page Pacific Energy closes acquisition of 4 Forest Oil’s Alaska assets

Vol. 12, No. 35 • www.PetroleumNews.com Published weekly by Petroleum Newspapers of Alaska Week of September 2, 2007 • $1.50

● PIPELINES & DOWNSTREAM State plans Mount Spurr lease sale Alyeska works issues Strategic reconfiguration project now sequential; part of normal operations By KRISTEN NELSON processes,” he said. Alyeska operates the Petroleum News trans-Alaska oil pipeline on behalf of the owners. trategic reconfiguration, designed to The other thing that has changed is bring the trans-Alaska oil pipeline that work at all four pump stations — 1, into the digital age and also in line 3, 4 and 9 — was planned to be done at COURTESY ALASKA VOLCANO ALASKA VOLCANO COURTESY OBSERVATORY S with current throughput levels of the same time. Alaska North Slope crude oil, has itself Both have changed, and the changes been reconfigured since the project are related. Johnson said in December “a Alaska’s Mount Spurr from the south with Crater Peak in the fore- ground. There may be an underground geothermal brine layer to began in 2003. Jim Johnson, decision was made to scale it back and do the south of Crater Peak and the State of Alaska is preparing to Jim Johnson, Alyeska Pipeline Alyeska it on … a series basis: one pump station hold a lease sale for possible geothermal development in the area. Service Co. vice president of pipeline at a time.” See story page 5. operations, told Petroleum News Aug. 29 that “In addition we made a decision to … fully strategic reconfiguration was originally designed integrate the SR construction into normal Alyeska Greenland resources get to be done with a “project team that came in and major maintenance and projects,” Johnson said, did this for Alyeska,” reporting to the president of and the project has now been “fully integrated … fine-tuning in USGS report Alyeska. Strategic reconfiguration “wasn’t being into Alyeska’s normal way of doing business.” A U.S. Geological Survey report gives a little more mean- done through the normal Alyeska business see ALYESKA page 18 ing to the “green” in Greenland. In a study of the East Greenland Rift Basins Province, ● which covers about 500,000 square kilometers, the USGS fig- GOVERNMENT ures almost 9 billion barrels of oil, 86 trillion cubic feet of nat- ural gas and 8 billion barrels of natural gas liquids are undis- covered and would be technically recoverable from less than Good times roll in Alberta 500 meters of offshore water in the absence of sea ice. Oil royalties allow government to hike resource revenue forecasts for 2007-08 USGS Director Mark Myers said in a news release that By GARY PARK “knowing the potential resources of the Arctic — an area of It is projecting a natural resource “take” tremendous resource potential, environmental sensitivity, For Petroleum News technological risk and geological uncertainty — is critical to of C$10.5 billion — C$237 million more our understanding of future energy supplies to the United or a population of 3.5 million, a budgeted aver- than the original budget — raising its States and the world.” age per-capita return of C$3,000 from oil and surplus target to C$2.5 billion, almost The USGS said it undertook the assessment because of the F natural gas revenues puts Alberta in a rarified C$300 million above the April calculation. Arctic’s “great potential” and expects to release assessments atmosphere among petro-dollar economies out- of all the Arctic “provinces” over the next year. side the Middle East. lion, respectively, returns from oil royalties are now If the combined estimate of 31.4 billion barrels of oil That’s what the Alberta government now figures expected to be C$505 million higher. equivalent is accurate, the “province” would rank 19th among it will rake in from its natural resources in the current Also taking a bite out of export revenues is a the world’s other oil and gas “provinces,” the USGS said. fiscal year, which ends March 31, 2008. stronger Canadian dollar, which reached US93 cents However, the new data is a “significant” shift in the geo- It is projecting a natural resource “take” of C$10.5 in the first quarter, up US7 cents from the budget. logical understanding reached in a 2000 USGS assessment of billion — C$237 million more than the original The government has also tweaked its commodity northeastern Greenland. budget — raising its surplus target to C$2.5 billion, price outlook, hiking oil to US$64 per barrel West almost C$300 million above the April calculation. Texas Intermediate, up US$6, but trimmed gas prices New assessment: more gas Although projected returns from natural gas roy- to an average C$6.50 per gigajoule, C25 cents less, alties and bi-monthly land sales are lagging behind That assessment put the estimates at 47 billion barrels of the initial forecasts by C$123 million and C$144 mil- oil, 81 tcf of gas and 4 billion barrels of NGLs. see ROYALTIES page 19 The USGS said its new data points to significantly more ● gas generation than it previously interpreted. LAND & LEASING How this assessment translates into industry will be of spe- cial importance to Greenland, the world’s largest island that enjoys a substantial degree of home rule from Denmark. Pulling NPR-A out of limbo? It has made only plodding progress towards a functioning oil and gas industry, attracting just one bid in a 2002 sale from BLM shooting for late summer, early fall for Northeast NPR-A lease sale as concerned about developing domestic supplies see GREENLAND page 18 By KAY CASHMAN Petroleum News of oil and gas as President Bush has been. On Aug. 29 the U.S. Bureau of Land he situation described in the top, page 1 story Management told Petroleum News that it is now BREAKING NEWS of the Aug. 26 issue of Petroleum News has targeting “late summer or early fall of 2008” for the T changed. “NPR-A in limbo … no lease sales next NPR-A lease sale, as compared to December 6 Border showdown coming: British Columbia, Montana at planned until after 2008 election” has made 2008. way for this story, which carries a lease sale target Sharon Wilson, chief of BLM Alaska’s office of standstill in feud over coalbed methane development projects date of “late summer or early fall of 2008,” per the communications, told Petroleum News Aug. 29 federal agency in charge of oil and gas leasing in that the date is “based on the current schedule for 9 Prepared for the worst: Shell brings arsenal of tools to the National Petroleum Reserve-Alaska. the Northeast NPR-A supplemental EIS.” The sup- Alaska in case of spill in Beaufort; works prevention first The change in scheduling is only a matter of a plemental plan “includes additional information few months, but it may be enough time for suc- and analyses completed since 2005,” she said. “The cessful bidders to get their leases issued before the 17 Survey: E&P companies worried: John S. Herold draft supplement was released for public review next U.S. president takes office — an important and comment Aug. 24, and the comment period confirms earlier findings of concern over replacement of spent reserves consideration since the new president might not be see LEASE SALE page 19 2 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska ON THE COVER 12 Seismic moves into 21st century Alyeska works issues Technical evolution enables assembly of increasingly detailed subsurface information; radical Strategic reconfiguration project now sequential; changes in seismic began in 1970s part of normal operations 17 E&P companies have reserve worries Good times roll in Alberta Oil royalties allow government to hike resource Just-released John S. Herold upstream survey confirms revenue forecasts for 2007-08 finding of earlier surveys: worry over ability to replace spent oil reserves Pulling NPR-A out of limbo? FINANCE & ECONOMY BLM shooting for late summer, early fall for Northeast NPR-A lease sale 4 Pacific Energy closes on Forest Alaska assets 14 OPEC chief blames refinery problems Greenland resources get fine-tuning 14 John Browne joins U.S. equity firm ALTERNATIVE ENERGY GOVERNMENT 15 Alberta faces nuclear test case 4 BLM hosts O&G document preparation Privately held company files regulatory application 6 Heading toward a border showdown for province’s 1st reactor; expects 10 years of public, regulatory hearings British Columbia, Montana at standstill in feud over CBM, coal projects; no new talks in sight, BOOK REVIEW but B.C. won’t impose a moratorium 8 Margonelli’s Oil on the Brain: A good start 14 Judge links Ben Stevens to FBI probe EXPLORATION & PRODUCTION INTERNATIONAL 4 Statoil hits deep gas in Norwegian Sea LAND & LEASING 5 State plans Mount Spurr lease sale

Call for applications for geothermal exploration rights attracts enough interest for competitive lease sale, probably in January NATURAL GAS 15 Canadian gas exports keep rising 9 Permitting for Mat-Su CBM in progress PIPELINES & DOWNSTREAM Company has assembled a comprehensive arsenal 7 Easing the pipeline squeeze of tools to clean up oil in case unthinkable should happen in the Beaufort Sea PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 3 Alaska - Mackenzie Rig Report

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status The Alaska - Mackenzie Rig Report as of August 30, 2007. 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) Racked in Deadhorse Anadarko

Doyon Drilling Dreco 1250 UE 14 (SCR/TD) Workover Prudhoe Bay H-26 BP Sky Top Brewster NE-12 15 (SCR/TD) Kuparuk IJ-176 ConocoPhillips Dreco 1000 UE 16 (SCR/TD) Workover Prudhoe PM1-17 BP Dreco D2000 UEBD 19 (SCR/TD) Alpine CD4 - Rig Maintenance ConocoPhillips OIME 2000 141 (SCR/TD) West Sak 1J-107 ConocoPhillips

TSM 7000 Arctic Fox #1 Stacked in Yard Pioneer Natural Resources PATRICK JUDY Arctic Wolf #2 Racked at Cape Simpson FEX

Kuukpik 5 Stacked in Deadhorse Available till Available 1/15/08

Nabors Alaska Drilling Trans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay Available Dreco 1000 UE 2-ES Summer maintenance BP Mid-Continental U36A 3 (SCR/TD) Kuparuk well 2N-310 ConocoPhillips Oilwell 700 E 4-ES (SCR) Milne Point MPU G-07 BP Dreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay N-27i BP Dreco 1000 UE 9-ES (SCR/TD) Polaris S-215i 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-AC (SCR) On-site at Oooguruk 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) Stacked

Nordic Calista Services Superior 700 UE 1 (SCR/CTD) Prudhoe Bay well DS2-16c BP Superior 700 UE 2 (SCR/CTD) Prudhoe Bay well DS5-28 BP Ideco 900 3 (SCR/TD) Kuparuk well 2N-327 ConocoPhillips

North Slope - Offshore Nabors Alaska Drilling Oilwell 2000 33-E Stacked

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 Grassim Oskolkoff No. 6 Marathon

Nabors Alaska Drilling National 110 UE 160 (SCR) Stacked, Kenai Available 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

Rowan Companies AC Electric 68 (SCR/TD) Being rigged up 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 Mackenzie Rig Status Baker Hughes North America rotary rig counts* August 24 August 17 Year Ago Canadian Beaufort Sea US 1,816 1,795 1,756 Canada 319 321 489 Gulf 69 72 97 Seatankers (AKITA Equtak labor contract) SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Devon ARL Corp. Highest/Lowest Mackenzie Delta-Onshore US/Highest 4530 December 1981 AKITA Equtak US/Lowest 488 April 1999 Dreco 1250 UE 62 (SCR/TD) Rig Racked in Inuvik, NT Available Canada/Highest 558 January 2000 Canada/Lowest 29 April 1992 Modified National 370 64 (TD) Racked in Inuvik, NT Available *Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by: 4 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007

● FINANCE & ECONOMY GOVERNMENT BLM hosts O&G document preparation Pacific Energy closes on The U.S. Department of the Interior’s Bureau of Land Management and the U.S. Department of Agriculture’s Forest Service are hosting an interactive satel- lite broadcast for those parties involved in preparing documents related to oil and Forest Alaska assets gas development on federal public lands. The broadcast will be from 7:30 a.m. to 10:30 a.m. Sept. 13 at BLM’s offices By ALAN BAILEY has also acquired other Forest assets that on the fourth floor of the Anchorage Federal Building. Petroleum News were not owned by Forest Alaska BLM said the live satellite broadcast is to inform interested parties about Operating. The purchase price was $400 acific Energy Resources closed Aug. recent revisions to a set of regulations collectively known as Onshore Oil and Gas million, plus the issuance of 10 million 27 on its purchase of Forest Oil Order No. 1. shares of Pacific Energy common stock Corp.’s Alaska assets. The two com- While the broadcast will be most useful for those preparing documentation P and a seller note to Forest with a net pres- panies announced the acquisition at such as applications for permits to drill, BLM said members of the public are ent value of approximately $30 million, the end of May and since then have been invited to attend. Pacific Energy said. negotiating the details of the agreement. Information on new APD processing timelines, off-lease access, and geospatial The assets that Pacific Energy has Pacific Energy Chief databases — as well as information on how BLM and Forest Service rights of way acquired include interests in Financial Officer Jerett Creed work — will also be covered during the broadcast, which BLM said will include nine producing fields in the told Petroleum News Aug. 30 an interactive question-and-answer session. Cook Inlet area; nearly 1 million that his company plans to move net acres in oil and gas leases; ahead with exploration of the and a 50 percent equity interest Cook Inlet acreage it acquired in the Cook Inlet pipeline that from Forest. carries oil down the west side of “We’ve been working on Cook Inlet to the Drift River ter- that and we do have plans to minal, Pacific Energy said. pursue the prospects. …We are very optimistic,” Creed said. Darren Katic, presi- Appeal of undeveloped acreage dent of Pacific “We are extremely pleased to Energy Looking for a jackup have successfully completed Creed said the company wants to use a this acquisition; it represents a tremen- jackup rig to explore its Cook Inlet off- dous opportunity for the corporation and shore prospects. Those prospects include its shareholders,” said Darren Katic, pres- Corsair, which is on the same geologic ident of Pacific Energy. “This package of trend as the North Cook Inlet, Kenai and assets is a direct extension of our business Cannery Loop gas fields. Pacific Energy strategy; the established production, with has been engaged in discussions with long life reserves, generates strong pre- other companies interested in bringing a dictable cash flow. The multiple infill jackup to the Inlet, and with drilling com- drilling opportunities provide a low risk panies, Creed said. means to grow the corporation’s produc- But Pacific Energy has yet to tion through redevelopment. Significant announce who will lead its Alaska opera- undeveloped acreage with multiple high- tions and how those operations will be quality exploration targets provides large organized. Company management will be exploration upside.” in Alaska shortly to meet with the staff “The close of this transaction marks a that it has inherited from Forest, Creed key strategic event for Forest,” said Craig said. Clark, president and CEO of Forest Oil. www.PetroleumNews.com “The producing assets of the company are $400 million plus now entirely onshore North America and Kay Cashman PUBLISHER & EXECUTIVE EDITOR ADDRESS Under the final agreement Pacific focused primarily on repeatable plays in P.O. Box 231651 Energy has acquired a 100 percent inter- tight-gas sands and long-lived oil. Mary Mack CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1651 est in Forest Alaska Operating LLC, the Additionally, with the sale of these assets, Forest has reduced the leverage on its bal- Kristen Nelson EDITOR-IN-CHIEF EDITORIAL Forest subsidiary that owned most of ● Anchorage telephone Forest’s Alaska properties. Pacific Energy ance sheet.” Susan Crane ADVERTISING DIRECTOR 907.522.9469 Amy Spittler ASSOCIATE PUBLISHER Editorial Email Anchorage Heather Yates OFFICE MGR./CIRC. BOOKKEEPER [email protected] INTERNATIONAL Canada Shane Lasley CIRCULATION DIRECTOR [email protected] Steven Merritt PRODUCTION DIRECTOR Statoil hits deep gas in Norwegian Sea BOOKKEEPING & CIRCULATION Statoil ASA has made a new deepwater natural gas discovery at the Midnattsol Tim Kikta COPY EDITOR 907.522.9469 281 production license above the Arctic Circle in the Norwegian Sea, not far from Circulation Email Gary Park CONTRIBUTING WRITER (CANADA) [email protected] the Ormen Lange and Ellida gas fields. The find was made at the 6405/10-1 exploration well, the Norway-based company said Aug. 29. Ray Tyson CONTRIBUTING WRITER ADVERTISING While Statoil said it was too early to declare the discovery commercial, Frode Alan Bailey STAFF WRITER 907.770.5592 Fasteland, acting head of exploration on the Norwegian continental shelf, said the Advertising Email company plans to participate in drilling an additional five exploration wells in the John Lasley STAFF WRITER [email protected] deepwater area in 2008, three of which it will operate. Allen Baker CONTRIBUTING WRITER “We have great faith in the Norwegian Sea and will continue to have a high CLASSIFIEDS 907.644.4444 level of activity in the area,” he said. Rose Ragsdale CONTRIBUTING WRITER The well is the second exploration well in the license, which is held by Statoil Sarah Hurst CONTRIBUTING WRITER FAX FOR ALL DEPARTMENTS with a 50 percent interest, EON Ruhrgas and Petoro with 20 percent each, and 907.522.9583 ConocoPhillips with 10 percent. Paula Easley DIRECTORY PROFILES/SPOTLIGHTS Drilled by the Transocean Leader at a sea depth of 3,045 feet, the well had a Petroleum News and its supple- Judy Patrick Photography CONTRACT PHOTOGRAPHER ment, Petroleum Directory, are vertical depth of 10,361 feet below sea level, ending in the Nise formation in the owned by Petroleum Newspapers Upper Cretaceous. Mapmakers Alaska CARTOGRAPHY of Alaska LLC. The newspaper is published weekly. Several of the —PETROLEUM NEWS 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. 12, No. 35 • Week of September 2, 2007 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 SEPTEMBER 2, 2007 5

● LAND & LEASING State plans Mount Spurr lease sale Call for applications for geothermal exploration rights attracts enough interest for competitive lease sale, probably in January

By ALAN BAILEY Petroleum News

n escalating interest in renewable energy sources, driven no doubt by high oil prices and concerns A about climate change, seems to have encouraged some significant interest in developing possible geothermal resources near Mount Spurr, on the northwest side of Alaska’s Cook Inlet, about 80 miles west of Anchorage. Mount Spurr is an active volcano that last erupted in 1992. COURTESY ALASKA VOLCANO ALASKA VOLCANO COURTESY OBSERVATORY In April the Alaska Department of Natural Resources invited applications for geothermal prospecting permits or geothermal leases on 15 tracts of state-owned land totaling about 38,332 acres, northwest of Trading Bay along the southern flank of Mount Spurr. The area includes the east end of Chakachamna Lake and part of the Chakachatna River. “We did receive two or more applications on almost all of the tracts,” Kathy Means from Alaska’s Division of Oil and Gas told the participants in the 2007 Mount Spurr Geothermal Workshop in Anchorage on Aug. 27. But, under state statutes, the fact that several entities are interested in geothermal exploration means that the state must hold a competitive lease sale, Means said. The Mount Spurr from the south with Crater Peak in the foreground. There may be an underground geothermal brine layer to division proposes holding a lease sale, probably with the south of Crater Peak. sealed bids along similar lines to an oil and gas lease sale. in January, with leases awarded in February, Anders said. source of the fluid would be the logical target for an Lease terms would include a primary term of 10 years, exploration program, either through further geophysical Best interest finding a rental of $3 per acre per year and a royalty of 10 to 15 work or through drilling. Also under state statutes, DNR must conduct a best percent of gross revenues, Means said. There will also be If water from the source was hot enough to boil, the interest finding to verify that the lease sale is in the state’s a bonding requirement to protect against surface damage. resulting steam could drive a turbine-powered generator. interest, from the perspectives of the environmental and And there will be a requirement for reports, such as plans But even water below the boiling point might provide a social impacts of geothermal leasing. The best interest of exploration or development. viable source of electricity: In a process known as an finding will also identify any necessary mitigation meas- organic Rankine cycle the hot water can boil a secondary ures to prevent undesirable impacts from activities result- Is there a source? fluid, which in turn can drive a turbine. A power plant at ing from the leasing, Bruce Anders, the division’s head of But what is the likelihood of finding a geothermal Chena Hot Springs in the Alaska Interior, for example, leasing and permitting, told the workshop participants. power source at Mount Spurr? has demonstrated successful electricity generation using The division will first prepare a preliminary best interest “There is a small zone of tepid hot springs that occurs water at just 165 degrees Fahrenheit. finding and request public comments on that. on the south flank of Crater Peak. It’s not really a robust And a power plant at Mount Spurr would enjoy the “The administration felt that it was very important to geothermal spring system,” Chris Nye, a geologist with benefit of relative proximity to the Southcentral Alaska include the public and receive comments,” Anders said. the Alaska Division of Geological and Geophysical electricity grid. “… We’ll be issuing our PBIF very shortly.” Surveys, told Petroleum News in May (Crater Peak is an But to expedite the best interest finding process, DNR active volcanic cone on the south flank of the mountain). Quite doable is reducing the public comment period following issue of Because the springs include water from snow melt or Although the construction of a power plant would the preliminary best interest finding from the customary rain, the chemical content of the water does not help in entail some significant challenges relating to site access 60 days to 30 days. determining the possible existence of a geothermal in the rugged terrain in the Mount Spurr area, a project to And by removing a narrow strip of land along the source at depth. build a power plant does look technically feasible, were southeastern part of the leasable area from the sale, DNR But a geophysical survey in the 1980s provided tanta- someone to find a suitable geothermal source, Lorie is excluding tracts from the Alaska coastal zone. That will lizing indications of a possible layer of warm or hot brine Dilley, an engineer with Hottenburg, Dilley and Linnell, eliminate the need for a determination of consistency 2,000 feet below the plateau at the entrance to the pass on told the workshop participants. with the Alaska Coastal Management Plan prior to the the south side of the mountain. Some soil geochemistry “I think it would be quite doable,” she said. lease sale, Anders said. anomalies also pointed to the existence of geothermal Dilley estimates that the total bill for the power-plant After completion of the best interest finding and a sub- water in the area. project, including the necessary transportation infrastruc- sequent lease sale announcement, the division will likely “What that (research) program did was identify vari- ture and a transmission line to the Southcentral Alaska allow 45 days between the sale announcement and the ous geophysical anomalies of which geothermal brine is electricity grid, would come to something between $170 date of the sale. a reasonable explanation,” Nye said. There are other pos- million and $368 million. Whether the project would be Slotting all of this together should result in a sale sible explanations for the anomalies, he said. viable would depend in part on how much geothermal announcement in December and a lease sale at some time If the anomaly does represent geothermal brine, the energy the power plant could utilize. ● 6 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007

● GOVERNMENT PIPELINES & DOWNSTREAM Easing the pipeline squeeze Heading toward If it’s a case of every little bit helps, word that Kinder Morgan Canada is expand- ing its Trans Mountain oil pipeline from Alberta to British Columbia and Washington state will be welcomed by oil sands producers. And they have a chance to further lift pressure on transportation systems by sign- a border showdown ing shipping deals with Kinder Morgan for a further 100,000 barrel-per-day addition to the company’s capacity. British Columbia, Montana at standstill in feud over CBM, coal The Canadian unit of Kinder Morgan Energy Partners said construction started Aug. 23 on a C$450 million loop project to boost Trans Mountain volumes to 300,000 projects; no new talks in sight, but B.C. won’t impose a moratorium bpd from 260,000 bpd by late 2008. By GARY PARK BP has started environmental studies of Kinder Morgan President Ian Anderson said in a statement that the project is an For Petroleum News the entire Flathead drainage basin and “important component of our overall expansion plan to provide greater access to our expects to apply in 2008 for exploratory per- customers to the West Coast and Far East markets.” ritish Columbia and Montana keep mits for three drilling pads. The next test is whether final agreements will be signed with shippers to feed edging closer to a showdown over The company has given an assurance that another 100,000 bpd into the system by 2011 at a cost of C$1.3 billion. B coalbed methane and coal develop- it has no intention of moving to full devel- Kinder Morgan is also hoping to attract enough support to build an 850,000 bpd ment on the B.C. side of their interna- opment until the environmental review is pipeline from Alberta to Kitimat on the northern British Columbia coast for loading tional border, but neither seems ready to end completed at a cost of up to C$3 million a on to tankers destined for the U.S. Pacific Coast or Asia. a 10-month hiatus in their efforts to settle year over three to five years. But that venture is in direct competition with Enbridge’s planned Gateway project environmental concerns. BP hopes to obtain tenure to conduct a that has been stalled by the withdrawal of PetroChina, once the frontrunner to become No formal talks have been scheduled five-year, coalbed methane exploration pro- the anchor tenant on Gateway and a possible equity partner. since October 2006 almost two years after gram over almost 200 square miles at the With Enbridge now placing its emphasis on moving oil sands production to U.S. the two governments started negotiations to Mist Mountain site. markets, the race has shifted from the Pacific to the Gulf of Mexico, said Steven Paget, resolve the fractious dispute. If it moves to a full-scale commercial an analyst with FirstEnergy Capital. At issue is a disagreement over how to operation, the company estimates it would Canada’s National Energy Board and the Canadian Association of Petroleum collect environmental baseline data prior to make a C$3 billion capital investment over Producers have warned that the growth of oil sands production is outpacing the intro- development. 50 years, pay royalties of C$2 billion and duction of new pipeline capacity, raising the prospect of apportionment by late 2007 British Columbia, having rejected attain peak output of 650 million cubic feet into 2008, with a further squeeze in store by late 2008. Montana pleas for a moratorium, argues for per day. The worry for Canadian producers is that pipeline rationing, shut-in production and a project-by-project approach, while The company’s own documents say a more oil going into storage will create a supply bulge that could eat into prices. Montana favors a more comprehensive commercial venture could involve 100 to —GARY PARK effort to weigh the impacts of more than one 150 well pads, with up to 10 wells on each project. pad, and could create 250 jobs. For Montana and the United States gov- The Flathead is one of three coalfields in ernment the dispute comes down to the the East Kootenay that could underpin potential risks to water quality and wildlife industry efforts to exploit an estimated 19 in the Flathead River, which starts in Canada trillion cubic feet of coalbed methane and runs alongside most of the western resources, of which about 20 percent is boundary of Montana’s Glacier National thought to be recoverable. Park. Critics in Montana argue wastewater Cline Mining in review from a coalbed methane operation will enter Cline Mining’s planned Lodgepole met- the Flathead River basin, endangering what allurgical mine project is in the early stages has been designated a “wild and scenic of review by the B.C. Environmental river” that supports a native trout population, Assessment Office. wolves and one of the largest grizzly bear The B.C. Ministry of Energy, Mines and populations in North America. Petroleum Resources estimates the Schweitzer has the backing of U.S. Crowsnest coal field has more than 25 bil- Secretary of State Condoleezza Rice and lion metric tons in place, of which a Cline federal officials who have indicated they are feasibility study has estimated the company ready to take the dispute to the Canada-U.S. has an inferred resource of 3.23 billion met- International Joint Commission. ric tons which could be extracted at the rate B.C. Energy and Mines Minister Richard of 2 million metric tons annually. Neufeld has noted Montana has about 350 Montana’s Junior Senator Jon Tester, also producing coalbed methane wells that have a Democrat, entered the controversy in come under attack within the state, while August, telling BP’s newly appointed Chief B.C. is still in the experimental stage. Executive Exploration and Production Andy B.C. Minister of State for Mining Kevin Inglis in a letter “it is my belief that your Krueger told the Globe and Mail that company’s proposal represents an unaccept- Montana Gov. Brian Schweitzer and its sen- able level of risk to Montana water quality, ior U.S. Sen. Max Baucus, both Democrats, native trout populations and the ecological seem more interested in targeting B.C. to integrity of Glacier National Park.” raise their own political profiles when Anita Perry, vice president of govern- “they’ve got a whole lot to be accountable ment and public affairs at BP Canada, said a for.” response to Tester is being drafted, adding the company is “committed to addressing BP has started studies the impacts of this project.” While government negotiators seem However, she told the Hungry Horse unable or unwilling to bridge the gaps, BP News in Montana that drilling sites have yet Canada Energy and Cline Mining of Ontario to be selected and said if exploration and are anxious to advance their plans for development does proceed BP will not dis- coalbed methane and coal development, charge wastewater from coalbed methane respectively. operations into surface water. ● PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 7 8 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007

● BOOK REVIEW Margonelli’s Oil on the Brain: A good start

By KEN BOYD cost. Yes, it’s supply and demand. For Petroleum News About the book Distribution is the hectic and dangerous PNA Book Club Choice Oil on the Brain: Adventures From the job of moving gasoline by tanker truck Oil on the Brain by Lisa Margonelli is il on the Brain by Lisa Margonelli Pump to the Pipeline by Lisa Margonelli. from bulk storage to individual users. the current PNA Book Club choice. strives to demystify the “life” of oil Non-fiction. Published 2007 by Doubleday. These companies live and die by small Visit us at www.pnabookclub.com O as it moves along its journey from 324 pages. Price $26. fluctuations in price and on-time delivery is deep underground to our local gaso- crucial. The refinery, as the author explains of what technology may actually be able to line station. The author follows the custom- Mercantile Exchange. “… (is) the midpoint between the con- provide. And when. ary divisions of the industry, which, using sumer and the oil fields, the place where Three factions are at play in each coun- its own peculiar terminology, are: upstream Left Brain, Right Brain gasoline and gas prices come from.” Here try: the government, the populace and the and downstream. Upstream is exploration the raw oil is “cracked” into gasoline, heat- oil companies. Each distrusts the others, and production, the complex processes of Like this book, the brain itself is often ing fuel and other products. Despite their often for good reason. In these chapters the finding the oil and depicted as consisting of two major parts: importance to our energy economy, refiner- companies fade into the background and getting it out of the Left Brain and Right Brain. The Left Brain ies remain unloved by their neighbors. The the governments and the citizens take cen- ground. Downstream is logical and analytical as befits the first author tours a refinery on a “Not Really ter stage. The companies, mostly the is everything else: part of the book. The Right Brain function Good Day” and finds that taming these world’s largest, are hunkered down in their pipelines, shipping, is more subjective and will serve us well in complex beasts requires a melding of train- corporate “compounds” — oases of the refining, marketing deciphering the worldview of the oil busi- ing and fortitude. home-country culture embedded in an and sales. Most con- ness. The chapters on Strategic Petroleum alien, sometimes hostile, local environ- sumers only see the Reserve and Nymex don’t really fit either The drilling rig ment. The governments are busy making final part of the category and will be deemed No Brain. The last stop upstream is the drilling rig. oil deals, deals that often benefit only a process, far down- The author’s (Left Brain) journey begins Unable to get on an oil rig, the author set- small part of the population. The people, stream, at their local LISA MARGONELLI at the local gas station and moves upstream tles for a gas drilling rig in rural Texas. with very little input to any of this, are left gas station. through distribution, refining and explo- Despite the vivid, sometimes humorous, to hope that someday something good will About half of Oil on the Brain addresses ration. The corner gas station, while famil- description of her experience, I find this come their way. For the most part these these aspects of the oil industry. The subti- iar to all, is anything but well understood. chapter to be somewhat misleading. A hopes have gone unrealized. The one bene- tle is something of a misnomer since Margonelli quickly discovers that the profit small gas drilling operation bears little fit, which comes with its own set of prob- pipelines are not really discussed, and the margins on gasoline are lower than ever (7 resemblance to major oil drilling projects. lems, is cheap gasoline for the local citi- book ventures farther upstream into the percent in 2004) and that most stations In no way is this meant t denigrate small zenry. realm of exploration and downstream to the make more money selling bottled water, independent drillers. They form the back- Venezuela, Iran and Nigeria have pro- gas pump. No matter, the value lies in giv- candy and trinkets than they do on the bone of exploration in many smaller Lower duced a lot of oil for a long time. Each, in ing the reader a peek at what happens prior gasoline itself. Penny-pinching suppliers 48 fields and make a substantial contribu- its own way, is perfectly capable of influ- to the pump at the gas station. help make competition between stations tion to our nation’s energy reserves. encing the world oil markets. Venezuela The second half of the book follows fierce and unrelenting. But this chapter leaves the impression sits on a vast oil resource and is a major Margonelli on her 100,000 mile odyssey Those looking for industry collusion that exploration drilling is a slapdash, seat- supplier for the United States. Its new through five oil-producing countries — will have to look elsewhere. She discovers of-the pants operation. Nothing could be leader is building a powerful political base Venezuela, Chad, Iran, Nigeria and China. that gasoline price variations (in the face of further from the truth. The colorful charac- and threatens to cut off oil supplies to A chapter each is devoted to the Strategic countless investigations, white papers and ters and ribald language are found on those who doubt his authority. Petroleum Reserve and the New York political hot air) largely result from the consumers’ desire to keep driving at any almost any rig, but virtually all major oil Nigeria, rife with corruption, seems to drilling operations are conducted with an have an unending number of strikes, walk- almost military precision and discipline. outs, kidnappings and pipeline explosions The tools of exploration are also given that cause market distortions. Iran occupies short shrift. Modern exploration and pro- a strategic position in the Middle East and duction technology allows oil to be found is well aware of the importance of the with a confidence level unknown even ten Straits of Hormuz to the world’s oil supply. years ago. By contrast, Chad is a relative newcom- Despite these shortcomings, the deter- er whose modest oil reserves have only mination, enthusiasm and eternal optimism recently been discovered. Today, Chad has of the explorer are clearly and accurately the unenviable distinction of being both the portrayed. poorest and most corrupt country on Earth. One hopes that Chad will find a sensible No Brain and sustainable use for its newly acquired The two No Brain chapters address SPR wealth, but history does not favor this out- and Nymex. SPR is a huge oil storage area come. in salt caverns along the Gulf Coast of the China’s rapidly growing economy is United States. The author’s attempts at characterized by its newly acquired pas- finding the real purpose (or even the loca- sion for the automobile. As a result of this tion) of the SPR, and what its effect on the passion oil consumption has risen 45 per- oil markets may be, end in frustration. cent in five years, along with choking pol- There seems to be no definitive answer. lution and massive traffic jams. But China She hopes to get a better sense of the is taking a leading role in developing new world oil market at the place where oil is automobiles. They recognize the impor- traded, in the oil trading pits at Nymex. tance of “leapfrogging” conventional tech- Here she sees that “paper” barrels and real nology and are focusing attention on barrels are all mixed in a circus-like atmos- hybrids, electricity and hydrogen in their phere of price bidding based on fact, fiction designs. and gut-feel guesswork. Not many answers We come to realize that putting gasoline here. If you think the “No Brain” label is in our cars is the end point of a very long, pejorative I direct the reader to the last sen- very complicated process. In many ways tences of chapters 5 (SPR) and 6 (Nymex). this book is a tribute to the myriad people Decide for yourself. who, despite many obstacles, make this convoluted system work and keep it work- Oil-producing country travels ing. The author’s mood is neither angry The (Right Brain) last half of the book nor ingratiating; if anything it is a bit sad. deals with the author’s travels to five oil- Sad, I think, because of what could be, but producing countries. Four of the five simply is not. Sad because this oil bounty examined — Venezuela, Chad, Iran and is so poorly utilized and benefits so few. Nigeria — share a similar, often depress- This book is a diary, not a diatribe. The ing, history of past evils: war, mismanage- author makes observations and draws con- ment, poverty, government corruption and clusions based on what she sees and hears. greed. The fifth, China, despite a similar She spends little time finger pointing or history, is looked at through a more opti- name-calling although there is plenty of mistic prism, as a potential bellwether for blame to be found. No book, however adopting new types of energy. long, can cover all aspects of the compli- Even so, as the author discovers, this cated world of oil. Oil on the Brain is a optimism must be tempered by the reality good place to start. ● PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 9

● EXPLORATION & PRODUCTION Shell: Prepared for the worst Company has assembled a comprehensive arsenal of tools to clean up oil in case unthinkable should happen in the Beaufort Sea By ALAN BAILEY Petroleum News

eing prepared for an oil spill response is like buying insurance — you hope that the worst will never hap- B pen but, if it does, you’d better be prepared. And in the case of Shell’s proposed offshore drilling activities in the U.S. Beaufort Sea, those prepara- tions have included the construction of the Nanuq, a 300- SHELL OFFSHORE INC. COURTESY foot, ice-strengthened oil spill response vessel, and the char- tering of the Arctic Endeavor, a 200-foot oil spill response barge. The company has also chartered a 500,000-barrel double-hulled tanker, to hold and carry away any oil that Shell might have to mop up as a result of an oil spill. The idea is to have the oil spill response kit on the water, at the drill sites, ready to respond immediately to any emer- gency, Rick Fox, Shell’s asset manager for Alaska, told Petroleum News. “Should it be a diesel transfer spill, should it be any kind of accident that we might have, we have a team ready to go,” Fox said. “We can deploy our equipment and begin recovering within 45 minutes.” “We have a total of 24 vessels in the oil spill response program,” said Susan Moore, Shell’s Alaska operations manager. In addition to the three major vessels, there are 11 smaller boats, including mini-barges and boom towing ves- sels, mounted on the decks of the Nanuq and the Endeavor, Hauling boom from the Nanuq during a practice exercise in Valdez she said. But Fox emphasized that the rarity of blowouts does not having the ability to control the direction of the drilling.” lessen the need to be vigilant. Shell has established an operations center in which a Prevention first “We know what’s at stake here to the communities and team of experts will be able to continuously monitor the However, the first line of defense against an oil spill is to to our own program,” Fox said. well conditions while drilling is in progress, and alert the prevent one happening. In that regard, an oil explorer’s The first line of defense against a blowout is the use of drilling team to any potential problems. And, housed in a biggest nightmare is the possibility of a blowout, in which modern well logging technology that enables conditions at well cellar below the level of the seafloor, a modern six- crude oil under pressure spouts from an out-of-control well. the bottom of the well to be monitored continuously while valve blowout preventer would shut the well down imme- But a blowout is a very rare occurrence nowadays, Fox a well is being drilled, Fox said. diately in the event of an unexpected surge of oil. said. “We actually have the capability of detecting subtle Were the containment provided by the blowout preven- “There have been no blowouts in an Arctic environment changes in the formation as we go,” Fox said. “You are able that we have any record of,” Fox said. to detect things that are indicators of pressure … as well as see SPILL RESPONSE page 10 10 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007

continued from page 9 So, in addition to having icebreakers and ice management vessels stationed on site to SPILL RESPONSE protect the drillships and monitor ice move- ments, Shell has established an ice monitor- ter to fail, Shell might have to drill a relief ing center in which images from ship-based well into the out-of-control well, to plug the radar and satellite-based radar combine to well up. The floating drilling vessel could provide a continuous image of the sea ice reposition to drill that relief well, or Shell cover and sea ice movement. COURTESY SHELL OFFSHORE INC. COURTESY could bring in its second drilling vessel to “So you have real time images of the ice drill a relief well, Fox said. and where it’s moving,” Moore said. “It’s a “We would not do any critical drilling really neat piece of technology that’s been when we didn’t have the capability of doing brought to bear here recently.” relief well drilling,” Fox said. Double coverage Ice monitoring But what if an oil spill were to occur? The other obvious scenario that could Shell’s spill response strategy is based lead to an oil spill would be damage to the on the concept of a self-contained oil spill well piping following an oil strike. Such response capability on the water, next to damage might occur, for example, if sea ice each of its two Beaufort Sea drilling ves- moved the drilling vessel while the vessel sels. One response group would be based on was connected to the well. the Nanuq while the other response group But Shell believes that it has effectively would be based on the Endeavor. Each of eliminated that possibility through its ice those groups would be independently capa- monitoring program and its critical opera- ble of responding to a worst-case oil-spill tions curtailment plans. The rigs are scenario, said Jon Edmondson, Shell’s designed to move off location when neces- Alaska projects coordinator. And, were sary and Shell has established procedures there to be a significant incident at one drill for determining when to curtail operations, rig, the oil spill response vessel at the other before ice can cause any threat of damage. rig would also move into action. “What’s key to that is being able to know “In the event there was a major problem, what the ice is doing all of the time,” Fox Deploying a workboat from the Nanuq we’d just shut down operations on the other said. rig and move all of the assets,” Edmondson said. And, because Shell’s contingency plans don’t require all equipment to perform up to maximum capacity, the company believes that, overall, its response capability exceeds THETOPOFTHEWORLDJUSTGOTALITTLECLOSER. requirements by a factor of two to four. For example, four key skimmers in the spill ANNOUNCING TWICE-DAILY CARGO AND PASSENGER response inventory could each meet the planning standard capacity when operating at just 20 percent of the equipment’s rated SERVICETOPRUDHOEBAY. capacity, Moore said. Variety of situations The technologies and tactical response plans that Shell has assembled cover the various types of spill response situations that could occur during a Beaufort Sea drilling season. Drilling operations would typically start in open water. But once the sea starts to freeze in the fall, ice can start building up quite rapidly, within typically a couple of weeks, Edmondson said. Barrow In open water, spill responders would MORE OF WHAT MATTERS – MORE RELIABLE – Kotzebue use boom to channel the oil into skimmers Prudhoe Bay This February we were proud to The combis, which are Nome that would recover the oil from the sea. The becomethefirstairlinetoconvert newer, less expensive Shell response equipment inventory 737-400 passenger planes into to maintain and more Bethel Fairbanks includes small boats that can deploy boom combi aircraft. Designed to each fuel-efficient than the 737-200s Dillingham to corral the oil, and mini-barges for col- accommodate 1,700 cubic feet of cargo they’re replacing, also feature Adak Anchorage King Salmon lecting the recovered oil. Dutch Harbor Cordova state-of-the-art navigation flight To Chicago But once the ice cover reaches a certain Kodiak Yakutat OUR EXPANDED FLEET guidance technology, including point, the ice itself would provide natural To Denver a Heads-up Guidance System, allowing Glacier Bay Juneau containment of spilled oil during cleanup the flight crew to more successfully Sitka Petersburg Wrangell operations, while shore-fast ice would pro- navigate challenging MORE ON THE Ketchikan tect the shoreline, Moore said. airports and foggy HORIZON – In these more ice-laden conditions, rope conditions. That Transporting cargo is mop skimmers could transfer oil out of the means we can critical to the state of World’s first Boeing 737-400 passenger combi fly safely and Alaska, more so than any To Seattle water without becoming clogged with float- To Portland, ing ice, Moore said. State-of-the-art Lamor dependably in the other place we serve. That’s Los Angeles unforgiving North Slope climate. why we’ll be introducing the brush skimmers could also be deployed divided into four pallets in front, and fifth combi to the fleet in the next from the sides of the oil spill response ves- 72 very comfortable passengers in MORE ROOM – Duetoits six months, expanding our total cargo sels to remove the oil from the ice-laden back, the improved combis will allow permanentfixedconfiguration,each capacity by 20 percent (or a half-ton of waters. you to welcome more of your precious combi will be able to guarantee more mail, equipment, parts and care At some point the ice cover would cargo — whether that’s passengers and more cargo than packages from home, to put it in become too extensive for mechanical employees or electronics traditional versions. Equipped with perspective). Servicing points recovery of oil to continue. Any oil remain- — all on one flight. And pallets that are 20 percent larger, the throughout Alaska, our ing in the sea would become trapped within with two daily round-trip combis will house 50 percent more combis are just one the ice, Moore said. In the spring the oil flights to Prudhoe Bay, cargo than their predecessors. Passengers example of our would rapidly float to the surface through rotating your work crew will benefit from more room too, with ongoing commitment brine channels — the resulting oil pockets on the North Slope has never full-sized overhead bins, comfy leather to the people and the on the surface of the ice could then be been more convenient. seats and increased leg room. businesses of the North Slope. burned off (because of the low tempera- tures, little degradation of the oil would occur during the winter), Moore said. But would the techniques for oil recov- alaskaair.com alaskacargo.com ery in icy conditions actually work? People have in the past expressed skepticism about COMMITTED TO CARGO the practicalities of oil spill response in ice- laden water, especially in broken ice condi-

see SPILL RESPONSE page 11 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 11 continued from page 10 event of a major incident. And ACS is pro- viding its established techniques and tactics SPILL RESPONSE for responding to an oil spill in Arctic con- ditions. tions. The ASRC Energy Services team Fox said that he understands why people includes managers and supervisors with would think that cleaning up oil in icy con- global and Alaska spill response experi- ditions would be difficult. But the Shell ence, including experience in ice, Moore team has thoroughly researched the issues said. And about 38 percent of the oil spill SHELL OFFSHORE INC. COURTESY involved, he said. And Shell is involved in a response crew will consist of North Slope joint industry program of research into residents. Arctic oil spill response, Edmondson said. “Obviously they bring a lot of tradition- “We researched all the different tech- al knowledge to the table, and a lot experi- nologies against different levels of broken ence of being in and around the ice,” Moore ice and different conditions and put togeth- said. er a suite of answers for that,” Fox said. In addition, Shell could muster village For example, the Lamor skimmers that response teams, the North Slope response Shell would deploy from the two oil spill team and an auxiliary contractor response response vessels have been tested and team for a sustained response. That would proven in icy conditions, Moore said. In amount to an additional 300 or more people fact, this type of skimmer has seen success- from Alaska, Moore said. ful action in icy water in actual spill But the traditional knowledge of the responses by the Swedish coast guard, she North Slope residents is also factoring into said. some less obvious aspects of Shell’s spill “They’ve performed really well,” Moore response arrangements — Shell painted the said. Nanuq blue and white, the color scheme In-situ burning that the North Slope whalers said would minimize the impact on the whales, Fox But, in addition to using mechanical oil said. recovery technologies, Shell sees the in-situ “That’s what the whalers told us to paint burning of spilled oil as a key spill response it,” Fox said. ● Towing boom over open water. technique. “That is a tried and tested technique too, which in many situations can have upwards of 85 percent to 95 percent removal effi- ciency,” Moore said. “… Burning is poten- tially a very viable option, even early in the season.” The Shell spill response equipment inventory includes a new, patented type of water-cooled fire boom that can be used repeatedly to corral pools of oil for burning. “We have the capacity to burn six times the worst case discharge planning stan- dard,” Moore said. Burning of the oil leaves a residue that represents 2 to 3 percent of the original oil volume, Edmondson said. That residue would congeal and sink — although it might be possible to capture the residue in nets, research has indicated that the residue would have minimal environmental impact, he said. “It doesn’t look as if the long-term effects are significant,” Edmondson said. Edmonson said that Shell would likely use in-situ burning in combination with mechanical oil recovery techniques. “It gives you an awful lot of immediate disposal of crude prior to addressing the mechanical recovery,” Edmondson said. Workboats with boom might move some oil to a designated area for burning, while other components of the spill response fleet engage in mechanical recovery of oil, he said. Experienced staff Shell also believes that it has assembled an oil spill response team that is fully capa- ble of responding to any incident. “We’ve been able to tap into a lot of incredibly experienced people, both to design and operate the oil spill response program,” Moore said. “It’s something we’re really proud of.” Al Allen, a 40-year oil spill response vet- eran, has been assisting Shell with its oil spill response strategy. Allen was the first manager of Absorb, the organization that later became Alaska Clean Seas, the North Slope oil spill response cooperative. “So we’ve got an incredible amount of experience that he brought to the table to help design a system,” Moore said. Shell has contracted with ASRC Energy Services to operate the offshore response arrangements, while Alaska Clean Seas will provide nearshore and shoreline spill response services. ACS also has a large inventory of oil spill response equipment that would become available to Shell in the 12 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007

● EXPLORATION & PRODUCTION Seismic moves into 21st century Technical evolution enables assembly of increasingly detailed subsurface information; radical changes in seismic began in 1970s

By ALAN BAILEY hydraulic-powered vibration systems becoming increas- Petroleum News ingly reliable, Anderson said. Offshore, air guns near the sea surface rather than ay back in the early days of oil and gas explo- explosives have become the standard source for seismic ration in northern Alaska, seismic crews would sound — a seismic survey vessel moving along a survey W wend their way across the tundra in Cat trains. line tows an array of air guns and streamers of geo- Dynamite was the technology of choice for cre- phones, the devices that surveyors use to detect the seis- ating the sound waves that echo off mic sound signals. subsurface rock formations to pro- And along the seacoast off vide information about under- Alaska’s North Slope, where the ground structures. And the end water is too shallow for a tradition- ALASKA INC. CONOCOPHILLIPS COURTESY products of the surveys were print- al marine survey, a technique The evolution of vibroseis vibrator trucks between the ed, two-dimensional seismic cross- called ocean bottom seismic in 1980s (above) and the early 2000s: Low-pressure rubber sections of the subsurface, contain- which surveyors lay cabled geo- tracks with articulated steering have replaced steel tracks with skid steering. ing only enough detail to depict 30 Strong phones along the seafloor has major geologic features. enabled geophysicists to bridge June 20, 2007, marked the 30th what used to be a gap in coverage Change in the 1970s anniversary of the first barrels of North Slope crude flowing down the between onshore and offshore seis- But by the 1970s, the approach 800-mile trans-Alaska oil pipeline from mic coverage, Tom Walsh, princi- toward surveying was starting to Prudhoe Bay to Valdez. Looking back, pal partner and manager of it is clear that the role of technology undergo radical change, as people has been paramount in the progress Petrotechnical Resources of became increasingly aware of the operators and contractors have made Alaska, told Petroleum News. importance of protecting the deli- in improving the efficiency and lessen- At the same time, dramatic ing the impact of their operations on cate Arctic environment, and as the Arctic environment. In a series of advances in computer and record- evolving seismic technologies seven articles, Petroleum News will ing technology, including the began to improve the quality of the report on some of the technologies miniaturization of components and ALASKA INC. CONOCOPHILLIPS COURTESY developed by the dedicated and inno- seismic images. vative men and women who work on the ability to use small devices to Instead of using ground-damag- the North Slope. These articles will be record vast amounts of data, have ing dynamite, people started to cre- followed by “30 Strong,” a full color greatly reduced the size and weight magazine celebrating three decades of said Michael Faust, offshore exploration manager for ate seismic sound waves using a North Slope oil production. of the recording equipment that technique known as vibroseis, in needs to be deployed on the tundra. ConocoPhillips Alaska. which a vibrator pad below a pur- “The dog house where all the pose-built truck transmits sound vibrations into the recording is done … used to be the size of a semi-trailer, Improved vehicles ground, Jon Anderson, ConocoPhillips Alaska chief geo- filled with equipment,” Anderson said. “Now there’s a And coupled with the reduction in weight of the physicist, exploration and land, told Petroleum News. guy in this fairly small box with a computer.” equipment have come major improvements in vehicle Vibroseis has now become the standard sound source “The recording equipment itself is probably a tenth of designs, to enable seismic crews to operate on the tundra for on-land seismic surveys, with the equipment and its the weight that it was 10 years ago, 15 years ago even,” see SEISMIC page 13 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 13 continued from page 12 cessing have led to a vastly improved ability to locate and pinpoint oil and gas SEISMIC reservoirs, leading to improved drilling success rates and the ability to locate the in the winter without marking or, worse more elusive pools of subsurface oil and still, tearing up the tundra surface. 1-phone of gas. “One of the biggest things is the fact six phone string But the demands for interactive view- that back in the old days everything was ing of seismic and other data are driving steel tracked vehicles and they were all a need for ever-more-powerful comput- skid steered,” Faust said. “Nowadays er networks, to shunt massive quantities everything’s articulated steering — rub- ALASKA INC. CONOCOPHILLIPS COURTESY of data between server computers and ber tracked vehicles with very low pres- computer workstations. Nowadays, sure on the tundra.” rather than wanting to move one or two The growing awareness of environ- gigabytes of data around the network, mental protection that has accompanied you might want to move several hun- these equipment improvements has led to dred gigabytes, or maybe even a ter- an expectation nowadays of zero environ- abyte, all at once, Konkler said. mental impact. In the 1970s people just A variety of types of geophone that are laid on the ground to record seismic signals. Over the years geophones have reduced in size and increased in reliability. “And you want it right now,” Konkler went out and shot seismic; in the 1980s it said. “You don’t want to have to sit there The wireless geophones offer the became a question of trying not to cause Computer technology and wait for an hour for it to load up on damage during a seismic survey; today, enticing prospect of being able to simply Alongside improved field acquisition your machine and then find out that your companies won’t shoot seismic if they drop geophones in position on the tundra, technology, modern computer and com- machine can’t hold all that data.” may cause any damage, Faust said. without the need for vehicles to transport munications technology probably repre- The rapid evolution of computer And that’s in part been a question of and lay cabling. However, there are prob- sents the biggest single enabling factor technology has also led to some interest- changing people’s attitudes — for exam- lems with battery life in the low tempera- in the huge strides that the seismic ing issues relating to the use of old seis- ple, nowadays a crewmember will always tures of the Arctic winter, Faust said. And industry has made in the past few mic data, perhaps acquired several pocket a used cigarette butt, rather than finding the devices in the snow of a North decades. decades ago. That old seismic can repre- dropping it onto the ground, Faust said. Slope winter seismic survey season might The ability to record and process the sent a high-dollar exploration invest- present some interesting challenges. vast amount of data originating from ment and can often prove invaluable Improved efficiency A fairly recent development that has many thousands of geophones respond- when re-assessing a region for new seen some use on the North Slope is a Surveying efficiency has also ing to multiple pulses from a vibroseis exploration. And modern processing can type of geophone that can simultaneously improved greatly over the years. unit or underwater airgun array has often extract more information from the record sound vibrations in three different Thirty years ago a survey crew would opened the door to ever increasing data data than was apparent to the geoscien- directions, rather than just the single place wooden stakes in the ground using resolution from a decreased environ- tists who originally interpreted the data. sound pressure variations recorded by a triangulation techniques, to mark out mental footprint. And state-of-the-art But the old data was typically stored traditional device, Faust said. The three- source and receiver locations, Anderson computer technology has revolutionized on reels of magnetic tape using a variety component geophones enable geophysi- said. But GPS receivers that can instantly seismic processing, visualization and of recording formats, several of which cists to distinguish between pressure pinpoint equipment locations have done interpretation (see “Computer technolo- have become obsolete. So, a whole waves and shear waves in the seismic sig- away with the need for that time-consum- gy has revolutionized seismic” in this industry has evolved around services nals. That distinction enables data pro- ing manual survey procedure. publication). that enable the retrieval of data from old cessing that provides invaluable insights And the designs of the surveys them- “Computer power has enabled a lot tapes. And ConocoPhillips, for example, into the physical properties of the subsur- selves have improved, thanks to the avail- of advances in all technologies, and transfers its old data onto modern media face rocks. ability of technology that enables the seismic is one of the benefactors,” about every five years, rather than risk The use of state-of-the-art, high-reso- recording and processing of vast amounts Konkler said. losing valuable data that could have a lution 3-D seismic surveying for oilfield of seismic data. And those advances in computer pro- future use, Faust said. ● So, whereas years ago crews would development has introduced a new prob- obtain more data by setting off more seis- lem for seismic surveyors: how to deal mic shots, nowadays people can increase with ambient industrial noise that can data quantities by using more geophones. obscure the seismic signals detected by In fact it is possible to reduce the number the geophones, Jon Konkler, senior devel- of sound source shots needed to obtain opment geophysicist for BP Exploration high-resolution data. (Alaska), told Petroleum News. “Now you can get great data with very The seismic industry has developed little source impact,” Faust said. technologies for determining the noise at And by the judicious placement of the an oilfield location and extracting that vibrator points and the geophones, it is noise from the seismic recordings. also possible to reduce the amount of “We can’t stop the noise in the field, ground traversing done by the seismic but as long as we know when it is and survey vehicles. Increasing the number of where it is and can pinpoint where it’s recording points, for example, might coming from that helps a lot in processing make it possible to increase the spacing that noise,” Konkler said. between adjacent routes taken by the vibrator vehicle from, say, 500 feet to 1,500 feet while still obtaining the same quality of seismic image, Faust explained. Geophone development The last few decades have seen major improvements in geophone technology, with digital recording now replacing older analogue technologies. Modern electronics have reduced the size of these devices, Anderson said. The devices are now more robust and reliable than they used to be — whereas a survey crew used to deploy at least a dozen geophones at each recording location to ensure the cap- ture of usable data, crews have reduced that number now almost down to one per station, Anderson said. Geophones are strung out across the ground along cable runs, rather like a huge string of Christmas tree lights — the logistics of transporting cable and manag- ing the cable runs forms a significant component of carrying out a seismic sur- vey on land. But a new generation of wireless geophones has just come on the market. These use lithium batteries, have built in GPS receivers and contain minia- ture recorders with 10 gigabyte flash drives, Faust said. 14 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007

GOVERNMENT FINANCE & ECONOMY Judge links Ben Stevens to FBI probe OPEC chief blames refinery problems A federal judge has linked former Alaska Senate President Ben Stevens to an FBI OPEC’s Secretary General said Aug. 28 he saw no need to increase oil output and corruption probe. blamed refinery problems in the United States for sustained high prices. At the same time, a federal prosecutor revealed there are “multiple, ongoing non- “We see there’s no reason for a higher price because there’s enough oil in the mar- public investigations” related to the ongoing inquiry into ties between Alaska law- ket,” Abdalla Salem el-Badri told Dow Jones Newswires in an interview during a trip makers and the oil industry. Stevens is the son of U.S. Sen. Ted Stevens, himself the to Angola. “There’s no shortage (of crude) whatsoever.” target of a widening FBI probe. The International Energy Agency has urged the Organization of Petroleum Investigations have so far resulted in one criminal conviction, of former state Rep. Exporting Countries to lift oil output when it meets Sept. 11 in Vienna. The Paris-based Tom Anderson, R-Anchorage, and indictments of former Reps. Bruce Weyhrauch, R- organization said in its last monthly oil market report that world oil demand will prob- Juneau; Pete Kott, R-Eagle River, and Vic Kohring, R-Wasilla. ably outpace supply this winter. Weyhrauch and Kott are scheduled to go to trial Sept. 5 in Anchorage. However El-Badri, in Angola to discuss quotas with OPEC’s newest member, said The Ben Stevens connection turned up in a legal filing in the Weyhrauch case, in that if the group put more oil into the market it would only add to stocks because of which U.S. District Court Judge John Sedwick acknowledged Stevens’ role. U.S. refinery glitches tightening demand. Sedwick noted that the identification of Stevens had “already been reported in the “If you add more crude into the market, the crude will not go to refineries because press,” based on comparing the money paid by former VECO Corp. CEO Bill Allen refineries cannot handle it, it will go into stocks,” he said. and Stevens’ financial disclosure reports. “The American refinery industry is really affecting the market at this time and prices The indictments of Weyhrauch and Kott accuse them of having conspired with are going up because of American refinery outages,” he said. Allen and an unidentified “State Senator A” to advocate for an oil tax plan supported El-Badri held talks with Angolan officials on oil prices and production quotas. He by VECO, an oil field services company, and the state’s oil producers. In other court said the talks were “fruitful” but declined to provide details. documents, such as Allen’s indictment, Senator A is listed as Senator B. Angola, the second-largest sub-Saharan oil producer, after Nigeria, produces about “The evidence which the United States will present at trial will show that State 1.4 million barrels a day. It is expected to reach 2 million barrels a day this year. Senator A is, in fact, Ben Stevens,” Sedwick wrote. —THE ASSOCIATED PRESS Stevens, Weyhrauch, Kott and Kohring were among legislators whose Capitol offices were searched by FBI agents last year. Stevens, who did not run for re-elec- ● tion, has not been indicted. FINANCE & ECONOMY —THE ASSOCIATED PRESS John Browne joins U.S. equity firm

By JANE WARDELL vote of confidence in a man his new bosses Associated Press Business Writer describe as “a legend in the energy indus- try.” ormer BP Chief Executive John During Browne’s 10-year tenure as CEO, Browne has made a return to the oil BP saw a fivefold increase in its market cap- F industry, taking up a senior position at italization to $202.7 billion as it expanded one of the world’s largest private equi- into the United States, involving a number ty funds just three months after his scandal- of takeovers, including the 1998 merger tainted departure from BP. with Amoco and the subsequent acquisitions In a surprise announcement Aug. 24, of Arco and Castrol. New-York based Riverstone Holdings LLC, Browne was also the first major oil com- a private equity firm specializing in the ener- pany CEO to acknowledge global warming gy and power sectors, said it had appointed and masterminded BP’s logo change from a Browne as head of its European operations. shield to a flowerlike sunburst design with Riverstone said it plans to open a London the slogan “Beyond Petroleum.” office where Browne will be based as man- While those efforts were somewhat aging director and managing partner begin- undermined by the company’s recent U.S. ning Sept. 1. troubles, David Leuschen and Pierre Browne quit BP in May, hours after a Lapeyre Jr., co-founders of Riverstone judge found that he had lied to the court Holdings, acknowledged Browne’s contri- when he tried to block a British newspaper bution to the sector when announcing his from printing allegations of wrongdoing appointment Aug. 24. made by a former boyfriend. “We’ve known, worked with and That admission was the final straw for respected John Browne for nearly 25 years,” Browne, who had already brought forward Leuschen and Lapeyre said. “He is without his anticipated resignation date following question one of the most visionary, experi- shareholder outrage about a string of prob- enced and talented executives in the energy lems at BP PLC, including the deaths of 15 industry with an unparalleled global under- workers at its Texas City plant and a large oil standing.” spill at its Prudhoe Bay, Alaska, operations. The departure of the 59-year-old, who Riverstone founded in 2000 was also a close associate of former Prime Brown will have the benefit of avoiding Minister Tony Blair, seemed at the time like public shareholder scrutiny at Riverstone, the sad end to a previously illustrious career. which conducts buyout and growth capital It also prompted much discussion about alle- investments in the midstream, upstream, gations of institutional homophobia in the power, oilfield services and renewable sec- energy industry. tors of the energy industry. His appointment to Riverstone is a major The firm, founded in 2000, has so far committed more than $6 billion to more than 41 investments across each of these five sec- tors, representing companies with nearly $50 billion of assets. Announcing that Browne had resigned as chairman of its advisory board to take up his new position, private equity firm Apax Partners was also complimentary. “As a firm we have benefited enormous- ly from the time that we have worked with Lord Browne,” Chief Executive Martin Halusha said. “I understand his desire to return to a full-time executive role in a sec- tor that we do not cover and in which he is an acknowledged global leader.” ● PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 15

● ALTERNATE ENERGY Alberta faces nuclear test case Privately held company files regulatory application for province’s 1st reactor; expects 10 years of public, regulatory hearings

By GARY PARK Marlo Reynolds, executive director of oil sands sector, said the company hopes to said the province is “completely-open- For Petroleum News the Pembina Institute, told reporters the sell power from the reactors to oil sands minded on the issue,” while noting it has no nuclear industry has a “long history of over- operations. fixed policy on the use of nuclear power. rivately held Energy Alberta has promising and under-delivering, so I’m However, the prospect of introducing “The day is approaching,” he said. “We brought the nuclear debate in Alberta skeptical.” nuclear power has received a lukewarm do have to make a decision. Albertans want P to a head by filing an application to She said there is no convincing proof response in the well-established Athabasca clarity around the issue and that’s exactly build twin reactors in northwestern that nuclear power is needed “given all of region, which holds all of the major mining what we’ll do.” Alberta at an estimated cost of C$6.2 billion the other resources we have here in and in-situ projects. Earlier this year, Canada’s Natural to generate 2,200 megawatts, the equivalent Alberta.” Operators have argued they need on-site Resources Minister Gary Lunn announced of an 18 percent addition to the province’s Neither is there a clear plan for handling power plants because the long distances the government was earmarking C$230 current power generating capacity. nuclear waste or detailed information on between their facilities would make the million over the next five years to research Energy Alberta President and Co-chair- how much water will be needed to cool the delivery of nuclear power from a single clean-coal technology, carbon capture and man Wayne Henuset described the applica- reactors. plant inefficient. storage and “next-generation” nuclear tion as a “historic moment” for Alberta and Reynolds said the business case is in The Alberta government has previously power. a chance to bring “the benefits of clean, doubt once the full environmental cost — rated nuclear power as a last resort, He has been an open advocate of the safe, reliable nuclear power to Alberta.” including the extraction of uranium — is although former premier Ralph Klein said nuclear alternative to consumption of natu- But he also indirectly acknowledged the disclosed. last year the option might be worth evaluat- ral gas in the oil sands, arguing it is a mat- likelihood of strong opposition, noting that Henuset said nuclear power could lower ing. ter of when not if the use of nuclear energy building a nuclear facility will be a “long Alberta’s greenhouse gas emissions, However, Energy Minister Mel Knight will be introduced. ● and rigorous process.” notably carbon dioxide, which are seen as “This is the beginning of a public and one of the greatest challenges facing expan- regulatory process that will include envi- sion of the oil sands industry. ronmental, health and safety assessments,” “There is a real problem with CO2 emis- NATURAL GAS Henuset said in an Aug. 27 statement. sions and what’s happening to our environ- The long timeline ahead of the propo- ment,” he said. “This is the way to green up Canadian gas exports keep rising nents is reflected in their estimated in-serv- that growth plan.” Canadian natural gas exports to the United States keep defying gravity and pre- ice date of 2017 for the twin, 1,100- Henuset – a former car dealer, wine mer- dictions. megawatt reactors. chant and oil services entrepreneur – said For the first five months of 2007, they have totaled 1.54 trillion cubic feet, gen- Henuset told an Aug. 28 news confer- that while fossil fuels will remain the cor- erating revenues of C$12.68 billion compared with 1.44 tcf and C$12.53 billion ence that confidentiality agreements have nerstone of Alberta’s economy for the fore- for the same period last year, according to Canada’s National Energy Board. been signed with a potential large oil sands seeable future, the province is “running out In May, the latest month for which figures are available, the shipments were customer that is ready to buy 70 percent of of conventional oil and natural gas. We 290.5 billion cubic feet and revenues were C$2.33 billion, with volumes up 1.9 the facility’s power. need to develop new energy sources.” percent from 285 bcf in May 2006, when the sales fetched C$2.02 billion, the fed- Royal Dutch Shell and Penn West David Schindler, a professor of ecology eral regulator reported. Energy Trust, the major oil sands players in at the University of Alberta, said “huge The returns to producers have been depressed by the higher value of the the Peace River region, said they have held issues” have to be overcome, including Canadian dollar. no talks with Energy Alberta. reactor safety and waste storage. Prices for the January-May period averaged C$7.63 per gigajoule this year, France’s Total and Husky Energy, both The application will face scrutiny by compared with C$8.04 a year earlier, but May posted an average gain to C$7.43 of whom have indicated they are open to Canadian Nuclear Safety Commission and from C$6.55. exploring the nuclear option, also insisted under the Canadian Environmental they are not the unidentified customer. Assessment Act. Midwest, Northeast markets Energy Alberta has chosen a site 300 Peace River Mayor Lorne Mann said The two major markets for Canadian gas both logged gains in May, with the miles northwest of Edmonton and 20 miles nuclear power could be an “important part” Midwest up 2.1 percent to 121.3 bcf and the Northeast edging up 1.2 percent to west of the town of Peace River. of a sustainable energy future. 99.2 bcf, but the Midwest was down just over 3 percent to 624.1 bcf for the open- The units will be built by Atomic Energy He welcomed the chance to “become ing five months, while exports to the Northeast gained 15.8 percent to 487.6 bcf. of Canada, a federal government corpora- more informed on nuclear energy.” Over the five-month period, volumes to the Pacific Northwest increased almost tion that is charged with commercializing 20 percent at 172.1 bcf and California rose 14 percent to 199 bcf. Canadian nuclear technology and over the Peace River: local support, The overall picture, including a 6.5 percent jump in export volumes, is at odds past 40 years has marketed and built Candu infrastructure, support services with a recent Conference Board of Canada outlook, forecasting exports would rise facilities in Canada, China, India, South The Peace River region, which holds by only 1.8 percent this year, then fall by an average 2.4 percent annually over the Korea, Argentina and Romania. one of three major bitumen deposits in 2008-11 period. The province of Ontario currently oper- Alberta, was chosen because of demonstrat- The National Energy Board’s report calculated liquefied natural gas imports to ates five reactors, which Atomic Energy of ed support from the community, the exis- the U.S. were up 76 percent in the March-to-May period, averaging 3 bcf for those Canada claims have greater than 95 percent tence of essential infrastructure and support three months. But the Energy Information Administration has projected declining capacity factor ratings. services and technical feasibility, Henuset liquefied natural gas imports for the second half of 2007 as more cargoes are Environmentalists oppose plan said. directed to European and Asian markets. Energy Alberta’s Web site, noting that However, the EIA said total LNG imports should reach a record 850 bcf for the But environmentalists are already gear- nuclear power is an alternative to burning year. ing up to oppose the Energy Alberta pro- costly and precious natural gas to fuel the —GARY PARK posal. 16 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 Companies involved in Alaska and northern Canada’s oil and gas industry Business Spotlight ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS Holaday-Parks...... 17 A Horizon Well Logging Ace Transport Hotel Captain Cook

Acuren USA (formerly Canspec Group) FORREST CRANE Hunter 3-D Aeromed Industrial Project Services ACE Air Cargo Inspirations ACS Jackovich Industrial & Construction Supply Agrium Judy Patrick Photography AIC Kenai Aviation Air Liquide Kenworth Alaska Air Logistics of Alaska ...... 2 King Street Storage Alaska Air Cargo ...... 10 Kuukpik - LCMF Alaska Anvil LaBodega Alaska Coverall Last Frontier Air Ventures Alaska Dreams ...... 8 Lounsbury & Associates Andrew Hettinger Alaska Frontier Constructors Lynden Air Cargo Technical Solutions Advisor Alaska Marine Lines Lynden Air Freight Alaska Railroad Corp...... 13 Lynden Inc. Alaska Regional Council of Carpenters (ARCC) Petroleum Lynden International Alaska Rubber & Supply Lynden Logistics Equipment & Alaska Steel Co. Lynden Transport Alaska Telecom Services Inc. Mapmakers of Alaska Alaska Tent & Tarp Marathon Oil Petroleum Equipment & Services Alaska Textiles ...... 6 Marketing Solutions Inc. (PESI) was formed in 1983 to sup- Alaska West Express Mayflower Catering port oil companies and drilling contrac- Alliance, The MI Swaco tors in their efforts to develop North American Marine ...... 14 MRO Sales Slope and Cook Inlet oil fields. In 1998 Arctic Controls MWH PESI formed an Industrial Tool Division Arctic Foundations to bring portable field machining to its Arctic Slope Telephone Assoc. Co-op...... 8 N-P Alaska clients. This division offers high- Arctic Wire Rope & Supply ...... 17 quality products and expands the serv- ASRC Energy Services Nabors Alaska Drilling...... 19 ices local machine shops can provide Engineering & Technology NANA/Colt Engineering their customers. Operations & Maintenance Natco Canada Andrew Hettinger brings diverse Pipeline Power & Communications Nature Conservancy, The experience to PESI from 20 years in oil Avalon Development NEI Fluid Technology and gas operations, from roughneck- NMS Employee Leasing ing to MWD/LWD engineer on direc- B-F Nordic Calista tional drilling to rig site supervisor. North Slope Telecom Now working on scientific oil tools, Badger Productions Northern Air Cargo gyro, MWD/LWD and directional oper- Baker Hughes Northern Transportation Co. ations, he helps smaller explorers find Bombay Deluxe Restaurant Northland Wood Products success in their endeavors. Andrew BP Exploration (Alaska) Northwest Technical Services ...... 18 and wife Michaela have two daugh- Broadway Signs Offshore Divers ...... 4 ters, ages 8 and 10; they enjoy scout- Brooks Range Supply Oilfield Improvements ing and other family and community- Canadian Mat Systems (Alaska) Oilfield Transport oriented activities. Capital Office Systems Opti Staffing Group Carlile Transportation Services P.A. Lawrence CGG Veritas Panalpina Chiulista Camp Services PDC Harris Group Computing Alternatives Peak Oilfield Service Co. CN Aquatrain Penco ...... 14 Coldwell Bankers Petroleum Equipment & Services...... 4 Colville Petrotechnical Resources of Alaska CONAM Construction PGS Onshore ConocoPhillips Alaska ...... 3 Prudhoe Bay Shop & Storage Construction Machinery Industrial PTI Group Contract Consultants ...... 17 Coremongers Crowley Alaska...... 7 Q-Z Cruz Construction Dowland-Bach Corp. QUADCO Doyon Drilling Rain for Rent Doyon LTD Salt + Light Creative Doyon Universal Services Schlumberger Egli Air Haul Seekins Ford ...... 13 Engineered Fire and Safety ...... 5 Shaw Alaska ENSR Alaska Spenard Builders Supply Epoch Well Services STEELFAB ESS Support Services Worldwide 3M Alaska Evergreen Helicopters of Alaska Tire Distribution Systems (TDS) Equipment Source Inc. Total Safety U.S. Inc. F. Robert Bell and Associates TOTE...... 9 Fairweather Companies, The Totem Equipment & Supply Flowline Alaska TTT Environmental Foundex Tubular Solutions Alaska ...... 14 Friends of Pets Udelhoven Oilfield Systems Services Frontier Flying Service Unique Machine...... 15 Univar USA G-M Usibelli U.S. Bearings and Drives GBR Equipment VECO Great Northern Engineering...... 14 Welding Services GPS Environmental WesternGeco GX Technology ...... 20 XTO Energy Hawk Consultants H.C. Price Heating & Ventilation Sales All of the companies listed above advertise on a regular basis with Petroleum News PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 17

● EXPLORATION & PRODUCTION E&P companies have reserve worries Just-released John S. Herold upstream survey confirms finding of earlier surveys: worry over ability to replace spent oil reserves

By RAY TYSON ects should help stem the decline. survey, the majority indicated that The United States was the only For Petroleum News • Capital investment in the Africa and investment would be a factor in helping region in which profitability Middle East region is being redirected them manage declining oil reserves. he latest upstream survey reflects declined as finding and toward exploration and acquisitions as Sixty-nine percent said that it would what other independent surveys development costs nearly tripled proved reserves continue to decline. increase by more than 10 percent, a jump T released earlier this year discovered: and reserve replacement costs • Asia-Pacific is the most profitable of 49 percent over 2005. the ability to replace spent oil soared 83 percent. region due to relatively lower costs and The world is currently producing reserves, despite record capital invest- tax rates, but lower rates of reinvestment more oil annually than it is replacing ment, has evolved into a major concern indicate opportunities are constrained. with new reserves, Energy Intelligence percent, but accounted for 52 percent of for many exploration and production • Oil and gas reserves in South and concluded in its study. In contrast to the total investment, down from the five-year companies. A huge increase in operating Central America continue to fall as pro- gradual rise in global oil reserves that average of 58 percent. Exploration spend- costs also is pressuring companies. duction flattens, but profitability more has been reported annually in most sur- ing increased 39 percent, the largest jump Worldwide upstream investment of than doubled as costs were contained. veys based on public sources, the firm in five years. 228 oil and gas companies increased 45 • Government take in the Russia and said, the new assessment showed that the A nearly 80 percent increase in proved percent to a record $401 billion in 2006, Caspian region is high and rising, limit- trend in worldwide liquids reserves is acquisition spending produced just a 15 according to the 2007 Global Upstream ing profitability, but the resource poten- actually one of “stagnation and modest percent increase in purchased reserves. Performance Review released Aug. 29 by tial is so substantial that capital invest- decline.” Investment in unproved acquisitions oil and gas research firm John S. Herold ment is growing rapidly. The PIW Reserves Survey showed almost doubled to $47 billion and has Inc., an IHS company, and upstream cor- global oil reserves declining by almost increased four-fold since 2002. porate advisor Harrison Lovegrove & Co. Earlier surveys 13 billion barrels, or 0.9 percent, over The United States and Canada were Ltd. the previous two years. For 2006, the big net consumers of capital, while Asia- Earlier surveys conducted separately However, all that spending last year increases in reserves were led by Brazil Pacific generated the largest free-cash by Energy Intelligence and KPMG in the generated just a 2 percent increase in and Kazakhstan. But among the top 20, flow of any region for the third consecu- spring confirmed some of industry’s reserve volumes to 263 billion barrels of only eight countries saw increases last tive year. worst fears — most notably the fact oil equivalent, while reserve replacement year, while the rest were flat or in Oil reserves increased just 1 percent company executives now overwhelm- costs climbed 33 percent to $13.60 boe. decline. PIW attributed the poor per- on a 1.9 billion barrel increase in Canada, ingly believe the world oil supply is “The key challenge facing the petrole- formance in growing reserves to a lack mainly oil sands related. Natural gas being consumed faster than it can be um industry continued to be replacing of additions to reserves from new dis- reserves and production continued at the replaced. reserves and growing production due to coveries, which accounted for 20 percent 3 percent growth rate of the last four “These executives are deeply con- the combination of maturing basins and or less of additions in the last few years. years. cerned about declining oil reserves, a sit- reduced accessibility to new acreage,” Still, Lehman Brothers’ worldwide Replacement rates increased modestly uation they see as irreversible and wors- Martin Lovegrove, Harrison Lovegrove’s mid-year survey of 350 companies in 2006 despite the growth in upstream ening,” said Bill Kimble of audit, tax and chief executive officer, said, noting that showed that the upstream on average is investment. Finding and development advisory firm KPMG, which polled 533 “with opportunities scarce,” proved and expected to boost capital spending by 13 costs surged 29 percent to $14.42 per boe, financial executives in April on a num- unproved acquisition costs last year percent in 2007 compared to 2006, up 4 as the industry replaced just 111 percent ber of energy-related issues. increased 85 percent, while the “implied percent from Lehman’s initial forecast of of production through the drill bit. When executives were asked about costs” for the acquisition of proved 9 percent. ● A 31 percent rise in lifting costs con- their upstream capital spending in a 2006 reserves soared 55 percent, more than sumed one-third of the increase in real- twice the increase in oil prices. ized prices, while income taxes were up Robert Gillon, Herold’s senior vice 12 percent. As a result, cash flow president and co-director of Equity advanced only 18 percent compared with Research, said that growth more than off- an average gain of 26 percent for the set higher operating expenses and 2002-05 period. increased taxes, allowing the industry to Net income was up 17 percent com- report $243 billion in net income, the pared with a 46 percent gain in 2005. fourth consecutive record. Margins were lower after rising for three “But rising costs are pressuring invest- years, the survey found. ment returns, as net income as a percent- age of the book value of oil and gas assets 2007 regional findings declined in 2006 following three years of gains,” he added. Key regional findings of the 2007 Global Upstream Performance Review Shareholder returns robust are: • The United States was the only Still, the Herold-Harrison Lovegrove region in which profitability declined as study found that returns to oil industry finding and development costs nearly shareholders during 2006 were robust: tripled and reserve replacement costs dividends reached a record $83 billion, soared 83 percent. up $7 billion, while share repurchases • Oil reserves and production in increased 37 percent to $88 billion. Canada continued to climb, but natural Combined, the returns to shareholders gas languished as investment was direct- accounted for 55 percent of net income. ed to oil sands development. However, over the last two years, indus- • Oil and gas reserves in Europe are try laid out more to repurchase its own dropping sharply as cash flow exceeds shares than it did to acquire proved capital spending, but new North Sea proj- reserves. The 2007 Global Upstream Performance Review, the 40th such annu- al study of 228 public oil and gas compa- nies based on data filed with the U.S. Securities and Exchange Commission and other similar agencies worldwide, measured industry performance in a num- ber of key areas. For example, worldwide revenues last year increased by $134 billion, implying an average realized price of $43.62 per barrel, a 16 percent increase from 2005. Cash flow increased 18 percent to $391 billion, more than double the 2002 results. But industry investment exceeded cash flow for the first time since 1999 on a flurry of North American acquisition activity. Development spending increased 29 18 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 continued from page 1 The project has attracted criticism. strategic reconfiguration project. downs.” Pump station 9 might drop In mid-August Chuck Hamel of Originally, he noted, the plan was aggres- offline, Johnson said, “but the northern ALYESKA Virginia, a frequent critic of Alyeska’s sive, with a proposed completion date at end — pumps 1, 3 and 4 — can keep operations, complained to Congress about the end of 2005 and a total cost of $250 pumping because pump 9 comes back Because of the amount of Alyeska the project. million. The project did not meet that goal online so fast the northern stations don’t involvement needed to run the project on Johnson walked through some of the and the cost soared. Irwin said. even see it.” four fronts, working four pump stations at issues Hamel raised with Petroleum Alyeska had “serious concerns about Hydraulically induced vibration is once, the project is now being done in News. overworking the construction staff” with being addressed at pump station 9 by an series, with pump station 9 selected for Alaska Commissioner of Natural concurrent work at pump stations 1, 3, 4 Alyeska equipment specialist working in completion first because it uses commer- Resources Tom Irwin responded for the and 9 and reevaluated the project; the conjunction with a structural engineer. “I cial power, Johnson said, and was the eas- State of Alaska in an Aug. 29 letter to company’s operations unit also “took think they’re onsite this week and they’re iest to get going. Lessons learned at pump Congressmen John Dingell, D-Mich., and over direct project management. This was going to start putting together some plans station 9 will be applied to pump station Nick Rahall, D-W.Va., chairs respectively a positive action welcomed by state and to provide appropriate stiffening to miti- 3, where work is under way, followed by of the House Committee on Energy and federal regulators,” Irwin said. gate the vibration,” he said. Johnson said pump station 4 and then pump station 1. Commerce and the House Committee on Hamel questioned state oversight of Alyeska believes “stiffening the support Doing the project sequentially allows Natural Resources, the recipients of the project and Irwin said the state “fully structure for the piping and the module … Alyeska “to take the lessons learned from Hamel’s letter. participates in the Joint Pipeline Office,” will attenuate that vibration.” one facility, apply it to the next and get Irwin told the congressmen that Hamel the federal-state agency consortium Hamel was also concerned about tests better each time,” Johnson said. The pace “appears to have been misinformed” and responsible for oversight of both the of backup power at pump station 9, call- of doing the project in a series also puts it said Hamel’s portrayal of Alyeska’s pipeline and the marine terminal. ing them “a total failure.” Johnson and at “a pace that Alyeska can better absorb strategic reconfiguration project “as being Irwin also said many of the issues Irwin both said three of four initial tests that additional workload.” With some 800 in ‘total disarray and leading to a seeming Hamel raised in his letter “are related to were successful; Johnson said a fourth employees, Alyeska is “a relatively small disaster’ is not accurate.” the construction and initial operation” of test was rerun during the Aug. 25 company,” he said. Strategic reconfigura- Alaska Gov. Sarah Palin, in remarks new strategic reconfiguration equipment. planned-maintenance shutdown and was tion is a big project for the company to prepared for the Wall Street Journal in “Difficulties at this stage of the project successful. take on — and one that has to be done late August, said the State of Alaska takes are not unusual and the JPO is tracking while Alyeska operates and maintains the “these potential problems very seriously.” the corrective action process to ensure An Alyeska success story existing system. “State agencies have been aware of the satisfactory resolution,” Irwin said. On the issue of welds at pump station issues related to the strategic reconfigura- Largest project on trans-Alaska “Applicable solutions developed for 3, Johnson said: “We think that’s actually tion for some time,” the governor said, pump station 9 will be applied to pump pipeline since construction a good story for us.” and the state “will not permit Pump station 3 prior to allowing startup of the When Alyeska started in back again at Strategic reconfiguration is the largest Station 3 equipment to move into opera- SR components,” he said. pump station 3, we “went through a project on the trans-Alaska oil pipeline tional status until Alyeska has proven the process to establish where we were in a system since original construction, safety and performance of the compo- Pump station 9 issues number of areas,” he said, including a nents.” Johnson said. Johnson said issues Hamel noted review of all the welding done last year. Pump station 9 began operating with And it is a “brown-field” project, inte- around lightening strikes at pump station The contractor was asked to review all the new electric pumps in February; Alyeska grating “new construction with existing 9 have actually been on the Golden Valley welding and welding records “to be sure expects pump station 3 to begin moving operation facilities.” Alyeska is “integrat- Electric Association system — pump sta- that we met our high standards.” What oil with new pumps around mid- ing a whole new control system, mainline tion 9 gets its power from Golden Valley. they found were a number of in-process November. pumps, booster pump power and control The new mainline pumps are fairly sensi- weld records “that looked the same” and … while we still have to operate and Irwin: there have been problems with tive, he said, and have gone offline after started to question them. maintain the legacy facilities.” Alyeska alerted both JPO and the U.S. strategic reconfiguration lightning-induced power fluctuations Johnson said that at the throughputs coming from Golden Valley. Alyeska is Department of Transportation Office of Alyeska is seeing today, pump stations 1, Irwin said the State of Alaska recog- working with the utility so there will be Pipeline Safety. DOT sent some experts 3, 4 and 9 “are the only four pumping sta- nizes the trans-Alaska oil pipeline owners less impact to their system from strikes up to review the welding records with tions that we need on the system.” have “experienced problems” with the and also has changed some software to Alyeska. Johnson said the DOT report ensure that if pumps drop offline due to isn’t final yet, but according to the lightning-caused fluctuations in power, agency’s preliminary report Alyeska there is “an automatic restart two seconds needs to follow up on some non-integrity- later” to bring the pump back online, he related issues at pump station 9 and at said. pump station 3, where the new facilities Johnson said between February, when haven’t been pressurized, needs to go strategic reconfiguration equipment was back and redo a “very small number” of started at pump station 9, until a planned welds and continue to look for some addi- Aug. 25 maintenance shutdown of the tional in-process welding records. If those pipeline, reliability was 100 percent on records aren’t found, Johnson said, “we’ll the trans-Alaska oil pipeline: Alyeska was do a re-weld” on those welds where able to ship all the crude it received at records can’t be found. pump station 1 on the North Slope. The “We have a very high standard for lightning events have not caused shut- welding at Alyeska and these will meet downs, he said, “they’ve been slow- that standard,” he said. ●

continued from page 1 Five wells were drilled in 1976 and 1977 and all were dry, putting an end to GREENLAND drilling in 1978. Later analysis of the Total well sug- EnCana, the big Canadian independent. gested it actually hit rich gas or conden- But the pace quickened earlier this sate, which Nunaoil estimated might con- year, with EnCana adding two offshore tain recoverable reserves of 500 million blocks in partnership with Greenland’s barrels. state-owned Nunaoil, while Husky There was another brief flurry of Energy picked up two exploration licens- unsuccessful exploration interest in the es. EnCana has invited interest from a 1990s by a partnership led by Norway’s farm-in partner. Statoil. Activity offshore Greenland started in Like Canada’s East Coast offshore, the the early 1970s after comprehensive seis- Greenland government points out that mic surveys attracted six groups headed many dry holes were drilled in the North by Amoco, Chevron, Arco, Mobil, Total Sea before the elephants were found. and Ultramar. —GARY PARK PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007 19 continued from page 1 to provide for future generations while meeting “more immediate infrastructure continued from page 1 Northwest planning area. ROYALTIES needs.” That’s a far cry from the annual lease Based on the first-quarter fiscal update, LEASE SALE sale schedule BLM talked about imple- because of record gas storage and the high- C$575 million is available for dispersal, menting in mid-2006 (see the Oct. 30, er currency exchange outlook. extends through Oct. 23. During the including the C$297 million surplus 2005, issue of Petroleum News). The overall numbers are enough to planning process the BLM is consider- increase and C$278 million after changes But a federal judge is largely respon- make any North American jurisdiction ing what lands may be appropriate for to various cash adjustments. sible for delaying an annual lease sale envious, but they require an adjustment in leasing and what mitigating measures As a result C$192 million is destined for schedule. U.S. District Court Judge Alberta’s fiscal planning, following may be required to protect the natural the Alberta Heritage Savings Trust Fund — James Singleton Jr. pulled all the resource revenues of C$12.3 billion in resources of the NPR-A. On completion Alberta’s close relative to the Alaska Northeast tracts from the Sept. 27, 2006-07 and a record C$14.4 billion in of the National Environmental Policy Permanent Fund — which had an estimat- 2006, NPR-A lease sale in a 9 a.m. rul- 2005-06. Act process a definitive date will be set ed “fair value” of C$16.3 billion on June 30 ing on the day of the sale, which was to for a lease sale.” have been the first combined lease sale Land sales sharply down and is forecast to earn net income of C$1.3 billion in 2007-08. for the petroleum reserve, offering With two-thirds of the year gone, land 2008 sale could include tracts from both the Northwest and Another C$227 million will be deposit- Northwest tracts sales total C$969 million, a sharp drop ed in a Heritage Scholarship Fund and Northeast planning areas (see the Oct. from C$2.55 billion at the same time in C$150 million will go to a medical research If the sale is held in the late summer 1, 2006, issue of Petroleum News). 2006. endowment fund. of 2008, which would be sometime Because of the ramifications of If the trend holds up, the government The government projects overall rev- before the start of autumn on Sept. 21, Singleton’s decision BLM did not will collect C$1.4 billion for the calendar enues for 2007-08 of C$36.2 billion, up there would still be time for the leases schedule a 2007 combined lease. year from its auctions, about C$2 billion C$830 million including an extra C$411 to be issued before a new president The late summer, early fall 2008 under last year’s record C$3.43 billion. million from personal income taxes, while takes office, as leases are generally NPR-A lease sale could include tracts Government and industry sources say expenses are targeted at C$33.7 billion, up signed within 90 days after a sale and from both the Northeast and Northwest the decline stems from weak gas prices C$533 million, mostly due to higher con- become legal the first day of the fol- planning areas. which have drastically curtailed drilling, struction costs, firefighting and flood costs. lowing month after they are signed. “Further along in the planning the high capital cost of oil sands projects “When you take a look at our labor If the 2008 NPR-A lease sale goes process, the BLM will determine which has slowed the pace of development requirements, what we’re seeing is still a forward as planned, it will have been whether it will include tracts from the and the inability of junior E&Ps to raise very tight labor market out there,” Oberg two years since the last NPR-A sale, Northwest NPR-A in that sale,” Wilson new equity. said. “We need people coming into which was Sept. 27, 2006, for the said. ● Average prices per hectare (one hectare Alberta.” ● is 2.47 acres) have slumped this year to C$478 from C$834 over the first eight months of 2006, while the total rights acquired this year cover 2.03 million hectares vs. 3.05 million hectares over the same period of 2006. Oil sands parcels in northeastern Alberta dominated the Aug. 22 sale, fetch- ing almost C$41 million for about 60,400 acres. But the oil sands total for the year so far is C$450 million, off 66 percent from last year’s C$1.33 billion. Royalty report due Sept. 14 Whether the swings in resource rev- enues will influence the government’s thinking when it wraps up its current royal- ty review is not certain. Finance Minister Lyle Oberg said only that he does not expect to receive the find- ings of an independent panel until Sept. 14 and will need another one or two weeks to decide whether the province is getting a fair deal from its oil and gas production and what action to take. He said the “unexpected” surplus rev- enue will be divided between one-third for savings and two-thirds for capital spending 20 PETROLEUM NEWS • WEEK OF SEPTEMBER 2, 2007