page Alaska gas pipelines compete in 9 Calgary IOGCC presentations

Vol. 13, No. 19 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 11, 2008 • $1.50

● EXPLORATION & PRODUCTION Future uncertain ANATOLY ZOLOTUKHIN ANATOLY Anadarko finds ‘no commercial hydrocarbons’ at Jacob’s Ladder well

By ERIC LIDJI now plan to use the rest of spring to Petroleum News decide the future of Jacob’s Ladder. “We’re having meetings trying to fter reviewing logs and finding decide what we’re doing next year,” “no commercial hydrocarbons,” said company spokesman Mark Hanley. FORREST CRANE A Anadarko Petroleum plugged its The photo of the Orlan platform (above) in the May 4 issue of Jacob’s Ladder well this winter, Unique geography piqued interest Petroleum News used to be called the Glomar Beaufort Sea I CIDS. according to a first quarter operations The interest in Jacob’s Ladder stems report released on May 6. from the Wahoo formation of the Embarrassing but true, the Orlan The oil prospect sits 10 miles south- Lisburne Group, a prospect believed to Anadarko suspended platform used to be called the east of Prudhoe Bay on Alaska’s eastern hold between 20 million and 660 mil- the Chandler No. 1 North Slope and for years geologists well to the south of Glomar Beaufort Sea I CIDS lion barrels of oil equivalent. Gubik No, 3, and left have considered the unique structure of While knowledge of the Lisburne Nabors rig 105 at the Slap-dab on page 1 of last week’s Petroleum News there was Jacob’s Ladder to be a sign of potential- field dates back to the discovery of ice pad. Spokesman ly large reserves. Mark Hanley said the a photo of the Orlan production platform being used offshore Prudhoe Bay, the geology at Jacob’s expectation is to Sakhalin Island. Although the Russian professor who was the But with the disappointing news, return to next year subject of three Arctic articles in that issue (and two in this issue) Anadarko and its partners of the project to finish the deep see JACOB’S LADDER page 21 gas well. did NOT say the Orlan platform was of Russian or Norwegian make, one might have assumed that because “Orlan” is a Russian ● NATURAL GAS word that means “eagle.” In fact, the Orlan used to be called the Glomar Beaufort Sea I CIDS. Before it was purchased by ExxonMobil and towed to Sakhalin by Crowley to be converted into a production platform, Canada to fast-track Alaska it was used offshore Alaska’s North Slope for exploration drilling (but mostly it sat idle.) Learned from Mackenzie gas line mistakes, will speed Alaska line passage To add salt to the wound, it was Don Ingraham from Offshore By GARY PARK Divers, not someone at Petroleum News, who recognized the A major projects office established For Petroleum News Orlan as the CIDS. in 2007 by Prime Minister Stephen Offshore Divers has been involved in numerous diving proj- he Canadian government is promis- Harper’s government will make a ects in Alaska during the last 28 years, everything from the instal- ing not to repeat the plodding lation of the Steelhead and Osprey platforms in Cook Inlet, to the “big difference” once Alaska awards T process that has been a drag on the a project license to set the ball CIDS, SDC and Kulluk units on the North Slope. Mackenzie Gas Project if it is asked Thank you, Don. to regulate an Alaska gas pipeline across rolling on the massive undertaking, —PETROLEUM NEWS Canadian territory. a senior federal official said. A senior federal official told a confer- Prime Minister said Sue Kirby, an assistant deputy minis- Imperial ‘excited’ about Mac ence of U.S. and Canadian energy offi- Stephen Harper cials in Calgary May 5 that Ottawa is ter with Natural Resources Canada. A change at the helm of Imperial Oil hasn’t changed the confident it can match U.S. timelines if an applica- Delays in handling the Mackenzie gas pipeline company’s view of the Mackenzie Gas Project. tion is submitted. file have been identified by the consortium partners If anything, newly installed Chief Executive Officer Bruce At the federal level, Canada is making prepara- as a major factor putting the project at risk. March sounds more enthusiastic than his predecessor Tim tions for “an effective, efficient screening process,” Hearn about plans to develop Canada’s Arctic natural gas see FAST-TRACK page 19 resources, despite the pile of unresolved issues facing the C$16.2 billion project. ● EXPLORATION & PRODUCTION Taking the stage for the first time at Imperial’s annual meeting May 1, March said his company is “excited” about the MGP, regardless of assumptions that the cost estimates Learning from Norway will get hiked again when all of the agreements are in place. The MGP has also been hit with a delay in the startup date Zolotukhin: Three decades of technical innovation in Arctic oil, gas projects of three years to 2014, a slow-moving regulatory process, stalled decision making by the Canadian government on fiscal By ALAN BAILEY see IMPERIAL page 21 Petroleum News n three decades Norway’s offshore oil and gas industry has mushroomed from a zero base to the BREAKING NEWS I forefront of technical achievement. And the coun- try’s example of learning through practical experi- 3 Talisman answers imminent: Revealing new strategy ence and using cutting edge technology can point the way on how to move forward in exploring new fron- soon; no clues on Alaska, but strongly points to unconventional shift tiers on the Arctic continental shelf, Professor Anatoly Zolotukhin, deputy rector on international affairs at 8 State denies Corsair unit expansion: Two of Pacific Gubkin Russian State University of Oil and Gas, told Energy’s first 3 wells were planned for leases state to offer in 2009 sale a meeting in the University of Alaska Anchorage Institute of Social and Economic Research on April 29. 14 Prudhoe discovery debate: Finding Alaska’s largest oil Following the initial discovery in 1969 of the field involved 15 months of drilling milestones; discovery date contested see NORWAY page 22 2 PETROLEUM NEWS • WEEK OF MAY 11, 2008 contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska ON THE COVER GOVERNMENT Future uncertain 17 Sentencings for former executives delayed Anadarko finds ‘no commercial HISTORY hydrocarbons’ at Jacob’s Ladder well 14 Prudhoe discovery debate still rages Canada to fast-track Alaska Finding Alaska’s largest oil field involved two exploration Learned from Mac line mistakes, will speed wells, drilling milestones spanning 15 months; Alaska gas line passage, match U.S. timelines actual discovery date contested Learning from Norway LAND & LEASING Zolotukhin: Three decades of technical innovation 3 British Columbia: Come one, come all point to future of Arctic development 8 State denies Corsair unit expansion Embarrassing but true, Orlan platform used 19 Potential Alaska state and federal oil and gas lease sales to be called the Glomar Beaufort Sea I CIDS NATURAL GAS Imperial ‘excited’ about Mac 5 Issues: Jobs, steel, taxes, TransCanada EXPLORATION & PRODUCTION 5 Tanana Chiefs Conference first of contracts 4 Lawsuit filed to block Arctic seismic 9 Alaska gas lines compete in Calgary 7 One the oil sands can’t ‘duck’ 11 Enbridge wants a piece of the pipeline

Dead birds in Syncrude Canada tailings pond stirs 16 Natural gas price heralds Arctic boon international condemnation, industry contrition 17 ANGDA contracting for natural gas supply coordinator 10 North Slope production down 3% from March 21 Anadarko plans return for foothills gas 13 Anadarko plugs and abandons Altamura OUR ARCTIC NEIGHBORS The spring project in NPR-A will close the books 12 Gazprom invests big bucks in gas line on the first Alaska exploration well drilled 12 International research crucial for Russia by the busy Houston independent 12 Study reports on LNG carrier designs for the Arctic 18 Study: Only 1% of Bakken recoverable 12 Snøhvit to use new CO2 capture technology 21 Pacific Energy to drill Escopeta’s onshore gas prospect 12 Russia regrets leasing out ship, drill rig FINANCE & ECONOMY PIPELINES & DOWNSTREAM 3 Talisman answers imminent 19 BP gets to work on refinery expansion, will be top Revealing new strategy soon; no clues on Alaska, processor of heavy Canadian crude oil but strongly points to unconventional shift SAFETY & ENVIRONMENT 6 Gasoline prices jump to record, oil pauses 18 BLM pushed to consider climate change concerns 16 Oil company earnings chart PETROLEUM NEWS • WEEK OF MAY 11, 2008 3

● FINANCE & ECONOMY Talisman answers imminent Revealing new strategy soon; no clues on Alaska, but strongly points to unconventional shift

By GARY PARK For Petroleum News British Columbia: Come one, come all alisman Energy may answer the press- The big and the little are joining British Columbia’s latest resource rush into the ing question about its subsidiary province’s northeastern shale gas region. T FEX’s future in Alaska in the third Imperial Oil, Canada’s largest all-purpose oil and gas company, disclosed in late week of May when it completes the April that it, in a joint partnership with sister company ExxonMobil Canada, has biggest shake-up in its history. rounded up 115,000 contiguous acres of license holdings in the Horn River basin, Under new Chief Executive Officer about 40 miles northeast of Fort Nelson. John Manzoni, who ended the 16-year reign In an effort to rebuild depleting gas reserves, that saw its first-quarter gas produc- at the top by Jim Buckee last September, the tion slide to 325 million cubic feet per day from 525 million cubic feet per day a year once globally minded independent seems earlier following the premature end of one Alberta play, Imperial said drilling rigs are headed for a more narrowly focused role. being lined up and the first exploration well is scheduled for the 2008-09 winter. “What has been successful for the last “We’re not concerned at all about being late to the game,” Chief Executive Officer decade may not prove to be successful for Bruce March told reporters. “We’re very happy about the acreage we got and where the future,” Manzoni it’s related.” At the other end of the pecking order, Calgary-based junior Result told Talisman’s annu- Energy is turning C$11.8 million from the sale of southwest Saskatchewan shallow al meeting. gas assets to boost its Horn River holdings. Then and in a con- It so far has about 25,000 acres and hopes to add another 38,000 acres this year, ference call May 1 he with plans to drill two vertical wells in the first quarter of 2009 and conduct “some laid out some broad extensive 2-D seismic,” said Chief Executive Officer Bill Matheson. perspectives on He said Result is about 60 miles south of an EOG Resources discovery and 15 where the company is miles south of a recent Nexen announcement, both pointing to possible resources of 6 headed — with a trillion cubic feet. But given the need for deep pockets to tackle the play, Matheson heavy emphasis on did not rule out adding a partner at some point. unconventional gas in Talisman Energy The company said its Horn River lands are prospective for both the Middle North America, the CEO John Manzoni Devonian shale gas play and the underlying Keg River platform gas play. said the “most Norwegian North immediately visible —GARY PARK Sea, North Africa, and possibly the South America and most material” of Talisman’s new because of the work it has been doing in Appalachian basin, and will look “to some Indonesia, with the growth pursuits will deeper gas horizons.” degree” for new acreage. British North Sea fac- be the “testing and “The bit that we don’t have is that we Manzoni said “those are the big names ing a lower profile. development of our North American haven’t been at it for two, three, four or five and we’ve got them. … We have the tech- But Manzoni resources.” years in the way that others have,” he said, nical skills at least, I believe, as good as oth- offered nothing more with an indirect nod toward peer companies ers who are doing it (and) we’re looking at specific on where FEX and its National such as EnCana, Devon Energy, ways to get ourselves up the learning curve Petroleum Reserve-Alaska prospects will Chesapeake, Apache and EOG Resources. quickly. We’re hiring new people, partner- fit into the grand scheme of things beyond Manzoni said Talisman’s place as the ing with people.” his promise in March to tie future opera- leading deep-gas driller in the conventional He said the “most immediately visible tions to this year’s seismic survey results. plays of Western Canada is headed for and possibly the most material” of Other than writing off the costs of an change as the company seeks to “lengthen Talisman’s new growth pursuits will be the NPR-A dry hole, he said then that Talisman its stride” as it chases shallow gas deposits “testing and development of our North always intended to shoot seismic in an trapped in shales and sand that EnCana American resources.” attempt to pinpoint “bigger anchor fields” describes as requiring large-scale repeatable Bolstered by success in the Outer and the exploration write-off did not alter its programs — in effect a manufacturing Foothills tight gas play and the sudden plans for 2008 activity. operation. emergence of the Quebec shale play, where Portfolio balance a goal Talisman starts out from a position of Talisman is the largest landholder, the com- strength, with 2.5 million net acres of pany will start pilot-testing programs this But the latest remarks reinforce his prospects in the Outer Foothills and year to weigh the potential of all areas for determination to bring Talisman’s guidance Montney areas of Alberta and British future investment. numbers under tighter control and fix a Columbia, Saskatchewan’s Bakken forma- But Manzoni echoed one refrain from portfolio imbalance that he said means 70 tion, Quebec’s Utica and Lorraine shales the Buckee era, suggesting a move into the percent of Talisman assets are “relatively and the Marcellus shales in the U.S. Alberta oil sands is not in the cards. ● short life,” despite forecasts for production of 435,000-460,000 barrels of oil equiva- lent per day in 2008 and reserves of 2.6 bil- lion boe. He noted that Talisman’s past wildcat- ting has been “characterized by exploring very close to our existing infrastructure. … That limits the size of the pools that you can go and look for.” “We are running faster and faster and faster on a treadmill — so the bigger we get the tougher it gets,” he said. “We’re looking for more running room.” Manzoni said the strategy that brought Talisman to its current position is not capa- ble of generating meaningful growth in pro- duction and reserves. Although the company will continue to invest in the British North Sea, he indicated the region is no longer viewed as a growth area, but did not approve of one analyst’s suggestion that the North Sea will become a “cash cow” to feed other plays. “This is a company that can move fast when pointed in the right direction,” he told reporters. Tight gas acreage He noted that Talisman has the acreage in tight gas regions of North America and has already positioned the infrastructure 4 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● EXPLORATION & PRODUCTION Lawsuit filed to block Arctic seismic Earthjustice represents environmental, Alaska Native groups in litigation challenging federal permits issued to Shell and BP

By ROSE RAGSDALE Biological Diversity, Natural Resources ing, the plaintiffs further allege that the Shell spokesman Curtis Smith said For Petroleum News Defense Council, Pacific Environment, National Marine Fisheries Service violat- Native Village of Point Hope and ed the Marine Mammal Protection Act by the company was successful in coalition of environmentalists and REDOIL. allowing Shell to “take” by harassment conducting seismic programs in Alaska Natives filed a lawsuit May The group claims the U.S. Minerals several species of seals and whales dur- the Beaufort and Chukchi seas in A 5 in federal district court in Management Service violated provisions ing the seismic surveys. 2006 and 2007 without any … Anchorage aimed at blocking seis- of the National Environmental Policy They also claimed that the fisheries known negative impact. … “We mic surveys planned by Shell and BP for Act by prematurely issuing federal per- service will likely issue more permits to this summer and fall in the Chukchi and mits for the surveys before completing allow Shell, BP, and several other com- will continue to do so in 2008, Beaufort Seas. environmental impact statements for the panies to harass seals and whales while meeting or exceeding all Earthjustice, a public interest law work. throughout this summer and fall. regulatory requirements. Shell will firm, filed the suit on behalf of Alaska In a 20-page complaint coupled with a once again employ Native Marine Wilderness League, Center for motion to halt the work until a court rul- Noise carries underwater Mammals Observers on all seismic “Seismic work involves the use of and support vessels. We also will underwater air guns that generate rely on aerial (surveillance) to extremely loud noise — a single blast is detect marine mammals should 10 times louder than a rocket launch, and the blasts occur every 10 to 15 seconds they enter the safety zone. When for days, weeks and even months at a spotted, we will ramp down our time,” Earthjustice said May 5 in a state- operations until they move on.” ment. The group contends that these sounds carry through the water for hundreds of permitting seismic exploration in the miles and have been known to cause per- Alaska Arctic. We are therefore confi- manent hearing loss in marine mammals dent that our permitting actions will be and disruptions in feeding, migration, upheld upon review,” she said. social bonding, and predator avoidance behavior and are linked to stranded Native observers, aerial surveillance whales. Shell spokesman Curtis Smith said the “They also can interfere with Native company was successful in conducting Alaskans’ ability to hunt for these subsis- seismic programs in the Beaufort and tence food sources, particularly the bow- Chukchi seas in 2006 and 2007 without head whale,” the law firm said. any recordable safety incidents or known Charles Clusen, director of the Alaska negative impact to the environment or project for the Natural Resources local communities. Defense Council, called the oil and gas “We will continue to do so in 2008, exploration activity “devastating.” while meeting or exceeding all regulatory “You end up killing animals that requirements,” Smith said May 7. “Shell Americans care deeply about, while not will once again employ Native Marine doing a thing to lower the price of gas at Mammals Observers on all seismic and www.PetroleumNews.com the pump. Shell and BP say they’re support vessels. We also will rely on aerial investing in renewable energy, yet here (surveillance) to detect marine mammals they are exploiting what we will show Kay Cashman PUBLISHER & EXECUTIVE EDITOR ADDRESS should they enter the safety zone. When P.O. Box 231647 are illegally granted permits to reinvest spotted, we will ramp down our operations Mary Mack CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1647 billions in the dirty fuels of the past to until they move on.” Kristen Nelson EDITOR-IN-CHIEF ensure Americans stay addicted to oil,” BP declined to comment on the lawsuit. NEWS Clusen said in the statement. But spokesman Steve Rinehart said the Susan Crane ADVERTISING DIRECTOR 907.229.7057 company plans to conduct one seismic sur- Amy Spittler ASSOCIATE PUBLISHER or 770.3505 [email protected] No proof of harm vey this year for its 100-million-barrel Bonnie Yonker ALASKA /NATIONAL REPRESENTATIVE or [email protected] But MMS and NFMS have received no Liberty project over an area inside the bar- Heather Yates BOOKKEEPER documented instances of the seismic sur- rier islands of the Beaufort Sea and well CIRCULATION veys conducted by Shell and BP causing south of annual migratory paths of whales. Shane Lasley IT CHIEF 907.522.9469 harm to any marine mammals, according Also, the work is planned for July, well [email protected] Clint Lasley GM & CIRCULATION DIRECTOR to Robin Cacy, an MMS spokeswoman in before the start of the whales’ migratory Steven Merritt PRODUCTION DIRECTOR ADVERTISING Alaska. season, he added. Cacy said the oil companies must main- Tim Kikta COPY EDITOR Susan Crane • 907.770.5592 Cacy said MMS reviewed permit appli- [email protected] cations for the seismic work from Shell tain observers on their seismic survey ves- Alan Bailey SENIOR STAFF WRITER and BP last fall and issued permits for the sels to ensure that they comply with feder- Eric Lidji STAFF WRITER Bonnie Yonker • 425.483.9705 surveys in February and March. al requirements that they shut down opera- [email protected] tions whenever a marine mammal enters Gary Park CONTRIBUTING WRITER (CANADA) “Our leasing office evaluated the appli- cations and prepared environmental the “exclusion zone” around a boat. Rose Ragsdale CONTRIBUTING WRITER FAX FOR ALL DEPARTMENTS 907.522.9583 assessments” for the projects, she told She also said the agencies received no Ray Tyson CONTRIBUTING WRITER Petroleum News May 7. “We found no reports of harm to marine mammals during John Lasley STAFF WRITER Petroleum News and its supple- significant impact on the environment and the 2006 and 2007 seismic programs. ment, Petroleum Directory, are issued the permits.” Earthjustice noted that the Ninth Allen Baker CONTRIBUTING WRITER owned by Petroleum Newspapers Circuit Court of Appeals in separate liti- of Alaska LLC. The newspaper is Cacy said MMS has worked very Sarah Hurst CONTRIBUTING WRITER published weekly. Several of the closely with the National Marine gation in September issued a temporary individuals listed above work for Paula Easley DIRECTORY PROFILES/SPOTLIGHTS Fisheries Service to carefully evaluate injunction blocking Shell from drilling for independent companies that con- the effects of seismic exploration activi- oil in the Beaufort Sea because of risks to Judy Patrick Photography CONTRACT PHOTOGRAPHER tract services to Petroleum Newspapers of Alaska LLC or are ties in the Alaska Arctic. “We have fully polar bears and endangered whales. The Mapmakers Alaska CARTOGRAPHY freelance writers. complied with the provisions of the parties are waiting for a final ruling in Forrest Crane CONTRACT PHOTOGRAPHER National Environmental Policy Act in that case. ●

Tom Kearney ADVERTISING DESIGN MANAGER

Dee Cashman CIRCULATION REPRESENTATIVE

OWNER: Petroleum Newspapers of Alaska LLC (PNA) Petroleum News (ISSN 1544-3612) • Vol. 13, No. 19 • Week of May 11, 2008 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. — $78.00 for 1 year, $144.00 for 2 years, $209.00 for 3 years. Canada / Mexico — $165.95 for 1 year, $323.95 for 2 years, $465.95 for 3 years. Overseas (sent air mail) — $200.00 for 1 year, $380.00 for 2 years, $545.95 for 3 years. “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647. PETROLEUM NEWS • WEEK OF MAY 11, 2008 5

● NATURAL GAS Issues: Jobs, steel, taxes, TransCanada AGIA license won’t stop Denali gas pipeline, BP and Conoco tell Anchorage chamber; Canada, steel, taxes all need to be worked

By KRISTEN NELSON “therefore it puts at risk the open season Petroleum News Tanana Chiefs Conference first of contracts itself.” Asked about the value of hat about Exxon? What about In March ConocoPhillips Alaska contracted with the Tanana Chiefs TransCanada’s data and are there negoti- TransCanada? What about Point Conference to assist in gas pipeline field studies, starting immediately, TCC said ations with TransCanada, Wenzel said W Thomson gas? You’ve over- in a statement. TransCanada is focused on the process charged to ship on the oil ConocoPhillips Alaska spokeswoman Natalie Lowman told Petroleum News at under the Canadian Northern Pipeline Act pipeline, why would we want you to own the end of April that the previously announced contract would be rolled into the while Denali will move forward under the the gas pipeline? What about taxes on the larger effort, Denali — The Alaska Gas Pipeline, the joint venture between Canadian National Energy Board regula- gas? What about steel? ConocoPhillips and BP announced April 8. tory process. Wenzel said the NEB And when will you be taking applica- “Tanana Chiefs Conference is pleased to work collaboratively with process is the preferred regulatory tions for jobs and contracting? ConocoPhillips to advance the natural gas pipeline in Alaska,” TCC President process today. That’s a sample of questions Angus Jerry Isaac said in the TCC statement. “We are very pleased to see that He said the companies are not in nego- Walker of BP and Brian Wenzel of ConocoPhillips recognizes the need for early involvement by Alaska Natives to tiations with TransCanada, but are inter- ConocoPhillips got from a full house at address Native interests and ensure project success.” ested in participation by other parties the Anchorage Chamber of Commerce TCC said it has been willing to work with any and all groups involved in the including TransCanada if they can April 28 following environmental research for the gas pipeline over the last few years and that resolve some of the other issues associat- an overview the two ConocoPhillips is the first group to work with TCC; three-quarters of the Alaska ed with their application. gave of Denali — portion of the proposed line is within the TCC region. As for the special session of the Alaska The Alaska Gas Lowman said no other contracts for work on Denali have been announced. Legislature the governor has called for

Pipeline. BP and PATRICK JUDY She said updates will be available on the project Web site, www.denali- June — at which an Alaska Gasline ConocoPhillips thealaskagaspipeline.com. There is also an information signup on the Web site for Inducement Act license for TransCanada announced April 8 e-mail alerts on project activities. might be up for approval, if the adminis- that they would part- —KRISTEN NELSON tration recommends awarding an AGIA ner on a pipeline to contract — Walker said BP and take Alaska North where the companies want to increase the in a project of this nature,” he said, and ConocoPhillips have committed to move Slope natural gas to Angus Walker, BP pipe-handling capabilities of ports to han- are open to having that discussion with Denali forward “regardless of whether … market. This was an dle the big joints of pipe that the project the state. an AGIA license is awarded; whether it’s opportunity for the will require. Can an open season be successful awarded or not we will move forward Anchorage business without Point Thomson gas? with this project.” community to get Exxon, Point Thomson Walker said Point Thomson is about questions about the Gas pipeline vs. oil pipeline 25 percent of known North Slope project answered, Asked if the project could succeed resources. “It’s clearly a vital part of any There was a pointed question about and most of the pres- without the participation of ExxonMobil, pipeline and therefore with the Point tariffs: Since the Alaska Supreme Court entation, following a Walker said ExxonMobil has been invited Thomson leases being in question it caus- has found the trans-Alaska oil pipeline short overview, was to participate, but that BP and es us great concern as we move forward owners overcharged the state’s shippers focused on questions ConocoPhillips will move forward by to open season.” He said that without to ship oil through the producer-owned and answers. themselves. As for state participation: Brian Wenzel, “We’ve always recognized in the past that clear title to the Point Thomson gas that oil pipeline, why should Alaskans be in On the pre-open ConocoPhillips gas can’t be committed in an open season, season money issue, there are advantages to state participation see ISSUES page 6 Walker, BP Exploration (Alaska)’s senior vice president, gas and midstream, said the companies have been asked why they plan to spend $600 million in the next 36 months to reach an open season. He said the answer is, “that’s how much money we think it will take to do the job proper- ly.” The entire project, Walker said, includes gas transmission lines on the North Slope; the gas treatment plant to remove and reinject carbon dioxide, some 12.4 percent of North South gas; the large-diameter high-pressure pipeline from the North Slope to Alberta; and, if necessary, a line to Chicago, although it may be possible to use existing pipelines. Wenzel, ConocoPhillips Alaska’s vice president of ANS gas development, said the $30 million set aside for job training, in-state gas needs studies and an infra- structure upgrade needs study is neces- sary because those items are “foundation- al” and work on them needs to get started. Both companies have a long history of Alaska hire, train, buy and build, and that won’t change, Wenzel said. Training needs to get started sooner rather than later so that in addition to training, folks will be able to get out and get experience before they are needed for the Denali pipeline project. The in-state need study is required for the Federal Energy Regulatory Commission process, Wenzel said, and will help facilitate gas for shipment for in-state use. Infrastructure upgrades will be needed to move freight. Wenzel said there are numerous areas along some of the high- ways where the road needs to be straight- ened or widened. There are some 18 bridges that need to be strengthened or replaced, he said, and a number of areas 6 PETROLEUM NEWS • WEEK OF MAY 11, 2008

continued from page 5 … probably “one of the very early FINANCE & ECONOMY ISSUES pieces of work that Denali LLC needs to do is working with the Gasoline prices jump to record, oil pauses favor of the producers owning the gas steel mills, the manufacturers line, the two were asked. Gasoline prices jumped nearly 3 cents to a new national record of nearly $3.65 a Walker said gas pipelines are regulated around the country and the world gallon on May 8, while oil prices paused from their own climb to record highs and by FERC, so the tariff “will be subject to and establish how can that succumbed to mild profit-taking. the regulation of one of the most senior quantity and quality of steel be The delivered price of Alaska North Slope crude hit $123.53 on May 7, a new regulatory bodies in the United States.” sourced in the right way.” record prompting Gov. Sarah Palin announce plans for a short-term energy fix for He said that should give everybody who’s Alaska in the coming days. —Angus Walker, BP Exploration (Alaska)’s proposing to ship comfort. senior vice president, gas and midstream At the pump, the average price of a gallon of regular gas nationwide rose 2.7 cents Wenzel said for companies like to a record $3.645, according to a survey of stations by AAA and the Oil Price ConocoPhillips and BP with upstream Information Service. Diesel prices also rose, adding 0.9 cents to match a record rights, there is an advantage to aligning — how many will be new hires and how national average of $4.251 a gallon. the interests of the pipeline builder with many reassignments from BP and Gas prices tend to lag oil futures, and with crude rising to a new record near $124 the pipeline shipper. Companies that ship ConocoPhillips, the two were asked. a barrel on May 7 and likely headed higher, it’s widely expected the average price of gas, he said, “are going to pay for the cost Wenzel said initial staff will be seconded gas will soon rise as high as $4. Motorists in many areas, including parts of Alaska, of the pipeline. … It’s actually the ship- from BP and ConocoPhillips to staff man- California and Hawaii, are already paying that much, or more. pers who have aligned interests with all agement level positions. Initially those “If oil prices go the way that pundits are expecting, there’s no way we’ll stay under of us here in Alaska in terms of keeping employees will be seconded from BP and $4 a gallon,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. the cost of that pipeline as low as possi- ConocoPhillips in Alaska, but Denali will Analysts said there was little in the way of news driving the most recent oil moves. ble,” he said, because “the lower that cost “also go around the world to find expertise,” Investors occasionally sell a little during rallies to lock in profits, Gheit said. But bull- to build pipeline the higher value of this he said. ish momentum — and expectations that the dollar will continue to weaken against for- gas you receive … in Alaska.” However, as numbers climb to the maxi- eign currencies including the euro — are likely to keep pushing oil to new records, he mum 10,000 during construction, more and said. When will new hires occur? more will be hired from outside the compa- Goldman Sachs analysts recently predicted prices will rise as high as $150 to $200 nies. The companies have said they expect to a barrel within two years. That forecast has driven much of oil’s gains in recent days. And as for opportunities for young peo- have 150 employees at Denali by the end of ple, Walker said all skills will be required. — ASSOCIATED PRESS AND PETROLEUM NEWS the year. “It is such a large massive engineering, con- Where will those employees come from struction project that I don’t think there’s anybody on this planet that’s got a particular skill that wouldn’t find it somewhere on this project.” Will there be competition for workers with the Alberta oil sands projects? Wenzel said the hope is that Denali will be able to use labor from some of those Canadian projects “if we can’t find the resources we need in Alaska.” But it’s impossible to predict the schedules of all those large projects, he said, and “clearly if they’re on top of each other it’s going to be a real resource drain — but if by chance they work out such that we can actually utilize some of their workers in addition to all the ones we can train here,” that would be a plus, he said. As for contacting Denali for employment or contact opportunities, Walker said Denali will publicize that information as soon as the team is mobilized and the company is set up. He said they are “committed to make sure people know what opportunities are out there.” Taxes and fiscal issues; what about steel Asked what a fair tax system would be, and if taxes would have to be locked in and for how long, Wenzel said ConocoPhillips and BP are “involved as pipeline develop- ers” and that role has to be separated from that of “gas extraction right holder.” He said there are issues outstanding, and both companies — and others — have said it’s important that the tax system for gas be clear and predictable. “We don’t feel we’re there today,” Wenzel said. The difference today, he said, is that the companies are “going to work those issues in parallel” with putting people on the ground. Walker noted that fiscal issues “have been much debated in the past.” He said the companies hope that moving the project forward “will take some of the pressure off and actually allow the right people to sit down at the right time and work this one out.” The project will require 5 million to 6 million tons of steel, Walker said, about 30 percent of the supply of high-grade steel the world can manufacture over a three-year period. Buying that much steel is going to require “a fair amount of strategic think- ing,” he said, adding that probably “one of the very early pieces of work that Denali LLC needs to do is working with the steel mills, the manufacturers around the country and the world and establish how can that quantity and quality of steel be sourced in the right way.” ● PETROLEUM NEWS • WEEK OF MAY 11, 2008 7

● EXPLORATION & PRODUCTION One the oil sands can’t ‘duck’ Dead birds in Syncrude Canada tailings pond stir international condemnation, industry contrition; incident derails Alberta’s campaign to clean up oil sands’ image; company’s noise-making devices to scare birds were absent due to spring snowstorm

By GARY PARK northern Alberta and would one day He said the Canadian and Alberta gov- ment and the protection of wildlife,” he For Petroleum News become a critical element in North ernments will cooperate to “make sure said. America’s long-term energy supplies. the industry fulfills both its existing obli- “It’s a value that we share and we are il sands giant Syncrude Canada, the Only they didn’t have in mind what gations and any new obligations that we committed to making the necessary world leader in pumping out syn- occurred when word got out that 500 think are necessary.” changes to our long-established practices O thetic crude, said April 28 it is migrating ducks had met their end in a March, who has been Imperial CEO to help ensure a sad event like this never working on a 33 percent expansion toxic water-based mixture of clay, sand, for just a month, said he was “deeply dis- happens again.” to 400,000 barrels per day by 2012, plan- hydrocarbons and heavy metals, includ- appointed” by the events. But, as Harper and March indirectly ning to add 100,000 bpd in 2016 and now ing mercury — the residue of a process “It’s something that hasn’t happened conceded, the oil sands sector is faced pondering an eventual goal of 700,000 used to flush oil from the extracted bitu- in a very long time, but there are really no with even more of an uphill struggle to bpd. men. excuses. … We’re deeply upset and we sell its message of land reclamation CPC Corp., a Taiwan-government Normally, Syncrude deploys noise- will do all we can do to change work efforts, lowered greenhouse gas emis- owned refiner, said it’s ready to invest making cannons to drive off waterfowl, processes and change procedures to pre- sions per unit of production, and reduced $788 million on an exploration and devel- but a spokesman for the consortium said vent it from occurring in the future.” water and natural gas consumption. opment venture in the oil sands over the the devices weren’t in place because of a At the same time, March said that with next five years, adding its name to the sta- spring snowstorm. 13 percent of the world’s known reserves Timing bad for Alberta ble of international players in northern in Alberta it is “simply unimaginable that The timing could scarcely have been Alberta. Tipster alerted government the world’s energy needs can be met if worse for the Alberta government of Startup OPTI Canada said April 30 its Word that ducks had been caught in these supplies are not included in the Premier Ed Stelmach, coming just a week 50-50 joint venture with Nexen has fin- the sticky sludge apparently reached the energy mix.” after it announced a three-year, C$25 mil- ished construction of an upgrader at the Alberta government via an anonymous He said that satisfying domestic and lion campaign to challenge the myths and Long Lake site, dealing with the most tipster. Syncrude said it was trying to global demand, while protecting the envi- misrepresentations being spread by critics economically volatile aspect of an oil assess the scope of the problem before ronment, is the “most significant opportu- of the oil sands. sands project. Now the partnership is contacting the government — an explana- nity and challenge facing the industry and Deputy Premier Ron Stevens had just ready to ramp up to 50 percent of capaci- tion that was scorned by environmental- Imperial.” spent four days in Washington, D.C., ty by mid-2008 and achieve full volume ists. making a case to U.S. industry and law- of 72,000 bpd by late 2009. Despite all of the criticism and allega- Syncrude apologizes makers that output from the oil sands is a Canadian Natural Resources said April tions aimed at the Syncrude consortium Tom Katinas, president and chief vital component of U.S. energy security. 30 construction of its massive Horizon and other oil sands operators over the executive officer of Syncrude, issued a He said the world will “need oil and project was 94 percent complete by the years for their use of water and natural contrite statement saying the consortium gas for the foreseeable future, regardless end of March, putting it on track to hit gas, their role as a leading source of offered a “heartfelt and sincere apology of how much effort is put into developing full capacity at 110,000 bpd in the first greenhouse gas emissions, and their scar- for the incident.” alternatives.” quarter of 2009, with capital spending on ring of the landscape, nothing has quite “We understand you expect the best Phase 1 at 111 percent of the original matched the furor caused by the dying from Syncrude in environmental manage- see OIL SANDS IMAGE page 8 C$6.8 billion, or within the revised budg- ducks. et estimate. It has drawn a stinging rebuke from So far so good for the oil sands busi- Canadian Prime Minister Stephen Harper ness. and from Bruce March, chief executive officer of Imperial Oil, which owns 25 Ducks in tailing ponds percent of Syncrude, making it the sec- All it took was a misguided flock of ond largest stakeholder after the ducks to wreck that flurry of positive Canadian Oil Sands Trust at 36.74 per- news and undo the Alberta government’s cent. (The other partners are Petro- efforts to burnish the somewhat soiled Canada 12 percent, ConocoPhillips 9.03 image of the resource. percent, Nexen 7.23 percent, Mocal What might have been gained from Energy 5 percent and Murphy Oil 5 per- four days of upbeat announcements dis- cent.) appeared in the toxic sludge of Syncrude’s tailing ponds, an incident that Harper: international image harmed garnered global attention from CNN, the Harper said the dead ducks have New York Times, several European pub- harmed Alberta’s and Canada’s interna- lications and an array of blogs, to name a tional image. few. “I’m not here to make any excuses for Publicity was once the fondest dream the particular event that occurred over the of oil sands promoters, as they struggled last few days,” he said in Edmonton. “It is to convince investors they had the ability a terrible event. It is not going to do any- to extract crude oil from the tarry sands of body’s image any good.” 8 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● LAND & LEASING State denies Corsair unit expansion Two of Pacific Energy’s first three wells in Cook Inlet prospect were planned for leases state to offer in May 2009 lease sale

By ERIC LIDJI August 2007. its drilling plans now that the state has denied the unit Petroleum News At the end of 2007, the state gave Pacific Energy 90 days expansion. to either secure a drilling rig for an exploration program or In a plan of exploration filed with the state on March 18, n April 30, the state of Alaska denied a request to lose the unit. The company did enough to assure the state Corsair proposed putting two wells of its initial three well more than double the size of Corsair unit in the before that deadline, and on April 15 confirmed it had program on leases outside the existing boundaries of the O waters of Cook Inlet, arguing that expanding the signed a three-year $156 million contract with Blake unit. But the first well, PAC No. 1, would have sat within Pacific Energy Resources-operated unit would be Offshore to bring a jack-up rig to Cook Inlet. the existing unit at the southwest corner of ADL 389196, like “warehousing” undeveloped leases. That rig, Blake 151, is currently in the Gulf of Mexico about one mile south of the ARCO A-1 SRS Tern well and The decision presents a curious scenario around the and could be part of a drilling program in the Bahamas this just east of the Shell SRS No. 1 well, both of which have upcoming drilling program at Corsair. While the state fall before finally heading up to Alaska. Pacific Energy been plugged and abandoned. Division of Oil and Gas successfully pushed Pacific hopes to start drilling in the spring of 2009. With the decision not to expand Corsair, three of the Energy to enter into a multi-million dollar deal to bring The Corsair prospect is a long, thin structure running four leases outside the unit will expire and become part of a jack-up rig to Cook Inlet, the division also refused to diagonally across the waters of the Cook Inlet from the the May 2009 state lease sale for Cook Inlet. expand Corsair to include two leases Pacific Energy northeast to the southwest. The primary targets are the Pacific Energy planned to drill on two of those leases, had previously mapped out as the drilling locations for Sterling and Beluga gas sands, but there is a secondary tar- ADL 389507 and ADL 389514, but did not yet submit two of its first three wells. get in the deeper Tyonek oil sands. plans for the third, ADL 389513. Pacific Energy still holds California-based Pacific Energy made the unit The decision on whether to aim for the gas or oil first on to one lease outside the unit: ADL389923, which does expansion request in March, hoping to keep three leas- depends on when the jack-up rig arrives in the Cook Inlet, not expire until the end of the year. es in the area from expiring at the end of April. The Pacific Energy Chairman and CEO Vladimir Katic told Pacific Energy has until May 20 to appeal the state’s Corsair unit sits due south of the village of Tyonek. Petroleum News back in February. decision. (The company chose not to comment for this The company wanted to add four surrounding leases If the company gets its rig in May or June it would have story.) to expand Corsair both to the north and the south. time to drill into the deeper oil reservoirs, but if the rig does- Those four leases would have added 16,546 acres to n’t arrive until September, Pacific Energy would only have Renaissance identified oil reservoirs nearby Corsair, bringing the total acreage of the unit to 26,731. enough time to drill for gas, Katic said. The state received a comment from Renaissance Alaska LLC in regards to the expansion request by Pacific Trouble getting started Pacific Energy loses three leases Energy. Renaissance said it had “identified certain oil Pacific Energy is the operator and sole working Pacific Energy plans to drill three wells by the end of reservoirs and potential hydrocarbon accumulations that interest owner of Corsair, having acquired both the 2009 and possibly a fourth by the end of 2011. However, may extend onto the proposed area to be included in the unit and the surrounding leases from Forest Oil in the company will likely need to make some adjustments to Corsair unit.” ●

continued from page 7 for a company that promoted itself as the environmental pacesetter in the global OIL SANDS IMAGE industry. Lauren Compere, director of share- In particular, Stevens was attempting holder advocacy at Boston Common, to gain an exemption for the oil sands which has $1 billion under management from U.S. legislation adopted in and holds 354,000 BP shares, said BP December that bans the use by U.S. mil- made a mistake because the technology itary and federal agencies of fuels that does not exist to exploit the oil sands generate more greenhouse gas emissions without harming the environment. than conventional sources. Trillium Asset Management, which He said progress was made on that also has $1 billion under management, front, but “the battle is not over.” will support a proposal at ConocoPhillips The scope of the battle may just be May 14 annual meeting requiring the unfolding, as more activist shareholder firm to report on the expected environ- groups challenge the role of multination- mental damage from its various oil sands als in the oil sands. operations and the consequences of stop- A coalition of 11 U.S. and United ping that process. Kingdom investors, including Boston Green Century Capital will take a Common Asset Management, called similar tack at Chevron’s annual meeting BP’s move into the oil sands last on May 28 as that company presses December a “disturbing step backwards” ahead with its Ells River and Athabasca projects. Biofuels and oil sands incompatible? Larry Burns, vice president of research and development at General Motors, added a disturbing note for the industry by asking whether it made sense for governments to legislate the use of biofuels, while supporting oil sands expansion. “I’m not saying it’s right or wrong … but I think it’s a pretty bizarre way to get gasoline to a corner station,” he told the Financial Post. “It’s an awful lot of capi- tal and an awful lot of work to pull it off.” Under full siege, Alberta government leaders made soothing noises about con- ducting a full investigation, with Sustainable Resources Minister Ted Morton taking the toughest line in declar- ing that “if there is negligence (on Syncrude’s part) there will be prosecu- tion.” But Tom Olsen, a spokesman for Stelmach, caused a few heads to spin when he said the premier welcomed the attention generated by the dead ducks “because what this allows him and Alberta to do is demonstrate to the world how seriously we take an incident like this.” ● PETROLEUM NEWS • WEEK OF MAY 11, 2008 9

● NATURAL GAS Alaska gas lines compete in Calgary Denali to move regardless of special session; state argues against ‘comprehensive’ fiscal terms; TransCanada, BP both tout experience

By GARY PARK, ERIC LIDJI & KAY CASHMAN ect to previous work done by proposals still face significant Petroleum News On the Web TransCanada. hurdles before construction. At 1,715 miles, the Alaska Walker said the BP- he two North Slope producers look- See previous Petroleum News coverage: project would represent less ConocoPhillips joint venture is FORREST CRANE ing to build a natural gas pipeline in “Former DNR officials: Contract a than 5 percent of the existing best prepared to handle unre- T Alaska plan to move forward even if bad deal” in the June 18, 2006, issue TransCanada system of 36,500 solved issues because the com- the state awards a license to a com- of Petroleum News miles of pipeline running panies have already started peting project, according to a senior exec- http://www.petroleumnews.com/pna throughout Canada and the work on their project, a theme utive. ds/378277051.shtml United States, Palmer said. he repeated several times in his BP and ConocoPhillips announced “Why $500 million in AGIA?” in the He added that the Alaska Tony Palmer, presentation. plans in early April to spend $600 million March 18, 2007, issue of Petroleum pipeline would be shorter than TransCanada vice “We believe that this is the over the next several years to prepare for News both the original 2,300-mile president of Alaska route to a successful project, development, said a 2010 open season on a large-diameter http://www.petroleumnews.com/pna mainline across Canada that rather than waiting and trying ds/880803044.shtml TransCanada plans pipeline from Alaska’s North Slope to TransCanada built in 1958 and to offer equity own- to resolve all of the issues markets in the Lower 48. the 2,150-mile Keystone ership in the before we start,” Walker said. “Producers pan AGIA” in the April pipeline to produc- But that project is 1, 2007, issue of Petroleum News pipeline currently under con- ers that commit gas Walker wasn’t troubled by in competition with a http://www.petroleumnews.com/pna struction. during the first the prospect of TransCanada state-lead effort to ds/983000693.shtml However, Palmer’s compari- open season. getting a state license because, build a similar line son doesn’t take into account he said, the BP-ConocoPhillips

JUDY PATRICK JUDY “New gas partnership” in the April under the Alaska 13, 2008, issue of Petroleum News the challenges of building a pipeline project doesn’t require state funding, Gasline Inducement http://www.petroleumnews.com/pna across subarctic climates like Alaska and referring to the $500 million subsidy the Act, or AGIA, ds/899095599.shtml the Yukon, and as of yet TransCanada has AGIA license holder will receive in passed last year. not built any pipelines north of the 60th exchange for going forward with an appli- The state is cur- parallel. And Walker does not mention the cation to the Federal Energy Regulatory rently evaluating a Competing claims on experience major problems the subsidiaries of BP, Commission even if the initial open sea- proposal from the Angus Walker, sen- ConocoPhillips and ExxonMobil have son does not result in enough gas being ior vice president at This summer, BP and ConocoPhillips Canadian pipeline BP in Alaska, said, plan to collect data between Tok and the had as owners of the trans-Alaska oil committed, which could happen if BP, company“We want to get Canadian border in preparation for the pipeline. The TransCanada pipeline, like ConocoPhillips and ExxonMobil do not TransCanada, sub- our gas to market Denali, could also start moving gas by commit their North Slope gas reserves and if there’s a com- pipeline. Walker said the companies will mitted within the mercially viable be working in the field in both Alaska and 2018, Palmer said. from the giant Prudhoe Bay field. bounds of AGIA, project, then people Canada during the following two sum- In addition to the project moving for- and if the state are going to make Race to the finish? ward, the subsidy ensures that there are commercial deci- mers. approves the propos- sions.” Following the open season in 2010, BP With the announcement of the Denali lower tariffs, expansion commitments and al, lawmakers will and ConocoPhillips expect to take two project in early April and the special ses- rolled-in rates. Lower tariffs also drive have 60 days to decide whether to award more years to complete the regulatory sion approaching in early June, an Alaska value to the state because the state collects TransCanada the license to start work on process and more detailed engineering, natural gas pipeline is starting to look taxes on the net value at the wellhead, an open season. and another five years after that to finish more like a race to the finish line, but both see COMPETITION page 11 Regardless of the outcome, though, the major construction work, Walker said. BP-ConocoPhillips joint venture plans to On that schedule, Walker said gas continue its efforts on “Denali — The could start flowing through the pipeline as Alaska Gas Pipeline,” according to a BP early as 2018, and ramp up to initial executive speaking at an oil and gas con- capacity of 4 billion cubic feet per day ference in Calgary on May 6. within a year. Asked why the joint venture would With a combined 50,000 miles of oil “gamble” $600 million of shareholders’ and gas pipelines, $300 billion in joint money and later “untold” billions of dol- market capitalization and a track record in lars more on the project when the Arctic, the companies believe they are TransCanada seems to hold an edge, best suited for the project, according to Angus Walker, senior vice president at BP Walker. in Alaska, said the joint venture believes it But speaking to the same crowd the has the experience needed to successfully day before, Tony Palmer, vice president of complete the project. Alaska development for TransCanada, “We’ve never given up on Alaska gas. made similar arguments, saying his com- ... We’ve had a team working on it for pany has been trying to build a gas decades,” Walker said during the final day pipeline in Alaska for 30 years. of the Interstate Oil and Gas Compact “You might also ask, ‘Well Commission’s midyear issues summit. TransCanada, have you ever done a proj- Alaska Gov. Sarah Palin is the chair- ect this large?’ And I would tell you, woman of IOGCC this year. ‘Indeed we have,’” Palmer said, compar- ing the proposed Alaska natural gas proj- 10 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● EXPLORATION & PRODUCTION

JUDY PATRICK JUDY North Slope production down 3% from March

By KRISTEN NELSON April production was in line with Petroleum News the Department of Revenue’s laska North Slope crude oil pro- spring forecast shows, which duction averaged 718,032 barrels shows ANS yearly averages of A per day in April, down 3.3 percent 720,000 bpd projected for fiscal from a March average of 742,459 year 2008, which ends in June; bpd. Prudhoe Bay, the slope’s largest and a projected 689,000 bpd for field, had the largest per-barrel drop, down an average of 18,177 bpd from FY 2009, which begins in July. March; Northstar had the largest percent- age drop, down 9.5 percent from March. dropped to 28,739 bpd in April. While April production was in line with the the field’s daily rates ranged up to more Department of Revenue’s spring forecast than 33,000 barrels, production was only shows, which shows ANS yearly aver- 218 barrels April 28; the field had no pro- ages of 720,000 bpd projected for fiscal duction April 29-30. year 2008, which ends in June; and a pro- BP Exploration (Alaska) spokesman jected 689,000 bpd for FY 2009, which Steve Rinehart told Petroleum News begins in July. May 2 that Northstar is in the middle of a The BP-operated Northstar field, big planned maintenance event. A num- The 800-mile trans-Alaska oil pipeline runs from Prudhoe Bay to the Port of Valdez. which averaged 31,741 bpd in March, ber of systems and elements are being reworked or replaced and the field is expected to be back online within a few days, he said. Production at the BP-operated Prudhoe Bay field averaged 305,860 bpd in April, down 5.6 percent from a March average of 324,037. Prudhoe production includes natural gas liquids; satellite pro- duction from Aurora, Borealis, Midnight Sun, Orion and Polaris; some 400-600 bpd from Lisburne; and Point McIntyre. Greater Prudhoe Bay, which includes Lisburne (Lisburne and Niakuk produc- tion), and some 33,000 bpd of Flow Station 2 crude currently being shipped through the Endicott pipeline, averaged 378,408 bpd in April, down 4.23 percent from a March average of 395,141 bpd. The relatively smaller decrease in Greater Prudhoe Bay production is due to Lisburne, which had a 3.8 percent pro- duction increase, averaging 39,548 bpd in April compared to 38,104 bpd in March. Alpine averages 111,189 bpd The ConocoPhillips Alaska-operated Alpine field averaged 111,189 bpd in April, down 2.6 percent from a March average of 114,144 bpd. Alpine includes satellite production from Fiord and Nanuq. The BP-operated Endicott field aver- aged 48,207 bpd in April (this includes some 33,000 bpd of Prudhoe Bay FS-2 oil), down 1.5 percent from a March average of 48,924 bpd. In addition to the temporary FS-2 crude, Endicott includes Sag Delta and Eider production. Production from the ConocoPhillips Alaska-operated Kuparuk River field (including Tarn, Meltwater and West Sak production) averaged 149,441 bpd in April, down 1.4 percent from a March average of 151,502 bpd. In addition to Lisburne, there was increased production at BP’s Milne Point field (including Sag River and Schrader Bluff production). Milne averaged 35,048 bpd in April, up 3 percent from a March average of 34,007 bpd. The temperature at Pump Station No. 1 on the North Slope averaged 12.6 degrees Fahrenheit in April, compared to minus 17F in March, and compared to a five-year April average temperature of 2 F. Cook Inlet production averaged 12,697 bpd in April, down 4 percent from a March average of 13,246 bpd. ● PETROLEUM NEWS • WEEK OF MAY 11, 2008 11 continued from page 9 interaction between the state and the oil industry, not just on gas, but on all the oil Enbridge wants a piece of the pipeline COMPETITION leases as well” and the authority of the court system, Galvin said. The head of the Canadian pipeline firm Enbridge is again expressing interest in which is lower the higher the tariff is; and “And all that basically had to be swept owning a piece of a producer-led natural gas pipeline from Alaska’s North Slope, the state pays tariff on its own royalty gas, aside for a generation,” Galvin said. according to media reports. Galvin told Alaska legislators last year. “And that ultimately proved unaccept- After an annual meeting on May 7, company CEO Pat Daniel told reporters that able to the State of Alaska, and I think it Enbridge has had “informal” discussions with BP and ConocoPhillips about possibly $13 billion subsidy under would be unacceptable to most sovereign participating in their $30 billion “Denali — The Alaska Gas Murkowski contract governments. And it led to a stalemate, at Pipeline,” according to a Calgary Herald report. That doesn’t mean BP and least as far as the discussions After an annual meeting “We’ve always said if ConocoPhillips won’t be mak- with the producers were con- on May 7, company CEO PATRICK JUDY we were at a position of ing financial requests of the cerned.” Pat Daniel told reporters 10 to 20 percent that state. Under the Murkowski that Enbridge has had would be of interest to administration they and partner Conciliatory comments “informal” discussions with us,” Daniel told the ExxonMobil insisted on subsi- made by both sides BP and ConocoPhillips Herald. “That would be dies that state officials said By the end of this summer, our objective, but of amounted to $13.25 billion. about possibly Alaskans should know whether course it’s all academic at Enbridge CEO Pat Two of those same officials left participating in their $30 Daniel two pipeline proposals remain this point — we don’t the Murkowski administration, on the table or not, and Walker billion “Denali — The In negotiations with have a position in the line yet.” later joined the Palin adminis- Alaska Gas Pipeline,” the Murkowski isn’t troubled by the very real Covering the same event, Reuters reported tration, and are among the administration, the prospect that TransCanada will according to a Calgary that BP and ConocoPhillips called Enbridge designers of AGIA — specifi- North Slope produc- get the state license over the ers “were clearly Herald report. about the project before announcing it to the cally Department of Natural looking for a project coming months. public in early April. Media reports around that Resources Commissioner Tom that they would “From our point of view announcement mentioned Enbridge as a potential partner. Irwin and DNR Deputy control. ... both that’s fine. ... We’re not afraid from the standpoint Enbridge has aligned with the North Slope producers in a previous, but failed, gas Commissioner Marty of controlling the of competition,” he said. line effort under the Murkowski administration. And last August, Daniel said his com- Rutherford. Galvin was also costs and control- But Walker wasn’t prepared pany told the Palin administration it would not participate in any pipeline that did not part of the Murkowski admin- ling access to the to close the door on an eventu- pipeline,” Revenue have the backing of North Slope resource owners. istration, supported Irwin and Commissioner Pat al partnership with a third-party In developed North Slope oil fields, BP, ConocoPhillips and ExxonMobil current- Rutherford, and was promoted Galvin said. pipeline company like ly have under lease roughly 25 percent of northern Alaska’s estimated onshore recov- to his present position by Palin TransCanada or Enbridge, not- erable natural gas reserves, the bulk of which is contained in the Prudhoe Bay oil field, and included on her gas line team. ing two-thirds of an overland pipeline which contains about 24 trillion cubic feet of natural gas. So, one of the biggest issues, at least would run through Canada. The Denali pipeline is rivaling a proposal by the other major Canadian pipeline from a financial aspect, will be new fis- And there is always the possibility of company TransCanada to build a similar pipeline through a state-led effort. cal terms with the state for the Denali a more traditional partnership: the one — PETROLEUM NEWS pipeline, something BP and between pipeline customers and owners. ConocoPhillips have demanded in recent Even if TransCanada is successful with pipeline discussions. its proposal, individual producers will The two North Slope oil producers still determine the fate of the pipeline have said the most recent push to move during an open season. forward on the pipeline doesn’t reflect a “We want to get our gas to market and willingness to give up on seeking a long- if there’s a commercially viable project, term fiscal package, it only means those then people are going to make commer- talks are being deferred until the joint cial decisions,” Walker said. venture completes initial cost estimates TransCanada isn’t opposed to a part- and engineering. With that information, nership, either. the joint venture believes it has a Palmer said his company, which spe- stronger position in negotiations. cializes in building and operating The failed negotiations between the pipelines, would prefer to hand over the North Slope producers and the state, held construction and ownership of the North under the Murkowski administration in Slope gas treatment plant associated with 2006, prompted the Palin administration the gas line, believing “there are other to draft AGIA in 2007, Galvin said at the companies better suited than ourselves.” Calgary conference. Walker said the gas plant at Prudhoe Bay Describing the negotiations between would be the largest built anywhere. the producers and the Murkowski admin- TransCanada also plans to offer equi- istration, Galvin said that while the com- ty ownership in the pipeline to producers panies “don’t speak in a single voice” that commit gas during the first open sea- they did “provide a certain message to son.● Alaskans about their interests and their expectations about what was going to be needed in order to move the project ahead.” Galvin said, “They were clearly look- ing for a project that they would con- trol... both from the standpoint of con- trolling the costs and controlling access to the pipeline.” Some of that control also came from demands for a “comprehensive” defini- tion of “fiscal certainty” over “every 12 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● INTERNATIONAL ARCTIC

Study reports on LNG carrier designs for the Arctic Gazprom invests big In advance of the likely use of LNG carriers to transport products from future Russian gas fields in the Arctic offshore, marine design standards company ABS has teamed with BMT Fleet Technology and Hyundai Heavy Industries to investigate the structural integrity of various cargo containment systems under different ice impact bucks in gas line scenarios. According to ABS there is at present no in-service history for the use of ice- breaking LNG carriers. First pipe arrives for gas line from Russia’s Arctic onshore at The investigation involved modeling the impact of ice loads on vessel hull struc- Yamal Peninsula to Europe, gets green light from indigenous people tures and the containment systems. “We specifically wanted to check the containment system and hull structure simul- taneously responding to ice impact loads,” said Roger Basu, director of ABS corpo- By SARAH HURST Dobycha Nadym. rate research and development. For Petroleum News Adaptations that Gazprom will make to Using six ice impact scenarios the investigation team also determined critical ice its project include protection for reindeer ussia’s state-owned Gazprom impact load cases for a 150,000-cubic-meter carrier. migration routes. Several thousand nomadic received the first pipe for its gas The investigation report includes recommendations and guidance that will assist Nenets and Khanty reindeer herders on the pipeline project on the Yamal designers of LNG carriers and other large ships operating in ice, ABS says. R Yamal Peninsula oversee about 500,000 Peninsula in early April, Sever Press reindeer. —ALAN BAILEY reported. Developing gas reserves on the Yamal The Yamal Peninsula is on the east side Peninsula is a priority for Gazprom in its Snøhvit to use new CO2 capture technology of the Kara Sea, north of Siberia. The penin- plan for production up to 2020. The sula and the adjacent shelf zone of the Kara Bovanenkovskoe field is the largest on the Norwegian company Sargas will soon launch its new technology for CO2 capture Sea hold 11 proven natural gas fields and 15 peninsula, slated to produce 115 billion in partnership with Hammerfest Energy for use at the gas-fired power station at the oil and gas condensate fields with potential cubic meters a year. Snøhvit LNG plant on the Barents Sea coast. A pipeline is already in place to trans- reserves estimated at 50.5 trillion cubic The second-largest gas field on the port CO2 from the power station at Melkøya to the Snøhvit gas field. Recent results meters. peninsula is Kharasaveyskoe, due to begin from testing the technology at a coal-fired plant outside Stockholm were remarkable, The Bovanenkovskoe-Ukhta pipeline is production in 2014. according to Henrik Fleischer of Sargas. scheduled to come online by 2011, taking “According to preliminary forecasts Sequestration of CO2 using Sargas’s technology takes place in a high pressure gas to European markets. Part of the investment in the opening up of the Yamal environment with high CO2 partial pressure, thus circumventing many of the chal- pipeline will be on the seabed under Peninsula was supposed to amount to 194 lenges encountered by other CO2 capture technologies and lowering cost of capture, Baydarat Bay. The annual capacity of the million rubles ($8.2 million),” the deputy the company says on its Web site. The cost of the capture equipment represents an 2,451-kilometer (1,523-mile) pipeline will governor of the Yamal-Nenets Autonomous investment increase of less than 25 percent, Sargas adds. be 250 billion cubic meters (8.8 trillion Okrug, Alexander Kim, told Russian news —SARAH HURST cubic feet) of gas. agencies recently. “In connection with the The project also received a boost in April development of Gazprom’s Russia regrets leasing out ship, drill rig when Gazprom obtained consent from Bovanenkovskoe gas condensate field, the regional indigenous peoples for the devel- volume of investment already totals 270 bil- Russia’s hugely ambitious plans for developing its Arctic offshore resources are opment of the Bovanenkovskoe gas field. lion rubles ($11.4 billion). By 2010 it will still mainly on the drawing board, but they are already encountering some choppy All decisions on building the pipeline and increase to 340 billion ($14.3 billion). This waters. A study initiated by Prime Minister Viktor Zubkov reports that key compo- infrastructure in the area will be made only is an enormous sum of money that will nents of Russia’s exploration equipment have been leased out to Norwegian compa- after consulting with representatives of the allow us to substantially improve all the indigenous peoples, said Igor Morozov, the see LEASE page 13 social and economic indicators of the region head of Gazprom subsidiary Gazprom for the long term.”● International research crucial for Russia

By SARAH HURST and the oil industry and conducting coastal For Petroleum News sensitivity studies and environmental monitoring. They are also doing research nternational cooperation is vital for into the spill that occurred in Onega Bay in meeting the environmental challenges September 2003 when 50 tons of oil I of offshore Arctic development, leaked out of a Russian tanker that collid- Anatoly Zolotukhin said in a ed with another tanker. presentation at the University of Many countries are doing Alaska Anchorage April 29. Arctic projects at the Ny-Åle- Zolotukhin, a professor at sund Research Park in Norway’s Gubkin Russian State University Svalbard archipelago, and Russia of Oil and Gas, has worked for has been invited to participate Norway’s StatoilHydro and is but so far has been reluctant to do the author of 15 books on the so, Zolotukhin said. Knowledge petroleum industry. and experience about developing Russia is sometimes left out the Arctic must be shared, he in the cold when it comes to ANATOLY ZOLOTUKHIN stressed, as there are so many international projects, but some problems still to be solved. In the Russian progress is being made, Zolotukhin said. Arctic one of the major challenges is deal- For example, StatoilHydro has donated an ing with thick ice conditions in shallow oil sampling laboratory in the Murmansk waters. From the Pechora Sea to the region of Russia, and the two countries Chukchi Sea the water depth varies from also have an oil spill contingency program 10 meters (33 feet) to 40 meters (131 feet), in the same region. In the neighboring which is considered shallow. Temperatures Arkhangelsk region, Norway and Russia in the Chukchi Sea can plunge below are sharing their experience with fisheries minus 60 degrees Celsius. ● PETROLEUM NEWS • WEEK OF MAY 11, 2008 13

● EXPLORATION & PRODUCTION Anadarko plugs and abandons Altamura The spring project in NPR-A will close the books on the first Alaska exploration well drilled by the busy Houston independent

By ERIC LIDJI permeability, meaning liquids would have a tough time Petroleum News flowing through underground rocks up to the surface, suggesting the field would have produced at lower rates.

s Anadarko Petroleum eyes its future in Alaska, it PATRICK JUDY “Pay means they hit hydrocarbon bearing rocks or a also took care of its past. formation,” which is good news, a state Division of Oil A The company recently plugged and abandoned and Gas official told Petroleum News following an old National Petroleum Reserve-Alaska well Anadarko’s March 2003 report in a Securities Exchange this spring. Originally spud on March 10, 2002, the Commission filing. Altamura No. 1 well was Anadarko’s first wildcat on the “Low permeability means the well would produce, in North Slope, drilled during a period of limited activity in relative terms, at lower rates. Permeability affects the northern Alaska. flow rate, but not how much oil and gas is in the reser- Anadarko, which owned a 100 percent interest in the Originally spud on March 10, 2002, the Altamura No. 1 well was Anadarko’s first wildcat on the North Slope, drilled dur- voir,” he said. Altamura lease, reached the well by traveling along an ing a period of limited activity in northern Alaska. There are two common ways to address permeability existing ConocoPhillips ice road leading to the discovered on nearby leases owned by Anadarko and problems on the North Slope, where low permeability is Rendezvous No. 2 well site. Anadarko built a new road majority partner ConocoPhillips. not unusual. “You can drill vertical wells and fracture to cover the remaining 5.5 miles leading south to Altamura, BLM explained, was the farthest south of them or drill long, horizontal wells like they’ve done at Altamura No. 1, situated along the southern boundary of the NPR-A exploration wells, some four miles south of Alpine, exposing a lot of the reservoir to well bore. Some the Greater Mooses Tooth unit. the Rendezvous discovery announced in 2001. of the Alpine horizontal wells are 3,000 feet long. … Anadarko also built a 900-square-foot ice pad, a Either way, you can substantially increase your flow 5,000-foot ice airstrip and a 25-man construction camp Altamura showed pay, but low permeability rate,” the state official said. at the Altamura No. 1 well site. Anadarko suspended the Altamura No. 1 well on When Anadarko began exploring Altamura back in In its environmental assessment of the Altamura April 11, 2002. The company permitted, but never the early part of the decade, a company official said prospect, the U.S. Bureau of Land Management said the drilled, an Altamura No. 2 well, despite extending per- Anadarko hoped to repeat the success of the Alpine field. purpose of drilling at Altamura was to delineate the mits for the well when they first expired. potential southern extension of the oil and gas formation But while the Altamura well reached a vertical depth of 9,041 feet and hit pay, the well also encountered low see ALTAMURA page 16

continued from page 12 expire in 2023 and 2010 respectively. The from Gazprom toured ship-building and erable potential for building technological Valentin Shashin has been leased to a machine-building companies in north- fleet, production and drilling platforms for LEASE company called Arba and the western Russia in April, and the energy Gazprom,” said Gazprom’s Alexander Murmanskaya has been leased to Beta major also hosted a meeting in St. Ananenkov, who led the delegation. “At nies without tenders and at a price much Drilling. The prime minister has called for Petersburg to discuss its needs for the con- the same time, there is equipment they lower than the market price. an investigation of the company that struction of vessels and special equipment haven’t produced yet. Therefore it is nec- The Russian drilling ship Valentin leased out the equipment, Murmansk- to carry out its high-priority projects on the essary to gain experience, develop Russian Shashin (renamed Deep Venture) and the based Artikmorneftegazrazvedka. Arctic shelf. technologies and attract qualified staff.” Murmanskaya rig have been leased to On a more optimistic note, a delegation “Domestic companies possess consid- —SARAH HURST Norwegian companies on contracts that 14 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● HISTORY Prudhoe discovery debate still rages Finding Alaska’s largest oil field involved two exploration wells, drilling milestones spanning 15 months; actual discovery date contested

By ROSE RAGSDALE For Petroleum News GIL MULL orty years after a team of explorers first drilled into North America’s largest oil field, the actual date of dis- F covery remains a subject of debate, even among the geologists, engineers and others who participated in the world-changing event. One problem was that Prudhoe Harnessing Bay’s discovery, like many great a Giant endeavors, did not happen in a single moment. Instead, the process of unleashing the elephant trapped beneath the frozen tundra was gradual, evolving during months of drilling in the harsh Arctic conditions. Shrouded in secrecy, the proj- ect encountered frustrations daily, forcing geologists, geophysicists and engineers to become absorbed 40 years after in the details of correctly inter- Prudhoe Bay preting core samples and puzzling well logs. “It was about as exciting as watching a tree grow,” recalled John Sweet, then district explorationist for Atlantic-Richfield Co. Atlantic Richfield Co. and Humble Oil Co.’s exploration team, lacking storage equipment, opted to burn the oil produced Pivotal event in question while drilling the Prudhoe Bay State #1 discovery well in early 1968. Sweet, who led the Prudhoe Bay discovery team, said he Prudhoe Bay State #1 well in April 1967, after the daunting “This was an encouraging sign, but again not terribly is convinced the Prudhoe Bay oil field wasn’t actually dis- failure of the Susie No. 1 well to the south and an impas- significant, because other wells previously drilled on the covered until the Sag River #1 well was drilled in the sum- sioned plea to try again from then Gov. Walter J. Hickel. North Slope also had recovered small amounts of oil from mer of 1968. In retrospect, the Prudhoe Bay well has been described rocks of Cretaceous age — those deposited some 65 million “The first well provided the leadership, but if that had as a last ditch effort as the entire oil industry, smarting from to 140 million years ago,” Mull said. been all we’d found, it would not have been commercial,” the expense and disappointment of 14 dry holes, seemed On Dec. 27, 1967, the explorers encountered strong gas Sweet told Petroleum News April 28. ready to abandon the North Slope as a frontier for petrole- shows during drill stem test #2, and the well flowed with a H.C. “Harry” Jamison, then ARCO’s Alaska exploration um exploration. high volume of gas, which marked a significant gas discov- manager, disagrees. He said Prudhoe Bay’s date of discov- Drillers spud the Prudhoe Bay State #1 well April 22, ery. ery was the date the well was completed – June 24, 1968, 1967, but shut down for the summer after a couple of weeks Mull said this was the first significant production of according to Alaska Oil and Gas Conservation Commission due to breakup conditions. hydrocarbons from what has become the main reservoir of records. The explorers re-entered the well in November 1967, the Prudhoe Bay field, but no oil was encountered in this “I’ve worked all over the United States, and I’ve always and found small oil shows in drill cuttings from thin sand- part of the section. heard that conventional wisdom is that the date of discov- stones in the upper part of the well in late November and Eyewitnesses recall that the gas rushed out of the well ery is the date the well was completed,” Jamison said April early December 1967. roaring like a jet engine with such force that it shot 50 feet 29. “Otherwise, you’ll get dates all over the place. One guy into a 35-knot wind. will say, ‘It was when we got first oil shows,’ another one Early oil shows encouraging After drilling resumed Feb. 1, 1968, oil shows were seen will say, ‘It’s when we first hit the Sadlerochit’ (formation), in the drilling mud and in cores from the lower 40 feet of and another will say, ‘No, it’s when we drilled the “This, however, is not uncommon on the North Slope; sandstones in the Sadlerochit Formation, but were not eval- Mississippian.’ You get the idea.” almost all wells drilled there encounter some shows in the uated until logs were run on Feb. 8, 1968. People, in fact, can’t even agree on the year in which the Cretaceous sandstones, thus seeing small oil shows in this “Evaluation of these logs along with the core data indi- oil field was discovered. Some still say it happened in 1967, part of the section was not particularly significant,” said Gil cated that the formation had sufficient porosity and con- though most people point to 1968. Mull, who “sat on the well” as a geologist for Humble Oil during the Prudhoe Bay field’s discovery. tained enough oil that it could be considered a discovery,” Complicated exploration timeline On Dec. 8, 1967, a drill stem test run on an interval of Mull said. thinly inter-bedded Cretaceous age sandstones and shale The discovery chronology was complicated by many from 6,876 feet to 6,998 feet deep flowed with some natu- Field discovery announced factors, including the harsh working environment and the ral gas and recovery of a few barrels of oil from the drill ARCO sent out a news release Feb. 16 announcing the constraints on drilling during the Arctic summers. pipe, though no oil flowed to the surface. ARCO and Humble Oil Co. pooled resources to drill the see DISCOVERY page 15 PETROLEUM NEWS • WEEK OF MAY 11, 2008 15 continued from page 14 the Lisburne and got 150 bopd, but when possible crude reserves for a total of 2.3 they reached the Sadlerochit, gas flowed billion barrels of oil. DISCOVERY for 23 minutes and oil at 1,152 bpd, Sweet “That’s the number we called in to said. Dallas,” he said. discovery of oil, though no flow tests had PHOTO COURTESY The period was frustrating because the In March 1968 what we had was an been conducted. oil shows were in shale with very little unbelievable reservoir, a little oil value Two days later, the explorers conducted sandstone. As the explorers drilled deeper, but with good flow of oil and lots of gas. drill stem test #3 in the top of the Lisburne they reached the Sadlerochit Formation at It was exciting but with many questions,” limestone. It flowed with a large amount of 9,600 feet. he said. “Almost immediately, every- gas and an estimated 100 barrels per day of “The drill had been progressing at a body’s minds turned to a confirmation oil, but this oil and gas flow probably came foot an hour,” Sweet recalled. “When it hit well. We had to determine the oil column, from the overlying Sadlerochit Formation the Sadlerochit, the drill rate went … to if any, the water table and the continuity of rather than the Lisburne, according to Mull. about a foot a minute. We ran a test and we the reservoir and an all season location, The first actual measured oil flow from had gas to surface at 1,250 Mcfpd. which required tons and tons of gravel.” the Prudhoe Bay well came in Drill Stem “On Feb. 4, 1968, we reached the lower Though the “Dallas people” pored over Test #4 in the Lisburne on March 12, 1968. part of the Sadlerochit and what came out all the seismic maps, there was no drama It measured the flow at 1,152 bopd and pro- was aggregate, loose sand and oil, some of and little politics involved in selecting the duced headlines March 13, 1968. which ran through the rig floor. location of the confirmation well, Sweet “However, this oil was produced from “I received a core analysis on Feb. 7, said. Lisburne limestone and dolomite that and it was one of the most dramatic things “It had to be a long step-out and near a underlies the sandstone and conglomerate you’d ever want to see. With that we made source of gravel. That put the location of the Sadlerochit Formation, and showed the first reserve calculations,” he said. near the Sag River where geologists deter- that there are multiple reservoirs in the Atlantic Richfield Co. and Humble Oil Co. mined there was lots of gravel,” he found significant quantities of natural gas Prudhoe Bay area,” Mull said. “This had the Incredible signs, cautious calculations explained. effect of increasing the likelihood that the in what would become the Prudhoe Bay oil field on Dec. 27, 1967, months before crude Sweet said those first calculations were The explorers spud Sag River State #1 Prudhoe Bay field could be economically was discovered in commercial quantities. based on reservoir characteristics such as May 3, 1968 and by July, ARCO and viable.” porosity upwards of 30 percent, perme- Humble geologists had tested the By May 1968, several drill stem tests Still, those tantalizing glimpses of ability in Darcies up to 3 (permeability in Sadlerochit Formation and confirmed the had measured the flow of oil from several something big did not an economic dis- oil fields is usually expressed in millidar- presence of the Prudhoe Bay oil field. intervals in the Sadlerochit Formation. covery make, according to Sweet. cies) and 65 percent oil saturation. Says Sweet: “The statistical chance About a month later — June 25, 1968 — Part of the problem was that the initial Sweet’s figures yielded 223 barrels per that the Sadlerochit (formation) would explorers drilling the Sag River State #1 target for the Prudhoe Bay well was the acre foot with 20 sections of proven, 17 occur in conjunction with the Prudhoe well encountered oil in the Sadlerochit Lisburne Formation, he said. sections of probable and 33 sections of Bay structure boggles the mind.” ● Formation, seven miles away and 400 feet At 8,700 feet, the drillers encountered deeper than crude found by Prudhoe Bay State #1. On July 18, 1968, ARCO and Humble announced that the Prudhoe Bay field prob- ably contained 5 billion to 10 billion barrels of recoverable oil. Support for winter discovery So when was the Prudhoe Bay oil field discovered? “As you can see, there was a succession of events that built to the realization that the Prudhoe Bay State #1 well was a com- mercial discovery,” Mull said in a letter to author Gene Rutledge in 1998. “But, if I had to pick a date at which one could say that oil was discovered in the Prudhoe Bay field, I would pick Feb. 1, 1968, when the first oil saturated sandstone was encoun- tered in what has become the main reser- voir in the field.” Not so, says Marvin Mangus, ARCO’s well geologist for Prudhoe Bay State #1. “Oil was discovered at Prudhoe Bay in December 1967,” Mangus said April 28. “We decided not to make it known until we drilled the confirmation well. So the top brass decided to hold off making the announcement until February 1968. But all of us on the well had decided that we had something. It should have been right around Christmas 1967. “You just don’t have oil shows that big unless it’s really good. We felt that it was a discovery,” Mangus said. Frigid weather hampered progress Garnett “Gar” Pessel, a geologist who worked with ARCO geophysicists at the time on core samples coming in to Anchorage from Prudhoe Bay State #1, said one possible reason for the conflicting views on the discovery date was the huge amount of uncertainty that loomed over the operation that winter because of frigid temperatures. “During the early testing, the engineers were unfamiliar with working in the cold. The equipment kept freezing up and giving bogus results, and the guys kept arguing about it,” Pessel said. “But Don Jessup, the district geologist for ARCO kept looking at the cores and getting excited.” Sweet agrees that the cores looked promising. “I had never seen oil shows like that before in my whole career,” he told members of the Alaska Geological Society at its annual technical conference April 17. 16 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● OIL COMPANY EARNINGS NATURAL GAS Earnings from Petroleum News Top 25 Earnings first quarter 2008 • Change from first quarter 2007 Liquids production first quarter 2008 • Change from first quarter 2007 Natural gas price Natural gas production first quarter 2008 • Change from first quarter 2007

Company symbol earnings % liquids % gas % ExxonMobil XOM $10,890 +17 2,474,000 –10 10,246 +1 heralds Arctic boon BP BP $7,619 +63 2,453,000 0 8,464 0 Price rebound and supply-demand outlook support notion of RD/Shell RDS-A $7,776 +12 1,840,000 –6 9,755 +9

Chevron CVX $5,168 +10 1,665,000 –6 5,434 +9 staying power for $10 gas; Lippe doubts $120 oil will continue

ConocoPhillips COP $4,139 +17 1,436,000 –9 4,900 -8 By GARY PARK Canadian supply and the “tightest” lique- StatoilHydro STO For Petroleum News fied natural gas market in history will off- set gains in U.S. production, resulting in Occidental OXY $1,846 +52 470,000 +3 846 +32 or those trying to get a fix on the strong pricing in 2008 and 2009, he said. EnCana ECA $93 -81 137,000 +5 3,733 +10 long-range outlook for natural gas FirstEnergy is now targeting an aver- Can. Natural CNQ.TO F prices as they wrestle with the daunt- age $9.75 per MMBtu this year and $9.50 ing economics of Arctic projects in Anadarko APC $237 -86 229,000 -20 2,137 -3 in 2009, with its forecast for the key Alaska and Canada there has been a sud- AECO hub in Alberta at C$9.01 per giga- Devon DVN $749 +15 231,800 +8 2,451 +9 den lift from analysts who believe joule for both years. Marathon MRO $731 +2 190,000 -4 1,129 +33 rebounding gas prices, pulled along by Beyond 2008, King said the gas mar- Husky HSE.TO C$887 +36 251,700 -11 590 -8 rising crude oil prices, are here to stay. ket will stay buoyant as climate change The short-term blips have never been Talisman TLM C$466 -10 216,625 -14 1,216 -7 regulations intensify the demand for gas- enough to sway those making multi-bil- fired power generation. Apache APA $1,020 +108 273,188 +13 1,707 -3 lion-dollar decisions on North Slope and He said FirstEnergy believes “low Imperial IMO C$681 -12 260,000 -2 325 -38 Mackenzie Delta developments, but they double digit gas pricing will become a Suncor SU.TO C$708 +23 248,000 0 229 +10 have reason to draw hope that the return reality, given that North America has to of gas prices to $10 per million British migrate closer to global gas price levels.” Petro-Canada PCZ C$899 +55 308,000 +10 712 -5 thermal units (MMBtu) might have some Nexen NXY.TO C$630 +421 224,100 +12 260 +12 staying power. Upper Montney, Horn River near term XTO XTO $465 +21 67,514 +20 1,708 +35 In Canada that is combined with word For the nearer term Canadian attention from the consulting firm of Ziff Energy Chesapeake CHK -$143 — 30,510 +28 2,087 +33 is turning to the Upper Montney and Horn that the 25 largest Canadian producers River as the best hope to sustain supply Pioneer PXD $130 +338 47,553 +11 376 +14 failed to replace their gas reserves in levels. EOG EOG $241 +11 54,400 +38 1,549 +9 2007, the first time since 2003. (The top Robin Mann, chief executive officer of Newfield NFX -$64 — 26,670 +12 449 -68 30 producers in the Lower 48 represent- AJM Petroleum Consultants, told an ing one-half of U.S. production replaced Swift SFY investor conference in Toronto on May 1 just over 200 percent of their reserves). the Upper Montney has estimated gas-in- Liquids production in barrels per day. Natural gas production in millions of cubic feet per day. The pressure to keep Canada’s output place of 50 trillion cubic feet. at its current level of 17 billion cubic feet Even if only half that potential turns Top 25 is based on Petroleum News research on exploration spending per day is a constant treadmill for the out to be recoverable it will be a “major industry, even though the new resource resource we didn’t even have two or three plays in the Upper Montney and Horn years ago,” and provide a significant lift continued from page 13 the project is to take advantage of River Basin shales are a source of new to current 58 tcf of estimated convention- another operation in the vicinity of the hope. al gas potential in the Western Canada ALTAMURA well,” referring to those nearby NPR-A But, if new reserves are to be found Sedimentary Basin, he said. projects where Anadarko is a partner they need the support of strong current But the job of maintaining current out- Anadarko also asking with ConocoPhillips. prices and a robust outlook. put levels in Canada requires 3.5 billion for ROW renewal When it asked for a permit to plug Calgary-based FirstEnergy Capital is cubic feet per day of new volumes every confident about the latest price resur- An environmental assessment by the old well, Anadarko also requested a year, assuming an average 20 percent gence, raising its price forecast twice in the federal Bureau of Land one-year right of way renewal within decline rate and an average 300,000 cubic ● 45 days. Management said the “current need for the Northeast portion of the NPR-A. feet per day from each new well that FirstEnergy vice-president Martin comes on stream, Mann said. King told an industry gathering in Calgary that the price turnaround has 19,000 well completions per year been “phenomenal … generally, there has Achieving that basic requirement been a lot of fundamental factors out needs an annual tally of 19,000 well com- there, some demand growth as well, that pletions (about 65 percent targeting gas) explains why prices are strong.” in Western Canada, compared with AJM’s In addition to the return of a more nor- forecast of 17,000 this year, down from mal winter demand and a strong storage 18,600 in 2007. pull in the United States, prices have been That underscores the importance of the boosted by “genuine constraints” on new plays, which Mann said could lead some supply sources, he said. the way to many other shales and projects Rising U.S. consumption, the scram- ble to refill U.S. storage, shrinking see BOON page 17

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● NATURAL GAS continued from page 16 the job of maintaining current BOON output levels in Canada requires 3.5 billion cubic feet ANGDA contracting that are now possible because of the per day of new volumes every “technologies that will be developed year. … Achieving that basic for these types of plays.” requirement needs an annual Based on current wells, the average for natural gas deliverability is 1.3 million cubic feet tally of 19,000 well per day for vertical wells with reserves completions (about 65 percent of 1.6 billion cubic feet per well and 3.5 targeting gas) in Western supply coordinator million cubic feet per day for horizontal Canada, compared with AJM’s wells with reserves of 4.3 billion cubic forecast of 17,000 this year, feet, Mann said, estimating well costs at down from 18,600 in 2007. By KRISTEN NELSON C$3 million to C$5 million. ANGDA said in its May 1 request Petroleum News Investment dealer Peters & Co. said for proposals for a gas supply most horizontal Montney developments United States lifting its ban on drilling he Alaska Natural Gas coordinator that its project “may are economic at gas prices of C$6.50 per in the 1002 area of the Arctic National Development Authority is con- broaden to cover a Delta Junction thousand cubic feet, with hope of Wildlife Refuge, allowing E&P compa- T tracting for a gas supply coordina- “already superior returns” improving as nies to pursue those controversial sup- to Prudhoe Bay alignment and a tor. plies. Fairbanks to Wasilla (along operators and service companies gain ANGDA is a state agency estab- experience. lished by a voter initiative. It has been Parks Highway) alignment,” In the Horn River, where EOG Gas on par with oil by 2012-03 focused on getting North Slope natural pending capital funding Resources has announced a potential 6 Amid this speculation there is the gas to in-state markets, and has a con- appropriations. tcf find on its 140,000 acres, potential unending debate over whether gas ditional right of way for a spur line well resources are estimated at 4 to 6 prices should be linked to oil. from Glennallen to Palmer. Gas would billion cubic feet per well, with deliver- Andy Weissman, senior managing ride the main pipeline from the North take point, as well as negotiate with ability up to 8 million cubic feet per day director at FTI Consulting, said that Slope — when such a line is built — to natural gas producers to purchase the per multiple segment well. although the two commodities basically an off-take point connecting to a spur gas. Current well costs in Horn River are decoupled two years ago, he expects line to Southcentral. The gas supply coordinator sought about C$10 million, but some operators that by 2012 and 2013 there is a “high ANGDA said in its May 1 request in the RFP “will provide the direction are now reporting a drop to the C$6 mil- probability” that gas will be on par with for proposals for a gas supply coordi- and leadership of ANGDA’s work in lion-C$8 million range. oil and possibly sell at a premium. nator that its project “may broaden to support of Alaska utilities and other Dismissing Energy Information cover a Delta Junction to Prudhoe Bay gas users to develop multi billion-dol- If oil hits $200, gas $16.50-$20 Administration predictions that oil will lar long-term commitments for pur- alignment and a Fairbanks to Wasilla But Arctic players trying to get a han- fall to $70 per barrel, he said there is a chase and shipment of North Slope (along Parks Highway) alignment,” dle on where the gas sector is headed “very high risk” that in another five gas.” The budget for the assignment is pending capital funding appropriations. might have found more reason for hope years the U.S. could face a severe gas up to $175,000; the contract would run Fairbanks to Wasilla is an alternative than they have ever held with recent supply and demand crisis. from June 5, 2008, to July 1, 2009. spur line route to Southcentral. As for comments by Peter Beutel, president of Dan Lippe, president of Petral The RFP lists a number of efforts the the Delta Junction to Fairbanks refer- the Connecticut-based consulting firm Worldwide Consulting, said that if oil contractor selected will work on: ence, there has been discussion in the Cameron Hanover. ever hit $200, fuel-switching competi- • The in-state open season process state of how to bring gas south faster Referring to the no longer unthink- tion between residual fuel oil and gas for North Slope natural gas, including than waiting for a major gas sales able prospect of oil hitting $200 per bar- could drive gas to $20 per MMBtu. regulatory approvals; pipeline — and also discussion of how rel, he said that if ever that happens “it He said that if fuel oil reaches $140 • Gas supply contracts including to provide gas for in-state use in the would be kind of hard for natural gas to per barrel (the equivalent of $200 per purchase of gas reserves; event a project to major markets out- not be at something between $16.50 and barrel for conventional oil) gas prices • Gas shipping commitments to side the state is delayed. $20” per MMBtu. would be $20 per MMBtu after allow- mainline in-state delivery points; Assuming the U.S. dollar remains ing for current discounts of $3-$4 per Work with utilities to continue • Aggregate gas requirements of weak and serious constraints on oil sup- MMBtu. smaller utility and direct purchase gas ANGDA has been working with plies, “gas would go along for the ride,” However, Lippe does not think $200 users; and Alaska utilities and other potential in- he said. oil is in the cards, doubting that even • Financing and bonding of each of state users of natural gas to prepare for But such a surge could also be $120 can survive indefinitely beyond the items listed. an open season for a main line, a accompanied by a “massive recession,” summer. The RFP specifies 20 years or more North-Slope-to-market gas pipeline. In demand destruction, conservation meas- Even so $120 oil and $11 natural gas of experience in natural gas contracting, order to take natural gas off a mainline, ures and more affordable alternative are sufficient to spur production and management of gas transmission-distri- those wanting to use gas in Alaska energies if gas prices went into decline. technological advances will make feasi- bution businesses and utility regulatory would have to participate in that main- However, Beutel said higher gas ble the development of previously-unat- filings, with at least five years of the 20 line open season and commit to pay for prices could conceivably result in the tainable resources, he said. ● space on the line to their in-state off- years of experience in Alaska. ●

GOVERNMENT Sentencings for former executives delayed Federal prosecutors aren’t ready just yet to recommend sentences for their two witnesses in an ongoing federal corrup- tion probe in Alaska. In a status report filed in federal court April 30, prosecutors requested that sen- tencing for former VECO executives Bill Allen and Rick Smith continue to be postponed as the investigation continues. Prosecutors wrote the investigation is “exceedingly complex,” and they prom- ised to have another update no later than July 31. Both Allen and Smith pleaded guilty last year to federal bribery charges. They’ve been key witnesses in the con- victions of two former state lawmakers so far. One more trial is pending. —THE ASSOCIATED PRESS 18 PETROLEUM NEWS • WEEK OF MAY 11, 2008

● SAFETY & ENVIRONMENT EXPLORATION & PRODUCTION Study: Only 1% of Bakken recoverable BLM pushed to consider The Bakken shale formation in North Dakota holds up to 167 billion barrels of oil but only about 1 percent of it can be recovered using current technology, a new state study says. climate change concerns The study released April 28 said current technology could lead to the recovery of about 2.1 billion barrels in North Dakota’s “middle Bakken” formation, where oil- Group one of many protesting oil, gas leasing because of climate producing rock is sandwiched between layers of shale about 10,000 feet under the ground. change, versus usual endangered species, pristine land arguments “The future potential is enormous — it means we will be able to exploit this for the rest of the century,” said Lynn Helms, director of the North Dakota Department By SUSAN MONTOYA BRYAN should not have been offered because the of Mineral Resources, which conducted the study. Associated Press Writer BLM’s management plans do not address Helms released the study April 28 at an annual state oil conference in Minot, N.D., climate change as a potential result of where the Bakken was a big topic on the three-day agenda. The conference, limited onservationists are shifting the debate greenhouse gas emissions from more oil to 1,300 participants, sold out. over oil and gas development across and gas development. Ron Ness, president of the North Dakota Petroleum Council, cautioned against C the West from the preservation of a The protest also alleges the agency skirt- over-hyping the Bakken play. single species here or there to the ed federal environmental laws by not con- “This study gives a number that by no means guarantees those are the amount of potential impacts that development could sidering new information about climate barrels we can count on,” Ness said. “The Bakken rock is full of oil and companies have on entire landscapes due to climate change from the Intergovernmental Panel drilling out there know that, and they know it is extremely difficult and extremely change. on Climate Change, the New Mexico expensive.” At the center of the debate are oil and gas Climate Change Advisory Group or other lease sales held each quarter by the U.S. federal scientists. Costs $5 million per well Bureau of Land Management. The agency “It’s just difficult to find words strong offered about 100 parcels covering some Ness said it costs more than $5 million to drill a Bakken well, and dozens are cur- enough to express the irresponsibility that 112,000 acres in New Mexico, Texas and rently producing. they’re proceeding with in just lease after Oklahoma in April and has more than To capture oil from the middle Bakken in North Dakota, most companies “frac- lease after lease and not addressing this 175,000 acres up for lease in Colorado in ture stimulate” horizontal wells by forcing pressurized fluid and sand to break pores problem,” said Robert Ukeiley, WildEarth early May. in the rock and prop them open to recover oil. Guardians staff attorney. “The Rocky Mountain region is experi- The middle Bakken, which ranges from a few feet thick to 80 feet, is between lay- encing an unprecedented oil and gas boom BLM working on emissions ers of loose shale. Its rock consists of sandstone and siltstone, with microscopic pores right now so it’s crucial that we get ahead of that contain the oil. The formation is 365 million years old, said Ed Murphy, the state Herrell argued that the BLM has been the curve here and not let this get away from geologist and director of the North Dakota Geological Survey. working with the oil and gas industry for the us before it’s too late to do anything,” said Part of the conference will focus on sharing information on drilling technology for past decade to get a handle on greenhouse Jeremy Nichols, director of Denver-based the Bakken, Ness said. gas emissions that result from flaring and Rocky Mountain Clean Air Action. The state study mirrors the independent findings of a federal study released on venting on the oilfield. That work has paid Nichols’ group is one of several organi- April 10. off with more than a 50 percent reduction in zations that have protested recent oil and The U.S. Geological Survey estimated that up to 4.3 billion barrels of oil could be emissions, he said. gas lease sales across the region because of recovered from the Bakken shale formation in North Dakota and Montana, using cur- He also said the agency is always look- climate change concerns — rather than the rent technology. ing for better ways of doing things to ensure usual arguments of how oil and gas might That report was done independently of the state study, Murphy said. that oil and gas development has minimal affect a particular endangered species or a “Their numbers also include Montana, ours only includes North Dakota,” he said. impacts on public lands — and ultimately pristine plot of land. The federal report found up to 2.6 billion barrels could be recovered in North climate change. “We’re really trying to change the nature Dakota, compared with the state’s estimate of 2.1 billion barrels, Murphy said. “We will be a part of the discussion, a of this debate and get the BLM to start look- “We were quite surprised the numbers were so close,” he said. part of the dialogue,” he said. “But you have ing at the bigger picture here,” Nichols said. Helms said the federal study focused on the performance of wells currently work- to remember our activities are only one “Even though these are individual state ing in the Bakken, while the state “went back and looked at the rock.” small part of the global equation with green- lease sales, regionally it adds up.” He said the state study partially validates a study done by Leigh Price, a USGS house gases and that makes it difficult because, almost by default, if you want to geologist who died in 2000 before his study was published. Price estimated the Argument spreading in West Bakken held between 200 billion and 500 billion barrels of oil. address greenhouse gases you’ve got to The most recent federal study does not estimate how much oil may be in the for- The climate change argument has spread expand and address everything else, the mation — only what the agency believes can be recovered using current technology. from Montana and the Dakotas down to whole energy policy.” The state study gives an estimate of what the Bakken may hold in North Dakota, Colorado, Nevada and New Mexico, and And that’s what conservationists and in what is known as an “in-place oil resource.” BLM officials acknowledged May 1 that sportsmen’s groups are hoping to do with it’s likely here to stay. — JAMES MACPHERSON their flurry of protests. They say their goal TheAssociated Press “I think it is going to be discussed more is to get federal policy-makers to rethink and more,” said Tony Herrell, BLM’s America’s energy portfolio to ease the deputy director for minerals in New impact on public lands. Mexico. “It’s an issue that society is just But to do that, Herrell said, both sides of becoming more aware of now.” the energy equation — supply and demand Herrell’s office is responsible for oil and — must be considered. “There is no one sil- gas development in New Mexico, Texas, ver bullet answer to this and it’s going to Oklahoma and Kansas, making for one of take time,” he said. the largest oil and gas programs in the BLM. The four-state area has more than 45 Hunters, anglers also concerned million acres of mineral estate, including Austin Williams, the Rocky Mountain two of the largest gas reserves in the world. energy coordinator for Trout Unlimited, has The region sold every one of the parcels organized a symposium in May in it offered during the April lease sale, but Wyoming to bring together hunters, anglers, Herrell said the leases have not been signed researchers and planners to talk about how because the agency is still reviewing a to balance conservation and energy devel- protest filed by WildEarth Guardians. opment in the region. The Santa Fe, N.M.-based conservation “Our view right now is that to a certain group targeted all the parcels, saying they degree we can have responsible oil and gas development and still have these wonderful natural resources,” he said. “We just need to be cautious with how we move forward and make sure that we’re making informed decisions and recognizing the importance of our fish, wildlife and water resources to our Western way of life.” Steven Williams, a hunter and angler who is president of the nonprofit Wildlife Management Institute, said he could think of several people who have a lifelong dream of heading West to fish for trout, hunt elk or just soak up the vast expanses. But for the non-sportsmen, Williams fears it’s a “not-in-my-backyard sort of thing.” ● PETROLEUM NEWS • WEEK OF MAY 11, 2008 19

PIPELINES & DOWNSTREAM LAND & LEASING BP gets to work on refinery Potential Alaska state and federal oil and expansion, will be top processor gas lease sales of heavy Canadian crude oil Agency Sale and Area Proposed Date DNR Cook Inlet Areawide May 21, 2008 BP wasted little time getting to work after receiving the final state approval DNR Beaufort Sea Areawide October 2008 needed for a $3.8 billion expansion of its Whiting, Ind., oil refinery. Crews began DNR North Slope Areawide October 2008 piling work and laying foundations May 1, just hours after the state approved the air emissions permit, BP spokeswoman Valerie Corr said. BLM NE NPR-A To be determined “We are just ecstatic,” said Paul Maday, business manager and secretary-treas- BLM NW NPR-A To be determined urer for Boilermakers Local 374 in Hammond, Ind., which does maintenance DNR Alaska Peninsula Areawide February 2009 work at the refinery. “The boilermakers have supported this project since it was DNR North Slope Foothills Areawide February 2009 first presented to us a couple of years ago from BP Amoco. It’s going to mean a DNR Cook Inlet Areawide May 2009 lot of employment for our members.” DNR Beaufort Sea Areawide October 2009 BP has said the expanded refinery would be the nation’s top processor of heavy DNR North Slope Areawide October 2009 high-sulfur Canadian crude oil, boosting its annual production of gasoline, diesel MMS Sale 209 Beaufort Sea 2009 fuel and jet fuel by 15 percent to about 4.7 billion gallons annually. Some 1,700 MMS Sale 211 Cook Inlet 2009 people work at the 119-year-old refinery. DNR Alaska Peninsula Areawide February 2010 Environmentalists who opposed the permit said they will spend the next 18 DNR North Slope Foothills Areawide February 2010 days deciding whether to challenge the permit in court. DNR Cook Inlet Areawide May 2010 BP’s construction permit is valid until construction is completed. After that, BP will need an operational permit, called a Title V permit. EPA Region 5 spokesman DNR Beaufort Sea Areawide October 2010 Bill Omohundro said the agency was working with the state to ensure that the DNR North Slope Areawide October 2010 Title V permit meets Clean Air Act requirements. MMS Sale 212 Chukchi Sea 2010 —THE ASSOCIATED PRESS MMS Sale 217 Beaufort Sea 2011 MMS Sale 214 North Aleutian basin 2011 MMS Sale 219 Cook Inlet 2011 continued from page 1 to help correct underutilized capacity in MMS Sale 221 Chukchi Sea 2012 Canadian pipelines. (ConocoPhillips has FAST-TRACK Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, man- calculated that 100,000 barrels per day of ages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of ethane could be removed from 4 billion “We are hoping we can learn from the Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshore cubic feet per day of Alaska gas). and in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust experiences we’ve had on Mackenzie,” Boosting volumes on Canadian lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaska Kirby told reporters. pipelines would benefit Alaska and region outer continental shelf office, manages sales in federal waters offshore Alaska. She said it will be “helpful to have an Alberta shippers and ultimately con- Alaska pipeline organized as a major This week’s lease sale chart sumers by reducing tolls. project and have the co-ordination of all sponsored by: federal departments … with greater Alaska open season weight in terms of timelines that must be PGS Onshore, Inc. met and with memorandums of under- by September 2009 standing between federal departments.” Tony Palmer, TransCanada’s vice- Kirby said a major projects office president of Alaska development, told established in 2007 by Prime Minister the conference his company’s system Stephen Harper’s government will make currently delivers about 15 billion cubic a “big difference” once Alaska awards a feet per day and has 2 billion cubic feet project license to set the ball rolling on per day of surplus space, which could the massive undertaking. grow to 4 billion-5 billion cubic feet per She said the regulatory review will be day without Arctic gas being injected. designed to fit the project, but it must He estimated that feeding Alaska gas include a “modern, independent and effi- into the Alberta network could save cient environmental process.” Western Canadian producers about C$10 billion over the first 15 years. Aboriginal support critical Palmer said that if TransCanada One of the toughest challenges receives a license for an Alaska pipeline, Northern Air Cargo announces NAC Can –a new program to improve involves the construction of a pipeline an open season to secure shipping com- customer service and make shipping with NAC easier than ever. across aboriginal lands in the Yukon, mitments could be completed by British Columbia and possibly Alberta, September 2009, four months behind its • Faster drop-offs and streamlined pickups. with the support of First Nations original forecast, but it would have to be • Individual kiosks for small packages, oversize, and general freight. preceded by a new cost estimate. “absolutely critical” to the success of the • Dedicated service agents for custom shipping solutions. project. She said Ottawa has a team available Mac line faces another delay to handle aboriginal consultation and Meanwhile, the Mackenzie Gas NAC CAN engagement and workshops have been Project faces another delay, with a Joint held to identify employment, training and Review Panel report now not expected make air cargo easier! business opportunities. in 2008, Brian Chamber, executive 800.727.2141 www.nac.aero “It won’t be sufficient, but it’s a start,” director of the Northern Gas Project she said. “We’re spending more time up Secretariat, said. front.” Until it receives the panel’s recom- mendation, the National Energy Board is Plenty of room for both gas lines unable to hear final arguments, stalling Kirby said she was not troubled by the until 2010 the regulatory approvals prospect of competition between the which had been expected in 2009. Mackenzie and Alaska pipelines, noting Bob McLeod, the recently appointed that the decline in conventional gas pro- industry minister in the Northwest duction and the rising demand for gas- Territories, had already voiced concern fired power generation suggests there will that the Mackenzie gas line’s regulatory be “more than enough room” for both requirements were too onerous and too projects to “deliver significant gas vol- long, noting that the more time that is umes (currently planned for about 4.5 bil- needed the more a revival of northern lion cubic feet per day from Alaska and exploration is delayed. 1.2 billion cubic feet per day from the Canada’s Industry Minister Jim Mackenzie Delta) and to encourage U.S. Prentice, who has cabinet control of the exploration activity in the Arctic.” Mackenzie Gas Project file, has agreed She said the Canadian government Ottawa must streamline regulations to would prefer to have a pipeline through approve permits for the project. The var- the Alberta gas hub to give Alberta’s ious boards and agencies are planning to petrochemical plants access to ethane “bundle” permits in an effort to shrink from the liquids-rich North Slope gas and the number of applications. ● 20 PETROLEUM NEWS • WEEK OF MAY 11, 2008 Business Spotlight Alaska Dreams Alaska Dreams was established in 1984 and incorporated in 1993. The Fairbanks firm’s spe-

cialty is building fabric covered industrial buildings. Alaska Dreams is known for its superior SUSAN CRANE products, expertise and experience, innovative thinking and customer service. Founder Meinrad Huser is excited about expanding into custom fabrication at his Fairbanks manufacturing facility. Meini Huser, President & CEO This avid skier and adventurer, born in Switzerland, toured the United States before setting eyes on Alaska and starting a guide business headquartered in Fairbanks. He climbed Mt. McKinley three times (solo), races cars, rides bikes, motorcycles and snow machines, and loves building structures in the most challenging environments. He met and married his sweetheart Anna in 1993. Their family consists of four adult children and six grandchildren, with another grandchild on the way this fall. Anna Huser, Vice President/CFO Anna moved to Fairbanks from California, where she worked as a correctional officer. Once in Alaska, she worked in communications, eventually retiring from CellularOne in 2003. By then Alaska Dreams had grown to require her full attention. Anna loves cooking family dinners, gar- dening, rollerblading and enjoying the summer sun. Her next post-retirement plan includes Alaska wilderness rafting trips with Meini. —PAULA EASLEY Companies involved in Alaska and northern Canada’s oil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS Doyon LTD NANA/Colt Engineering A Doyon Universal Services Natco Canada Acuren USA (formerly Canspec Group) EEIS Consulting Engineers Nature Conservancy, The Aeromed Egli Air Haul NEI Fluid Technology ACE Air Cargo Engineered Fire and Safety NMS Employee Leasing ...... 3 Agrium ENSR Alaska Nordic Calista Air Liquide Epoch Well Services North Slope Telecom ...... 18 Air Logistics of Alaska Equipment Source Inc. North Star Equipment Services (NSES) Alaska Air Cargo ESS Support Services Worldwide North Star Terminal & Stevedore (NSTS) Alaska Analytical Laboratory Evergreen Helicopters of Alaska Northern Air Cargo ...... 19 Alaska Anvil ...... 3 F. Robert Bell and Associates Northern Transportation Co. Alaska Coverall ...... 18 Fairweather Companies, The Northland Wood Products Alaska Dreams Flowline Alaska Northwest Technical Services ...... 16 Alaska Frontier Constructors Foundex Offshore Divers ...... 4 Alaska Interstate Construction (AIC) Friends of Pets ...... 16 Oilfield Improvements Alaska Marine Lines ...... 24 Frontier Flying Service Opti Staffing Group ...... 7 Alaska Railroad Corp. P.A. Lawrence Alaska Regional Council of Carpenters (ARCC) G-M Panalpina Alaska Rubber & Supply PDC Harris Group Alaska Steel Co. GBR Equipment Peak Civil Technologies Alaska Telecom GCI ...... 5 Peak Oilfield Service Co. Alaska Tent & Tarp Great Northern Engineering Penco ...... 9 Alaska Textiles GPS Environmental Petroleum Equipment & Services ...... 21 Alaska West Express ...... 24 GX Technology Petrotechnical Resources of Alaska ...... 2 Alliance, The Hawk Consultants ...... 4 PGS Onshore ...... 19 American Marine ...... 9 H.C. Price Prudhoe Bay Shop & Storage ...... 11 American Tire Corp. Heating & Ventilation Sales PTI Group Ameri-Tech Building Systems Holaday-Parks Arctic Controls Horizon Well Logging Arctic Foundations Hotel Captain Cook Q-Z Arctic Slope Telephone Assoc. Co-op. Hunter 3-D Arctic Structures ...... 21 Industrial Project Services QUADCO Arctic Wire Rope & Supply Inspirations Rain for Rent ASRC Energy Services Jackovich Industrial & Construction Supply ...... 12 Salt + Light Creative ...... 8 ASRC Energy Services Alaska Judy Patrick Photography Schlumberger ASRC Energy Services Houston Contracting (HCC) Kenai Aviation Seekins Ford ...... 17 Aurora Geosciences Kenworth Alaska Shaw Alaska ...... 16 Avalon Development King Street Storage Spenard Builders Supply Kuukpik Arctic Services STEELFAB B-F Kuukpik - LCMF 3M Alaska LaBodega Taiga Ventures Badger Productions Last Frontier Air Ventures Tire Distribution Systems (TDS) Baker Hughes Lister Industries ...... 11 Total Safety U.S. Inc. Bombay Deluxe Restaurant Lounsbury & Associates ...... 23 TOTE BP Exploration (Alaska) Lynden Air Cargo ...... 24 Totem Equipment & Supply Brooks Range Supply ...... 14 Lynden Air Freight ...... 24 TTT Environmental Calista Corp. Lynden Inc...... 24 Tubular Solutions Alaska Canadian Mat Systems (Alaska) ...... 12 Lynden International ...... 24 Tutka Capital Office Systems Lynden Logistics ...... 24 Udelhoven Oilfield Systems Services Carlile Transportation Services Lynden Transport ...... 24 Unique Machine CGG Veritas ...... 7 Mapmakers of Alaska Univar USA CH2M HILL ...... 13 MAPPA Testlab URS Corp. Computing Alternatives Marathon Oil Usibelli Colville Marketing Solutions U.S. Bearings and Drives CONAM Construction MI Swaco Welding Services ConocoPhillips Alaska MRO Sales WesternGeco Construction Machinery Industrial Weston Solutions Crowley Alaska N-P XTO Energy Cruz Construction Dowland-Bach Corp. Nabors Alaska Drilling ...... 10 Doyon Drilling All of the companies listed above advertise on a regular basis with Petroleum News PETROLEUM NEWS • WEEK OF MAY 11, 2008 21

Anadarko plans return for foothills gas EXPLORATION & PRODUCTION Anadarko is planning its strategy for returning to gas prospects on the western North Slope near the edge of the National Petroleum Reserve-Alaska. Pacific Energy to drill Escopeta’s The company drilled two wells, Gubik No. 3 and Chandler No. 1, in the foothills of the Brooks Range this winter as part of a two- or three-year program onshore Cook Inlet gas prospect to prove up gas accumulations discovered back in the early 1950s by the U.S. Pacific Energy Resources will be the operator for Escopeta Oil’s 2008-09 winter Navy and the U.S. Geological Survey, and to test deeper formations. drilling program at the North Alexander exploration unit in Alaska’s Cook Inlet basin, The drilling program was the first to deliberately target gas in northern Alaska. Escopeta President Danny Davis and Pacific Energy Chairman and CEO Vladimir Anadarko said it “encountered natural gas in two zones” at the Gubik No. 3 Katic told Petroleum News. well just east of the Colville River, northeast of the village of Umiat. “We think we each have about 50 percent of the reservoir,” Davis said, noting he Anadarko suspended the Chandler No. 1 well just to the south, and left the expects the reservoir to hold about 100 billion cubic feet of natural gas. Nabors rig 105 at the ice pad. Spokesman Mark Hanley said the expectation is to “We have adjoining leases there, so it makes sense we oper- return next year to finish the deep gas well. ate the exploration, since we already operate in Cook Inlet and Other plans for next year could include one or more of the five other wells pro- Escopeta does not. … We’ll position the well along seismic posed at Gubik. Anadarko’s partners in the Brooks Range Foothills are BG Group lines; it’s a common structure so we can test both at the same and PetroCanada. time,” Katic said. By announcing a gas exploration program in the foothills, Anadarko expressed Davis also said that all the permitting for North Alexander some faith in the ongoing process to build a large-diameter natural gas pipeline has been completed, and that it was done by former state from Alaska’s North Slope to markets outside the state. Division of Oil and Gas employee Bruce Webb. Since starting the drilling program, however, the options for Gubik gas have The North Alexander onshore prospect sits along the mouth increased as Enstar Natural Gas recently renewed discussions of a $3.3 billion of the Susitna River in the upper Cook Inlet basin, across the bullet line from Gubik to Southcentral Alaska. inlet from the Kenai Peninsula and some 13 miles north of DANNY DAVIS $31 million spent in Alaska this year Beluga. The North Alexander No. 1 well, planned as an 8,500-foot vertical hole, will target gas producing sandstones in the In addition to its majority-owned prospects, Anadarko also maintains a minor- The North Alexander onshore Beluga and Upper Tyonek formations, ity position in the ConocoPhillips-operated Colville River unit. prospect sits along the mouth of Escopeta said. In first-quarter filings, Anadarko said gross production at Colville River was the Susitna River in the upper The well site is about 6.5 miles around 110,000 barrels of oil per day. northeast of the Lewis River unit, just Work there this winter included “several” development wells in the Fiord area Cook Inlet basin, across the inlet south of Mount Susitna, about 1.5 using a rig eventually headed for work at Qannik in the later part of the year. from the Kenai Peninsula and miles west of the Susitna River on a “In addition, construction continues for various modules in connection with the some 13 miles north of Beluga. low, southeast-facing ridge at 55 feet Qannik development at CD2 with initial production from this reservoir anticipat- The North Alexander No. 1 well, above sea level in low shrub and mixed ed to begin in late 2008,” the filings said. planned as an 8,500-foot vertical lowland forest. The closest existing Anadarko and ConocoPhillips also brought a rig to the Nanuq area at the end hole, will target gas producing wells are Lewis River 1-A, six miles to of the quarter “to drill and complete up to two development wells.” sandstones in the Beluga and the southwest, and Isla Grande 1, some Anadarko spent $31 million in capital expenses in Alaska in the first quarter of 2.5 miles to the southeast. the year. Companywide, the mega-independent has spent $1.056 billion in capital Upper Tyonek formations, Escopeta’s 22,882-acre North expense so far this year. Escopeta said. Alexander prospect is onshore on four — ERIC LIDJI state oil and gas leases within the Susitna Flats State Game Refuge; both surface and subsurface mineral estates are state owned. Escopeta maintains a 75 percent working interest in the unit, formed in early continued from page 1 Sadlerochit structure that could possibly 2007, with Taylor Minerals holding the remaining 25 percent. hold between 50 million and 800 million The North Alexander unit terms had originally required Escopeta to drill a well in JACOB’S LADDER boe. the winter of 2007-08, holding leases which would otherwise have expired in January On top of those estimated reserves, the 2007. But the state Division of Oil and Gas Division extended the drilling date to Ladder piqued some interest because of field sits just east of the trans-Alaska oil March 31, 2009, Davis said. the presence of Karst topography, a type pipeline and the production facilities of A rig from Aurora Well Services will be used to drill the prospect. “It’s an excel- of terrain where near-surface limestone Prudhoe Bay, closer to infrastructure than lent company. We’re glad to be working with them,” Davis said. gets eroded by water to form extensive some of the company’s other prospects —ERIC LIDJI & KAY CASHMAN underground caves. across northern Alaska. These caves can be excellent for trap- Anadarko maintains a 50 percent inter- ping oil and gas, as proven by the similar est in Jacob’s Ladder, with the remaining continued from page 1 stakeholder support and buy-in, then start features within the Yates field in west 50 percent shared by BG Group (40 per- IMPERIAL the regulatory process that we haven’t Texas, one of the most prolific reservoirs cent) and the Arctic Slope Regional Corp. done yet,” he said. in the epic Permian Basin. Despite cuts in staffing and a slow- (10 percent). terms and no sign of a breakthrough in The state recognized this back in 2005 After bringing on those partners in down in all aspects of the MGP, he said upon formation of the Jacob’s Ladder negotiations with the Deh Cho First progress on the commercial front is 2006, Anadarko began drilling the Nations. unit, saying a drilling program would Jacob’s Ladder exploration well last year, “when you’ll see the resources come back help evaluate “a previously unrecognized but didn’t finish by the end of the season Focus on commercial aspects to the project.” play type on the North Slope of Alaska.” and returned this year with a newly win- March said a proposal made late last March said Imperial has done about all At that time, Anadarko publicly spoke terized Akita 63 rig. year to all stakeholders, including the it can for now on access agreements with of its strategy to “anchor” its operations The company started drilling in Canadian government, for a commercial- aboriginal communities along the pipeline in Alaska in large oil and gas accumula- February and achieved a total depth of ly sound project does not require any route and on rights of way. tions. 14,416 feet. “giveaways” from the government to any “What we really need is to develop Jacob’s Ladder also includes a The Akita 63 rig is now headed to of the co-venturers. commercial aspects of the project, get prospect in the Ivishak formation of the Canada, after a brief stint in Deadhorse.● —GARY PARK 22 PETROLEUM NEWS • WEEK OF MAY 11, 2008 continued from page 1 NORWAY

North Sea Ekofisk oil field the Norwegian industry moved into an era of huge offshore ANATOLY ZOLOTUKHIN ANATOLY production platforms standing on the seafloor under their own weight, Zolotukhin said. Ekofisk and the Frigg gas field were in production by 1979, by which time the Stafjord oil field and Troll gas field had been discovered. Troll went into production with an off- shore platform that achieved a record as the biggest structure ever moved by “Man on Earth,” Zolotukhin said. Gas pipelines In 1985 the opening of the Statpipe pipeline brought gas from the Stafjord area to the Kårstø receiving terminal in Norway, north of Stavanger. The Troll-Sleipner pipeline system started up in 1999, Zolotukhin said. And by 2007 a spider’s web of pipelines in the North Sea and the Norwegian Sea delivered gas from various In three decades oil and gas technology used on the Norwegian continental shelf has evolved from giant platforms to subsea well completions offshore fields to European markets. Around 2000, as Norwegian oil and gas facilities on an island at Hammerfest on the Sea to Easington on the east coast of development moved north into the deeper On the Web Norwegian Sea coast. All field structures lie England. waters of the Norwegian Sea, a new era on the seafloor, operated from the land and And in a new twist on subsea technolo- arrived, involving the use of ships, semi- See previous Petroleum News coverage: maintained by remotely operated subsea gy, the Tordis field is pioneering the use of submersible platforms and subsea tem- “Making headway in Arctic” in the vehicles. subsea fluid separation, with produced plates, Zolotukhin said. December 2, 2007, edition of The Snøhvit design resulted from a 17- water being injected back into the reservoir The Åsgard oil and gas field, for exam- Petroleum News year debate in the Norwegian parliament from a seafloor facility. ple, uses a ship-based floating production http://www.petroleumnews.com/pna regarding the concerns of fishermen about system. In this arrangement the ship with ds/249893578.shtml Barents Sea oil and gas development, Pipeline flow assurance the production facilities encases a vertical “$2.64 trillion please” in the May 4, Zolotukhin said. The use of subsea pipelines from pro- turret containing the risers to the subsea 2008, edition of Petroleum News “(The fishermen) didn’t like platforms. ducing fields has required technologies for wells. In the event of a severe storm, the tur- http://www.petroleumnews.com/pna They didn’t like ships. They didn’t like flow assurance, to keep fluids moving ret can be detached and left semisubmersed, ds/357640057.shtml thrusters,” Zolotukhin said. through the pipeline even in low tempera- while the ship moves away from the site, The huge Ormen Lange gas field in the tures, Zolotukhin said. Zolotukhin said. southern Norwegian Sea is also pioneering But he said that whereas there are tech- the latest progression in offshore technical the use of remotely controlled subsea well nical limitations on subsea pipeline lengths development. Snøhvit completions tied by pipeline to onshore for carrying multiphase fluids, natural gas The wellheads connect to umbilical The Snøhvit gas field in the Barents Sea facilities. From the onshore plant a long pipelines that feed into a main subsea uses remotely controlled subsea wellheads, subsea export gas pipeline crosses the North pipeline that carries products to processing see NORWAY page 23 PETROLEUM NEWS • WEEK OF MAY 11, 2008 23 continued from page 22 NORWAY can be piped over great distances. However, as the amount of condensate in the gas ANATOLY ZOLOTUKHIN ANATOLY increases, the maximum pipeline length becomes less. “If the main phase is gas, then it’s not a problem to extend the existing (distance) records,” Zolotukhin said. Snøhvit set a record distance 125 kilometers and a 420 kilometer pipeline is being built this year, he said. But the Shtokman field that is earmarked for development in the Russian Barents Sea lies 550 kilometers from land. That distance is too great for the transportation of Shtokman products through a subsea pipeline using current technology, Zolotukhin said. On the other hand, it ought to be possible to move products to shore from a Chukchi Sea field that is, say, 50 miles offshore northern Alaska, Zolotukhin commented. Enhanced recovery The Norwegian oil industry has also made use of advances in enhanced oil recovery, with techniques such as water- alternating-gas and carbon dioxide injec- tion, Zolotukhin said. That has resulted in particularly aggressive targets for total oil recovery — target recoveries of 70 percent of in-place oil for the Stafjord field and 65 A network of subsea gas pipelines connects various North Sea and Norwegian Sea oil and gas fields to European markets percent for the Gullfaks field, for example. Those percentages compare with a world- wide average of 34 percent recovery, he said. Statfjord has already achieved 68 per- cent recovery and is on course for that 70

percent target, Zolotukhin said. A new con- ZOLOTUKHIN ANATOLY cept is the injection of bacteria into a reser- voir to further increase oil recovery, he said. Drilling technologies have also made huge strides. The use of single-diameter wells with expandable casing has reduced drilling costs and drilling waste, Zolotukhin said. And, as in Alaska, the Norwegian industry makes extensive use of directional and sidetrack drilling. In a new drilling concept, a device called a Badger Explorer would bore its way At left, the Åsgard field floating production and accommodation facility uses a ship stationed over a vertical turret containing the well ris- through the subsurface at the end of a cable, ers. At right, is this the offshore oil field of the future? — a subsea production facility remotely controlled and maintained from land. with the crushed rocks closing up behind it. industry’s rapid growth since its inception without a notebook. … They’re still on a massive costs, technical difficulties and The technique would eliminate the need for 30 years ago in part to a culture of learning. learning curve.” the need for specialist expertise in the wells and drilling rigs and could cut explo- “They learned it the hard way because And that’s the kind of attitude that Arctic will require international coopera- ration drilling costs by a factor of 10, there were no specialists 30 years ago. … Zolotukhin thinks will be needed to meet tion and an industrywide approach. Zolotukhin said. Now it’s one of the most advanced nations the huge challenges of developing new oil A single company cannot overcome all Safety paramount of Europe,” Zolotukhin said. “… You will and gas frontier provinces in the offshore of the challenges alone; nor can a single never see a Norwegian coming to a meeting Arctic. But Zolotukhin also thinks that the country, Zolotukhin said. ● Although the Norwegian industry has forged ahead with new technologies, strin- gent standards for health, safety and the environment underpin all activities, Zolotukhin said. Zolotukhin attributes this environmental culture in part to the transparency of com- panies with state ownership, like StatoilHydro, and in part to government regulation of the industry. Norwegians want the oil industry to meet tough environmen- tal standards, he said. And strict regulation has also forced technical innovation in fields such as Snøhvit, Zolotukhin said. Norway’s carbon dioxide legislation, for example, has driven the development of techniques for carbon dioxide extraction and re-injection — in Snøhvit carbon diox- ide separated onshore from the gas produc- tion is piped back offshore for underground sequestration. And the country has estab- lished a target of zero discharges into the sea from drilling activities, Zolotukhin said. StatoilHydro has a track record of using many more substantial innovations than are used on average worldwide, Zolotukhin said. Culture of learning Zolotukhin attributed the Norwegian oil 24 PETROLEUM NEWS • WEEK OF MAY 11, 2008