page Q&A: Parnell discusses multiple 3 North Slope gas delivery options

Vol. 18, No. 24 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of June 16, 2013 • $2.50

GOVERNMENT Employment trends

Record Employment in Prudhoe Bay  Jobs and oil prices per , 1990 to 2012 Hilcorp’s troubles         

  ALASKA OF STATE   Alaska drilling regulators order firm to pay $115,500 for mounting violations       By WESLEY LOY   The bulk of the $115,500 civil penalty, or   For News   $75,000, was for “the initial violation —         failure to increase the weight    ilcorp has paid a $115,500 civil penalty for

   the latest in a string of enforcement actions prior to milling the casing window” as    H drilling regulators have taken against the company  required in the permit to drill.               during its brief time as an oil and gas operator in           Alaska. to an approved permit to drill. And the company   The Alaska Oil and Gas Conservation failed to test prevention equipment after it      Commission says Hilcorp has drawn more than a was used to control the well, the commission said. dozen enforcement actions. Oil and gas employment at record levels, Department of Labor The agency suggested the company’s vigor reports, but only 4 percent of statewide employment. See story The most recent case centers on an oil develop- since arriving in Alaska had been a problem. on page 13. ment well known as Soldotna Creek Unit 44-33. “The aggressiveness with which Hilcorp is The Soldotna Creek unit is associated with the moving forward with operations appears to be con- Enstar plans to buy ‘boil-off’ gas Hilcorp-operated Swanson River field. Hilcorp failed to notify the AOGCC of changes from idling Kenai LNG facility see HILCORP PENALTY page 19

Enstar Natural Gas Co. is looking to connect a new supply NATURAL GAS source to its system. Bu the natural gas won’t come from existing fields, new exploration or even imports. Looking to simplify It will come from a hidden corner of the Kenai liquefied natural gas facility. Just like the last scoop of peanut butter scraped from the Hilcorp evaluating the possibility of unifying its Cook Inlet gas lines inside wall of the jar, Enstar wants to purchase the small quantity of natural gas “produced” by warming LNG tanks. By ALAN BAILEY And the key to the establishment of an This “boil-off gas” is an inevitable by-product of LNG Petroleum News storage. To preserve its liquid state, LNG must be kept in arrangement of this type would be a super-cooled containers. But even with good insulation, some hen Hilcorp Alaska, the company that now “postage stamp rate” for shipping gas, heat leaks into tanks, causing a small portion of the LNG to Wdominates oil and gas production in Alaska’s Jaroch said. revert to a gaseous state. Cook Inlet basin, took over Chevron’s and Marathon’s Enstar recently signed an agreement with ConocoPhillips, assets in the basin, the company acquired four key Alaska on May 29. the owner of the Kenai LNG plant, to purchase boil-off gas pipelines that deliver natural gas from Cook Inlet through 2016. The sales would begin as soon as the fields to Southcentral gas and power utilities. Now, as Individual pipelines Regulatory Commission of Alaska approves the contract and the dust settles from the Cook Inlet acquisitions, The four pipelines in question — the Cook Inlet Hilcorp is assessing the potential to consolidate the Gas Gathering System, the Kenai Nikiski pipeline, see ‘BOIL-OFF’ GAS page 17 operation of the pipelines into a single pipeline sys- the Kenai Kachemak pipeline and the Beluga tem, a move that could greatly improve pipeline effi- pipeline — were all constructed at different times by Encana’s new boss faces testing ciency, delivering cost savings to the pipeline users, different owners for different purposes. And now, Edmund Jaroch, Hilcorp Alaska’s pipeline manager, time; Doug Suttles a BP veteran told a meeting of the Regulatory Commission of see PIPELINE EFFICIENCY page 18 Encana has put a former executive of BP at the helm of its ship, which may not be in danger, but is battling severe head- NATURAL GAS winds. The board of one of North America’s largest natural gas producers chose LNG tops BC to-do list Doug Suttles, a 22-year veteran of BP who spent eight years in Alaska, as its new chief executive officer to take over Premier Clark names veteran minister to head natural gas development portfolio from Randy Eresman who resigned six ister, as the head of a new months ago. By GARY PARK Natural Gas Development Suttles, most recently chief operating For Petroleum News Ministry and, just to reinforce officer of BP Exploration and

SHANE LASLEY the importance she attaches Production, will move into the top floor DOUG SUTTLES he British Columbia to LNG, deputy premier. of Western ’s tallest and newest headquarters tower. Tgovernment has sent out a clear message it will waste Clark gave Coleman a sin- He will need a head for heights. no time trying to get LNG gle over-riding mission: Encana has posted four straight quarterly losses, is export projects on track. “Close those sales deals ... squeezed by , despite signs of a rally this In unveiling her new cabi- bring them home.” year, and faces disaffected shareholders. net after the May 14 election, CHRISTY CLARK RICH COLEMAN She expressed hope that Strategies discussion to come Premier Christy Clark gave some contracts will be signed top priority to doing what she can to lock up sales this year, enabling British Columbia to achieve her Suttles told analysts June 11 he is not ready to talk about contracts and using LNG as her best chance to pro- goal of three operating LNG projects by 2020 and, operational strategies until he has time to develop a vision for mote job creation, resource development and eco- overall, generating C$1 trillion in economic activ- see NEW ENCANA BOSS page 14 nomic growth. ity in 30 years. She named Rich Coleman, former energy min- see BC LNG PROJECTS page 17 2 PETROLEUM NEWS • WEEK OF JUNE 16, 2013 contents Petroleum News North America’s source for oil and gas news ON THE COVER 7 Jewell makes ANWR stance clear Hilcorp’s troubles Interior secretary cites Obama opposition to oil exploration, sticks to controversial funding Alaska drilling regulators order firm to pay $115,500 for mounting violations proposal for ‘legacy well’ cleanup Looking to simplify 10 Kulluk hearing brought out key issues

Hilcorp evaluating the possibility Testimony to Coast Guard provided fascinating of unifying its Cook Inlet gas lines insights into the circumstances surrounding LNG tops BC to-do list the grounding of Shell’s drilling rig Premier Clark names veteran minister 11 Parnell signs Flint Hills royalty oil bill to head natural gas development portfolio’ 12 Beaudreau hears Arctic drilling views Enstar plans to buy ‘boil-off’ gas from idling Kenai LNG facility BOEM chief Tommy Beaudreau in Anchorage for ‘listening session’ on rules Interior should Encana’s new boss faces testing put in place for Arctic OCS drilling time; Doug Suttles a BP veteran 15 AOGCC looking for technical support ENVIRONMENT & SAFETY INTERNATIONAL 7 Court declines global warming case 14 Statoil cites tax issues in project delay 14 Court won’t reconsider polar bear decision LAND & LEASING FINANCE & ECONOMY 4 MGM backs off Mackenzie Delta 13 The ups and down of Alaska job growth NATURAL GAS A selection of new projects are driving employment to record highs, but inherent limitations keep 8 LNG industry eyes transportation market Alaska behind other states Viva la revolution: Switches in transportation GOVERNMENT fuels occur and they can occur quickly, such as the switch to diesel by long-haul trucks 3 Parnell: Multiple gas options in play PIPELINES & DOWNSTREAM LNG project under way to provide natural gas to Interior; AGDC working in-state line; next 5 premier chases all options up for large diameter line Ready to see pipeline resolution with BC, but 6 ConocoPhillips faces $45,000 penalty not to share royalties, not prepared to wait; sales pitch to Alaska drilling regulators cite violations surrounding a well in the company-operated Kuparuk River unit; hearing set for Aug. 20 6 Another CD-5 suit filed against Corps PETROLEUM NEWS • WEEK OF JUNE 16, 2013 3

GOVERNMENT Parnell: Multiple gas options in play LNG project under way to provide natural gas to Interior; AGDC working in-state line; next benchmark up for large diameter line

By STEVE QUINN Petroleum News: moving forward with its own plans for a I’ve said multiple times is that we as the For Petroleum News Let’s go back a year line. That’s, in short, the framework we state will take commensurate, propor- and a half. How has have. tionate steps with companies that want to il taxes may have grabbed more the Point Thomson build a gas line. Meaning, don’t expect O headlines, but advancing a natural agreement paid off Petroleum News: Do you believe there billions of dollars in tax changes unless gas pipeline project and marketing North toward a pipeline has been enough movement for people you are willing to put billions of dollars Slope gas never fell off the draft board in project? It’s pretty who have been hearing about a natural on the table for a project. Gov. Sean Parnell’s office. well accepted that gas pipeline for the last four decades to For instance, back in the day of the Last fall, Parnell traveled to Japan Point Thomson is feel optimistic? Stranded Gas Development Act, the pro- and Korea to tout the state’s export critical to advanc- GOV. SEAN PARNELL Parnell: When I came into office, ducers and the state had agreed on a prospects, highlighting decades of reli- ing a large-diameter Point Thomson had not been resolved framework for gas fiscals and certainty able Cook Inlet deliveries to Japan. line. and the companies were not aligned on over a long period of time, but the pro- Later that fall, Parnell proposed a Parnell: So far it’s hundreds of new negotiating on a project together. Where ducers had made no commitment com- $365 million financing package to deliv- construction jobs at the field. Next we we are today is what we have now is a mensurate with what the state had made, er North Slope natural gas to Fairbanks should be seeing more liquids produc- corporation that is empow- and I will not put the state and other Interior communities. With the tion from Point Thomson for the peo- ered to carry the state’s in that situation. Instead, Legislature’s backing, he advanced this ples’ benefit by 2016. Finally, there is interest on a gas line and my view is this: the state project (Senate Bill 23) and an in-state significant value in positioning that field capitalized to carry that has already committed up line (House Bill 4). Both bills received to feed a large-diameter gas line. There interest. We have four to $500 million under Parnell’s signature within the last month. is more going on than people appreciate companies — Conoco, BP, AGIA framework for reim- For the second straight year, he it. You should call the companies and ask TransCanada and Exxon — negotiating bursing the licensee there. The state has kicked off the legislative session by out- for employment figures. I think because their commercial terms, and to me that’s already committed over $300 million to lining expectations to advance a large- it’s on the east side of the North Slope progress. But I understand. Alaskans and capitalize AGDC to carry the state’s diameter natural gas pipeline. — out of sight, out of mind for most. I are frustrated as can be at not having interest in a line. With hundreds of mil- News of two benchmarks for North Unless you’re flying over that area, you gas at this point. But I also can look lions of dollars in value already on the Slope leaseholders ExxonMobil, wouldn’t know how much activity is back over the last three years and see table from the state I am looking for the ConocoPhillips and BP, and pipeline going on in that area. It’s been an eco- progress and see that we’re in a historic companies to put forth hundreds of mil- company TransCanada was expected no nomic boom for Alaska companies when place and the state has never been posi- lions of dollars of effort. That’s what I later June 20. it comes to construction and trucking tioned better to move forward on a gas mean by commensurate proportionate Those benchmarks are: a commitment and contractors. line. steps. to a full summer of field season work This is a different situation than 10 and enter the pre-FEED stage, also Petroleum News: Can you elaborate Petroleum News: At some point there years ago when companies were asking known as pre-front-end engineering and on what you envision with both projects will probably have to be fiscal term for fiscal certainty but then could come design, which means, Parnell says, com- possibly coming together? I know there negotiations. Has SB 21 taken care of back for a second bite of the apple mitting hundreds of millions of “private have been some criticisms directed some of that or will there be more items because they hadn’t made a specific sector” dollars. toward these prospects. to bring to the table? commitment to sanction a project. Lots Parnell spoke with Petroleum News Parnell: I think too many people get Parnell: SB 21 resolved the competi- of work to do there yet, but we’re mak- about progress made toward marketing stuck on what they see. I think what they tiveness of the oil tax system. Anybody ing progress. North Slope gas and advancing a see is AGDC working one project — the who runs gas through a gas line will pipeline project. This is the second of 36-inch line project — and they see the want some different gas tax terms. What see PARNELL Q&A page 15 two-parts. producers and TransCanada meeting benchmarks that I set in my State-of-the- Petroleum News: You’ve has some fun State addresses under an AGIA frame- signing some natural gas bills, starting work in another project. What is seen are with HB 4. What do you see as the value really two projects. What I envision is in advancing a natural gas pipeline proj- one project for Alaskans. Rather than ect? seeing what is, I see what can be. Here’s Parnell: Well, I think it’s at least two what I mean by that. If the producers and fold. The AGDC (Alaska Gasline TransCanada meet the benchmarks I set, Development Corp.) can carry the state’s then I envision AGDC carrying Alaska’s interest in a 42-inch line with the pro- interest in the 42-inch line. If the pro- ducers or it can continue moving with ducers and TransCanada do not meet other parties on its own line. That’s just those benchmarks, then I see AGDC the benefit of HB 4. It’s given us the opportunity to get Alaska’s gas to Alaskans. It’s made it flexible enough to achieve it one way or the other.

Petroleum News: On the shorter term, your LNG trucking proposal from the    fall is coming to fruition with SB 23. Is this what you had in mind back in the fall?        !$#"  Parnell: Absolutely. For the first time         in Alaska history, North Slope gas will be commercialized for the benefit of                Alaskans, particularly those in the         Interior. Secondly, this Interior energy project will provide an energy distribu-      tion system not just for the near-term trucking solution, but it provides a distri- bution system for when a gas line is completed through Alaska.

Petroleum News: So would these two become compatible in any way? Parnell: They already are. SB 23 authorizes financing for a gas distribu- tion system. That distribution has to be in place for Fairbanks residents, for example, and other Interior residents, to benefit from a gas line. So they are already complementary.                  ! 4 PETROLEUM NEWS • WEEK OF JUNE 16, 2013

LAND & LEASING MGM backs off Mackenzie Delta Faced with meeting an early C$6.3 million work-spending commitment to retain its exploration licenses in the Mackenzie Delta region of the Northwest Territories and little evidence that natural gas from the Arctic has any hope of reaching southern Canadian and U.S. markets, MGM Energy has headed for the exit. The Calgary-based junior explorer was the last company to continue drilling while the majors had shelved their exploration plans as hopes for the Mackenzie Gas Project to initially deliver 800 million to 1.2 billion cubic feet per day to customers started to dwindle. The -headed MGP venture went through a drawn-out regulatory process, a delay that saw the project overhauled by the rapid emergence of technolo- gy-driven prospects and a slump in commodity prices. Four licenses surrendered MGM has surrendered four exploration licenses that were due to expire in January 2016, failing which it was due to make a payment of C$6.3 million in June, and con-

see MAC LICENSES page 6

CORRECTION Charts re-run The charts accompanying the “New law gives operators a chance for one-time lease term extension” story in the June 9 issue of Petroleum News did not print correctly. Below are the charts as they should have appeared.

www.PetroleumNews.com

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PIPELINES & DOWNSTREAM Alberta premier chases all options Ready to see pipeline resolution with BC, but not to share oil sands royalties, not prepared to wait; sales pitch to New Brunswick

By GARY PARK lature, Redford said there is no reason why Canada cannot “It is fundamental for B.C. and Alberta to For Petroleum News handle both economic and environmental issues and build work together to ensure that we continue to be pipelines that benefit all Canadians. lberta Premier Alison Redford has expressed hope the economic engine of Canada.” “It’s not an either/or conversation,” she said. “We’ve Athat she can patch up differences with her British —Alberta Premier Alison Redford always done a very good job in Canada of being able to Columbia counterpart Christy Clark, but not to the extent balance (environmental and economic) interests and I think we can continue to do that.” of supporting tolls on pipelines from the oil sands to the Even so, she understands Clark’s desire to build eco- New Brunswick Premier David Alward said the Pacific Coast. nomic development across British Columbia. TransCanada proposal to move 500,000-850,000 bpd British Columbia Environment Minister Terry Lake “It is fundamental for B.C. and Alberta to work togeth- from Western Canada to Eastern and Atlantic Canada is told reporters during an Alberta visit earlier in June that if er to ensure that we continue to be the economic engine of gaining support from other premiers because it “makes ’s Northern Gateway was to proceed, his govern- Canada,” she said. economic sense for Canada. Where there are pipelines ment might consider putting a toll Redford also noted that Enbridge and the British there are opportunities for growth and prosperity.” on Alberta bitumen crossing British Columbia government plan to hold their own negotiations. Columbia to increase its revenue Redford said the energy industry is “fully on-side” with share of the project. Enbridge remains confident a west-to-east pipeline and Canadian Prime Minister “Certainly we would want to Stephen Harper met with the industry in Calgary two After many weeks of saying nothing publicly during make sure there’s a toll that looks months ago to enlist support for the proposal. the B.C. election campaign and a heated public debate after environmental protection, to over Northern Gateway, Enbridge Chief Executive Officer pay for the regulatory regime and Questions on path to peace Al Monaco told reporters after a National Energy Board have a spill response fund in place,” Not everyone is certain that Alberta and British pipeline safety forum that he remains “confident he said. Columbia will find an easy path to peace. ALISON REDFORD (Northern Gateway) will go, but I’m not taking it for However, talk of a border tax on Robert Johnston, director of global energy for the granted. We have a lot of work to do.” oil moving from Alberta to British Columbia could trigger Eurasia Group, said in a research note that Clark’s deter- He gave priority to meeting with the British Columbia threats of a retaliatory tax on natural gas moving eastward mination to get “value-added investment and job creation government and resolving its doubts over the pipeline from British Columbia. on the back of oil sands pipelines” sets the stage for tough because of unanswered environmental questions. Redford, without indicating whether she is open to negotiations. “I think the British Columbia position is pretty much compromise with British Columbia, has never shifted He said Alberta’s refinery industry and trade unions what they’ve stated, which is they want to see more infor- from her hard-line stance that sharing Alberta’s oil sands want spending on upgraders and refineries to occur in the mation,” Monaco said. royalties is “just a non-starter.” Edmonton area, “a prospect that would do little to appease He said Enbridge shares the concerns of the Clark gov- Clark.” ernment around certain issues. But Johnston doubts that the 500,000 bpd refinery pro- Redford said the energy industry is “fully on- “We’re hopeful that eventually we’ll be able to sit down posed for Kitimat by newspaper publisher David Black side” with a west-to-east pipeline and with them” and provide more information on safety plans would provide the answer if it has to compete for con- by the time regulators hear final arguments later in June, Canadian Prime Minister Stephen Harper met struction and materials with LNG projects. Monaco said, adding that a lot of issues can’t be resolved with the industry in Calgary two months ago He suggested the current Kitimat plan is “likely too until “detailed design” work starts. large as its output would exceed the needs of local markets to enlist support for the proposal. Redford has also made it clear she is not counting to compete in Asia-Pacific export markets, where com- exclusively on an agreement with the British Columbia plex refineries in China and India are already out-compet- government that would open the door to Northern Redford: ‘good discussions’ ing incumbents in markets like Japan and Australia.” Gateway and Kinder Morgan’s Trans Mountain expansion Johnston also said that a British Columbia refinery Redford said she and Clark have had “some very good — combined projects to provide access to for an would likely need backing from the British Columbia, discussions with respect to Gateway” since the British additional 1.1 million barrels per day of oil sands crude. Columbia election May 14, is certain she can deal in a Alberta and Canadian governments, along with an Asian straight-up manner with Clark and anticipates meeting Talking to New Brunswick investor. He said that could involve the use of government pen- later in June to discuss energy issues. With uncertainty hanging over pipelines from Alberta She is also anxious to ensure that the oil and gas indus- sion funds, although those funds are “independent and to the British Columbia coast and the U.S. Gulf Coast, would have to have a clear investment motive in any given try can have “confidence in a long-term regulatory frame- Redford travelled to New Brunswick on June 7 to tour the work where politics won’t be played. Otherwise that just project,” while Chinese financial support would be chal- 300,000 bpd refinery in Saint John and speak to lenged by China’s state-owned domestic refining and shakes investor confidence.” the provincial legislature about the merits of Until then, any talk of tolls is “very speculative. I think upgrading plants “where they can manage costs more TransCanada’s project which could see effectively.” that at this point getting into specific proposals or counter Canadian crude shipped to the Irving facility. proposals is not where we need to be.” To a standing ovation from the New Brunswick legis-

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GOVERNMENT ConocoPhillips faces $45,000 penalty Alaska drilling regulators cite violations surrounding a well in the company-operated Kuparuk River unit; hearing set for Aug. 20

By WESLEY LOY The commission’s proposed order indicates KRU 3Q- actual threat to public health or the environment,” and the For Petroleum News 16 is an injection well. It says the well was due for a company’s shut-in of the well once it determined KRU mechanical integrity test no later than Sept. 25, 2012. 3Q-16 was out of compliance. onocoPhillips Alaska Inc. is facing a $45,000 civil “By email dated November 13, 2012 CPAI notified the The commission is proposing a number of corrective Cpenalty for alleged violations at a well in the Kuparuk AOGCC that KRU 3Q-16 was returned to injection on actions. Within two weeks of the order becoming final, River unit on the North Slope. August 22, 2012 and ceased taking injection November 1, ConocoPhillips would have to provide “a detailed The company has asked the Alaska Oil and Gas 2012, and was shut in November 13, 2012,” the order says. description of its Underground Injection Control regula- Conservation Commission, which regulates drilling, to Every day from Sept. 26 through Nov. 12 was a viola- tory compliance program.” reconsider its decision to impose the penalty. tion, the order says. The company also would have to provide details of its As a result, the commission has scheduled a public Further, graphical plots of the well’s tubing, inner annu- tracking system for determining when mechanical hearing for 9 a.m. Aug. 20 in Anchorage. lus and outer annulus pressures indicated “significant pres- integrity tests are required. And ConocoPhillips would sure anomalies” that were not reported to the AOGCC, the have to provide a root cause analysis addressing the vio- Two violations alleged order says. lations. The commission says ConocoPhillips, which operates At an informal conference, the company indicated it the huge Kuparuk oil field, missed the deadline for a Mitigating factors had performed a root cause analysis and “outlined the mechanical integrity test and failed to report “pressure The commission said it considered certain factors in changes it had made in order to avoid similar violations communication” in well KRU 3Q-16 by the next working determining the appropriate penalty for ConocoPhillips. in the future,” the proposed order says. day. The civil penalty was decreased from the maximums But the company didn’t share the analysis with the “We expect to resolve this matter at the hearing in provided by statute, in part due to the company’s “gener- AOGCC. August,” company spokeswoman Natalie Lowman told al history of satisfactory compliance and practices.” Petroleum News on June 12. Other mitigating circumstances included “the lack of

GOVERNMENT Another CD-5 suit filed against Corps Center for Biological Diversity claims violation of Clean Water Act, Endangered Species Act, National Environmental Policy Act

By KRISTEN NELSON National Petroleum Reserve-Alaska has project could kick the door open for using horizontal . Petroleum News drawn another court challenge. The industrial development in the reserve’s The State of Alaska and the state’s Center for Biological Diversity said in a priceless habitat for caribou, birds and congressional delegation objected to the he approval by the U.S. Army Corps June 5 statement that it was challenging other wildlife,” Deidre McDonnell, a sen- Corps’ 2010 denial and ConocoPhillips Tof Engineers of ConocoPhillips the agency’s approval of the development. ior attorney with the Center for appealed the decision. Alaska’s CD-5 development in the “We’re deeply concerned that this Biological Diversity, said in a statement. In the December 2011 approval the An earlier suit, filed against the Corps Corps said the ConocoPhillips’ proposal in late February by Trustees for Alaska on “with special conditions” had been deter- behalf of seven residents of Nuiqsut, sub- mined to be the least environmentally sistence hunters and fishers, cited plain- damaging practicable alternative, “based Arctic Drilling Safety tiffs’ concern that the development would on other environmental consequences of harm their way of life. pipeline monitoring, leak detection, and Preparedness and Response spill response.” The Corps also said Drill site, bridge, road ConocoPhillips’ proposal for road access CD-5, or Alpine West, includes a new to CD-5 “is the only alternative that Mitigating Risks in a Tempestuous drill site in NPR-A, a bridge across the would provide year round spill response Environment to Achieve the Rewards Nigliq Channel of the Colville River car- access.” rying a crude oil pipeline from CD-5 to of Safely Expanded E&P the Alpine field processing facilities and LEDPA dispute three smaller bridges. The plan requires In its suit the Center for Biological August 15-16, 2013 | Anchorage, AK fill in 58.5 acres, including six miles of Diversity argues that ConocoPhillips’ road. plan “was not the least environmentally The Corps issued a Section 404 permit damaging practicable alternative” “Aligning for Alpine satellite CD-5 in December (LEDPA). In reversing its original deci- 2011, but that was after denying that per- sion, the Corps in its “decision green Safety Priorities mit in 2010 based on objections from the lights the first oil development within the and Objectives for Successful U.S. Fish and Wildlife Service and the National Petroleum Reserve-Alaska Drilling Operations. U.S. Environmental Protection Agency, (Reserve) and would connect the Reserve ” both of whom opposed the bridge over the with existing oil infrastructure outside its Expanding Arctic exploration and development with Nigliq Channel. In early 2010 the Corps boundaries,” the complaint states. acute attention placed on safety and prevention. said there were less environmental dam- Plaintiffs call for a supplemental envi- aging practicable alternatives, specifical- ronmental impact statement, arguing that Current Arctic Drilling Safety Preparedness ly a pipeline under the Nigliq Channel see CD-5 LAWSUIT page 7 and Response Experts Include: Crispin Chatar Lead Drilling Engineer continued from page 4 Gruden of Tuktoyaktuk, NWT, who said D&M Alaska he was “not too worried” by MGM’s MAC LICENSES decision, Mark E. Fesmire, PE JD He said that exploration being devel- Alaska Regional Director solidated another license. Bureau of Safety and Environmental Enforcement (BSEE) oped for the Beaufort Sea by Imperial John Hogg, MGM vice president of Oil, ExxonMobil, BP and Bharat Dixit exploration and operations, told the ConocoPhillips meant that region would Technical Leader, E&P Canadian Broadcasting Corp. that his National Energy Board (NEB) still go forward. company “saw little potential for the Activity is also intense on the Canol Mackenzie gas pipeline to be back on shale region of the Central Mackenzie Contact: stream before those licenses expire” and Robin Yegelwel | E: [email protected] | P: (312) 540-3000 ext. 6483 Valley, giving the NWT some hope of without a pipeline there was no reason to resource development. drill for oil. —GARY PARK “It just doesn’t make sense to not have

Scan Here the infrastructure to get your product for More out,” he said. Information: Less troubled was Mayor Merven PETROLEUM NEWS • WEEK OF JUNE 16, 2013 7

GOVERNMENT ENVIRONMENT & SAFETY Sally Jewell makes Court declines global warming case In a May 20 ruling the U.S. Supreme Court declined to hear a case in which the Chukchi Sea coastal village of Kivalina had sued multiple energy and utility compa- nies for the impacts of global warming from fossil fuel use. The village claimed that ANWR stance clear recent coastal erosion threatening the village’s survival is a direct consequence of human-induced global warming. Companies sued included ExxonMobil, BP, Chevron Interior secretary cites Obama opposition to oil exploration, and ConocoPhillips. According to court documents the village alleged that carbon dioxide produced by sticks to controversial funding proposal for ‘legacy well’ cleanup energy company actions has caused the Earth’s atmosphere to warm. Consequent loss of sea ice has left the village’s land exposed to massive erosion from storms, the vil- By WESLEY LOY Legacy well cleanup lage claimed. The village also claimed that rising sea levels as a consequence of the For Petroleum News expansion of the ocean waters and the melting of glaciers and ice caps is destroying Murkowski and Jewell also had an Kivalina’s land. interesting exchange on the so-called n case anyone is still unsure where the The California District Court originally dismissed the claim on the grounds that legacy wells on Alaska’s North Slope. dealing with climate change is a political issue and because the court found that IObama administration stands on The legacy wells are dozens of test drilling in the Arctic National Wildlife Kivalina had not demonstrated a causal connection between the energy companies’ wells the U.S. Geological Survey and the Refuge, please refer to newly installed actions and damage to the village. The case was appealed to the U.S. Court of Appeals Navy drilled between 1944 and 1982 in or Interior Secretary Sally Jewell’s recent for the 9th Circuit, which found that the federal Clean Air Act and consequent actions near what today is called the National congressional testi- of the Environmental Protection Agency to address greenhouse gas emissions super- Petroleum Reserve-Alaska. Another mony. sede Kivalina’s ability to make a statutory claim against the energy companies as a Interior agency, the Bureau of Land “The president “public nuisance.” Management, shepherds the vast NPR-A. has made it clear By declining to take the case, the Supreme Court has presumably in effect upheld Murkowski and other state officials that it is not part of the 9th Circuit’s position. say the federal government has neglected his agenda to do oil Although there has been a stream of court cases in recent years relating to climate the legacy sites, where some wells remain and gas exploration change, the Kivalina case is somewhat unusual in that it has involved litigation under unplugged and surface areas are junk- in the Arctic common law. Most cases have involved appealing government agency decisions under strewn and potentially contaminated. National Wildlife legislative schemes such as the National Environmental Policy Act. Refuge, and I sup- —ALAN BAILEY see ANWR STANCE page 14 port that position,” SALLY JEWELL she said. Jewell made the statement under ques- tioning from U.S. Sen. Lisa Murkowski, R-Alaska, during a June 6 hearing of the Senate Energy and Natural Resources Committee. Murkowski is the commit- tee’s top-ranking minority member. The secretary’s testimony comes as an Interior agency, the U.S. Fish and Wildlife Service, prepares to finalize a new man- agement plan for ANWR. To the dismay of Murkowski and other Alaska elected officials, the draft version of that plan didn’t include an alternative for allowing oil and gas exploration on ANWR’s highly prospective coastal plain. The draft, however, did include options to convert the coastal plain to wilderness, which effectively would ban exploration permanently in the area. Murkowski, during the hearing, said it seemed inconsistent to include wilderness alternatives and not an oil and gas alter- native, because an affirmative act of Congress would be required either way. The senator cited federal regulations she said require the Interior Department to analyze all reasonable alternatives, and she urged Jewell to take another look at the ANWR management plan before releasing the final version.

continued from page 6 CD-5 LAWSUIT

“the Corps failed to conduct a site-specif- ic analysis as required by the National Environmental Policy Act (NEPA), instead relying on a nearly nine-year-old analysis conducted before ConocoPhillips made its current propos- al.” The Center for Biological Diversity also said the Corps failed to consult with the National Marine Fisheries Service to ensure the project would not jeopardize whales and seals listed under the Endangered Species Act. The Center for Biological Diversity is a national nonprofit conservation organi- zation; it said in its filing that it has been actively involved in protecting Alaska’s wildlife since the early 1990s, and has been involved in protection of wildlife resources in NPR-A since 1998. 8 PETROLEUM NEWS • WEEK OF JUNE 16, 2013

NATURAL GAS LNG industry eyes transportation market Viva la revolution: Switches in transportation fuels occur and they can occur quickly, such as the switch to diesel by long-haul trucks

By BILL WHITE for ship power at Wartsila, a Finnish maker of ship engines. He discussed how in just Researcher/writer for the Office of the Federal Coordinator 13 years, during the 1940s and 1950s, almost the entire North American railroad ransportation revolutions do occur. industry abandoned coal-fired steam loco- TAnd they can get traction quickly. motives in favor of diesel fuel. At the LNG 17 conference, two speak- The economic benefits of diesel over- ers recounted stories of a new fuel over- powered coal for railroad companies after throwing an older, long-entrenched one new engines improved thanks to compelling economics and new the efficiency of diesel technology. fuel, he said. Will a new revolu- Long-haul trucks switch to diesel tion led by LNG Before the 1950s, U.S. highway trucks ADMINISTRATION ENERGY INFORMATION U.S. SOURCE: dethrone diesel? Hatley thinks so. LNG as ran on gasoline. Diesel was around and a locomotive fuel is starting to show the had been tested, but it was more expen- same advantages over diesel that diesel sive, less available showed over coal, he said. Trains will and heavier, said switch to LNG locomotives even faster Paul Blomerus, who than they embraced diesel six decades works for Westport ago, he predicted. Innovations Inc., a eration get a two-fer out of natural gas, Steam ships displace sails global leader in natu- Power plants embrace natural gas making the fuel more appealing. ral gas engines. “Recently, an even more rapid transi- As for ships, Hatley noted, coal-fueled In 1986, just 6 percent of new-build But in the 1950s tion is taking place in the electricity gen- steam ships took 85 years to knock sails power plants burned natural gas. By 2000, and 1960s, more eration industry, from coal to natural gas,” out of the game. Eighty-five years? Well, 96 percent of new power plants were built efficient engines hit Blomerus and Oulette wrote. Hatley said, it took a while to improve for natural gas, Blomerus told the confer- the market and diesel Coal has been the dominant fuel source steam engines so they stopped blowing up BILL WHITE ence. became less expen- for electrical generation for decades. Coal and sinking vessels. Favorable economics plus technology sive and more plentiful. is relatively inexpensive. But natural gas is It won’t take that long for LNG to dis- that works equals a rapid transition, he “The market share of diesel trucks a cleaner and more energy-efficient fossil place diesel as a ship fuel, he said. “It’s a said. The same phenomenon has happened grew from 10-15 percent in 1950 to 100 fuel. small leap. The technology is available and in recent years as trash-hauling companies percent by the 1980s. Even though diesel- A new technology In the 1980s helped proven.” have switched to CNG-fueled trucks, he powered trucks cost more and were heav- improve natural gas economics as a Not all revolutions result in a new said. Westport has teamed with Cummins ier than gasoline-powered trucks, the eco- power-plant fuel. So-called combined- regime, however. Inc. to develop efficient natural gas-fueled nomic case provided by the increased pro- cycle generation works this way: Gas pow- In the 1980s and early 1990s, the Soviet engines. ductivity and lower fuel costs was over- ers a turbine to make electricity, and the Union dabbled with LNG as an aircraft fuel. A converted Tupolev Tu-155 jet (sim- whelming,” Blomerus said in a paper he hot exhaust from this process powers a Railroads move to diesel co-authored with Westport colleague steam turbine also to make electricity. ilar to a Boeing 727) took flight in January Patric Oulette for the conference. Power utilities using combined-cycle gen- John Hatley is Americas vice president 1989 with LNG powering one of its three engines, International Gas magazine said in a recent feature on LNG as a trans- portation fuel. “The aircraft made a visit to Nice for LNG 9 later that year and to Berlin for the THE 18th World Gas Conference,” the maga- zine said. But the pilot project got grounded TEAM when the Soviet Union collapsed. A 360-degree approach THAT Shell hopes it has the right strategy to crack the chicken-or-egg puzzle: Simultaneously develop all facets of an DELIVERS LNG transportation-fuel industry. First, Shell will supply the LNG. Most liquefaction plants are massive, multibillion-dollar factories built to supply 7EJIX] huge volumes for the export market. A niche transportation user would be chal- lenged to get such a plant to even return its ,IEPXL phone calls. So Shell developed a Shetland pony )RZMVSRQIRX version of an LNG plant, one more suited to serving small-scale markets. Shell’s Moveable Modular Liquefaction System 5YEPMX] aims “to deliver LNG on a smaller scale than would be economic and convenient for use in the transport sector,” James Burns, general manager for Shell LNG for Transport, Americas, said at the LNG 17 conference. Shell’s first mini-LNG plant is under construction outside Calgary. To give a sense of the difference in scale, consider the Alaska LNG export project under consideration by ExxonMobil, BP, ConocoPhillips and TransCanada. If built as currently con- ceived, the plant would export 15 million to 18 million metric tons per year, or 2 bil- lion to 2.4 billion cubic feet a day. The Shell Alberta plant’s capacity will be 250,000 metric tons per year, or 33 million (907) 562-5303 | akfrontier.com see LNG MARKETS page 9 PETROLEUM NEWS • WEEK OF JUNE 16, 2013 9 continued from page 8 a $2.3 million federal grant to help pay for moving in the same direction at the same A variety of reports peg the cost of converting one ferry to natural gas, time. LNG MARKETS converting a long-haul truck to according to the American Gas The old chicken-or-egg riddle. LNG at up to $100,000. While Association. “Someone has to take the initiative,” he cubic feet a day. (GE has developed an UPS and a few other trucking American Clean Skies in 2012 estimat- said. even smaller LNG plant.) ed the cost of converting a medium-sized Poten’s forecast for 2025: 8.5 million For other parts of the value chain, Shell companies have embraced LNG fuel, most others are leery. tug at $7 million, and a Great Lakes bulk metric tons. Just as turning a ship takes is collaborating with TravelCenters to sell carrier at $24 million. time, getting ship owners to adopt a new fuel at truck stops, with Volvo to make A variety of reports peg the cost of con- fuel occurs gradually, he said. LNG-fueled trucks, GE to develop loco- located near coastal cities, the LNG asso- verting a long-haul truck to LNG at up to Poten’s analysis of the market assumes motives that can run on both diesel and ciation said. $100,000. While UPS and a few other only newly built ships will use LNG. LNG, and Wartsila to speed deployment of trucking companies have embraced LNG Conversion of existing ships is expensive LNG-fueled ship engines. Winning economics? fuel, most others are leery. and technically challenging. It also keeps GDF Suez is taking a similar tack in It’s unclear whether LNG fuel can “The upfront cost is too high,” one ships in port instead of at sea making Europe via subsidiary GNVERT (transla- leverage its two most winning features — trucking executive told Reuters. “We can’t money while the conversion occurs, tion “green natural gas”). Gas will come a cost advantage and less pollution — into make the economics work.” Adamchak said. Owners of existing ships from several LNG importing terminals in a sizeable market share in the transporta- At the LNG 17 conference, Paul likely will opt to burn a low-sulfur brew of Europe. GDF is working with truck mak- tion industry. Blomerus of Westport Innovations flashed diesel, which is more expensive than regu- ers IVECO and Volvo to develop and test On price, LNG is about $1.50 a gallon a slide on the screen showing that if the oil, lar diesel, or install pollution scrubbers on vehicles. Its first LNG refueling station is cheaper than diesel at today’s oil and natu- mining, rail and marine industries were smokestacks. under construction outside Paris. More are ral gas costs in North America. Clean consuming LNG instead of diesel, global Last year, a Lloyd’s Register study also planned along major border-crossing high- Energy says its LNG price in California LNG demand would grow by one-third, or concluded LNG’s best bet would be with ways. GDF will design, build and finance, averaged $2.91 per gallon of diesel equiv- 80 million metric tons a year (almost 11 new construction. And LNG might get just if necessary, the refueling stations, said alent last year, compared with a diesel fuel billion cubic feet a day). a toehold there. Hubert, GNVERT’s chief executive. average of $4.23. In Asia, LNG might not There’s a boisterous debate about how Lloyd’s is one of the big international “Our solution is to solve (the chicken- have much price advantage because, much of that opportunity space LNG can organizations that establishes technical or-egg problem) for all transportation unlike in North America, so much LNG is win. standards for ship construction and opera- companies,” Hubert said. sold there at oil-linked prices. “LNG has become a credible chal- tions. In its report, Lloyd’s predicted just 4 Jeffrey P. Beale, president of U.S.-based On pollution, new International lenger to oil products for marine and percent of new ships delivered by 2025 — LNG consulting firm CH-IV Maritime Organization rules strictly limit heavy-duty transportation,” three market 653 ships total — would use LNG fuel. International, told the Houston conference sulfur oxide emissions by ships. Ordinary analysts for French oil company Total said LNG’s best bet is as a fuel for contain- an already-existing source of LNG should diesel and heavy fuel oil emit a lot of sul- in a paper delivered at LNG 17. “However, er ships, cruise ships or oil tankers, Lloyd’s be considered. U.S. utilities built over 50 fur oxide when burned. LNG has virtually the lack of infrastructure for LNG retailing said. small LNG plants during the 1960 and zero SOx emissions. and the limited number of LNG-fueled At LNG 17, Hatley of Wartsila took the 1970s. The plants were designed to give In two parts of the world — along the vehicles creates a challenge. Therefore, the long view about LNG’s future as a marine the utilities extra natural gas during peak U.S. and Canadian coasts, and in the Baltic emergence of an LNG market for marine fuel: “Probably within 30 to 40 years a winter demand. and North seas as well as the English and heavy-duty transport depends on pow- dramatic change will occur.” But many of these so-called peak Channel — the SOx limits are ultra-strict. erful drivers being in place to break the shavers are idle or under used because As of 2010, the sulfur content of marine stalemate.” Part 1 of this story appeared in the pipeline gas is more readily available to fuel in these “emission control areas” must For just marine fuels, forecasts range June 9 issue. utilities now, Beale said. The transporta- be 1 percent or lower. As of 2015, the sul- from 700,000 to 66 million metric tons of tion industry should look to these plants as fur content must be 0.1 percent or lower. LNG demand by 2025, Frederick Editor’s note: This is a reprint from the a source of LNG fuel for long-haul trucks These limits explain Totem Ocean Adamchak of consultancy Poten & Office of the Federal Coordinator, Alaska and ships, he said. Trailer’s conversion of its Alaska fleet to Partners told the LNG 17 crowd. He called Natural Gas Transportation Projects, China’s LNG initiative LNG as well as Shell’s move to make LNG it a challenge to get ship owners, ship online at www.arcticgas.gov/lng-industry- for ships plying the Great Lakes, builders, ports, suppliers and others all eyes-transportation-market. China’s love affair with small-scale Mississippi River and LNG plants resembles what happened in coast. North America 40 to 50 years ago. For ships sailing on the open ocean and ACHIEVE China’s first commercial LNG plant along other coasts, the sulfur content of MORE started up in 2001. By the end of 2012, their fuel can be 3.5 percent now, a limit about 60 plants had been built. Seventeen that will shrink to 0.5 percent in either started in 2012 alone. A typical size is 2020 or 2025, depending on cleaner TRUSTED 700,000 to 10 million cubic feet a day, marine-fuel availability. according to the China LNG Association. But neither of these LNG advantages That’s between one and 10 cargoes a day, — lower price and pollution — come for as the average 40-foot-long tanker truck free. can carry about 1 million cubic feet of gas Transportation as LNG. Costly conversions Motivated in part by serious urban air For trucks, the build-out of LNG fuel- pollution, the Chinese government last ing stations has only just begun. For ships, year issued a new Natural Gas Utilization northern Europe has a few LNG refueling Policy. It calls for more dual-fuel cars and ports and a couple other ports there are LNG vehicles, plus LNG or dual-fuel maneuvering for position. Singapore also ships on rivers, lakes and along the coun- hopes to become a refueling hub. But that’s try’s coast. about it. The number of LNG filling stations Further, conversion costs are high. doubled in 2012, reaching 385, mostly The Staten Island Ferry system is using 10 PETROLEUM NEWS • WEEK OF JUNE 16, 2013

GOVERNMENT Kulluk hearing brought out key issues Testimony to Coast Guard provided fascinating insights into the circumstances surrounding the grounding of Shell’s drilling rig

By ALAN BAILEY anchor handling vessel, the Aiviq. An Petroleum News emergency towline was subsequently hooked up between the two vessels. But he U.S. Coast Guard has yet to pub- early on Dec. 28 the Aiviq lost power in all U.S. COAST GUARD Tlish the results of its investigation four of its engines. Later that day the into the circumstances surrounding the Guardsman, a support vessel, arrived on Dec. 31 grounding of the Kulluk, Shell’s scene and took the Aiviq and Kulluk under Arctic floating drilling platform. But a tow in a tandem configuration. nine-day public hearing in Anchorage, On the morning of Dec. 29 the tow gathering testimony for the investigation, from the Guardsman failed. By noon of provided some fascinating insights into that day, following repairs to the Aiviq’s the events that led to the Kulluk ending up engines, three of the engines were back in on the shore of a remote island on the operation. But by that time the Nanuq, northern coast of the Gulf of Alaska. Shell’s Arctic oil spill response vessel had arrived on scene and, together with the Chain of events Aiviq, succeeded in bringing the Kulluk The broad outline of that chain of under tow again. events was already well known. On Dec. But with the weather worsening 27, 2012, during a tow from Dutch Harbor towards a severe storm, eventually with a in the Aleutian Islands to the U.S. West 55- to 64-knot gale and 35- to 45-foot Coast, the towline parted between the seas, vessels attempting to tow the Kulluk Kulluk and the vessel towing it, Shell’s to safety experienced multiple towline failures and were ultimately unable to pull the Kulluk against the wind. The drilling platform ran aground on the evening of Dec. 31. Detailed testimony presented at the Coast Guard hearing, as reported in a series of articles in the Anchorage Daily News, provided insights into various fac- tors relating to the grounding. Moved for maintenance Shell has said that it needed to move the Kulluk south from Alaska for mainte- nance work in a West Coast shipyard in preparation for drilling in the Beaufort Sea in 2013 (following the Kulluk ground- ing the company postponed its drilling plans to 2014 at the earliest). Sean Churchfield, Shell’s operations manager in Alaska, told the hearing that work need- SECOND ANNUAL ALASKA ed on the Kulluk included the replacement of cranes. Although Shell has said that the timing OIL & GAS CONFERENCE of the rig move was mainly determined by the need to complete the maintenance work in good time for the 2013 drilling season, Churchfield told the hearing that July 10, 2013 Shell had wanted to move the rig out of Dena’ina Civic and Convention Center Alaska before the end of the year to avoid having to pay state property taxes for the 600 W. Seventh Avenue, Anchorage, AK rig — taxes are based on a company’s inventory in the state on Jan. 1. However, An all day program exploring a range of topics, including according to a February Associated Press LNG exports, State of Alaska initiatives to promote oil and report, state officials have said that, as a drilling vessel operating outside state gas development, and unconventional plays. waters, the Kulluk would not have been assessed state taxes. Confirmed and invited speakers represent the oil and gas Norman Custard, Shell’s team lead for industry, regulatory agencies, the legal sector, state officials, emergency response in Alaska, told the service providers, and analysts. This program is relevant hearing that the tow had been expected to take 18 to 24 days and that no one had to senior executives, in-house counsel, infrastructure forecast seas in excess of 30 feet during developers, and buyers and sellers of Alaska oil and gas. the period of the tow. Marc Dial, a tow master with Offshore Rig Movers, who Proudly co-sponsored by Petroleum News. had been in charge of the tow of the Kulluk north to Dutch Harbor in June K&L Gates LLP. Global legal counsel in more than 48 fully 2012, testified that a winter transit through the Gulf of Alaska could be con- integrated offices across five continents. ducted safely. To register, call (503) 226-5777. Crew on board But why did Shell have a crew of 18 on board the Kulluk during the winter tow? During the first day of the hearing Custard testified that a prime concern from the outset of the towing incident had been the safety of the crew and the need to evacu- ate the crew from the drilling rig. Dial said that Shell’s warrantee survey- or who had examined the towing system

see KULLUK HEARING page 11 PETROLEUM NEWS • WEEK OF JUNE 16, 2013 11 continued from page 10 swells at different times. he suspected that a fuel additive had uncontaminated tank. Edison Chouest, the It is clear from testimony presented at caused the problem. However, Coast company owning the Aiviq, had flown the KULLUK HEARING the hearing that the tow parted because of Guard investigator Keith Fawcett when additional injectors to Kodiak in the com- the failure of a large shackle used to con- questioning Skoglund, the Aiviq’s captain, pany owner’s private jet, with the Coast for the company’s insurance underwriters nect the towline to the Kulluk’s tow gear. commented on a common practice of Guard then delivering the injectors to the had insisted that a crew needed be on But, with the shackle now lying on the adding biocide to vessel fuel to prevent the Aiviq, Broekhuis said. board the Kulluk. seafloor somewhere in the Gulf of Alaska, formation of algae and slime. Skoglund During the hearing the Coast Guard According to Capt. Jon Skoglund, mas- it is unlikely that anyone will ever estab- said that he was not aware of any biocide indicated that it anticipated publishing its ter of the Aiviq, the requirement to have a lish whether the shackle broke, or whether being used to treat the Aiviq’s fuel tanks. inquiry report in early July but the agency crew on the Kulluk caused Noble Drilling the cotter pin that closed the shackle sim- The Coast Guard has taken samples of has since said that the publication date will Corp., the company providing the crew, to ply came out, releasing the towline. the Aiviq’s fuel for analysis but has not yet be delayed. insist that the tow take a route relatively published the analysis results. The Anchorage Daily News con- close to the coast, rather than a direct route Shackle inspected Apparently the Aiviq was carrying tributed to this story. across the middle of the Gulf of Alaska. Anthony Flynn, an oil and gas technical spare fuel injectors but, nevertheless, had Noble wanted a route that would enable consultant with GL Noble Denton, was to obtain additional injectors to restore the evacuation of crew members from the Shell’s warranty surveyor for the tow. engine operations, using fuel from an Kulluk, if necessary, Skoglund said. In the Flynn testified that he had inspected the event, following the failure of the tow with shackle prior to the tow and that at that the Aiviq, the Kulluk’s crew had to be time the shackle’s cotter pin had been in evacuated by Coast Guard helicopter. place. The tow master, a Shell representa- But the direct, more southerly route GOVERNMENT tive, an engineer and others had all across deep water would have lessened the inspected the tow gear, Flynn said. risk of a grounding and would have Apparently the shackle had a 120-ton Parnell signs Flint Hills royalty oil bill allowed the use of a longer tow line, with rating, a rating higher than the 85-ton rat- Alaska Gov. Sean Parnell has signed legislation extending state royalty oil sales the long line sinking deep into the sea to ing specified in the Kulluk tow plan. to the Flint Hills Resources refinery at North Pole, near Fairbanks. absorb buffeting from rough weather, According to an Associated Press report Parnell signed Senate Bill 86 into law during a June 11 visit to the refinery. Skoglund testified. on the Coast Guard hearing, William “Extending the state’s contract with Flint Hills Refinery is good for the Interior Towline parted Herbert, under contract with Shell from and good for Alaska,” Parnell said in a press release. “Many industries across Delmar Systems Inc., had also inspected Alaska rely on the fuels that Flint Hills produces, and the extension of this con- Todd Case, a Noble rig manager, testi- the shackle prior to the departure of the tract will keep Alaska’s economy growing.” fied that at the time when the tow line Kulluk from Dutch Harbor and had found parted on Dec. 27 the Kulluk had been the shackle to be in good condition. Passed unanimously moving slowly over giant, long swells and Herbert said that the 3-inch diameter tow- The Alaska Legislature passed SB 86 unanimously. Legislative approval was had not been pitching or rolling violently. line, with a breaking strength of 85 tons, required to execute the new five-year contract the Parnell administration had Bobby Newill, the Aiviq’s third mate, should have broken rather than the shack- negotiated with Flint Hills. described the weather as “moderate” at the le, should the tow system have been sub- The contract will follow an existing 10-year contract that expires on March 31, time of the tow failure. jected to excessive stress. 2014. Case commented that he thought that Under the new contract, the state will supply 18,000 to 30,000 barrels per day there should have been two tugs, rather Slime in fuel of royalty crude to Flint Hills. than just the Aiviq, conducting the tow. The multiple engine failure in the Aiviq Royalty oil is the state’s share of the oil that companies produce from leased, But Rodney Layton, captain of the Alert, a on Dec. 28 appears to have resulted from state-owned land. The refinery draws North Slope crude from the trans-Alaska tug that assisted the Aiviq in trying to pull the clogging of the engines’ fuel injectors pipeline, which passes nearby. the Kulluk to safety on Dec. 31, described by a slimy material in the fuel, according The North Pole refinery is the state’s largest, producing predominantly jet fuel. the hazards of using two tugs in heavy to testimony by Carl Broekhuis, the Flint Hills is a subsidiary of Koch Industries Inc. of Wichita, Kan. seas, with the two vessels operating in rel- Aiviq’s chief engineer. Broekhuis said that —WESLEY LOY atively close proximity and coming off

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GOVERNMENT Beaudreau hears Arctic drilling views BOEM chief Tommy Beaudreau in Anchorage for ‘listening session’ on rules Interior should put in place for Arctic OCS drilling

By LISA DEMER chambers at Loussac the Northwest Arctic Borough and con- through an administrative appeals process. Anchorage Daily News Library for a listen- cerned individuals spoke up too. But after Sen. Lisa Murkowski pushed to ing session intended Some highlights: streamline the process and move air permit gainst the backdrop of Royal Dutch to help the depart- • Shell’s Lucas Frances said the compa- approvals to the Bureau of Ocean Energy AShell’s troubled 2012 attempt to drill ment craft new rules. ny has long advocated for “clear, pre- Management, that opportunity vanished, he in the Arctic Ocean, a top Interior official Beaudreau told dictable, consistently applied rules.” Shell, said. — and former Alaskan — heard the gamut the audience he still the biggest leaseholder offshore Alaska, “You are giving us no time frame, no of views June 6 about whether and how oil felt a connection to supports high standards, but the federal opportunity for administrative appeal. companies can safely drill offshore in the Alaska, where his government also needs to allow room for Basically, you are taping our mouth shut,” Alaska Arctic. family moved in TOMMY BEAUDREAU innovation and not tell operators how to Lum said. No drilling at all, said the Sierra Club. 1979. He remembers solve all the issues, he said. Companies Clear and consistent standards, said the when Loussac was built and wondered if it shouldn’t be instructed to be good neigh- Borough questions exclusion oil companies and industry groups. had more books now. For a time, his father bors — that’s essential and will happen • Kenny Gallahorn, an official with the The Department of the Interior for the worked on the North Slope, two weeks on, anyway, he said. Northwest Arctic Borough, questioned why first time is crafting specific rules for oil two weeks off. Beaudreau was a junior at Shell, one of the biggest oil producers in the borough was excluded from the formal and gas exploration and production off- Service High School during the Exxon the world, last year experienced a grounded community consultation process. Even shore in the Arctic. While Shell was oper- Valdez oil spill. oil rig, another rig that dragged anchor, though his region doesn’t border the ating under special conditions, such as a “That made, obviously, a huge personal equipment issues on both rigs, and engine drilling areas, marine mammals hunted by ban on drilling into oil-rich zones without a impression on me,” Beaudreau said. “So I failures on a tow ship — and that’s without borough residents cross borough lines, he spill containment system, those require- also understand that perspective of things tapping into oil-producing rock. said. Beaudreau said later the community ments don’t automatically extend to other — problems, the disruption, the harm that • Mike Faust of ConocoPhillips said the may need to be directly brought into the oil companies. can be caused when oil and gas activity company expects clear and reliable stan- process. goes wrong.” A lawyer, he landed at the dards that won’t change during exploration • Rick Rogers, executive director of the Beaudreau led critical review Department of the Interior in 2010, two and development. And like Shell’s Frances, Resource Development Council, noted that Tommy Beaudreau, director of the months after BP’s deadly Deepwater Faust said the federal government should years ago 30 wells were drilled in the Bureau of Ocean Energy Management and Horizon blowout in the Gulf of Mexico. craft “performance standards” but not pre- Beaufort Sea and five in the Chukchi Sea the department’s acting assistant secretary Now he’s overseeing the rules to ensure scribe particular technology or equipment. “without incident.” Technology has only over land and minerals management, earli- safe drilling here. improved since then, he said. er this year led a critical review of Shell’s Wilderness Society cites challenges • But Tom Lohman, environmental 2012 drilling season about which then- Shell, Conoco want consistency • Lois Epstein, Arctic program director resource specialist for the North Slope Interior Secretary Ken Salazar concluded, Beaudreau and other federal officials for The Wilderness Society, said Shell’s Borough, noted that some whaling commu- “Shell screwed up.” heard June 6 from Shell, which has can- troubles illustrate the challenge of Arctic nities failed to get a whale during that ear- “Our report says going forward we celed plans for drilling this year, and drilling. The new rules need to go beyond lier drilling. Last year for Shell, regulators should have in the regulations additional ConocoPhillips, which has put off its Arctic the requirements put on Shell, she said. banned drilling during whaling season. Alaska-specific standards for operations offshore drilling because of uncertainty Among the dozen items on her list are polar The industry’s call for performance offshore in this state,” Beaudreau told 50- over standards. Environmentalists, repre- class oil rigs, Arctic-engineered pipelines, standards doesn’t make sense, Lohman plus people gathered in the Assembly sentatives of the North Slope Borough and standby rigs to drill relief wells in case of a said, when companies haven’t demonstrat- blowout, well-capping and containment ed an ability to clean up an oil spill in the systems, and zero discharge of drilling mud Arctic. and other waste at sea. Beaudreau was scheduled to hold two • Daniel Lum of Fairbanks, who grew additional listening sessions June 7 in up in Barrow, told Beaudreau that his Barrow. His team will go over the com- agency isn’t giving the public enough time ments in detail, he said. to comment on oil company permits before “I think what we heard here today from they are issued. When permits limiting air across the spectrum, and we did get the pollution from rigs were under the federal entire spectrum today, was a lot of passion Environmental Protection Agency, for and a lot of sincere belief and strong feel- example, groups could challenge them ing across the board.” PETROLEUM NEWS • WEEK OF JUNE 16, 2013 13

FINANCE & ECONOMY The ups and down of Alaska job growth A selection of new projects are driving employment to record highs, but inherent limitations keep Alaska behind other states

By ERIC LIDJI markets it serves, the industry is primarily an For Petroleum News More Jobs Despite Production Decline upstream endeavor. The few long pipelines  Alaska oil production and employment, 1987 to 2012 snaking across the North Slope and the sin- t can be hard to make sense of oil and gas     gle pipeline down through the state to Valdez Iindustry employment in Alaska.     barely compare to the thousands of miles of The industry has reported record     pipelines crisscrossing the Lower 48, and the   employment levels almost every year since handful of Alaska refineries mostly serve   ƉĞĂŬƉƌŽĚƵĐƟŽŶ 2006 and as of April 2013 direct employ-   local needs. ment stood at a high of 14,100 jobs. But the In 2012, the six Alaska refineries han-   steady increase in jobs came as oil produc-   dled 385,000 barrels of oil per day, while the tion fell just as steadily over the same time 19 Louisiana refineries handled 3.2 million   period. The rise in employment generally barrels per day, 2.5 times as much per facil-   followed a similar rise in oil prices, except  ity. that a sharp drop in oil prices during the The remoteness impacts the workers, as early days of the recession barely dented the   well as the work. The non-resident work-   steady growth in employment. force in the Alaska oil industry has hovered

  WORKFORCE DEVELOPMENT AND OF LABOR ALASKA DEPARTMENT For all its economic power, the core between 26 and 31 percent for a nearly a industry comprises just 4 percent of   decade.

statewide employment. Alaska is currently      responsible for some 8 percent of total Look out for Sources: U.S. Department of Revenue; and Alaska Department of Labor and Workforce domestic oil production, but employs less Development, Research and Analysis Section For these reasons, North Dakota employ- than 3 percent of all U.S. oil workers. And ment could soon pull far ahead of Alaska. while oil industry employment is growing in Prudhoe Bay: swelling during the construc- called Alaska home in 2011, and only a As of 2011, the North Dakota oil indus- Alaska, it is growing slower than in other tion on the trans-Alaska oil pipeline and handful of those actually drilled wells. By try produced some 242 million barrels of oil states. shrinking after the project was done. comparison, Louisiana had 1,788 establish- and employed 14,926 people, some 15 to 18 A new analysis from the Alaska All fields require a certain number of ments that year. And Oklahoma, a state with percent higher than Alaska figures that year. Department of Labor and Workforce workers for basic tasks, and as such a large less than half as much production as Alaska, The 37 percent job growth in the Alaska Development suggests these discrepancies field typically employs fewer people per had 3,092. oil industry in the past decade is good for the are systemic, resulting from two factors barrel than a small field, according to the state, but well below the 62 percent growth unique to Alaska: exceptionally large fields analysis. Marginal economics in the industry nationally, although still located in an exceptionally remote corner of above Louisiana and California, two other Even though the industry has brought The problem is geography. the country. states where production fell over the past 10 several fields online in the decades since dis- “If Alaska’s oil fields were not as remote, These factors undermine what has years. covering Prudhoe Bay, they have all been employment would be considerably higher,” appeared to be a neck-and-neck tie between But those states also have established large by industry standards. By some counts, Department of Labor Economist Neal Fried Alaska and North Dakota industry employ- industries. In North Dakota, oil industry 10 of the 50 largest oil fields in North wrote in his analysis. “Oil fields considered ment, and suggest North Dakota will almost employment jumped 557 percent over the America are on the North Slope. marginal or not economically feasible would certainly be home to many more jobs than past decade, as improved technologies The current increase in employment can be economic if they were less remote.” Alaska as the oil industry there begins to opened up previously uneconomic forma- largely be attributed to new activity from This remoteness impacts the Alaska oil mature. tions and companies began leasing land and Pioneer Natural Resources, Petroleum, industry in other ways, too. drilling wells. ExxonMobil, Shell and the many smaller For instance, Fried notes, most oil and A few big fields These technologies have also boosted oil companies in Cook Inlet, but even with all gas industry jobs in Alaska exist solely to Bigness built the Alaska oil industry. production in Texas and natural gas produc- those new fields and all that new explo- produce oil and gas in Alaska, whereas The discovery of the Swanson River field tion in Louisiana, but have yet to impact ration, Prudhoe Bay still accounts for some many industry jobs in Texas, Oklahoma and in the Cook Inlet basin helped secure state- Alaska production to any considerable 45 percent of total state oil production. Louisiana involve management and research hood for Alaska and the discovery of the degree. By comparison, most oil producing for big companies working in other states or mammoth Prudhoe Bay field on the North A source rock development such as the states have a mix of field sizes, including countries. Slope a decade later gave the young state the one being pursued by Great Bear Petroleum stripper wells that produce less than 10 bar- This is why Texas employs 17 times as financial wherewithal to ensure it could sur- could bring those increases to Alaska, but rels per day, but still require some employ- many oil industry workers as Alaska, even vive. whether and when it ever will remains ment. though the state is responsible for only four With the industry focused largely around unknown. In states where smaller fields are eco- times as much oil production as the Last a single large field in its early years, employ- nomic, the industry is less consolidated. Frontier. ment boomed and busted based on the life of Some 117 oil and gas establishments And because Alaska is so far from the

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continued from page 7 She noted that BLM recently released a legacy well assessment and priority list INTERNATIONAL ANWR STANCE for cleaning up the worst of them. “We do need money to be able to do Statoil cites tax issues in project delay Murkowski and the others have been that,” Jewell said. “And, you know, I pushing BLM to clean up the legacy Norwegian oil company Statoil has announced that it is delaying an investment would like to think that as the resource wells, and are upset that the president’s decision for its Johan Castberg oil field in the Barents Sea because of a combina- was assessed in part through the use of 2014 budget proposal included language tion of uncertainty in the resource estimates for the field and proposed changes to these wells, that the revenue from the that would divert the state’s share of NPR- Norwegian petroleum taxes. Statoil says that it has been continuing to assess the resource — state and federal — be used A oil and gas revenue to pay for legacy project, and that the tax changes are compounding the overall project uncertainty. to help in the cleanup. I think that it is a well cleanup. The field, previously called Skrugard, lies about 240 kilometers northwest of revenue generator, it puts oil in the The senator says that’s unacceptable, Hammerfest and is thought to hold 400 million to 600 million barrels of oil. pipeline. We need to work on figuring out that it falls solely on the federal govern- According to a report in the Wall Street Journal, in early May the Norwegian how to pay for it. Because right now, there ment to clean up those wells. government announced an increase in its petroleum tax by reducing the amount of isn’t sufficient money.” “Is it your opinion that the state of field development cost that companies can write off against their tax liabilities. “I would agree that we have some very Alaska should be held financially respon- Oystein Michelsen, Statoil’s executive vice president for development and pro- difficult budget limitations. We all know sible for the federal government’s respon- duction in Norway, said in a Statoil news release that the tax changes have made that,” Murkowski responded. sibility to remediate these wells?” it necessary to review the Johan Castberg project. “I want to work with you on a path,” Murkowski asked Jewell. “The updated project estimates and the new uncertainty in the tax framework she told Jewell. “But if that path is going “I completely agree that the legacy has made it necessary to consider what consequences this may have for the devel- to mean that monies that would be going wells are a problem that we need to opment concept,” Michelsen said. to the state of Alaska and the residents of solve,” Jewell replied. “They do need to Rather than gathering oil production taxes and royalties, Norway gains rev- the North Slope are going to be choked be cleaned up.” enues from oil fields by maintaining a mandatory government working interest in back, that’s not appropriate.” But Jewell said the USGS and Navy all fields, with the government investing in the fields and taking its share of field drilling was “one of the reasons we have revenues. However, the government assesses very high rates of corporate income a sense of the resource potential” in the tax on oil companies, albeit with tax deductions for expenses and investments. NPR-A. —ALAN BAILEY ENVIRONMENT & SAFETY continued from page 1 Horizon oil spill in 2010. NEW ENCANA BOSS Cuts already announced While the search continued over the Court won’t reconsider polar bear decision the company. past six months for a new CEO, Encana The federal District Court in Alaska has declined to reconsider its ruling rejecting “I want to do that once and I want to announced plans to cut up to US$150 the U.S. Fish and Wildlife Service’s designation of critical habitat for the polar bear. do it right,” he said, making it clear that million in general and administrative Following the listing of the bear as threatened under the Endangered Species Act, disclosure of the details will have to wait costs, with Woitas targeting an additional in 2010 Fish and Wildlife had designated a critical habitat area amounting to 187,157 until second-quarter results are released 10 percent improvement in the “compa- square miles, including much of Alaska’s Arctic offshore and a broad swath of land in July. ny-wide average capital and operating around the Beaufort and Chukchi Sea coasts. A group of organizations, including the He told analysts that a mid-year review efficiency number.” Alaska Oil and Gas Association, the Arctic Slope Regional Corp., the State of Alaska “may decide to reallocate capital among He said Encana is “first and foremost and the Inupiat Community of the Arctic Slope appealed the designation in District programs” once he has determined how a natural gas company and we’re striving Court. Encana is “currently performing in each to regain our reputation as the lowest-cost The organizations fear that the habitat designation would unnecessarily restrict of its key areas.” and most efficient developer of natural commercial and subsistence activity in the Arctic. “I hope you can appreciate that it will gas. Encana already has low cost struc- On Jan. 11 District Court Judge Ralph Beistline issued a ruling placing the habi- take some time before I’m in a position to tures in many of its plays, but the status tat designation on remand. Beistline upheld the offshore habitat designation but said articulate a clear and concise vision for quo is not an option.” that the onshore designation, along the coast and on the coastal barrier islands, was Encana,” Suttles said. Encana, which has been campaigning much too broad, with critical habitat features only occupying a tiny proportion of the “In the meantime, Encana will main- for the use of natural gas as a transporta- total land area. tain its purpose of delivering on the 2013 tion fuel, has also been targeting an In February the Department of the Interior asked Beistline to reconsider his deci- budget plan,” including a “heightened increase in its natural gas liquids produc- sion, saying that the court had misunderstood the agency’s specifications of the fea- focus on capital discipline and improving tion to about 75,000 barrels per day by the tures that define the onshore critical habitat. efficiency.” end of 2013 from a current 43,000 bpd. In a court order issued May 15 Beistline denied the request to change his January The conference call yielded only two Its first-quarter gas production was down decision.“While great effort was expended to study the relevant issues, the final deci- questions, once of which was answered 12 percent year-over-year at 2.88 billion sion to designate a land mass larger than many states does appear excessive and is by incoming chairman Clayton Woitas, cubic feet per day. For 2014, it has hedged not justified by the record before the court,” Beistline wrote. who said there has been no discussion 1.5 bcf per day of output at US$4.19 per —ALAN BAILEY among directors about changing the com- thousand cubic feet. pany’s divided. In the past year, Encana shares have Suttles has been placed by analysts in dropped 10 percent, in contrast with mid- the same category as new leaders at size producer such as Tourmaline Oil (up compact , Talisman Energy and 70 percent), Peyton Exploration (up 77 Penn West Petroleum in lowering operat- percent) and Paramount Resources (up 42 POWER ing costs and attracting investors back to percent). flagging stocks. During his time with BP he was —GARY PARK assigned to Alaska, the North Sea, The model 2056 Series II is a new breed of Mustang skid steer with the perfect combination of size and power. Trinidad and Sakhalin, Russia, and head- ed BP’s response to the Deepwater • A width less than 60 inches with the optional narrow tire set allows for easy maneuverability on sidewalks and narrow paths. • A rated operating capacity of 2,050 pounds Bombay Deluxe (with optional counterweight) provides raw strength for the toughest tasks. 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The producers have worldwide Lower 48, to what we have today, move- and quickly. I don’t buy this window of timeline to offer? gas marketing organizations. The compa- ment toward an LNG export facility in opportunity argument. Parnell: You’ve seen me lay it out nies like REI and others, they represent Alaska while providing for Alaskan very clearly in my State-of-the-State investors in liquefaction facilities, in communities. People who make that lost address. You can look at the 2012 bench- leases, in gas treatment plants, and we opportunity argument are usually trying marks I set that were met. Now 2013 has certainly are looking at all options. two benchmarks that come due here very quickly. One benchmark was that they Petroleum News: Staying with the would conduct a full summer field sea- prospect of export, do the discussions in GOVERNMENT son. The second benchmark was they Washington limiting export, does that would complete a pre-FEED commercial concern you? Do you feel at all ham- agreement, that’s a pre-front end engi- strung? AOGCC looking for technical support neering and design. Parnell: It concerns me only because The Alaska Oil and Gas Conservation Commission has issued a request for That pre-FEED is not sanctioning a they might unknowingly lump Alaska proposals for petroleum measurement technical consulting support. $30 billion project. That’s not what that into that category. I think we are unique- AOGCC has a statutory requirement to regulate measurement of oil and gas part is. That pre-FEED commercial ly situated. The concerns expressed in and has adopted regulations requiring operators to measure production in accor- agreement is the companies’ commit- Congress where (Democratic dance with the American Petroleum Institute Manual of Petroleum Measurement ment to move forward on hundreds of Massachusetts Rep. Edward) Markey Standards revised as of Nov. 30, 1998. millions of dollars of work related to wants to prohibit LNG exports really has But the API manual is “a living document” and many sections have been added pre-front-end engineering and design. to do with gas supply issues and demand and/or revised more recently than the version adopted by AOGCC. With new My design in putting in that bench- issues in the Lower 48. Of course developments in Alaska and aging equipment in existing fields, AOGCC has mark is to bring the companies to a com- Alaska’s gas doesn’t play in that market. received a large number of applications to install or alter custody transfer meas- mensurate level of monetary commit- My argument is Alaska should be urement equipment and facilities for well testing and allocation purposes, bur- ment that the state has made under AGIA treated differently because Alaska’s gas dening the agency’s staff. and with AGDC. The companies are doesn’t impact the price of Lower 48 To alleviate that burden AOGCC proposes to contract with an expert in petro- spending tens of millions of dollars now; gas. Our unique situation bodes well for leum measurement. I want them committing to hundreds of getting approval for an export license. I The primary component of the RFP is to review petroleum measurement appli- millions in this next phase, known as think the federal administration has to be cations from operators and make recommendations to the commission on whether pre-FEED in the industry. hungry for a win in the energy sector. to approve them or require modifications. The commission also wants a guidance That’s the commensurate proportion- Approving an export license for Alaska document prepared specifying information required in applications and develop- ate step. If you read the words in my would be significant win for them and it ment of petroleum measurement system inspection guidelines for use by AOGCC state-of-the state address very closely, it would not hurt or affect Lower 48 con- staff. talks about “by spring.” Well as you sumers’ supply or demand, which is what A review of current industry petroleum measurement standards will be know spring is a three-month period end- Congress has expressed its concerns. required — with recommendations on standards the commission should require ing about June 20, so we’ll know very and proposed revisions to the commission’s regulations to bring them up to date, soon whether they are going to meet the Petroleum News: Cheniere has an and training for AOGCC staff in some of the newer technologies being used in the benchmark of a full summer field season export permit approved and there are 19 industry. and the benchmark of a pre-FEED com- permits under consideration — of The length of the contract is one year with two optional one-year renewals. The mercial agreement. course, not all are expected to be agency’s budget for the work is between $200,000 and $750,000. Proposals are approved or even pursued toward due June 24 and the contract is scheduled to start July 10. Petroleum News: For the next legisla- approval. With all of that activity in the —PETROLEUM NEWS tive session what would you like to be Lower 48, is that a problem for Alaska? doing for the natural gas line? Parnell: Not right now. Like I said, I Parnell: I’d like to see the companies think we’re uniquely positioned. We have moving forward with their pre-FEED 40 years of dependable shipments from commercial agreement. I’d like to see Nikiski from Marathon and AGDC moving forward under its statute ConocoPhillips, and because shipments Centrilift Dictionary: sharing information. The bottom line is don’t affect supply and demand for the we’ve got to get another summer field Lower 48. And finally, looking at it from season in. We’ve got to get these parties the international perspective and demand aligned with a commercial agreement. side, companies from countries like And if not, the state has to continue its Japan and Korea also like a diverse sup- course in building our own. ply. They don’t just want one supplier. They will buy gas from Australia, from Petroleum News: Resource Energy the Gulf, from Alaska or from Canada if Inc. made some news about a completed they could get it. They take ships from feasibility study. Could this represent a all over. It helps from their perspective, buyer becoming a direct investor? What they like that diversity of supply not hav- are your thoughts about this development ing to rely on one customer. out of Japan? Parnell: Don’t think that was done in Petroleum News: There are a lot of a vacuum. We signed an MOU (memo- deals going on in the Asian market, randum of understanding) with them especially out of Australia. Is that win- months ago to accomplish just this. I met dow of opportunity closing, as some with their leader in Japan. Commissioner have said? (Dan) Sullivan has had multiple meet- Parnell: The window of opportunity ings with them. In fact Commissioner argument is specious and made by those Sullivan met with them before I went to who want to stampede others into a deal. Japan and Korea. We’ve been working Market windows don’t close. Market with them and providing information windows change. One closes and one under the MOU for quite some time now. opens. Just a few years ago, there were

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Skinner promoted to VP of Freight Services heritage of trust, dependability and customer service. We look forward to a great partner- ship.” Sourdough Express said June 6 that Brian E. Skinner has been “We heard a lot of good things about SANY and when I visited their operations in promoted to vice president of Freight Services. Georgia I knew it was a good fit for us,” said Totem owner Mike Huston. “They listen as a Skinner joined Sourdough Express 10 years ago as the manager company and their product is solid. We like that they use name-brand components and that of business development. He was quickly promoted to general man- the product will lend itself well to the cold, rough conditions we often face here in Alaska. ager as his leadership increased a loyal customer base and success- We’re glad to get in on the ground-floor as one of the initial dealers for SANY.” fully diversified the services Sourdough Express provides. Totem Equipment & Supply was founded in 1961 by Cliff Huston and his wife and busi- As VP of Freight Services, Skinner will lead Sourdough Express to ness partner Allie Huston. Today under the ownership of Mike Huston, the family business new growth, while keeping the unparalleled customer service repu- continues to thrive as Alaska’s leading equipment distributor and full-service rental company. tation Sourdough Express has sustained for over 100 years. BRIAN SKINNER SANY is a global leader in the manufacture and sale of hoisting, concrete machines, road Sourdough Express is a full service trucking company servicing machinery, port equipment, excavators, mining equipment, pile-driving machinery and wind Alaskans since 1898. turbines. SANY America names Totem its Alaska excavator dealer M-I SWACO introduces new dual-deck shale shaker Totem Equipment & Supply said June 4 that it has been named the first SANY America M-I SWACO, a Schlumberger company, said June 6 that it has introduced the MD-2 dual- excavator dealer in Alaska, representing SANY in the Anchorage market. deck shale shaker. When combined with DURAFLO composite screens, the MD-2 shaker pro- “There is a lot of opportunity in Alaska and we’re excited to partner with a company that vides optimal solids control performance for drilling applications. has found the key to success for over 50 years,” said Eric Teague, vice president of earth- moving at SANY America. “Totem is another family-owned success story with a dedicated see OIL PATCH BITS page 17 Companies involved in Alaska and northern Canada’s oil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS A Denali Industrial Motion Industries Donaldson Company M.T. Housing Acuren USA Dowland-Bach Corp. AECOM Environment N-P Doyon Drilling Aggreko LLC Nabors Alaska Drilling Doyon LTD Air Liquide Nalco Doyon Universal Services Aircaft Rubber Mfg. (ARM-USA) NANA WorleyParsons Egli Air Haul AIRVAC Environmental Group NASCO Industries Inc. Emerald Alaska Alaska Air Cargo Nature Conservancy, The Era Alaska Alaska Analytical Laboratory ...... 19 NC Machinery ERA Helicopters Alaska Dreams NEI Fluid Technology Expro Americas LLC Alaska Frontier Constructors ...... 8 Nordic Calista ExxonMobil Alaska Interstate Construction (AIC) North Slope Telecom ...... 13 F. Robert Bell and Associates ...... 12 Alaska Marine Lines ...... 7 Northern Air Cargo Fairweather Alaska Rubber Northrim Bank ...... 9 Five Star Oilfield Services Alaska Ship & Drydock Northwest Technical Services Flowline Alaska Alaska Steel Co. Oil & Gas Supply Fluor Alaska West Express ...... 7 Opti Staffing Group Foss Maritime All Pro Alaska PacWest Drilling Supply Fugro Alpha Seismic Compressors PENCO American Marine ...... 9 G-M Pebble Partnership Arctic Controls Petroleum Equipment & Services ...... 5 GBR Equipment Arctic Foundations PND Engineers Inc...... 19 GCI Industrial Telecom ...... 18 Arctic Slope Telephone Assoc. Co-op. Polyguard Products Global Diving & Salvage Arctic Wire Rope & Supply ...... 12 PRA (Petrotechnical Resources of Alaska) GMW Fire Protection ARCTOS Price Gregory International Golder Associates Armstrong Greer Tank & Welding Aspen Hotels Q-Z Guess & Rudd, PC ASRC Energy Services ...... 11 SAExploration Hawk Consultants ...... 18 AT&T Seekins Ford HDR Alaska Avalon Development Shell Exploration & Production Inspirations Sophie Station Suites B-F Intertek Moody Sourdough Express Inc. Jackovich Industrial & Construction Supply Baker Hughes ...... 15 STEELFAB Judy Patrick Photography ...... 19 Bald Mountain Air Service Stoel Rives Kenworth Alaska Bombay Deluxe ...... 14 Taiga Ventures Kuukpik Arctic Services Calista Corp. Tanks-A-Lot Larson Electronics LLC Canadian Mat Systems (Alaska) TEAM Industrial Services Last Frontier Air Ventures Canrig Drilling Technology ...... 12 The Local Pages Lister Industries Carlile Transportation Services Tire Distribution Systems (TDS) Little Red Services, Inc. (LRS) CGG ...... 20 Total Safety U.S. Inc. Lounsbury & Associates CH2M Hill TOTE-Totem Ocean Trailer Express LW Survey ...... 715 Chenega Global Telecom Totem Equipment & Supply ...... 14 Lynden Air Cargo ...... 7 ClearSpan Fabric Structures TTT Environmental Lynden Air Freight ...... 7 Colville Inc. Udelhoven Oilfield Systems Services Lynden Inc...... 7 Computing Alternatives UMIAQ Lynden International ...... 7 CONAM Construction Unique Machine Lynden Logistics ...... 7 ConocoPhillips Alaska Univar USA Lynden Transport ...... 7 Construction Machinery Industrial URS Alaska ...... 17 MagTec Alaska Cook Inlet Energy Usibelli Mapmakers of Alaska Craig Taylor Equipment Weston Solutions MAPPA Testlab Crowley Solutions XTO Energy Maritime Helicopters ...... 3 Cruz Construction ...... 13 All of the companies listed above advertise on a regular basis M-I Swaco with Petroleum News PETROLEUM NEWS • WEEK OF JUNE 16, 2013 17 continued from page 1 feet per day on average. request another extension of the export “maintains the readiness” of the LNG The boil-off gas would provide only a license required to ship volumes overseas. plant, which in turn “preserves locally ‘BOIL-OFF’ GAS small supply, but it could come in handy The boil-off gas will serve as an inter- produced LNG as an option for excess gas on those extra cold days when every bit ruptible supply, and either party would be that is discovered, either for export or to the companies finish building the inter- counts. For comparison, the 300 million allowed to terminate the agreement at any help meet local needs.” connection facilities required to move the cubic feet per year in boil-off gas would time and for any reason except to chase a ConocoPhillips is reimbursing Enstar gas into the existing system. supply less than 1 percent of the total better price. for the cost of the interconnection facili- The RCA is taking comments of the Enstar annual demand. The gas would be priced using the ties. agreement through July 5. For ConocoPhillips, the agreement mechanism in an existing base gas con- Because the boil-off gas is produced at Small, but useful provides a way to earn revenue from the tract between ConocoPhillips and low pressure, it is only appropriate for use LNG plant, which was pioneering when it Chugach Electric Association, which in the distribution system and cannot be The volume of sales depends on the came online in the late 1960s, but has came to $3.46 per thousand cubic feet in injected for underground storage, accord- amount of gas available and the amount of recently suffered from uneven supplies the second quarter. The mechanism has ing to Enstar. demand in the Enstar distribution area locally and uneven demand from its tradi- the benefit of having already received —ERIC LIDJI within a given time, but the companies tional customers in East Asia. The future RCA approval. expect both the plant to produce and the of the facility is currently uncertain. Chugach recently asked the RCA to system to demand some 900,000 cubic ConocoPhillips recently chose not to approve the agreement, saying the deal continued from page 1 Carruthers said it needs to be understood At the same time, North American She said the Canadian and provincial that higher netbacks for oil producers as a shale gas production is expected to almost governments must work with various BC LNG PROJECTS result of Northern Gateway can underpin double to 65 billion cubic feet per day by stakeholders such as First Nations to “more and more activity, including natu- 2025, with Marcellus production adding ensure the infrastructure that is needed In addition to helping companies such ral gas.” another 20 bcf per day by 2025. can be constructed cost effectively, but as Chevron, Shell, and British Kevin Petak, vice president of gas mar- ICF offers a “middle of the road” esti- added the “availability of labor is a real Gas negotiate sales commitments, Clark ket modeling for ICF International in mate of 526.6 trillion cubic feet of gas concern.” has many hurdles to clear — an unclear Fairfax, Va., said the window of opportu- resources in the Montney, Horn River, Because China is ramping up its shale long-term demand for LNG in Asia, the nity for LNG exporters will remain open Cordova Embayment and other plays, development its need for LNG may start reluctance of prospective Asian cus- for only a decade. Petak said, adding that some of the newer to decline, making it critical to get LNG tomers to entertain oil-indexed pricing, He told a Canadian Energy Research plays have yet to be fully evaluated. projects operating by 2020 at the latest, the looming threat of environmental and Institute conference in Alberta that com- Skya Kruithof, senior commercial Santa Maria said. First Nations opposition, and the absence petition from Australia and North Africa manager for petrochemical feedstocks at She suggested the British Columbia of a clear strategy by government-owned could limit the and Canada Dow Chemical Canada, said LNG exports projects that have the best chance of “get- BC Hydro to provide the power to serve to serving 30-40 percent of global LNG could also be positive for his industry by ting off the blocks” are the BC LNG LNG facilities. demand. opening the way to liquids extraction Export Cooperative, with the recent addi- The Liberal government, re-elected Steve Lewandowski, a senior director from the gas, although the lack of infra- tion of Golar LNG, to export up to May 14 in a staggering come-from- for global ethylene with IHS Chemical, structure in the gas-liquids areas could 700,000 metric tons a year starting by late behind victory, will also include Bill issued a blunt message. pose challenges. 2015 or early 2016; Kitimat LNG, whose Bennett as minister of energy and mines, “The dithering about LNG projects in Gerry Goobie, a principal with Gas operator Chevron is a “very reputable along with presiding over a core review of British Columbia has to stop,” he said. Processing Management, said companies player with lots of experience in LNG government spending. Although British Columbia is closer that plan to build grassroots LNG export markets”; and Shell Canada’s LNG Clark’s cabinet selections coincide by sea to China than the U.S. or Australia facilities in British Columbia have yet to Canada partnership whose Asian owners with warnings over rising LNG capital and its colder climate makes the liquefac- estimate how much gas prices could rise, have a “real vested interest in taking that costs, the lessons to be learned from tion process more efficient, uncertainty but he agreed with Petak that a marginal gas to their market.” Australia’s challenges, and the competi- stems from fracturing regulations, carbon increase would spur renewed drilling Also competing for Western Canada’s tion between LNG proponents and others taxes and the question of how much LNG activity in British Columbia and Alberta. shale gas supplies are the industrial sector who have their sights fixed on using can be tied to oil prices, Petak said. “You will be amazed at how many pro- and the oil sands. Western Canadian gas for transportation, He said the 2015-25 period will likely ducers will be chasing that kind of mar- industrial uses and oil sands production. be one of rapid expansion when sources gin,” he said. see BC LNG PROJECTS page 18 Ally in Enbridge of market growth come together, but con- Petak forecast that about 134 percent struction cost pressures could limit the of total gas produced in Western Canada However, she has found an unlikely number of projects that get an investment by 2025 will be used by LNG operations. SEEKING QUALIFIED ally in Enbridge, which said in its final go-ahead. submissions to regulators handling the High costs similar to Australia APPLICANTS Northern Gateway application that if the Rising gas prices forecast At a Calgary forum Samantha Santa pipeline is built it could attract C$18 bil- ICF forecasts that Henry Hub natural Maria, Platts managing editor of natural lion in oil and gas investment, providing a gas prices will be US$4 per million gas, said Canada should look “really care- “ready source of capital ... (for) the devel- British thermal units through to 2015, fully” at what happens in Australia opment of a British Columbia LNG then rise to US$5-$6, driven by market because the two countries have high costs, industry.” growth, while Western Canadian prices especially labor, and need “oil indexation Northern Gateway President John are likely to be 50 cents to $1 lower. at some point in their pricing formula.” Alaska Gasline Development Corporation continued from page 16 In a field trial in South Texas a customer was drilling a 22-inch BOARD OF DIRECTORS hole using two conventional shakers, but due to capacity limitations OIL PATCH BITS there was a low rate of penetration. To optimize the solids control performance, one MD-2 shaker was provided, which processed The State of Alaska, Office of the Gover- The development of the MD-2 shale shaker was the result of cus- nor seeks qualified individuals to serve drilling fluid at a rate of 658 gallons per minute, or more than twice on the inaugural governing board of tomers’ requests for a durable mid-range shaker suitable for both the two conventional shakers combined. Additionally, the MD-2 the Alaska Gasline Development Corpo- onshore and offshore applications. M-I SWACO developed the dual- shaker handled 100 percent of the flow throughout the top hole sec- ration, a state corporation responsible deck shale shaker using the proven design of the offshore-suited tion, thereby maximizing flow rate and maintaining the desired ROP. for advancing a large-scale natural gas MD-3 triple-deck shaker, and also utilized design elements from the The small footprint of the MD-2 dual-deck shale shaker makes it pipeline project. The project’s objec- onshore-suited MONGOOSE PRO shale shaker. Design validation for tive is to provide long-term affordable ideal for space-restricted onshore and offshore drilling rigs where energy for Alaska and its residents and the MD-2 shaker was conducted at the SWECO manufacturing facili- high-capacity separation efficiency and operational flexibility are monetize Alaska North Slope natural ty in Florence, Ky. needed. For more information visit www.slb.com/md-2. gas reserves. The governor will select five public members based on their ex- pertise and experience in natural gas pipeline construction, operation and marketing; finance; large project man- agement; and other expertise and expe- rience relevant to the purpose, powers, and duties of the Alaska Gasline Devel- opment Corporation. The board mem- bers will serve staggered 5-year terms at the pleasure of the governor. The THE HIGHEST STANDARD IN positions include standard travel, per ANCHORAGE diem, and a $400 per day stipend for of- ENGINEERS • PLANNERS • SCIENTISTS • CONSTRUCTORS 700 G Street, ficial business. ENGINEERING Suite 500 URS is one of the world’s leading engineering fi rms. Our professional staff Tel: 907.562.3366 Applicants may apply online at http:// gov.alaska.gov/parnell/services/ EXCELLENCE work together to develop innovative and cost-eff ective solutions to the FAIRBANKS boards-commissions.html or contact challenges facing government and industry. 3504 Industrial Avenue, the Office of Boards and Commissions Suite 125 at (907) 269-7450 or P.O. Box 110001, Tel: 907.374.0303 Juneau, Alaska 99811-0001. Apply by June 30 18 PETROLEUM NEWS • WEEK OF JUNE 16, 2013 continued from page 17 Parkland recently announced a brand- and gas companies being the “first and stations between Montreal and Halifax. ed distribution agreement for LNG with fastest” adopters of LNG for their daily The oil sands sector is also in the thick BC LNG PROJECTS Shell Canada for commercial and indus- operations; the Canadian Natural Gas of the chase for new gas production, trial customers in various high horsepow- Vehicle Alliance expects gas to underpin needing an estimated 1 billion cubic feet Team effort er markets, including oil and gas explo- transportation; said per day for every 1 million bpd of incre- Allan Wilms, commercial west vice ration, well stimulation applications and LNG is a better fuel for trucking, the mental output. president of Parkland Fuels Corp., said a off-grid power generation. marine sector and rail than diesel because team effort is already under way to gain Among the lengthening list of poten- it is cleaner burning; and Irving Oil is access to LNG. tial LNG users, Encana is counting on oil talking about offering LNG at its fueling

continued from page 1 pany proposes, with implementation of the pers to frequently alter their gas nomina- the company may be able to implement its proposals taking place in phase four. tions, to ensure that the delivery of gas into own gas storage facility; or the company PIPELINE EFFICIENCY a pipeline is balanced by the rate at which could perhaps pay a gas producer for a Inefficiencies gas is delivered from the line. working gas service, obtaining top ups of with each pipeline separately managed, with The evaluation in phase one identified In the Cook Inlet region this problem working gas from the producer as neces- its own tariff and rate structure, the pipelines significant inefficiencies in the regulation becomes particularly acute during the sary and subsequently returning the gas tend to vie with each other for business and operation of the pipelines as separate extreme fluctuations in gas demand during when not needed, Jaroch said. despite the fact that they combine to form entities, with each pipeline requiring its the winter, with shippers often having to Hilcorp also wants to acquire a modern an integrated Cook Inlet gas transportation own rate case as part of the regulatory submit gas nominations several times a day Internet-based nominations system that network. process and with each having its own for all four Hilcorp pipelines, Jaroch said. will enable shippers to go online both to In response to requests by businesses administration, Jaroch said. And the signif- “That causes a great deal of discomfort nominate gas volumes for future shipment shipping gas on the pipelines, Hilcorp is icant differences in shipment rates between and a lot of work for the accountants,” he and to obtain nomination reports. evaluating improvements to its pipeline sys- the different pipelines tends to drive ship- said. Currently, shippers have to submit nomina- tem, including the practicalities of manag- pers to move their gas along routes deter- tions by email, with Hilcorp staff having to ing all four pipelines, in effect, as a single mined by fees rather than by optimum Pipeline consolidation transcribe the email contents into the com- line, Jaroch said. pipeline usage, thus creating congestion at The concept that has thus far emerged pany’s nomination system. “Today the markets have changed. Some certain points in the pipeline network. from phase two of Hilcorp’s pipeline proj- of the customers have changed. The owners Rate differences also tend to make new ect is the consolidation of all four pipelines Tricky issues have changed … This is probably a good pipeline developments more appealing on for operation as a single system, regulated However, Hilcorp’s ideas for the future time to do this evaluation,” he commented. some sections of pipeline than on others, and managed as a single entity, accepting are all still in something of an embryonic Four-phase process thus discouraging a system-wide approach shippers’ gas nominations that simultane- state, with some fairly tricky issues that to prioritizing development decisions, ously apply to all of the lines, and giving would need to be resolved before imple- Hilcorp’s pipeline evaluation is now in Jaroch said. Hilcorp the discretion to decide how to mentation. For example, the company the second phase of what could become a move gas through the system, to make would need to figure out how to deal with four-phase process, Jaroch said. Working gas optimum use of pipeline capacity. current contracted commitments for use of Phase one, which has already been Another issue is the small quantity of And the key to the establishment of an its pipelines, including some contracts that completed, consisted of Hilcorp’s own so-called “working gas” in the pipeline arrangement of this type would be a give some shippers priority in pipeline use, internal evaluation, identifying ways in system, Jaroch said. Working gas, the gas “postage stamp rate” for shipping gas, Jaroch said. In additions, gas producers which the management and operation of that fills the pipelines, maintains the gas Jaroch said. Under a rate design of this with fields close to customer delivery the pipelines could be improved. Phase pressure in the lines — the more of this type, Hilcorp would charge a constant per points, and hence short gas transportation two, in progress and planned for comple- working gas that is available, the more volume gas shipping fee, regardless of distances, would likely see their trans- tion by around August, involves talking to flexibility the pipeline system has in where in the pipeline system the gas is portation costs rise under a postage stamp pipeline shippers and other interested par- responding to changes in the rates of flow accepted for shipment and regardless of rate, he said. ties, presenting Hilcorp’s ideas and seeking of gas into the system from gas fields and the shipment delivery point. Although the overall impact of pipeline other views of what might be done. If out of the system to gas consumers. In addition to giving Hilcorp the ability consolidation and other improvements Hilcorp then decides to move ahead with Gas shippers have to nominate in to appropriately route gas through the sys- would be reduced gas transportation costs, changes to the pipeline system, phase three advance the amount of gas that they antic- tem, a postage stamp rate would place all passed on to gas consumers, features such would involve a roll-out of what the com- ipate having to move through a pipeline, gas fields on an equal footing for shipping as increased working gas would introduce with the pipeline operator then having to costs, regardless of field location. new cost factors that would need regulato- juggle the needs of different shippers and “It is the thing that will make the system ry approval, Jaroch said. Hilcorp would adjust the pipeline operation to accommo- more homogeneous, make gas more homo- need to be able to recover any new costs date the actual volumes of gas that flow geneous, in the Cook Inlet,” Jaroch said. from its shipping fees, he said. through the system. If plenty of working It will be necessary for all stakeholders gas is available, the operator can maintain Gas storage? to work collaboratively, to develop and pipeline pressure within an acceptable Hilcorp is also evaluating three possible implement solutions with overall benefits range, as gas throughput changes, by ways of making more working gas avail- for the Cook Inlet gas industry, Jaroch adding or withdrawing working gas. But, if able for pipeline throughput management. said. working gas is in short supply, as in The company could perhaps lease space Hilcorp’s Cook Inlet lines, the mainte- for working gas in Cook Inlet Natural Gas nance of the gas pressure can require ship- Storage Inc.’s Kenai gas storage facility; PETROLEUM NEWS • WEEK OF JUNE 16, 2013 19 continued from page 1 Soldotna Creek Unit 44-33 was actual- to test BOPE as required,” the commission The commission added that since ly a sidetrack from a suspended Swanson said. HILCORP PENALTY issuing a notice of proposed River well, the April 10 order said. enforcement action against Hilcorp, Hilcorp was granted approval to drill Corrective actions ordered tributing to regulatory compliance the company has performed the sidetrack on Oct. 3, 2012, and drilling The AOGCC said it considered mitigat- issues,” said an April 10 decision and commenced eight days later using Doyon ing factors in taking its enforcement action. order from the commission. “Since mandatory bi-weekly BOPE tests Rig 1, also known as the Doyon Arctic Hilcorp did not act in a “willful or Hilcorp commenced rig work in Alaska in “in an acceptable manner.” Fox. knowing manner,” there was no injury to April 2012, AOGCC Inspectors have The drilling encountered an overpres- decision and has taken the appropriate the public, the company didn’t derive “tan- observed rig crews unable to perform sured zone, which required the closure of actions to address the issues in this matter. gible benefits” from the violations, and required BOPE component tests, rig the upper pipe rams to control the flow of We continue to maintain an open and col- Hilcorp stated its commitment to correct crews not trained in use of well control formation fluids, the order said. Hilcorp laborative relationship with the AOGCC regulatory deficiencies, the order said. equipment, and rigs with missing provided notice to the AOGCC of its use and all other regulatory agencies. The commission added that since issu- required equipment. Hilcorp’s compli- of the blowout prevention equipment. Hilcorp’s investment in Alaska’s resources ing a notice of proposed enforcement ance history from April through “Receipt of Hilcorp’s notice initiated a has certainly brought an increased level of action against Hilcorp, the company has December 2012 — including this review of the approved drilling permit and activity to Cook Inlet, but we believe performed mandatory bi-weekly BOPE enforcement action — shows 13 separate a request for additional information, we’re on the right path forward and tests “in an acceptable manner.” enforcement actions of varying severity including daily drilling reports,” the order remain committed to operating safely and The commission’s order said Hilcorp since April 2012.” said. “In response, Hilcorp revealed that responsibly.” had accepted responsibility for the viola- The order continued: “Many of these the SCU 44-33 sidetrack was started at a Hilcorp is headquartered in Houston. tions, and was making changes. actions were due to a failure to understand depth approximately 500 feet shallower Founded in 1989, Hilcorp describes itself The bulk of the $115,500 civil penalty, regulatory requirements. Strong evidence than approved and the drilling mud weight as one of the nation’s largest privately held or $75,000, was for “the initial violation — indicates that Hilcorp has not adequately was not increased prior to commencing independent exploration and production failure to increase the drilling fluid weight prepared its personnel for operations in sidetrack drilling operations as required. companies with more than 1,000 employ- prior to milling the casing window” as compliance with AOGCC regulatory Hilcorp drilling reports also indicate that ees. required in the permit to drill. requirements. Left unaddressed and the drilling assembly was tripped to sur- The company operates locally as The penalty also included $7,500 for uncorrected these and similar violations face on October 13, 2012 after BOPE was Hilcorp Alaska LLC, and has quickly each day, Oct. 14 through Oct. 17, 2012, will be repeated.” used to control SCU 44-33 and re-run in become the dominant player in Cook that the blowout prevention equipment the well on October 14, 2012 without test- Hilcorp responds Inlet. went untested after use. ing the used BOPE components.” Hilcorp made its Alaska entry in July The commission also ordered Hilcorp to All three commissioners — John Regulations state that “if any BOP 2011, when Chevron announced Hilcorp take a number of corrective actions. It gave Norman, Dan Seamount and Cathy equipment components have been used would buy its Cook Inlet assets, including the company two weeks to provide a com- Foerster, the chair — signed the four-page for well control ... the components used interests in several oil and gas fields, 10 plete root cause analysis of the violations, order. must be function pressure-tested before offshore platforms, pipelines and the Drift and to submit “a detailed written descrip- Hilcorp spokeswoman Lori Nelson on the next wellbore entry.” River terminal. tion of its regulatory compliance program.” June 11 told Petroleum News the compa- The order said Hilcorp’s failure to In January, Hilcorp completed a deal to The commission further ordered ny had asked the AOGCC for reconsider- comply was the result of either a lack of buy Marathon’s Cook Inlet properties. Hilcorp to “provide evidence that personnel ation, but the request was declined. attention to regulations, or a lack of responsible for drilling and workover rig The company has paid the $115,500 Well plans change, BOP goes untested understanding of “clearly worded expec- management, and staff involved with per- penalty, she said. The agency confirmed tations.” mitting well operations ... have been The AOGCC said the number of prior it. During an informal review, Hilcorp trained in AOGCC regulatory require- violations, the need for deterrence, and Nelson provided a general statement explained it didn’t think its changes to the ments, including the process for making the need to “trigger a substantial change on the commission’s order, particularly approved permit were significant enough changes to approved activities.” the part about Hilcorp’s aggressive in Hilcorp’s approach toward regulatory to warrant notification to the AOGCC, the approach: compliance,” factored into its decision to order said. “Hilcorp acknowledges AOGCC’s penalize the company. “No explanation was offered for failure

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