page Dennis Egan concerned about local 4 hire; hearings planned for interim

Vol. 16, No. 23 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of June 5, 2011 • $2

GOVERNMENT Cook Inlet gas drilling on hold Wild Lands pulled

SPARTAN OFFSHORE SPARTAN Interior Department backs off policy to make more public lands into wilderness

By ERIC LIDJI “The protection of America’s wilder- For Petroleum News ness for hunting, fishing and backcoun- try recreation should be a unifying he federal government will no ALAN BAILEY issue that mobilizes us to a common Tlonger designate certain public purpose,” Salazar said in a prepared lands in Alaska and other states as “wild statement. “We will focus our effort on lands,” Secretary of the Interior Ken building consensus around locally-sup- Salazar announced June 1. ported initiatives and working with The decision could be a victory for Members (of Congress) to advance those in Alaska who worried that the KEN SALAZAR their priorities for wilderness designa- process would have made it impossible to tions in their states and districts. develop large swaths of resource-rich federal Together, we can advance America’s proud wilder- acreage across the state, particularly in the 23 mil- ness legacy for future generations.” lion acre National Petroleum Reserve-Alaska, The Interior Department now plans to work on although the precise impact of the policy reversal a more local level to decide if certain public lands on public lands in Alaska remains uncertain. see WILD LANDS page 18

GOVERNMENT Death knell for ANGDA? Escopeta’s jack-up rig is currently at Nanaimo, on the east coast of Vancouver Island. See story on the bottom of this page. Voter-mandated public corporation may not have funding, board members, to continue

Shell eyes Canadian LNG; to spend By ERIC LIDJI the plan. So everything has to either get US$10B on world’s biggest carrier For Petroleum News done, or I have to sell something, or I’ve got to find a rich uncle somewhere.” Royal Dutch Shell is carefully strengthening the impres- he Alaska Natural Gas The Alaska Legislature approved a sion that it will be the third company to announce plans for TDevelopment Authority is facing an $319,000 appropriation for ANGDA in an LNG export facility in British Columbia. existential crisis. the FY 2012 operating budget, but Gov. More than two months after Lorraine Mitchelmore, the The public corporation of the State of Sean Parnell has yet to announce his line head of Shell’s Canadian division, disclosed that options for Alaska, created by a voter initiative in item vetoes. a terminal at Prince Rupert were being explored, a company 2002, is waiting to find out whether it Without the money, ANGDA would spokesman told the Vancouver Sun that work is now “early in will have the money to continue operat- HAROLD HEINZE be forced to cut much of its spending the evaluation process” and opportunities are being pursued. ing through the end of 2012, and whether plan for the year, but even with the fund- Although the spokesman stopped sort of disclosing it will have the authority to continue operating into ing, ANGDA might not be able to conduct busi- details, he said Shell “will continue to invest in our global June. ness for long. (LNG) leadership position as demands continues to grow.” “At this point, this organization has no future Currently, three seats on the seven-member Petroleum Intelligence Weekly reported on the heels of the beyond the next fiscal year,” ANGDA CEO Harold Heinze told his board at a May 26 meeting. “That’s see ANGDA’S FUTURE page 19 see CANADIAN LNG page 17 The Nigerian Connection emerges EXPLORATION & PRODUCTION again for Agrium plant at Kenai Fate rests with Homeland THE STRANGE SAGA OF THE AGRIUM nitrogen fertil- izer plant keeps pointing to Nigeria. The Dutch shipping company Fairstar Heavy Transport Work on jack-up rig to be done in Canada, Escopeta waits for news from Napolitano N.V. recently announced that it was award- By KAY CASHMAN ed a $28-million contract to move the Natural gas from a discovery by Escopeta mothballed plant from Kenai, Alaska, to Petroleum News this summer could be available for Ossiomo, Nigeria. But Agrium said the plant hasn’t been hat was supposed to be a brief layover at delivery to consumers in as little as 18 sold yet. WPrince Rupert, British Columbia for, a ship months, Vladimir Katic, Escopeta’s Fairstar said it plans to use its two open delivering a jack-up drilling rig from the Gulf of general manager in Alaska, told stern, semi-submersible vessels — the Mexico to Cook Inlet, Alaska, resulted in a change Petroleum News. Fjord and the Fjell — to move 111 mod- of destination May 29 to Port Metro Vancouver. ules and 70 containers from the plant start- And then, because the bridge at the entrance to will turn around and resume its voyage to Alaska is ing this August. Canada’s largest and busiest port was four feet too not certain. Agrium mothballed the Kenai Peninsula plant in late low to accommodate the heavy haul vessel, the “We do not have clearance from Homeland to 2007 because tightening natural gas supplies in Cook Inlet Spartan 151 jack-up was taken to a dock at the city proceed to Alaska yet,” Escopeta President Danny made it increasingly difficult for the plant to obtain feed- of Nanaimo, on the east coast of Vancouver Island. Davis told Petroleum News by email June 2. stock. Escopeta Oil, which has the jack-up under con- tract from Spartan Offshore Drilling, will have the Previously, Davis was content with the assurances see INSIDER page 18 rigs’ legs inspected and other work done at Escopeta had received from the U.S. Department Nanaimo. But when — and if — the Spartan 151 see JACK-UP RIG page 20 2 PETROLEUM NEWS • WEEK OF JUNE 5, 2011 contents Petroleum News North America’s source for oil and gas news ON THE COVER 19 Chart of Alaska’s oil industry employment statewide Wild Lands pulled and North Slope Borough 2000-2010 Interior Department backs off policy GOVERNMENT to make more public lands into wilderness 4 Egan concerned about jobs for Alaskans Death knell for ANGDA? Juneau senator plans hearings on nonresident Voter-mandated public corporation may hire for North Slope jobs in interim; wants not have funding, board members, to continue to see investment in Alaska, Alaska jobs Fate rests with Homeland 8 ACMP gridlock continues in Legislature Work on jack-up rig to be done in Canada, Escopeta waits for news from Napolitano Second special session fails to materialize on Alaska Coastal Management Program Shell eyes Canadian LNG; to spend 13 Corps beginning EIS for road to Umiat US$10B on world’s biggest carrier 17 Parnell tells AP he’ll pursue tax cut OIL PATCH INSIDER LAND & LEASING 1 The Nigerian Connection emerges again for Agrium plant 10 ASRC speeds up unit work commitments 18 The rise and fall and rise of North American LNG exports New drilling could come a year earlier under latest EXPLORATION & PRODUCTION plan of exploration for proposed Placer unit west of Alaska’s Kuparuk field 3 Alaska-Mackenzie rig report 15 DNR issues Foothills BIF for 2011-20 5 Going deep in Canada’s Deep basin

Leaders of Tourmaline Oil return to favorite hunting NATURAL GAS ground in northern Alberta-BC, chasing prize 11 Alaska Pipeline Project FERC filings estimated 30 years ago at 440 tcf Preliminary draft reports describe work plan for pipelines, 6 North Slope production down 4.7% in May gas treatment plant, workforce requirements Drop led by Lisburne, down 19%, Prudhoe Bay down for construction, operation 7.5%; production drops below 600,000 bpd 13 Kenai Loop well tests at 10 mmcfpd on more than a dozen days during month 17 Alaska Interior looks to import gas 12 Oooguruk-Torok pool rules approved PIPELINES & DOWNSTREAM 19 Alaska’s average daily oil, NGL production rate 1960-2010 7 Stick close to home FINANCE & ECONOMY Canadian industry leader, senior government official 14 Heavyweight firms battle over Beluga challenge need for exports to Asia; say proposed Chevron suit says ConocoPhillips failed to pay full links to US sufficient settlement to balance production shares in Alaska 13 July shutdown for Alaska pipeline work gas field; conversion alleged 15 Carriers seek 2011 interstate rate hikes

reach new horizons.

$0(0%(52)7+(8.3($*9,.,f83,$7&25325$7,21)$0,/<2)&203$1,(6 PETROLEUM NEWS • WEEK OF JUNE 5, 2011 3 Alaska - Mackenzie Rig Report

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status The Alaska - Mackenzie Rig Report as of June 2, 2011. Active drilling companies only listed.

Alaska Rig Status TD = rigs equipped with top drive units WO = workover operations North Slope - Onshore CT = coiled tubing operation SCR = electric rig Doyon Drilling This rig report was prepared by Marti Reeve Dreco 1250 UE 14 (SCR/TD) Prudhoe Bay W-221 BP Sky Top Brewster NE-12 15 (SCR/TD) Doyon Yard for Modification ENI Dreco 1000 UE 16 (SCR/TD) Milne Point MPF-80 BP Dreco D2000 UEBD 19 (SCR/TD) Alpine CD4-208 ConocoPhillips AC Mobile 25 Prudhoe Bay K-10C BP OIME 2000 141 (SCR/TD) Alpine 2K-08a ConocoPhillips TSM 7000 Arctic Wolf #2 In Nisku, AB Available JUDY PATRICK JUDY Nabors Alaska Drilling Trans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay Available AC Coil Hybrid CDR-2 Kuparuk 2K-13 ConocoPhillips Dreco 1000 UE 2-ES Prudhoe Bay Stacked out Available Mid-Continental U36A 3-S Prudhoe Bay Stacked out Available Oilwell 700 E 4-ES (SCR) Milne Point MPF-65 BP Emsco Electro-hoist 7-E (SCR-TD) Stacked, Deadhorse Available Dreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay B-10 BP Dreco 1000 UE 9-ES (SCR/TD) Has been released by Brooks Range Available Petroleum Oilwell 2000 Hercules 14-E (SCR) Prudhoe Bay Stacked out Available Oilwell 2000 Hercules 16-E (SCR/TD) Prudhoe Bay Stacked out Available Oilwell 2000 17-E (SCR/TD) Prudhoe Bay Stacked out Available Emsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse Available Emsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point Available Emsco Electro-hoist 28-E (SCR) Stacked, Deadhorse Available Emsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked at Point Thompson Available Academy AC electric Canrig 105-E (SCR/TD) Stacked at Deadhorse Available Academy AC electric Heli-Rig 106-E (SCR/TD) Stacked at Deadhorse Available OIME 2000 245-E Oliktok Point OP14-S3 ENI

Nordic Calista Services Superior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site C-42a BP Superior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site 2-21D BP Ideco 900 3 (SCR/TD) Kuparuk Well 2T-14 ConocoPhillips

North Slope - Offshore

BP (rig built & being assembled by Parker) Top drive, supersized Liberty rig Endicott SDI for Liberty oil field BP

Nabors Alaska Drilling OIME 1000 19-E (SCR) Oooguruk ODSN-23i Pioneer Natural Resources OIME 2000 245-E Oliktok Point OP14-S3 ENI Oilwell 2000 33-E Prudhoe Bay Stacked out Available

Cook Inlet Basin – Onshore Aurora Well Service Franks 300 Srs. Explorer III AWS 1 Stacked out on the west side of Available Cook Inlet near Tyonek Cook Inlet Energy Atlas Copco RD20 34 Undergoing winterization Cook Inlet Energy at W. McArthur River Unit Doyon Drilling TSM 7000 Arctic Fox #1 Beluga Stacked Available

Marathon Oil Co. (Inlet Drilling Alaska labor contractor) Taylor Glacier 1 Kenai Loop #1 Buccaneer Alaska

Nabors Alaska Drilling Continental Emsco E3000 273 Stacked, Kenai Available Franks 26 Stacked Available IDECO 2100 E 429E (SCR) Stacked Available Rigmaster 850 129 Kenai Stacked out Available

Rowan Companies AC Electric 68AC (SCR/TD) Demobilizing and prepping Pioneer Natural Resources to ship to Lower 48 Kuukpik 5 Preparing for barging to Linc Energy Baker Hughes North America rotary rig counts* Barrow- NSB Gas Field Project May 27 May 20 Year Ago Cook Inlet Basin – Offshore US 1,847 1,830 1,535 Canada 179 143 191 Chevron (Nabors Alaska Drilling labor contract) Gulf 35 32 46 428 M-11 Steelhead Platform Chevron

XTO Energy Highest/Lowest National 1320 A Coil tubing cleanout planned off Platform XTO US/Highest 4530 December 1981 A in the near future US/Lowest 488 April 1999 National 110 C (TD) Idle XTO Canada/Highest 558 January 2000 Canada/Lowest 29 April 1992 Mackenzie Rig Status *Issued by Baker Hughes since 1944 Canadian Beaufort Sea The Alaska - Mackenzie Rig Report SDC Drilling Inc. SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available is sponsored by:

Central Mackenzie Valley

Akita/SAHTU Oilwell 500 51 Has left the NWT MGM Energy Corp. 4 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

GOVERNMENT Egan concerned about jobs for Alaskans Juneau senator plans hearings on nonresident hire for North Slope jobs in interim; wants to see investment in Alaska, Alaska jobs

By STEVE QUINN But first he wants trained. Many of these are permanent year- are thinking if the governor wants to give For Petroleum News to understand why oil round jobs, not just seasonal, short-term or the oil companies additional tax breaks patch jobs are going one-time. Alaska has many workers that and the oil companies aren’t saying where ennis Egan wants to talk jobs. The to nonresidents at a commute from outside the state on a regu- this money is going to be utilized, we want DJuneau Democratic senator is well time when employ- lar basis to their jobs in Alaska.” to be more certain it’s going to be resident positioned to lead the discussion. ment is rising. Egan says he’ll be holding hearings hire and the money is going to stay here in Egan, the son of Alaska’s first governor Recently, he was throughout the state during the interim to Alaska. under statehood, Bill Egan, joined the sen- upset to learn how oil get answers. ate in 2009 to fill an unexpired term vacat- and gas jobs rose to He discussed his plans with Petroleum Petroleum News: The counter argument ed by Kim Elton. 12,900 workers — a SEN. DENNIS EGAN News. is how can you expect that from a compa- In his first full term in the Senate, Egan 5 percent year-over- ny that has a global outlook when they serves as the chairman of the Senate Labor year increase — but 50 percent of the new Petroleum News: What will the focal make their business decisions? & Commerce Committee. jobs went to non-Alaskan residents. point of the hearings be? Egan: There are a whole bunch of com- He’s also the current gatekeeper of HB Egan sounded off at the news in May, Egan: I want to focus specifically on panies that have global outlooks. One of 110, Gov. Sean Parnell’s bill designed to wondering, “Why are these new jobs going resident hire versus nonresident hire. I them is Coeur d’Alene (Mining Corp.). restructure the state’s oil tax structure. to Outsiders?” want to focus on whether people who They have mines all over the world. We Egan says he’s not against certain Egan also cited a January Department claim residency, but are not residents. I just had a meeting with Dennis Wheeler, changes that may benefit the oil industry, of Labor report that stated: was talking to (former chief of staff to Sen. the CEO of Coeur d’Alene mines, last such as scaling back the progressive sur- “A significant number of high paying Bert Stedman) and he said we do have week. They are claiming 70 percent resi- charge oil companies pay as oil prices jobs are filled by nonresidents when some money in the budget now to hire a dent hire. They are a brand new facility increase. Alaskans are available or can be quickly contractor to put the numbers together and (Kensington Mine in Juneau). If they can give us information over and above num- do that — and those are specialized posi- bers provide by the Department of Labor. tions — why can’t other people? Half of We want to know who is hiring whom, Greens Creek, they have mines every- Economic In terms of powering Alaska’s where they are located, where the job posi- where, but they have a real focus on hiring economy, few things outperform tions are. We are going to get into all of residents. Engine our trains. In 2010, we carried that stuff. We will take testimony during I’ll never forget my conversation with more than six million tons of those hearings. It’s a prelimi- Dennis when they were getting freight and 400,000 passengers nary plan and it could change, things ready (to start produc- over 651 miles of track. but right now we are thinking tion last year). He said, ‘we of at least Fairbanks, are bringing up all these Anchorage and Kenai, where people, we train them for the bulk of the Alaskans who six months, but their wives (907) 265-2300 go to work in the oil patch live. I’m sure hate it, so they stay for six months and 1-800-321-6518 there will be other locations where we con- then they boogie.’ Well, they get locals and AlaskaRailroad.com TDD (907) 265-2621 duct hearings as well. train them through the University of Alaska Southeast and the mining training Petroleum News: What would you like programs. They are not leaving. They are to learn? buying houses here; they have kids in the Egan: We really want to learn how school system. They are contributing to the many Alaskans are employed in the oil economy in other ways than just their www.PetroleumNews.com industry. We have gotten complaints from salaries. different labor organizations saying, hey, Kay Cashman PUBLISHER & EXECUTIVE EDITOR ADDRESS P.O. Box 231647 we are having a hell of a time getting dis- Petroleum News: The House completed Mary Mack CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1647 patched to the slope because they are reviewing HB 110 and did it in two com- being, I guess, replaced … by people who mittees, but yours would be the first of Kristen Nelson EDITOR-IN-CHIEF NEWS are not residents, and there are not a lot of three committees. Why three? Clint Lasley GM & CIRCULATION DIRECTOR 907.522.9469 them being dispatched out of the halls. We Egan: Members of the Resources [email protected] Susan Crane ADVERTISING DIRECTOR are going to look at how many companies Committee will be involved in some of are going around hiring unions. We had these hearings we’ll have as well. You have Bonnie Yonker AK / NATL ADVERTISING SPECIALIST CIRCULATION 907.522.9469 one person come in and talk to me, saying to remember the Resources Committee Heather Yates BOOKKEEPER [email protected] he’s worked on the slope for years, he’s a said they weren’t going to hear the bill welder and certified but now he’s having a until we had hearings on who is being Shane Lasley IT CHIEF ADVERTISING hell of a time being dispatched. hired in the oil patch. Marti Reeve SPECIAL PUBLICATIONS DIRECTOR Susan Crane • 907.770.5592 They thought the issue was great [email protected] Petroleum New: It’s difficult to enforce enough. You’re right. How do you force Steven Merritt PRODUCTION DIRECTOR local hire. someone Like Repcon or Matrix Services Bonnie Yonker • 425.483.9705 Alan Bailey SENIOR STAFF WRITER [email protected] Egan: It is difficult to enforce, but it’s to not have 100 percent nonresident hire? Wesley Loy CONTRIBUTING WRITER sure not difficult to encourage. But as a lifelong Alaskan myself, we can FAX FOR ALL DEPARTMENTS impress upon them how important it is to Gary Park CONTRIBUTING WRITER (CANADA) 907.522.9583 Petroleum News: ACES received three hire Alaskans. Rose Ragsdale CONTRIBUTING WRITER committee assignments, but not Labor & Here’s an example, a pipefitter who has Petroleum News and its supple- Commerce. Did you request to have this worked on the slope for 40 years and now Ray Tyson CONTRIBUTING WRITER ment, Petroleum Directory, are owned by Petroleum Newspapers bill in your committee? he’s having trouble getting dispatched John Lasley STAFF WRITER of Alaska LLC. The newspaper is Egan: Yes, I did. because of different union things and non- published weekly. Several of the union contacts? Allen Baker CONTRIBUTING WRITER individuals listed above work for independent companies that con- Petroleum News: What made you There is enough disparity and enough Judy Patrick Photography CONTRACT PHOTOGRAPHER tract services to Petroleum request this bill? concern among resident Alaskans that I Newspapers of Alaska LLC or are Mapmakers Alaska CARTOGRAPHY Egan: It was from a hearing we had in think it behooves us to hold those hearings. freelance writers. Labor & Commerce on resident hire and I’m not pointing to anything we’ve already Forrest Crane CONTRACT PHOTOGRAPHER HB 110 was brought up. We did get statis- decided. I have no preconceived notion but Tom Kearney ADVERTISING DESIGN MANAGER tics from the Department of Labor and we see EGAN Q&A page 6 Amy Spittler MARKETING CONSULTANT

Dee Cashman CIRCULATION REPRESENTATIVE

OWNER: Petroleum Newspapers of Alaska LLC (PNA) Petroleum News (ISSN 1544-3612) • Vol. 16, No. 23 • Week of June 5, 2011 Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518 (Please mail ALL correspondence to: P.O. Box 231647 Anchorage, AK 99523-1647) Subscription prices in U.S. — $98.00 1 year, $176.00 2 years, $249.00 3 years Canada — $185.95 1 year, $334.95 2 years, $473.95 3 years Overseas (sent air mail) — $220.00 1 year, $396.00 2 years, $561.00 3 years “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647. PETROLEUM NEWS • WEEK OF JUNE 5, 2011 5

EXPLORATION & PRODUCTION Going deep in Canada’s Deep basin Leaders of Tourmaline Oil return to favorite hunting ground in northern Alberta-BC, chasing prize estimated 30 years ago at 440 tcf

By GARY PARK 150 British Columbia Montney horizontal He estimated the shales contain more boe, boosting its 2P reserves to about 178 For Petroleum News well locations. than 40 billion barrels of original oil-in- million boe and putting itself on track for Victor Rodburg, an analyst with Clarus place. 2012 output of 44,500-46,500 boe per day. acked by a proven pedigree, Securities, described the Alberta Deep Other companies active in Deep basin The assets also include 87,580 net acres BTourmaline Oil has taken less than basin as the “next big resource play in include Lone Pine Resources (the newly of undeveloped land, the bulk of which are three years of active operations to put itself Western Canada, with staggering amounts established Canadian subsidiary of Forest jointly owned with Tourmaline. among the frontrunners in the Deep basin of original gas in place of up to 100 billion Oil) with 129,000 net acres, Enerplus Tourmaline completed a C$227 million play that straddles the northern Alberta- cubic feet for each section.” Resources with 80,000 net acres of high initial public offering last November and British Columbia border and is rated by He said the Nikanassin tight-sand for- working interest properties and Peyto raised C$174 million earlier in May through some analysts as the next big play in the mation in the basin has yielded initial pro- Exploration. a sale of 6.33 million common shares, with Western Canada Sedimentary basin. duction rates of 15.9 million and 24.2 mil- Before the spinoff of Lone Pine, Forest some of the proceeds being used to raise At the helm as chief executive officer is lion cubic feet per day from two Shell hori- Oil said it planned to spend US$175 million this year’s capital spending to C$450 mil- Mike Rose, who founded Berkley zontal wells. this year on its Deep basin/Evi properties, lion from C$350 million. The 2010 capital Petroleum in 1993 and sold out to Anadarko drilling about 50 gross wells. budget was C$295 million. in 2001 for C$1.6 billion, then launched Plays on investors’ radar screens The company said it plans to drill up to Duvernay Oil, which was acquired in 2008 Ray Kwan, an analyst with Macquarie Cinch Energy acquired 35 wells on its two largest properties over by Royal Dutch Shell for C$5.9 billion. Equities Research, said Deep basin shale To expand its Deep basin holdings, the next 18 months, targeting liquids-rich Now he and a leadership team of former and tight oil plays are “popping on to Tourmaline struck a deal in late May to gas prospects, as part of an accelerated five- Duvernay executives are back in their investors’ radar screens” and are likely to acquire Cinch Energy for C$205 million, year development program. favorite hunting ground in Deep basin, a become a significant trend over the next gaining proved plus probable reserves of liquids-rich, tight-gas play that pioneering five to 10 years as producers tackle the 13.5 million boe and production of 3,740 Contact Gary Park through geologists estimated 30 years ago could tightest and largest oil-in-place rocks. boe per day for about C$43,000 per flowing [email protected] hold 440 trillion cubic feet of recoverable gas — and were scoffed at for their troubles. The arrival of horizontal drilling and Even under the most optimistic forecasts, the U.S. will still depend multistage fracturing technologies has on oil and natural gas for almost 65% of itsAlaska domestic has energy the resources. changed that view, attracting a swarm of believers, many of them drawn by Rose’s consumption in 2025. Alaska has the experience. philosophy. We are currently importingThe 58%Last of Frontierour oil, much is stillof it from the regionsnew frontier. of question- Understanding geology the secret able stabilityThis is and where regimes the not road always to friendly energy to independencethe U.S. begins. In the simplest terms, he said the secret to building an oil and gas company is Prudhoe Bay was initially estimated to hold 9.6 billion barrels of oil. So far, Prud- understanding the geology — once the hoe Bay has produced over 15.9 billion barrels of oil. essential building block of successful petro- leum ventures. What a company needs is “really good people who know how to do it and there are fewer of those around,” Rose said, adding the Tourmaline’s leaders are all over the age of 35, which represents considerable accu- mulated experience. To those who might view Tourmaline’s decision makers as dull because they return to Deep basin “again and again and again,” he suggested the doubters should take a closer look at the basin’s broad statistics. Rose said that although 18 tcf of gas has been produced in the Alberta sector of the Deep basin, using new technologies to drill out reserves in existing wells and adding another two wells for every section would add another 12 tcf. Alaska holds one of the most important keys He said technology just keeps making Deep basin better, estimating the play is not to the country’s energy future. yet halfway through its productive life. Tourmaline has assembled more than 1 million gross acres, with an average 65 per- We want you to be a part of it. cent working interest, which Rose translates into a possible platform for 50,000 barrels According to the U.S. Department of Energy’s Energy Information of oil equivalent per day. Administration forecasts, the U.S. will still depend on oil and But he said the price of natural gas will determine how long it takes his company to natural gas for 60-65% of its domestic energy consumption in 2025. reach that objective. The U.S. is currently importing 56-58% of our oil, much of it from Infrastructure control key regions of questionable stability and regimes not always friendly to our Rose said Tourmaline’s strategy is to country. establish two or three large exploration and production areas where it controls the infra- Prudhoe Bay was initially estimated to hold 9.6 billion barrels structure and has large drilling inventories. of oil. So far, Prudhoe Bay has produced over 15.9 billion barrels of oil. It’s already well on the way, suggested Alaska continues to be the new frontier for oil and gas production. Robert Cooper, vice president of energy research at Mackie Research Capital, which credits Tourmaline with doing a “lot right” by owning gas plants and pipeline gathering Alaska: We’re Open For Business! systems. To be successful in producing Canadian Division of Oil and Gas gas “you have to be a low-cost producer … 550 West 7th Avenue, Suite 1100 and Tourmaline’s got a really good handle on how to do that,” he said. Anchorage, Alaska 99501-3560 The company’s inventory now stands at tel: 907-269-8800 about 2,700 vertical wells at two wells for http://www.dog.dnr.state.ak.us/oil/ each section, plus 100 Alberta Montney and 6 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

EXPLORATION & PRODUCTION North Slope production down 4.7% in May Drop led by Lisburne, down 19%, Prudhoe Bay down 7.5%; production drops below 600,000 bpd on more than a dozen days during month

By KRISTEN NELSON McIntyre and Niakuk, averaged 26,342 bpd in May, down BP’s Milne Point field averaged 24,274 bpd in May, Petroleum News from 32,570 bpd in April, a decline of 6,228 bpd. Production down 3.93 percent from an April average of 25,268 bpd. at the field began the month above at 32,000 bpd, then Milne production includes viscous oil from the Schrader laska North Slope crude oil production averaged dropped below 30,000 bpd on May 14, bottoming out at just Bluff accumulation. A604,508 barrels per day in May, down 4.66 percent above 20,000 May 25 before beginning a gradual rise to The ConocoPhillips Alaska-operated Alpine field aver- from an April average of 634,028 bpd. And on more than a 22,708 barrels on May 31. aged 80,692 bpd in May, down 2 percent from an April aver- dozen days during the month, beginning May 13 and includ- Prudhoe Bay averaged 305,175 bpd in May, down from age of 82,401 bpd. Alpine production includes satellites at ing May 31, production dropped below the 600,000-bpd 330,071 bpd in April. While Prudhoe started the month at Fiord, Nanuq and Qannik. mark. 322,536 barrels, it dipped below 300,000 bpd a dozen days The BP-operated Northstar field averaged 15,504 bpd in While the largest percentage drop in May, 19.1 percent, in May. Prudhoe production includes western satellite fields May, down 0.1 percent from an April average of 15,525 bpd. came from the BP Exploration (Alaska)-operated Lisburne — Aurora, Borealis, Midnight Sun, Orion and Polaris. field, part of greater Prudhoe Bay, the largest per-barrel drop The BP-operated Endicott field averaged 12,472 bpd in Kuparuk production up in May was at the BP-operated Prudhoe Bay field itself, down May, down 4 percent from an April average of 13,001 bpd. The ConocoPhillips-operated Kuparuk River field had 24,896 bpd or 7.54 percent from April. Endicott includes production from the Badami field on the the only May-over-April North Slope production increase, Except where noted, volumes are from the Alaska eastern side of the North Slope. Figures from the Alaska Oil averaging 140,049 bpd in May, up 3.6 percent, 4,857 bpd, Department of Revenue’s Tax Division, which tracks oil pro- and Gas Conservation Commission, which reports monthly from an April average of 135,192 bpd. Kuparuk production duction by major production centers and provides daily pro- totals field by field, show total Badami production for April includes satellites at Tabasco, Tarn, Meltwater and West Sak duction and monthly averages. (the most recent AOGCC data available) at 39,463, an aver- viscous oil, as well as production from the Pioneer Natural age of some 1,316 bpd. Lisburne, which includes production from Point see ANS PRODUCTION page 7 continued from page 4 to bury the bill. When it goes out of Labor a chance to testify as well. We are not out Hopefully, we make the right decision. Just & Commerce, Resources will be taking it to get anyone. We just want to find out because other individuals propose different EGAN Q&A up and then it will go to Finance, though why. pieces of legislation, I’m remiss in not say- maybe there will be some modifications to ing whoa we are not getting the best bang it’s important enough for the state to hold HB 110, but that’s Resources and Finance Petroleum News: As a member of the for our buck for the citizens of Alaska. these hearings. talking about credits. What my committee Finance Committee, what other issues are One of the best emails I got was someone When we get into it, I’m sure other is going to do is look at employment there? saying, ‘you’re a jerk. Get off your ass and issues for nonresident hire will come up, specifically. Wouldn’t you get (upset) if Egan: I’m concerned about giving more pass HB 110.’ Then in the next paragraph which is fine as far as I’m concerned. To you’re sitting here in Juneau and you can’t credits to the oil industry and not have the he says, don’t forget the education bill. You me and people on my committee, it’s about get dispatched and you see these guys … I industry tell us what they are going to do have to fully fund the base student alloca- hiring as many Alaskans as we can. mean here we have companies like Repcon with the credits they take. Are they going tion and you really should fund it at 125 with 100 percent nonresident and Matrix to invest in Alaska’s oil patch or are they percent. I’m thinking. Hold it now. How Petroleum News: So this is not a matter Services 100 percent nonresident. going to invest it in Libya? I don’t have a are we going to pay for it? You want us to of burying the bill in the Senate? clue. If we are going to give credits, I think pass HB 110, but you want us to fully fund Egan: We are not trying to trash anyone. Petroleum News: Will you give these we should be afforded the opportunity of education. That just drove me nuts. We have legitimate concerns about companies a chance to testify? hearing from industry what they are going employment. We are absolutely not trying Egan: Absolutely. We’ll afford industry to do with those credits and how they are Petroleum News: Would you like to see going to reinvest those credits in the state a Part II to HB 110, in other words, here’s of Alaska to further our industry or the what the state needs cut in taxes and here’s people’s resource to get it out. It’s not like how it will pay for it? they aren’t getting tax credits now. In pre- Egan: I’m not the expert in that. It’s sentations we had before Senate Finance very complicated. To be honest with you, I this year, it was close to $3.2 billion in tax admire the people who are involved in it credits. We are all concerned about it. deeply and are experts. I think HB 110 can be restructured and we can come to some Petroleum News: You’ve watched sort of agreement before the end of the resource development, specifically oil, next regular session. I agree that something become a political hot potato. Some say it has to be tweaked at least in the tax struc- cost your father his re-election. Do you see ture itself. As far as progressivity, that’s this debate changing the makeup of the something we have to look at. I do think decision makers in 2012? decoupling has to be looked at. The way Egan: I think that people are more it’s structured now, we are going to give attune to what’s going on in Alaska rather away our gas. It’s our gas. Again, maybe than make it into a petty fight. It’s not a it’s an infantile argument, but it’s ours, not petty fight at all. In the state constitution, theirs. It’s not like hydro. It’s a finite we have the best constitution in America. resource. When it’s gone, it’s gone. It’s our oil. It’s not their oil. Right? We own There are all kind of opportunities here. it. It would be criminal of me not to protect We should be exporting, but we first the public’s interest as best as I can. should take care of Alaska. I don’t like spending $4 a gallon for diesel. PETROLEUM NEWS • WEEK OF JUNE 5, 2011 7

PIPELINES & DOWNSTREAM continued from page 6 The ConocoPhillips-operated ANS PRODUCTION Kuparuk River field had the only Stick close to home May-over-April North Slope Resources Alaska-operated Oooguruk production increase, averaging Canadian industry leader, senior government official challenge field and the Eni Petroleum-operated 140,049 bpd in May, up 3.6 Nikaitchuq field. need for exports to Asia; say proposed links to US sufficient AOGCC figures for April show total percent, 4,857 bpd, from an production from Nikaitchuq (Schrader April average of 135,192 bpd. By GARY PARK Along with the Northern Gateway Bluff formation) at 151,850, some 5,061 application, now before regulators, Kinder For Petroleum News bpd, and April production from Oooguruk Cook Inlet production averaged Morgan has plans to build on its current (Kuparuk, Nuiqsut and Torok formations) 10,839 bpd in May, up 31.2 percent from modest shipments of crude out of o for the United States. Forget Asia. at 243,463, some 8,116 bpd. an average of 8,261 bpd in April. Vancouver to the U.S. and Asia. GThat was the core of messages deliv- By comparison, AOGCC figures for ANS crude oil production peaked in ered from two high-level sources in Call for tanker ban Kuparuk production for April total 1988 at 2.1 million bpd; Cook Inlet crude Canada as they questioned the need for 3,686,777 barrels, some 122,893 bpd. oil production peaked in 1970 at more Enbridge’s Northern Gateway project to Joining the Northern Gateway doubters The average temperature for May at than 227,000 bpd. export oil sands crude from Alberta to is Bruce Akins, a senior oil and gas policy Pump Station 1 on the North Slope was Asia. advisor with the Canadian government. 27 degrees Fahrenheit, compared to 2.2 Contact Kristen Nelson Murray Edwards, vice chairman of Even without the 525,000 bpd pipeline, degrees F in April. at [email protected] Canadian Natural Resources and one of the Canada will have enough crude export Canadian oil and gas industry’s most capacity for “some considerable time,” he respected voices, said many challenges observed in 300 pages of internal docu- stand in the way of opening export markets ments. beyond North America. Akins also noted in his report, obtained He said plans to convert Western by Toronto-based research organization Canadian gas into LNG for delivery to Environmental Defense, that letters from Asia are five to 10 years away from being citizens are urging Prime Minister Stephen implemented and they will come before Harper to support a permanent ban on crude exports. tanker traffic off the British Columbia Edwards suggested a better bet is con- coast, effectively scuttling Northern tinued expansion of the existing pipeline Gateway. network from Alberta’s oil sands to the Gillian McEachern, climate and energy United States, despite opposition from program manager at Environmental environmentalists and some federal and Defense, said the government acknowl- state lawmakers in the U.S. edgement that extra pipeline capacity is not He said the Obama administration’s needed raises concerns about why Canada desire to achieve greater energy security is moving forward with regulatory hear- for the U.S. will ultimately clinch approval ings. for TransCanada’s Keystone XL 500,000 However, Enbridge is adamant that barrels per day extension from Cushing, anticipated growth in oil sands production Okla., to Gulf Coast refineries, adding to and a demand for the crude in markets such the existing 595,000 bpd Keystone pipeline as China establish the need for an export to Cushing and Enbridge’s Alberta Clipper link to Asia. system, with initial capacity of 450,000 bpd and design capacity of 800,000 bpd. Tougher standards demanded In a related oil sands concern, Pierre Ultimate capacity 2.3 million bpd Duhaime, chief executive officer of SNC- At their ultimate combined peak of Lavalin, Canada’s largest engineering and more than 2.3 million bpd, these pipelines construction firm, said in a Calgary speech would be sufficient to handle all but that the Canadian government must impose 400,000 bpd of the expected spike in total tougher environmental standards on the oil bitumen production by 2016, of which only sands if the resource is to gain greater pub- about half is destined for U.S. markets. lic acceptance. Edwards said the U.S. market has con- He said the public must see that the gov- cluded that Canadian oil “offers security of ernment is ready to introduce rules cover- supply they cannot get from any other ing water recycling, carbon emissions, land countries” and high environmental stan- use and the cleanup of toxic wastes from dards. mining operations. As a result, the priority for Canada is to Duhaime also voiced concern about the work with U.S. federal and state govern- prospects of a fresh round of cost inflation ments to obtain approval for Keystone XL as oil sands development gathers pace in and complete that link within four to five the face of a shortage of skilled labor and years. engineers. Canadian Natural Resources has already committed 120,000 bpd to Contact Gary Park through Keystone XL, making it the largest single [email protected] shipper. 8 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

GOVERNMENT ACMP gridlock continues in Legislature Second special session fails to materialize as House, Senate leadership can’t reach agreement on Alaska Coastal Management Program

By KRISTEN NELSON tion, House mem- “We are con- The Senate Bipartisan Working Petroleum News bers, coastal districts cerned about this and affected indus- program. There are Group said in a May 29 statement opes of a quick special session start- tries reached agree- very high stakes if that it was ready to go into special Hing May 31 to pass an Alaska ment on changes to this program disap- session on ACMP, but only if the Coastal Management Program bill faded the program, reinsti- pears,” Senate House agreed to accept the as House and Senate leadership said May tuting a coastal poli- President Gary conference committee version of cy council with local Stevens, R-Kodiak, 29 that they had, once again, failed to reach the bill. agreement on extending the program. representation and said in a statement. The 1972 federal Coastal Zone making a number of MIKE CHENAULT GARY STEVENS “The Senate believes Management Act created an option for other changes. The this compromise mining the relative strengths of the scien- states to participate, and Alaska’s program bill passed the House 40-0 at the end of the fully meets the needs of the parties on both tific evidence and the evidence supporting was established in 1979, giving coastal first regular session. sides of the debate.” the local knowledge, and render a written areas a voice in state permitting of devel- The House bill was included in the gov- The Senate majority said the confer- decision.” opment and giving the state a voice in fed- ernor’s call for the first special session. ence committee compromise “includes The conference committee recommen- eral coastal zone decisions. The Senate amended the bill, but the seven major items that were important for dation was unanimous, but Johnson led the Industries trying to work in coastal House, by a vote of 17 yea, 20 nay, failed the program to succeed including a clarifi- fight against the conference committee areas became frustrated by the program to concur with the Senate changes. A con- cation of the definition of local knowledge report on the House floor. The House and in 2003, under Gov. Frank Murkowski, ference committee was appointed. versus scientific evidence, removal for voted 20 to 15 in favor of the conference a number of changes were made in the pro- The conference committee approved cause from the Coastal Management committee report, a vote shy of the 21 gram, including elimination of a coastal one major change, inserting definitions Board, a six-year sunset clause and a votes required for concurrence. The Senate policy council. The division in charge of eliminated in the Senate version. requirement for a second report on the sta- voted 14 to 4 in favor, easily meeting its the program had been in the governor’s The House took two votes, but failed by tus of the program to be made in four 11-vote requirement for concurrence. office but was moved to the Department of one vote to concur with the conference years.” Natural Resources and the 2003 legislation committee version, which the Senate later Bill failed twice centralized authority for the program with approved. House Minority Leader Beth In a May 29 statement House Majority the DNR commissioner. Kerttula, D-Juneau, said in a May leader Mike Chenault, R-Nikiski, said the Coastal communities have argued ever Conference committee version Alaska Senate failed to agree to a compro- 29 statement that the state’s since that they have been stripped of a The Senate Bipartisan Working Group mise with five original Senate “must- meaningful voice in ACMP decisions. said in a May 29 statement that it was elected officials are not working haves.” Because of action the Legislature took ready to go into special session on ACMP, together “to resolve issues for “Why would we go back into special in 2005, ACMP terminates at the end of but only if the House agreed to accept the Alaska’s benefit.” session to vote on something that was June unless extended. Gov. Sean Parnell conference committee version of the bill. twice failed by the House on the last day of proposed extending the existing program. Senate leadership cited unanimous support the special session?” Chenault asked. “We An audit by the Division of Legislative for the compromise by the conference The conference committee offered a compromise with five changes Audit found problems with the program, committee, calling it the “best compromise The three Senate members of the con- the Senate originally wanted and we were but recommended extension. to keep the program alive and protect ference committee were Sens. Donny prepared to go with those, but the confer- After much negotiation the administra- Alaska’s best interests.” Olson, D-Golovin, Bill Wielechowski, D- ence committee report was not acceptable Anchorage, and Albert Kookesh, D- to House members.” Angoon, all members of the Senate Chenault said there was no sense in PRA is seeking qualified candidates for Drill Site Manager day and night positions to support Bipartisan Working Group. House members going back to Juneau to the Cook Inlet Natural Gas Storage Alaska gas well drilling project in Kenai, Alaska, take up a bill the House already voted commencing in July 2011. This is a five well program, with drilling to commence in early House members were Reps. Craig down. August, and complete by end December, 2011. Successful applicants will be PRA employees on Johnson, R-Anchorage, Bob Herron, D- contract to CINGSA, and will be compensated very competitively. Additional work as a PRA Bethel, and Beth Kerttula, D-Juneau. The House Majority statement said leg- contract DSM is very likely to be available upon completion of this project. Johnson, who chairs the House Rules islators and staff had been working on an Committee, chaired the conference com- ACMP compromise, using Senate Bill 56 Summary of Position mittee. Herron, along with other Bush as the vehicle because House Bill 106 died The Drill Site Manager (DSM) reports directly to the Drilling Superintendant. The DSM is Democrats, is a member of the House in special session. responsible at the well site for managing all drilling and completion activities as well as Majority Republican caucus. House Minority Leader Beth Kerttula, coordination of any SIMOPS with Facility Construction. There will be a day and a night DSM, Of a number of items proposed for dis- D-Juneau, said in a May 29 statement that working nominally 12-hour shifts. Each DSM will work 2 weeks on, then will have 2 weeks off. cussion, the conference committee agreed the state’s elected officials are not working The DSM coordinates the activities of all service companies in the execution of the Drilling on one change, reinserting definitions of together “to resolve issues for Alaska’s Program. DSMs must be fully conversant with all State of Alaska drilling and completion local knowledge and scientific evidence benefit.” regulations (Alaska Oil and Gas Conservation Commission) as well as CINGSA HSE program. She called the coastal zone program The DSM has onsite authority and responsibility to take necessary actions in order to maintain similar to language in the House version, “essential if Alaska is to have any say in well control. They must have a clear understanding of well control procedures and be able to but removing a portion of the definitions direct well control efforts. which said scientific evidence would planning federal projects off Alaska’s trump local knowledge and inserting else- coast.” The DSM must be current in Well Control Training and will participate in Emergency where in the bill a requirement that DNR Management training. Risk assessments at the work site are completed for all non-routine “address conflicts between local knowl- Contact Kristen Nelson operations. DSM prepares Daily Drilling reports and tracks all well costs, and is responsible for edge and scientific knowledge by deter- at [email protected] effective and efficient management of all resources.

Must be an HSE Leader in all actions. Monitors site activities for safe operations. Establishes corrective actions as required to maintain HSE excellence.

Excellent communications is a key attribute of the Drill Site Manager. The DSM must clearly communicate to the onsite drilling team the current and future program requirements. They must be able to communicate problems, successes and failures to the management team and openly discuss corrective actions.

ACCOUNTABILITIES: Maintain that all work is controlled, risks and hazards identified and properly mitigated; - Step-in and take action where gaps are observed; Execute the drilling program and discuss/obtain concurrence from the management team on any modifications.

REQUIRED QUALIFICATIONS: Previous DSM or relevant senior service company management experience. Minimum of 10 years oil and gas drilling experience.

PREFERRED QUALIFICATIONS: Directional drilling knowledge or experience with drilling of depleted reservoirs. Cook Inlet area drilling experience desired.

PLEASE SEND RESUME AND COVER LETTER TO [email protected], OR CALL (907)272-1232 FOR FURTHER INFORMATION REGARDING THIS OPPORTUNITY. PETROLEUM NEWS • WEEK OF JUNE 5, 2011 9 10 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

LAND & LEASING ASRC speeds up unit work commitments New drilling could come a year earlier under latest plan of exploration for proposed Placer unit west of Alaska’s Kuparuk field

By WESLEY LOY for the proper development of unitized For Petroleum News resources.” ASRC Exploration Manager Teresa Imm rctic Slope Regional Corp. is offering initially defended the original unit size. Ato accelerate work commitments as it “We feel that the size of the proposed unit seeks to win state approval for a new oil and area is very reasonable based on the well gas unit on Alaska’s North Slope west of the control in the area and the regional geology,” Kuparuk field. Imm said in a March 4 letter to the state. In a May 23 letter to the state Division of “The location of the Placer #1 well and the Oil and Gas, ASRC said it would move up results from that well indicate that it is very exploratory work within its proposed Placer likely that there are hydrocarbons present on unit by a year. all four leases proposed for unitization.” ASRC also provided a revised map The Placer No. 1 well was completed to showing the unit would be sized down con- a measured depth of 7,761 feet and its cur- siderably. rent status is listed as suspended, Alaska Oil Based in Barrow, ASRC is one of the and Gas Conservation Commission records regional Native corporations formed under show. the Alaska Native Claims Settlement Act of A document in the AOGCC file for 1971. The company has extensive land hold- Placer No. 1 says “sampling in the well ings across the top of the state, and repre- recovered 26 API crude,” with indications of sents about 11,000 Inupiat shareholders. “high formation permeabilities and deliver- Its subsidiary, ASRC Exploration LLC, abilities. Thus, the well appears fully capable is the applicant for the Placer unit. of producing in paying quantities.” After ASRC submitted its original unit 2014. The Placer No. 1 is an exploratory development. ConocoPhillips, however, did not pursue application in January, the Division of Oil well ConocoPhillips drilled in early 2004. A map of the original unit showed it a development and relinquished the land. In and Gas requested additional information On May 23, ASRC revised its unit appli- would encompass not only the Placer No. 1 a March 2006 state lease sale, ASRC bid and company representatives and state offi- cation and submitted an accelerated plan of well, but another exploratory well to the almost $131,000 for the acreage around the cials met on May 3. exploration. The new plan essentially moves north that ConocoPhillips drilled in 2004, Placer wells. As part of its original application, ASRC up key deadlines by a year, with ASRC the Placer No. 2 well. Through its major subsidiary ASRC submitted an initial plan of exploration for pledging to either drill a new exploratory A revised map ASRC submitted shows a Energy Services, ASRC long has been heav- the Placer unit. ASRC committed under the well or re-enter and test the Placer No. 1 well much smaller unit centered around the ily involved with Alaska’s oil and gas indus- plan to license an existing seismic data set by June 30, 2013. Placer No. 1 well and taking in only portions try, providing construction, engineering and and reprocess and reinterpret the data by The original unit ASRC proposed took in of the four leases. The Placer No. 2 well is other oil field services. In recent years, the Dec. 31, 2012. four state leases totaling 8,769 acres. The no longer within the unit boundary. company has shown aspirations in the The company further pledged to either lease numbers are ADL 391023, 391024, The tighter unit boundary apparently is in exploration and production arena. drill and log an exploratory well, or re-enter 391027 and 391028. The leases are on the response to feedback from the Division of and test the Placer No. 1 well, by June 30, western edge of the ConocoPhillips-operat- Oil and Gas that “a unit area should encom- Contact Wesley Loy ed Kuparuk unit, southwest of the Palm pass only those lands considered necessary at [email protected] PETROLEUM NEWS • WEEK OF JUNE 5, 2011 11

NATURAL GAS Alaska Pipeline Project FERC filings Preliminary draft reports describe work plan for pipelines, gas treatment plant, workforce requirements for construction, operation

By KRISTEN NELSON teams and phased out over 5-10 years dur- tored and controlled from a control cen- APP said a regional operations Petroleum News ing Operations,” APP said. ter at the GTP, with gas detection and and maintenance office in The gas treatment plant would initially alarm systems installed throughout the hile there have been no announce- Fairbanks would maintain the be staffed “with a core team of experi- facility and emergency depressuring Wments of agreements to ship natu- pipeline and aboveground enced employees from the project spon- and/or shutdown systems installed ral gas on a proposed North Slope to mar- facilities. soring companies, coupled with trained throughout the facility and emergency ket pipeline, recent filings by the Alaska new hires and experienced local hires.” depressuring and/or shutdown systems Pipeline Project provide some details on Local hires would progressively displace designed to be initiated automatically or 100 days each to construct and each what the work to build the project would non-local employees as the local hires remotely. require about 100 workers. entail and how the pipeline would be achieve “the required competency levels There will also be “equipment health The pipeline work includes mainline managed once it became operational. and gain sufficient experience.” monitoring systems” installed which will block valves, pig launcher and receiver The Alaska Pipeline Project, the GTP on-site operations will include collect and trend data, monitor critical facilities and associated “ancillary and TransCanada-ExxonMobil partnership, approximately 200 employees, with rotating equipment and manage data for auxiliary infrastructure” including tem- filed some preliminary draft reports with another 200 on off rotation and about 100 access both locally and remotely. porary workspace, access roads, helipads, the Federal Energy Regulatory Authority employees comprising on-site support. construction camps, pipe storage areas, at the end of April, while analysis of data Bore crossing methods contractor yards, borrow sites and dock collected in the 2010 field season contin- Remote operation Where the pipeline crosses streams it modifications. APP said it will also use ues. APP said the pipeline system, includ- may be buried — various methods are existing airstrips. Denali, the BP-ConocoPhillips part- ing meter stations and compression sta- discussed in the report — or an aerial- The gas treatment plant, including nership, recently put its plans on hold, cit- tions, will be remotely monitored and span crossing method may be used. APP infrastructure and dock modifications, is ing lack of commercial agreements with operated from existing facilities at said proposed aerial crossing locations estimated to require as many as 850 shippers. APP, licensed under the Alaska TransCanada’s gas control center in will be identified in a subsequent report. workers and three sealifts. Gasline Inducement Act, is committed by Calgary, Alberta. The Point Thomson line, some 60 Once the pipeline is in operation, APP its agreement with the State of Alaska to “Appropriate redundancies and back- miles of 32-inch line, will be buried. estimates that operation and maintenance advance its project through receipt of a up facilities will be provided to ensure The majority of the 745 miles of 48- of the pipelines, meter stations, and com- FERC certificate of convenience and operational reliability.” inch mainline from the North Slope to pressor stations will take some 35-50 full necessity, even in the absence of shipping The central control center will moni- the Canadian border will also be buried, time people in Alaska, including trades agreements. tor meter stations and monitor and con- but the line will come above ground at technicians, technical specialists, safety Alaska legislators have begun to ques- trol compressor stations via a superviso- major potentially active faults “with an personnel, support staff and management, tion the viability of the project, and dis- ry control and data acquisition system above-ground configuration similar to with additional engineering, maintenance cussion of its economics is likely when and telecommunications. the existing TAPS design at the Denali and management support by the project the Legislature reconvenes in January. “Compressors could also be shut Fault,” APP said. “A sliding support sponsor companies. down locally if needed,” APP said. design concept will be used for fault Commercial discussions continuing Recruitment for operations jobs APP said a regional operations and crossings with sufficient sliding capacity In a monthly update to FERC on April maintenance office in Fairbanks would to accommodate fault rupture.” “Current information indicates the activities, APP said the project is continu- maintain the pipeline and aboveground number of qualified local people may not ing commercial discussions with poten- facilities. Contact Kristen Nelson be sufficient to fill operating and mainte- at [email protected] tial shippers. Planning is under way for The gas treatment plant will be moni- nance manpower requirements and the 2011 summer field program and gen- recruitment programs will be required in eral environmental regulatory work plan- advance of project start-up.” ning in support of regulatory filings is APP said it would recruit local people ongoing, APP said. in 2015 to start training in preparation for Resource report 10, one of two filed operations in 2020, with field trainees to with FERC, describes APP’s route and be trained at existing project sponsor facility evaluation and process, and tech- companies’ sites for the first two years. nical rationale and justification for selec- Then the trainees would support commis- tion of the proposed project. sioning and startup of APP as required. Resource report 1 describes work “The balance of experienced techni- which would need to be done to build the cians required will be seconded from project and provides some details on how project sponsoring companies’ operations it would operate once it is complete. APP said that “location information, facility descriptions, resource impact data, construction methods, and mitiga- tion measures presented in this report are preliminary and subject to change” and said it is conducting engineering studies, environmental resource surveys, agency consultations and stakeholder outreach efforts to further refine and define the project. Several areas of the route are being more thoroughly analyzed: Alaska’s North Slope including the Prudhoe Bay unit area; Atigun Pass through the Brooks Range; the Yukon River crossing; the city of Fairbanks; the Delta Junction area; multiple locations between Delta Junction and the Alaska-Yukon border, including fault crossings; and the Upper Tanana region near Tetlin. Workforce numbers The anticipated construction work- force would peak at 5,000 to 7,000 work- ers on the Alaska portion of the pipeline, with individual spreads employing up to 1,600 people, APP said. For each of eight Expro Americas, LLC compression stations in Alaska, construc- tion is estimated to take about 350 days email: [email protected] and require some 150 workers to con- +1 (907) 344-5040 struct, inspect and pre-commission. The www.exprogroup.com two meter stations are estimated to take 12 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

EXPLORATION & PRODUCTION Oooguruk-Torok pool rules approved

By KRISTEN NELSON Petroleum News On the Web See previous Petroleum News coverage: he Alaska Oil and Gas Conservation TCommission has approved pool rules “Oooguruk expansion application com- for the Oooguruk-Torok oil pool in the plete,” in May 15, 2011, issue at Oooguruk field on Alaska’s North Slope. www.petroleumnews.com/pnads/3326398 The commission said in a May 26 order 26.shtml that as currently mapped the Torok lies off- “Pioneer adding Torok pool at shore in the Beaufort Sea and onshore in the Oooguruk,” in May 1, 2011, issue at Colville River Delta, both inside and out- www.petroleumnews.com/pnads/3782842 side the existing Oooguruk unit. 60.shtml Operator Pioneer Natural Resources “Pioneer applies to add leases to Alaska has applied to the Alaska Oooguruk for onshore Nuna project,” in Department of Natural Resources for April 24, 2011, issue at expansion of the Oooguruk unit. www.petroleumnews.com/pnads/4963481 The Torok oil pool at Oooguruk will ini- 85.shtml tially be developed from the offshore “Pioneer applies for Torok pool rules,” in Oooguruk drill site; additional development March 6, 2011, issue at may occur from a new drill site on the east- www.petroleumnews.com/pnads/6081869 ern side of the Colville River Delta. 49.shtml Oooguruk operator Pioneer Natural Resources Alaska has a 70 percent working “Two more Oooguruk drill sites in the works,” in Dec. 19, 2010, issue at interest in the planned development area; www.petroleumnews.com/pnads/5121312 Eni Petroleum US LLC holds the remaining Regular production in 2010 and reservoir distribution for the Oooguruk- 03.shtml 30 percent. Torok. In March 2010 Pioneer fracture stimulat- The Torok sandstone was first penetrat- The commission said a three-well pilot ed the 3,800-foot horizontal Torok interval ed in 1965 by the Sinclair Oil and Gas program, ODST-45A and two other hori- planned initial development area where the in the ODST-45A well, drilled from the off- Colville No. 1 exploration well, south of the zontal wells, will further define the reser- Oooguruk-Torok reservoir is completely shore Oooguruk drill site, and began regular southern border of the proposed develop- voir. filled with oil. In the prospective area, the production. As of March 1, the ODST-45A ment area. Texaco Inc. drilled and tested the Torok gravity measures 24 degrees API, planned future expansion area where the had produced 167,681 barrels of oil over Colville Delta No. 2 and 3 exploratory wells reservoir temperature is about 135 degrees Oooguruk-Torok reservoir appears to be 328 days, the commission said, an average in 1985 and 1986, but flow rates from the Fahrenheit and initial reservoir pressure is only partially filled with oil, the original oil of 511 bpd. Torok were less than 3 barrels per hour. 2,250 psi at minus 5,000 feet subsea. The in place is estimated at 690 million barrels. Eighteen wells have penetrated the Fracture stimulation of the lower portion of commission said free gas has not been Primary recovery would be 5 percent of Oooguruk-Torok reservoir to date and the the Torok in Colville Delta No. 3 resulted in encountered in the Torok interval. the OOIP; primary plus waterflood recov- commission said that information from an average flow of 240 bpd during two tests Original oil in place is estimated to be ery is expected to recover 20 percent of those wells, nearby exploration wells and totaling 84 hours. 340 million barrels in the Oooguruk off- OOIP, 68 million barrels in the ODS and two overlapping 3-D seismic surveys was shore drill site area and the core area — the core area, and 138 million barrels in the used to determine the geologic structure prospective area. The commission said the production rate for the Oooguruk-Torok oil pool over an GEOSPATIAL CAPABILITIES expected 20-30 year project life is expected ‡ Satellite + Aerial Imaging to average 4,000 to 9,000 bpd, with peak ‡ Elevation Modeling production of about 8,000 to 15,000 bpd and 2 million to 8 million cubic feet of gas ‡ Panoramic Mapping per day early in the project life. ‡ Thematic Mapping ‡ Ground Stability Mapping Development in phases ‡ Oil Seep Detection The commission said Pioneer plans to ‡ Terrestrial Surveys develop the Oooguruk-Torok in phases with ‡ GIS Solutions about 25 horizontal production and injec- tion wells. The horizontal sections of the ...COUNT ON FUGRO www.fugro.com wells will be some 5,000 to 8,000 feet in length within the reservoir and be spaced about 1,500 feet apart. The reservoir will be developed as a water- and water-alternating-gas-injection enhanced oil recovery project. Production wells will be equipped with LEADER in All We Do electric submersible pumps. Production will be allocated by use of a multiphase flow meter instead of a separa- tor, with the Oooguruk allocation system calculating a theoretical volume for all well streams each day and the theoretical volume for each well summed to calculate total the- oretical volume for all Oooguruk wells. The commission said the proposed pro- DOYONOYON, LIMITEDIMITED, thethhe regional regional CORPORATEORPORRAAATTE VALUESALUES duction and fiscal allocation system is con- NNativeativec corporationorporationf forfoorI Interiornterior AAlaskalaska slNANCIALLYRESPONSIBLEs lNANCIALLLYRESPONSIBLE sistent with the methodology employed for the Oooguruk-Kuparuk and Oooguruk- ss"ASEDINTHE)NTERIOR!LASKA GROWING"ASEDINTHE)NTERIOR!LASSKA GROWING sPRIDEANDRESPECTIN.ATIVEsPRIDEANND RESPECTIN.ATIVE Nuiqsut oil pools. aacrosscross thethe nationnation OOWNERSHIPWNERSHIP Because the Oooguruk-Torok is com- ss SHAREHOLDERS SHAREHOLDERS sSOCIALLYANDCULTURALLYRESPONSIBLEsSOCIALLYANDCULTURALLYRESPONSIBLE partmentalized, the commission is authoriz- ing unrestricted well spacing to optimize sCOMMITMENTTOTHELONG TERMsCOMMITMMENTTOTHELONG TERM s,ARGs,ARGESTPRIVATELANDOWNERIN!LASKAESTPRIVATELANDOWNERIN !LASKA waterflood efficiency and resource recov- sHONESTYANDINTEGRITYsHONESTYANDINTEGRITY ery, subject to a 500-foot set-back require- ss/PERATESADIVERSE&AMILYOF/PERATESADIVERSE &AMILYOF sCOMMITMENTTOEXCELLENCEsCOMMITMMENTTOEXCELLENCE ment from external property lines where ##OMPANIESANDHASBUILTASTRONGOMPANIESANDHASBUILT ASTRONG owners and landowners are not the same on RREPUTATIONINOILlELDSERVICES EPUTATIONINOIL lELD SERVICES sRESPECTFOREMPLOYEESsRESPECTFFFOOREMPLOYYEEES both sides of the line, thus protecting cor- GGOVERNMENTSERVICES NATURALRESOURCEOVVEERNMENT SERVICES NATUURAL RESOURCE relative rights of owners and landowners of DDEVELOPMENTANDTOURISMEVVEELOPMENT AND TOURISMM offset acreage.

WWWW W W . DOYOND O Y O N . COMC O M ‡ (907)(907 ) 459459-20009 - 2000 Contact Kristen Nelson at [email protected] PETROLEUM NEWS • WEEK OF JUNE 5, 2011 13

GOVERNMENT NATURAL GAS Corps beginning EIS Kenai Loop well tests at 10 mmcfpd Buccaneer Energy Ltd. said initial test results from its first well in Alaska “exceed expectations,” flowing at a rate of 10 million cubic feet per day. for road to Umiat The Australian independent tested two zones totaling 87 feet of gross pay in the Upper Tyonek formation at the onshore Kenai Loop No. 1 well, north of the city The three-year process begins with scoping sessions this year; of Kenai, and is now predicting deliverability between 6 million and 8 million cubic feet per day over the first two years of production, enough to “facilitate a the road would increase access to western oil and gas fields favorable gas sales contract.” Buccaneer is now planning a Kenai Loop No. 2 well at its 8,900 acres lease By ERIC LIDJI The EIS process will also reveal whether block in the area, a mix of state, Cook Inlet Region Inc. and Alaska Mental Health For Petroleum News the North Slope communities near the pro- Land Trust leases. posed road are in favor of the project or not. The company said it might now also acquire additional seismic and drill addi- he State of Alaska is permitting a road In public meetings to date, residents have tional wells. Tto Umiat. expressed concern about the potential The Alaska District of the U.S. Army impact of the road on caribou migration pat- 14 potential zones untested Corps of Engineers announced May 20 that terns. Buccaneer could conduct additional testing in the future. it is preparing a draft Environmental Impact The fiscal year 2012 capital budget cur- The company said that well logs identified 16 zones totaling 510 feet of gross Statement of an all-season gravel road con- rently awaiting approval from Gov. Sean pay in the Beluga and Upper Tyonek as potential candidates, but the company necting the Dalton Highway to the foothills Parnell includes an $8 million allocation for chose to perforate and test only two of the three “high grade” zones because of of the Brooks Range Mountains, a project the Foothills West project through the Roads limitations on rig time. outlined last year by the Alaska Department to Resources program. Parnell included the Buccaneer described the first zone as an upper sand of 37 feet of gross pay of Transportation & Public Facilities. line in his proposed budget for the year. “confirmed as being quality reservoir with high porosity and good permeability.” The Army Corps will take comments on Although known as an oil and gas prone The zone includes 12 feet of lower sand that is of “lesser quality” and wasn’t test- the proposed scope of the EIS through July region for nearly a century, the western ed, but “remains attractive.” 5, hold five scoping meetings — in foothills of the Brooks Range have essen- The company encountered a gas kick in the upper sand of the zone during Fairbanks, Anchorage, Nuiqsut, Barrow and tially been stranded because of their isola- drilling. Anaktuvuk Pass — between June 8 and June tion. Buccaneer described the second zone as a “massive sandstone zone of approx- 16, and release a final scoping document President Warren G. Harding created the imately 50 feet of gross pay which logs indicate has good porosity and perme- this fall. Naval Petroleum Reserve No. 4 in 1923, the ability.” The Army Corps plans to publish the precursor to NPR-A. The U.S. Geologic The company now plans to drill a follow-up well in the third quarter, depend- draft EIS early next summer and publish a Survey studied the region soon after, but ing on rig availability, and is planning a development program beyond an initial final EIS in the summer of 2013 following a ultimately decided that exploration would be three well program. standard public comment and meeting “wildcatting of the most speculative kind.” Buccaneer drilled the well using the Glacier Drilling Rig No. 1. process. The USGS and the U.S. Navy drilled Buccaneer arrived in Alaska in March 2010 after acquiring the assets of Stellar The Foothills West road aims to promote numerous wells across the region during Oil & Gas, and quickly identified five prospects it hoped to explore within a mat- exploration and production by increasing World War II, discovering oil and gas fields ter of years. access to several known oil and natural gas that attract exploration companies to this Those include two offshore units — Southern Cross and North West Cook Inlet fields on state land in the northwestern day. — that the company hopes to drill no later than next summer using a jack-up rig foothills of the Brooks Range, and federal The Foothills West road would immedi- acquired through a partnership with the Alaska Industrial Development and lands in the National Petroleum Reserve- ately improve the economics of two projects. Export Authority. Anadarko Petroleum began exploring for Alaska. —ERIC LIDJI DOT&PF envisions the project unfolding natural gas in the Gubik Complex in 2008, in two phases, an 85-mile section from the eventually drilling four wells. While all four Dalton Highway to the Gubik gas fields and wells encountered natural gas to some a 15-mile section heading north to Umiat. degree, Anadarko did not return to the area in either of the last two drilling seasons and Industrial project over the past year the company relinquished The road is progressing as an industrial a significant amount of acreage in the area. project. Early plans call for it to be closed to Meanwhile, Renaissance Alaska believes the public during exploration season and that a road is crucial to its plans to explore on possibly year-round, but DOT&PF noted its four leases around Umiat, a field estimat- that it “may eventually be open to the gener- ed to hold 250 million barrels of oil. al public.” Because many of the communi- The Houston independent holds four fed- ties along the proposed corridor are proudly eral drilling permits for that acreage, but rural, that issue could become a major point because of delays those might have to be of debate. renewed by the time Renaissance is ready to DOT&PF spent the summer of 2009 explore. studying potential corridors for the road and Still, Renaissance believes it can piggy- eventually chose a $357 million route start- back on planning efforts in the region. ing at Galbraith Lake at milepost 278 on the The U.S. Bureau of Land Management Dalton Highway. The EIS process, though, is currently preparing a new integrated must consider all reasonable alternate activity plan for NPR-A. During a scoping routes. session last fall Renaissance executive Because the final route could end up Mark Landt asked the federal agency to crossing six major rivers — the Anaktuvuk, include an Umiat development scenario, Chandler, Colville, Itkillik, Kuparuk and along with accompanying road and infra- Toolik — the EIS will also consider bridges, structure projects, in its plan as a way to but while the hypothetical bridges would be avoid duplication. designed to hold industrial loads like pipelines, DOT&PF is not proposing and the Contact Eric Lidji EIS is not considering pipelines at this time. at [email protected]

PIPELINES & DOWNSTREAM July shutdown for Alaska pipeline work The trans-Alaska pipeline is scheduled to be shut down only once this summer for major maintenance work. In past years, it has been shut down twice. A spokeswoman for the line’s operator, Alyeska Pipeline Service Co., said plans call for work to be done at pump stations four and 11 during the scheduled 36-hour shutdown July 16 and 17. Major maintenance work is routinely done on the line during the summer. The 800-mile line is Alaska’s economic artery. It carries at least 10 percent of the nation’s crude oil production, on average. —THE ASSOCIATED PRESS 14 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

FINANCE & ECONOMY Heavyweight firms battle over Beluga Chevron suit says ConocoPhillips failed to pay full settlement to balance production shares in Alaska gas field; conversion alleged

By WESLEY LOY Although Chevron and Union say their $3 million based on a price of $7.4765 per the rates and at the delivery location which For Petroleum News dispute is with ConocoPhillips alone, thousand cubic feet. Union designated.” Superior Court Judge Eric Aarseth sided Union responded that ConocoPhillips The suit alleges “conversion,” saying hevron and ConocoPhillips are tan- with ConocoPhillips in ruling March 22 “had miscalculated the volume of gas for ConocoPhillips took more Beluga gas than Cgling in an Alaska court over man- that ML&P needed to be a part of the case. which monetary settlement was due to it was entitled to, while Union received agement of their co-owned Beluga River Union,” the suit says. Union contended the less. natural gas field. Gas balancing agreement correct volume was nearly 3.3 billion cubic “CPAI took Union’s property with the The case first began in June 2010 when The suit appears to involve a disputed feet, which at the price ConocoPhillips specific intent to permanently deprive Chevron U.S.A. Inc. and its affiliate, sum of at least $32 million. specified would equate to a settlement of Union of the property and to profit from Union Oil Co. of California, sued It’s a breach of contract case that centers nearly $24.5 million. the sale of Union’s property,” the suit says. ConocoPhillips Alaska Inc. in state on what’s known as a “gas balancing agree- ConocoPhillips stood by its numbers “As a direct and proximate result of CPAI’s Superior Court in Anchorage. ment” between Beluga’s working interest and on April 21, 2010, wired the nearly $3 unauthorized act of converting to itself, and On May 17, Chevron and Union filed owners. million settlement to Union’s account. thereafter selling and profiting from the an amended complaint that names an addi- The agreement establishes the amount “Union immediately returned the same sale of Union’s property, Union has been tional defendant, Municipal Light & of gas each owner may take from the field amount by wire transfer, rejecting the par- damaged in an amount to be proven at Power, an Anchorage electric utility. each year. tial payment,” the lawsuit says. trial.” ConocoPhillips, Union and ML&P An owner that elects to take less than its For 2010, ConocoPhillips offered to pay Petroleum News asked both each hold a one-third working interest in participating interest in unit production is Union a settlement of about $859,000 on a ConocoPhillips and Chevron to comment the Beluga River unit, with said to have “underlifted” its share. If volume of just over 141 million cubic feet on the lawsuit. ConocoPhillips acting as operator. The another owner having a use or market for at a price of $6.0740 per thousand cubic “ConocoPhillips does not comment on field is on the west side of Cook Inlet, and the gas takes more than its participating feet. Union told ConocoPhillips it had pending litigation,” ConocoPhillips spokes- long has been an important source of gas interest, that’s an “overlift.” again miscalculated, saying the correct vol- woman Natalie Lowman said by e-mail. for the Anchorage area. Under the gas balancing agreement, an ume was more than 1.9 billion cubic feet, An e-mail from Roxanne Sinz, spokes- underproducer each year can elect to either meaning the settlement offer should have woman for Chevron, said in part: “The receive a cash settlement or take additional been about $11.8 million. companies have a disagreement over the production in future years to resolve the gas “On April 29, 2011, CPAI made a wire interpretation of a contractual provision in imbalance. transfer of $859,209.82 to Union’s a gas balancing agreement that defines the This is the crux of the lawsuit: Union account,” the suit says. “Union immediate- effects of certain gas allocations among the contends in the lawsuit that it was an under- ly returned the same amount by wire trans- parties to the agreement. Union Oil has lifted party in 2009 and 2010, but that over- fer, rejecting the partial payment.” filed a lawsuit against ConocoPhillips to lifter ConocoPhillips failed to pay the full resolve the dispute, and looks forward to a settlement Union expected. Improper gas sales alleged prompt and fair resolution from the Alaska For 2009, ConocoPhillips put the vol- The lawsuit makes a second major Superior Court.” ume of gas for which it owed a settlement claim: That beginning in October 2010, at just under 399 million cubic feet, the suit ConocoPhillips, as Beluga operator, “failed Contact Wesley Loy says. ConocoPhillips offered to pay almost to deliver gas for the account of Union at at [email protected]

The Alaska Humane Society’s “Adopt-A-Cat” program is a no-kill, non-profit cat shelter currently caring for more than 200 cats and kittens that live cage-free at this facility. We are staffed entirely by volunteers and funded entirely by donations.

The facility is located at 1224 E. 76th Avenue, Anchorage at the back of the complex. For directions to the shelter call 907-344-8808.

Hours of Operation: Monday thru Friday, 7 p.m. - 9 p.m. Saturday & Sunday, 3 p.m. - 6 p.m.

To learn more about the “Adopt-A-Cat” program, please visit www.adopt-a-cat.org. PETROLEUM NEWS • WEEK OF JUNE 5, 2011 15

LAND & LEASING DNR issues Foothills BIF for 2011-20 By KRISTEN NELSON lease sales. ic effects. Petroleum News DNR said it has determined that the area has relatively DNR disagreed, noting that a chapter of the final finding high natural gas potential and relatively low oil potential. was devoted to “consideration and discussion of foreseeable final best interest finding is out for the Alaska North Discoveries in the sale area — with the exception of the cumulative impacts due to oil and gas activities, and current ASlope Foothills areawide oil and gas lease sales for Umiat oil field — consist primarily of dry gas trapped in research and information about those potential impacts.” 2011-20. The Alaska Department of Natural Resources anticlinal fold structures. On informational issues raised by the borough, DNR Division of Oil and Gas said May 26 that the director of the “Oil and gas volumes discovered to date are currently said information from the BP Deepwater Horizon oil spill division found that potential benefits of North Slope best described as ‘sub-commercial resources’ whose devel- has been added to the final finding, along with information Foothills areawide oil and gas lease sales outweigh possible opment potential is contingent upon constantly fluctuating from the Alaska Department of Environmental adverse impacts, and that the sales will best serve the inter- economic factors and connection to market,” DNR said. Conservation’s recent North Slope spill analysis. ests of the State of Alaska. The DNR commissioner con- The area lacks oil and gas development infrastructure. The borough was concerned about mitigation measures curred. which were required only when practicable and DNR said The finding allows sales to be conducted in the area for NSB concerns that concern had resulted in changes to mitigation meas- 10 years without repeating the entire finding process, unless The sale area is within the North Slope Borough and the ures, which now state that the director of the Division of Oil the DNR commissioner determines that substantial new borough had a number of comments on the finding. and Gas must approve any proposed alternative. information justifies a supplement to the best interest find- Among them, the borough said the scope of the divi- In response to a suggestion from the borough, mitigation ing. sion’s review was overly narrow. measures were changed to align the dates for exploration The Foothills sales area lies between the National DNR said in its response that the final finding “does not activities in the Chandler, Nanushuk, Itkillik, Kuparuk and Petroleum Reserve-Alaska and the Arctic National Wildlife speculate about possible future effects subject to future per- Anaktuvuk river valleys to allow for subsistence hunting, Refuge, south of the Umiat baseline and north of the Gates mitting that cannot reasonably be determined until the proj- with the same date restrictions for activities, Aug. 1 through of the Arctic National Park and Preserve. There are some ect or proposed use is more specifically defined.” Oct. 31, during the fall caribou migration. 7.6 million acres, but approximately 3.2 million acres are The borough also said the use of phasing avoided con- Native owned or Native selected and will not be included in sideration of future environmental, sociological or econom- Contact Kristen Nelson at [email protected]

PIPELINES & DOWNSTREAM Carriers seek 2011 interstate rate hikes Anadarko Petroleum, State of Alaska protest higher tariff filings by two owners, ConocoPhillips, Koch, on trans-Alaska oil pipeline

By ROSE RAGSDALE should be recovered in ongoing tariffs. Cost of service issues Anadarko and Alaska argued that The protestors also requested that the For Petroleum News In its order, the commission said the lat- the proposed rate increases have non-SR-related issues be held in abeyance est filings involve the same cost of service not been shown to be just and pending resolution of similar issues in the he Federal Energy Regulatory issues now under consideration in both non-SR phase of the commission’s consoli- TCommission issued an order May 26 reasonable, and they raised IS09-348-000 and IS09-348-004, et al. dated proceeding now pending in BP that accepted and suspended proposed numerous issues in their protests Further, the SR phase of the case, IS09-348- Pipelines (Alaska) Inc., IS09-348-000, et al. interstate tariff increases for 2011 on ship- 004, et al., is still in the discovery phase, and similar to concerns expressed about Reacting to Alaska and Anadarko’s ments of petroleum via the trans-Alaska oil consolidating the SR issues in the instant the pipeline carriers’ tariff increase protests, Conoco and Koch filed responses pipeline. filing in the 004 sub-docket “would cause requests filed in 2009 and 2010. in which they contended that the protestors Two of the pipeline’s five owners, no significant delay or other hardship on the made substantially the same arguments that ConocoPhillips Transportation Alaska Inc. parties,” the commissioners wrote. Docket No. IS09-348-004, et al. The com- they put forward with respect to the 2009 and Koch Alaska Pipeline Company LLC Addressing the non-SR issues, however, mission’s chief administrative judge earlier and 2010 tariff filings by the pipeline carri- filed FERC tariffs April 28 and May 11, has progressed much faster, and the com- severed the issues in the pending TAPS rate ers, and they asked the commission to respectively, increasing the rates almost 16 mission said its presiding judge issued his cases into SR and non-SR phases. accept their latest rate filings, subject to percent on their share of the pipeline’s initial decision March 10. Strategic reconfiguration, or SR, refers refund. The pipeline owners also did not capacity for oil and natural gas liquids “Thus, consolidating the non-SR issues to a costly multiyear renovation and mod- object to the protestors’ requests to consoli- transported outside Alaska. from this filing into the ongoing non-SR ernization program undertaken by the date the SR issues in existing proceedings ConocoPhillips, which holds a 28.29 phase of the consolidated 2009 TAPS rate pipeline’s operator Alyeska Pipeline Service and to hold the non-SR-related issues in percent interest in the pipeline, asked to case in Docket No. IS09-348-000, et al. Co. in the early 2000s. The pipeline’s own- abeyance pending the resolution of the rele- increase its tariff to $5.05 from $4.36 per would delay that proceeding with no ben- ers and shippers dispute how these costs vant issues. barrel, effective May 29, while Koch, a efit to the parties,” the commissioners should be allocated and to what extent they minority owner with a 3.08 percent interest, added. sought an effective date of June 5 for boost- ing its tariff to $5.05 from $4.37 per barrel. The 800-mile pipeline moves petroleum from Alaska’s North Slope oil fields to a Top-Notch Industrial tanker loading terminal near Valdez. Though its total capacity exceeds 2 million barrels per day, the conduit currently trans- Service & Innovation Are ports about 630,000 bpd of crude and NGLs. The Keys To TEAM’s Success Shippers protest TEAM has become the largest specialized industrial service Responding to protests from Anadarko company in North America through service leadership and Petroleum Corp. and the State of Alaska, innovation. The company’s more than 3,500 trained, and the commission also ruled that the tariff experienced technicians provide mechanical, inspection, and hikes are subject to refunds and consolidat- heat treating services and products for 7,000 customers worldwide. ed them with similar proposals filed by the TEAM also provides other services and products: pipeline’s owners for 2009 and 2010 rates • On stream leak repairs that now await judicial hearing. • Hot taps and line stops Anadarko and Alaska argued that the • Line freezing proposed rate increases have not been • Field machining shown to be just and reasonable, and they • Mobile machining raised numerous issues in their protests sim- • Technical bolting ilar to concerns expressed about the • Valve repairs pipeline carriers’ tariff increase requests • Heat-treating hardware and products filed in 2009 and 2010. • Emissions control services In addition to seeking a hearing of the • Pipe isolation and weld testing latest tariff filings, the shipper and Alaska • Pipe repair clamps and enclosures 53341 Sandy Lane Kenai, Alaska 99611 urged the commission to consolidate vari- • Pipeline services P: 907-335-1446 | F: 907-335-1448 ous “strategic reconfiguration” issues in the • Composite wraps case with the SR phase of the consolidated 2009 rate proceeding currently pending in The TEAM Alaska office specializes In NDT Services and Field Heat Treating 16 PETROLEUM NEWS • WEEK OF JUNE 5, 2011 Oil Patch Bits

Crowley recognized for environmental stewardship “We are honored to be recognized again for our past and ongoing environmental steward- ship efforts,” Hoggarth said. “For Crowley, the effort to protect and improve the environment Crowley Maritime Corp. said May 26 that it is not only a company-wide endeavor, but a way of life. We are proud to be a part of this was recently recognized for its environmental select group that strives to make the world a greener place.” stewardship by the Port of the Seattle and Seattle Propeller Club, which teamed up to present the company with its second-consecutive honorable AKRR responds to legal appeal against herbicide

mention award for Marine Environmental CROWLEY COURTESY The Alaska Railroad Corp. said May 27 it reiterates in response to a legal appeal against its Business of the Year. use of herbicides, that an integrated approach is essential to effective vegetation manage- The awards ceremony took place at the 60th ment, including the use of the herbicide glyphosate. This is an issue of safety. Both the Alaska Annual Maritime Festival Luncheon aboard Railroad and the Federal Railroad Administration require adequate vegetation control to: 1) Holland America’s cruise ship Zaandam in allow inspectors to see the track to ensure its integrity; and 2) to minimize the risk of trip-slip- Seattle. The event, attended by more than 500 fall accidents for railroad crews who must walk along the track. people from the regional maritime industry, From 1983 to 2009, the ARRC used manual labor and mechanical means alone. During marked the culmination of Seattle’s annual Maritime Festival. It was also an opportunity for that time, ARRC fell further and further behind in the battle to control weeds during Alaska’s the Port of Seattle and the Seattle Propeller Club to highlight the Pacific Northwest maritime long summer days that promote rapid growth and re-growth. industry’s environmental leadership, outstanding environmental initiatives and support in mak- In April 2009, a strong warning from the FRA had spurred ARRC to again apply for a per- ing Pacific Northwest ports The Green Gateway. mit. Earlier attempts to obtain an herbicide permit revealed a gap in the information about Scott Hoggarth, Crowley general manager, ship assist and escort services, accepted the award on behalf of the company from Port of Seattle CEO Tay Yoshitani. see OIL PATCH BITS page 17 Companies involved in Alaska and northern Canada’s oil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS Doyon Universal Services Nature Conservancy, The A Egli Air Haul NEI Fluid Technology Acuren USA Era Alaska Nordic Calista AECOM Environment ERA Helicopters North Slope Telecom Air Liquide Everts Air Cargo Northern Air Cargo ...... 6 Alaska Air Cargo Expro Americas LLC ...... 11 Northwest Technical Services Alaska Analytical Laboratory ExxonMobil Oil & Gas Supply Alaska Cover-All Fairweather LLC Oilfield Improvements ...... 14 Alaska Division of Oil and Gas ...... 5 Flowline Alaska ...... 20 Opti Staffing Group ...... 7 Alaska Dreams Fluor ...... 9 PacWest Drilling Supply Alaska Frontier Constructors Foss Maritime PDC Harris Group Alaska Interstate Construction (AIC) Friends of Pets Peak Civil Technologies Alaska Marine Lines Fugro ...... 12 Peak Oilfield Service Co. Alaska Railroad Corp...... 4 PENCO ...... 8 Alaska Rubber G-M Pebble Partnership Alaska Steel Co. Petroleum Equipment & Services Alaska Telecom Garness Engineering Group PND Engineers Inc. Alaska Tent & Tarp GBR Equipment PRA (Petrotechnical Resources of Alaska) ...... 8 Alaska West Express GCI Industrial Telecom Price Gregory International Alaskan Energy Resources Inc. Geokinetics, formerly PGS Onshore Alpha Seismic Compressors Global Diving & Salvage ...... 4 Alutiiq Oilfield Solutions ...... 6,13 Golder Associates Q-Z American Marine Greer Tank & Welding Arctic Controls Guess & Rudd, PC Rain for Rent Arctic Foundations Hawk Consultants Salt + Light Creative Arctic Slope Telephone Assoc. Co-op. Hoover Materials Handling Group ...... 10 Seekins Ford ...... 14 Arctic Wire Rope & Supply ...... 7 Inspirations Shell Exploration & Production ASRC Energy Services Jackovich Industrial & Construction Supply STEELFAB Avalon Development Judy Patrick Photography Stoel Rives Kenworth Alaska TA Structures B-F Kuukpik Arctic Services Taiga Ventures Last Frontier Air Ventures Tanks-A-Lot Baker Hughes Lister Industries TEAM Industrial Services ...... 15 Bald Mountain Air Service Lounsbury & Associates The Local Pages Bristol Bay Native Corp. Lynden Air Cargo Tire Distribution Systems (TDS) Brooks Range Supply Lynden Air Freight Total Safety U.S. Inc. Calista Corp. Lynden Inc. TOTE-Totem Ocean Trailer Express Canadian Mat Systems (Alaska) Lynden International Totem Equipment & Supply Canrig Drilling Technologies Lynden Logistics Transcube USA Carlile Transportation Services Lynden Transport TTT Environmental CGGVeritas U.S. Land Mapmakers of Alaska Udelhoven Oilfield Systems Services CH2M Hill MAPPA Testlab UMIAQ ...... 2 Chiulista Services Maritime Helicopters Unique Machine Colville Inc. M-I Swaco Univar USA ConocoPhillips Alaska ...... 3 MRO Sales Universal Welding Construction Machinery Industrial URS Corp. Crowley Alaska N-P US Mat Systems Cruz Construction Usibelli Delta P Pump and Equipment Nabors Alaska Drilling West-Mark Service Center Denali Industrial Nalco Western Steel Structures Dowland-Bach Corp. NANA Regional Corp. Weston Solutions Doyon Drilling NANA WorleyParsons XTO Energy Doyon Emerald NASCO Industries Inc...... 11 All of the companies listed above advertise on a regular basis Doyon LTD ...... 12 with Petroleum News PETROLEUM NEWS • WEEK OF JUNE 5, 2011 17

NATURAL GAS GOVERNMENT Alaska Interior Parnell tells AP he’ll pursue tax cut Gov. Sean Parnell said he plans to continue to “pursue vigorously” changes to Alaska’s oil tax structure as a way to boost production in the state. looks to import gas Parnell told The Associated Press he is currently working to get the votes needed in the Senate to advance the tax cut narrowly passed by the House during the regular legislative session. The bill stalled in the Senate, with leaders in the By WESLEY LOY Gas LLC, already trucks in liquefied natu- majority bloc saying they didn’t have the information needed to make a sound For Petroleum News ral gas from Cook Inlet to serve customers decision, but the bill will still be in play when the Legislature reconvenes in in the city of Fairbanks, the legislative sum- January. usiness and political leaders in mary says. While Parnell said he’s open to other ideas for stemming and reversing the BFairbanks would love to increase nat- The study area won’t include the city trend of declining production, “we need to see it. At this ural gas supplies to their region. and the Fairbanks Natural Gas service area. point, what we have on the table to increase jobs, increase But location is unkind to Fairbanks, Rather, the aim is to determine costs and production and basically create a longer-term future for which is situated in Alaska’s vast Interior alternatives for providing gas to unserved Alaska, that’s what I’m looking for right now.” JUDY PATRICK JUDY hundreds of miles from both the fabulous parts of the borough, the summary says. Parnell said he considers changes to the tax regime crit- gas reserves of the North Slope and the “The portion of the FNSB area to be ical to his goal of having 1 million barrels of oil per day Cook Inlet gas fields to the south. considered for gas service has a population course through the trans-Alaska pipeline system within a Fairbanks interests, however, are active- of about 47,500,” the legislative summary decade. The tax element, or otherwise making Alaska more ly seeking ways to bring in gas and curtail says. “Home heating is provided by a vari- competitive for investment through royalty relief or other the burning of fuel oil, coal and wood, ety of energy sources including electricity, means, is one aspect of a broader strategy that his adminis- which is causing a serious local pollution propane, fuel oil, wood, and coal. tration is taking to achieve the audacious goal. Others GOV. SEAN PARNELL problem attracting the attention of the U.S. Consumer costs for these energy sources include improving the permitting process and access to Environmental Protection Agency. are comparably high. Local air quality is resources — something that Parnell said must be done by both the state and fed- These interests soon could have a adversely affected by the usage of low eral governments. A more detailed plan is being finalized. decent chunk of state money to pursue their quality fuel oil by the large commercial Department of Natural Resources Commissioner Dan Sullivan called this an goal. sites and the military bases, and by the “all hands on deck moment in Alaska.” The Alaska Legislature included abundant usage of wood and coal for home The trans-Alaska pipeline remains the state’s economic artery, though it’s far $500,000 in the state capital budget for the heating in the area.” from operating at peak levels. At its height, in the late-1980s, the pipeline moved Fairbanks North Star Borough to conduct a The borough says it wants to begin its 2.1 million barrels of oil a day from the North Slope. Since then, oil production “natural gas distribution study.” study in late 2011 and compete it with a has been declining and throughput has recently averaged about 640,000 barrels The question now is whether the fund- year. a day. ing stays in the budget, which is now on People in Fairbanks long have hoped for Questions were raised during the tax debate — and conflicting data was pro- Gov. Sean Parnell’s desk. The governor has construction of a large-diameter pipeline to vided — on how long the line could continue to safely and efficiently operate. veto power over items in the budget. produce North Slope gas. The pipeline Similarly, the administration’s defense of its tax-cut bill proved lackluster, at best, According to a legislative summary, the would pass near Fairbanks and provide an for a number of lawmakers, including some senators who believed aspects of the borough grant would pay for two projects. opportunity to draw off gas for local use. tax regime — like the progressive surcharge tripped when a company’s net prof- The first project is “a cost and design But the multibillion-dollar pipeline its top $30 a barrel — could be revisited. But leading senators said they didn’t study for a natural gas distribution system megaproject, high on the state’s wish list have the information needed — on issues like jobs, the potential to recover rev- for the Fairbanks North Star Borough.” for decades, has yet to materialize. enues lost by cutting taxes, whether Alaska’s tax system is actually out of whack This would involve preparing a conceptual The idea of trucking LNG down from compared to other energy-producing regions — to immediately act. system design, rate schedule, construction the North Slope has gained considerable It is widely anticipated, though, the debate will be revived next year. cost estimates and other work, the summa- attention and favor in Fairbanks recently. Industry representatives and groups, like the Alaska Oil and Gas Association, ry says. The Alaska Gasline Port Authority, a plan to maintain their call for tax changes. The second project is “a feasibility and state-sanctioned organization teaming the In the months ahead, Parnell said he plans to work with lawmakers — includ- pre-due diligence study of a proposal to Fairbanks North Star Borough and the city ing senators with whom he’s had a prickly relationship — to move beyond the bring LNG gas to the Fairbanks region.” A of Valdez, has proposed the trucking idea contentious regular and special sessions this year and “figure out how to better contractor would “examine the business and a purchase of Fairbanks Natural Gas. work for Alaskans. That’s what we’re here for.” case for bringing LNG gas from the North It’s unclear, however, whether any of the “When politics gets in the way of the people’s business, or personalities get in Slope for distribution to Fairbanks com- legislative grant would go to the port the way, it’s time to take a step back, take a breath and figure things out togeth- mercial, industrial and residential users and authority. er — and how we can work together better,” he said. financing that development with a loan of —BECKY BOHRER state funds.” Contact Wesley Loy Associated Press Writer A local company, Fairbanks Natural at [email protected]

continued from page 1 that, at its upper projection, a Shell proj- continued from page 16 ect would cost C$5 billion-C$7 billion. CANADA LNG OIL PATCH BITS Enticing price spread Japanese earthquake and tsunami that the The attraction of an already enticing how herbicides behave in Alaska’s environment. In response, ARRC funded independent destruction of two Japanese nuclear reac- spread between the price of LNG in Asia third-party research to answer those questions. tors could prompt Shell and its Asian and what the same gas would sell for in “The Alaska Railroad must control vegetation for safe rail operations,” said Chief partners, notably Mitsubishi or Korea North America is building as Japan turns Engineer Tom Brooks. “Herbicides are another tool in our tool box, along with mechanical Gas, to develop a Prince Rupert plant and hand cutting, to effectively accomplish sufficient control.” to LNG to offset the loss of nuclear capable of shipping 8.5 million to 14 mil- power. lion metric tons a year of gas. State-owned Japan Oil, Gas and WESTON and Bristol enter into SBA agreement Export of 1.8 bcf per day Metals National Corp. estimated in April Bristol Environmental Remediation Services LLC and Weston Solutions Inc. said May 24 that Japan may need an extra 7 million to Mitchelmore said rapid changes in the they have entered into a Small Business Administration Mentor-Protégé Agreement. The com- 10 million metric tons a year of LNG in panies said the partnership will uniquely position their complementary services to their feder- global LNG market had prompted Shell the long-term. al clients. to contemplate an export facility capable With its eye on Asian markets, Shell Bristol Environmental and WESTON are dedicated to their combined success; the Mentor- of liquefying 1.8 billion cubic feet per has announced one of the boldest moves Protégé Agreement brings together the resources, financing and internal control systems of day of Western Canadian gas. yet, with plans to spend more than both companies, giving them the ability to operate as a single small 8(a) business entity. The Kitimat LNG project, with US$10 billion on the world’s biggest Under the SBA’s Mentor-Protégé Program, a mentor and protégé may form a joint venture Apache as operator and EOG Resources ship — an LNG carrier capable of deliv- that is recognized as an 8(a) entity to pursue certain prime contracting opportunities. Most and Encana as partners, is already in the ering 3.6 million metric tons a year of federal agencies struggle to meet the statutory small business contracting goals established regulatory phase of an application to han- LNG from Australia to Asian buyers, by the SBA and this relationship can help further their commitment to assist the nation’s dle up to 1.4 billion cubic feet per day and starting in 2017. small business community. WESTON is a global leader in environmental solutions, sustainable development, design- ship 10 million metric tons a year of The company said the “floating tech- build construction, green buildings and clean energy. LNG. The National Energy Board starts nology” will be complementary to formal hearings on June 7, with the first Bristol Environmental is an Alaska Native-owned, certified 8(a) company specializing in onshore LNG terminals, but will accel- environmental consulting and remediation, waste characterization/disposal and unexploded LNG exports targeted for 2015. erate the development of gas resources Plans have also been submitted by ordnance services, as well as preparation of remedial action plans and reports to support its by tapping fields in more remote loca- cleanup projects. U.S.-led BC LNG Export Cooperative to tions. convert 125 million cubic feet per day —GARY PARK Editor’s note: All of these news items — some in expanded form — will appear in the into 900,000 metric tons a year of LNG, next Arctic Oil & Gas Directory, a full color magazine that serves as a marketing tool for starting in 2013. Contact Gary Park through Petroleum News’ contracted advertisers. The next edition will be released in September. Bill Gwozd, of Ziff Energy, estimated [email protected] 18 PETROLEUM NEWS • WEEK OF JUNE 5, 2011

continued from page 1 authority because only Congress can designate new eral wild land set asides. And, we will continue to wilderness areas. oppose wilderness or other land designations that kill WILD LANDS Local officials also pointed to a “no more” provision jobs and prevent responsible economic development.” in the Alaska National Interest Lands Conservation Act Sen. Lisa Murkowski, R-Alaska, the ranking mem- are appropriate for congressional protection under the that limits presidential wilderness designations in ber of both the Senate Energy and Natural Resources Wilderness Act. Alaska to 5,000 acres. Speaking in Anchorage in Committee and the Senate Appropriations Interior and But the U.S. Bureau of Land Management should January, though, Abbey noted that ANILCA also lets the Environment Subcommittee, noted that “both the still inventory its lands as required by the Federal Land Secretary of the Interior “identify areas in Alaska which Senate and the House have been clear that Congress Policy and Management Act and consider wilderness he determines are suitable as wilderness,” and then ask retains sole authority and responsibility to designate characteristics in its future planning decisions, Salazar Congress to designate those area as wilderness. lands for inclusion in the National Wilderness System.” wrote in a memo to BLM Director Bob Abbey. Abbey also noted that there had never been a “That’s how I believe it should be and I will work to Those planning decisions include a new integrated statewide wilderness inventory in Alaska, a state with ensure that the current ban on creating wilderness — by activity plan for the NPR-A. more than 87 million acres in federal land, an area larg- any name — unilaterally by the administration is con- “Broadly speaking, we’re going to continue doing er than New Mexico. tinued in the next budget resolution,” she said in a state- resource management planning in accordance with Local officials applauded the reversal, but remained ment. (Federal Land Policy and Management Act) and other cautious. Alaska Wilderness League Executive Director Cindy applicable authorities,” BLM Spokeswoman Celia “I’m pleased the U.S. Department of the Interior has Shogan challenged Salazar for “distancing himself from Boddington told Petroleum News on June 1. heard Western states’ concerns and stepped back from his own moderate policy,” calling it “irresponsible to its unprecedented attack on states’ resource-based leave decisions of our most valuable unprotected areas Local officials cautious economies,” Gov. Sean Parnell said in a statement. to the changing whims of politicians” and encouraging Salazar unveiled the wild lands policy in a “Although it is too early to say how the Administration the Interior Department “to stand by its original policy Secretarial Order last December, but hit an obstacle in will view future land use, we will continue to make the and ensure that lands are not only inventoried, but that April after Congress refused to fund the Order in its cur- case at every opportunity that resource development can they are given proper protections, as well.” rent budget. be done responsibly. We will continue to push for Some lawmakers, including the Alaska delegation, drilling access in the National Petroleum Reserve- accused the federal government of overstepping its Alaska, which we have maintained is exempt from fed- Contact Eric Lidji at [email protected]

continued from page 1 “The longer that facility just sits, the more difficult an existing import terminal in Lake Charles, La. it is to restart,” Agrium spokeswoman Lisa Parker told And those are just the official requests. Other LNG INSIDER Petroleum News in March 2008, adding that a serious operators, most notably Dominion Cove Point LNG in proposal for an in-state natural gas pipeline would have Maryland, are publicly mulling over the idea of “Fairstar has successfully arranged the first ‘door-to- to come forward within a few years to be feasible. exports. Meanwhile, drillers in western Canada door’ contract ever awarded to a marine heavy transport Those plans for a bullet line ultimately slowed, increasingly believe the proposed Kitimat LNG export company,” Chris Muilwijk of Fairstar’s Client Services though. facility is the only way to develop remote shale plays Group said in a prepared statement on the Norwegian This summer, more than three years later, the Alaska like the Horn River and Montney basins. Stock Exchange. “The complexity of this assignment Gasline Development Corp. will present a report to the gives Fairstar a unique opportunity to showcase not Alaska Legislature on the economics of an in-state gas So what does it all mean for Alaska? only the special features of Fjord and Fjell as two of the pipeline, so that lawmakers can then decide whether to All this is going on as LNG exports are winding most versatile open stern semi-submersible vessels in move ahead with the project. down in Alaska. the global fleet today, but also shows the value of the Now, even if they do, it might be too late for While Cheniere is negotiating supply agreements Fairstar Team as project managers.” Agrium. overseas, ConocoPhillips and Marathon are preparing Despite the announcement, Agrium insisted that its —ERIC LIDJI their final shipments to China and Japan before moth- plans for the plants remain uncertain. balling the Kenai LNG plant this fall because they “Agrium has yet to make a final decision on our could no longer secure contracts from Asia past April Kenai operation,” Paul Poister, manager of U.S. govern- The rise and fall and rise of 2013. ment relations for Agrium, told Petroleum News on North American LNG exports Shale became a thorn in the side of Alaska in 2008, May 31. after geologists announced that the Marcellus Shale in Fairstar offered many details about the project, THESE ARE INTERESTING DAYS for liquefied Pennsylvania might be one of the largest natural gas though. natural gas. fields in the world. The size of that thorn is up for The company said the ships would first transport the In late May, the U.S. Department of Energy gave debate, though. Optimists, including Gov. Sean Parnell, components by sea from Kenai to Koko, Nigeria, where Cheniere Energy Inc. permission to ship up to 2.2 bil- say that domestic natural gas will at most delay a natu- they would then be shipped by land to a greenfield site lion cubic feet of LNG per day over 20 years from the ral gas pipeline from the North Slope. Pessimists in Ossiomo. Sabine Pass LNG Terminal, an import facility in believe that shale effectively killed the Alaska gas The $28 million contract only covers the marine Louisiana, to any country where U.S. trade is allowed. pipeline. transport. “The cost of land transport will be estab- Practically, exports won’t begin anytime soon. The The Sabine Pass license, though, might actually lished once the tender process has completed and the Federal Energy Regulatory Commission must still bode well for Alaska. winning sub-contractors have been selected,” Fairstar weigh in, and Cheniere must finance, design and build While BP and ConocoPhillips recently threw up CEO Philip Adkins said in a prepared statement. an export operation at its import terminal. their hands after they couldn’t get enough customer The Fjord and Fjell are currently transporting tug- Symbolically, though, the news is a big deal. commitments to justify Denali—The Alaska Gas boats from Singapore to Venezuela. Sabine Pass is the first LNG operation in the coun- Pipeline, a roughly $35 billion natural gas pipeline Word about the Nigerian deal broke earlier this year, try to get an export license from the federal govern- from the North Slope to Alberta, a TransCanada- after Dave Harbour, a former Regulatory Commission ment since the Federal Power Commission gave ExxonMobil joint venture backed by the State of of Alaska commissioner, posted a report from Heavy Phillips Petroleum Co. and Marathon Oil Co. a 15-year Alaska is required to seek FERC certification for its Lift & Project Forwarding International on his blog license to export Cook Inlet LNG from Alaska in 1967. pipeline regardless of whether or not it gets shippers to Northern Gas Pipelines. The report claimed that Fairstar The Sabine Pass project is seen as a sign that shale commit. “signed a Letter of Intent to provide a total land and gas plays across the Lower 48 are completely upending And that project includes the possibility of exports, marine logistics solution to transport 115 modules as the dynamics of natural gas production in the United if shippers want it. well as related equipment from the Agrium Kenai States. The supporters of that “all-Alaska pipeline” from Nitrogen Operations, comprising Plants 4, 5, and 6, To prove that domestic needs wouldn’t be crimped the North Slope to Valdez have long had to answer from Kenai, Alaska to Ossiomo, Nigeria.” by exports, Cheniere pointed to reports from the U.S. Energy Information Administration, the Potential Gas charges that the federal government would never allow Old hopes for revival Committee, the Massachusetts Institute of Technology domestic energy supplies to be shipped overseas. and the ARI Resource Report showing that shale devel- Sabine Pass throws that assumption into question. Although closed for more than three years, the opment is increasing natural gas drilling, production Even if the North Slope pipeline fails to take off, Agrium fertilizer plant never died. and reserve estimates. some policymakers in Alaska have expressed hope that For months after the announcement, Agrium contin- “The evidence does not show a present or likely an in-state pipeline could be used to restart the Kenai ued work on its long-standing Blue Sky project, study- future threat to energy security in relation to the ade- LNG facility. ing the possibility of converting the plant to run on quacy of domestic natural gas supplies,” the DOE con- And Alaska might even gain an advantage over the hydrogen generated from gasified coal, but ultimately cluded. Lower 48. decided in early 2008 that it wasn’t economic. Cheniere is hardly the only company looking to The Sabine Pass application raised issues that didn’t Hope remerged again when Enstar Natural Gas pro- export LNG. In fact, the glut of natural gas on the mar- sidetrack Cheniere but could grow as more companies posed a 500 million cubic foot per day “bullet line” ket from shale development is creating a rush of export seek to export LNG. Those include the environmental from the natural gas fields in the foothills of the proposals. charges against shale gas and the possibility that sus- Brooks Range to the Southcentral transmission grid as In late April, Freeport LNG Development L.P. asked tained LNG exports would “link” the United States to a way to bolster declining supplies in the Cook Inlet. the DOE for permission to export up to 24 bcf of LNG the world, creating a global natural gas market as prob- Because of the scope of the project, Enstar said that over two years from its receiving terminal on Quintana lematic as the global oil market. having big industrial customers like Agrium would be Island, Texas. And in early May, Lake Charles Exports For once, Alaska might benefit from being isolated. essential for keeping the shipping rates low for smaller LLC — a jointly owned subsidiary of BG Group plc —ERIC LIDJI customers. and Southern Union Co. — asked the DOE for permis- Agrium showed interest in the idea, but said it sion to export up to 2 bcf per day over 25 years from would need to happen quickly. Contact Eric Lidji at [email protected] PETROLEUM NEWS • WEEK OF JUNE 5, 2011 19 continued from page 1 Rick Koch to the board in August 2010 “If this is the death knell for the and re-appointed Donald Benson in To allow the agency to keep ANGDA’S FUTURE organization, let’s get it over October 2010, but stopped filling empty operating in the event that its with.” —Bill Jeffress, ANGDA board member seats after beginning his first full term in board can’t meet, the board gave board are empty and a fourth, held by office this past January. Asked whether it Heinze permission to “implement Chairman Scott Heyworth, expires on planned to let the board drop the three June 5. If none of those seats gets filled, Heinze said he considered going to and modify” contracts of $25,000 three-quarters time last year to help free members, the administration failed to or less, up to a total of $150,000, the board would no longer have a quorum respond by press time. up money, but, ironically, ANGDA got without board approval to conduct business. As it stands, the Heyworth said ANGDA sent two letters board must vote unanimously in order to saved by backing out of its B2F (Beluga to throughout FY 2012. Fairbanks) project, a proposal by former to Parnell in recent months asking for a get the four votes required by statute to meeting to discuss the issue, but so far take any action. Gov. Sarah Palin to build a natural gas pipeline from Cook Inlet to Fairbanks. have not gotten an answer from the admin- ization, let’s get it over with,” member Bill Envisioned as a way to promote devel- istration. Jeffress said. “But I would like to try all opment of a natural gas pipeline from the Quorum issue imminent To allow the agency to keep operating the avenues that we could to get a defini- North Slope to Valdez, ANGDA faced in the event that its board can’t meet, the tive answer.” Even if ANGDA survives a shrinking obstacles almost immediately. In its first board gave Heinze permission to “imple- If the administration wants to shut budget, it may not survive a shrinking year of operation, ANGDA fought to get ment and modify” contracts of $25,000 or down ANGDA, Heinze said he would board. any funding at all because some lawmak- less, up to a total of $150,000, without oblige, but would ask for three months “to “We’ve looked for 14 ways sideways ers wanted the agency to share an appro- board approval throughout FY 2012. The close it out properly. There’s a lot here in around this, but the statute is clear: A quo- priation with an overall state effort to pro- resolution also requires ANGDA to con- public funds.” rum is four and you can’t do anything as a mote development. tinue seeking answers about its future Because a natural gas pipeline is a key- board unless there’s four,” Heinze said. from the administration. Contact Eric Lidji Parnell appointed Kenai City Manager stone issue in the economic policy of “If this is the death knell for the organ- at [email protected] every recent Alaska governor, ANGDA shifted its role to meet the desires of three administrations. That decision drew the ire of some voters and lawmakers, but Alaska Statistics ANGDA said it always operates within its statutory authority and remains the sole Alaska Oil Industry Employment voice of the people on gas issues. Now, Heyworth said, the Parnell administration Statewide and North Slope Borough 2000-2010* and Legislature are “pushing us to zero.”

Another notch on the belt 15000 Despite those uncertainties, ANGDA is crafting a work plan for the rest of 2011. Annual Average Employment — Statewide With the $319,000 budget line, Annual Average Employment — North Slope Borough ANGDA could keep working on several 12000 long-standing projects, Heinze said. Those include open season negotiations on the Alaska Pipeline Project and the Alaska Stand Alone Gas Pipeline, its proposal for 9000 propane distribution network and its efforts to improve gas supplies for utilities in the Cook Inlet region. “With that level of funding … these are 6000 things we can do,” Heinze said. “Now we can’t do a whole hell of a lot more than this, but we can at least do these things. But ANGDA is also tightening its belt. In recent weeks, ANGDA allowed sev- 3000 eral large contracts to expire, renewed oth- ers at significantly reduced rates and shortened the term of contracts going for- ward. Those include two of its longer run- 0 ning contracts, one for Tony Izzo to coor- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* dinate gas supplies for utilities and anoth- er for Mary Ann Pease to coordinate the *Preliminary proposed propane project. 2010 annual average employment numbers for the North Slope Borough were not available as of the publish date for this chart Heyworth said that ANGDA returned its company car to save money, and even Source: Alaska Department of Labor and Workforce Development, Research and Analysis Section and U.S. Bureau of Labor Statistics sought unsuccessfully to become eligible for donations from the general public through “Pick Click Give,” the Permanent Alaska's Average Daily Oil and NGL Production Rate Fund Dividend Charitable Contributions Program. 1960 - 2010 When allowable, Heinze said, ANGDA 2,500,000 used money from its capital budget in recent months to pay for operating expens- Oooguruk & Nikaitchuq es — such as when staff works on con- Colville River & Northstar tracts — a move that he told the board North Slope - Other Fields 20000002,000,000 falls within the bounds of budget appro- Kuparuk & Milne Point priation language. Prudhoe Bay Currently, ANGDA can call on Cook Inlet $561,704.33 in uncommitted funds. A

rels per Day) 1,,,500,000

$319,000 appropriation from the FY 2012 r operating budget would bring that up to $880,704.33, allowing ANGDA to fund its $663,200 FY 2012 spending plan with money left over. 1,000,000 ction Rate (Ba “This is pretty small, but we believe it

is a manageable sum,” Heinze said, noting Produ that if any project in the portfolio “takes off,” then ANGDA would need to secure 500,000 more money. COMMISSION AND GAS CONSERVATION ALASKA OIL THE OF BY STEVE DAVIES PREPARED Even considering all that, though, Heinze remains optimistic. “We think we’ve positioned ourselves to make it 0 through the next fiscal year and do some 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 good work,” he said. This is not the first fiscal crunch for Petroleum News will be reproducing this standalone chart from the Alaska Oil and Gas Conservation Commission on a regular basis ANGDA. because of the interest in the decline in Alaska’s oil production. 20 PETROLEUM NEWS • WEEK OF JUNE 5, 2011 continued from page 1 defense, Southcentral Alaska is home to Oil will take about three years to bring enforcement has yet to take place. two jointly operated military bases and a online, he said. However, I have talked to CBP and they JACK-UP RIG civilian population that are facing short- Although the Maritime Administration have authorized me to pass along what falls in natural gas deliveries for electrici- initially opposed Escopeta’s current jack- we have communicated to Mr. Davis’s of Homeland Security, but the owners of ty and heat, as well as contending with up waiver application, Napolitano said the attorneys — that CBP only intends to the Spartan 151 and the heavy haul vessel declining local oil production for use in agency recently reversed its determina- take enforcement action for the Jones Act were not. the making of gasoline and jet fuel — sit- tion, saying no U.S. flagged vessels would violation against Escopeta. They do not Existing waiver open-ended uations that have increased in severity be available until October. intend to take any legal action against any since 2006, with production of gas and oil Under its agreement with the State of other parties for the Jones Act violation Escopeta, which already has a Jones continuing to decline. Alaska’s Division of Oil and Gas, in this case.” Act waiver from Homeland that was A jack-up is a mobile drilling unit well Escopeta has to have a jack-up rig bound Coscol, the China-based owner of the granted in 2006 under the Bush adminis- suited for relatively shallow offshore for Alaska by March 31, a deadline it has heavy lift vessel Kang Sheng Kou that tration, was asked by the department to areas such as Cook Inlet, where there are met, and begin drilling by Oct. 31, a dead- was being used to transport the rig to apply for a new waiver; despite the fact its only a handful of production platforms line it can’t meet if it waits for a capable Alaska, was also looking for more assur- existing waiver is open-ended. By Coast from which offshore drilling can be done. U.S. flagged vessel to be available. The ances before it would offload the Spartan Guard policy, enforcer of U.S. maritime There hasn’t been a jack-up in the inlet consequences of not meeting that dead- 151 in Kachemak Bay, Alaska, where it law, the waiver would not have expired for more than a decade because of the line are huge for the Houston independ- was to be towed by U.S. tugs to OSK until June 7, more than a week after the expense involved in getting one to Alaska, ent, as they include losing most of its dock at Nikiski, its home for as long as Spartan 151 would have been off-loaded drilling and returning it. Cook Inlet oil and gas leases. four years, and possibly longer if in Southcentral Alaska had the vessel car- It was that expense that contributed to Escopeta purchases the rig from Spartan. rying it not reversed course May 29. Escopeta’s partners backing out of the Feds assurances Both Spartan and Coscol wanted the Davis complied with Homeland’s Alaska venture in 2006. not enough for Spartan rig to be moved to Vancouver, which request, but was turned down in late May Davis said assurances in a May 20 let- Davis reluctantly decided to do, despite on the grounds that a new waiver was not Eighteen months to gas production ter from Napolitano that the federal gov- the added cost for his company. in the interest of national defense, the Since that time the State of Alaska has ernment had no intention of confiscating basis for which the first waiver was Waiting on Homeland added monetary incentives for bringing a the rig when it was offloaded in Alaska issued. jack-up to Cook Inlet: up to $25 million was not enough for jack-up owner When interviewed on May 29, Davis The 1920 Jones Act forbids the trans- in reimbursements for the first well Spartan Offshore Drilling, which is intended to have work done on the jack- port of goods between U.S. ports by a for- drilled with a jack-up; up to $22.5 million demanding Escopeta get a new Jones Act up and its legs inspected in Canada, while eign flagged vessel, but Homeland for the second; and up to $20 million for waiver. he waited for word from Homeland, after Secretary Janet Napolitano says she can the third. The three wells have to be On May 25, Spartan sought an injunc- which he hoped to have the rig wet towed grant a waiver if “the Maritime drilled by three different companies using tion in the District Court of Harris to Alaska. Administration at the Department of the same jack-up, so Escopeta would County, Texas, which the court denied Davis was not happy about taking jobs Transportation determines there is no receive the first $25 million, which would May 26, although it did set a hearing date from Alaskans. qualified U.S. flagged vessel available cover the expense of getting the rig to for mid-June on the matter. “The work on the rig that we were and the waiver is necessary in the interest Alaska and part of the expense of drilling Spartan’s concern that its jack-up going to do with U.S. companies at the of national defense.” its well. might be confiscated was clearly OSK dock at Nikiski, Alaska, is going to In 2006 and again this year, Escopeta Natural gas from a discovery by addressed by Napolitano in her letter to have to be done by Canadian workers. … was unable to locate a U.S. flagged heavy Escopeta this summer could be available Davis. She also acknowledged the energy It’s a shame.” haul vessel capable of transporting the big for delivery to consumers in as little as 18 needs of Southcentral Alaska. But on June 2, Davis was uncertain jack-up rig around the tip of South months, Vladimir Katic, Escopeta’s gen- But the firm’s other concern was that what would happen to the rig. America. eral manager in Alaska, told Petroleum it might be subject to a substantial fine The big question is: Does Escopeta In regard to the issue of national News. for having the rig offloaded in Alaska, need a Jones Act waiver to transport the which is when a Jones Act violation Spartan 151 from Nanaimo, a foreign would actually occur. Napolitano’s letter port, to Alaska? did not definitively address this issue, but The company is waiting for a determi- it was dealt with in a May 26 in an email nation from Homeland. from Nelson Peacock, Assistant There is also a possibility that Secretary of the Office of Legislative Napolitano will recognize Escopeta’s Affairs, which is part of Homeland existing waiver because the reasons for Security. its issuance have not disappeared. Peacock said he was acknowledging Even if the company does get the Escopeta’s request for written confirma- approval it’s seeking from Homeland, the tion that Homeland’s Customs and delay will impact Escopeta’s drilling Border Protection’s Border Security and schedule, Davis said. Initially the compa- Trade Compliance division, or CBP, “will ny hoped to begin drilling its first Cook not seek any enforcement action against Inlet well between June 21 and 30. the vessel, the rig, or any other person or entity.” Editor’s note: The gas shortfalls in In his email, Peacock said, “I have Escopeta’s 2006 jack-up waiver applica- talked to officials at CBP and they have tion were based on a 2004 report from confirmed to me that they cannot provide the Department of Energy, which can be such a letter before a violation occurs. found online at http://bit.ly/iTwjOf. Even if such a letter were to be issued, it would not be legally binding because the Contact Kay Cashman violative act justifying penalties or other at [email protected] ADVERTISE NOW

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