page EnCana takes the advantage A7 until LNG, Arctic gas arrive

Vol. 10, No. 9 • www.PetroleumNews.com North America’s source for oil and gas news Week of February 27, 2005 • $1.50

INTERIOR ALASKA Inside: North of 60 Mining News Signs of Russian oil Geologic connections with Siberia suggest that William Seward may have acquired more of Russia than he realized when he purchased Alaska By ALAN BAILEY Petroleum News Staff Writer

ocks that contain bitumen or exude petroliferous odors will grab the attention of most oil explor- R ers. So perhaps it’s surprising that so few people seem to know about petroliferous rocks in Paleozoic strata near the Holitna Lowlands in Interior Alaska. Even fewer may realize that these rocks prob- ably came from Russia. Geologist Robert Blodgett, who has worked in Alaska since 1975 and has participated in industry and state field investigations around the Lowlands, described occurrences of dead oil in Ordovician rocks in the area.

see RUSSIAN OIL pageA11

GULF OF MEXICO Companies team up on ‘ultra-deep’ Gulf wildcat TransCanada opts for peace Cadillac prospect said to hold several The Cadillac prospect is massive, covering DECADES OF ANIMOSITY between TransCanada, by far hundred billion cubic feet of gas eight to 10 blocks on the shelf, and could the largest carrier of Canadian natural gas, and producers show hold “several hundred billion cubic feet” their first signs of a course correction. Sour from TransCanada’s beginnings half a century ago, the By RAY TYSON of natural gas reserves. relationships turned downright nasty in the mid-1990s when Petroleum News Houston Correspondent passed the 17,000 foot level headed to touch down at producers linked up to finance the 25,000 feet, generally considered to be the depth at Alliance pipeline from northern British ix companies have pooled their resources to drill which deep becomes ultra-deep on the continental Columbia to Chicago. a rare and no doubt expensive “ultra-deep” shelf. Since then the two sides have butted S exploration well in the relatively shallow waters Noble would not speculate as to how long it might heads over pipeline tolls in an annual rit- of the Gulf of Mexico’s continental shelf, accord- take to complete the well, but did say Cadillac is con- ual that more closely resembled the ani- ing to Noble Energy, a 20 percent partner in the ven- sidered to be a “high risk, high reward” play. mal world than a sophisticated business. ture on Viosca Knoll Block 251. The so-called Cadillac wildcat is said to have While its pipeline rival Enbridge see WILDCAT page A12 signed rate of return agreements with producers before seeking the approval of UNITED STATES regulators, TransCanada stuck with costly showdowns before the National Energy Board — until this month. Nuclear making comeback For the first time since 2001, TransCanada signed a negotiat- ed settlement with shippers and other interested parties for tolls Some ‘Greens’ jump on bandwagon for controversial power source; uranium stockpiled on its Canadian mainline gas system — a deal that is expected to gain quick ratification by the federal regulator, which will By ROSE RAGSDALE see INSIDER page A12 Petroleum News Contributing Writer uclear energy is making a comeback and bringing its source mineral, uranium, with it. BREAKING NEWS N This turnaround is evident and gaining steam in scientific and political circles. But A5 Strike while iron is hot: NWT minister says if Alaska gas nowhere is the proliferation of pro-nuclear power pipeline gets ahead of the Mackenzie line ‘we’re in trouble’ forces raising more eyebrows than in the environ- mental community. “The revival of nuclear energy in the United B2 Kerr-McGee’s stock rockets: Former raider Icahn to buy States and all over the world is already happening up to $1B in stock; independent considers sale of chemicals division right now,” said William Magwood, director of the U.S. Department of Energy’s Office of Nuclear ers. But a fast forward to 2005 shows a renewed Energy, Science and Technology. push to build new reactors in the United States, Unocal on the move in Alaska: Applies for more gas B6 Magwood said nuclear power, as recently as college students rushing to enroll in nuclear engi- storage at Swanson; new projects under way; pipelines could be replaced 1998, was a dead issue among national policy mak- see NUCLEAR page A10 A2 ON DEADLINE PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

EAST COAST CANADA Pipeline hunting for shippers, fending off credit agency Maritimes & Northeast Pipeline on Moody’s credit watch at same time it invites shippers to tell it how much space they might want on an expanded line to New England

By GARY PARK But its optimism was broadsided Feb. million in bonds issued by Maritimes & Petroleum News Calgary Correspondent 18 when Moody’s Investors Services of Northeast to finance the C$1 billion New York advised investors that the com- pipeline six years ago. uffeted with warnings that its credit pany had been put on a credit watch “The magnitude of the Sable field rating may be downgraded, because of slumping reserves in Nova decline within such a relatively short B Maritimes & Northeast Pipeline is Scotia’s Sable gas field, the sole source of period of time reduces the magnitude of hoping to expand its pipeline from supply for Maritimes & Northeast. the margin against possible reserve deple- offshore Nova Scotia to New England by Moody’s said the review reflects its tion prior to the 2019 maturity date of the capitalizing on new liquefied natural gas concern about several years of significant bonds,” Moody’s said. terminals in Atlantic Canada. downward revisions in Sable reserve esti- A spokesman for Maritimes & Maritimes & Northeast launched a mates, which the agency said are now Northeast said it is normal for a credit binding open season Feb. 15 that it close to only 50 percent of the calculated agency to conduct such a review, but con- believes could more than triple its current 3.7 trillion cubic feet when the pipeline ceded that a lower credit rating would capacity of 650 million cubic feet per day started operations in 1999. make borrowing money for any future by 2007 or 2008. The downgrade could affect C$260 expansions more expensive. He said Maritimes & Northeast is “among the highest-rated pipeline com- SINGAPORE panies in terms of credit in North America” and does not expect Moody’s review will have any material impact on Crude oil holds above $51 a barrel business. Oil prices held above $51 a barrel Feb. 23, retaining most of the previous day’s Maritimes & Northeast owners are surge as traders fretted about the impact of a weaker U.S. dollar on energy markets. In Duke Energy 77.53 percent, Emera 12.92 electronic trade on the New York Mercantile Exchange, or Nymex, oil for delivery in percent and ExxonMobil Canada 9.55 April was down just 3 cents at US$51.39. Crude prices were up US$2.41 on Feb. 22. percent. “The primary factor is the weak dollar,” said Victor Shum, an analyst in Singapore ExxonMobil holds 50.8 percent of the for energy market consultants Purvin & Gertz. Sable field, in partnership with Shell A weaker U.S. dollar generally triggers a rise in crude prices because oil is priced in Canada 31.3 percent, Imperial Oil 9 per- that currency, making it relatively cheaper when bought in yen, won or other curren- cent, Pengrowth 8.4 percent and cies. Mosbacher Operating 0.5 percent. Lingering concerns about a possible supply cut in March from the OPEC produc- Shell has been the most aggressive in ers’cartel, combined with speculative trading by hedge funds, helped drive crude prices slashing its share of Sable reserves over higher Feb. 22, market watchers said. recent years, taking three bites out of the OPEC’s 11 member states gather in Iran on March 16, and Adnan Shihab Eldin, the resource, while, a year ago, Pengrowth cartel’s acting secretary-general, has said the group may cut an additional 1 million bar- chopped the projected “economic” oper- rels a day. ating life of Sable in half to 10 years. OPEC collectively produces more than a third of the world’s crude, and its decisions on raising or lowering output quotas can have a significant impact on prices. Sable struggling to keep output up Oil is now 50 percent more expensive than a year ago due to robust global demand, Despite the additions of new fields in limited spare production capacity and possible disruptions to output, especially in the last year, Sable has struggled to keep insurgency-ridden Iraq and strike-hit Nigeria. its output above 400 million cubic feet Traders have also cited concerns over winter weather in the Northern Hemisphere per day. and the amount of U.S. energy stockpiles, especially of heating oil, as factors con- Moody’s agreed that if Maritimes & tributing to higher prices. Northeast is successful in landing con- —THE ASSOCIATED PRESS tracts to transport gas from the LNG proj- ects and other sources that “might lessen concerns” about Sable, “although it could also lead to changes in the credit quality of the shippers. (But) this plan has not yet advanced to a stage at which there is a clear credit impact.” Maritimes & Northeast has given potential shippers in Canada and the United States until March 31 to submit detailed requests for service on the 850- mile pipeline, which it believes could be accommodated through additional com- pression and looping. It needs to submit regulatory applica- tions before year’s end to achieve an in- service date of 2007 or 2008 to deliver new supplies to eastern Canada and the northeastern United States. Topping the list of LNG terminals that could fed the pipeline are proposals by Irving Oil for its Canaport facility at Saint John, New Brunswick, Anadarko’s Bear Head facility in Nova Scotia, Keltic Petrochemicals’ complex in Nova Scotia and a Quebec joint venture by TransCanada and Petro-Canada. Still hanging in the uncertain category is EnCana’s Deep Panuke project near Sable that has been on the shelf for two years, but could be a source of 400 mil- lion cubic feet per day if a deal can be struck to share the Sable infrastructure. PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 ON DEADLINE A3

BEAUFORT SEA ALASKA MMS issues notice for March 30 Beaufort Sea OCS lease sale The U.S. Department of the Interior’s Minerals Management Service has issued a final notice for its March 30 outer continental shelf oil and gas lease sale 195 in the Beaufort Sea. Bids will be read beginning at 9 a.m. at the Loussac Public Library in Anchorage. Final sale notice and supporting docu- ments are available online: www.mms.gov/alaska. Bids are due March 29. The initial lease term is 10 years and all tracts have a 12.5 percent royalty rate. The minimum bonus bid amounts are $37.50 per hectare for Zone A blocks (closer to infrastructure) and $25 per hectare for Zone B blocks. Rental rates also vary by zone, and by the year of the lease. There are royalty suspension provisions for first oil production, prorated by lease acreage and subject to price thresholds, which apply to all blocks, and vary by zone. The royalty suspension provisions apply only to oil and conden- sates. The royalty suspension is for up to 30 million barrels of oil equivalent per lease in Zone A of the sale area and up to 45 million barrels of oil equivalent per lease in Zone B. CORRECTION Sales dates May 18 An item in the Feb. 20 issue of Petroleum News had an incorrect date for the state of Alaska’s upcoming Cook Inlet and North Slope Foothills areawide oil and gas lease sales. Bids will be opened and read May 18 in Anchorage.

Issue Index ADVERTISERS INDEX ...... A9 EXPLORATION & PRODUCTION ...... B7 FINANCE & ECONOMY ...... B2 GOVERNMENT ...... B3 NATURAL GAS ...... A5 ON DEADLINE ...... A2

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Petroleum News (ISSN 1544-3612) Week of February 27, 2005 Vol. 10, No. 9 Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518 (Please mail ALL correspondence to: P.O. Box 231651, Anchorage, AK 99523-1651) Subscription prices in U.S. — $78.00 for 1 year, $144.00 for 2 years, $209.00 for 3 years. Canada / Mexico — $165.95 for 1 year, $323.95 for 2 years, $465.95 for 3 years. Overseas (sent air mail) — $200.00 for 1 year, $380.00 for 2 years, $545.95 for 3 years. “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231651 • Anchorage, AK 99523-1651. A4 ON DEADLINE PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

ALASKA NORTH SLOPE FOOTHILLS Tentatively scheduled Alaska lease sales Petro-Canada, Anadarko ink Brooks

Agency Sale and Area Proposed Date Range Foothills exploration deal Petro-Canada said Feb. 22 that it has reached an agreement with Anadarko MMS Sale 195 Beaufort Sea March 30, 2005 Petroleum Corp. to jointly explore in the Brooks Range Foothills in Alaska. DNR Cook Inlet Areawide May 18, 2005 Anadarko will be the operator of the joint venture. DNR Foothills Areawide May 18, 2005 Petro-Canada said the agreement involves pooling of more than 1.5 million BLM NE NPR-A July 2005 acres of state and Arctic Slope Regional Corp. lease holdings, as well as pooling DNR North Slope Areawide October 2005 of data and knowledge in the area. EnCana Oil and Gas (USA) Inc. will continue DNR Beaufort Sea Areawide October 2005 to hold a 33.33 percent interest in the Anadarko data and leaseholds in the pooled area. Prior to the joint venture, Petro-Canada had an interest in 430,000 acres in DNR Alaska Peninsula Areawide October 2005 the Foothills. MMS Sale 199 Cook Inlet 2006 “Petro-Canada and Anadarko hold a strong land position in the area, much of MMS Sale 202 Beaufort Sea 2007 which is contiguous,” said Derek Evoy, Petro-Canada’s manager, North American MMS Chukchi Sea/Hope Basin interest based Frontiers. “We also have a common view of the potential of the area.” MMS Norton Basin interest based Asked what exploration plans the companies have, Petro-Canada spokes- woman Susan Braungart said Feb. 22: “We need to meet with our partner and Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, manages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of make our joint plans before that can be determined.” Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshore Braungart said this agreement includes only Petro-Canada’s Foothills’ acreage; and in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust the company also holds more than 300,000 acres in the National Petroleum lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaska Reserve-Alaska Northwest. region outer continental shelf office, manages sales in federal waters offshore Alaska. —KRISTEN NELSON This week’s lease sale chart sponsored by: HOUSTON PGS Onshore, Inc. Drilling rig economics jumps 6% GlobalSantaFe’s worldwide SCORE, or Summary of Current Offshore Rig Economics, was up 6 percent in January compared to the previous month’s SCORE. The SCORE compares the profitability of current mobile offshore drilling rig day rates to the profitability of day rates at the 1980-1981 peak of the offshore drilling cycle. During the peak the SCORE averaged 100 percent or points and new contract day rates equaled the sum of daily cash operating costs plus about Subscribe to Petroleum News $700 per day per million dollars invested. The North Sea posted the largest increase in January, increasing 12.8 percent to North America’s source for oil & gas news 59.7 points from 53 points in December. The SCORE for the Gulf of Mexico increased 5 percent in January to 59 points Call today: 907.522.9469 from 56.2 points in December. Southeast Asia posted a 2.1 percent increase in January to 57.2 points from 56 points in December, while West Africa’s SCORE came in at 57.1 points in January, a slight 0.1 percent increase from the previous month. Meanwhile, the use of both jack-up and semi-submersible rigs increased in January vs. December. The SCORE for jack-ups came in at 61.6 points, up 6.2 per- cent from 58.1 points, while semi-submersibles came in at 55.2 points, a 5.9 per- cent increase from 52.1 points. —RAY TYSON COOK INLET XTO settles Cook Inlet EPA violations XTO Energy said Feb. 23 that it has agreed to settle its Cook Inlet National Pollutant Discharge Elimination System permit exceedances with the Environmental Protection Agency for $139,000. The Fort Worth, Texas-based company has two platforms in Cook Inlet and an onshore facility. XTO said it had 464 violations from January 2000 through June 2004 resulting from 24 incidents at the three facilities over the five-year period. Violation of a monthly aver- age limit is counted as a separate violation for every day of the month, the company said. Produced water from the two platforms is piped to the onshore facility where it is separated from the oil, cleaned up and discharged back into Cook Inlet. The onshore facility was assessed $6,000 for a single monthly exceedance of silver in the produced water discharge. The rest of the violations were for small volume discharges of sanitary waste from the two platforms. XTO said the “violations had very little effect on water quality with- in a few feet of the discharge pipe.” The company disclosed the violations to EPA and said it has taken steps to prevent further violations. XTO said it regrets that the violations occurred and has conducted additional training of employees to ensure no exceedances will occur in the future. —KRISTEN NELSON natural gas

WEEK OF FEBRUARY 27, 2005 www.PetroleumNews.com PETROLEUM NEWS A5

NORTHWEST TERRITORIES NORTH AMERICA Study: Natural gas cost could ‘Strike while the iron is hot’ rise 70% by 2020 with no NWT minister adds to call for urgency in moving Mackenzie gas pipeline Alaska gas, LNG terminals through regulatory phase; if Alaska gasline gets ahead ‘we’re in trouble’ By GARY PARK least a decade to about 2020. Easing restrictions on gas drilling in the mountain West, plus end- Petroleum News Calgary Correspondent Bell said both Arctic projects are advancing, but ing moratoriums in the eastern Gulf and off the East Coast could keep suggested that Alaska might have taken an edge in natural gas prices essentially where they are out to 2020, according to s the regulatory potholes and speed bumps momentum. a new study commissioned by the American Gas Foundation. start to accumulate on the road to the The gap closed earlier in February when the U.S. That is the “expanded” sce- A Mackenzie Gas Project, so do the voices of Federal Energy Regulatory Commission approved nario run by the study, which Easing restrictions on gas concern, with Northwest Territories Resources “landmark rules” to facilitate approvals and financing uses three different sets of drilling in the mountain Minister Brendan Bell joining the chorus. of the Alaska pipeline, with FERC chairman Pat assumptions to examine how More than anything, the quickening pace of the Wood rating Alaska gas as vital if the U.S. is to have opening new areas to explo- West, plus ending moratoriums in the eastern Alaska gas pipeline project along with delays in the affordable energy 10 years from now. ration, building the Alaska gas Mackenzie process put development of Canada’s line and liquefied natural gas Gulf and off the East Coast Arctic gas resources at risk, he told reporters in Consortium sticking with 2009 imports could affect the natural could keep natural gas Calgary Feb. 18. Hart Searle, a spokesman for Imperial Oil, the lead gas market in the next decade prices essentially where they For now, he said the Mackenzie economics are partner in the Mackenzie project, said the consortium and a half. are out to 2020, according “right … but we must strike while the iron is hot.” is sticking with the “broad outline” of its targeted Keeping the system as it is, to a new study However, if Alaska moves ahead of the 2009 in-service date. with no Alaska gas, no added commissioned by the Mackenzie line “we’re in trouble” because of the But he said the “gathering momentum” in Alaska LNG terminals, tight drilling demands on construction labor and materials, he said, American Gas Foundation could challenge the Mackenzie plan, whose econom- restrictions and high use of gas warning that under those circumstances the for electricity would mean Mackenzie start-up timetable could be stalled for at see STRIKE page A6 prices of nearly $14 per million Btu of gas, the study found, with demand reduced by 12 percent by the higher cost. But even the industry-funded study doesn’t expect the status quo ALASKA to continue for the next 15 years. Expected scenario sees major changes An “expected” scenario suggests major changes in the gas supply Governor: Gasline contract mix by 2020. LNG imports are the big change by 2020 in that scenario, provid- ing 22 percent of supply, while Alaska adds 9 percent, Canada 8 per- still possible this session cent and domestic supplies 61 percent. That scenario has Canadian exports to the United States declining 30 percent as Canada uses more gas domestically and, like the Lower TransCanada right of way would not be exclusive, Alaska Gov. Frank 48 producers, barely maintains the current production level. It figures Murkowski says; North Slope Point Thomson unit also an issue gas will be flowing from Alaska around 2014. Currently, Canada provides 15 percent of U.S. supply, and domes- By KRISTEN NELSON which has an LNG proposal but is currently focused tic producers 85 percent. Petroleum News Editor-in-Chief on in-state spur pipelines. Gas prices under the expected scenario would reach $8.15 per mil- Murkowski said he got a briefing on the negotia- lion Btu by 2020 (with no inflation adjustments), compared with laska Gov. Frank Murkowski told reporters tions in mid-February, and the issues are complex. $5.47 per million Btu under the expanded scenario. Demand is rough- Feb. 17 that he believes the administration’s The state is negotiating equity participation in ly the same under each of those snapshots. A negotiating team has a chance to get a contract exchange for severance and ownership with the pro- Generating plants are the big driver of demand over the next 15 to the Legislature this year. ducers and there are “concerns of just how equity par- years, according to the study, which estimates the United States will The state is negotiating gas pipeline fiscal certain- ticipation by the state would be allocated in the sense use 40 percent more natural gas in 2020 than it did in 2003. ty with the North Slope producers (BP, of percent of ownership,” he said. The state is negoti- Generating demand is projected to rise 150 percent, while commer- ConocoPhillips and ExxonMobil) and with ating some broad ranges of ownership, and that has to cial and residential demand is expected to grow about 21 percent and TransCanada, a pipeline company. It is also in discus- be compared with the status quo: “where we would be industrial use by only 4 percent to 12 percent. sions with, Enbridge, another pipeline company; if we were proposing to have the standard revenue Authors of the study were two analysts from the American Gas Enbridge has not entered formal negotiations with the stream coming in from the royalties and severance Association, the industry’s trade organization, and two from Energy state, saying that it prefers to work with the producers. taxes.” The state is also working with the Alaska Gasline and Environmental Analysis Inc. The full report can be found on the Point Thomson, right of way issues gas foundation’s website, www.gasfoundation.org. Port Authority on that entity’s proposed liquefied nat- ural gas project to the West Coast, and with the Alaska —ALLEN BAKER There are other issues, the governor said, “such as Natural Gas Development Authority, a state entity see CONTRACT page A6 A6 NATURAL GAS PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

COOK INLET BASIN Murkowski looks to stimulate gas production Pledges assistance to Agrium; says working on plan to help smaller explorers get a foothold in Cook Inlet basin ter when the Cook Inlet system sees its peak eral wilderness. By STEVE SUTHERLIN The governor indicated that the Petroleum News Associate Editor demand. ANILCA established a primary mission “The reality is the draw is in the winter,” state actively is working on a plan to to conserve fish and wildlife populations laska Gov. Frank Murkowski said his he said. help smaller oil and gas companies and habitats in their natural diversity, administration is firmly behind efforts The state has a storage scheme in mind, get a foothold in Cook Inlet. according to information from the U.S. Fish A to rescue Agrium’s Kenai nitrogen Murkowski said, however, the plan has hit and Wildlife service, manager of the refuge. fertilizer plant from a scheduled shut- regulatory snags that the state is hoping to area; they have bigger fish to fry.” Compatibility determinations are required down in November, when its current gas untangle. Murkowski said conserving natural gas for all economic and public-use activities, supply contract expires. Murkowski also said the state would do would help and suggested reopening the and economic uses must contribute to “We put together a small task force; all it can to stimulate production of natural Healy clean coal plant, which he said would achieving refuge purposes and the mission there’s been some criticism of what the task gas in south-central Alaska’s Cook Inlet relieve the consumption of 10 million cubic of the refuge system, it said. force has done,” Murkowski said. “I assume basin, and it is evaluating whether it is in the feet of gas per day. Despite the challenges, Murkowski said some expect somebody to wave a wand and state’s interest to participate financially to In the meanwhile, the gas storage idea is the state is in the process of working with solve the availability of gas on the Kenai bring more production about. on the front burner. Interior, and that prospects were reasonably Peninsula.” The governor indicated that the state “We’ve had conversations with the good for approval of gas storage. Murkowski said his recent conversations actively is working on a plan to help small- Department of the Interior about storing it in Murkowski said he would like to bring with Mike Wilson, president and CEO of er oil and gas companies get a foothold in the (Kenai National Wildlife Refuge),” the the players together for continued discus- Agrium, centered on what the state could do the Cook Inlet basin. governor said. sion. to salvage the gas supply situation at the “There’s a couple of proposals; there’s a Although the plan is to store gas “in the “I would ask Mr. Wilson bring his people Nikiski plant. couple of wildcatters down there,” current field that’s been under production up to meet with folks in the Kenai, in more Murkowski said the state would try to Murkowski said amid rumors one independ- for the last 30 years,” the state is facing a of a roundtable, to reaffirm their commit- ensure there is adequate gas storage to bank ent has asked for state funding for drilling. challenge in its effort to get approval ment that they’re not just closing the plant excess summertime gas flows as a reserve “Unfortunately the larger companies don’t because of a change in criteria for the refuge, — that they’re simply in a position of not against the draw down that occurs each win- have the intense interest they once had in the Murkowski said. having enough gas to run it,” Murkowski “Previously the criteria was that nothing said. that would be detrimental in placing the gas Murkowski said he would also call a continued from page A5 North Slope state lands adjacent to the in the monument,” Murkowski said. “The meeting with the principals of Unocal, Arctic National Wildlife Refuge. new procedure is, anything you add to the Marathon Oil, ConocoPhillips and of CONTRACT ExxonMobil told the state in late 2004 that monument must enhance the monument.” Anchorage natural gas distributors, to see if “a standalone project prior to gas sales is not The Kenai National Wildlife Refuge was adjustments could be made to accommodate Point Thomson, which is a very, very tough economically viable under the current fiscal established as the Kenai Moose Range in question that involves one of the producers, Agrium. system.” 1941, but the Alaska National Interest Lands “I don’t want to see that plant close,” their interest in certain commitments made The governor also mentioned Conservation Act changed the name in to the state to develop.” Murkowski said. “Once it closes, it will TransCanada’s right of way application, not- 1980. And 1.35 million acres of the 1.92 never reopen.” The governor did not elaborate on Point ing “concerns expressed by the producers million acre refuge is now set aside as fed- Thomson. that this would be exclusive.” ExxonMobil is the Point Thomson oper- The governor said that is not the case: continued from page A5 ator, and under terms of a 2001 unit expan- “It’s our intent that any consideration would First Nations issues not deal breaker sion agreement, development drilling must be non-exclusive and I don’t know why we STRIKE But Bell does not see the legal action by begin by June 15, 2006, or the state pockets can’t seem to get a dictionary definition…” the Deh Cho First Nations, who want a res- $20 million. But the Point Thomson owners The governor said he would be dis- ics are “not that robust.” olution of their land and self-government have said recently that they have been cussing the gas line with both Enbridge and Bell made his comments are a meeting of claims with the Canadian government unable to identify an economic project at TransCanada on a trip to Ottawa, as well as energy ministers from the Northwest before they will allow a pipeline to cross Point Thomson, an undeveloped high-pres- having discussions with the Canadian gov- Territories, Yukon, Nunavut, Alberta, British their land, as a deal breaker. sure condensate field on the eastern edge of ernment. Columbia, Saskatchewan and Manitoba, He said the Deh Cho support the pipeline who are developing a strategy to promote and only want to “work through” some con- their region as a strong and secure source of ditions with the federal government. supplies — a message Bell said is “very However, Stephen Kakfwi, who retired important” to get across in the United States. last year as Northwest Territories premier Because of worries that Alaska could and is now working with communities along derail the Mackenzie project “we need good the pipeline route, said Feb. 20 those com- communication in Washington.” munities are not getting the money or the Troubled by a feeling of foot-dragging in expertise required to fully assess the the Canadian government, the ministers pipeline’s impact. have set themselves a goal of getting “ahead He also accused Imperial Oil of not being of (federal) policy making,” and are lobby- “very community sensitive” and failing to ing for streamlining of regulatory processes properly answer community questions. for major undertakings such as the Kakfwi, a key aboriginal leader in the Mackenzie pipeline. 1970s in blocking the first attempt to devel- Although most observers doubt an op Mackenzie Delta gas, was a vigorous Alaska pipeline could be completed much supporter of reviving the project during his before 2013-2015, Bell suggested the emer- time as premier. gence of liquefied natural gas and other He now says the regulatory process is technologies influencing the gas market “sad and absurd” and needs change. could undermine the Mackenzie plans, Non-governmental organizations initial- which are being slowed by community lead- ly received just over C$1 million to partici- ers in the Northwest Territories. pate in technical hearings — only one-tenth of what they had requested — which groups such as the Canadian Arctic Resources Committee said in December was inade- quate to do a proper job of participation. In the meantime, money has been distrib- uted from a C$4 million fund created by the Northwest Territories and Canadian govern- ments and the Mackenzie partners. Aboriginal groups and tax-based com- munities are using the money to negotiate land access and benefits agreements with the Mackenzie proponents under what is called the Resource Pre-Development Program that is earmarked to ensure roads, water sys- tems and waste management systems are in advance of the pipeline. PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NATURAL GAS A7

CANADA EnCana groomed for gas future Sitting on a pile of unconventional resources, Canadian independent expects to take advantage of the continued slide in North American conventional gas production before arrival of more LNG and Arctic gas

By GARY PARK covering the length of Canada and the Petroleum News Calgary Correspondent United States. Want to know more? Having unloaded its United Kingdom itting on a mountain of proved If you’d like to read more about EnCana go to Petroleum News’ website and North Sea assets for $2.1 billion to search for the following Petroleum News’ articles that were some of those pub- reserves, unbooked resource poten- Nexen, EnCana will continue its strategy lished in the last few months in which the company was featured or plays a sig- S tial and vast land holdings, EnCana of focusing on unconventional resources nificant part: www.PetroleumNews.com is confident it is ready to take — natural gas and the oil sands — this advantage of a continued slide in North year by selling conventional properties 2005 American conventional gas production Feb. 6 EnCana selling next round of N.A. properties to tighten focus producing 22,000 barrels of oil equiva- Jan. 16 Offshore basin emptying before the arrival of lent per day in Canada and seeking a Jan. 9 Coalbed methane drives record gas drilling activity in Canada more liquefied natu- buyer for its Ecuador assets, in hopes of Jan. 9 New life in aging basin ral gas and Arctic generating $3 billion in proceeds. Jan. 9 Drilling the Delta gas. With a large chunk of its activities Chief Executive 2004 aimed at shale gas and the Rocky Dec. 19 EnCana pulling out of Alaska Officer Gwyn Mountains in the United States, coalbed Dec. 12 Working on solutions Morgan told a con- methane in Alberta and its big plays in Dec. 5 British Columbia heads for banner drilling year in 2004 ference call Feb. 23 northeastern British Columbia, EnCana Nov. 21 EnCana looks to rein in growth that the continent’s boosted its reserves by 24 percent last Nov. 7 EnCana powers Canadian drilling activities conventional sup- Nov. 7 EnCana gets a makeover year to 10.5 trillion cubic feet, including Oct. 31 EnCana surrenders its five NPR-A leases plies peaked two Chief Executive 2.2 tcf through the drill bit, giving the Oct. 24 Gulf Tahiti discovery beats expectations years ago, leaving Officer Gwyn company combined proved and unbooked Morgan told a con- only unconventional ference call Feb. 23 resource potential of 26 tcf, or 20 years of resources — the that the continent’s output at current rates. underpinning of his conventional sup- Net North American gas additions of plies peaked two Calgary-based com- years ago, leaving 3.2 tcf last year were almost triple 2004 Morgan said the continent seems to have 150,000-170,000 bpd, after taking out pany — to offset the only unconventional production of 1.1 tcf. entered a period when demand for con- 22,000 boe per day from its Canadian decline. resources — the underpinning of his ventional oil and gas is growing faster divestitures starting in the third quarter. He said there is Reserve replacement Calgary-based com- than supply, leaving little room for In the Canadian Arctic, with Anadarko no sign of early pany — to offset at $1.40 per mcf equivalent unforeseen political or economic events. Canada and ConocoPhillips Canada as relief from LNG or the decline. Chief Operating Officer Randy He predicted that oil prices will con- partners, it started drilling the Umiak N- the twin Arctic proj- Eresman said proved reserve replacement tinue to be volatile and are unlikely “any 05 exploration well on the Mackenzie ects on the North Slope and Mackenzie costs for 2004 were $1.40 per thousand time soon” to come down from the Delta on Jan. 15 and expects to reach total Delta. cubic feet equivalent, yielding an average heights they reached last year. depth in early March. Given that outlook, he said EnCana, netback of $4 per thousand cubic feet For 2005, EnCana is forecasting gas It also plans to test the Umiak N-16 North America’s largest gas producer at equivalent. production of 3.35 billion to 3.5 billion well, drilled to 10,200 feet in early 2004, about 3 billion cubic feet per day, has a On the outlook for North America, cubic feet per day and oil output of this winter. “clear and sustainable competitive advan- tage” with its access to resources plays A8 NATURAL GAS PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

KENAI PENINSULA Good Alaska location goes bad for Agrium Nikiski fertilizer plant location’s advantages are overshadowed by iffy Cook Inlet gas supply, company says

By STEVE SUTHERLIN Petroleum News Associate Editor “The reality is to prepare for the How much gas is left in Cook Inlet? worst.” —Christine Gillespie, Agrium n many ways, Alaska’s Kenai The following articles published in Petroleum News in the last year are just a few investor relations manager of those that offer different views on Cook Inlet’s remaining gas potential and the Peninsula is a wonderful place for successes and challenges involved in chasing those reserves. Agrium Inc. to have a nitrogen fertil- Subscribers to Petroleum News can access these articles by going to website: I growth is driving the market for fertiliz- izer plant, except for one glaring and www.PetroleumNews.com er upward as farmers strive to produce perhaps fatal weakness — there doesn’t more food from the land, Gillespie said. 2005 seem to be enough natural gas around to “People want food to eat,” she said. Feb. 20 Forest hits gas in Alaska feed the thing. Despite the glowing attributes of a Jan. 23 MEET ALASKA 2005: Alaska gas potential looking better and better, says The plant is scheduled to close in USGS Kenai location, an apparent Cook Inlet November for lack of gas. The Kenai natural gas shortage casts a pall on area stands to lose 230 high-paying 2004 hopes that the plant can stay open. Dec. 19 Agrium, Unocal settle litigation over gas supplies to Nikiski fertilizer jobs, millions of dollars in local spend- “The reality is to prepare for the plant ing and a huge chunk of property tax worst,” Gillespie said. Dec. 12 The Cook Inlet gas play from the perspective of a small independent revenues if the plant closes. working in Alaska On other points, the Kenai plant Gas always #1 Nov. 28 Prodigy still looking for Cook Inlet partners scores high. It is located in the United Nov. 14 Gas flows from Unocal’s Happy Valley Agrium faces two major issues that Aug. 29 Escopeta Oil’s search for Cook Inlet’s ‘missing giants’ States, a bastion of political stability. threaten the viability of its Nikiski Aug. 1 Aurora puts west Cook Inlet gas field online The Kenai Peninsula is a beautiful, May 23 Pioneer Oil eyes CBM development in Alaska sparsely populated area, full of outdoor plant, Gillespie told Petroleum News. May 23 Putting together the puzzle recreational opportunities for employ- “The first issue is, can we get gas, May 16 Pipelines plugging progress ees and families. The plant is located at period?” she said. “Profitability is sec- April 25 Unocal drilling fifth natural gas well at Happy Valley ondary at this point — is it even physi- April 25 New model needed tidewater, and is advantageously posi- cally possible to get gas?” March 14 Report: Cook Inlet gas supply runs deep tioned to deliver nitrogen fertilizer to its Feb. 22 Alaska offers incentives for 73 Cook Inlet tracts largest customer, Korea. The second part of the equation con- Feb. 15 Unocal moves forward on Kenai gas exploration The Kenai plant is the only one cerns profitability. Agrium has on the Pacific Ocean, and “If there is gas, can you get it at a the Pacific is a great place for a nitrogen level that allows a return; can we break fertilizer plant these days. even on a variable cost basis?” Gillespie 90 percent of the cost of manufacture. the bare minimum the plant uses 23 bcf “The Pacific Rim is a growth area, said. “Over the long term, we need to be Anhydrous ammonia is the feedstock when it’s running at its minimum 50 with a rising standard of living,” said able to meet fixed costs.” used to make urea. Agrium sells Kenai- percent capacity.” Christine Gillespie, Agrium investor The primary product of Agrium’s produced anhydrous ammonia and urea Other users around Cook Inlet are relations manager. “People are wanting Kenai plant is anhydrous ammonia. Air, primarily to Korea and Mexico, and also drawing hard enough on the gas supply higher food quality, and it takes more natural gas and steam are the raw ingre- makes deliveries to Thailand, the United that the system can no longer provide fertilizer to make beef than rice.” dients for production of ammonia. States, Australia and New Zealand. All for Agrium’s needs. Worldwide, Agrium It’s not just the economy; population Natural gas is the highest cost compo- of the plant’s output travels to market by builds where gas is trapped, Gillespie nent in the process, adding 80 percent to ship, except for the amount sold locally said. By following that strategy, the for fertilizer and snow melting com- company takes some of the uncertainty pound. out of the natural-gas-supply side of its A one-dollar increase in the cost of equation. gas adds $35 per ton to the cost of man- The company does seek safety from ufacturing ammonia at Agrium’s Kenai wild gas prices, but it is also willing to plant, Gillespie said. share temporary windfalls with its gas A $35 per ton increase doesn’t seem suppliers. Gillespie said at other loca- like much today, with ammonia prices at tions, the company has supply contracts an all-time high, but the increase would for gas with a base price of $1 per thou- hurt a lot if ammonia prices plunge sand cubic feet, but the supplier partici- again, as they often do in the cyclical pates in gains, based on nitrogen prices. commodity market, Gillespie told Petroleum News. Labor not issue “The Black Sea price today is $180 Labor costs at Kenai are high relative per ton, but when the market goes south, to other plants worldwide, but labor you get prices half that,” she said, costs are not the issue in the company’s adding that the per-ton price of ammo- decision to shut down the operation, nia went to $53 in 1999, $85 in 2001, Gillespie said and to $70 in 2002. Without the use of “Labor is not a deal killer if there is variable cost analysis, a plant might ample gas that is competitive,” she said. appear to be making a profit, while it “A commodity company must be vigi- actually is losing money on a long-term lant about costs, but I can’t imagine basis. Agrium abandoning Kenai because of “We can’t pay $5 gas and compete on labor costs.” the international market,” she said. The greatest danger for an operator is to lose its work force, Gillespie said. Cook Inlet situation ‘dire’ “If you close the plant, does your The situation in Cook Inlet is dire, workforce stick around?” she said. Gillespie said. The plant can be restarted, but keep- “Once upon a time there were huge ing it in working order after closing it gas fields, but now we’re at the bottom takes continued maintenance, an of the reserves; there’s almost nothing expense the company doesn’t want to left,” she said. make if a future supply of gas is unlike- Once a court-ordered supply contract ly. with Unocal ends Oct 31, Agrium will “Do we mothball the plant and keep a have to look elsewhere for gas. skeleton staff and if in a few years gas “We’re realized we’re not going to be becomes available — hopefully — able to get gas from Unocal by litigation restart it?” Gillespie said. or negotiation,” Gillespie said. The uncertainty makes it difficult for Conservation measures won’t do the the company to determine what level of trick either, she said. continued maintenance it will institute “There’s talk of re-firing coal plants at the plant after shut down. to save gas now used to generate elec- “Hopefully it’s not over,” Gillespie tricity, but it only saves 3 bcf per year,” said. “We still have a full-time team of Gillespie said. “At full operation the people looking for gas in Kenai.” Kenai plant uses 46 bcf per year — at PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 ADVERTISER INDEX A9 Companies involved in North

America’s oil and gas industry Business Spotlight By PAULA EASLEY ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS

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Price Umiat Commercial North Slope gas handling facility. He Holaday-Parks Unique Machine then obtained a post-graduate degree Horizon Well Logging, Inc. Unitech of Alaska in mineral exploration from Hotel Captain Cook Univar USA Macquarie University in Sydney, Identity Wearhouse Usibelli Australia, and has since lived either Industrial Project Services U.S. Bearings and Drives there or in Alaska. David and his wife Inspirations VECO have seven adult children and three Jackovich Industrial Weaver Brothers grandchildren. & Construction Supply Welding Services Judy Patrick Photography Worksafe Kenai Aviation ...... B10 XTO Energy Kenworth Alaska Kuukpik Arctic Catering ...... B2 All of the companies listed above advertise on a regular basis with Petroleum News A10 THE REST OF THE STORY PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 continued from page A1 Domenici said he gives a fuller expla- will last for 1,000 years.” Riccio also said the public has done a nation of his views in his new book: “A Lovelock, along with many other envi- good job of pointing out the foibles of the NUCLEAR Brighter Tomorrow: Fulfilling the ronmentalists, believes that global warm- nuclear industry, and the current push in Promise of Nuclear Energy.” ing not only exists but also the danger is Congress will not result in more nuclear neering programs and a burgeoning of imminent. He told members of the power plants being built. international cooperation to develop new Professional societies lining up behind American Nuclear Society at its 2004 win- When asked why uranium prices have designs for next-generation nuclear pro-nuclear scientists ter meeting that the Intergovernmental climbed dramatically in recent months to power plants, he said. Meanwhile, professional societies are Panel on Climate Change set up a test in the $21 range, Riccio said current demand On Capitol Hill, bringing more nuclear 1990 — based on a rise in temperature for uranium, which fuels nuclear reactors, power into the nation’s energy mix is lining up behind growing numbers of sci- entists who say nuclear power is the only beyond half a degree Celsius — to see if is not real. “It’s hypothetical demand,” he being touted as a terrific plan by global warming is real. Panel members said. Republicans seeking to pass a bipartisan viable alternative energy to slow the world’s production of greenhouse gases were surprised that temperatures climbed Demand for uranium may be slow energy bill. to that level in 1999 and that it only took because the market is saturated with tons Senate Energy and Natural Resources and global warming. The 120,000-member American nine years, Lovelock said. and tons of enriched uranium and plutoni- Chairman Sen. Pete Domenici, R-N.M., a “Should anyone doubt how bad things um in atomic weapons that world leaders powerful nuclear ally, recently told mem- Society of Mechanical Engineers, for example, recently endorsed nuclear power are, just look at the unprecedented heat pledged to scrap at the end of the Cold bers of the American Nuclear Society that wave in Europe in the summer of 2003,” War, but Robinson said it is very real. he has been waiting for some time now to as a safe and efficient source for supplying America’s growing energy needs. he said. He noted that temperature soared “A new commodity market is unlikely see if the United States would come to its five standard deviations beyond anything to develop until this stockpile is used up — senses and move ahead again with an Proponents of nuclear power say a surge in the world’s population in the next that had happened before. only then will exploration and exploitation energy source that is clearly clean, and “I regard that as the first real warning again becoming interesting,” he added. taken in total, much safer than any other 50 years from 6 billion to 9 billion people will put unprecedented strain on global of much worse to come,” he said. form of energy for producing electricity. Lovelock also said he fears that if nothing Robinson: Environmental groups The United States, he said, finds itself energy resources. Today, two-thirds of the world’s people consume electricity pro- is done, the effects of global warming will merchants of fear becoming more and more dependent on become irreversible at some point during imports of natural gas as well as oil. The duced by 440 nuclear reactors, which Lovelock said most “Greens” have accounts for a 16 percent global share. the 21st century. sucked themselves into a rather false and country faces a clear dilemma, as there is Lovelock is not alone. Berol Robinson, no relationship more certain that the avail- Expanding nuclear power generation is bad position of using fear of cancer to get a strong, clean energy opportunity, they a scientist from Johns Hopkins University support,” he said. “We all breathed in the ability of electricity and material wealth and a member of Environmentalists for — “they go together like day and night.” say. dust of weapons testing in the 1960s. If the Why? Because in contrast to the 25 bil- Nuclear’s board of directors, supports Greens had been even a fraction right, we lion tons of carbon dioxide emitted into nuclear power as an alternative energy should all be dying of much more cancer the atmosphere yearly by fossil fuels, source because it’s “scientific and ration- than we are. We are not. If anything, the spent fuel from a comparable amount of al.” (cancer) rate has dropped.” nuclear energy would fit inside a two- While nuclear energy could easily gen- Robinson said the leading environmen- story structure built on a basketball court, erate a bigger share of the world’s elec- tal groups are “merchants of fear — fear according to statistics compiled by the tricity, Robinson said it won’t replace all of radioactivity itself, fear that plutonium World Nuclear Association. forms of fossil energy “because it will not production will lead to a proliferation of be easy to escape our dependence on oil atomic weapons, fear that spent fuel ele- Some environmentalists favor nuclear for road transport.” ments (no matter how carefully disposed But a small group of environmentalists Major environmental of) will eventually leak into the ground- water and “poison us all,” fear of a 9/11- are attracting growing attention with their groups oppose nuclear favorable stance on nuclear power. like attack on a nuclear power station, and Led by James Lovelock, Great Ironically, Environmentalists for fear of another Chernobyl or even Three Britain’s premier environmental scientist, Nuclear’s biggest critics, so far, have been Mile Island-2.” Environmentalists for Nuclear is winning other environmentalists. Any practical view of conservation over more and more “Greens” and others Greenpeace and other groups such as requires a serious look at nuclear energy, to the merits of nuclear energy. The Wilderness Society and Friends of the he said. “We cannot continue drawing from Earth remain staunchly opposed to the Former congressman and longtime fossil fuels and there is no chance that the spread of nuclear power generation. environmentalist Peter Kostmeyer agreed. ‘renewables’ — wind, tide and water Jim Riccio, a spokesman for “One can’t favor environmental protection power — can provide enough energy and Greenpeace in Washington, D.C., said and not acknowledge that nuclear energy in time,” said Lovelock, who authored the Lovelock and Environmentalists for is a big part of the picture,” said Gaia Theory — the idea that the Earth is Nuclear are so concerned about global Kostmeyer, who is policy counselor for one giant living organism that regulates warming that they are grasping at any Zero Population Growth. “If governments itself in order to sustain life. straw. are going to comply with clean air initia- “If we had 50 years or more, we might “We don’t believe nuclear reactors are tives and the Kyoto Protocol, they will not make these our main sources. But we do viable despite the huge government be able to do it without nuclear energy.” not have 50 years. ... Even if we stop all largesse that supports them,” he said. “Not Domenici described Lovelock and oth- fossil fuel burning immediately, the con- one nuclear reactor in this country has ers as “enlightened environmentalists.” sequences of what we have already done turned a profit.” He also cited the views of Hugh Montefiori, the former Bishop of Birmingham. The bishop wrote recently that as a theologian he believes it is mankind’s duty to do as much as it can to safeguard the future of the earth. “It is because of that commitment that I have come to the conclusion that the solution is to make more use of nuclear energy,” Montefiori noted. For his pains, Montefiori was kicked off the board of directors of Friends of the Earth, Domenici added. PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 THE REST OF THE STORY A11 continued from page A1 RUSSIAN OIL

“There are lumps of bitumen,” Blodgett told Petroleum News. “We had at least four localities of good bitumen development — there’s just tons of it.” Blodgett described other rocks that smell of oil. “They crack ‘em open and they smell good, they smell petroliferous — not fetid, but not bad,” Blodgett said. DIVISION OF GEOLOGICAL & GEOPHYSICAL SURVEYS DIVISION OF GEOLOGICAL & GEOPHYSICAL The Holitna Lowlands The Holitna Lowlands consists of a flat area of tundra in the Interior of southwestern Alaska, between the Alaska Range to the southeast and the Kuskokwim Mountains to the northwest. Gravity data indicates that a 4,600 meter-deep basin of Cenozoic rocks underlies the Lowlands. This basin, known as the Holitna basin, sits astride the Farewell fault, a major regional fault that connects with the Denali fault to the east. No bedrocks of the Holitna basin are exposed at the surface. However, Cenozoic ested the oil companies as potential reservoir Minchumina basin, north of the Alaska Reservoirs and sources rocks in a similar setting to the northeast rocks, Blodgett said. Dolostone is similar to Range. However, the Paleozoic rocks in that The stable depositional environment that along the Farewell fault appear in surface limestone but is composed primarily of the area have been altered by metamorphism existed over many millions of years in the outcrop and suggest that the Holitna basin mineral dolomite, rather than the calcite and have little petroleum potential. Holitna area has given rise to an abundance contains Tertiary sandstone, conglomerate, that’s found in limestone. Vugs are rock Fossil evidence shows that the stable of good, clean reservoir rocks, especially mudstone and coal. pores lined with minerals. The bitumen that continental shelf represented by the the dolostones. And the occurrences of dead The rolling hills and river valleys around Blodgett described occurs in these “vuggy” Paleozoic rocks existed over a period of oil and petroliferous rocks provide evidence the Holitna Lowlands expose older dolostones. perhaps 200 million years. of a petroleum system. Paleozoic strata that include the petrolifer- “The dolostones have lots of vugs in “When you take this Paleozoic package The area contains many structures that ous rocks that Blodgett described. them and so Unocal really got excited — and look at it there’s a really good section of could form traps. And there’s an intriguing Geologists think that these Paleozoic strata they thought this would be a major play,” late Proterozoic through Devonian rocks, possibility that hydrocarbons could have also lie beneath the Holitna basin. Blodgett said. including (algal) reef facies rocks that ring migrated into Tertiary reservoirs in the Reconstruction of the stratigraphy from sur- But as a result of the oil price crash of the the outer margin of the Dixon Fork (subter- Holitna basin. Potential source rocks prima- face exposures indicates that the entire mid-1980s and changes in management pri- rane),” Blodgett said. It’s possible to track rily occur in the deep water Dillinger ter- Paleozoic sequence has attained a thickness orities none of the oil companies returned to the remains of algal reefs all the way from rane and consist of shales, shaly limestones of many thousands of feet. the Holitna Lowlands. DGGS did, however, the Cambrian to the lower Devonian, he and limestones, Blodgett said. However, a The feature that distinguishes the carry out another study of the area in 1998. said. lack of good source rocks in surface expo- Paleozoic rocks of the Holitna Lowlands The rocks contain characteristic sures suggests a need for caution in estimat- area from most similar aged rocks elsewhere A Siberian continental shelf Paleozoic fossils. For example, fossils of ing the petroleum potential of the area. We in Interior Alaska is a lack of metamor- extinct animals such as trilobites and grap- Early work in the Holitna area identified found lots of organics in the rocks but we phism. As a consequence the Holitna rocks tolites occur in the Ordovician strata. three distinct sets of Paleozoic rock didn’t get really great total organic content could have generated and preserved oil or However, the fauna bears close similarities sequences, known as terranes. However, the values, Blodgett said. gas. to similar aged faunas of Siberia and does fieldwork in the 1980s showed that these Some potential source rocks contain “The Holitna basin (area)’s the only place not resemble the faunas of North America. three terranes, called the Dixon Fork, hydrocarbons within the oil window, in the Paleozoic where the rocks aren’t too This suggests that the Paleozoic rocks of the Dillinger and Mystic terranes, comprise dif- Blodgett said. But thermal maturities sug- mature,” Blodgett said. Holitna and Minchumina areas form a frag- ferent depositional settings or subterranes of gest that the area is likely to be gas prone. ment of a Siberian continental shelf that col- a single terrain, known as the Farewell ter- “The Paleozoics look to be over-mature Exploration in the 1980s lided with the North American continent at rane. to weakly over-mature overall,” Blodgett some time in the distant geologic past. Little was known about the geology of Rocks such as dolostones in the Dixon said. However, the Holitna Lowlands area “The rocks and the facies are unlike the area around the Holitna Lowlands until a Fork and Mystic subterranes provide evi- remains substantially under explored — North America … they’re actually Siberian flurry of exploration activity in the early dence of a shallow marine platform bound- current knowledge of the area has derived like,” Blodgett said. 1980s. ARCO, Chevron, Sohio, Unocal and ed by algal reefs. The Dillinger subterrane from a handful of field studies, each lasting Curiously, the Paleozoic rocks in what’s the state of Alaska’s Division of Geological contains rocks such as mudstones and lime- just a few weeks. We don’t have the struc- known as the Alexander terrane in and Geophysical Surveys all sent field par- stones that formed in a deeper marine envi- tural history of the area worked out, Southeast Alaska show close affinities with ties to the area at around that time, Blodgett ronment. By plotting out the locations of the Blodgett said. those at Holitna, suggesting that the said. A batch of geological publications various types of rock geologists could map “We’re still in the very first pioneer Alexander terrane may be part of the same about the area appeared in the mid-1980s. the geography of a continental shelf that phases of getting geologic maps published,” fragment of the Siberian continental mar- Both Unocal and Sohio found sufficient existed many millions of years ago, with the he said. gin. However, volcanic material in the of interest to plan second field seasons. reef-bounded shallows rimming a marine And with a very thick sequence of rela- Alexander terrane indicates an association There were even rumors about plans to drill basin. tively unaltered Paleozoic strata, the Holitna with volcanic arcs, rather than deposition on a well, Blodgett said. Geologists could also trace the rocks Lowlands area may yet yield some surpris- a stable continental shelf as at Holitna. Dolostones with vugs particularly inter- northeast through the area of the es.

A12 THE REST OF THE STORY PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 continued from page A1 Energy, Newfield Exploration and Cabot Oil the way, can easily run more than $30 mil- important year for Noble Energy,” & Gas each hold a 10 percent stake. lion. Davidson said, noting that the company’s WILDCAT “This is going to be a drill and test … Cadillac partner Newfield also holds a fourth-quarter earnings soared to a record with substantial completion costs,” 23 percent overriding interest in the $329 million on strong worldwide produc- “It’s a little more complex and hostile Davidson said. “But it is a very significant ExxonMobil-operated Blackbeard tion. when you get down there,” Noble prospect for the traditional shelf and has a prospect, located on Newfield’s multi- In particular, Noble is picking up the spokesman Greg Panagos said. very unique horizon.” block Treasure Island play. BP and Brazil’s pace in the U.S. Rockies and Mid-conti- Only a few companies have ventured into Actually, the Cadillac prospect dates Petrobras also hold a stake in Blackbeard. nent, where the company plans to drill the ultra-deep zone. Earlier in February a back to 1997 when partners ChevronTexaco Shell is believed to be the first company around 300 wells in 2005 compared to 77 in consortium led by operator ExxonMobil and Noble drilled an unsuccessful explo- to drill an ultra-deep exploration well on the 2004. Most of the increase will come at the spud a well on the Blackbeard prospect at ration well to the upper reach of the Cotton Gulf’s continental shelf, but its Shark wild- company’s Niobrara play in western South Timbalier Block 168. The well is per- Valley trend. The project was abandoned cat turned out to be a dry hole. The major Colorado where 225 wells are planned in mitted to 32,000 feet and could take up to a when the well encountered mechanical also participated in a 26,000-foot well on 2005 versus just 25 last year. year to drill. problems, but Davidson said both compa- the Joseph prospect offshore East Texas. Cadillac prospect massive nies were encouraged by what they saw. Meanwhile, Noble Energy said it plans Since 1997, ChevronTexaco and Noble to drill or participate in at least 352 U.S. continued from page A1 The Cadillac prospect is massive, cover- have done additional technical work on the onshore exploration and development wells ing eight to 10 blocks on the shelf, and could prospect and gained the necessary confi- this year, more than tripling last year’s 111- INSIDER hold “several hundred billion cubic feet” of dence to drill and complete a well, Davidson well performance. also likely set final tolls in the second natural gas reserves, Chuck Davidson, said, adding that “it was really the geologic “I would say that activity will pale in quarter. Noble’s chief executive officer, said in a technical work that brought this prospect comparison to what we expect and have The agreement sets the fixed operat- Feb. 22 conference call with industry ana- forward again.” already begun in 2005,” Davidson said. ing, maintenance and administration lysts. Noble, riding high on an unprecedented costs for the mainline at C$169.5 mil- “This is a very large prospect,” he said, Well cost could exceed $30 million run up in natural gas prices, actually began lion for 2005, virtually unchanged from adding that Cadillac operator Noble retained its 20 percent interest in accelerating its U.S. onshore drilling pro- last year’s costs. TransCanada will ChevronTexaco is targeting the Cotton the prospect, while ChevronTexaco gram last year, which contributed to an swallow any costs over and above that Valley trend, a play that has produced signif- brought in partners Kerr-McGee, Devon, overall 16 percent production increase in figure. icant discoveries onshore. Cabot and Newfield to share expenses. An the 2004 fourth quarter vs. the same period Chief Executive Officer Hal Kvisle ChevronTexaco holds a 30 percent inter- ultra-deep exploration well on the shelf, in 2003. said in a statement that his company est in Cadillac. Noble and Kerr-McGee each depending on obstacles encountered along “Without question 2004 was a very was “pleased to have reached this set- hold a 20 percent interest, while Devon tlement through a collaborative effort with the negotiating parties. “The settlement represents a balance of interests and demonstrates our com- mitment to develop mutually-beneficial solutions with our customers.” Those were uncharacteristically soothing words for producers, which set the stage for TransCanada to try wooing producers to its side for the Canadian section of the Alaska gas pipeline and its latest plan for a US$1.7 billion oil sands pipeline from Alberta to Illinois — both of them potential showdowns with Enbridge. But TransCanada is still in a catch up mode after losing its attempts to head off the Alliance pipeline that had its origins when 22 producers decided they no longer wanted to be beholden to TransCanada. Having passed up chances to take an equity stake in Alliance, TransCanada turned its back on the 1,800-mile system that has capacity for 1.55 billion cubic feet per day and is now owned 50-50 by Enbridge and Fort Chicago Energy Partners. —GARY PARK PETROLEUM NEWS Volume 10, No. 9 WEEK OF www.PetroleumNews.com North America’s source for oil and gas news February 27, 2005

ALASKA BEAUFORT SEA

JUDY PATRICK JUDY Making it work Pioneer studies developing Oooguruk from Beaufort drill site with 48 wells BY KRISTEN NELSON Petroleum News Editor-in-Chief

ioneer Natural Resources Alaska and its partner PATRICK JUDY Armstrong Alaska are talking to regulators about P what their Beaufort Sea Oooguruk development would look like, if the project goes ahead. Susan Spratlen, Pioneer’s vice president of corpo- rate communications, reminded Petroleum News Feb. 24 that the project has not been sanctioned and said a general project description being circulated was prepared to give contractors and permit- ting agencies an idea of what JUDY PATRICK JUDY the current thinking is on how the project might proceed. But, Spratlen said, Pioneer has not approved the project or An Oooguruk exploration drill site finalized the plans, and is still working to make it economic. 2005 for front-end engineering and permitting activi- In fact, Ken Sheffield, pres- KEN SHEFFIELD ties to further define the scope of the project. If addi- ident of Pioneer Natural Resources Alaska told tional work confirms favorable development econom- Petroleum News, things are about where they were ics, the company said in the release, it will seek regu- Among the leading U.S. producing states Alaska’s rig count increased by three to 12. when Pioneer updated its Alaska activities in a Jan. 13 latory approval to develop the field in 2006 targeting news release: Pioneer is moving forward with engi- first oil in 2008. U.S. rig count jumps by 15, neering studies and beginning to engage regulatory Sheffield told the Resource Development Council agencies. for Alaska’s annual conference in November that Canada numbers unchanged The company’s Jan. 13 release says Pioneer “com- Pioneer will be working on fiscal terms for Oooguruk The number of rotary rigs operating in North American during pleted an extensive technical and economic evaluation with the state. Sheffield called making Oooguruk eco- the week ending Feb. 18 totaled 1,884, an increase of 15 rigs from of the resource potential” at Oooguruk in the fourth the previous week and an increase of 196 rigs from the same last quarter of 2004 and has committed $5 million during see PIONEER page B11 year, according to rig monitor Baker Hughes. Canada’s rig count during the recent week stood at 589, NORTH AMERICA unchanged from the previous week but up by 15 from the year-ago period. The number of rigs operating in the United States during the Between feast and famine see RIGS page B9 Pipeline firms vie for producer backing to build new crude capacity from Western Alaska governor asserts state’s Canada; industry association sees Gulf Coast and California markets as best bets rights to manage coastal resources By GARY PARK Petroleum News Calgary Correspondent Alaska Gov. Frank Murkowski is asserting state’s rights in a dispute with the federal government over changes in the state’s ajor energy pipeline compa- coastal zone program, and has said that unless the federal govern- nies relying on Western ment backs down, Alaska will let its coastal zone management pro- M Canada crude supplies are gram die this summer. engaged in a tough juggling The governor asked the National Oceanic and Atmospheric act to bring new capacity on stream Administration in a Feb. 23 letter to abandon new requirements for and handle a forecast 50 percent the Alaska Coastal Management Program. If NOAA’s Office of increase in crude production over Ocean and Coastal Resource Management “does not immediately the next decade, says the Canadian Association of Petroleum see MURKOWSKI page B8 Producers. But there is ample reason to find OF PETROLEUM PRODUCERS ASSOCIATION CANADIAN Sakhalin 2 inks two long-term LNG solutions as potentially lucrative opportunities emerge in the U.S. supply deals with Korea, Japan Gulf Coast and California, the asso- Shell got some good news in February with two big Asian LNG ciation suggested in a 17-page study contracts for the Sakhalin 2 project it leads. released Feb. 17. Sakhalin Energy locked up a deal to deliver to Japan more than CAPP Markets Vice President behind or exceeds demand, the costs will be borne by 26 million tonnes (metric tons) of liquefied natural gas from Greg Stringham believes the “crunch point” could producers, either directly or indirectly, the study con- Sakhalin 2 over a period of 24 years, completing a sales and pur- occur about 2010, meaning that producers must com- cludes. chase agreement that followed a Heads of Agreement signed in mit to new pipelines this year if they are to come on Since the late 1990s, pipeline capacity out of May 2003. The contract with Tokyo Gas Co. calls for 1.1 million stream when needed and avoid a supply glut from the Western Canada has grown by 550,000 barrels per tonnes annually starting late in 2007. oil sands. day and forecasts indicate the need for another Developing new pipelines in a “timely fashion” is see SAKHALIN page B9 important for two reasons: Whether space lags see BACKING page B10 B2 FINANCE & ECONOMY PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

OKLAHOMA CITY Kerr-McGee’s stock rockets Former raider Icahn to buy up to $1B in Kerr-McGee stock; chemicals division sale possible

By RAY TYSON regarding the inten- high. After announcing Feb. 23 that it was Petroleum News Houston Correspondent tion of each to acquire pursuing strategic alternatives for its chemi- between $100 million cals unit, Kerr-McGee stock climbed to err-McGee is no doubt feeling the and $500 million of $76.62 per share, nearly an 11 percent heat from investors after receiving a Kerr-McGee stock, increase per share over the Feb. 18 closing. K rude wake-up call from former corpo- for a total of up to $1 Kerr-McGee, in addition to its oil and gas rate raider Carl Icahn and his plan to billion. production, is the world’s third largest pro- buy up to $1 billion worth of Kerr-McGee Kerr-McGee said ducer of titanium oxide, a white pigment stock. it had no other contact used in paints, plastics and paper and mar- Icahn’s move was quickly followed by with Icahn and Kerr-McGee CEO keted under the Tronox label. Titanium Kerr-McGee’s decision to pursue “strategic declined to speculate Luke Corbett dioxide accounts for about 85 percent of the alternatives” for its shaky chemicals divi- on Icahn’s motives. In chemicals division’s sales. sion, a strong indication that the big a prepared statement, Kerr-McGee chief Oklahoma-based independent would like to executive Luke Corbett said only that “the Chemicals’ demand brings increase in sell the division and become a pure explo- company welcomes all investors as we con- earnings forecast ration and production company. tinue to explore ways to enhance value for Rick Buterbaugh, Kerr-McGee’s vice Kerr-McGee is said to be lagging its all our shareholders.” president of investor relations, told analysts peers in the stock market, despite a strong Icahn, a former corporate raider known in the Feb. 23 interim earnings conference exploration and production record that has for his role in attempting to break up RJR call that strong demand for chemicals had benefited mightily from the unprecedented Nabisco, has previously held investments in caused Kerr-McGee to increase its 2005 run up in oil and gas prices. However, while Kerr-McGee. And a $1 billion investment in first-quarter earnings forecast for the divi- Kerr-McGee’s chemicals unit has posted the company would give him and his hedge sion by 20 percent to $25 million to $27 impressive returns of late, it has been a drag fund a roughly 10 percent stake in Kerr- million. on company earnings in the past. McGee, certainly a large enough position to “In light of these developments, much Icahn stepped into the picture on Feb. 18 be taken seriously at the bargaining table. of our March 8 board meeting will be when Kerr-McGee announced that it had Nevertheless, investors received Icahn’s devoted to discussions regarding all strate- received letters from Icahn and his Icahn message loud and clear, as Kerr-McGee gic alternatives associated with this busi- Partners Master Fund, saying that each had stock rose more than 7 percent over a two- ness segment, and we have engaged an filed notice under the Hart-Scott-Rodino Act day period to $74.20 per share, a 52 week investment bank to assist in these efforts,” he said. A spokesman for Kerr-McGee told MEXICO Petroleum News Feb. 24 that the company “will look at all options” for its chemicals division, including reorganization of the BP exec says Mexico needs $200B division as well as a possible sale. Mexico needs to work with private companies to invest as much as $200 bil- Emerging from a three-year slump, the lion over the next 20 years in deepwater exploration and drilling, the vice presi- division accounted for $1.32 billion in sales dent of exploration and development for BP, Chris Sladen, told a group of oil in 2004, or 25 percent of Kerr-McGee’s executives Feb. 21. Sladen’s remarks were reported Feb. 23 by Business News $5.18 billion revenue for the year. Americas, which covered Sladen’s speech at Pemex’s annual oil technology con- In January Kerr-McGee reported 2004 ference. fourth-quarter profit from all the compa- Mexico’s state-owned oil firm Pemex has said deepwater reserves could be as ny’s divisions of $133.8 million or 86 cents much as 54 billion barrels of crude oil equivalent. Pemex lacks the technology, per share, compared to a profit of $50.5 expertise and funding to develop these reserves on its own and so must work with million or 50 cents per share in the 2003 as many industry players as possible, Sladen said. fourth quarter. Pemex is talking to international oil companies, including BP, about helping it The company also posted record pro- to explore deep-sea oil reserves, he added, stressing the need for Pemex to work duction for the 2004 fourth quarter. Oil pro- with foreign firms, because of the significant technical challenges of deepwater duction averaged 184,700 barrels per day, exploration. up 32 percent from the same period a year Banned from creating partnerships with foreign companies, Pemex wants to earlier, while natural gas output averaged draw up service contracts for deepwater oil this year and start offering them in 1.125 billion cubic feet per day, a 51 per- 2006. cent increase when compared to the year- ago period. Much of the increase was attributed to start up of production in China, the acquisition of Westport Resources and increasing production from deepwater Gulf of Mexico. Despite past exploration successes in deepwater Gulf of Mexico, Kerr-McGee admittedly came up short of company expectations in 2004. In January Kerr- McGee’s Corbett said that if the company didn’t “execute cleanly” on the exploration front this year, it was prepared to change its strategy in the region. government

WEEK OF FEBRUARY 27, 2005 www.PetroleumNews.com PETROLEUM NEWS B3

ALASKA CANADA Government still pondering Kyoto Alaska seeks NPDES primacy Petroleum industry leaders in Canada who held their breath through the federal budget on Feb. 23 turned red in the face for no rea- Bill would allow Alaska Department of Environmental Conservation to apply son if they were waiting to hear tough news on how the Kyoto Protocol will be implemented. to EPA to handle wastewater permitting now handled by federal agency The word Kyoto never even crossed the lips By KRISTEN NELSON uling. My proposal would give Alaskans the power to of Finance Minister Ralph Goodale, although Petroleum News Editor-in-Chief issue permits that reflect our priorities and unique con- he pumped an extra C$3 billion into environ- ditions. In other words, permits that make sense to mental initiatives, on top of the C$2 billion ear- laska is primed to take over wastewater permit- Alaska,” the governor said. marked two years ago. ting from the Environmental Protection Agency The legislation introduced by the governor pro- That means the government has established A under provisions of a bill introduced by the vides that the Department of Environmental C$5 billion in funding for the next five years, governor in mid-February. Conservation would file an application for NPDES of which C$1 billion is for a Clean Fund Three years ago the Legislature authorized the primacy with the EPA by June 30, 2006. specifically aimed at cutting greenhouse gas Alaska Department of Environmental Conservation to emissions in compliance with Kyoto. Finance Minister study the costs and benefits of the state taking prima- State has been working issue Ralph Goodale “Canadians want us to demonstrate that cy for National Pollutant Discharge Elimination In the spring of 2002 the Legislature directed the smart economic policy and smart environmen- System permits, a part of the federal Clean Water Act department to evaluate the consequences of assuming tal policy can go hand in hand,” Goodale said. that requires permitting of dis- primacy. The department issued a report in January The spending includes an extra C$225 million to extend a program charges to surface waters. 2004, and the governor assembled a working group of to make homes more energy efficient; C$295 million in tax incentives When the Legislature industry and local government officials to consider the for alternative energy generation; C$200 million to support research authorized the study, acting costs and benefits of assuming primacy over NPDES

and development in the clean energy sector; and another C$200 mil- Commissioner Kurt PATRICK JUDY permitting. That group finished its work in January lion to stimulate the use of Fredriksson said Feb. 17, “they with a general consensus to proceed. wind power. wanted to know what it would The department said the group identified a number The Canadian Association of The budget also said the cost, what would be the bene- of potential benefits of state primacy, including time Petroleum Producers has made government hopes to reach fits.” The department met with and cost savings to permit new facilities due to work- its case for incentives rather an agreement with the auto industry and municipalities that ing with a single agency; permit requirements tailored industry to improve the fuel than penalties, urging the have to get those federal per- “Alaska would join to Alaska conditions; an appeals process where filing government to allow tax write- efficiency of vehicles sold in mits, and reported back in 45 other states that an appeal on a new permit does not automatically stay Canada. January. now perform this the entire permit; replacing time-consuming formal offs for any capital and That could see rebates to On Feb. 16, Alaska Gov. important task.” operating expenses related to —Alaska Gov. Frank consultation processes with faster, less formal consumers buying energy- Frank Murkowski submitted Murkowski processes; Alaska-specific guidance documents; and Kyoto; more federal money for efficient vehicles and fees legislation authorizing the the use of on-line permit applications and electronic energy research and imposed on fuel-inefficient department to apply to EPA for primacy. data submittal. development; and an vehicles. “Alaska,” the governor said, “would join 45 other The group also identified potential concerns, accelerated and increased But, as Environment states that now perform this important task.” including: permit fees are expected to increase on Minister Stephane Dion said capital cost allowance to speed The Legislature had already authorized the depart- average by a factor of 1.8; the state might not direct earlier in February, major ment to pursue primacy over NPDES permits for the up capital stock turnover appropriate resources and funding to adequately industries who generate timber industry and this year’s legislation would implement the program; NPDES primacy could be greenhouse gases will have extend state primacy to all industries. temporary if future administrations and Legislatures to wait some time yet to learn how much they will have to cut emis- Alaska applicants can wait as long as 31 months do not support it; the state may not be able to hire and sions. for an NPDES permit, compared to Washington, retain staff with the expertise to permit complex pro- The Canadian Association of Petroleum Producers has made its which has primacy, and where the wait is about eight grams; responsibility to implement the NPDES pro- case for incentives rather than penalties, urging the government to months, the governor said. “Without primacy, we are gram may come at the cost of other programs and pri- allow tax write-offs for any capital and operating expenses related to stuck with a cumbersome federal permitting program, orities; and a state program may not provide the Kyoto; more federal money for energy research and development; run out of Seattle, that does not serve Alaska’s condi- degree of certainty currently in place at EPA. and an accelerated and increased capital cost allowance to speed up tions or needs, and over which we have little or no capital stock turnover. control,” he said. Timber already authorized —GARY PARK “Currently, the EPA decides how to apply Alaska’s The department was authorized in 2004 to take water quality standard, priorities, process and sched- see PRIMACY page B4 B4 GOVERNMENT PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

ALASKA Regulatory commission working on changes RCA’s goal to be more responsive to companies involved in pipelines in Alaska. Internal work “I started with John Barnes (of Marathon Oil),” she Over the next nine months the commission will be said. “And it was a very challenging conversation industry, ratepayers and state of working with industry, ratepayers and the public to because he’s quite frank about the cost of the regulatory determine “what do we need to do to improve the regu- Alaska; one area of focus pipelines environment in the state of Alaska.” latory environment.” Giard said she also had “a challenging conversation” In addition to a jurisdictional review between state with the owners of the trans-Alaska oil pipeline. By KRISTEN NELSON agencies and identifying areas where “RCA could sit Petroleum News Editor-in-Chief Challenges identified concurrently with FERC,” the commission also told he Regulatory Commission of Alaska is working on industry it would make changes within RCA “in 2005 to In early December the commission held a scoping make the regulatory environment better.” making changes, including changes in its internal meeting, inviting chief executive officers of pipelines processes and changes in how it works with the util- One thing the commission will look at is alternative T and oil and gas shippers as well as state agencies. At that dispute resolution. The FERC uses this, she said, but ities and pipelines it regulates, the commission’s meeting, Giard said, “we presented to them our proposal chair, Kate Giard, told legislators Feb. 11. RCA does not. for how we should work together and some of the chal- The changes RCA plans this year are in its internal The commission plans to bring some minor changes lenges that I heard about talking to them.” Those chal- to the Legislature this year, with more major changes processes, she said: The commission needs a software lenges include: overlapping jurisdiction between RCA system for its caseload. next year, but is concerned about what the Legislature and state agencies; concurrent jurisdiction with the may do once it has proposed RCA changes before it. “I can’t tell you as the chairman of the regulatory Federal Energy Regulatory Commission; role of the commission how many cases we have on any given day, The commission is working with regulated utilities, RCA in state-negotiated rate stipulations; lack of clarity ratepayers and state agencies on what changes are need- who’s assigned and what our staff are doing.” in the tariff process; regulatory costs; lack of regulatory This year the commission will bring the Legislature ed, Giard told the Alaska Legislature’s Senate and House framework; and standards for intervention. Resource committees at a joint meeting in Kenai, and “very minor changes in statute” including a funding The commission may need the Legislature’s help to mechanism for a system at the commission. The com- wants to find a way to work with the Legislature on resolve overlapping jurisdiction with state agencies, she implementing necessary statutory changes, she said. mission is required by law to have a time management said. Once the governor’s office has approved state system, she said: “We don’t. We’re trying to come into agency participation there will be a jurisdictional review. compliance with the law, but we need to buy one…” Commissioners ready to make changes Likely agencies include RCA, the departments of Giard said that when she ran for chairman of the com- Natural Resources and Revenue, the Joint Pipeline Major changes next year mission last year — the five commissioners select one of Office and the Attorney General. Industry partners will In 2006, Giard said, the commission would bring to the their number as chairman each year — it “was because I provide a white paper on specific areas of overlap for Legislature needed statutory changes identified in its work saw the regulatory agency of Alaska as being an agency analysis. with industry, ratepayers, the public and state agencies. that had tremendous potential but missed the mark RCA staff is meeting with FERC to identify overlap And that, she said, makes the commission nervous. The almost all the time.” issues and to determine where FERC jurisdiction ends Legislature, she noted, discussed disbanding the commis- The present commissioners — two accountants, an and state jurisdiction begins, “so that there aren’t any sion in 2003, but instead gave the commission a four-year engineer, a lawyer and an oil and gas industry expert — areas that are not covered by some type of regulatory sunset. The commission fears that when it comes to the “are ready and committed to making the changes neces- oversight.” Legislature next year to ask for statutory changes, “that all sary to make the Regulatory Commission of Alaska far Within the state, Giard said, there is a lack of clarity of a sudden the door is opened” and “there will be a more responsive to the needs of industry, to the needs of in the tariff process: It can take years and can cost mil- Christmas tree approach” to changes. the ratepayers and to the needs of the state of Alaska,” lions. That process needs to be improved, she said, “so What the commission wants to do, she said, is to bring Giard said. that pipeline companies when they go to make an invest- some minor changes forward this year, with more major Since she became chair on July 1 the commission has ment, already know in advance some of the key criteria” changes to follow next year. The commission wants to created a “2005 improvements initiative” and is working that will go into setting a tariff. Pipeline companies fil- find a mechanism to work with the Legislature based on on internal improvements, on improvements that affect ing tariffs today have “no known framework” for some the working group it has formed. utilities and on improvements that affect pipelines. of the calculations that go into the tariff. “We are working with the industry,” she told legisla- Giard talked to the legislators, who were in Kenai to RCA commissioners will be meeting again with the tors. “We understand those problems in the regulatory hear from the Cook Inlet oil and gas industry, about the industry group to form working committees and identify commission. These are the steps that we would like to take pipeline initiatives. timelines, she said, and regulations working groups will to fix those problems.” Starting in October, Giard went out and met with begin meeting in February. continued from page B3 sector limitation … thereby allowing the than 2,300 permits, and said it “anticipates are either permitted or administratively DEC to take the actions necessary to assume taking over permit issuance and compliance extended. PRIMACY primacy for all of the NPDES program del- from EPA in a phased approach” as its own egable to the state.” staff gains experience in the program. State would take responsibility action to assume primacy for the Clean The bill also allows for financing of a The program would be supported, in part, for five components Water Act NPDES program for the timber portion of the state NPDES program by fees from users, owners/operators of industry. This, the governor said in a trans- There are six components to the through user fees. facilities with wastewater discharges: NPDES permit program, and it is proposed mittal letter accompanying the legislation, The department said in a fiscal note that municipal sewage treatment plants, utilities, was recognized as “a good first step on the that the state take responsibility for five, it projects a one-year effort, in fiscal year mines, seafood processing plants, oil and gas excluding only the bio-solids management road to broader assumption of primacy for 2006, to complete development of the pri- operations, municipal storm water and con- the NPDES program.” program which regulates disposal of macy application to EPA, with EPA review struction projects with storm water dis- sewage treatment byproducts or sludge. The bill submitted in mid-February, the and approval the following year. The depart- charges. governor said, “would remove the timber- This is a small component of the NPDES ment would take over management of more When the issue was before the program in Alaska, the department said in Legislature in 2002, Fredriksson said, the a fact sheet, and states have the option regulated community, industry and munici- whether to take primacy for this part of the palities, “wanted to know what it would program. cost, what would be the benefits.” The five components for which the state Cost is an issue because there is no fee for would take responsibility are: developing, the federal permits. “EPA does not charge issuing, modifying and renewing NPDES for their permits,” Fredriksson said, “they permits; permitting storm water discharges basically charge each and every taxpayer of from construction and industrial activities the United States to run that permit pro- as well as permitting storm water collected gram.” The state would use a combination of and discharged by large municipal storm state general funds and program receipts, sewer systems; compliance and enforce- fees paid by those receiving permits. ment; permitting discharges from federally Fredriksson said it is big projects that owned facilities; and the pre-treatment take some 31 months to get NPDES permits program for regulating highly toxic dis- from the EPA, and the state should be able to charges into sewage systems. reduce the time for big projects to 18 There are 2,132 authorizations in months. Alaska under general NPDES permits and There is some backlog, he said, “64 small 155 individual permits. community wastewater systems that are cur- The department said it will require an rently in some hiatus with the federal per- additional $1.5 million a year to operate mitting process just because the … EPA the program, with an estimated $300,000 doesn’t have the staff to really address some per year coming from program receipts of those smaller operations.” Larger projects once the program is operational. PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 ADVERTISEMENT B5 B6 EXPLORATION & PRODUCTION PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

COOK INLET Unocal applies to provide more gas storage; new projects under way Storage leases would run concurrently with oil and gas production leases, expiring when oil and gas leases expire production leases, expiring Unocal’s Alaska land manager, told the agencies that expanded gas storage is “an when oil and gas leases overdue and much needed service” in the area. During the sub-zero cold snap in expire January, Tabler said, there was “an emer- F gency situation at the Beluga gas field” on By KRISTEN NELSON the west side of Cook Inlet and 35 million cubic feet a day of gas was needed immedi- Petroleum News Editor-in-Chief ately — a need which was met from or decades Southcentral Alaska has had Unocal’s Swanson River storage reservoirs. enough natural gas that meeting peak winter Had gas from Unocal’s “small pilot pro- demands was not a problem. The area didn’t gram using in-field gas” not been available, require what is a fixture of the natural gas he told the agencies, “customers would have business in the Lower 48, gas storage — been shorted gas, causing potentially signif- reservoirs which are filled with gas when icant harm.” This, he said, was the second there is a day-to-day surplus of production such event this winter. and tapped when there is a day-to-day short- “This small pilot program using in-field age. gas helped us through a difficult time but Unocal, which has the only storage in the will not sustain us for the long term,” Tabler area, is using reservoirs at the Swanson said. River field, but the field is in the Kenai More gas will be necessary in National Wildlife Refuge and Unocal has Southcentral, he said, but storage will help only been allowed to store gas produced in manage existing reserves. the refuge. Unocal requested that authorization to Unocal wants to increase its storage expand gas storage at Swanson River “run capacity at Swanson, and also bring in gas concurrently with the terms of the unitized from outside the refuge for storage. oil and gas leases underlying the Swanson The company is applying to the agencies River unit,” so that when the leases expire at responsible for the refuge, the U.S. the end of oil and gas activity at Swanson Department of the Interior’s Bureau of Land River, “the term of the gas storage leases Management and Fish & Wildlife Service, would also expire.” for both expanded storage and the ability to Unocal is also requesting “expedited import gas into the refuge. review and approval” so that work can begin BLM manages oil and gas activities on to address natural gas shortages “caused by the refuge and Fish & Wildlife must concur growing peak winter demand.” on activities affecting the refuge. Swanson has seen large-volume Storage leases would gas imports in past end with production Historically large volumes of natural gas Unocal has two gas storage facility leas- have been imported into the Swanson River es at Swanson River, both limited to inject- field to maintain reservoir pressure for oil ing gas produced within the field. In a Feb. production, Unocal said. A 16 inch natural 15 letter to both agencies, Kevin Tabler, gas pipeline was constructed in 1964 to bring gas to the field and between 1964 and 1990 some 370 billion cubic feet of gas were imported, with 330 bcf injected and 40 bcf used for field operations. Blow down of the injected gas began in 1993, and Unocal said that since then it has produced 230 bcf of gas for redelivery to Marathon and for use at the Kenai Nitrogen Operations Plant in Nikiski. Chuck Pierce, then vice president of Unocal’s Alaska operations, wrote to

see STORAGE page B7 PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 EXPLORATION & PRODUCTION B7 continued from page B6 impact production from the field.” In 2003 Unocal launched a shallow gas Merely a mechanical incident at Beluga STORAGE project which has doubled gas production from Swanson River, he said, and because field, says ConocoPhillips Pierce said, adding that Unocal would not be the price of oil is high the company is taking Unocal has applied to expand gas storage at the Swanson River field (see story able to make “the large financial commit- another look at potential oil development this page) and said in its application that an emergency at the Beluga gas field on ments required to expand gas storage capac- projects including the G Zone oil. the west side of Cook Inlet in early January forced it to draw on its stored gas to ity” to meet Southcentral Alaska’s peak win- Permitting has been initiated by Unocal keep its customers supplied. ter needs without assurance that gas can be and Marathon for two satellite develop- ConocoPhillips Alaska spokeswoman imported into the Swanson River field. ConocoPhillips Alaska ments, East Swanson and Birth Hills. Dawn Patience told Petroleum News Feb. Pierce said Unocal was specifically seek- spokeswoman Dawn Patience Unocal anticipates, Pierce said, that with 24 that ConocoPhillips does not regard the ing approval of its third gas storage lease the success of recent projects and additional gas interruption from the Beluga field in told Petroleum News Feb. 24 and removal of the prohibition against oil and gas opportunities, the Swanson River early January as an emergency. that ConocoPhillips does not importing gas from outside the Swanson field “will continue to be in production for ConocoPhillips is the Beluga field opera- regard the gas interruption River field using the existing 16 inch gas many years to come.” tor. pipeline, a condition the agencies imposed from the Beluga field in early But because there are areas within the “The incident at the Beluga field was a when they approved a storage well in June January as an emergency. field which may not be used for any of these mechanical incident with one compressor, of 2004. ConocoPhillips is the Beluga purposes, the contraction of the Swanson which was reconciled as soon as possible,” field operator. Utilities seeking more natural gas River footprint “has begun in a well-planned Patience said. The compressor was down manner.” for less than 24 hours. Pierce said Chugach Electric Association And, Pierce said, Swanson River storage Patience said gas supplies to Unocal had recently issued a request for proposals ties into a North Slope gas pipeline. It would were interrupted, “and Unocal fell back on the gas it had in storage to meet its for natural gas supplies “in anticipation that allow, he said, construction of a smaller supply obligations.” current suppliers will not be able to fill the diameter pipeline to Southcentral for base Mechanical issues “are not commonplace,” she said, but “they do occur in high winter seasonal component of load needs, with storage allowing “the large commercial operations.” Chugach’s natural gas demand in the near pipeline to operate at a steady rate, decreas- Patience said the use of gas storage is normal for the gas supply network in the future.” Enstar Natural Gas, the ing the operational challenges of both North Lower 48, “and gas storage will be needed to meet the cycle demands of the Cook Southcentral gas distribution company, “has Slope gas production and the pipeline.” Inlet market.” entered into and is negotiating for additional Storage will also, he said, provide necessary —KRISTEN NELSON incentive-based natural gas sales contracts redundancy in the event of interruptions in in anticipation of the region’s impending North Slope gas pipeline deliveries. deliverability shortfall,” he said. Pierce noted that a Department of Energy study of Southcentral gas supplies complet- ed in June 2004 projected that the area’s large seasonal swings in demand and very limited gas storage could lead to seasonal shortages before 2009. Unocal has operated the Swanson River field as 100 percent owner since 1992, Pierce said, and the field “has produced oil and gas continuously since its discovery in 1956.” Unocal began developing the Kenai Gas Storage Facility in the late 1990s and it is the first and only such facility in the region, he said. Pierce said that BLM approved Unocal’s injection plans, but the U.S. Fish & Wildlife Service has limited gas injection to in-field sources. “While this will meet 2004-05 win- ter demand, importation of gas from outside (Swanson River) is essential starting in the summer of 2005 in preparation for the 2005- 06 winter,” Pierce said. The gas pipeline is already in place, he said, and Unocal has natural gas production in several fields in Southcentral Alaska which it can use for storage. “It appears the importation of gas pro- duced outside of SRF is the sticking point with USF&WS. They believe that this would constitute a new use of the Refuge and therefore require a compatibility deter- mination followed by all new environmental and right-of-way permitting applications. Such a process could terminate the gas stor- age project and at best would delay addi- tional gas storage development, making it unavailable in the winter of 2005-06.” New projects under way at Swanson Pierce said that importing gas into the Swanson River field is not a new use, but “is consistent with current and historical prac- tice” at the field, with 370 bcf imported between 1964 and 1990. And, he said, “infrastructure is largely in place for continued import and export” of storage gas. The existing 16 inch gas pipeline would be used, “and all activity will be from existing drilling and development pads. “If the project is successful, aging pipelines will be replaced in the existing pipeline corridor within the field.” No envi- ronmental impact is planned outside of existing roads, pads and utility corridors. As for the future of exploration and pro- duction at Swanson River, Pierce said there are several projects “which will positively B8 THE REST OF THE STORY PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

continued from page B1 in its application, and an additional regulato- ry burden within an already comprehensive MURKOWSKI resource management system. As a result, projects have been unnecessarily delayed abandon the new requirements and broken without a corresponding environmental ben- promises” in its Jan. 28 decision, the gover- efit,” the commissioners said. nor said, the Alaska Coastal Management The commissioners said state agencies Program will expire in the summer of 2005. have worked hard to forge relationships with Alaska voluntarily implemented the federal resource agencies operating in ACMP program in 1979, but after 25 years, Alaska, and said the state actively partici- the governor said, the program had become pates in federal decision-making processes a complex, confusing set of requirements independent of ACMP requirements. “Thus, that delayed projects in Alaska without cor- we are confident that Alaska will continue to responding environmental benefits. be involved and our voice heard in federal Discontent with the program grew, and in activity and authorization processes, even 1997 a bill was introduced to repeal it. without the formality of the voluntary In 2003 the Legislature passed a bill ACMP consistency tools.” which mandated a simplified program. The state then worked with NOAA’s Office of Governor: federal agency Ocean and Coastal Resource Management retreated from approvals to develop an amended program that met Alaska’s needs. The governor said talks pro- In a letter to the National Oceanic and ceeded constructively until January, with the Atmospheric Administration about the federal agency identifying minor changes to Office of Ocean and Coastal Resource the ACMP regulations. Management decision document, the gover- But on Jan. 28, the agency denied nor said “the state invited OCRM’s partici- Alaska’s amended ACMP and, the governor pation and review of the amendments, said, seeks to impose duplicative, complex requesting guidance and recommendations and burdensome requirements that do not to ensure ultimate and timely program increase environmental protection. approval by OCRM,” and thought it had received that guidance, “as well as a com- State’s right issue mitment from OCRM to work jointly to resolve program approval issues at the earli- “Alaskans deserve a coastal management est juncture.” program that works for Alaska,” Murkowski With guidance from the agency, the gov- said, and called the NOAA requirements ernor said, the state worked on a compre- “another example of the federal government hensive program description of the amended dictating from afar program requirements Alaska Coastal Management Plan, and the that don’t make sense in Alaska. I promised governor said he was “dismayed” to review to stand up to the federal government when the Jan. 28 denial decision in which the they overreach their authority — and agency “not only retreated from program through this action I am upholding that com- approval positions conveyed to state staff mitment.” during prior discussions, but failed to ade- Judy Brady, executive director of the quately evaluate the state’s prior submis- Alaska Oil and Gas Association, agreed with sions against the federal rules, and added the governor’s state’s rights assessment. entirely new criteria and rationale to justify “Governor Murkowski has said ‘no’ to its denial decision.” an attempt by a federal agency to literally The January decision, the governor said, dictate terms as to how our coastal lands and “adopts a highly prescriptive interpretation waters will be regulated,” Brady told of the Coastal Zone Management Act” Petroleum News in a Feb. 23 statement. which extends “well beyond Congress’ “This is an extremely important state’s mandate when enacting CZMA “to encour- rights issue,” she said. “Alaska has the most age and assist the states to exercise effec- extensive coastal zone in the United States. tively their responsibilities in the coastal It covers our entire coastline, and in many zone …” places extends over 20 miles inland. Activities in this zone must go though a con- Coastal districts’ role an issue sistency review to meet statewide and coastal district standards and policies, plus One of the requirements in the Jan. 28 meet all the federal, state and local regula- denial decision from OCRM, the governor tions. Whoever controls the coastal zone said, was that the role of coastal districts be pretty much controls Alaska. By this action, expanded. The governor said “… few other Governor Murkowski has said, in no uncer- states have coastal districts or their equiva- tain terms, that Alaskans will control Alaska. lent and there is no requirement that Alaska “If Alaskans read the federal agency’s include coastal districts as part of our coastal condescending, gobbledygook ‘our way or management program. However, we includ- the highway’ letter they would know why ed districts to supplement existing state and the governor took the action that he did. The federal authorities where the matter is of regulated community has been watching local concern.” The governor said that bal- this issue very closely. Governor ancing the authority between the state and Murkowski’s action gives new hope for coastal districts “is a matter within the dis- state management and local control,” Brady cretion granted a state in the CZMA, and said. therefore any specific balance of authority directed by OCRM is inappropriately Commissioners: ACMP addressed as a program issue. Again, this is became fragmented a simple matter of state’s rights.” The state is also concerned, the governor A joint letter to Alaskans from the com- said, as are federal agencies, with OCRM’s missioners of the Alaska departments of use of “an expansive ‘Geographic Location Natural Resources, Fish and Game, Description’ … requirement that would Environmental Conservation and impose an ‘effects test’ requirement well Commerce, Community and Economic beyond what OCRM had previously Development said the ACMP, “a voluntary required, and beyond what the state feels is program funded and authorized in part by necessary to adequately protect coastal uses the National Oceanic and Atmospheric and resources.” Administration (NOAA), had broad author- OCRM had suggested amendments to ity to address a variety of resource manage- ACMP regulations, the governor said, and ment issues” when Alaska implemented the that language “would have ensured that program in 1979, but “has languished in the enforceable policies would be applicable to past several years without the needed federal lands to address any activity (regard- updates to its purpose and policies. less of location) that may affect any coastal “This resulted in the ACMP becoming fragmented in its implementation, subjective see MURKOWSKI page B9 PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 THE REST OF THE STORY B9 continued from page B8 ate coastal management programs within the broad Coastal Zone Management Act continued from page B1 and 197 for oil, while two were being MURKOWSKI used for miscellaneous purposes. Of the framework “to each state’s judgment of its RIGS special priorities and needs.” total, 795 were vertical wells, 353 direc- use or resource located within the state’s tional wells and 147 horizontal wells. Since OCRM “has departed from its recent week increased by 15 to 1,295 coastal zone.” The state, he said, agreed with Among the leading U.S. producing original legislative mandate and has not from the previous week and was up 181 the agency’s interpretation and “began states, Louisiana’s rig count surged by 19 allowed Alaska to implement our amended compared to the same period last year. preparing, verbatim, the regulatory fix that to 196, while Alaska’s increased by three Compared to the previous week only, OCRM had recommended.” program utilizing existing regulatory tools to 12, Colorado’s increased by two to 71 land rigs increased by 10 to 1,160, while But, he said, the “expanded” geographic and in accordance with Alaska’s priorities and Wyoming’s increased by one to 67. inland water rigs increased by three to 28 location description in the Jan. 28 docu- and needs,” the governor said, “if OCRM California’s rig count fell by three to 27, and offshore rigs increased by two to 107. ments “effectively withdrew OCRM’s does not immediately abandon the new while Texas’ fell by two to 555 and Of the total number of rigs operating agreement on how to capture the federal requirements and broken promises” in its Oklahoma’s fell by one to 157. New in the United States during the recent effects test in the regulations, and is unac- Jan. 28 decision, “the ACMP will expire by Mexico’s rig count was unchanged at 71. week, 1,096 were drilling for natural gas ceptable.” operation of law in the summer of 2005.” —RAY TYSON Congress left development of appropri- —KRISTEN NELSON continued from page B1 per year, and that consumption is expected ments at ExxonMobil-led Sakhalin 1, whose the pipeline may go elsewhere, perhaps to grow to 180 million tonnes annually by gas originally was supposed to go to Japan China, or that project could shift its focus to SAKHALIN 2020. via pipeline for utility use. But Japan’s utili- LNG to market its huge gas reserves. ties are making long-term LNG deals, and so —ALLEN BAKER That deal came just two days after Shell Two LNG trains under construction announced that Kogas, the Korean gas com- pany, had chosen Sakhalin 2 and another Sakhalin Energy has two LNG trains Shell joint venture, Malaysia LNG, as sup- under construction, each with a capacity of pliers for up to 4 million tonnes annually for 4.8 million tonnes per year. It now has long- 20 years. term supply contracts for 7 million tonnes Each project will supply a minimum of annually. The company announced a 20- about 1.5 million tonnes annually, starting in year deal in October to ship 37 million 2008, with an option for an additional half a tonnes to the Sempra Energy terminal in million tons. Total’s Yemen LNG will come Baja California. Another Shell entity is the in with an additional 1.3 million tonnes each buyer for that gas. year. Final contracts will be signed in the Shell holds 55 percent of Sakhalin next couple of months. Energy, with stakes by Mitsui and Korea’s commerce, industry and energy Mitsubishi of 25 and 20 percent. The project ministry said the deals with the three suppli- has reserves estimated at 17 trillion cubic ers amounted to a total of US$20 billion. But feet of gas, plus more than a billion barrels it also noted that prices had fallen by 35 to of oil. 40 percent in the recent contracts, with the Shell has 15 percent of Malaysia LNG, fuel priced at around US$200 per tonne, or the largest LNG complex in the world, with in the neighborhood of $4 per million Btu. Mitsubishi also at 15 percent. Petronas has Kogas is the world’s largest buyer of 65 percent and the state of Sarawak 5 per- LNG, Shell noted, importing more than 21 cent. million tonnes annually. Asian markets The long-term agreements lock up some already consume 84 million tonnes of LNG major customers and may affect develop- B10 THE REST OF THE STORY PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 continued from page B1 working with produc- demand exceeding 6 million bpd, offers A CAPP analysis of the ers to address “vast possibilities,” according to CAPP. BACKING competitiveness in the Gulf Coast pipeline issues, sug- With roughly 35 percent of total North indicates that Canadian heavy gests those excesses American refining capacity, the Gulf Coast 600,000 bpd over the next decade as com- crudes would have been could be swallowed currently imports more than 4.8 million bpd bined output rises to 3 million bpd by 2010 up if U.S. refiners from a wide range of global sources, includ- and 3.3 million bpd by 2015, the study says. attractively priced to Gulf refiners over the last four winters, but start running ing about 2 million bpd of heavy sour crude. Drawn by those predictions, pipeline Canadian synthetic A CAPP analysis of the competitiveness would likely be uncompetitive in companies are jostling for producer support crudes to offset in the Gulf Coast indicates that Canadian for proposals that would introduce more the summer when prices declining U.S. sup- CAPP Markets Vice heavy crudes would have been attractively than 2 million bpd of new capacity to either strengthen due to higher asphalt plies of light crude President Greg priced to Gulf refiners over the last four the British Columbia coast or the U.S. demand. and new markets Stringham winters, but would likely be uncompetitive Midwest over the next five years, with open up in the Gulf Coast and California, in the summer when prices strengthen due Enbridge planning 650,000 bpd in two sys- which are both predominantly medium and to higher asphalt demand. 2010, but “looking beyond 2015 it may be a tems, Terasen 625,000 bpd, Koch Pipelines heavy crude outlets, making them a “very Those two outlets may offer better near- matter of “which first, rather than either up to 350,000 bpd and TransCanada good fit” with Western Canada’s growing term prospects than the Asian markets, or.’” 435,000 bpd. slate of heavier crude volumes. which have come into focus in recent Currently, the major trunk line systems The study said California has 10 medi- months as several delegations have visited Beyond 2015 operated by Enbridge and Terasen are oper- um to large refiners, with combined capaci- Western Canada to explore options for new ating about 300,000 bpd short of their Stringham said there is no requirement ty of 1.5 million bpd, with two-thirds of the supply and/or investment opportunities. capacity of 2.3 million bpd. for all of those projects to go ahead for feedstock coming from local production or Both Enbridge and Terasen have But the association, which has been the Alaska North Slope — but both sources pipeline proposals in the works that would are declining in excess of an average 4 per- connect northern Alberta to deepwater ports cent a year. on the British Columbia coast, with possible As a result, California refiners are links to Asia or California. increasingly turning to offshore crude, with However, the study said that given the those supplies climbing over the last five overall land and ocean distance from years from 100,000 bpd to 325,000 bpd. Western Canada, producers may see the Far The study said that the outlook for East market as secondary to areas such as Alaska crude “has somewhat stabilized over California. the last two years, but long-term production Stringham told reporters that, despite the forecasts continue to indicate an expected growing consumption in China, Japan and steeper decline beginning as early as 2006.” South Korea, few Asian refiners are It said Canadian medium and heavy sour equipped to handle medium and heavy crudes should be able to compete effective- crude. ly with waterborne alternatives currently He said the unanswered question is used by California refiners. whether the economics will make sense for Stringham said Alberta’s recent progress Chinese refiners after they factor in costs of in blending light synthetic crude with heavy transportation or an equity stake in a oil to create Synbit offers “characteristics pipeline. very similar to the medium-grade the California refiners are already processing.” Pipeline proposals The pipeline proposals now in the Gulf Coast market possibilities “defining stage” are: The Gulf Coast market, with crude • Enbridge Gateway — A C$2.5 billion system from Edmonton to Prince Rupert or Kitimat, offering 400,000 bpd by 2009- 2010. • Enbridge Southern Access — A pos- sible US$650 million, 250,000 bpd con- nection from Superior, Wis., that could be in service by early 2007 and tie in with Enbridge’s planned Spearhead pipeline, a joint venture with BP, to reach the Chicago, Wood River or Cushing market hubs from an interconnection point in Illinois. • Terasen — A staged expansion of the Trans Mountain pipeline from Edmonton to reach Greater Vancouver and/or Prince Rupert/Kitimat, adding up to 625,000 bpd of incremental capacity over the 2006- 2010 period at a cost of C$2.6 billion. • Koch — A two-stage project from Clearbrook, Minn., to Wood River, adding as much as 350,000 bpd of new capacity at a cost of US$560 million, by 2009-2010. • TransCanada — The newly unveiled Keystone proposal from Hardisty, Alberta to Wood River, in service by 2008 or 2009 at 435,000 bpd and costing US$1.7 bil- lion. PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 THE REST OF THE STORY B11 continued from page B1 ing. said, and reported a 1,300 barrel per day 24-40 degree API oil); the Texaco Colville Offshore and onshore import/export sustained rate from the first well. Delta No. 3 (374 bpd of 27.7 degree API PIONEER flowlines and utilities would terminate at a When the state approved formation of oil); and the ARCO Kalubik No. 1 (410 bpd Kuparuk River unit drill site facility which the Oooguruk unit in July of 2003 it said of 21 degree API oil). nomic “quite challenging,” and said the will be expanded to allow for Oooguruk there are three oil-bearing Jurassic sands Pioneer completed the Oooguruk well, a company will be discussing royalty reduc- tank storage, pig launching/receiving and southwest of Oooguruk: the Nechelik, vertical hole, to a depth of 6,900 feet; the tion with the Alaska Department of Natural chemical injection facilities. Nuiqsut and Alpine sandstones. The Alpine Natchiq was completed to a measured Resources because “this is an economically The document says Kuparuk River unit sandstone from the Alpine field discovery depth of 7,500 feet and a true vertical depth challenged project and we really need to facilities, operated by ConocoPhillips well, the Bergschrund No. 1, is not present of 6,740 feet; the Ivik was completed to a protect the down side in the event that oil Alaska Inc., would process the three-phase in the northern Colville Delta area. measured depth of 6,943 feet and a true ver- prices were to fall to a low level, and that’s production stream, but Foley said that is a tical depth of 6,942 feet. an essential part of us moving forward with discussion that hasn’t yet taken place. State: key is producing Pioneer said it found oil in two Jurassic- this project.” low-API gravity oil aged sands, which the company described Leases in the unit have 16.67 percent roy- Unit approved in 2003 as “very similar in geologic age, permeabil- alties. Pioneer submitted a confidential eco- “The key to unlocking the reserves with- The 20,394-acre Oooguruk unit was ity and porosity to those in the prolific, nomics model of its assessment of the in the Jurassic sands is producing the low approved by the state in July 2003. onshore Alpine field to the southwest.” Oooguruk development to the Alaska API gravity oil without damaging the for- Oooguruk is in Harrison Bay, offshore Pioneer fractured the Ivik and got a sus- Department of Natural Resources Division mation with drilling fluids,” the division Alaska’s North Slope, north and west of tained rate of about 1,300 bpd. Spratlen told of Oil and Gas in February “to assist in its said in its unit decision. Nuiqsut sands were and contiguous with the Kuparuk River Petroleum News in April 2003: “The issue internal review of Pioneer’s request for lease tested in several Colville Delta exploration unit. is determining the permeability, how much terms modifications.” wells: the Texaco Colville Delta No. 1 Three of the tracts in the unit date from (1,075 bpd of 25 degree API oil); the oil there is and what the recovery factor will Company looking at island development a state oil and gas lease sale in 1997 and the Texaco Colville Delta No. 2 (409 bpd of be.” other nine leases were acquired by In the general project description sub- Armstrong Alaska in an October 2001 state mitted to the Division of Oil and Gas — oil and gas lease sale. Armstrong assigned information Pat Foley, Pioneer Natural Pioneer Natural Resources a 70 percent Resources Alaska’s manager of land, com- working interest in its leases in late 2002 mercial and regulatory affairs, called a and Pioneer acquired the other leases in “communication document” for talking to early 2003. agencies — Pioneer said it is looking at Pioneer drilled three wells: the Ivik No. developing the Oooguruk discovery from a 1 was spud Feb. 24, 2003, followed by the five-acre drill site in approximately four Oooguruk No. 1 and the Natchiq No. 1. feet of water near the mouth of the Colville On March 31, 2003, Pioneer said it had River. Both Kuparuk and Nuiqsut (Jurassic) a 1,300 barrel per day oil discovery from reservoirs are being considered for devel- the Jurassic formation. The Kuparuk C opment and production is estimated to be sands were the primary target. The compa- less than 20,000 barrels of oil per day. ny said it was testing “a possible extension The development being looked at would of the productive sands in the Kuparuk include approximately 48 wells in contain- River field into the shallow waters offshore. ment modules with three-phase production Although all three of the wells found the transported to shore in a buried subsea sands filled with oil, they were too thin to “pipe in pipe” flowline. be considered commercial.” There will also be a one-half acre But the wells “also encountered thick onshore gravel pad at the shore transition sections of oil-bearing Jurassic-aged sands site for automated valves and valve hous- that are currently being tested,” Pioneer B12 ADVERTISEMENTS PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 6 Green fuel scheme more than hot air? Gold miner enters race to make Alaska low-grade coal economical

8 Explorers team up in British Columbia Rimfire and Barrick announce partnership on Kizmet gold-silver project

9 Pebble permit filing postponed to 2006 Northern Dynasty awaits feasibility study for southwest Alaska mine

A special supplement to Petroleum News WEEK OF February 27, 2005 CHRIS AREND 2 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

INTERIOR ALASKA Greens Creek achieves Alaska publishes environmental milestone data for Goodpaster Auditors give clean bill of health to underground mine in Alaska’s national forest, near Juneau The Alaska Division of Geological and Geophysical Surveys released BY SARAH HURST new airborne geophysical data and Mining News Editor maps for the Goodpaster River area in n Alaska mine located in one of the Interior Alaska on Jan. 24. The survey nation’s most unique ecosystems covers approximately 210 square has received the prestigious ISO miles in the western Goodpaster min- A 14001 certificate for its environ- ing district, which is home to the mental management practices. Greens Pogo deposit. (See map on page 15.) Creek silver, gold, zinc and lead under- Several mining companies, includ- ground mine is on Admiralty Island ing AngloGold, Rimfire, Freegold National Monument in southeast Alaska’s and Teck Cominco, are active in the Tongass National Forest. The old growth area. “We use these data all the time temperate rainforest on the island pro- and have found more and more uses vides habitat for about 1,700 brown bears for the geophysical data since (the — more than in the Lower 48 states com- state) started doing this in the early bined — as well as around 2,500 bald 1990s,” said Curt Freeman of eagles, black-tailed deer, salmon and a Fairbanks-based Avalon host of other species. Development Corp. Greens Creek is a joint venture The Goodpaster River area geo- between Kennecott Minerals and Hecla physical data show contrasts in mag- Mining Co. Its ISO 14001 certification netic and electrical properties of geo- became effective Dec. 20, after a rigorous logic units. The flight altitude (200 audit by NSF International Strategic feet) and line spacing (one-quarter Registration of Ann Arbor, Mich. mile) yielded very detailed aeromag- Coincidentally, the announcement came a netic and resistivity maps. The Alaska few months after Alaska’s Red Dog zinc Legislature provided funding for the mine announced its own ISO 14001 certi- survey. Maps are available to down- fication. load in PDF format from the DGGS website at http://wwwdggs.dnr.state.ak.us/ and the data can be purchased on CD or “Achieving ISO 14001 registration paper for the cost of reproduction. on the first attempt is a “Most of Alaska is not exposed compliment to all employees and very well, so this makes a tremendous their ongoing commitment to difference in being able to trace environmental protection at bedrock units under cover,” Laurel Burns, chief of the minerals section at Greens Creek,” —Rich Heig, DGGS, told Mining News. “It really Greens Creek general manager cuts down time in the field for geolo- gists and exploration companies. They can see what’s causing anom- Employees have an alies. It’s a very interesting set of environmental ethic data, it has definitely got potential.” “It’s been even easier because of Budget includes other surveys where we are,” Greens Creek’s environ- mental manager, Bill Oelklaus, told In his proposed budget for fiscal Mining News. “We live here in Southeast year 2006 Alaska Gov. Frank Alaska because we like the out-of-doors Greens Creek mine in southeastern Alaska Murkowski has requested $700,000 and a pristine environment, so our affect the environment and to ensure that “Achieving ISO 14001 registration on for surveys of the Fairbanks mining employees already have an environmen- negative things don’t happen,” Oelklaus the first attempt is a compliment to all district, including parts of the tal ethic.” Greens Creek had previously said. When accidents do occur, their con- employees and their ongoing commit- Boundary and Wolf Creek, 2004 burn met the necessary environmental stan- sequences are minimized. In January ment to environmental protection at areas, Interior Alaska; the dards, but it took about five months to some sulfuric acid was spilled in the mill Greens Creek,” the mine’s general man- Richardson/Black Mountain area, complete the paperwork required for the area, and by following the correct proce- ager, Rich Heig, said. “Greens Creek’s Interior Alaska; and the Kougarok audit, Oelklaus added. dures the damage was limited to the pipes effective controls to protect the environ- and northern Nome districts, Seward “The environmental management sys- which had broken in the first place and ment will continuously improve through tem is there to embed in the workforce a caused the spill. “It had the potential to be ongoing third-party independent see GOODPASTER page 15 consciousness about how their jobs may much worse,” Oelklaus said. reviews.” G PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 3

G ALASKA NORTHWEST TERRITORIES Alaska commission NWT struggles to find buyer for plant The Northwest Territories government has been forced to resume its search for a buyer to take over its troubled diamond cutting and polishing plant. urges swift action Hopes that the Lev Leviev Group of Cos. would take over the operation collapsed earlier in February when the Israeli-based conglomerate was unable to strike a deal BY SARAH HURST with the Diavik and Ekati mines to supply rough diamonds. Mining News Editor The challenge of establishing a cost-effective, competitive diamond cutting facto- ry in Yellowknife, where labor costs are much higher than in Russia or Africa, became he report of the 2005 Alaska apparent last summer when plant owner Sirius Diamonds went bankrupt after the Minerals Commission, published in Northwest Territories government called its C$8 million in government-guaranteed January, stresses the urgent need to T loans. overcome the twin obstacles of per- The plant is still operating, but the government has lost C$3 million in the process. mitting and lawsuits at a time when the A spokesman for Diavik said Leviev did not meet the mine’s commercial criteria, mining industry is experiencing a dramat- which cover reputation, manufacturing and marketing ability, while Ekati said Leviev ic upsurge in activity. Since its creation in wanted more diamonds than it could supply. 1986 the commission has made annual Lev Leviev, principal of the company that carries his name, has gained a reputa- recommendations to the governor and tion as a diamond tycoon after being credited with reinventing the industry after Legislature on ways to mitigate con- breaking De Beer’s near monopoly. straints on the development of minerals, including coal, in the state. —GARY PARK “Despite the improvements in 2004, the industry continued to be dogged by an array of frustrating issues and investment INTERNATIONAL disincentives,” the report says. “Environmental obstructionists continued Mining at ‘tail-end’ of cyclical recovery there is still room for improvement, to throw up hurdles despite genuine, according to the report. “Many of the per- An easing of China’s overheated economy and a rapid rise in costs could sap some cooperative project design and permitting mitting challenges come from the federal of the vigor from the mining industry, says Canaccord Capital’s global metals and min- work on the industry’s part. Spurious law- side, and are beyond the ability of the ing analyst Gary Lampard. suits and appeals continue without litiga- state to control, but the state can still In an early-February research report he said that rather than being at the “start of a tion reform, and the obstructionists con- encourage the federal permitting agencies long-lasting commodity boom driven by China,” the industry is “facing the tail end of tinue to sway public opinion using mis- to (be) accountable and to provide timely, a strong cyclical recovery.” leading Toxic Inventory Release data.” responsive project review and permit Lampard said the 11 global firms he studied are investing US$24 billion over three The Murkowski administration has years until 2006 on expansion projects, a 23 percent increase from their combined cap- improved the efficiency of permitting, but see REPORT page 4 ital base in 2003. But he said costs across the industry are “rising alarmingly.” He is predicting that the return on invested capital will fall to 11.8 percent for the 11 Contact North of 60 Mining News: firms in 2006 from 14.6 percent in 2004 and 16.7 percent in 2005. Canaccord expects output from its surveyed firms will rise in 2006 by 27 percent Editor: Sarah Hurst [email protected] for iron ore from 2003, 23 percent for coking coal and 9 percent for thermal coal. Phone: 907.522.9469 —GARY PARK Fax: 907.522.9583 Address: P.O. Box 231651, Anchorage, AK 99523

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NORTH OF 60 MINING NEWS is a monthly supplement of Petroleum News, a weekly newspaper. To subscribe to Petroleum News and receive the monthly mining supplement, call (907) 522-9469 or sign-up online at www.PetroleumNews.com. The price in the U.S. is $78 per year, which includes online access to past stories and early access to Petroleum News every week. (Canada/Mexico subscriptions are $165.95; overseas subscriptions are $200) Or, just purchase the online edition of Petroleum News, which also includes the mining supplement and online access to past stories, for $49 per year. 4 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

G CANADA NWT housing, labor market sizzling Diamond and energy boom drives housing prices to No. 2 in Canada and triggers membership drive by organized labor BY GARY PARK But owning is cheaper than renting, with rents starting Wells to northern Alberta with workers hired from south- Mining News Calgary Correspondent at C$1,400 a month for a one-bedroom unit, said ern unions rather than the Northwest Territories’ commu- Yellowknife Real Estate Board president Ken Pearman. nities. iamonds and energy are generating some spinoff Even fresher are the memories of a violent strike at benefits in the Northwest Territories, fueling house Major drive by organized labor Yellowknife’s Giant Mine, which ended when nine D prices and creating some fertile ground for union Although Northwest Territories residents earn above- replacement workers were murdered in an underground organizers. average salaries, organized labor is staging a major drive explosion. The Canadian Real Estate Association has credited the to further improve pay checks. But Public Service Alliance organizer Don Dundar industry with stimulating a 21 percent hike in house The giant Public Service Alliance of Canada, with said aboriginals seem ready to give unions a second prices last year to C$246,716, making the far-flung more than 150,000 members, is on the verge of a major chance as the pace of mining and energy projects quick- Northwest Territories Canada’s second hottest market breakthrough in negotiating an initial contract for 500 ens. behind British Columbia’s average C$289,107. members and Australia’s BHP Billiton at the Ekati dia- Northwest Territories Resources Minister Brendan A fired-up economy that is cur- mond mine. Bell said in January that because of the limited unem- rently drawing most of its momen- ployment among the territories 44,000 residents, it may Northwest Territories Resources The union is also wooing 400 tum from the diamond sector has workers at the Diavik mine and hop- be necessary to import workers for the diamond industry. led to a housing crunch in Minister Brendan Bell said in ing to attract non-union employees A C$40 million Aboriginal Skills and Employment Yellowknife, forcing many resi- January that because of the working for mine contractors. Partnership, funded by government and industry, will dents in the Northwest Territories limited unemployment among the Despite a lingering mistrust of help young northerners get a slice of the employment pie, capital of 18,000 people to live in territories 44,000 residents, it unions among aboriginals, the Dene but there are not enough of them to meet the demands. pre-fab houses trucked in from may be necessary to import Nation has backing from the However, Bell wants any outsiders joining the labor Alberta. Wood-frame houses built force to make the Northwest Territories their permanent workers for the diamond industry. Canadian government to study how onsite are in such heavy demand they can join forces with the labor residence so that the territories can benefit from much- that 1,500-square-door bungalows movement. needed payroll taxes. with an attached garage are fetching well beyond But aboriginals still carry the scars of more than 20 To that end, he conceded there is a need for action to C$300,000. years ago when an oil pipeline was built from Norman overcome the housing squeeze. G continued from page 3 primacy during the 2005 legislative ses- Surveys “continued to provide quality in geophysical surveys to a level greater sion. The state would then have full data despite being hobbled by crushing than $700,000 per year. That was the REPORT responsibility for regulating discharges to budgetary constraints,” the report says. In amount proposed by Gov. Murkowski for Alaska’s waters. 2004 DGGS released a geological map of 2005. issuance in cooperation with state agen- Following the report’s publication, the northern half of the Livengood area In the Education and Research section cies.” Gov. Frank Murkowski did introduce leg- north of Fairbanks and a final version of of the report, the commission noted that Significant initiatives islation to set in motion an application to the bedrock geologic map of the Salcha the University of Alaska Fairbanks inte- the EPA for state primacy. “As Alaskans, River-Pogo region near Delta. The grated the School of Mineral Engineering from state government we owe our children and grandchildren a agency also began geological field work into the College of Engineering and However, state government has pro- clean environment and a strong economy. in the Council geophysical tract northeast Mines in 2004. “The School of Mineral vided “significant, tangible initiatives” in This legislation would allow us to better of Nome and conducted a small airborne Engineering has had the reputation of 2004, the report added. “The programs accomplish that goal,” Murkowski said in geophysical survey over the Goodpaster being one of the best schools of mines in have not only benefited the industry a release Feb. 17. “My proposal would River area southwest of Pogo. the United States,” the report says. “There directly, but also improved the perception give Alaskans the power to issue permits “Alaska is one of the most poorly is strong concern that the school’s focus of the state in the eyes of outside that reflect our priorities and unique con- mapped regions of the world and ranks on mining, geological and petroleum investors. The commission is of the opin- ditions, in other words, permits that make far behind many Third World countries in engineering will be significantly dimin- ion that the governor, the legislature and sense to Alaska.” spending for geo- ished within this broader context of gen- the agencies are doing their part to build Currently, the state “Despite the improvements in logic data acquisi- eral and civil engineering.” the framework for a robust, sustainable, said, an Alaska 2004, the industry continued to be tion,” the report UAF needs to maintain standards in its environmentally responsible industry that applicant could wait says. “There is now dogged by an array of frustrating mining program and step up efforts to benefits Alaskans in all corners of the as long as 31 a window of oppor- recruit students, according to the commis- state.” months for an issues and investment tunity to efficiently disincentives.” —Alaska Minerals sion, as in Alaska “mining is poised to National Pollutant Discharge NPDES permit. In accelerate this become a premier employer of profes- Elimination System permitting “may be Washington state, Commission report work. As a result of sional mining personnel.” To address which has primacy the record 2004 fire the greatest obstacle to timely develop- these issues, the commission requests the ment of mines in Alaska,” the report says. over wastewater season in Alaska, legislature to encourage UAF to maintain “The EPA currently conducts NPDES permits, the wait is about eight months. the ground vegetation on large tracts of a world-class mine engineering degree permitting, compliance and enforcement Along with its efforts to streamline the state land was destroyed. As a result, the program and that the Legislature ensures for the state of Alaska.” Alaska is one of permitting process, the commission rock outcrops and geologic structures in UAF has the financial resources to do only five states that do not have primacy praised the administration’s “Roads to these areas will be considerably more this, including: a $125,000-$130,000 over the NPDES program. The other four Resources” initiative as another example exposed for the next couple of years, annual salary for a president’s professor states are Idaho, Massachusetts, New of state assistance for the mining industry. allowing for efficient and thorough geo- of mining and energy, and $25,000 a year Mexico and New Hampshire. “These programs have bolstered the out- logical mapping. The burned areas should for travel to Washington, D.C., to acquire In 2004 the commission advised the side perception of Alaska as a quality be reviewed, and those in geologically grant monies and initiate new programs. governor to give careful consideration to place to invest,” the report says. The favorable terrains should be scheduled for The commission also makes recom- the Alaska Department of Environmental access road that the state is building to the geophysical and geological mapping in Conservation’s recommendations on Rock Creek mine near Nome is one the current budget.” mendations on several federal issues of whether to seek primacy over the federal notable example. state concern, including tailings NPDES program. The department’s work More funding for mapping recommended impoundment classification, marine transportation, outdated land segregations group agreed in January 2005 that the DGGS has released new data The commission recommends that the and essential fish habitat. The commis- state should seek primacy. The commis- The Minerals Branch of the Alaska governor and Legislature provide addi- sion was chaired by Irene Anderson of sion requested the governor to seek legis- Division of Geological and Geophysical tional funding of $1.3 million for geolog- Bering Straits Native Corp., and its 10 lation and funding for NPDES program ical mapping in fiscal year 2005, to take advantage of the lack of vegetation result- vice-chairmen included representatives ing from the 2004 fires. It also requests an from Teck Pogo, Kennecott, Usibelli Coal increase in the annual rate of investment Mine and other important groups involved with Alaska mining. G PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 5

G ALASKA ALASKA Alaska attorney Usibelli begins talks on Mat-Su power plant; could be in service by 2015 general resigns in Alaska’s Usibelli Coal Mine began talks in January with Matanuska Electric Association about the possible construction of a coal-fired power plant. Usibelli is looking for a customer in the Railbelt Taiwan coal affair and MEA serves nearly 50,000 people in the Matanuska and Susitna valleys north of Anchorage. The Mat-Su location would Gregg Renkes owned shares in company he was promoting to be an alternative to Usibelli’s proposed 200 megawatt Emma dry Alaska’s coal for sale to Taiwan; KFx not impacted Creek project, a power plant close to the mine at Healy. “If our talks are successful, we could have a plant in service BY SARAH HURST them when Mr. Renkes served on Senator as early as January 2015,” MEA spokesman Michael Pauley Mining News Editor Murkowski’s staff,” the Bundy report said in a release Feb. 2. “MEA serves the fastest-growing area said. “Over the of Alaska. This is the only area of the Railbelt without sufficient laska’s attorney general, Gregg years, Mr. Renkes local generation to serve its own load. For both economic and STEVE DENTON Renkes, resigned in February fol- became personal reliability reasons, it is time we make provisions for our own A lowing an investigation into his friends with John needs. ... Fuel diversity is a key element motivating these discussions. The specter of role in promoting the sale of coal to Venners, whose dwindling natural gas supplies and increasing prices for gas are real motivations. Taiwan. The Bundy report concluded that principal business Given Alaska’s vast coal reserves, with coal there would be no doubt about a reliable Renkes had not violated the state ethics was as a consultant supply and more stable price.” code, but added that it was a “close ques- and lobbyist on “This is a step forward,” Usibelli’s vice president for business development, Steve tion,” and there were immediate calls energy matters, Denton, told Mining News. “The new power plant is pretty high on our agenda, as from lawmakers to tighten up the ethics headquartered near happens any time a utility is interested in actually building a power plant. We’ll just code. Washington, D.C. TED VENNERS keep talking towards scoping out the project; the discussions are in a very early stage.” While negotiating the sale of Alaska Mr. Renkes’ and Mr. MEA currently buys power from Chugach Electric Association, but does not plan coal to Taiwan on behalf of Gov. Frank Venners’ families were friends and, until to renew its contract when it expires in 2014. Coal constitutes 91 percent of Alaska’s Murkowski, Renkes his divorce, Mr. Venners lived in the energy resources, with 171 billion tons identified in the state. owned stock worth same neighborhood as Mr. Renkes and —SARAH HURST $126,125 in KFx, his family.” the Denver-based company that is Bundy: Wyoming key to KFx success CANADA developing an Mitigating circumstances in the case experimental coal- include the fact that the Alaska-Taiwan drying process. coal talks may not have affected the New gold firm hungry to expand Renkes proposed financial condition or prospects of KFx, A new North American gold powerhouse is in the making following the merger of that KFx technology Bundy said: “KFx’s financial well-being Goldcorp and Wheaten River Minerals, two mid-size Canadian producers, whose could be used to GREGG RENKES depends almost exclusively on the suc- combined entity now ranks No. 5 on the continent. decrease the moisture content of sub- cess of its Wyoming processing facility. With the champagne still flowing and the ink still drying on the deal, Ian Telfer, bituminous coal from the Beluga- That facility’s success depends on sales president and chief executive officer of the new Goldcorp, wasted no time talking Chuitna deposit on the west side of Cook to power generating facilities in the about expansion. He said Goldcorp’s objective will be to double production and attain Inlet, making it economical for the Lower 48 states, which in turn depends what he views as the benchmark 2 million ounce mark sometime in 2005. Taiwanese to purchase. on the spread (including tax credits) He wouldn’t go beyond hinting at an imminent deal in North or South America, As Alaska’s ethics code does not state between the end-user price of eastern but analysts were buzzing about prospects of an acquisition in Mexico, Argentina, specifically how much stock in a compa- bituminous coal and the end-user price of Venezuela, Brazil, Chile or Peru. ny a state employee may own before a western sub-bituminous coal. If the The C$2.3 billion stock swap beat out a hostile bid of C$3.3 billion from Glamis conflict of interest arises, investigator spread is big enough the western coal can Gold. Over the past year, Wheaton failed to close a friendly C$2.6 billion merger with Robert Bundy let Renkes off the hook, compete, even allowing for the costs of IAMGold, then fought off a hostile C$3 billion bid by Idaho-based Cour d’Alene calling Renkes’ interest in KFx “insignif- processing and transportation. If KFx Mines. icant.” He did point out that many states cannot successfully market its processed Against that turbulent background, 65 percent of Goldcorp shareholders approved set limits ranging from $5,000 to coal in the Lower 48, there is little the Wheaton transaction, well above the required 50 percent. $100,000, although others define a con- chance its K-Fuel process would allow a Goldcorp’s previous chief executive Robert McEwen, who will stay on as chair- flict based on the percentage of owner- facility in Alaska to operate economical- man of the new entity, believes there will be a wave of mergers and acquisitions now ship of the company’s issued stock. ly.” that one transaction has been successfully completed. Moreover, Renkes muddied the waters The investigation into Renkes does But Telfer doubts there will be another hostile campaign. “They have all failed by deleting a large number of emails not appear to have had a damaging effect miserably,” he told the Financial Post. “When you go hostile you have advisers and from his office computer when the on KFx. Its share price has soared from a they have a sheet of dirty tricks they pull out. You just start getting mud thrown back Anchorage Daily News began writing high of $9.61 in September 2004 to a and forth.” about his link with KFx last October. high of around $14.35 in February 2005. The past year has been littered with failed bids, both hostile and friendly, in addi- Renkes had a personal, as well as a Renkes sold his stock in KFx and donat- tion to Wheaton’s experiences. IAMGold rebuffed a C$1.1 billion stock swap offer financial interest in KFx. “Mr. Renkes ed the proceeds to charity when the from Colorado-based Golden Star Resources and later failed to close its own friend- has known the founding principals of investigation began. ly US$2.1 billion attempt to buy South Africa’s Gold Fields KFx, John and Ted Venners, for years, —GARY PARK having first become acquainted with see RENKES page 6 6 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 Alaska green fuel scheme more than hot air? Gold mining company enters race to make low-grade coal economical, but financial hurdles are high for Silverado Gold Mines

BY SARAH HURST although Silverado has requested $10 Mining News Editor million in appropriations this year from the U.S. Department of the Interior, hile KFx struggles to prove that according to CEO Garry Anselmo. “Iraq its K-Fuel process can dry and Homeland Security take up all the W Alaska’s sub-bituminous coal in budget,” he told Mining News. “We were SILVERADO COURTESY an economical manner, another working with the federal government in company wants to convert the coal into D.C. for an appropriation before, and we liquid fuel. Like KFx, Vancouver-based failed with the Department of Energy — Silverado Gold we were supposed to go in with a utility, Mines has a check- but didn’t know it at the time.” ered history and is Silverado achieved gold sales of just having trouble $100,976 in the year ended November bringing its ambi- 2003, the company’s 2004 annual report tious project to says. This amount was offset against the fruition. cost of exploration, so Silverado reported Silverado has no revenues. It incurred exploration costs previously been at Nolan of approximately $4.8 million in Alaska Fairbanks, before joining advertorials. In a release Dec. 17, the involved in placer 2003 and spent around $1.1 million the Silverado as its vice president for fuel company announced that it had devel- gold mining on its GARRY ANSELMO previous year. Silverado’s share price technology in 2000. “Garry is pretty oped “a technical breakthrough in the Nolan properties, spiked briefly to a high of 76 cents in flamboyant, I was a little hesitant,” production and utilization of low-rank, north of the Arctic Circle. With little to December 2002, but rapidly sank to just Willson said of Anselmo. “My first reac- coal-water fuels (LRCWFs). With these show for that, the company is now enthu- six cents in February 2005. tion was, holy smoke, here’s another latest advances, LRCWF’s combustion siastically promoting its “green fuel” Danny de Vito. But I enjoy working with characteristics, through a more rapid igni- process. Silverado would like to turn its Low-rank coal-water fuels him; he can calm down the buffoonery in tion and more complete carbon burnout, mothballed Grant Gold Mill near The mastermind behind the green fuel investors’ meetings.” more closely approximates a petroleum Fairbanks into a demonstration plant, at a process is Dr. Warrack Willson, a chemi- Anselmo has been accused in the flame than one from coal. Since the cost of $20 million. cal engineer who tried to get the project media of exaggerating Silverado’s advanced formulation truly enables the Finding the money will not be easy, off the ground with the University of achievements in news releases and paid low-cost production of a clean petroleum substitute from coal, the company has continued from page 5 resigned anyway. “Four months ago, a filed for a trade mark. ... Watch for our Neither the Taiwanese newspaper story leveled allegations at fuel’s new name.” RENKES government, nor the utility Tai me setting in motion an ugly trial by The technical breakthrough is compli- Power made a firm commitment media,” Renkes wrote in his resignation cated to explain, Willson told Mining Bundy: Alaska coal to purchase Alaska coal — they statement. “I submitted myself to an News, but “it has to do with how we let long-term development simply agreed to consider the exhaustive investigation, which cleared down the pressure in the system.” Neither the Taiwanese government, idea, if the moisture content of my name concluding there was no intent However, potential customers will only to personally profit but my task was sim- get excited about the green fuel if nor the utility Tai Power made a firm the coal could be reduced. commitment to ply to encourage development of Silverado can produce thousands of tons Alaska’s resources at the direction of the of it at bargain basement prices for them purchase Alaska structure alone.” coal — they sim- Governor. Unfortunately, even in the to test, Willson said. For that to happen, During his investigation Bundy wake of that conclusion, the partisan the demonstration plant must be built. “I ply agreed to con- reviewed over 6,000 pages of documents sider the idea, if personal attacks continue.” feel very confident the technology is and took sworn depositions from numer- Renkes now plans to focus attention based in reality,” Willson added. the moisture con- ous people including Gov. Murkowski, tent of the coal on his wife and two small children, he “LRCWFs are non-hazardous, easily Renkes, Foo, Ida Yao (Alaska’s trade said. Murkowski has appointed Scott transportable liquid fuels that avoid all could be reduced. representative to Taiwan), Bob Stiles “Any prospect of Nordstrand, a deputy attorney general the stability problems of dust generation (manager of the Beluga coal field lease- with the Department of Law’s civil divi- and spontaneous combustion associated profits on Alaska holders), John Venners, Ted Venners and coal is also long- sion, as interim attorney general. In with low-rank coals,” Willson writes in a FRANK MURKOWSKI Dale Anderson, Renkes’ broker with November Mike Barry of the Alaska project summary. “LRCWF is produced range,” Bundy Salomon Smith Barney in Juneau. said. “According to Stan Foo of the Industrial Development and Export by treating a slurry of pulverized low- Murkowski sent Renkes a letter of Authority took over from Renkes as the rank coal at temperatures up to 300º C Alaska Division of Mining, it will take reprimand after the Bundy report was at least four and a half years to develop state’s representative in coal talks with and the corresponding saturated steam published, but on Feb. 5 Renkes G the coal mine and transportation infra- Taiwan. pressure in water, hence the name hydrothermal treatment.” On the other hand, KFx “has remained totally focused on making a dry-bulk product, which is much more friable, eas- ily broken, and hard to transport,” Willson told Mining News. “Placer Dome and Usibelli hired me to look into a num- ber of coal-drying processes, but it just turns to dust. I am very disappointed that the governor promoted KFx, to invite KFx and only KFx to participate in the Taiwan talks, and none of the sharehold- ers. I couldn’t believe they would do something that blatant, it didn’t make any sense. You’d think they’d want to put for- ward many applicable technologies for the Taiwanese to have a look at. It left a real bad taste in my mouth and I won- dered what we did wrong to make every- one unhappy with us.” A 22-page complaint from 2003 about Silverado to the Securities and Exchange Commission from a maverick website called Our-Street.com probably hasn’t helped. The complainant says Silverado misled investors about its gold reserves and portrayed the green fuel as exclusive, proprietary technology when this was not the case. In response to an enquiry about the complaint from Mining News, an SEC spokesman said the commission could not comment publicly. G PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 7 COURTESY TECK COURTESY COMINCO

Pogo mill in background and filter building in foreground. Working is continuing in mill building throughout the winter.

G INTERIOR ALASKA Pogo gold project headed toward first production Mine operator plans more exploration in 2005 after near five-year hiatus, hopes to expand known size of ore body BY ROSE RAGSDALE begins in May. Applicants typically have However, the Northern Alaska said. The fire consumed 175,000 acres of Mining News Contributing Writer about 30 days to file for permits before Environmental Center, a Fairbanks-based forest lands but did no damage to build- they send explorers into the field. environmental group, filed an appeal, ings and structures at the mine site. early half a decade after embarking Discovered in 1981 through grassroots which put EPA’s plans to issue the permit By late September, the all-weather on development of the huge Pogo exploration by WGM Inc., Pogo was on hold. Teck-Pogo suspended construc- road to the mine from the Richardson N gold resource in Interior Alaska, explored extensively by that company tion until uncertainties related to the Highway was complete. In addition, operator Teck-Pogo Inc. is eyeing between 1991 and 1994 in a deal financed appeal could be resolved and sent home Teck-Pogo completed construction of a light at the end of the tunnel — first pro- by Sumitomo Metal Mining. Teck 160 construction workers. 50-mile power line in November, duction in early 2006. The company is Cominco acquired its ownership stake in The environmental group subsequent- Hanneman said. also gearing up for additional exploration 1997 and signed on in 1998 as project ly agreed to withdraw its appeal in return On site, contractors have erected and near the known deposit later this year. operator. for Teck-Pogo drilling two additional closed in a main mill building, where the Pogo, 85 miles southeast of Fairbanks Previous exploration yielded 16,000 water-monitoring wells and conducting a ore will be processed after it is brought to near the town of Delta Junction, is esti- soil and rock samples; 254,000 feet of 10-year fish study of the Goodpaster the surface. The ore will be mined by a mated to contain 7.7 million tons of ore surface diamond River. method called “drift and fill” in which a that should yield just under a half-ounce drilling in 286 holes; The company said horizontal drift, ranging from nine feet by of gold per ton. 42,000 feet of under- At estimated capital costs, public support for the nine feet up to 12 feet by 12 feet, is driv- Karl Hanneman, the project’s manager ground diamond including contingencies, of $298 mine was instrumen- en through the ore and then backfilled of public and environmental affairs and drilling in 135 holes; million, the Pogo mine is tal in persuading the with cement before the next cut is taken. special projects, described the ore at Pogo and 6,000 feet of expected to yield commercial environmental group The mill will include grinding, gravity as “a very clean quartz” that will produce underground develop- to reconsider its concentration, flotation, cyanide leaching 400,000 to 500,000 ounces of gold a year. ment. Metallurgical quantities of gold for at least a appeal. EPA finally of the concentrate and tailings dewater- Plans are on track to develop an under- testing including a decade with an average life-of- issued the water per- ing. Overall gold recovery is expected to ground mine and operate a 2,500-ton-per- pilot plant was carried mine direct operating cost of mit in May. be about 94 percent. All of the mill tail- day mill, Hanneman said in an interview out between 1996 and $140 per ounce. Project managers ings will be dewatered using pressure fil- Feb. 12. 2000. pushed ahead with ters. About half of the tailings will be At estimated capital costs, including Baseline environ- construction and have used as underground backfill, or paste contingencies, of $298 million, the Pogo mental studies also were initiated in 1997 encountered few delays since, according fill, while the remainder will be dry- mine is expected to yield commercial and will continue through development. to Hanneman. stacked in a tailings storage facility on quantities of gold for at least a decade surface. Currently, workers are complet- with an average life-of-mine direct oper- Pogo clears environmental hurdles ing electrical and mechanical work inside ating cost of $140 per ounce. Gold cur- Teck-Pogo designed the Pogo mine to Major mine infrastructure the structure, Hanneman said. rently sells for about $400 an ounce. minimize environmental impacts and nearly complete An electrical substation is finished and To be milled on site, Pogo’s gold will maximize its acceptance by the public In anticipation of full project startup major earthwork for water collection and be produced as bullion and cast as gold because the area surrounding the mine is when Teck-Pogo received final permits placement of tailings from the mine are dore, or bars, ranging in size from sever- considered a very sensitive environment. for the mine, construction activities actu- 80 percent complete, he said. al hundred to a 1,000 ounces, Hanneman The Goodpaster River, which is a ally began last January with the building Underground development said. It will then be shipped outside major tributary of the Tanana River, of an ice road to bring in construction Alaska for additional processing. which in turn flows into the Yukon River, equipment and supplies. Contractors began last year Teck-Pogo is a subsidiary of Teck runs north to south along the west side of pushed through a 50-mile pilot road in Teck-Pogo also began underground Cominco Ltd., which owns a 41 percent the Pogo property. The Goodpaster is a April, and by mid-July, the artery was development in 2004, essentially building interest in the Pogo deposit. Co-owners Chinook salmon spawning ground and being used to haul supplies to the mine 12,000 feet of tunnels for men and equip- are Sumitomo Metal Mining Co. Ltd. has a resident population of Arctic site. ment to gain access to the buried ore which owns a 51 percent stake and grayling. When a major forest fire burned body. This work included construction of Sumitomo Corp., which holds 9 percent The Pogo ore body also is in the Liese acreage dangerously close to the mine roads, ramps and ventilation in prepara- interest in the mine. Creek valley, which drains into the site in late June, Teck-Pogo again halted tion for mining. The mine will be Goodpaster River. Most of the mine’s Exploration to resume in 2005 construction activity for two weeks as service facilities will be located in the smoke and ash filled the air, Hanneman see POGO page 8 After a nearly five-year hiatus, Teck- valley. Pogo plans to resume exploration this Meeting the regulatory requirement to summer in hopes of expanding the size of control surface and groundwater, coupled Pogo, Hanneman said. “We plan to do with moderately steep terrain and poor additional exploration in and around the ground conditions presented major chal- known ore body to expand the resource,” lenges for engineers designing the site, he said. “Now that permitting and con- according to Teck-Pogo. struction is behind us, we’re looking for Still, the company won all of its major additional mill feed.” permits to operate the mine, including a The Pogo ore zone currently covers an long-awaited water permit from the U.S. area of about 3,500 feet by 2,000 feet and Environmental Protection Agency. The has an average vertical thickness of 21 permitting process began more than four feet and dips at 25 degrees. Teck-Pogo years ago when Teck-Pogo applied for a can explore up to 40,000 acres around the National Pollutant Discharge Elimination mine. System permit. Though most of the land Teck-Pogo has indicated that it plans in the Pogo area is owned by the state of to conduct some exploration work this Alaska, the project required both state year, but a specialist with the Division of and federal permits. Land, Mining and Water of the Alaska Last March the EPA issued the Department of Natural Resources said no NPDES permit, which regulates the dis- permit application is on file from the charge of water from the mining process company yet. However, the mining at Pogo. It was to become effective fol- exploration season in Alaska traditionally lowing a 30-day appeal period. 8 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

G BRITISH COLUMBIA Explorers team up in British Columbia Canadian junior Rimfire Minerals and international giantBarrick Gold announce partnership on Kizmet gold-silver project BY SARAH HURST Mining News Editor

anadian junior Rimfire Minerals is expanding its horizons yet again, C this time by clinching a deal with one of the world’s largest gold mining companies. In December Mining News reported on Vancouver-based Rimfire’s promising results at the Tide property in British Columbia. In January the company announced a partnership with Barrick Gold to explore another British Columbia gold-silver property called Kizmet. Under a memorandum of understand- ing between the two companies, Barrick has agreed to make a $60,500 cash pay- ment to Rimfire and to add claims total- ing 263 square miles to the property, to form a 50/50 joint venture. Toronto- based Barrick can increase its interest in Kizmet is about 60 miles southeast of the Kizmet project to 65 percent by fund- Atlin in northwestern British Columbia. Rimfire acquired its core holdings in ing exploration expenditures totaling 2003 and early 2004. Recent mapping $1.2 million over three years, including a and age-dating identified a Cretaceous- commitment of $400,000 in the first aged belt of volcanic and associated intrusive rocks distinct in age with coin- year. An additional 10 percent can be cident strong gold-silver-arsenic geo- earned by funding exploration at no less chemical signature. Reconnaissance silt than $500,000 per year, through to a pos- and soil geochemistry, mapping and prospecting was completed on four tar- itive decision to mine. get areas of Kizmet last year, with posi- Kizmet is about 60 miles southeast of tive results. Atlin in northwestern British Columbia. Rimfire acquired its core holdings in 2003 and early 2004. Recent mapping grams per tonne gold and 50 grams per ships with juniors that have properties ing industry, which is an appealing and and age-dating identified a Cretaceous- tonne silver. such as Rimfire’s, either in areas where attractive factor,” Borg said. “It’s an aged belt of volcanic and associated “Barrick can afford to take a big land we’re established and operating or where added bonus. They recently allocated intrusive rocks distinct in age with coin- package and explore it effectively,” we don’t have local expertise. It’s a big, $25 million for geoscience, so they’re cident strong gold-silver-arsenic geo- Rimfire’s corporate communications important thrust for us. Regardless of the showing their commitment to the sec- chemical signature. Reconnaissance silt manager, Jason gold price we’ve maintained consistent tor.” and soil geochem- Weber, told Mining investment in exploration, directly and Rimfire has partnered with Barrick istry, mapping and Recent mapping and age-dating News. The excite- indirectly.” twice before in the past, on the RDN prospecting was identified a Cretaceous-aged belt ment about explo- Barrick is exploring on more than 100 property in British Columbia and the completed on four ration in Canada properties in 16 different countries, California-Surf properties in Alaska. target areas of of volcanic and associated intrusive rocks distinct in age with was obvious at the according to Borg. It owns an operating Barrick is no longer involved with those Kizmet last year, Mineral underground mine in British Columbia, projects. In addition to Barrick, Rimfire with positive coincident strong gold-silver- Exploration Eskay Creek, which produced 352,070 is currently partnered with AngloGold results. arsenic geochemical signature. Roundup 2005 ounces of gold and 17 million ounces of (USA) Exploration, Newmont Mining, “We feel the conference in silver in 2003. “Governments such as Northgate Minerals, Cangold and newly recognized Vancouver in B.C.’s are actively encouraging the min- Serengeti Resources. G belt has excellent potential to host high January, Weber added. He was on the sulfidation epithermal gold systems like organizing committee for the conference. the Thorn, and Barrick are acknowl- “It exceeded my expectations by far: continued from page 7 struction work force will peak at 500 in edged world experts on these types of 4,000 people was a realistic target and 2005,” Hanneman said. deposits,” said David Caulfield, we got over 5,000 — it was fantastic.” POGO Pogo’s permanent work force will Rimfire’s president and CEO. Rimfire’s “Kizmet is genuinely promising and total about 300 at startup in the first Thorn property, also in British accessed by three declines: two will be in terms of geology we’re familiar with quarter of 2006, with about 240 workers Columbia, is considered similar to the El used for worker/material access and the type,” Barrick’s vice president for on site at all times. Because road access Indio deposit in Chile. Production and ventilation, and the third for conveying corporate communications, Vincent is available to the mine, many of the reserves at El Indio total 23.2 million Borg, told Mining News. “Barrick is the ore to surface. mine’s permanent workers will live off tonnes averaging 4 percent copper, 6.6 interested in joint ventures and partner- The mine operator is also building a site and be bused to Pogo from permanent camp on site for 250 mine Fairbanks and Delta Junction. workers, plus shop and maintenance A year-round, two-shift-per-day pro- buildings. duction cycle will offer the mine’s Construction activity at the mine will workers a variety of work schedules, continue this year. “We currently have including four days on and three days about 270 people on site working in all off as well as traditional two weeks construction disciplines, and the con- on/one week off shifts, he said. G PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 9

G ILIAMNA, ALASKA Pebble mine permit filing postponed to 2006 Northern Dynasty awaits feasibility study to ensure best possible design for gold mine near Iliamna in southwestern Alaska BY SARAH HURST may lie there, and not in the original pond because it is the most significant in Mining News Editor Pebble location. terms of fisheries values and activity. Want to know “It’s causing a major rethink on the “We take the fisheries issues and the sen- more? orthern Dynasty Minerals will development of this project,” Jenkins sitivity in the Bristol Bay area very, very defer its permit applications for the said. “There could be a half billion to seriously,” Jenkins said. Northern If you’d like to read more about Pebble go to Petroleum News’s web planned Pebble gold mine in N three-quarters of a billion tons of eco- Dynasty has so far looked at 23 different site and search for these articles, pub- southwestern Alaska until 2006, nomic ore there. That’s just a guess.” locations and design refinements for a lished in the last few months. Web the company’s chief operating officer, Northern Dynasty’s board decided in tailings pond that minimizes the size of site: www.PetroleumNews.com Bruce Jenkins, said February to spend $8 million on a pro- the footprint. 2005 at an Alaska gram to drill off the East Zone to a meas- The proposed road to be built for the • Jan. 30 Pebble power plan Miners’ Association ured and indicated category. “We can’t mine will bypass Pedro Bay, in response • Jan. 30 Canadians set sights on meeting Feb. 9. leave that hanging,” Jenkins said. Last to concern from the community there. Alaska Peninsula Previously Northern year’s East Zone results came at the end “People don’t know us yet, we’ve only 2004 Dynasty had been of the season and the company didn’t been there in earnest in the last year, and • Dec. 26 Pebble 2004 drilling yields hoping to file the have enough equipment to drill deep I like to tell people, only trust me once promising results applications by the enough, but the grades there are two to you learn who I am, what I’m doing, • Dec. 26 China, metals prices ignite end of 2005, but it three times greater than those in the west what the company’s doing,” Jenkins stampede in Alaska • Dec. 12 Northern Dynasty uncovers will wait until the Northern Dynasty of the deposit. said. “What I ask is for people to reserve zone rich in molybdenum at Pebble feasibility study by spent a mere $8 mil- Environmental considerations may judgment on the project and wait and see • Nov. 28 Northern Dynasty meets international project lion on Pebble in 2004 Pebble timeline 2002 and 2003 com- trump economic factors in some aspects what the project’s like when it’s management and bined, but its invest- of the project design. For example, designed. If we can’t design the mine services company ment soared to $28 Northern Dynasty has ruled out Upper and protect the environment at the same million in 2004, and AMEC is complete, its proposed budget Talarik Creek as a location for its tailings time, then we don’t deserve to be there.” G Jenkins said. for 2005 is $36 mil- AMEC will lion. “We would not be spending this undertake the feasi- kind of money on bility study out of idle speculation.” —Bruce Jenkins, its Vancouver Northern Dynasty office. Northern Minerals Dynasty itself is based in Vancouver, although for the Pebble project it has established an Anchorage office, which now employs seven people. The huge gold-copper- molybdenum deposit is located about 86 miles west of Cook Inlet, near Iliamna. “I have maintained from day one, we will not submit applications for permits for this project until we have the best- designed project we can have,” Jenkins said. “And the only way I can be satis- fied that we’ve got the best-designed project we can have is to have a feasibil- ity study.” The project has already made the tran- sition from exploration to development, Jenkins stressed. Northern Dynasty spent a mere $8 million on Pebble in 2002 and 2003 combined, but its investment soared to $28 million in 2004, and its proposed budget for 2005 is $36 million. “We would not be spending this kind of money on idle speculation,” Jenkins said. “These are informed business deci- sions that are ratified by a board with senior mining executives on that board and independent directors. This is a rea- soned and valid project development investment that is predicated on some sound geological and engineering infor- mation.” According to Northern Dynasty’s most conservative estimates, preliminary economic assessments show that the cap- ital cost of the mine could be paid back within a four- to five-year period, or less than that, depending on metals prices. The current high price of molybdenum shaves a year and a half off the payback period, Jenkins said. Main deposit could lie in East Zone Copper-gold porphyries are very common around the Pacific Ring of Fire, but even for this region Pebble’s size is unusual. It is ranked about fifth in the world as a copper-gold deposit and could also contain over a billion pounds of molybdenum. As if that weren’t enough, drilling in the recently discovered East Zone has shown that the main deposit 10 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005

G ALASKA NEWS COMMENTARY No winter hiatus: 2005 Alaska plans advanced, some already in full swing This year’s projects include: continuing work at Pogo, start of construction at Rock Creek and Kensington mines, advanced development at Nixon Fork, Donlin Creek and Pebble, and resource drilling at Ambler; metals prices remain strong BY CURT FREEMAN Mining News Columnist The

ecember, January and February are author normally a time when the mining The author D industry can stop and catch its col- Curt Freeman, lective breath, look into its often CPG #6901, is a cloudy but well-used crystal ball and pre- well-known geol- pare for the coming year. Not so the last ogist who lives December, January and February! in Fairbanks. He While 2004 results continued to pour prepared this col- CURT FREEMAN in from projects large and small, plans for umn Feb. 20. Freeman can be reached 2005 are well advanced and in some by mail at P.O. Box 80268, Fairbanks, cases, already in full swing. Metals prices AK 99708. His work phone number at remained strong and even the most pes- Avalon Development is (907) 457- 5159 and his fax is (907) 455-8069. simistic prognosticators believe 2005 is His email is [email protected] and shaping up to be a banner year for the his web site is www.avalonalaska.com. mining industry. In most years, there are usually no more than a half dozen hot prospects that take the lion’s share of the cents per pound respectively for the quar- coming year’s exploration or develop- ter), the mine posted a $100 million oper- ment capital. ating profit for the quarter and a $207 The crystal ball for 2005 is so crowd- million operating profit for the year. ed with folks that I can’t see the forest for St. Andrew Goldfields announced the trees. Within a year we should see the results from its continuing exploration first gold pour at the Pogo mine, start of and development program at the Nixon The Red Dog zinc and lead mine in remote northwest Alaska construction at the Rock Creek and Fork mine near McGrath. Work complet- ed included an airborne magnetic and Kensington mines and advanced develop- 19.65 grams of gold per tonne and 2.6 meters grading 0.65 grams of gold per time domain electromagnetic survey, and ment at the Nixon Fork, Donlin Creek percent copper and 0.4 meters grading tonne, 0.57 percent copper and 0.032 per- drilling at its J5A embayment and 2201 and Pebble projects and resource drilling 44.8 grams of gold per tonne and plus- cent molybdenum, hole 4284 which and 2204 zones. at Ambler. 100 grams of silver per tonne. returned 114.5 meters grading 0.65 grams Drill results include hole DH126 Exploration activities will be populat- In other news revised reserve and of gold per tonne, 0.62 percent copper which returned 0.9 meters grading 13.9 ed with a large stable of gold, base met- resource estimates are expected to be and 0.022 percent molybdenum, hole grams of gold per tonne and an addition- als, nickel, platinum group metals and release for the project before the end of 4292 which returned 163.7 meters grad- al 1.5 meters grading 31.4 grams of gold diamond properties but will be dominated February. ing 0.86 grams of gold per tonne, 0.61 per tonne, hole DH135 which returned by no single commodity or geographic Pending receipt of all permits, the percent copper and 0.020 percent molyb- 0.8 meters grading 38.66 grams of gold region. I also suspect that some metals company also is anticipating commence- denum, hole 4300 which returned 132.1 per tonne, hole DH5-04 which returned long since written off the active list in ment of a tailings retreatment operation in meters grading 0.98 grams of gold per 1.3 meters grading 88.0 grams of gold per Alaska will come back to life, most mid-2005. tonne, 0.66 percent copper and 0.017 per- tonne and an additional 2.1 meters grad- notably, molybdenum and silver. Northern Dynasty Minerals reported cent molybdenum, hole 4301 which ing 27.4 grams of discovery of deep returned 65.5 meters grading 1.00 grams gold per tonne. Western Alaska but higher grade of gold per tonne, 0.73 percent copper Underground The crystal ball for 2005 is so Teck Cominco American announced copper-gold miner- and 0.016 percent molybdenum and hole drilling efforts now crowded with folks that I can’t see fourth quarter and year-end 2004 results alization at its 4303 which returned 85.8 meters grading total 5,540 meters from its Red Dog mine. the forest for the trees. Within a Pebble prospect near 0.87 grams of gold per tonne, 0.75 per- which included In the fourth quarter the mine pro- year … exploration activities will Iliamna. The new cent copper and 0.018 percent molybde- extending mineral- duced 132,200 tonnes of zinc in concen- be populated with a large stable of discovery, dubbed num. ization an addition- trate and for the year the mine produced the East zone, has The company also announced discov- al 180 meters below gold, base metals, nickel, platinum 554,200 tonnes of zinc in concentrate. been outlined over a ery of another copper-gold system 15 the J5A zone and group metals and diamond Zinc ore grade and mill recoveries 2,000 foot by 2,000 kilometers southwest of the Pebble extending mineral- properties but will be dominated decreased to 21.3 percent and 84.8 per- foot area which deposit. A single core hole targeting a 3.5 ization an addition- cent respectively from 22.2 percent and by no single commodity or remains open in all kilometer by 1.0 kilometer induced polar- al 150 meters below 85.59 percent from the fourth quarter geographic region. I also suspect directions except the ization geophysical anomaly returned the 2204 zone. 2003. that some metals long since west. 51.8 meters grading 0.22 grams of gold Airborne geo- The mine also produced 32,100 tonnes While similar in per tonne, 0.22 percent copper and 0.018 physics was cur- written off the active list in Alaska of lead in concentrate during the fourth mineralization and percent molybdenum. Additional drilling tailed in the late fall will come back to life, most quarter and 117,000 tonnes of lead in alteration style to is planned in this area in 2005. due to weather con- notably, molybdenum and silver. concentrate for the year. Lead ore grade the adjacent Pebble Northern Dynasty expects to have a ditions but data decreased to 6.1 percent while mill recov- deposit, mineralized revised resource estimate completed in available are being eries increased to 66.6 percent from 6.4 intervals at the East zone occur beneath the first quarter of 2005 that will include used to target 2005 surface exploration percent and 65 percent, respectively, from post-mineral Tertiary volcanics at depths all of the 2004 drilling completed in the efforts. the fourth quarter 2003. exceeding 2,300 feet below surface. Pebble and East areas. The company also Surface trenching in 2004 also pro- As a result primarily of higher zinc Highlights of the 2004 East zone drilling released a wad of new drill hole data from duced promising results from the Whalen and lead prices (average 51 cents and 43 include hole 4188 which returned 152.4 2004 but I’ll spare you the details and just zone where results included 1 meter at quote the best hole (4189) which returned 64.3 meters grading 0.73 grams of gold per tonne, 0.81 percent copper and 0.081 percent molybdenum. Northern Dynasty also announced plans to evaluate a phased electrical power transmission development plan with Homer-based Homer Electric Association for the planned Pebble cop- per-gold-molybdenum deposit north of Iliamna. The plan calls for a phased deliv- ery schedule that would allow smaller ini- tial electrical supply that would then be upgraded to provide power at a level

see FREEMAN page 11 PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 11

continued from page 10 Northern Dynasty Minerals FREEMAN reported discovery of deep but CANADA higher grade copper-gold capable of sustaining a 200,000 ton per mineralization at its Pebble China, India growth stokes demand day milling operation. The power evaluation program is a prospect near Iliamna. The new for coking coal from Canada phase one plan that would involve either discovery, dubbed the East zone, The global coking coal market is ablaze to meet demand from steelmakers in a 210 mile overland power transmission has been outlined over a 2,000 Asia, led by the rapidly-expanding economies of China and India. line or a 45 mile submarine power cable foot by 2,000 foot area which That has pushed the Canadian coal indus- with an additional 70 mile overland line. remains open in all directions try into “a period of the highest prices ever This line would carry approximately 100 (Asian demand) has pushed except the west. While similar in seen,” said Jim Popowich, chief executive megawatts of capacity. the Canadian coal industry mineralization and alteration style officer of Calgary-based Fording Canadian Stage two would provide additional Coal Trust. into “a period of the highest power using a then-best available tech- to the adjacent Pebble deposit, He said the Asian need for new supplies is prices ever seen,” said Jim nology plan. Electrification of villages mineralized intervals at the East undisputed, but it will “take some time to Popowich, chief executive along the power line route would also be zone occur beneath post-mineral enter the market.” officer of Calgary-based evaluated as part of the development plan. Tertiary volcanics at depths Popowich said the recent growth in global The companies plan to include the find- Fording Canadian Coal exceeding 2,300 feet below mining has also put a squeeze on mining ings of this study in the Pebble feasibility Trust. surface. equipment, creating two-year waiting lists. study planned for completion in late At the same time, operating costs rose by 2005. 17 percent in 2004, driven by higher charges for diesel fuel, steel and other sup- Liberty Star Gold announced plans to Iliamna. The four hole program was plies, he said. conduct additional exploration at its Big designed to expand on the mineralization Popowich said the metallurgical coal market will eventually “come back into Chunk copper-gold-molybdenum deposit discovered during the 2003 drill program balance,” although he expects prices will remain near record levels in 2005 and north of Iliamna. The phased exploration and test geophysical anomalies delineated likely 2006. program will involve four months of by a three-dimensional induced polariza- Fording owns 60 percent (Teck Cominco holds the balance) of British ground induced polarization geophysical tion geophysical survey carried out earli- Columbia’s Elk Valley Coal Partnership, the world’s second-largest producer of surveys, drilling of 70 to 100 holes and er in 2004. coking coal behind Australia’s BHP Billiton. collection of an additional 3,000 geo- Assays are pending however pyrite- Popowich announced that Elk Valley output will be expanded by 12 percent chemical samples. Drilling efforts will be chalcopyrite-pyrrhotite-molybdenum this year to 280 million metric tons. directed at the White Sox prospect, dis- mineralization was intersected in all four Substantially all the hard coking coal contracts for the 2005 year are priced at covered by the company in 2004 and at holes. In conjunction with the two holes US$125 per metric ton, although the weighted average will be about US$100 after other high priority geochemical and geo- drilled in 2003, the mineralized area now taking into account some contracts based on 2004 prices. The average price for physical targets. Plans call for a start-up covers a minimum of 700 meters by 1,500 the 2004 contract year was US$52, Fording said. as soon as the seasonal thaw is completed. meters. Full Metal Minerals announced that Disseminated porphyry-style and frac- —GARY PARK it had signed an agreement with Bristol ture-controlled copper-gold mineraliza- Bay Native Corp. to explore 565,000 tion were intersected in both a granodior- 30 feet grading 0.055 ounces of gold per sericitically altered metasediments of the acres of fee simple lands on the Alaska ite and the enclosing metamorphic coun- ton. Plans for 2005 have not yet been Fairbanks Schist and within quartz stock- Peninsula. The agreement covers a por- try rocks. Fracture-controlled mineraliza- released. work veins in garnet and biotite-rich tion of Alaska that is highly prospective tion appears to post-date disseminated Freegold Ventures reported the schists tentatively correlative with upper for high and low sulfidation state gold copper-gold mineralization and is con- results from the exploration drilling on plate rocks of the Chatanika Terrane. and copper-gold mineralization. The last trolled by flat-lying fractures containing the Tolovana prospect at the Golden Gold was associated with south-dipping significant exploration conducted on narrow quartz veins. These flat fractures Summit project in the Fairbanks District. quartz-veins, poly-phase stockworks and these lands was in the 1980s. and veins also appear to be a principal The program consisted of 3,584 feet of vein breccias containing elevated arsenic The agreement calls for a one year control on the distribution and intensity of diamond core drilling in seven holes. and sporadic anomalous lead, antimony selection period during which Full Metal the alteration zones. Significant results included five feet grad- and tungsten. The high grade mineraliza- ing 0.559 ounces of gold per ton in hole tion intercepted in hole TLD0401 (5 feet must evaluate the land package and spend Eastern Interior a minimum of $150,000 on the ground. TLD0401, 10.5 feet grading 0.079 ounces grading 19.15 grams per tonne) is hosted The company then has the right to nomi- Teryl Resources Corp. and joint ven- of gold per ton in hole TLD0401, 1 foot in Chatanika Terrane rocks that are cor- nate selected portions of the package for ture partner Kinross Gold announced grading 0.521 ounces of gold per ton in relative with similar rocks mapped in upgrade to an explo- 2004 results from their Gil project explo- hole TLD0401, 13.5 trenches. ration lease which ration programs in feet grading 0.052 Drill hole and will include mini- As a result primarily of higher the Fairbanks ounces of gold per Northern Dynasty also announced trench data suggest mum exploration zinc and lead prices (average 51 District. These ton in hole plans to evaluate a phased the Chatanika expenditures of $4.4 cents and 43 cents per pound efforts included TLD0402, 4.5 feet electrical power transmission Terrane on the 1,020 feet of million over seven respectively for the quarter), the grading 0.310 development plan with Homer- Tolovana prospect years and cash pay- trenching, 4,175 ounces of gold per is structurally based Homer Electric Association ments totaling mine (Red Dog) posted a $100 feet of reverse cir- ton in hole bounded and dips $175,000 over the million operating profit for the culation drilling in TLD0402, 1 foot for the planned Pebble copper- 25-35 degrees to the same period. quarter and a $207 million 18 holes and col- grading 1.263 gold-molybdenum deposit north of south. Prior to the Upon completion operating profit for the year. lection of more ounces of gold per Iliamna. 2004 work at of a positive feasi- than 1,000 rock and ton in hole Tolovana, the bility study the com- soil geochemical TLD0402, 17 feet Chatanika Terrane pany will pay a 2.5 percent net smelter samples. Significant drilling results grading 2.93 grams of gold per ton in hole was not known to exist in this part of the return production royalty for all non-pre- include hole 2000-GEC-120 which TLD0403, 40 feet grading 3.03 grams of Fairbanks District. cious metals produced and for precious returned 30 feet grading 0.052 ounces of gold per ton in hole TLD0404, an addi- Despite these results, Freegold metals, a sliding scale production royalty gold per ton, hole GER03-366 which tional 59.5 feet grading 1.66 grams of Ventures said Meridian Gold has termi- pegged to the gold spot price that varies returned 15 feet grading 0.101 ounces of gold per ton in hole TLD0404, and 5 feet nated its joint venture option on the proj- from 2 percent for gold prices less than gold per ton, hole GVR04-467 which grading 2.51 grams of gold per ton in hole ect. $300 per ounce to 5 percent at prices in returned 25 feet grading 0.139 ounces of TLD0406. Freegold indicated it intended to con- excess of $500 per ounce. The company gold per ton and hole GVR04-484 which The drill program covered targets tinue its efforts to explore the deep poten- plans to conduct exploration on this returned 20 feet grading 0.275 ounces of along a 550-meter strike length of the tial of high-grade prospects on the prop- newly acquire block of lands in conjunc- gold per ton. Tolovana prospect. tion with adjacent lands recently acquired Significant trenching results included Gold mineralization occurred in see FREEMAN page 12 from Aleut Native Corp. trench GET00-30650 which returned 30 Geocom Resources announced that it feet grading 0.245 ounces of gold per ton, had completed 1,006.8 meters of drilling trench GVT04-01 which returned 15 feet on its Iliamna copper project near Lake grading 0.255 ounces of gold per ton and 12 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 continued from page 11 Rimfire Minerals reported prelimi- nary results from work conducted by joint FREEMAN venture partner AngloGold USA Exploration on the ER, Eagle and CHRIS AREND erty, including the Cleary Hill, Tolovana, Beverly prospects in the Goodpaster Dolphin and Newsboy prospects. Large District. diameter core drilling and ground electro- Work at ER included 12.6 line kilome- magnetic and gravity surveys have been ters of natural source audio magneto-tel- recommended. luric ground geophysics, 234 soil samples Golden Spirit Minerals announced and three diamond drill holes totaling 997 plans to conduct additional work on its meters. Ester Creek project in the Fairbanks Two holes tested the continuity of District. gold-bearing quartz veins over a 350 Efforts will focus on soil and stream meter strike while the third hole was sediment sampling and prospecting to located 1.3 kilometers to the south and help define a second phase drilling pro- targeted a newly defined 1.0 by 0.5 kilo- gram. Efforts in 2004 identified a 2 mile meter soil geochemical anomaly. Hole by 0.6 mile area in which at least one ER04-7 intersected a previously tested gold-bearing vein was traced for 800 feet vein 25 meters down dip and 40 meters along strike and in which alteration sug- on strike to the southeast, yielding 1.2 gests good potential for other mineralized meters of 4.12 grams of gold per tonne. veins. The current understanding of vein Select Resources announced acquisi- geometries indicates further potential Usibelli’s Two Bull Ridge tion of the Shorty Creek gold-silver-cop- exists down dip and to the northwest. At per project in the Livengood District from the Eagle prospect AngloGold completed anomalies confirmed the earlier results. Anchorage-based Mines Trust Co. Fairbanks-based Gold Range Ltd. soil geochemical surveys (485 samples), AngloGold has terminated its option at Golconda Resources Ltd. and joint The road-accessible 34 square-mile electromagnetic and radiometric geo- Beverly and Rimfire retains a 100 percent venture partner Shear Minerals property was discovered and drilled for physical surveys and nine diamond drill interest in the property. announced that a re-evaluation of the air- copper and molybdenum in the early holes totaling 2,778 meters. Ventures Resource Corp. has termi- borne magnetic survey flown over their 1970s and was briefly active in the late Drilling has now tested 3.3 kilometers nated its agreement with Doyon Ltd. on a Shulin Lake diamond property revealed 1980s as a copper-gold prospect. Terms of a 6 kilometer long gold and pathfinder large land holding extending from the several intrusive-style magnetic anom- of the acquisition were not announced. element soil anomaly. The 2004 program Canadian border to southwestern Alaska. alies which are thought to be small stocks Select’s presi- yielded a total of 26 Doyon representatives indicated their or pipes and dikes. dent and chief oper- intersections from desire to continue exploration and devel- Drill hole 22, drilled in March 2004, ating officer is long- Freegold Ventures reported the 0.2 to 1.5 meters in opment of significant mineral lands via was situated at the rim of one of these time Alaskan Harry results from the exploration width assaying from joint ventures. pipe-like features and material from this Noyes. Welcome drilling on the Tolovana prospect 1.0 grams to 14.05 hole contained three micro diamonds in back to Alaska at the Golden Summit project in grams of gold per Alaska Range an 8 kilogram sample. Further samples Harry! the Fairbanks District. … Drill tonne. from this hole and the two nearest holes Teck-Pogo Usibelli Coal Mine announced that a hole and trench data suggest the These results (17 and 20) have been sent for caustic dis- announced plans to second contract has been signed with suggest the presence solution and diamond testing. form its previously Chatanika Terrane on the Glencore Ltd. for shipment of 45,000 of widespread intru- Purple and orange garnets were announced Mine Tolovana prospect is structurally tonnes of Alaska coal to Chile. This ship- sion hosted stock- observed while inspecting the fusion Stakeholder Group bounded and dips 25-35 degrees to ment is destined for a different end-user work mineraliza- residues from the samples submitted for that is designed to than the initial shipment sent to Chile in the south. Prior to the 2004 work tion. Future explo- micro diamond testing. Five purple gar- oversee the mine’s August. Additional shipments to Chile at Tolovana, the Chatanika ration will target nets submitted were G-9 garnets and 12 compliance with appear likely in 2005. Terrane was not known to exist in structural zones of the orange garnets were high magne- environmental reg- Piper Capital Inc. has announced that this part of the Fairbanks District. with potential for sium pyrope garnets (19-20 percent ulations at the cur- it has agreed to sell 22.1 percent of its higher vein densi- MgO) with high titanium content indicat- rently being con- Despite these results, Freegold outstanding shares to London-based ties and accompany- ing a strong eclogitic component. Of par- structed Pogo mine Ventures said Meridian Gold has Hidefield Gold PLC and an additional ing gold grades. At ticular importance is that a low man- near Delta Junction. terminated its joint venture option 22.1 percent of its the Beverly ganese content The seven per- outstanding shares on the project. prospect, work tar- shows that these son group will be to London-based Select Resources announced geted two gold and garnets fall into the chosen by Alaska Anglo Pacific acquisition of the Shorty Creek pathfinder element soil geochemical field of diamond- Department of Natural Resources Group PLC. anomalies (1.0 kilometer by 1.0 kilometer gold-silver-copper project in the associated garnets. Commissioner Tom Irwin and will meet Proceeds from and 0.6 kilometer by 0.4 kilometer in Livengood District from Also, the calci- twice yearly to review and comment on these transactions size), strongly anomalous silt samples Fairbanks-based Gold Range Ltd. um/chrome ratio is environmental compliance at the $250 will allow the com- and float boulder samples assaying up to … Select’s president and chief that of garnets asso- million gold mine operation. Interested pany to fund explo- 2.4 grams of gold per tonne. ciated with dia- parties should submit a resume to Ed ration of its Golden operating officer is long-time Silt sampling identified two new monds and not with Fogels, Department of Natural Resources, Zone gold-copper Alaskan Harry Noyes Welcome anomalous drainages in the northwest graphite. Although Suite 900D, 550 West 7th Ave., prospect in the back to Alaska Harry! corner of the property and soil geochemi- diamond inclusion Anchorage, AK 99501. Chulitna District. cal surveys over previously defined In addition to chromites and other participating in Piper’s private placement, indicator minerals had been detected Piper has agreed to grant Hidefield the before, this is the first time that pyrope right to acquire 50 percent of Piper’s garnets have been found on the Shulin interest in Golden Zone by providing $.15 Lake property. million for exploration on the property by The company followed announcement 2007. of these results with announcement of a Piper and Hidefield retain a right to planned $1 million exploration program earn 100 percent interest in Golden Zone for 2005 and commencement of drilling. for cash and stock payments, subject to a 2.5 percent net smelter return royalty Northern Alaska retained by the property owner, Silverado Gold Mines Ltd. announced additional results from lode exploration efforts at its Nolan Creek gold project in the southern Brooks Range. The first of two trenches cut in 2004 cross soil and geophysical anom- alies that returned 0.1 grams to 1.7 grams of gold per tonne with anomalous arsenic and antimony in quartz-carbonate altered rock over a 90 foot section of the trench. The second trench exposed two altered zones, 70 feet to 100 feet wide separated by 30 feet of unmineralized rock. Gold values ranged from 0.1 gram to 1 gram gold per tonne with anomalous arsenic and antimony values. Additional see FREEMAN page 13 PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 13 continued from page 12 FREEMAN geophysical anomalies remain to be test- ed. Southeast Alaska Coeur d’Alene Mines announced that it has received the final supplemental environmental impact statement and record of decision from the U.S. Forest Service for the Kensington gold project north of Juneau. Approval of the FSEIS will allow all other federal and state per- mits to be completed, a process that is expected to occur in the first quarter of 2005, with construction startup as soon as March. Significant permits that remain out- standing include Corps of Engineers wet- lands permits, EPA discharge permits and permits from the National Marine Fisheries Service. Not surprisingly, a coalition of environmental groups has challenged the adequacy of the FEIS and has appealed to the Forest Service to NovaGold’s Grew Creek site reverse the decision. zones, individual veins occur as 0.3 meter of silver per ton, 1.71 percent copper and I thought he had caught me speeding (as I Bravo Venture Group Inc. to 0.5 meter thick bodies up to several 3.22 percent zinc. The resource is open surely was) but no, he zoomed by me in announced results from Phase II drilling meters in length. Sampling in the area of along strike and at depth. the opposite direction while waving me to at its Woewodski Island project in south- the main Blue Quartz showing has traced Initial plans for 2005 include a first the side of the road. east Alaska. Five drill holes (550 meters) high-grade quartz veins, some containing phase $500,000 drill program. A few seconds later a second trooper were completed at two of the 13 vol- visible gold, for up to 500 meters along a whizzed by, same story. Finally, a third canogenic massive sulfide and gold north-northeast trend. Compilation and Other news trooper came into sight and behind him prospects on the island. evaluation of this season’s work is in Freegold Ventures Ltd. announced was a very wide load tractor trailer carry- Three drill holes (349 meters) targeted progress in preparation for outlining additional drilling results from its Grew ing the dump bed of a 220 ton mine truck. interlayered sulfides in argillite and future work on the island. I headed for the sage brush on the road andesitic tuffs at the Mad Dog prospect. Creek epithermal gold deposit near Ross Quaterra Resources said that as soon River, Yukon. Drilling results suggest side and after they lumbered by, a fourth These holes returned values of up to 2.83 trooper followed the tractor trailer rig, as weather permits ground electromagnet- gold mineralization is controlled by meters of 2.2 grams of gold per tonne, ic and gravity geophysical surveys will be also with lights flashing. north-south structures that have been off- 112 grams of silver per tonne, 0.50 per- completed on its Duke Island copper- It struck me then: as good as Alaska’s set along their strike by post-mineral cent lead and 10.6 percent zinc in hole nickel-platinum group element project mining climate is, Nevada’s commands faulting. MD04-07. The other two drill holes test- south of Ketchikan. Follow-up drilling of not one, two or even three troopers but Results include hole GC232 which ed induced polarization, gravity and the best geophysical targets will follow. four troopers in full fig to make sure a returned 10 meters grading 2.15 grams of ground magnetic geophysical anomalies Previous airborne magnetic and elec- mine vehicle gets where it needs to go, on gold per tonne and 5.1 grams of silver per on the Brushy Creek prospect. tromagnetic surveys have already con- time! Now that is the definition of tonne, hole GC233 which returned 16.5 The most significant interval from this firmed a number of high priority targets. “Mining Friendly”! meters grading 3.33 grams of gold per prospect was 1.82 meters of 20.5 grams The 16-square kilometer area around the In what looks to be the first step of a of silver per tonne, 0.16 percent lead and Marquis (discovery) zone identified nine tonne and 3.4 grams of silver per tonne, long awaited and much needed balancing 0.73 percent zinc in hole BR04-01. discrete multi-anomaly zones with strike hole GC234 which returned 28 meters of the United States legal system, the U.S. The company also announced discov- lengths ranging from 400 meters to 1,500 grading 1.15 grams of gold per tonne and Congress recently passed a bill that limits ery of high-grade gold values from dis- meters. 1.6 grams of silver per tonne and hole class action suits that are decided by state tinctive bluish colored quartz veins on the Responses within these zones are con- GC236 which returned 12.8 meters grad- courts to suits involving less than $5 mil- southwestern end of the island. Of 69 out- sistent with those produced by massive ing 1.87 grams of gold per tonne and 1.8 lion in damages and where the defendant crop and float samples collected, 12 sam- sulfide mineralization. grams of silver per tonne. and more than one-third of the plaintiffs ples returned more than 1 gram of gold Abacus Mining and Exploration has The company indicated that it planned are from the same state. per tonne and six samples more than 10 announced that it intends to form a public to commence a phase two, $500,000 Federal courts would hear class action grams of gold per tonne, including three company under the name Niblack drilling program in February on other suits above $5 million where the defen- samples with 69.5 grams, 60.9 grams and Mining Corp. around its 100 percent potentially mineralized zones in the proj- dant-plaintiff rule is not satisfied. While 20.6 grams of gold per tonne. owned Niblack massive sulfide property ect area. the step is welcome, it hardly addresses The quartz veins are hosted in multiple on Prince of Wales Island. In the category “we are good, they are the abuse of the class-action suit that widely spaced, east-northeast trending The Niblack property is a copper-gold- better” comes this story: while I was plagues the U.S. legal system. sub-parallel structures up to 10 meters zinc-silver rich volcanogenic massive sul- recently traveling between mining proj- Perhaps we should send them a page wide which can be traced in outcrop, float fide prospect with a preliminary mineral- ects in eastern Nevada, I was confronted from Alaska’s recently enacted laws per- and soil anomalies over a four square ized resource of 2.78 million tons grading on a lonely stretch of highway by a taining to challenges to state-issued per- kilometer area. Within the structural 0.09 ounces of gold per ton, 1.17 ounces Nevada State trooper with lights flashing. mits? G 14 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 Companies involved in Alaska and northern Canada’s mining industry Ace Transport bishing, and relocation/remodel services. Authorized drilling programs. Services range from feasibility studies, Anchorage, AK 99502 Steelcase dealer for Alaska. shaft sinking, mine construction to contract mining. Contact: Henry Minich, owner Phone: (907) 243-2852 Carolina Mat Co. Northern Air Cargo Phone: (907) 229-9647 (cell) Plymouth, NC 27962 Anchorage, AK 99502 Fax: (907) 245-8930 Contact: Susan Harrison, owner Contact: Nick Karnos Email: [email protected] Phone: (252) 793-4045 • Fax: (252) 793-5187 Phone: (907) 249-5161 • Fax: (907) 249-5194 Specializing in heavy hauling. 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Joe Kapper AIC provides cost-effective solutions to resource development Phone: (907) 248-2677 – 24-hour service industries. We provide innovative ideas to meet each require- Lynden Fax: (907) 248-6911 ment through the provision of best-in-class people and Alaska Marine Lines • Alaska Railbelt Marine Email: [email protected] equipment coupled with exceptional performance. Alaska West Express • Lynden Air Cargo Web site: www.securityaviation.biz Lynden Air Freight • Lynden International All twin engine turbine and piston fleet. Alaska, Canada, Arctic Controls Lynden Logistics • Lynden Transport Lower 48. Crew changes, hot freight/HAZMAT, VIP tours, Anchorage, AK 99501 Anchorage, AK 99502 emergency response and aerial surveys. 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Phone: (907) 563-3000 • Fax: (907) 563-1003 Email: [email protected] Arctic Foundations MRO Sales Web site: www.bearings.com Anchorage, AK 99518-1667 Anchorage, AK 99518 U.S. Bearings & Drives has been providing solutions to it cus- Contact: Ed Yarmak Contact: Don Powell tomers for over 25 years. We offer quality components, name Phone: (907) 562-2741 • Fax: (907) 562-0153 Phone: (907) 248-8808 • Fax: (907) 248-8878 brands and highly trained personnel. Email: [email protected] E-mail: [email protected] Website: www.arcticfoundations.com Website: www.mrosalesinc.com Usibelli Coal Mine Soil stabilization – frozen barrier and frozen core dams to MRO Sales offers products and services that can help solve Fairbanks, AK 99701 control hazardous waste and water movement. Foundations the time problem on hard to find items. Contact: Bill Brophy, vp cust. relations – maintain permafrost for durable high capacity foundations. Phone: (907) 452-2625 • Fax: (907) 451-6543 Nana Dynatec Drilling & Mining Email: [email protected] Capital Office Systems Anchorage, AK 99508 Web site: www.usibelli.com Anchorage, AK 99508 Contact: Anita Williams Other Office Contact: Leslye Langla, managing direct. Phone: (907) 345-2511 • Fax: (907) 345-8923 P. O. Box 1000 • Healy, AK 99743 Phone: (907) 777-1501 • Fax: (907) 777-1515 Email: [email protected] Phone: (907) 683-2226 Email: [email protected] Web site: www.dynatec.ca Usibelli Coal Mine is headquartered in Healy, Alaska and has Asset management, systems furniture, project coordination, Nana Dynatec provides rotary and core drilling services spe- 200 million tons of proven coal reserves. Usibelli produced space planning, systems delivery/installation, furniture refur- cializing in remote locations and helicopter supported core- one million tons of sub-bituminous coal this year. All of the companies above are regular advertisers in North of 60 Mining News. PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005 NORTH OF 60 MINING 15

G HEALY, ALASKA VANCOUVER Healy plant redux? Placer Dome earns $284M in 2004; Alaska governor says opening shuttered clean coal plant will $11M for Donlin Creek in 2005 save gas, help save Agrium fertilizer plant Mining giant Placer Dome Inc. announced a 24 percent growth in earnings in BY STEVE SUTHERLIN but it only saves 3 bcf per year,” Gillespie 2004 to $284 million, partly due to “a number of tax items resulting in a net tax recovery of $130 million,” the company said in a press release in mid-February. Mining News Associate Editor said. “At full operation the Kenai plant uses 46 bcf per year — at the bare mini- Sales revenue increased 7 percent to $1.89 billion on gold production of 3.65 laska Gov. Frank Murkowski said mum the plant uses 23 bcf when it’s run- million ounces and copper production of 413 million pounds. Gold cash and total conserving natural gas could help ning at its minimum 50 percent capacity.” costs were $240 and $298 per ounce, respectively, while copper cash and total A save Agrium’s Kenai Peninsula fer- Even if the Healy plant could make a costs were 55 cents and 70 cents per pound, respectively. tilizer plant and suggested reopen- difference, it presents its own set of chal- Placer Dome’s mine operating earnings increased 19 percent to $484 million. ing the Healy clean lenges. The Vancouver-based company hopes to begin construction of the Donlin coal plant, a $300 According to Golden Valley Electric, Creek hard-rock gold mine in southwest Alaska no later than November 2007. Placer Dome owns 30 percent of the project and is earning an additional 40 per- million experimental the plant is fatally flawed by a faulty cent by funding $32 million of exploration and development, completing a fea- power generation design and its unproven experimental sibility study, and making a decision to build a mine to produce at least 600,000 facility that was technology. The plant was constructed by ounces of gold per year (on a 100 percent basis). shuttered in 2000 its current owner, the Alaska Industrial Assuming a 70 percent ownership, Placer Dome’s share of the project’s meas- after failing to meet Development and Export Authority. The ured and indicated gold mineral resource and inferred gold mineral resource is the expectations of Department of Energy provided a $120 its proposed opera- 7.8 million ounces and 10.0 million ounces, respectively, the company said in the million grant to the project. Under the tor, Golden Valley February release. Alaska Gov. Frank original agreement, Golden Valley Electric Association Based on work in 2004 by Donlin Creek partner NovaGold, which consisted Murkowski Electric had agreed to operate the plant of Fairbanks. (See of a preliminary assessment on the viability and economics of the project, Placer and purchase its power once the plant was related stories in Petroleum News this Dome said it is committing $11 million to the development of the project in commercially viable. The plant was shut week.) 2005. down because safe, reliable and econom- The plant can deliver 50 megawatts of “About half of the funds will be used for drilling to reclassify a portion of the ic operation was not possible with the power, and would relieve the consump- inferred gold mineral resource to a measured and indicated gold mineral tion of 10 million cubic feet of gas per experimental technology, Golden Valley resource. Work on design concepts, infrastructure planning, power supply and day, Murkowski said at a Feb. 17 press Electric said. geotechnical requirements are also ongoing. Baseline environmental studies are conference. The savings, along with gas The objective of the clean coal plant being completed in order to commence the permitting process later this year,” storage in the Kenai National Wildlife was to test a combustion system that Placer Dome said. Refuge, might deliver enough gas to keep burns coal in stages to minimize the for- the fertilizer plant open until more gas mation of nitrogen and sulfur oxides. Pre-feasibility study for B.C. Mount Milligan project can be found in Cook Inlet, Murkowski Pulverized limestone added to the com- In north-central British Columbia, the company said, a pre-feasibility study is said. bustor converts to lime, which reacts with expected to commence shortly on the Mount Milligan project, a large gold-cop- Before the Healy plant can be sulfur dioxide in the gas and removes it as per porphyry deposit containing “estimated measured and indicated mineral reopened, it will need to be converted into a sulfate. Un-reacted lime and sulfates are resources of 5.6 million ounces of gold and 1.7 billion pounds of copper.” a conventional coal-fired power plant, recycled to scrub the flue gas, to further During 2005, the focus of activities at the Mount Milligan project will include Golden Valley Electric said. Congress last reduce sulfur dioxide effluents. additional conventional metallurgical test work and an investigation of new con- year failed to pass its comprehensive Although Golden Valley Electric centrate processing options. energy bill, which included a $125 mil- rejected the technology after tests were Placer Dome said a decision will be made this year on whether a feasibility lion low-cost loan to retrofit and reopen completed in 1999, AIDEA found that the study is warranted. the plant. new technology met the technical and —KAY CASHMAN Christine Gillespie, Agrium investor environmental objectives that were estab- relations manager, told Petroleum News lished for the project, the authority said in the company’s Kenai plant will need a a Jan. 2005 report. great deal more gas than the Healy clean “AIDEA continues to pursue all coal plant would conserve. options for getting HCCP into operation “There’s talk of re-firing coal plants to and selling power as soon as possible,” save gas now used to generate electricity, the report said. G

continued from page 2 “Most of Alaska is not exposed GOODPASTER very well, so this makes a tremendous difference in being Peninsula. Mineral development in Alaska has able to trace bedrock units under major economic potential, provides high cover.” —Laurel Burns, chief of quality jobs and will provide economic the minerals section at DGGS diversification to help offset the loss of Prudhoe Bay oil revenue, the budget pro- project about Alaska’s mineral posal says. “Knowledge of the state’s resources.” mineral resources is a key to orderly Murkowski hopes to appropriate development of the state and maintenance $700,000 every year up to and including of a stable economy. ... The project has 2011 for the airborne geophysical sur- been successful in catalyzing private sec- veys. This would be the largest amount tor investment and job generation at a since FY94, soon after the project started, level that far surpasses the cost of con- when $750,000 was appropriated. In ducting the surveys. Jobs for the Alaskan FY05 the figure was $200,000 and in public are created both as a direct result FY04 it plunged to a low of $100,000. of the project’s execution and as a result —SARAH HURST of the knowledge generated during the 16 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 27, 2005