Dog’s stockpiles. file an appeal. If the EPA decision is the fourth quarter of 2008, compared with ships are not expected to leave the mine Teck said refined zinc production from appealed, it could delay the permit being the same period a year earlier, which also issued. until July; the ships have about five months its Trail metallurgical complex in British contributed to the loss. The lower produc- to transport Red Dog’s annual production According to Teck and NANA Columbia is expected to remain at 270,000 tion resulted from processing of lower of concentrates to market before the ice Regional Native Corp., Teck’s partner at metric tons in 2009, a similar level to 2008 grade ore as well as maintenance and closes in again for winter. Red Dog, mining within the Main Deposit output. mechanical issues. Thus, sales and operating profits at Red will end between 2010 and 2012. The Aqqaluk deposit is expected to extend Production to climb in 2009 Dog follow a seasonal pattern, with higher Aqquluk SEIS pending sales volumes of zinc and most of the lead the mine life by 20 years. Teck said zinc production at Red Dog sales occurring in the final five months of Teck is continuing its efforts to get The Aqqaluk Deposit contains 51.6 should rebound in 2009 by 58,000 metric the year following the start of the shipping approval of a Supplemental Environmental million metric tons of reserves, contain- tons to exceed the 515,000 metric tons pro- season in July. Impact Statement to mine the Aqqaluk ing 16.7 percent zinc and 4.4 percent duced in 2008. Teck said this anticipated Teck said it had depleted its stockpiles deposit, which lies adjacent to the Main pit lead. To avoid an interruption in opera- boost in output will more than offset a of lead concentrates at the beginning of currently being mined at Red Dog. tions, mining of the Aqqaluk pit needs to 50,000-metric-ton zinc output deficit it 2009, and had about 221,000 metric tons of The public comment period for the start in 2010. G 24 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 22, 2009

Hitachi EX5500-6 delivered to Fairbanks Gold Mine, October 2008

Hitachi EX1900-6 Hydraulic Excavator and Hitachi EH1700 Haul Truck at the Rock Creek Mine Nome, Alaska

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