page Shell responds to stakeholders’ 13 concerns, postpones critical drilling

Vol. 13, No. 7 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Week of February 17, 2008 • $1.50

● NATURAL GAS Chevron to explore from Anna TransCanada responds Palmer tells legislators ANNGTC only Alaska, and not using any old permits

COURTESY CHEVRON COURTESY By KRISTEN NELSON Palmer said he realizes there is a concern Petroleum News about how motivated TransCanada would laska legislators have be to manage pipeline construction costs, FORREST CRANE had a lot of questions and said the company’s AGIA proposal A about the TransCanada includes a penalty on its rate of return if application under the Alaska Gasline Inducement there are cost overruns. Act or AGIA; Feb. 6-7 they got a chance to ask those some $9 billion, mainly interest — if that project Tony Palmer, were ever built. The amount is shown in Federal questions of Tony Palmer, TransCanada TransCanada’s vice president Energy Regulatory Commission filings for for Alaska business development, who talked to ANNGTC (see “TransCanada: no liability” in Feb. Senate Resources and the House majority caucus. 3 issue of Petroleum News at www.petroleum- A big ticket item was the money that could be news.com/pnads/374395925.shtml). Following development oil drilling at Granite Point, Chevron is look- TransCanada has said that even if any of this ing at drilling untapped shallow gas horizons in aging owed to withdrawn partners in the Alaska field. See story on page 9. Northwest Natural Gas Transportation Co. — see TRANSCANADA page 17

● ISER: New Alaska oil tax slams NATURAL GAS construction spending growth The oil industry will spend nearly $3 billion on construc- to sell ANS gas tion projects in Alaska this year, according to a new forecast compiled by economists with the University of Alaska’s Deal with Fairbanks utility viewed as precedent for larger commercialization effort Institute of Social and Economic Research. By ERIC LIDJI be built and owned by a Fairbanks The $2.89 billion to be spent on oil and gas projects repre- Petroleum News Natural Gas affiliate called Polar LNG, sents 41 percent of all construction dollars to be spent in LLC. Alaska in 2008, and a 5 percent increase over 2007 spending xxonMobil Corp. will start selling Fairbanks Natural Gas will eventual- figures for the industry. North Slope natural gas to ly truck the nearly The forecast attributes the slight rise in spending this year E Fairbanks Natural Gas LLC some- 500 miles along the Dalton Highway to to both higher construction costs and an increase in explo- time in 2009, the companies its distribution grid in Fairbanks. ration and development activities by both major and inde- announced on Feb. 12. pendent companies. Under the 10-year contract, the natu- Lawmakers, governor However, the forecast also notes construction projects for ral gas utility for Fairbanks will buy up DAN BRITTON see precedent; Exxon doesn’t see FORECAST page 18 to 10 billion cubic feet of natural gas a The deal between ExxonMobil and year from ExxonMobil Gas & Power Marketing Fairbanks Natural Gas comes as state lawmakers Pacific Energy hopes to drill Co. The contract can be renewed annually after and the governor’s gas line team discuss options the initial 10-year period. for bringing North Slope natural gas to market. down to oil in first well at Corsair The 2009 startup date allows Fairbanks Many state lawmakers and Gov. Natural Gas to complete construction of a new Pacific Energy Resources hopes to drill for oil in its Corsair immediately pointed to the contract as a prece- liquefaction plant at Prudhoe Bay. The plant will prospect in Alaska’s Cook Inlet, company Chairman and CEO see GAS SALE page 15 Vladimir Katic told Petroleum News Feb. 13. It all depends on when the company can bring a jack-up rig to the inlet and how ● EXPLORATION & PRODUCTION that timing relates to the drilling season — if the rig were to reach Alaska by May or June the company would drill a well into the potential oil reservoirs. If, on the other hand, the rig Gas future at Mooses Tooth were to arrive in September, there would only be time to drill a gas well, Katic said. NPR-A: Lookout an oil discovery; ConocoPhillips targets oil at Spark, Rendezvous “It all depends when the jack-up arrives,” he said. Gas is thought to exist in the prospect in the Beluga and By KRISTEN NELSON and condensate. Petroleum News “The proven oil is see CORSAIR page 18 Lookout; we’re trying to find onocoPhillips Alaska is doing appraisal more oil.” work in its newly approved Mooses Tooth Isaacson said the goal is to BREAKING NEWS C unit in the National Petroleum Reserve- have oil production from both Alaska. (See “Mooses Tooth processing at Lookout (proposed CD-6 4 Time for change in ? Stelmach faces owly, Alpine” in Feb. 10 issue at www.petroleum- pad) and Spark and news.com/pnads/501786075.shtml.) Rendezvous (proposed CD-7 disaffected voters; one opposition leader wants to copy Alaska’s tax And it’s looking for oil. pad) in the short term. EREC ISAACSON But there is also gas in the Mooses Tooth unit, That would allow produc- 6 Armstrong gets North Fork extension: Company still Erec Isaacson told Petroleum News Feb. 11. tion from Mooses Tooth perhaps as early as 2012 seen as best chance for pipeline into southern Kenai The discovery at Lookout, one of five possible or 2013, he said. participating areas at Mooses Tooth, is oil, said “In the long term it would be a gas producing Isaacson, ConocoPhillips Alaska’s vice president 10 ConocoPhillips moving forward with gas line: unit,” he said. of exploration and land. And that will require a gas pipeline off the Intends to move ahead with field work starting this summer But other discoveries in the unit are both gas see FUTURE page 18 2 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska ON THE COVER 13 Shell says no Beaufort oil drilling in 2008 TransCanada responds FINANCE & ECONOMY Palmer tells legislators ANNGTC only Alaska, 5 Oil tops $95 a barrel on economic optimism and not using any old permits 14 IEA cuts ’08 forecast for demand growth SIDEBAR, PAGE 17: Legislators want 2004 application 15 Savant, True North Energy ink new deal Exxon to sell ANS gas Savant gets interest in neighboring lease, True North Deal with Fairbanks utility viewed as will get interest in future production precedent for larger commercialization effort from Beaufort Kupcake project Gas future at Mooses Tooth GOVERNMENT Lookout an oil discovery; ConocoPhillips 4 Time for change — in Alberta leadership? looks for oil at Spark, Rendezvous 5 Deh Cho oust grand chief; interim leader says ISER: 2008 construction in Alaska negatively Norwegian’s exit changes nothing for Mackenzie gas line impacted by new tax INTERNATIONAL Pacific Energy hopes to drill down 8 Sonar data justify wider Arctic claims to oil in first well at Corsair 12 Chavez threatens to cut off oil sales to U.S. EXPLORATION & PRODUCTION 14 Spying in Norway at Cold War levels 4 BP applies for Liberty gravel mine site LAND & LEASING 4 BP plans shallow water seismic at Liberty 6 Armstrong gets extension for North Fork 5 Renaissance puts Umiat drilling on hold Company has until later June to drill well; North Later than usual tundra travel opening, Funding Fork still seen as best chance for pipeline challenges delay appraisal program at NPR-A oil extensions into southern Kenai field, but seismic shoot under way 6 Potential Alaska state and federal oil and gas lease sales 9 Chevron to explore for gas from Anna 7 State issues final Cook Inlet sale notice Following development oil drilling at Granite Point, NATURAL GAS Chevron looking at drilling untapped shallow gas horizons in aging Cook Inlet field 7 Port authority suggests parallel process 10 January ANS production down 3% 8 Palin, gas team meet with ConocoPhillips 8 Governor’s gas team schedules final town hall meetings 12 BRPC, ConocoPhillips spud ANS wells 10 moving forward with gas line NEWS FLASH Brooks Range spuds second exploration well 10 Russians stymie Canadian LNG plan of season; ConocoPhillips starts work on Char, gets permits for Spark SAFETY & ENVIRONMENT 12 DOE issues report on North Slope oil, gas 13 Whale hunter says ‘show me’ PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 3 Alaska - Mackenzie Rig Report

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status The Alaska - Mackenzie Rig Report as of February 14, 2008. Active drilling companies only listed.

Alaska Rig Status TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig North Slope - Onshore Akita Drilling Ltd. This rig report was prepared by Alan Bailey Dreco 1250 UE 63 (SCR/TD) Drilling at Jacob’s Ladder Anadarko

Doyon Drilling Dreco 1250 UE 14 (SCR/TD) Prudhoe Bay 4-14A BP Sky Top Brewster NE-12 15 (SCR/TD) Kuparuk 3K-102 ConocoPhillips Dreco 1000 UE 16 (SCR/TD) Prudhoe Bay F-17A BP Dreco D2000 UEBD 19 (SCR/TD) Alpine CD3-113 ConocoPhillips OIME 2000 141 (SCR/TD) Kuparuk River Unit CHAR1 ConocoPhillips

TSM 7000 Arctic Fox #1 Stacked in Yard Pioneer Natural Resources PATRICK JUDY Arctic Wolf #2 Stacked in yard FEX

Kuukpik 5 Preparing for rig move Kupcake #1 Savant

Nabors Alaska Drilling Trans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay Available Dreco 1000 UE 2-ES Point Macintyre P2-32 BP Mid-Continental U36A 3-S Milne Point MPE-31 BP Oilwell 700 E 4-ES (SCR) Prudhoe Bay C-33A BP Dreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay D-26B BP Dreco 1000 UE 9-ES (SCR/TD) Borealis Z-112 BP Oilwell 2000 Hercules 14-E (SCR) Stacked Available Oilwell 2000 Hercules 16-E (SCR/TD) Stacked Available Oilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre Available Emsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse Available OIME 1000 19-E (SCR) Oooguruk ODSK-35 Pioneer Natural Resources Emsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point Available Emsco Electro-hoist 28-E (SCR) Stacked, Deadhorse Available OIME 2000 245-E Oliktok Point OPi2 Anadarko Emsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Drilling Tofkat #1 Brooks Range Petroleum Academy AC electric Canrig 105-E (SCR-TD) Drilling Gubik #3, near Umiat Anadarko Academy AC electric Canrig 106E (SCR/TD) Smilodon 9-4-9 White Hills Chevron

Nordic Calista Services Superior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site 15-45b BP Superior 700 UE 2 (SCR/CTD) Kuparuk well 1L-28 BP Ideco 900 3 (SCR/TD) Kuparuk well 3A-03b ConocoPhillips

North Slope - Offshore Nabors Alaska Drilling Oilwell 2000 33-E Northstar NS-16A BP

Cook Inlet Basin – Onshore Aurora Well Service Franks 300 Srs. Explorer III AWS 1 Stacked at Nikiski Available

Marathon Oil Co. (Inlet Drilling Alaska labor contractor) Taylor Glacier 1 Paxton #2 Marathon

Nabors Alaska Drilling Continental Emsco E3000 273 Stacked, Kenai Available Franks 26 Stacked Available IDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform Available Rigmaster 850 129 NNA-1 Chevron Academy AC electric Heli-Rig 106E (SCR/TD) DS Happy Valley #13 Chevron

Rowan Companies AC Electric 68AC (SCR/TD) On site at Cosmopolitan Pioneer Natural Resources

Cook Inlet Basin – Offshore

Unocal (Nabors Alaska Drilling labor contractor) Not Available

XTO Energy National 1320 A Platform A no drilling or workovers at present XTO National 110 C (TD) Idle XTO

Chevron Baker Hughes North America rotary rig counts* Workover on Dolly Varden platform Chevron 428 On Anna platform Chevron February 8 February 1 Year Ago US 1,755 1,763 1,731 595 593 641 Mackenzie Rig Status Gulf 55 56 80

Canadian Beaufort Sea Highest/Lowest US/Highest 4530 December 1981 SDC Drilling Inc. US/Lowest 488 April 1999 SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available Canada/Highest 558 January 2000 Canada/Lowest 29 April 1992 Mackenzie Delta-Onshore *Issued by Baker Hughes since 1944 AKITA Equtak Dreco 1250 UE 62 (SCR/TD) Rig Racked in Inuvik, NT Available Modified National 370 64 (TD) Drilling Aput C-43 MGM Energy Group

Central Mackenzie Valley AKITA Drilling Ltd. The Alaska - Mackenzie Rig Report Rigmaster P-850 40 Rigging up – Dahadinni B-29 Husky Energy is sponsored by: AKITA/SAHTU Oilwell 500 51 Drilling Kwijika M-59 Petro-Canada 4 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

● GOVERNMENT EXPLORATION & PRODUCTION BP applies for Liberty gravel mine site Time for change — in BP Exploration (Alaska) wants to develop a new material site on the North Slope to aid construction at the Liberty project. The Liberty mine site would cover around 63 acres west of Deadhorse and Alberta leadership? adjacent to the Duck Island mine site in sections 6 and 7 of township 10 north, range 16 east, Umiat Meridian. Stelmach government faces owly, disaffected voters, with BP plans to buy 1 million cubic yards of material from the mine over five years. province’s largest city poised for Liberal breakthrough; one The company plans to develop Liberty from existing Endicott facilities and the opposition leader wants to copy Alaska’s tax gravel would go primarily to expanding the satellite drilling island in Foggy Island Bay. BP also plans to use some material for building a boat launch at the By GARY PARK new royalty framework will remain a work main production island and for repairing and improving the Sagavanirktok River For Petroleum News in progress until legislation is adopted bridge. before the changes are implemented on Jan. The Alaska Department of Natural Resources’ Division of Mining, Land and here is one thing you can say about 1, 2009. Water has issued a preliminary decision on the request and will accept comments Albertans. “We need to be prepared to constantly on the matter through March 11 at 5 p.m. For more information, contact Melissa T When they make up their political adapt to changes,” said Stelmach, just a few Head, natural resource specialist, at [email protected] or 907-451-2770. minds they’re tough to budge. months after declaring that the framework —ERIC LIDJI In the 103 years since the province was open to discussion, not negotiation. joined the Canadian confederation it has A hint of how much he is feeling the been ruled by just four political parties — heat came when the government signed a BP plans shallow water seismic at Liberty Liberals from 1905-21; United Farmers new contract with oil sands producer BP Exploration Alaska Inc. is planning a three-dimensional shallow water 1921-35; Social Credit 1935-71; and Suncor Energy that many pounced on as a seismic survey in the Beaufort Sea to support its Liberty oil development proj- Conservatives since 1971. sellout. ect. When the previous three dynasties were The survey would cover 135.8 square miles of shallow water in Foggy Island finally unseated they never again threat- Tax hike won’t hit 20% ened to regain power. Bay and be shot later in the year after the sea ice melts and opens up waterways Acknowledging the large-scale pullback That knowledge hangs like a menacing off the North Slope. in capital spending this year, Stelmach con- cloud over the head of Premier Ed Its purpose is to collect geophysical data required to support the ultra-extend- ceded the government will fall short of its Stelmach, who has called an election for ed reach drilling program for Liberty. targeted 20 percent hike in across-the-board The survey would cover parts of the Duck Island unit, the Endicott satellite March 3 at a time when voters have seldom been so unsure of themselves. royalties if its oil and gas resources are not drilling island and main production island, the Liberty unit and adjacent state developed. land and state and federal waters. One recent poll showed 46 percent of Albertans believe it’s time for a change of In a speech to open a new session of the CGGVeritas would conduct the survey for BP. legislature — now effectively the Mobilization is planned for late May or early June with seismic acquisition government, but 32 percent of them backed the ruling Conservatives, 18 percent the Conservatives’ campaign platform — the scheduled to begin on July 1 and would continue about 60 days, until the start of government said it remains committed to the bowhead whale migration season. BP expects to finish the survey by October. Liberals, 7 percent the New Democratic ensuring Albertans receive a “fair return” The Alaska Coastal Management Program is taking comments on the propos- Party and 5 percent the Wild Rose Alliance, from their natural resources. al through Feb. 29. leaving a significant 38 percent undecided. But it said thousands of jobs and a —ERIC LIDJI Unhappiness deep in strong economy depend on Alberta being The unhappiness with Stelmach is espe- an “internationally competitive location for cially deep in Calgary, Alberta’s largest city new investment and sustained develop- with a population of more than 1 million ment.” and the core of a still In addition, the government promised a www.PetroleumNews.com seething over the impact of planned gov- new savings strategy through a revitalized ernment royalty increases. Alberta Heritage Savings Trust Fund, creat- Kay Cashman PUBLISHER & EXECUTIVE EDITOR ADDRESS Caught in an industry backlash, with ed in 1976 as a nest egg for surplus resource P.O. Box 231647 companies pulling billions of dollars out of revenues, but neglected for many years. Mary Mack CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1647 their 2008 capital budgets, Stelmach is in a Although the fund is expected to grow Kristen Nelson EDITOR-IN-CHIEF by about C$1 billion in the current fiscal NEWS desperate struggle to preserve that strong- year, it currently stands at only C$16.1 bil- Susan Crane ADVERTISING DIRECTOR Anchorage telephone hold, while Liberal leader Kevin Taft is 907.561.7517 boldly forecasting that the day after the lion. Over its lifetime, the fund has generat- Amy Spittler ASSOCIATE PUBLISHER Editorial Email election “people are going to wake up and ed about C$30 billion in investment Anchorage Heather Yates OFFICE MGR./CIRC. BOOKKEEPER see that Calgary’s a Liberal city.” income. [email protected] That would require a shift of tectonic If elected, the Liberals say they will rejig Shane Lasley IT CHIEF Canada proportions, given that the Liberals hold the royalty regime to help struggling natu- [email protected] Clint Lasley CIRCULATION DIRECTOR only four of Calgary’s 23 seats in the ral gas producers, while the New provincial legislature. Democrats want a complete overhaul of the Steven Merritt PRODUCTION DIRECTOR BOOKKEEPING & CIRCULATION 907.522.9469 But it has Stelmach worried to the point framework, especially in the oil sands, to Tim Kikta COPY EDITOR Circulation Email where he is trying to rebuild bridges to a dig even deeper into the industry’s pockets. [email protected] Alan Bailey SENIOR STAFF WRITER disaffected industry. Brian Mason, leader of the New He told industry leaders his government Democrats, has frequently called for ADVERTISING Eric Lidji STAFF WRITER will do all it can to protect a “thriving ener- 907.770.5592 Alberta to copy Alaska’s Oil and Gas Gary Park CONTRIBUTING WRITER (CANADA) Advertising Email gy sector” and a “cornerstone of the Production Tax, estimating that would yield [email protected] province’s economy,” promising that the ● Rose Ragsdale CONTRIBUTING WRITER an additional C$4 billion a year.

Ray Tyson CONTRIBUTING WRITER CLASSIFIEDS 907.644.4444 John Lasley STAFF WRITER

Allen Baker CONTRIBUTING WRITER FAX FOR ALL DEPARTMENTS 907.522.9583 Paula Easley DIRECTORY PROFILES/SPOTLIGHTS Petroleum News and its supple- Judy Patrick Photography CONTRACT PHOTOGRAPHER ment, Petroleum Directory, are owned by Petroleum Newspapers Mapmakers Alaska CARTOGRAPHY of Alaska LLC. The newspaper is published weekly. Several of the Forrest Crane CONTRACT PHOTOGRAPHER individuals listed above work for independent companies that con- Tom Kearney ADVERTISING DESIGN MANAGER tract services to Petroleum Newspapers of Alaska LLC or are Dee Cashman CIRCULATION REPRESENTATIVE freelance writers.

OWNER: Petroleum Newspapers of Alaska LLC (PNA) Petroleum News (ISSN 1544-3612) • Vol. 13, No. 7 • Week of February 17, 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 FEBRUARY 17, 2008 5

● EXPLORATION & PRODUCTION GOVERNMENT Renaissance puts Deh Cho oust grand chief; interim leader says Norwegian’s exit changes Umiat drilling on hold nothing for Mackenzie gas line The most fervent advocate of aboriginal rights in the Northwest Territories — and, Later than usual tundra travel opening, funding challenges delay in the process, the toughest negotiator in the Mackenzie Gas Project — has been side- appraisal program at NPR-A oil field, but seismic shoot under way lined, but his community’s view of the proposed Arctic gas pipeline is apparently unchanged. By KAY CASHMAN remoteness from infrastructure, historically Herb Norwegian, grand chief of the Deh Cho First Nations, was unseated from a job Petroleum News low oil prices and the lack of technology to he has held for five years in a 59-2 vote by delegates from 11 communities. unlock its shallow oil. (The reservoir is The Deh Cho region, which has yet to settle its land claim with the Canadian gov- enaissance Umiat, LLC executive between 200 and 1,400 feet in depth, with a ernment, covers about 50 percent of the NWT and 40 percent of the proposed right of Mark Landt told Petroleum News Feb. portion of the oil in permafrost.) way for a Mackenzie pipeline. R 11 that the independent has deferred its But modern technology, record high oil Norwegian fell out of favor after pleading guilty in December to assaulting a woman plans to drill seven or eight wells on its prices and increasingly closer infrastructure for which a court sentenced him to one day in jail and 50 hours of community service. two leases this winter in the National has made Umiat a desirable asset for a small The delegates discussed Norwegian’s future for two days, mostly behind closed Petroleum Reserve-Alaska’s unde- independent such as doors. veloped Umiat oil field, which Renaissance, which was formed “The more they talked about it the more it became evident that violence cannot be straddles the eastern border of by Renaissance Alaska, Rutter tolerated,” said Bill Erasmus, chief of the Dene Nation and the Assembly of First NPR-A on the northern edge of the and Wilbanks and Arctic Falcon Nations NWT regional chief. Brooks Range Foothills. to evaluate and, if all goes well, Kenya Norwegian, chief of the Liidlii First Nation and a cousin of Herb Norwegian, “We elected to defer drilling develop the Umiat oil field. said she found the decisions “wrenching, yet necessary.” until next winter due to a combina- Fred Carmichael, who often clashed with Norwegian in his role as chairman of the tion of factors including a short- Spill plan, permits in hand Aboriginal Pipeline Group which is seeking a one-third equity stake in the Mackenzie ened drilling season related to the As of Jan. 17, operator pipeline, said he hopes the Deh Cho can now pursue a different path. late tundra travel in the Lower Renaissance Umiat had an He suggested the next leader needs to support resource development to ensure there Foothills which means we would MARK LANDT approved oil spill plan and all of is an economic legacy for future generations. have to cut back on the number of its permits in place to commence Carmichael did not share Norwegian’s view that blocking development would wells and the amount of data we could col- appraisal drilling — all of which will have to speed progress towards a land claim settlement. lect this season,” Landt told Petroleum be modified for next winter if the company Gerald Antoine, named Deh Cho interim chief until a new leader is chosen in June, News. “The funding was in-place to drill the identifies some deeper targets to drill. wasted no time telling reporters the departure of Herb Norwegian will change nothing. reduced program, but the decision was made But getting the permits and spill plan He said participating with northern aboriginal communities in the Mackenzie proj- to follow a lower-risk approach.” approved shouldn’t be challenging since the ect under the terms offered to date is not a good deal and suggested that any change Landt said the high fixed costs in the field is far from the coast and has an existing will have to come from the industry partners. drilling program and “the knowledge that environmental footprint created by the Navy Accusing the companies of adopting a “dog-eat-dog approach,” Antoine said that is the 3-D would provide a firmer basis to when it drilled 11 wells at Umiat in the not the way Dene people operate. delineate the existing reservoir, coupled with 1940s and 1950s, and another in 1979. He plans to ask other Deh Cho leaders what kind of development they support. the company’s intent to explore deeper Imperial Oil, which heads the Mackenzie Gas Project, said events within the Deh objectives next year lead to the decision.” Rutter out of Umiat Cho community should not hamper economic benefits and land access negotiations The company is having PGS Onshore Upon the formation of Renaissance between the consortium and the Deh Cho. shoot 115 square miles of 2-D and 3-D seis- Umiat LLC in March 2007, Renaissance —GARY PARK mic over its leases, as planned. Alaska, Rutter and Wilbanks and Arctic “The surveyors are on the ground now,” Falcon agreed to contribute their interests Landt said. and Renaissance Alaska and Rutter and The ‘silver lining’ Wilbanks agreed to share costs on a 50-50 basis. “There’s a silver lining” to the news, he Toward the end of 2007, Rutter and said. “The seven-well program was Wilbanks, presumably occupied with its gas approved for a shallow zone in the field. exploration program in Alaska’s undevel- There are deeper anomalies based on oped Copper River basin, elected out of the reprocessed 2-D that was driving an addi- Umiat venture, leaving Renaissance Alaska tional drill season. The 3-D will help us paying 100 percent of the costs, Landt said. select drilling targets for it, as well as tell us This “provided some funding challenges more about the shallow zone. Delaying impacting the program,” Landt said, which drilling one year, shooting the seismic first, resulted in Renaissance looking for a 30 means we will be able to optimize the shal- percent partner in the Umiat program. low well program, as well as drill the deep- Since the formation of Renaissance er zone.” Umiat, Renaissance Alaska has been its sole The company will be able to spread the managing member. fixed mobilization costs over more wells The president and CEO of Renaissance and capture the key value drivers in one Alaska is Jim Watt. Landt is executive vice drilling season, Landt said. president of land and administration; Allen “The prize has not gone away,” Landt Huckabay, executive vice president of said, referring to the 70 million to 100 mil- exploration and production; Michael Cook, lion barrels of recoverable crude the Umiat vice president of drilling and operations; Transportation Zen field is expected to hold, per the U.S. Vijay Bangia, vice president of reservoir Geological Survey. engineering; David Doherty, chief geolo- Carlile is a proven leader in multi- Discovered in 1946 by the U.S. Navy, gist; and Charles Gartmann, chief geophysi- modal transportation and logistics Umiat was never developed because of its cist. ● solutions. Whether it’s a pallet of tools headed to Tacoma or FINANCE & ECONOMY a 100-ton module destined for Alaska’s North Slope, Carlile has Oil tops $95 a barrel on economic optimism the expertise, equipment and Oil futures extended their upward march Feb. 14, after new trade deficit figures fed connections to deliver peace of optimism that the economy may dodge a serious downturn. Federal Reserve mind, every time. Chairman Ben Bernanke’s suggestion that the central bank is prepared to again cut interest rates also boosted oil prices. On Capitol Hill, Bernanke said the Fed is ready to act again in response to deteriorating economic conditions. Interest rate cuts sup- port oil prices because they tend to weaken the dollar. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. Light, sweet crude for March delivery rose $2.19 to settle at $95.46 a barrel on the New York Mercantile Exchange, its highest close since Jan. 9. www.carlile.biz l 1.800.478.1853 —THE ASSOCIATED PRESS ROAD - RAIL - SEA - AIR ALASKA I HAWAII I I CANADA 6 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

● LAND & LEASING LAND & LEASING Potential Alaska state and federal oil and State grants Armstrong gas lease sales Agency Sale and Area Proposed Date extension for North Fork DNR Alaska Peninsula Areawide Feb. 27, 2008 DNR North Slope Foothills Areawide Feb. 27, 2008 Company has until late June to drill well in southern Kenai unit DNR Cook Inlet Areawide May 21, 2008 By ERIC LIDJI Armstrong CI now has until June 30 to DNR Beaufort Sea Areawide October 2008 Petroleum News drill a 9,000-foot delineation well into the DNR North Slope Areawide October 2008 Tyonek formation in the 640-acre North BLM NE NPR-A To be determined he state has extended the deadline for Fork unit, located 10 miles north of the city BLM NW NPR-A To be determined Armstrong Cook Inlet LLC to drill a of Homer. DNR Alaska Peninsula Areawide February 2009 T second well in the North Fork unit. Armstrong CI also has until March 31 to The extension allows Armstrong to DNR North Slope Foothills Areawide February 2009 file a 43rd plan of development for North avoid getting trapped on the southern Kenai Fork and to secure all necessary permits for DNR Cook Inlet Areawide May 2009 Peninsula by seasonal weight restrictions on the delineation well. DNR Beaufort Sea Areawide October 2009 the Sterling Highway and other smaller roads DNR North Slope Areawide October 2009 between March and May. Well could justify pipelines MMS Sale 209 Beaufort Sea 2009 Armstrong plans to drill the well using The southern Kenai Peninsula has been MMS Sale 211 Cook Inlet 2009 either the Aurora AWS-1 or the Nabors No. the center of a chicken and egg debate for DNR Alaska Peninsula Areawide February 2010 129 rig, either of which, when situated on top several years. DNR North Slope Foothills Areawide February 2010 of a truck and trailer, would far exceed the Producers have been reluctant to develop DNR Cook Inlet Areawide May 2010 fields in the southern Kenai Peninsula with- DNR Beaufort Sea Areawide October 2010 Enstar and Armstrong have been out a pipeline network in place, but Enstar DNR North Slope Areawide October 2010 discussing the possibility of “third- Natural Gas Co., the company proposing to MMS Sale 212 Chukchi Sea 2010 party marketing” for any gas build those pipelines, wants more assurances MMS Sale 217 Beaufort Sea 2011 found at North Fork. about the availability and sufficiency of the MMS Sale 214 North Aleutian basin 2011 natural gas resources in the area. MMS Sale 219 Cook Inlet 2011 In addition to North Fork, two other pos- weight limits placed on the Sterling Highway sible gas plays have been in the running to MMS Sale 221 Chukchi Sea 2012 when ground temperatures rise. justify infrastructure extensions past the cur- Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, man- The Alaska Department of Transportation rent terminus of the Kenai Kachemak ages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of and Public Facilities places seasonal weight Pipeline, or KKPL, in the Happy Valley gas Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshore limits on roads across the state during spring field. and in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust breakup when roads have limited tensile Enstar could connect to Chevron’s Red lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaska strength and bend or break under extreme region outer continental shelf office, manages sales in federal waters offshore Alaska. well in the Nikolaevsk unit several miles weight. northwest of North Fork or to Pioneer This week’s lease sale chart The restrictions go into effect based on Natural Resources’Cosmopolitan unit, locat- sponsored by: ground conditions and could therefore come at any time in the season. In addition to North Fork, two Armstrong CI could have risked finishing other possible gas plays have been PGS Onshore, Inc. the well before the restrictions set in, but if in the running to justify they lost the bet, they’d be stuck paying addi- infrastructure extensions past the tional day charges on a rig through April or current terminus of the Kenai May, when the state lifts the weight limits. Kachemak Pipeline, or KKPL, in the Happy Valley gas field.

ed offshore from Anchor Point. While Cosmopolitan is an oil field, Pioneer has indicated the presence of gas. For the past six months, since Armstrong returned to Alaska in September 2007, Enstar has considered North Fork the best bet for moving forward. Enstar spokesman Curtis Thayer said ongoing talks with Armstrong have involved discussions about “third-party marketing,” where Armstrong could sell gas to a large commercial customer through an Enstar line. Standard Oil of California drilled the NFU 41-35 well at North Fork in 1965. Over the past decade, several companies (some sister companies) have traded the unit and tried to develop the prospect. Gas-Pro Alaska LLC bought the unit in 1996, but sold it to NorthStar Energy in 2000. NorthStar tested the well in 2001 and reported a flow rate of 4 million cubic feet per day of natural gas. NorthStar and Enstar worked out a deal to supply North Fork gas to Homer, but both Enstar and the Regulatory Commission of Alaska made pipeline construction contingent on a sec- ond well. Gas-Pro returned in early 2007 with a plan to truck the gas from North Fork to the KKPL, but the plan fell apart. Armstrong took over as operator of the unit in September 2007. ● Editor’s note: As Petroleum News was being wrapped up for press, Pioneer told Petroleum News that the gas-to-oil ratio was high enough at its latest Cosmopolitan well to warrant building a pipeline to KKPL. See the Feb. 24 issue of Petroleum News or the Feb. 14 Petroleum News Bulletin for more information. PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 7

● NATURAL GAS Port authority suggests parallel process Bill Walker tells legislators they should hire experts to study an all-Alaska gas project themselves, not rely on administration

By KRISTEN NELSON recommends that Why new data was important the state participate Walker said the port authority Petroleum News Walker was asked why it was so in the gas pipeline. also recommends that the state important to the port authority to include he Alaska Gasline Port Authority, He said state partic- participate in the gas pipeline. the updated data generated by Bechtel whose LNG project is not being ipation in the for the port authority’s pipeline and considered under AGIA, is urging pipeline would be a the port authority’s data which was paid T LNG partners, partners who dropped out the Alaska Legislature to hire its “significant state- for by the partners, produced the infor- of the AGIA application process and own experts and consider a liquefied ment” that the proj- mation for netback price needed for the information which the port authority natural gas project — in addition to the ect would happen; application. wasn’t able to obtain until after the Nov. highway pipeline project by would provide That information, incorporated in the BILL WALKER 30 AGIA submittal deadline (see “Port TransCanada that the administration is alignment on a low mid-December application, showed for a Authority had partner troubles” in Jan. considering under Gov. Sarah Palin’s tariff because the state benefits if the tar- 2.7 billion cubic foot per day port 27 issue of Petroleum News at Alaska Gasline Inducement Act. iff is low and the wellhead price is high; authority LNG project the netback is www.petroleumnews.com/pnads/27282 The port authority appealed a January and is the type of infrastructure in which estimated at $5.43 per thousand cubic 6393.shtml). decision by the administration that its most national oil companies participate. feet, compared to $4.33 for a 4.5 bcf a He said $2 million worth of update of application, an all-Alaska project, taking Craig Richards, an attorney working day highway project, Walker said. ● the gas to Valdez for liquefaction, was on the port authority project, told legis- not complete — and that the application lators the port authority looked for lever- the port authority submitted in mid- age points on the project: Point December in response to questions on Thomson, where having the leases back LAND & LEASING the original application was a new appli- would give the state 60 percent of the cation and could not be considered since gas needed for a small gas project, State issues final Cook Inlet sale notice it did not meet the Nov. 30 submittal requiring the participation of only one of The Alaska Department of Natural Resources Division of Oil and Gas has deadline. the major North Slope producers; lack of issued a sale notice for its 2008 Cook Inlet areawide oil and gas lease sale. The administration refused to recon- a gas balancing agreement in the The division said Feb. 8 that bid opening will be at 9 a.m. May 21 in the Wilda sider the port authority application but it Prudhoe Bay operating agreement, Marston Theater in the Loussac Public Library in Anchorage. did agree — in response to a letter from which means there is no provision for a The areawide sale area encompasses some 4 million acres divided into 815 Backbone II — to evaluate the working interest owner in the unit to sell tracts from 640 to 5,760 acres. The sale area is in the Matanuska and Susitna val- TransCanada highway proposal against a its gas; and the pipeline, where state par- leys, the Anchorage bowl, the western and southern Kenai Peninsula from Point hypothetical LNG project to ensure that, ticipation would move the project for- Possession to Anchor Point, on the western shore of Cook Inlet from the Beluga in addition to meeting AGIA require- ward. River to Harriet Point and within Cook Inlet. ments, the TransCanada proposal would On the gas balancing agreement A 10-year best interest finding for Cook Inlet was prepared in 1999; a new be more beneficial to Alaska than an Richards said the Alaska Oil and Gas finding is being drafted. LNG project. Conservation Commission or the The division issued a call for new information in September for the 2008 Bill Walker, general counsel and proj- Department of Natural Resources should areawide sale and on Feb. 4 issued a decision of substantial new information and ect manager for the port authority, told establish regulations requiring gas bal- published a supplement to the 1999 final finding of the director. legislators Feb. 11 that the administra- ancing. If the state acts, he said, the pro- At the request of the Matanuska-Susitna Borough, a new lessee advisory has tion turned down an offer to use the ducers would doubtless incorporate gas been added advising lessees that all developments in the Point MacKenzie special expertise the port authority has devel- balancing into the Prudhoe Bay operat- use district must comply with Mat-Su Borough code and any exploration work on oped over the past 10 years in the LNG ing agreement. borough-owned tidelands or uplands in the area will require a land-use permit evaluation. Richards said for $1.5 billion the state from the borough’s land management division. He said he was not comfortable with could move the pipeline forward and The National Marine Fisheries Service developed specific recommendations an LNG “straw man” the administration have 51 percent ownership. The state’s relative to oil and gas premised on beluga whale habitat type and usage and the would use in its evaluation and wanted risk exposure in construction, some $6 division said existing mitigation measures would be modified to include addi- to make sure there is a true and fair com- billion, could be mitigated, he said. tional areas and a new mitigation measure added. The division also said a lease parison. A comparison with an LNG As the majority pipeline owner the advisory will be added regarding the potential listing of the Cook Inlet beluga project is not provided for in AGIA and state could hold the open season, and whale as an endangered species; a decision is expected under the Endangered Walker told legislators he is concerned Walker said companies have told the Species Act in April. about the rigor of an LNG analysis. port authority that when an open season The entire supplement and sale details are available on the division’s Web site is held by the sovereign, there is serious at www.dog.dnr.state.ak.us/. Legislature not bound by AGIA reason to participate because the sover- The Legislature, Walker told the eign is the source of permits needed by —PETROLEUM NEWS Senate Resources Committee and, later potential shippers. on Feb. 11, an open meeting of the House majority Republican caucus, has three options as it makes its decision on awarding an AGIA license. The foregone conclusion is that the administration recommends awarding the AGIA license to TransCanada and the Legislature approves that license, he said. This option follows the AGIA process with the addition of an LNG analysis. If the Legislature votes down an AGIA license to TransCanada, then the administration would move on to AGIA II, Walker said, with another round of applications, a delay of a year and uncer- tain response to the new call for applica- tions. The third option would be a parallel process, with the Legislature retaining its own experts now to evaluate an all- Alaska LNG project — a process not in AGIA. Then the Legislature would have an option, Walker said: It could award the license to the highway project or adopt legislation needed for an all-Alaska line. State should participate in pipeline Walker said the port authority also 8 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

● NATURAL GAS INTERNATIONAL Sonar data justify wider Arctic claims Palin, gas team meet New mapping data would bolster any claims the U.S. might make in the Arctic as nations in the region compete for potentially rich reserves of oil, gas and minerals buried beneath the sea floor, federal scientists said Feb. 11. with ConocoPhillips Federal officials said the data would support the U.S. should it choose to jock- ey with Russia, Canada and other circumpolar nations under the international Law of the Sea treaty to carve out boundaries off their northern coasts. By STEVE QUINN needed to ensure commitments of ship- The Law of the Sea confers sea floor resource rights over a country’s conti- Associated Press Writer ping gas in a pipeline. nental shelf beyond the normal boundary of 200 nautical miles if the country ConocoPhillips is the state’s largest meets “certain geological criteria backed up by scientific data,” the National ov. Sarah Palin has met with execu- producer of oil and shares in the leases Oceanic and Atmospheric Administration said in a press release. tives from ConocoPhillips to dis- for nearly 35 trillion cubic feet of natural Bathymetric soundings taken last year found that the foot of Alaska’s conti- G cuss a prospective natural gas gas reserves in the North Slope. nental slope extends more than 100 nautical miles farther from the U.S. coast pipeline — one month after turning In January, independent pipeline com- than previously thought, NOAA said. down the company’s proposal. pany TransCanada emerged as the only “We found evidence that the foot of the slope was much farther out than we She stressed the state was not negotiat- application deemed compliant so far. thought,” said Larry Mayer, the chief scientist for the expedition last year. “That ing any long-range fiscal plans — tax The Calgary-based company proposes was the big discovery.” rates and length of the terms — which the shipping gas from the North Slope 1,715 company has sought as part of miles southeast into a Canadian U.S. not party to treaty a gas pipeline deal. pipeline system, ultimately The meeting took place the sending it to the Midwest. A The U.S. is the only Arctic nation not party to the treaty, which is a con- afternoon of Feb. 10 in public comment period ends tentious issue in Congress. The Bush administration has been pushing for its Anchorage and included mem- March 6. approval. bers of her gas line team. It But ConocoPhillips has Scientists said their findings do not completely settle the question of where lasted about four hours, Palin launched a public campaign to the U.S. could set a plausible boundary. said. keep its position at the forefront. “There’s no question that the potential U.S. continental shelf and the potential In January, Palin rejected The week of Feb. 18 U.S. shelf from Canada will have some overlap,” said Andy Armstrong, NOAA co- ConocoPhillips’ gas line pro- Sen. Ted Stevens will be paying director of the Joint Hydrographic Center at the University of New Hampshire. posal, but she has pledged to GOV. SARAH PALIN the Legislature a visit and is “We’ll have to work with bordering nations to sort out any potential overlaps.” keep meeting with company officials. expected to discuss the gas line during Mayer said the boundary with Russia is “just about established.” Palin said the Feb. 10 meeting was his annual address. The expedition, which cost at least $1.2 million, focused on a section of the simply to review concerns the company He and other members of the state’s Chukchi Sea 400 to 600 miles north of Alaska. Scientists covered more than had with the state’s Alaska Gasline congressional delegation have long 6,200 miles using multibeam sonar from the deck of an icebreaker, the U.S. Inducement Act, or AGIA. stressed the urgency of moving forward Coast Guard cutter Healy, said Mayer, who is also co-director of the Joint “It’s to fulfill our commitment to not with the project. Hydrographic Center at the university in Durham, N.H. dismiss anybody’s ideas and proposals on Palin said she understands the urgency. Growing evidence that global warming is shrinking polar ice — opening up how to monetize Alaska’s gas resources,” She cited a faded 1958 newspaper display resource development and new shipping lanes — has added to the urgency of the Palin said. ad calling for the need to produce North claims. A ConocoPhillips spokeswoman said Slope gas, nearly 20 years before oil —THE ASSOCIATED PRESS Feb. 11 the company would not immedi- began flowing from the North Slope. (Petroleum News contributed to this article) ately comment. “Yes, there needs to be expediency The company submitted a proposal today to get our gas into hungry markets,” last November that was outside the guide- Palin said Feb. 11. “But we are not going lines established by AGIA. to be in a panic and change rules, and negotiate secretly or do anything that is Company wants fiscal framework outside the public’s purview, to rush Rather, ConocoPhillips has asked the through a deal that isn’t in Alaska’s best state to first deal with a fiscal framework interest.” ●

NATURAL GAS Alaska governor’s gas team schedules final town hall meetings Feb. 18-28 Gov. Sarah Palin’s gas line team has scheduled 16 town hall meetings Feb. 18-28 to update Alaskans on efforts to advance a gas pipeline under the Alaska Gasline Inducement Act or AGIA. The meetings are to provide information and encourage Alaskans to submit written comments before the March 6 public comment deadline. Details on how and where to submit comments are available at www.dog.dnr.state.ak.us/agia. All meetings will be from 6-8 p.m. except for Barrow, which will be from 2- 5 p.m. and Anchorage, which will be from 7- 9 p.m. Dates and locations are as follows: Feb. 18, Palmer, The Palmer Depot; Feb. 19, Anchorage, UAA Lucy Cuddy Hall; Feb. 20: Sitka, Harrigan Centennial Hall, Maksoutoff Room, and Kotzebue, NWAB Assembly Chambers, and McGrath, Cap’n Snow Center Assembly Room; Feb. 21, Ketchikan, Cape Fox Lodge, Mountain Room, and Nome, Old St. Joseph’s Church Hall, and Bethel, UAF Kuskokwim Campus, Yup’iit Piciryarait Cultural Center; Feb. 22, Juneau, Centennial Hall, Hickel Room; Feb. 25, Delta Junction, Community Center, and Kenai, Kenai Peninsula College; Feb. 26, Barrow, Inupiat Heritage Center, Dillingham, Dillingham Middle School Gymnasium; Feb. 27, Fairbanks, Carlson Center, and Kodiak, High School Commons; Feb. 28, Valdez, Valdez Convention and Civic Center, Ballroom 1. —PETROLEUM NEWS PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 9

● EXPLORATION & PRODUCTION Chevron to explore for gas from Anna Following development oil drilling at Granite Point, Chevron looking at drilling untapped shallow gas horizons in aging Cook Inlet field

By KAY CASHMAN Seamount pointed out that there Petroleum News has been relatively little n early March, Chevron will spud an oil exploration drilling in the Cook well to further develop the lower Inlet compared with oil regions COURTESY CHEVRON COURTESY I Tyonek formation from its Anna plat- elsewhere in the United States. So form in the Granite Point field, which began producing in 1967. The well is the the potential for large quantities first of a previously announced effort to of undiscovered oil under the inlet maintain oil production from the company’s should cause people to hesitate aging offshore fields in Southcentral before tearing down costly Alaska’s Cook Inlet basin. platforms that could play a useful Upon completion of it and a second oil role in future oil development. well, Chevron is considering a natural gas well off Anna, targeting shallow gas hori- sandstones that are late Jurassic in age and zons in the Granite Point field that have that are known to exist under Cook Inlet. never been drilled. “There are very thick sands in the “As far as exploration, the only true Jurassic,” Seamount said. “The oil would exploration well we have in our plan (for have had to have touched the sandstone 2008 in the Cook Inlet basin) … is off Anna within the Jurassic before it got up into the in the Granite Point field,” Chevron’s Tertiary reservoirs that have been exploit- Alaska General Manager John Zager said in ed so far.” November 2007, referring to the gas well. So, there is a high-risk but potentially He said Chevron’s plans call for “a cou- high-reward play for oil in the Jurassic ple of oil wells” to be drilled first, followed sandstones, Seamount said. But few wells by the gas exploration well. in the Cook Inlet have penetrated the With gas “a more and more precious Mesozoic strata below the Tertiary oil and commodity” in Cook Inlet, “we’re focused gas fields. Of these wells, which were on working to meet our ongoing obligations drilled by Unocal, only a handful drilled to our gas markets,” Zager said. Rig 428 on Anna platform. Photo taken in late January 2008. into the Mesozoic for more than a few In November 2006 he talked about the In early 2005, Seamount talked to a joint the Jurassic strata under the platforms, hundred feet. gas exploration project in more detail, say- “I would recommend we use a non-uti- ing that Granite Point was a big structure, a legislative committee about what can be below the Tertiary rocks that form the done to continue to extend the life of Cook reservoirs for all of the Cook Inlet oil and lized well bore under every single platform four-way closure, and is in a good neigh- and drill another 5,000 feet below the borhood for gas with the McArthur River, Inlet’s aging offshore oil platforms, some of gas fields. Geologists have established that which have been shut in. rocks of the middle Jurassic Tuxedni known reservoir to see what’s down Beluga River and North Cook Inlet fields in there,” Seamount said, noting that higher the area. Zager also said Granite Point “has He described some possible ways to con- group sourced all the oil in the Cook Inlet tinue use of the platforms to maximize the fields. That oil must have migrated oil prices would help alleviate the eco- never really been drilled on top as a gas nomic risk. ● prospect,” and is risky for gas because it’s amount of oil and gas extracted from the through or alongside potential reservoir shallower than some of the other Cook Inlet Cook Inlet basin, notorious for the complex- fields. ity of its reservoirs, which often consist of Rig 428, a Chevron-owned rig, was multiple, thin sandstone layers that are diffi- Beaufort Sea moved to the Anna platform “over the last cult to find and trace. several months,” Chevron spokeswoman Nonetheless, Seamount pointed out that Chukchi Sea Roxanne Sinz told Petroleum News Feb. 7. there has been relatively little exploration “The Anna work is commencing after the drilling in the Cook Inlet compared with oil completion of the McArthur River field regions elsewhere in the United States. So Dolly Varden platform well D-47 workover the potential for large quantities of undis- in late January.” covered oil under the inlet should cause peo- Most of Chevron’s Cook Inlet activity ple to hesitate before tearing down costly will be development drilling, Zager said, platforms that could play a useful role in because the object is an “increase in near- future oil development. term production.” “There’s still a good chance that a lot of that 96 percent is still under the drill bit,” Untested prospects Seamount said. “We’d like to see the platforms used as The U.S. Geological Survey believes exploration structures,” he said. only 4 percent (1.3 billion barrels of oil Seamount said that there are many through mid-2006) of the oil that theoreti- known, untested Tertiary prospects accessi- cally generated from Cook Inlet source rock ble from the platforms. He particularly has been identified — a theory that has emphasized the existence of fault blocks, Legacy increased interest in, among other things, the some of which lie right under the platforms deeper rocks where few drill bits have ven- — these blocks form fault traps that could tured. Alaska 2D contain what is known as “attic oil.” The deepest vertical depth of a Cook “There are other fault blocks out there reprocessing New Inlet basin oil well is approximately 12,000 that can be accessed from the platforms,” feet, a state Division of Oil and Gas geolo- Seamount said. “We could explore untested gist told Petroleum News. According to Dan WesternGeco has completed reprocessing 30,000 miles of Alaska 2D seismic, fault blocks and now, with new technologies Seamount, a commissioner with the Alaska including 20,000 miles in the Chukchi Sea and 10,000 in the Beaufort Sea. Data pro- and extended reach drilling, there are a lot of Oil and Gas Conservation Commission, cessing technology has advanced significantly and is enhancing this valuable legacy other identified prospects within reach.” data. This new reprocessing incorporates advanced true amplitude and prestack time companies will have to drill another 5,000 migration processing flows to generate a far superior image compared to existing data. feet below known reservoirs to test the deep- Oil in the Jurassic er sands.  Phase and amplitude match by survey vintage Seamount also thinks that there is oil in  Improved noise attenuation  Improved signal pre-processing  Full isotropic curved ray Kirchhoff prestack time migration  True amplitude (AVO compatible)

Beaufort Sea and Chukchi Sea data available now. www.westerngeco.com For more information contact 713-689-1000

© 2007 Schlumberger 10 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

● EXPLORATION & PRODUCTION NATURAL GAS Conoco moving forward with gas line January ANS Although the administration of Gov. Sarah Palin isn’t interested in its proposal for an project, ConocoPhillips intends to move ahead with plans for field work starting this summer. The company announced Feb. 14 that “it is reassessing how best to advance the production down 3% gas pipeline project as a result of the lack of engagement by the State of Alaska on the company’s proposal submit- By KRISTEN NELSON December average of 34,515 bpd. Milne ted Nov. 30, 2007.” NEWS FLASH Petroleum News Point includes Sag River and Schrader Nov. 30 was the deadline for applications under Bluff. Palin’s Alaska Gasline Inducement Act, or AGIA. ConocoPhillips did not apply under ed by an 8.5 percent drop at the BP AGIA, but submitted an alternative proposal to the state. Palin rejected the Exploration (Alaska)-operated Fields in decline ConocoPhillips proposal Jan. 9, although the administration met with the company L Northstar field, Alaska North Slope Production from all currently producing Feb. 10. crude oil production was down 3.4 North Slope fields is in overall decline; the The company said its proposal addressed many of the objectives the state identi- percent in January, averaging 730,337 bar- fields are past their peak production rates. fied in AGIA. rels per day compared to December’s aver- Northstar averaged 33,442 bpd in “ConocoPhillips remains dedicated to developing Alaska’s North Slope gas age of 755,807 bpd. January’s average is January, down from 36,538 bpd in resources as we re-evaluate the best path forward for advancing this pipeline project,” just above the Alaska Department of December, a 3,096-bpd average drop in said Jim Mulva, ConocoPhillips chairman and chief executive officer. Revenue’s projection of 731,000 bpd for production. “Despite the lack of progress with the State of Alaska, as an initial step fiscal year 2008. Alpine, a much larger field, had a larg- ConocoPhillips will continue its planning and contracting efforts in preparation for a With the exception of a slight increase er per-barrel drop, 6,648, for a smaller per- route reconnaissance and environmental studies starting in June 2008,” said Jim at BP Exploration (Alaska)’s Milne Point cent drop, 5.71 percent. Bowles, president of ConocoPhillips Alaska. “It is important that we take advantage field, all other fields in the Revenue report Revenue’s monthly figures show of this summer field season and keep this project moving ahead.” ended January with an average lower than Alpine production averaged 109,557 bpd —PETROLEUM NEWS their Jan. 1 production rate. in January, down from a December aver- From Jan. 20 to Jan. 26, overall ANS age of 116,205 bpd. Recent Alpine produc- Russians stymie Canadian LNG plan production dropped below 700,000 bpd, tion peaked in September at 126,202 bpd. led by Prudhoe Bay, Kuparuk field and The department’s monthly volumes For the best part of four years, Petro-Canada has been the model negotiator, but in Endicott (a portion of production shown as include the Fiord and Nanuq Alpine satel- the end it seems like the Russians are not coming, throwing a large wrench into plans Endicott currently comes from Flow lites while its forecast separates Alpine for a C$1 billion LNG terminal in Quebec. Station 2 at Prudhoe Bay). production from those of its satellites. In a final bid to succeed in late 2007, Petro-Canada offered Russian gas giant ANS production peaked at slightly Alpine came online in 2000 and aver- a 20 percent stake in the Gros Cacouna plant it has been trying to develop more than 2 million barrels per day in 1989 aged 38,000 bpd in FY 2001; it peaked at in partnership with TransCanada. and has declined ever since. Revenue said 123,000 bpd in FY 2006. The department “In essence, the ball is in their court,” said Petro-Canada Chief Executive Officer in its fall forecast that it expects ANS vol- forecast FY 2007 production at 105,000 Ron Brenneman, barely disguising his frustration. “They need to make their decision. umes will decline by 1.2 percent to about bpd. Fiord and Nanuq came online in FY We are just waiting.” He hinted at the difficulties six months ago, saying Petro- 731,000 bpd in fiscal year 2008, the fiscal 2007 at 8,000 and 9,000 bpd respectively. Canada, although confident “some pieces” would fall into place in 2007, was wary year that ends in June. For FY 2009, begin- Combining the forecast volumes — to about “getting overextended” on the project. ning in July, the department expects a 4.1 correspond to monthly reporting — pro- The high-stakes effort crumbled Feb. 7 when Gazprom abandoned plans for a percent decrease in production based on jected Alpine production is 122,000 bpd US$3.5 billion LNG liquefaction plant near St. Petersburg, forcing the Gros Cacouna “increased planned and unplanned mainte- for FY 2007; 115,000 bpd for FY 2008, co-developers to look elsewhere for LNG supplies. nance on aging facilities, flowlines, when both Fiord and Nanuq are expected It has been a sorry experience for Petro-Canada, which, from the outset, had to deal pipelines and wells.” to peak; and 110,000 bpd for FY 2009, with skeptics, who questioned the wisdom of trying to do business with the Russians. when both Alpine and the satellites are in But the company made every effort to win over Gazprom, with the bargaining Numbers up at three fields decline. reaching the highest government levels. The BP-operated Endicott, Lisburne Current Canadian Prime Minister Stephen Harper and his predecessor Paul Martin and Milne Point fields had increased pro- Prudhoe down 4.7 percent raised the matter with Russian President Vladimir Putin, with Harper and Putin issu- duction, January over December. ing a joint statement in mid-2006 promoting the stabilizing role LNG could play in BP-operated Prudhoe Bay, which Endicott, which includes some 33,000 global energy markets, pledging to take measures to facilitate investments in devel- includes production from the Aurora, bpd of Prudhoe Bay oil, averaged 45,698 oping LNG markets.Putin also endorsed efforts to reach a supply agreement between Borealis, Midnight Sun, Orion and bpd, up 5.4 percent from a December aver- Gazprom and Petro-Canada. Polaris satellites, as well as some 400-600 age of 43,371 bpd. Now Petro-Canada, which has already seen its cost estimates climb from about bpd from Lisburne and Point McIntyre, Lisburne, including Point McIntyre and C$660 million, is left to sift through the wreckage, disappointed that Gazprom will averaged 321,693 bpd in January, down Niakuk, averaged 35,576 bpd in January, not be the anchor supplier.Brenneman conceded that the Gazprom deal is dead, while 4.7 percent from a December average of up 3 percent from a December average of a company spokesman said the Gros Cacouna partners will “have to reconsider our 337,490, a drop of some 15,797 bpd. 34,526 bpd. options for developing the (Quebec) site.” The ConocoPhillips Alaska-operated Milne Point production averaged Kuparuk River field, including Tabasco, —GARY PARK 34,966 bpd, up 1.3 percent from a Tarn, Meltwater and West Sak, averaged 149,405 bpd in January, down 2.5 percent from a December average of 153,162 bpd. The temperature at Pump Station No. 1 on the North Slope averaged minus 16.9 degrees Fahrenheit, compared to minus 0.9 degrees F in December and to an eight-year average for January of minus 11.4 degrees F. Cook Inlet production dropped 13.9 percent, averaging 13,358 bpd in January, down from 15,515 bpd in December. ● PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 11 12 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

● EXPLORATION & PRODUCTION EXPLORATION & PRODUCTION DOE issues report on North Slope oil, gas BRPC, ConocoPhillips The U.S. Department of Energy has issued a major report on the status and future of oil and gas development on Alaska’s North Slope. The report, published both as a summary report and as a separate detailed report, includes a description spud ANS wells of North Slope petroleum geology; the history of oil and gas development in the region; an assessment of the remaining oil and gas resources; and projections of Brooks Range spuds second exploration well of season; potential short-term and long-term future petroleum production. “The report examines the potential for Arctic Alaska to remain a major con- ConocoPhillips starts work on Char, gets permits for Spark tributor to the nation’s domestic energy supply under different development sce- narios,” DOE said. By ERIC LIDJI “When you take a look at a lot of Some of the assumptions used in the report’s economic analysis seem dated. Petroleum News For example, the economic model assumes the state’s now-defunct gross produc- the stuff we’re chasing with these tion tax with ELF adjustments, rather than the current ACES tax. However, the uesday, Feb. 12 proved to be a good satellites, you’re not looking at a economic analysis provides a valuable basis for understanding the business of day for North Slope exploration, as substantial reserve base.” North Slope oil and gas production. And the massive report contains a wealth of T Brooks Range Petroleum Corp. and —Erec Isaacson, vice president of land and useful reference information about the North Slope oil and gas industry. ConocoPhillips Alaska Inc. both exploration for ConocoPhillips Alaska The report can be downloaded from the DOE Web site at http://fossil.ener- spud wells in the western edge of the gy.gov/news/techlines/2008/08002-DOE_Releases_Alaska_Report.html. central North Slope. —ALAN BAILEY ConocoPhillips spuds Char Brooks Range Petroleum ConocoPhillips spud the Char No. 1 spuds Tofkat well on Feb. 12. The well sits in the INTERNATIONAL BRPC spud the Tofkat No. 1 well Feb. Colville unit northwest of Alpine, about 12 according to Hillary McIntosh, man- one mile south of ConocoPhillips’ 2005 Chavez threatens to cut off oil sales to U.S. ager of business development and exter- Iapetus exploration well and 12 miles Venezuelan President Hugo Chavez on Feb. 10 threatened to cut off oil sales to the nal affairs for the company. north of the village of Nuiqsut. United States in an “economic war” if ExxonMobil wins court judgments to seize bil- Tofkat No. 1 sits due east of the vil- ConocoPhillips viewed the Iapetus lions of dollars in Venezuelan assets. lage of Nuiqsut along the east side of the prospect as a potential Alpine satellite, “If you end up freezing (Venezuelan assets) and it harms us, we’re going to harm Colville River. specifically as a new discovery or an you,” Chavez said, turning his words to U.S. President George W. Bush. “Do you know extension of the Fiord prospect, but ulti- how? We aren’t going to send oil to the United States. Take note, Mr. Bush, Mr. Tofkat No. 1 sits due east of the mately plugged and abandoned the well. Danger.” Now, ConocoPhillips plans to use village of Nuiqsut along the east Char No. 1 to test flow rates in the area, ExxonMobil has gone after the assets of Venezuela’s state oil company, Petroleos side of the Colville River. de Venezuela SA, in U.S., British and Dutch courts as it challenges the nationalization according to Erec Isaacson, vice presi- of a multibillion dollar oil project by Chavez’s government last year. A British court dent of land and exploration for issued an injunction “freezing” as much as US$12 billion in assets. McIntosh said the company has made ConocoPhillips Alaska. “I speak to the U.S. empire, because that’s the master: continue and you will see that “Herculean efforts” to involve the village “When we drilled the Iapetus well in we won’t send one drop of oil to the empire of the United States,” Chavez said during of Nuiqsut in the drilling program, the past ... we didn’t actually get a flow his weekly radio and television program, “Hello, President.” including community meetings and tours test,” Isaacson said. “When you take a “The outlaws of ExxonMobil will never again rob us,” said Chavez, accusing the of work camps for area students. She said look at a lot of the stuff we’re chasing Irving, Texas-based oil giant of acting in concert with Washington and being part of several residents are employed on the with these satellites, you’re not looking corporate “worldwide mafias.” project. at a substantial reserve base. So as a result we need to get some flow tests” to —THE ASSOCIATED PRESS BRPC is drilling Tofkat No. 1 using the Nabors rig 27E. gauge the economics of the project. The well is the first new exploration ConocoPhillips also made headway well of the season for BRPC and the sec- on the Spark Down Dip 9 exploration ond exploration well overall this year. well, getting a drilling permit for the well The company recently completed drilling on Feb. 1 from the Alaska Oil and Gas efforts it started last winter on the North Conservation Commission. Shore No. 1 well in Gwydyr Bay. Spark DD-9 is in the new Greater Depending on the results of Tofkat Mooses Tooth unit in the National No. 1, BRPC will either use the rig to Petroleum Reserve-Alaska. The well will drill a sidetrack well or move it northeast help satisfy U.S. Bureau of Land to drill another well in Gwydyr Bay Management initial development called North Shore No. 3. requirements for the new unit. BRPC, a wholly owned subsidiary of ConocoPhillips will spud Spark DD-9 the Alaska Venture Capital Group, is run- using the same rig currently working on ning its winter exploration program on Char No.1 behalf of a joint venture with TG World The company hopes to spud Spark Energy Inc., the Nabors subsidiary DD-9 on March 12, but said the date is Ramshorn Investments Inc. and Bow contingent on the progress at Char. Valley Alaska Corp. ConocoPhillips also got an AOGCC The group plans to drill two more drilling permit for the Spark DD-9A exploration wells this winter. exploration well on Feb. 4. ● PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 13

● SAFETY & ENVIRONMENT Whale hunter says ‘show me’ North Slope Borough mayor wants to see practical, demonstrable solutions to potential oil spills in Alaska’s offshore Arctic

By ALAN BAILEY fleet that are helping to handle all this stuff,” Petroleum News Itta said. “Then when you get the oil mixing Shell says no Beaufort oil drilling in 2008 in with the ice nobody’s shown us how record-breaking lease sale for the they’re going to figure out how to separate Even if the U.S. Court of Appeals gives Shell approval to drill oil exploration wells Chukchi Sea outer continental shelf it from the ice. … It’s not hard for me to in Alaska’s Beaufort Sea this year, the company has decided not to do any “critical” A on Feb. 6 has once again turned the visualize this in my mind because I’ve lived drilling in 2008, Shell’s Alaska operations manager Susan Moore said Feb. 14. spotlight on potential oil and gas up here and I’m a whaler and a hunter, as so The company’s spokesman in Alaska, Curtis Smith, told Petroleum News that development in the Arctic offshore. But one many of my people are.” Shell’s decision was based on “the availability of drilling assets” combined with a key concern arising from the prospect of oil Itta said that the North Slope Borough response to “repeated requests that we take a measured approach to exploring the rigs operating offshore Alaska’s North had looked into the in-situ burning of Alaska offshore.” Slope is the possibility of an oil spill in the spilled oil and concluded that the technique However, the company does plan to drill some shallow wells, termed “top-hole waters of the Beaufort or Chukchi seas. does not work when the ice coverage is wells,” that would not go deep enough to penetrate hydrocarbon reservoirs. Shell has Petroleum News has run a series of arti- more than 30 percent. And, even in open been discussing its plans with regulators, Moore said. cles reviewing Arctic offshore oil spill con- water, the oil will not burn if the slick is too “Basically it’s preparatory work that would take place at the Sivulliq prospect,” tingency plans and spill prevention meas- thin or the wave action too strong, Itta said. Smith said, referring to the prospect that used to be called Hammerhead and which lies ures, as conceived by industry and the U.S. “We know it’s not like throwing a match offshore the North Slope, due north of Flaxman Island on the western side of Camden Minerals Management Service. And on into a puddle of gasoline,” Itta said. Bay. Feb. 8 Petroleum News asked Mayor Itta also expressed skepticism about the “Top-hole wells typically extend (to depths of) 1,000 to 1,200 feet and provide Edward Itta of the North Slope Borough for potential to recover oil that has become structural support for the well as it grows in depth,” Smith said. his views on the sta- trapped under sea ice, perhaps as a result of Essentially, a top-hole well is a mudline well cellar with a 30-inch and 20-inch cas- tus of offshore oil a rupture in a subsea pipeline. In particular ing string that establishes the well structure, isolates the permafrost and provides the spill response capa- he questioned the practicality of leaving oil well with structural integrity, Smith said. bilities. under the ice during the winter and then Shell wants to use its Kulluk floating drilling platform to drill three of these wells at “The challenge recovering the oil in the spring when the ice Sivulliq. But the Frontier Discoverer, the drillship that Shell had also contracted for with dealing with an melts. Beaufort Sea drilling, will remain in Australia during 2008, he said. offshore oil spill in “We know up here from a lifetime and Drilling top-hole wells “will give us a head start on our 2009 season, which we hope Arctic waters is so generations of experience that ice moves,” will be quite robust,” Smith said. much greater than Itta said. “You’ll never get that oil back To drill the top-hole wells Shell will need permission of the U.S. Court of Appeals onshore and that’s again when the ice moves. Then, further- for the 9th Circuit because the company’s Beaufort operations remain on hold, pend- always why we’ve NSB Mayor ing the outcome of an appeal by the North Slope Borough, the Alaska Eskimo Whaling Edward Itta more, we naturally … wonder what hap- always had such a pens to the animals that use the ice while it’s Commission and several environmental organizations against U.S. Minerals strong preference for onshore develop- floating around covered in oil.” Management Service approval of Shell’s exploration plan. That appeal has resulted in ment,” Itta said. “… We believe even in the And, although sea ice can probably help a court injunction on Shell’s Beaufort drilling activities until the case is settled. The best of circumstances that offshore spill to contain spilled oil, the ice also adds to the court heard oral arguments in the case in December but it is not clear when it will make response currently is more theory than prac- difficulty and danger of operating spill a ruling. tice.” response vessels, he said. “If we get the go-ahead from court and the permits we need, taking a more meas- Issues such as these need to be addressed ured approach will help instill confidence with the stakeholders — demonstrate that we San Francisco spill openly, Itta thinks. can operate safely and responsibly,” Smith said. “We’ll also get a chance to show off Itta cited the response to the November “We’d like to have it dealt with in a some of our technology.” 2007 spill of 58,000 gallons of bunker oil straightforward and forthright manner, so —ALAN BAILEY & KAY CASHMAN from a damaged container ship in San we can understand it and have some level of Francisco Bay as evidence for the inade- confidence and comfort that ‘we’ve got you and understanding.” covered’,” Itta said. “So far we haven’t seen quacy of current offshore oil cleanup meth- Itta said that he and some other North www.pdcharrisgroup.com ods. that.” Slope leaders are planning a trip to the Gulf “This is a place where they had 1,500 New developments of Mexico to look at the latest spill response people, 50 vessels and 18,000 feet of boom technology available there and to ask ques- to work … and the weather … is a lot tamer The borough has been following devel- tions about how the use of the equipment than it is up here in the Arctic,” Itta said. opments in new oil spill response technolo- might be adapted for Arctic conditions. “They had the resources available, the best gies. Itta is looking forward to visiting But no one can ever be certain of success in the world, right there, and yet the major- Norway to learn about research taking place in an offshore Arctic oil spill response, Itta ity of that oil was not recovered.” there and to talk to people impacted by the said. When compared to San Francisco Bay, oil and gas industry. Norway is at a similar “The first thing we need to acknowledge the Arctic presents many challenges, latitude to Alaska and has oil and gas oper- is that oil spill response as it is currently is a including extreme temperatures, very ations taking place in ice conditions, Itta very inexact science, and it always will be,” remote locations and the lack of a support- said. he said. “Some of the technology may be ing infrastructure, Itta said. “I’m very much interested in finding out promising — I like what I hear sometimes And along the Arctic coast of Alaska, about what they have over there,” Itta said. — but it’s always going to be dependent on Putting it all communities depend on the sea for their “… That’s been the intent. To go some- nature’s cooperation and nobody in their way of life. where where operations have been in exis- “Reasonable people would have to agree tence for some time and get a first hand look see MAYOR page 14 together that we have a huge stake in this whole question of what’s safe and what’s accept- for the successful able,” Itta said. commercialization If there were to be a catastrophic off- shore spill the coastal communities would of your project have to live with the consequences every > Project Controls & Management day, he said. > Upstream Production Systems “That’s why we need more than promis- > Midstream Processing Systems es and evolving technologies before we can > Gas Compression & Conditioning have confidence as a people in the safety of > Module Design offshore oil spill response,” he said. “… We > Power Generation/Cogeneration just continue to ask to be informed (about) > Infrastructure Systems what can be done.” > Cold Regions Design Expertise

Contact Mike Moora, 1.907.644.4716, Broken ice [email protected] For example, industry has not demon- strated that it can clean up oil in broken ice conditions, the mayor said. “It’s just common sense that when you get dynamic ice movement, moving PDC Harris Group LLC around, that it interferes with the booms that are supposed to contain the oil and also 2700 Gambell St., Suite 500, Anchorage, AK interferes with the smaller vessels in the 14 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

● OIL COMPANY EARNINGS INTERNATIONAL Earnings from Petroleum News Top 25 Earnings fourth quarter 2007 • Change from fourth quarter 2006 Liquids production fourth quarter 2007 • Change from fourth quarter 2006 Natural gas production fourth quarter 2007 • Change from fourth quarter 2006 Spying in Norway

Company symbol earnings % liquids % gas % ExxonMobil XOM $11,660 +14 2,517,000 –6 10,414 +12 at Cold War levels BP BP $4,399 +51 2,469,000 +2 8,337 +1

RD/Shell RDS-A $6,684 +11 1,853,000 –16 9,185 +10 Police Intelligence chief says more countries active in Norway, Chevron CVX $4,875 +29 1,766,000 –4 5,083 +5 more commercial than military with interest in northern waters ConocoPhillips COP $3,673 -5 940,000* –17 4,916* -9 By DOUG MELLGREN had been quoted correctly, and said espi- StatoilHydro STO Associated Press Writer onage is now more of a commercial than a Occidental OXY $1,452 +56 464,000 +2 782 +20 military nature. EnCana ECA nternational espionage against oil-and- technology-rich Norway is now back at Northern waters of interest Can. Natural CNQ.TO I Cold War levels, after spying dwindled During the Cold War, Norway formed Anadarko APC $217 -39 240,000 -19 2,013 -10 following the 1991 collapse of the the northern flank of the western military Devon DVN $1,316 +126 222,300 +14 2,456 +8 Soviet Union, police intelligence said Feb. alliance NATO, sharing an Arctic border 8. Marathon MRO $668 -38 190,000 -10 984 +13 with northwestern Russia along the Kola NATO-member Norway is a major Peninsula, with its key military and naval Husky HSE.TO C$1,074 +98 264,500 -0- 618 -7 exporter of oil and natural gas and shares bases. Talisman TLM land and sea borders in the Arctic with Now much of the interest is focused on Apache APA $1,073 +106 274,675 +12 1,799 +5 Russia. That includes vast disputed areas the far northern waters, where Norway has claimed by both countries in the Barents Imperial IMO C$886 +12 279,000 +4 386 -27 been developing Arctic offshore natural gas Sea, which has massive fish stocks and is using advanced technology. Russia, the Suncor SU.TO C$963 +169 252,500 -5 229 +10 seen as a potentially rich area for petroleum United States, Norway, Canada and Petro-Canada PCZ C$522 +36 289,000 +18 725 -2 production. Denmark are all rushing to stake claims in Nexen NXY.TO In an interview published Feb. 8 in the Arctic waters. Russia needs advanced off- Oslo newspaper Aftenposten, Norway’s top shore technology to develop the vast XTO XTO $464 +8 63,306 +8 1,671 +36 police intelligence officer, Joern Holme, Shtokman natural gas field off its northern Chesapeake CHK said spying against the Nordic country has coast. Pioneer PXD $205 +632 44,885 +3 382 +12 been on the rise, but refused to name any Kim Ellertsen, leader of the Norwegian countries. EOG EOG $358 +51 48,600 +25 1,496 +6 Business and Industry Security Council in “Many countries’ intelligence services Oslo, said Russian is often mentioned, Newfield NFX $313 +282 23,000 -2 421 -31 were very active in Norway during the Cold including by British intelligence, as being Swift SFY War. Then things calmed down in the especially active in seeking confidential 1990s, before activities increased again,” he information about the far north. Liquids production in barrels per day. Natural gas production in millions of cubic feet per day. said. “We are now back at Cold War levels. “It’s not just active spying,” he said by Note: ConocoPhillips production includes volumes from investment, The big difference is that many more coun- telephone. “It is the search for information which was not included in prior reports. tries are now active in Norway.” leaks.” He said scraps of inadvertently Top 25 is based on Petroleum News research on exploration spending “I am not going to comment on which leaked information may be collected to countries,” Holme said. “But there are more piece together a complete picture of key countries active than people might immedi- business secrets. ately think of.” Russian Embassy press attache Jevgeny Police intelligence spokesman Trond Kolesnikov told Aftenposten that the allega- Hugubakken confirmed by telephone that tions “are groundless and a repetition from Holme, who was not immediately available, Cold War days.” ●

FINANCE & ECONOMY IEA cuts ’08 forecast for demand growth The International Energy Agency on Feb. 13 cut its forecast of 2008 global oil demand growth and pinned the expected drop on slowing world economic activity caused by U.S. financial woes taking root elsewhere in the world. In its widely watched monthly oil market report, the Paris-based agency, energy advisor to the world’s wealthiest nations, cut its world crude consumption forecast by 310,000 barrels per day from its January report, after the International Monetary Fund recently lowered its outlook for world economic activity. The IEA sees 2008 world oil demand growing by 1.7 million bpd from last year, down from the 1.98 million bpd forecast in January. Overall, crude consumption glob- ally is expected to average 87.6 million bpd, representing an increase of 1.9 percent from 2007, down from the IEA’s forecast of 2.3 percent in January. Declining oil consumption, which tends to closely track economic activity, could inject some slack into the relatively tight global oil market and provide some relief to consumers with weaker crude prices, which hover at almost $93 a barrel. But shrinking crude consumption could also move the Organization of Petroleum Exporting Countries to tighten its leash on production when it meets in early March if the producer group feels global crude supplies could build too quickly and threaten oil prices below $80 a barrel. —THE ASSOCIATED PRESS

continued from page 13 to prevent a spill before it happens is just money well spent.” MAYOR But addressing the possibility of an off- shore oil spill requires dialogue, Itta said. right mind counts on nature’s cooperation “I’ve always felt that communications up here in the Arctic.” are the key to understanding what the issues And that underlines the importance of are,” he said. “My hope is that there is a oil spill prevention. sense of understanding and that reasonable “I think the weaknesses that are inherent mitigating measures are put in place that in oil spill response point to the importance can be monitored. And that’s all we’ve ever of spill prevention,” Itta said. “I commend really asked for up here. I don’t think it’s industry for using that mantra as a guiding unreasonable at all. I continue to talk with light. … I believe that anything we can do industry.” ● PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 15

● FINANCE & ECONOMY Savant, True North Energy ink new deal Savant gets interest in neighboring lease, True North will get interest in future production from Beaufort Kupcake project

By ERIC LIDJI lower. Savant officials have previously said they expect The agreement requires Savant to drill a test Petroleum News to spud Kupcake No. 1 by the end of February. well by March 15. The well will be to a depth fter a deal between the two companies fell apart of 11,000 feet or into the Kemik formation, True North looks to seismic, earlier this year, Savant Alaska LLC and True whichever proves to be shallower. Savant sales, maybe partnerships A North Energy Corp. signed a new deal on Jan. 23 officials have previously said they expect to True North owns leases on 10,000 acres of the North for the Kupcake project in the Beaufort Sea off Alaska’s North Slope. spud Kupcake No. 1 by the end of February. Slope and 25,000 acres in the Cook Inlet basin, acquired Under the deal, True North will give Savant an inter- during lease sales in January and May of 2006. est in a state lease near Kupcake in return for a small November, but the companies terminated that deal in In recent SEC filings, True North said it did not plan working interest in a future production unit should test January after True North failed to raise its share of the to drill in Alaska this year, but would “focus on acquir- drilling at the site prove to be successful. test well drilling costs in time. ing additional seismic data, conducting further technical The True North lease — ADL 390839 — sits imme- For the new deal, True North will not pay for any part evaluation of our Alaska leases, and exploring opportu- diately to the west of the lease Savant is using to set up of the test well. nities to sell a portion of our Alaskan working interests ice roads and an ice island for drilling the Kupcake No. Instead, upon drilling the test well, Savant will get a in an effort to reduce our risk and financial exposure.” 1 well in Foggy Island Bay. 75 percent undivided working interest and a proportion- Forecasting increased commodity prices and demand Savant’s leases are east of Prudhoe Bay, adjacent to ate 78.33 percent net revenue interest in the True North for natural gas nationally, True North branched out BP’s Liberty oil project, and extend east towards BP’s acreage at ADL 390839. beyond Alaska in 2007, acquiring leases in Colorado and offshore/onshore Badami oil field along the Mikkelsen Savant will also share certain well information — Texas to “aggressively pursue new unconventional gas Bay fault zone. including geology, reservoir data, logs and core analysis resource plays with potentially substantial upsides.” — with True North. In SEC filings, the company said it planned to No upfront payment under new deal The agreement requires Savant to drill a test well by “engage in low to medium risk exploration and develop- This lease was originally the centerpiece of a pooling March 15. The well will be to a depth of 11,000 feet or ment of oil and gas reserves with sophisticated, industry- agreement True North entered into with Savant last into the Kemik formation, whichever proves to be shal- leading partners.” ●

continued from page 1 2009. Britton declined to name the com- state use. “I’m reluctant to say it’s precedent. pany. Propelled partially by the lobbying GAS SALE It’s an opportunity we thought was efforts of Fairbanks Natural Gas during a a good opportunity... At this point, FNG hopes deal lowers costs special legislative session this past dent-setting achievement for commer- we look at it as a discrete event.” The new deal with ExxonMobil will November, state lawmakers inserted the cializing North Slope natural gas, partic- —ExxonMobil spokesman Patrick McGinn lower costs for Fairbanks Natural Gas, provision into legislation to raise produc- ularly as ExxonMobil made the deal Britton said. tion taxes on the oil industry. alone, without the approval of other Because Fairbanks Natural Gas has Britton called the tax cap a decisive Prudhoe Bay partners. 2006 and the major cause for several rate essentially been a large customer of issue for Fairbanks Natural Gas’ plans on “It’s proof that the producers will increases since. Enstar, rather than buying directly from a the North Slope. commercialize their gas when given the Fairbanks Natural Gas turned to Enstar producer, costs have jumped over the past “Otherwise we wouldn’t be able to opportunity,” Palin said. after losing a supply contract with Aurora year and a half. move forward with our project,” Britton Exxon shrugged off any implications Gas LLC. As a result, Fairbanks residential cus- said. this deal might have on a large natural “We’re still going to be in the Cook tomers pay $21.23 per thousand cubic For years, natural gas produced in gas pipeline. Inlet for a while,” Fairbanks Natural Gas feet of natural gas, among the highest Cook Inlet and bound for in-state markets “I’m reluctant to say it’s precedent. President Dan Britton said. rates in the country although still cheaper has not been taxed as heavily as natural It’s an opportunity we thought was a When state regulators approved the than fuel oil in Fairbanks based on energy gas bound for export, but lawmakers good opportunity,” said spokesman Enstar contract, they required Fairbanks output. never extended these breaks to other parts Patrick McGinn. “At this point, we look Natural Gas to find a new supplier by Even though Fairbanks Natural gas of the state because there had never been at it as a discrete event.” June 30, 2008. Because the ExxonMobil will now be trucking its liquefied natural any need. Exxon used its share of natural gas at contract won’t go into effect until 2009, gas much farther than it currently does, Unlike Cook Inlet natural gas, which is Prudhoe Bay for the contract, and there- Fairbanks Natural Gas asked Enstar to Britton expects costs to go down. sold as a heating fuel to Alaska’s popula- fore did not need prior approval from the extend the emergency contract for anoth- He said the company will be purchas- tion center, North Slope natural gas has unit operator, BP. However, McGinn er 10 months. ing gas at a lower price and will gain effi- typically been reinjected into oil fields, said Exxon planned to work with BP to Enstar is open to the extension, but ciency because colder ambient tempera- but not sold to outside markets. facilitate interconnection with the new still needs to secure 2 bcf of natural gas tures on the North Slope give a degree of But in recent years, natural gas Fairbanks Natural Gas liquefaction for its own supply needs in 2009, accord- “free cooling.” prospects have sprung up around the plant. ing to Enstar spokesman Curtis Thayer. However, the $10 million liquefaction state. In a statement, ExxonMobil’s Alaska “You add Fairbanks Natural Gas on plant at Prudhoe Bay is now expected to In addition to Fairbanks Natural Gas’ production manager Craig Haymes said, top of that and it just widens the gap,” cost between $20 million and $40 million, search for a supply contract on the North “We continue to look for viable projects Thayer said. Britton said. Slope, the Rutter and Wilbanks Corp. to demonstrate ExxonMobil’s commit- Any deal between the companies would have to be approved by the continues exploration around Glennallen ment to commercializing North Slope Deal takes advantage of new taxes and Doyon Ltd. works toward exploring gas.” Regulatory Commission of Alaska, but a 10-month extension would only secure a The deal will be the first to utilize a natural gas prospects in the Nenana ● Deal lets FNG leave Cook Inlet gas supply for Fairbanks Natural Gas new tax cap on natural gas bound for in- basin and the Flats. through April 2009. The deal with ExxonMobil allows As a result, Britton said Fairbanks Fairbanks Natural Gas to end an unusual Natural Gas also entered into a contract 10-year relationship with the Cook Inlet. with another Cook Inlet natural gas com- Fairbanks Natural Gas started in 1998 pany to start supplying gas on April 1, to provide an alternative to fuel oil, the dominant heating option for residences and businesses in Fairbanks. Touting natural gas as a low cost and clean alternative to heating oil, Fairbanks Natural Gas has grown over the past 10 years to supply more than 1,100 residen- tial and commercial customers in Fairbanks. But because no gas pipeline exists between Fairbanks and the Southcentral natural gas fields, Fairbanks Natural Gas began trucking liquefied natural gas along the Parks Highway into Fairbanks. For nearly 18 months, Fairbanks Natural Gas has been purchasing its sup- ply from the Enstar Natural Gas Co. under a contract created under less than ideal circumstances back in September 16 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

Companies involved in Alaska and northern Canada’s oil and gas industry Business Spotlight ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS Industrial Project Services A Inspirations Acuren USA (formerly Canspec Group) Jackovich Industrial & Construction Supply Aeromed FORREST CRANE Judy Patrick Photography ACE Air Cargo Kenai Aviation ...... 10 Agrium Kenworth Alaska ...... 12 Air Liquide King Street Storage Air Logistics of Alaska Kuukpik Arctic Services ...... 15 Alaska Air Cargo Kuukpik - LCMF Alaska Anvil LaBodega Alaska Coverall Last Frontier Air Ventures Alaska Dreams Lister Industries Alaska Frontier Constructors ...... 10 Lounsbury & Associates ...... 7 Alaska Interstate Construction (AIC) Lynden Air Cargo Patrick Coullahan, Manager Alaska Marine Lines Lynden Air Freight Alaska Railroad Corp. Lynden Inc. Alaska Regional Council of Carpenters (ARCC) Lynden International URS Corp., Alaska Alaska Rubber & Supply Lynden Logistics Operations Alaska Steel Co. Lynden Transport Alaska Telecom URS Corp. provides specialized Mapmakers of Alaska Alaska Tent & Tarp expertise in logistics, Arctic hydrology Marathon Oil Alaska Textiles and engineering, planning and per- Marketing Solutions Alaska West Express mitting, public involvement, regulato- MI Swaco Alliance, The ry compliance and contaminated site MRO Sales American Marine ...... 13 closures. It is among the world’s old- Arctic Controls N-P est and largest engineering and envi- Arctic Foundations ronmental services firms, with 60 Arctic Slope Telephone Assoc. Co-op...... 14 engineers and scientists in its three Nabors Alaska Drilling Arctic Wire Rope & Supply Alaska offices. NANA/Colt Engineering ASRC Energy Services Retired Air Force Colonel and civil Natco Canada ASRC Energy Services Alaska engineer Patrick Coullahan assumed Nature Conservancy, The ...... 17 ASRC Energy Services Houston Contracting (HCC) his current position after three years NEI Fluid Technology Avalon Development with the company performing missile Nordic Calista defense bed downs at Fort Greely B-F North Slope Telecom and Eareckson (Shemya) Air Station. North Star Equipment Services (NSES) Patrick is president-elect of the North Star Terminal & Stevedore (NSTS) Badger Productions Alaska Society of Professional Northern Air Cargo Baker Hughes ...... 8 Engineers and relishes educating non- Northern Transportation Co. 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Price WesternGeco ...... 9 Heating & Ventilation Sales Weston Solutions...... 8 Holaday-Parks XTO Energy...... 3 Horizon Well Logging Hotel Captain Cook All of the companies listed above advertise on a regular basis Hunter 3-D with Petroleum News PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 17 continued from page 1 Gas at open season a concern Legislators want 2004 application TRANSCANADA Getting gas committed to the line in open Twenty-three Alaska legislators signed a letter dated Jan. 31 to Gov. Sarah season is a concern. money ever had to be paid, it would not Palin and Tony Palmer, TransCanada’s vice president of Alaska business devel- Rep. Jay Ramras, R-Fairbanks, said the be part of a tariff for the gas pipeline. opment, asking for release of the 2004 TransCanada gas pipeline application. pipeline is just part of what’s needed and Palmer said before any monies were Palmer was asked about the request at the Alaska Support Industry Alliance said the administration is not being concilia- owed the ANNGTC project would have to Feb. 14. tory to the producers. be built and then the partnership’s board He said the letter, requesting the application TransCanada submitted under the Palmer said that by the summer of 2009 would have to determine that the money Stranded Gas Development Act, was received Feb. 11. TransCanada would have a firm offer of could be paid without hurting the partner- Palmer said he questions “the relevance of that information.” service in front of the producers. He ship. That 2004 application was under the process established by the previous acknowledged that open seasons don’t ANNGTC was the partnership formed to administration and Legislature, he said. “And although I haven’t gone back and always succeed; sometimes they don’t suc- build the Alaska portion of the late 1970s- reviewed that in detail I am aware that if we had made that filing under AGIA, it ceed until the second open season; some- early 1980s project to take Alaska North would not have been a compliant application. And I would fully expect it would times they don’t succeed at all. Slope gas to Lower 48 markets via a pipeline have been rejected.” Ramras said he was concerned about into Canada. He said TransCanada is reviewing the request. both pieces — pipeline and shippers — not Palmer said since the ANNGTC partner- “I respect a request from 23 legislators,” he said, and the company is consid- being ready; he told Palmer he didn’t intend ship was for the Alaska portion of the gas ering how to respond to the request and will respond the week of Feb. 18. to participate in a 10 minutes to midnight pipeline system under the Alaska Natural —KRISTEN NELSON scenario. Gas Transportation Act of 1976, it’s the Palmer said every commercial negotia- Alaska partnership assets that could be an tion reaches the point where it breaks down issue. told Sen. Tom Wagoner, R-Kenai, in He said at the Alaska Support Industry or moves ahead. Because of that, he said, TransCanada response to a question about whether Alliance Feb. 14 that with a class 5 engi- TransCanada has proposed that the U.S. decided not to use any of the ANNGTC TransCanada was shortcutting the time to an neering estimate costs can go up 30 percent government could participate as a bridge assets, which consist of old engineering open season. or down 20 percent and with a class 4 esti- shipper and by allocating a portion of the studies and permits: It will be starting from TransCanada has a class 5 cost estimate, mate costs can go up 20 percent or down 15 $18 billion loan guarantee to any capital scratch in Alaska and will not be using the he said, and will have a class 4 engineering percent. He said TransCanada is “doing the cost overruns. Palmer says these are ways rights of way or permits obtained by estimate at open season. The company has normal amount of work that we would do, to improve the probability of success — ANNGTC. significant data in Canada, he said. By the considering the materials and information not conditions of the TransCanada appli- The existing ANNGTC federal right of time TransCanada is through FERC certifi- we have, to have a class 4 estimate before an cation.● way in Alaska expires in 2010, he said, cation it will have a class 3 estimate. open season.” before TransCanada would apply for a right of way. Gas would move through Alberta Hub Palmer said that while TransCanada moves 15 billion cubic feet of gas to market, it does not own any of the gas it moves. It does, however, own the Alberta Hub, through which 11 bcf of gas moves physi- cally, with 60-70 bcf traded on the hub every day. He described it to Senate Resources as the most liquid hub in North America. Gas from Alaska would flow on through the hub to the Lower 48 and TransCanada expects about one-third of the capacity on its lines going to the U.S. to be available by the time Alaska gas reaches Canada. In response to a question from Rep. Ralph Samuels, R-Anchorage, about the cost for Alaska gas to move on existing TransCanada lines, Palmer said there is a toll for entering the system and a toll for exiting; there is no charge, he said, for gas trading once gas is on the TransCanada system. Competition expected Palmer said he expected there to be “comprehensive competition” in the AGIA applications and said TransCanada bid to win, stretching its offer in a number of ways to ensure it had the best offer. He said the TransCanada system design is competitive and has a very low fuel ratio, 2.3 percent used in the pipeline, for a 1,700-mile pipeline. TransCanada would prefer not to own the gas treatment plant on the North Slope, he said, but will do so if no third party is willing to build it. For gas owners willing to commit thresh- old levels of gas at an initial open season, equity ownership in the line will be avail- able. Palmer said he realizes there is a concern about how motivated TransCanada would be to manage pipeline construction costs, and said the company’s AGIA proposal includes a penalty on its rate of return if there are cost overruns. TransCanada built 7,000 miles of pipeline in the 1990s within 0.6 percent of budget, Palmer said. It’s not a perfect record, he added, noting that the company has experienced cost increases in the last few years. Too quick to open season? TransCanada plans to move quickly to an open season to move the project forward. Palmer said having a later open season would not result in a better set of costs: The same amount of work needs to be done, he 18 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008

continued from page 1 and drilling Char at the same time. While Char is being “We think there’s the possibility that we have stimulated and tested, the rig will be drilling Spark Down FUTURE an oil leg at the Spark and Rondy Dip; and by the time testing is done at Spark, it will be time (Rendezvous) discoveries.” to get off the tundra for the season. North Slope, something which isn’t expected for a —Erec Isaacson, ConocoPhillips Alaska’s vice president decade. of exploration and land Permitting could be joint Mooses Tooth oil would be processed at Alpine’s Looking for oil with the gas Spark down dip scheduled CD-1, the main production pad, which also handles This winter’s appraisal work ties into “stepping crude oil from CD-2, CD-3 (Fiord) and CD-4 (Nanuq). The appraisal well at Spark, the Spark DD or Spark across the Nigliq Channel of the Colville River and get- ConocoPhillips is still working on permits for Down Dip, is also a search for oil. ting over to NPR-A with that first set of developments,” Alpine West, which would be the CD-5 pad, with per- In 2001 the companies said the Spark 1A well tested at Isaacson said. mits needed from both the Corps of Engineers and the 1,550 barrels per day of liquid hydrocarbons and 26.5 mil- North Slope Borough. Spark and Rendezvous will be tested for oil this win- lion cubic feet per day of gas at a flowing tubing pressure ter. (See related maps on page 19.) of 1,500 psig. Mooses Tooth oil would be processed at Rendezvous 2 will be reentered and fracture stimu- In 2004, ConocoPhillips and Anadarko said they had lated. successfully appraised the 2001 Spark discovery with the Alpine’s CD-1, the main production pad, Isaacson said the plan for Rendezvous is to reenter Carbon 1 and Spark 4. The Carbon 1 was about five miles which also handles crude oil from CD-2, CD- the well, which was drilled but not tested in 2001, and northwest of the Spark 1A. An unstimulated Carbon well 3 (Fiord) and CD-4 (Nanuq). evaluate it to determine whether it can be stimulated. If test flowed at a maximum rate of 24 million cubic feet per the well is stimulated then the company will do a long- day of gas and 1,250 barrels per day of condensate with a Corps of Engineers spokeswoman Pat Richardson term flow test. Some stimulations are done elsewhere fluid gravity of 59 degrees API. The Spark 4, some three said Feb. 13 that the public notice process “is complet- on the North Slope, but most of the slope has better miles northeast of Carbon 1, penetrated a similar hydro- ed and we are working on a decision document.” She quality rock than what is being found in NPR-A, he carbon-bearing reservoir interval but was not tested, the said it would probably be another two months before said. companies said. the decision is finalized. “One of the key things there is to determine what The earlier tests showed “a lot of condensate” but “not Isaacson said while ConocoPhillips is still working type of fluids we have down dip.” The Rendezvous A a lot of liquids,” Isaacson said. on permitting CD-5, the company is also looking at the well, he said, was tested up dip. “We think there’s the possibility that we have an oil leg possibility of permitting the whole program together: Results at Rendezvous A were announced by Phillips at the Spark and Rondy (Rendezvous) discoveries,” he CD-5 (Alpine West); CD-6 (Lookout); and CD-7 Alaska (now ConocoPhillips Alaska) and Anadarko said. The objective this year is to look down dip. (Spark and Rendezvous). Petroleum in May 2001, when the partners first report- There is a rich gas cap and “what we’re hoping to see Of the original discoveries in NPR-A, Lookout is ed on initial drilling in the winters of 1999-2000 and … on the Rendezvous 2 test” is an oil rim, an oil leg down the fully appraised oil discovery. 2000-01. dip from the gas. Lookout was one of the discovery wells announced The discoveries, in the Jurassic Alpine producing “So it’s basically appraisal wells on the discoveries” in in 2001. ConocoPhillips and Anadarko said in 2004 horizon, were at Spark, Moose’s Tooth, Lookout and NPR-A. that Lookout was appraised in 2002. The Lookout 2 Rendezvous. The Spark DD is scheduled to spud in March, subject to appraisal well tested at 4,000 bpd of oil with an API Rendezvous A was tested at an unstimulated rate of completion of drilling at the Char well southwest of Fiord. gravity of 40 degrees and 8 million cubic feet of natu- 360 barrels per day of liquid hydrocarbons and 6.6 mil- The Spark DD will be a horizontal well and will not be ral gas. lion cubic feet per day of natural gas. stimulated. Ownership at both the Colville River Unit (Alpine) Rendezvous 2 was one of three wells temporarily Isaacson said if things go according to schedule the and the Mooses Tooth Unit is ConocoPhillips 78 per- suspended to allow further evaluation at a later date. company will be stimulating and perforating Rendezvous cent and Anadarko 22 percent. ●

continued from page 1 Meanwhile, ISER predicts other continued from page 1 on that same structure. Seismic data sug- companies will spend $690 million on gests the existence of natural gas at Corsair FORECAST North Slope activities, down from last CORSAIR – in 2003 Forest estimated as much as 480 year as Pioneer Natural Resources billion cubic feet. the oil industry in 2007 jumped 30 per- completes its Oooguruk Island in the Sterling formations. Those formations lie Forest’s five-year development plan for cent over 2006 figures, and attributes Beaufort Sea, but bolstered by several in the higher part of the stratigraphic sec- the 10,185-acre Corsair unit only envis- the 2008 slowdown in growth to budg- ambitious exploration programs from tion, thus requiring perhaps an 8,000-foot aged drilling for gas — the initial plan of et cuts associated with the recent smaller independent companies. well to test for gas. Any oil in the prospect exploration describes “plans to explore and increase to the state production tax. Companies in Southcentral Alaska’s would likely be reservoired in the Tyonek develop the Sterling-Beluga interval” using ISER economists Scott Goldsmith Cook Inlet basin will spend an estimat- and Hemlock formations, below the likely a jack-up rig, with a well drilled by Dec. and Mary Killorin put the forecast ed $300 million on construction activi- gas reservoirs — testing those deeper for- 31, 2008. Favorable drilling results would together for the Construction Industry ties led by Marathon Oil, Chevron and mations would require a well several thou- result in “extended testing to confirm the Progress Fund and the Associated ConocoPhillips. The forecast attributes sand feet longer and, thus, more time con- presence of gas in commercial quantities.” General Contractors of Alaska, who the Cook Inlet increase in activity to suming to drill than a gas well. have published the forecast for the past Why gas? higher oil prices and to a recent state Earlier oil emphasis five years. decision to support an extension of the We can only speculate on the reasons The figures cover a broad range of export license for liquefied natural gas, In 2003, prior to unitization of Corsair, for the shift in Forest’s interests from oil to spending activity related to construc- a matter still pending approval from the Forest Oil, the company that then owned gas. A gas well would clearly be quicker tion. For the oil industry, all capital federal government. the Corsair leases, had emphasized the oil and cheaper to drill than an oil well, and budget items are included except for The forecast does not anticipate any potential of the prospect. The company there is strong need for additional gas certain easily distinguishable expenses “significant” new construction on said Corsair might contain 137 million bar- reserves to supply the Southcentral Alaska like new oil tankers. refineries or “petroleum-manufactur- rels of oil, with 79 million barrels in the gas market. A deep wildcat oil well would Tyonek and 58 million barrels in the Major companies plan $1.9 billion ing facilities” this year. also likely prove to be a more risky venture The forecast aligns with recent fig- Hemlock. Both Forest officials and Katic than a gas well. Excluding work on the trans-Alaska ures released by the Anchorage have since talked about the possibility of Since Pacific Energy bought out oil pipeline, the major companies BP, Economic Development Corp. fore- 200 million barrels of oil in the prospect, Forest’s Cook Inlet assets in 2007, Pacific ConocoPhillips and ExxonMobil will casting a 4.2 percent increase in which lies in the same geologic structure as Energy has not added oil drilling to the spend an estimated $1.9 billion on Anchorage oil industry employment in both the East Kitchen prospect and the Corsair plan of exploration filed with Alaska operations in 2008, according 2008, up to 2,500 jobs. Northern Lights prospect in the inlet to the Alaska’s Division of Oil and Gas — to the forecast. The work will focus on —ERIC LIDJI north. Northern Lights contains a known drilling for oil would require an amend- “existing assets” over new exploration. oil pool. ment to that plan, the division has told The North Cook Inlet gas field also lies Petroleum News. However, with Pacific Energy unable to meet the commitment that Forest had made to complete a jack-up rig contract by Dec. 31, 2007, the company has had to negotiate an extension to the drilling timeline with the division. Pacific Energy must now furnish evidence of a jack-up rig contract by April 1, with a well to be drilled in Corsair by June 30, 2009, six months later than the original deadline for Forest. It seems that the question of whether an initial well will drill deep enough to test for oil depends on when exactly the jack-up rig arrives in the Inlet. —ALAN BAILEY PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008 19 20 PETROLEUM NEWS • WEEK OF FEBRUARY 17, 2008