page Newfoundland premier Danny 8 Williams goes to the mat — again

Vol. 12, No. 4 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of January 28, 2007 • $1.50

● NATURAL GAS January Mining News inside Export extension filed Nikiski plant partners Conoco, Marathon apply to extend LNG license 2 years By KRISTEN NELSON Petroleum News

ohn Barnes, manager of Alaska production operations for Marathon Oil, broke the news at J The Alliance Meet Alaska conference Jan. 19: Nikiski LNG plant co-owners Marathon and ConocoPhillips had filed for a two-year extension of the export license for the plant. Why the extension application, with concerns about Cook Inlet gas supplies? Barnes said “the industrial use of natural gas in Cook Inlet is good, it’s important, it creates jobs, it creates opportunities.” The Nikiski LNG plant. And, he said, the LNG plant “provides supply extreme cold weather event or upset in the sys- security to Southcentral utilities. Having that plant tem.” running provides for the ability to move gas away Southcentral industrial users will be necessary from the plant to serve local utilities if there’s an see EXTENSION page 19

● NATURAL GAS Inlet gas usage sets record Enstar, Cook Inlet gas producers scrambled to meet peak; new interconnects planned

By KRISTEN NELSON Dieckgraeff said there was a “very Petroleum News intricate dance” the night of Jan. 8, but Mining News stories this month include an interview with Alaska's new DEC commissioner by columnist J.P. Tangen; Earthworks report ook Inlet uses more natural gas on cold days the gas got to Anchorage, although to do on water pollution at mines and industry and agency reactions to it; — and delivering those peak needs is trickier that, gas had to be pulled from the latest on B.C.'s Prosperity project; Wolverine project's prospects come than in the past. alive on heels of favorable feasibility study; Wolfden advances Izok C liquefied natural gas plant at Nikiski, Enstar Natural Gas, the Southcentral gas and High Lake Arctic copper-zinc projects; and much, much more. which was shorted 35 million cubic feet. distribution company, set a throughput record Jan. 9 of 292.4 million cubic feet, and the company and Competition key to Palin gas line This was the second record set this season, he Cook Inlet natural gas producers had to scramble said; the first occurred in November. bill; Alaska Legislature waiting to meet that demand, says Dan Dieckgraeff, the Dieckgraeff said there was a “very intricate company’s regulatory and gas supply manager. for administration’s proposal dance” the night of Jan. 8, but the gas got to The short-term peak actually hit 305 million Anchorage, although to do that, gas had to be As the 25th Alaska Legislature got cubic feet, he told the Regulatory Commission of started in mid-January, the North Slope Alaska Jan. 24 in a winter update. gas pipeline project was a topic of high see USEAGE page 18

interest, one Gov. Sarah Palin discussed PATRICK JUDY ● at some length in her state-of-the-state NATURAL GAS address Jan. 17 (see story in Jan. 21 issue of Petroleum News). Even before that, House Republicans, Not a time to think small in a Jan. 16 press conference, pegged the gas pipeline — along with ethics reform NWT minister: Mac job training program is springboard to 100-year industry GOV. SARAH PALIN and energy prices — as topics of concern to the House majority. By GARY PARK House Speaker John Harris, R-Valdez, said energy cost has For Petroleum News Hands across the border The Northwest Territories government has see BILL page 17 orthwest Territories Industry Minister offered “help and support” to Alaska once it N Brendan Bell is a vision- settles on an option for developing North Slope ary on a grand scale. gas to ensure that Arctic gas on both sides of BREAKING NEWS For him, the Mackenzie Gas the border plays a role in a continental solution, Project opens the door to a 100- NWT Industry Minister Brendan Bell said. Company adds 5 Royal Dutch sweetens Shell Canada bid: year oil and gas industry in Following meetings Jan. 19 with Alaska another C$1 billion to offer for minority shares Northern Canada. officials, he said the NWT is ready to facilitate And Bell counts a socio- any contacts with the Canadian and provincial governments that can help Alaska get its gas to Pipeline boom in the offing: Possible link to U.S. East Coast economic agreement between 7 BRENDAN BELL market. one of lines that could bring 1.32 million bpd of oil sands output his government and the MGP proponents as one small, but vital step in that direc- Bell told Petroleum News his government is tion. “indifferent” to whatever route Alaska takes to 13 Ethics debate on in Juneau: Experts advise Alaska legisla- Of all the elements in a complex 67-page pact, the monetize its gas. tors on strategies to restore public trust via overhaul of rules of conduct see BORDER page 18 see TRAINING page 18 2 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska ON THE COVER 3 Bad news for United States from Mexico Export extension filed 4 Crude oil price down, but Alaska on track for big surplus says Williams Nikiski plant partners Conoco, Marathon apply to extend LNG license 2 years 5 Royal Dutch sweetens Shell Canada bid Inlet gas usage sets record Company adds another C$1 billion to offer for minority shares; Jan. 23 C$45 per share Enstar, Cook Inlet gas producers scrambled offer replaces earlier offer of C$40 per share to meet peak; new interconnects planned 11 Synenco has Northern Lights dancing Not a time to think small 14 Return to normal cited for sagging oil prices NWT minister: Mac job training program is springboard to 100-year industry 14 House OKs taxes on oil companies Hands across the border 15 Flaherty selling China on Canadian oil Competition key to Palin gas line bill 15 Canadian energy trusts pare payouts Alaska Legislature waiting for administration's proposal GOVERNMENT EXPLORATION & PRODUCTION 7 Grappling with the nuclear genie 6 Noble plans fast-track development Canadian, Alberta governments uncertain how to handle public debate; reactor sales Raton startup expected in 2008 from subsea by Atomic Energy of Canada also an issue development of natural gas interval, Pony sidetrack recovers record drilling core 8 Premier Williams goes to mat — again 11 Barnes: Alaska needs to fix permitting, regs 6 State opens upper foothills to tundra travel 13 Ethics debate heats up in Juneau 9 FEX pushes forward in NPR-A 15 Ex-Alberta-premier stokes home fires But warns that oil and gas industry needs improved Alaska business environment; PPT shaves NATURAL GAS 25% off NPV of exploration projects 5 Exxon: Alaska gas can meet N.A. demand 10 Conoco continues Alaska investments Richard Guerrant tells Meet Alaska that ExxonMobil, 11 Chevron moving forward in inlet, on North Slope other Prudhoe owners, have financial strength, expertise, for gas project 12 Koreans quick to probe oil sands lease 17 Partnership weighs 'syngas' plant 12 BP 'ready to go' on slope gas line FINANCE & ECONOMY PIPELINES & DOWNSTREAM 3 Herrera: Oil price drop temporary 7 Sandahl: pipeline boom in the offing 14 Flint Hills Refinery reports building fire Sees oil price average in 2007 similar to 2006 with gradual annual increase in years to come PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 3

● FINANCE & ECONOMY Herrera: Oil price drop temporary Alaska-based energy consultant sees oil price average in 2007 similar to 2006 with gradual annual increase in years to come; conservation, oil sands won't fill gap as oil output declines

By KAY CASHMAN Petroleum News Bad news for United States from Mexico n June 2006, Petroleum News asked its Following Petroleum News interview with Roger Herrera (see adjacent arti- favorite oil price guru, energy consultant cle), Mexico’s state-owned oil company Pemex released estimates showing crude I Roger Herrera, if crude oil would plum- exports from Mexico dropping 13 percent over the next six years as the country’s met to $40 a barrel in the foreseeable proven reserves continue shrinking. future as predicted by BP’s CEO Lord John Sixty percent of Mexico’s reserves are in the aging Cantarell field. Pemex said Browne. it expects production from Cantarell to fall by an average of 14 percent a year “That’s quite a reasonable proposition,” between now and 2015. Herrera said two weeks after Browne’s Another report in the Mexican edition of The Herald said Calderón adminis- comments were pub- tration documents acquired by El Universal indicate Pemex will be forced to cut lished in a June 12 back on exports to the United States from the present 1.5 million barrels per day report by German to as low as 1 million barrels per day in the final two years of the Calderón admin- weekly Der Spiegel. istration. “But if price pres- PATRICK JUDY The Herald said analysts contacted by El Universal agreed that Pemex’s inabil- sures ease and oil ity to increase production was due to waning reserves. drops to $40 a barrel, Pemex has already canceled shipments of crude to the Deer Park, Texas, refin- it will be a short-term ery that it owns along with Shell for the next 12 months, the article said. aberration. I have a Raúl Muñoz Leos, a former Pemex director, said the primary problem lies in hard time believing the rapid decline of Cantarell reserves and the failure to develop other fields. that it will last for any “It has been 30 Muñoz said production levels rose steadily from 2002 to 2004, encouraging years since a field company directors to predict a continuation of this trend, the Herald reported. length of time. capable of produc- Months? Fine. But ing 1 million barrels “We established a production goal of 4 million barrels a day by 2006, but by years? No way,” per day was discov- mid-2005 production levels began to decline,” he said. ered. … It’s been 10 Although Pemex’s exploration budget was boosted to US$4 billion last year, Herrera said. years since the last His position hasn’t 1 billion barrel oil the investment has yet to bear fruit, the news report said. changed. field was discov- George Baker, an oil industry consultant, told El Universal the situation is fur- ered.” ther complicated by the fact that the price for Mexico’s basket of crude — which In a Jan. 23 inter- —Roger Herrera view with Petroleum is heavy oil and therefore less attractive on world markets — is so low. News, Anchorage-based Herrera said his “The first symptoms of a genuine oil crisis are becoming more and more evi- crystal ball for the “next 12 months is dent,” The Herald reported. murky,” but that he expects the price of oil —KAY CASHMAN to fall no lower than $40 for any significant amount of time and then to “inch back up” to “above the $80 level it reached last year,” that are going to measurably affect the oil situation.” with the 2007 average price of crude “about world’s supply of oil,” he said. Herrera, and a worldwide contingency the same” as it was in 2006. “All oil fields that originally contained 1 of scientists, believe oil production is “I have a hard time seeing the price of oil billion or more barrels of recoverable oil already in permanent decline or, if not, will significantly reducing from its present level. are now past their peak production rates, shortly be. (The Hubbard curve was accu- The only reason it might do so would be many producing lots of water,” Herrera rate in predicting the peak in U.S. domestic spare capacity — if world supply would said, pointing out that 80 percent of the production.) increase by millions of barrels per day and world’s oil is owned by state-controlled there is certainly nothing to suggest that companies, and that most of the world’s Nonconventional oil won’t cut it might happen,” even though “at the present governments are “overly optimistic” in their “The effects of peak oil might have time there is extra capacity in the world predictions of future oil supplies. already begun, and are perhaps being mod- despite roaring economies.” “But inevitably reality will come crash- erated and made somewhat invisible by “One can explain the present surplus by ing in,” he said. “Hubbard’s peak oil theory alternative oil sources — unconventional simple things such as milder-than-expected — a favorite topic of mine — is clearly oil — such as liquids from natural gas weather in the Lower 48 states and so on. something that should be in everybody’s But it’s not something you can rely on for mind when they start forecasting the world see HERRERA page 4 the next 12 months,” he said. Thirty years since last big discovery In fact, over time, Herrera believes the average price of crude oil will slowly increase from year to year as the commodi- ty becomes more scarce, and thus more valuable. He bases that assumption on three pri- mary factors: one, supply and demand, which he hopes will always be the major factor; two, politics of the world, which he hopes will improve, and; three, supply of oil, which he thinks might have reached its peak. “It has been 30 years since a field capa- ble of producing 1 million barrels per day was discovered,” he noted, referring to Mexico’s Cantarell oil field, which was dis- covered in 1976. (Cantarell, which holds approximately 17.5 billion barrels of recov- erable oil, reached its peak in April 1981 when it produced 1.1 million barrels per day.) “It’s been 10 years since the last 1 billion barrel oil field was discovered,” Herrera said. “The ones we’re getting excited about — deep oil in the Gulf of Mexico and off- shore Brazil and West Africa — are very, very expensive to develop compared to typ- ical oil fields. They are not the sort of fields 4 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

FINANCE & ECONOMY Crude oil price down, but Alaska on track for big surplus says Williams The price of Alaska crude oil has plummeted in the last six months, but an economist said Jan. 22 that the state is still in position to reap a big surplus. Oil fell almost $30 a barrel in six months, but a higher-than-expected average price for the fiscal year of 2007 means the state could still collect a surplus of about $1.3 billion, Michael Williams, chief economist with the Department of Revenue, told the Senate Finance Committee. The price of Alaska crude was $47.53 in mid-January, $28 less than its peak in July 2006. However, the average price so far for 2007 is $61.81. The 2007 fiscal year runs through the end of June. The average price is the figure used to calculate the surplus and was about $2.70 higher than what the Revenue department had projected for mid-January. At current production levels, a $5 drop in average price would cut revenues by about $500 million, according to the department’s forecast In fiscal 2008 the department expects oil prices to average about $8 less than in 2007. Oil production is expected to drop 12 percent this year, but rebound in 2008. Charles Fedullo, a spokesman for Gov. Sarah Palin, said Jan. 23 that the administration would wait for the first oil tax returns and the Revenue Department’s April forecast in crafting a budget for 2008. “We’re going to try to keep to the goal of spending what we bring in,” Fedullo said. —THE ASSOCIATED PRESS

continued from page 3 George Bush gave his state of the union speech touting the potential of conserva- HERRERA tion. Herrera did point out, however, what he which have hugely increased in importance, considered an encouraging and surprising and tar sand oil,” he said, referring to west- conservation fact: “The use of oil in the ern Canada’s massive oil sands deposits. United States declined about 1 percent in Nonconventional sources may be mask- the past year of high oil prices.” ing the effect of peak oil, but will they But, he said, “conservation can’t be measurably impact the world’s supply of relied upon to be much of a factor in miti- oil? gating future oil prices in a country whose “No,” Herrera said. whole economy was brought up on cheap “I think they will simply moderate the oil prices. … But there is clearly room for concerns of those that think conventional us to be much, much more efficient in the oil might be reaching its peak. To expect future,” he said. “ unconventional sources of crude such as And, he said, a “very strong movement heavy oil to fill the gap is unrealistic. … in this country toward conservation” could You just can’t churn it out very quickly, and www.PetroleumNews.com throw off prices. it’s not very energy efficient. … All in all But Herrera believes that scenario is it’s very difficult and expensive stuff to pro- ADDRESS unlikely, and that the average price of oil Kay Cashman PUBLISHER & EXECUTIVE EDITOR duce compared to conventional oil. It sort of P.O. Box 231651 will gradually increase in coming years. muddies the figures in regard to if peak oil Mary Lasley CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1651 “I don’t think that’s necessarily good production has already occurred,” he said. Kristen Nelson EDITOR-IN-CHIEF news for the world. While the discovery EDITORIAL “The likelihood is that with all the and production of unconventional petrole- Susan Crane ADVERTISING DIRECTOR Anchorage telephone unforecastable influences out there — two- um allows economic growth for the world 907.522.9469 Amy Spittler ASSOCIATE PUBLISHER thirds of the world’s oil in Islamic countries, to continue like gangbusters, it does not Editorial Email America’s love of the automobile, expected Tim Kikta COPY EDITOR Anchorage force governments to plan for much high- seasonal increases, and so forth — all sug- [email protected] er prices in the future. We’re not going to Gary Park CONTRIBUTING WRITER (CANADA) gest there will not be any spare capacity Canada get a meaningful energy policy.” Ray Tyson CONTRIBUTING WRITER [email protected] lying around in the near future.” “We’re living in a bit of a fools’ para- Alan Bailey STAFF WRITER dise at the present time,” Herrera said. “I BOOKKEEPING & CIRCULATION Conservation could play a role suppose we should all enjoy it, because I John Lasley STAFF WRITER 907.522.9469 The interview with Herrera was done Circulation Email don’t think it’s going to last too much Allen Baker CONTRIBUTING WRITER [email protected] several hours before U.S. President longer.” ● Rose Ragsdale CONTRIBUTING WRITER ADVERTISING Sarah Hurst CONTRIBUTING WRITER 907.770.5592 Paula Easley DIRECTORY PROFILES/SPOTLIGHTS Advertising Email [email protected] Steven Merritt PRODUCTION DIRECTOR

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Heather Yates OFFICE MANAGER Petroleum News and its supple- ment, Petroleum Directory, are Michael Novelli CIRCULATION MANAGER owned by Petroleum Newspapers of Alaska LLC. The newspaper is Shane Lasley RESEARCH ASSISTANT published weekly. Several of the individuals listed above work for Chris Tuck INSIDE CIRCULATION SALES independent companies that con- Dee Cashman CIRCULATION REPRESENTATIVE tract services to Petroleum Newspapers of Alaska LLC or are freelance writers.

Petroleum News (ISSN 1544-3612) • Vol. 12, No. 4 • Week of January 28, 2007 Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518 (Please mail ALL correspondence to: P.O. Box 231651, Anchorage, AK 99523-1651) Subscription prices in U.S. — $78.00 for 1 year, $144.00 for 2 years, $209.00 for 3 years. Canada / Mexico — $165.95 for 1 year, $323.95 for 2 years, $465.95 for 3 years. Overseas (sent air mail) — $200.00 for 1 year, $380.00 for 2 years, $545.95 for 3 years. “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231651 • Anchorage, AK 99523-1651. PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 5

● NATURAL GAS Exxon: Alaska gas can meet N.A. demand Richard Guerrant tells Meet Alaska that ExxonMobil, other Prudhoe owners, have financial strength, expertise, for gas project

By KRISTEN NELSON Liquefied natural gas now plays a larger role in global The number of worldwide projects over a billion dollars Petroleum News gas supply, and understanding the flows of LNG to various puts “pressure on global materials, contracting services markets is key to understanding producer risk, he said. In and skilled manpower,” and the number of such projects is laska and Mackenzie gas, increased LNG imports, the past, Middle East and Asia Pacific gas could only eco- growing: 46 were begun from 2001 through 2005; for base domestic production and unconventional gas nomically serve the Asia region, “but now Middle Eastern 2006-10, 70 are expected to start up, “with most of the A will all be needed to meet a North American natural suppliers have the option to sell LNG into the Atlantic growth coming in projects over $5 billion,” he said. gas demand growing at about half a percent a year basin and Asia Pacific suppliers into the West Coast of “Now with size comes complexity and even greater pre- through 2030, says Richard Guerrant. North America.” mium on getting the design concept, execution, contracting Guerrant, ExxonMobil Gas and Power Marketing vice Because LNG supplies can be delivered worldwide, and marketing plans right.” Good execution is critical, president for the Americas, told The Alliance’s Meet they “serve to link gas markets together creating a global because “with size comes the amplified consequences of Alaska conference in Anchorage Jan. 19 that ExxonMobil gas market much like the global oil market,” Guerrant said. poor execution,” he said. expects worldwide energy demand to grow by about 1.6 In addition to LNG, unconventional gas competes in the He reminded the audience that, whether the investment percent a year, “driven by population growth and econom- market, and “coal and nuclear also compete against gas in is in exploration, production or pipelines, the producers ic development,” with hydrocarbons meeting about 80 per- the power generation sector and will take their share.” provide the financial underpinning “and the costs and risks cent of that demand. will be passed back to them in the form of higher tariffs for The demand growth for natural gas, expected to be 1.7 Substantial risk in Alaska project shipping and processing commitments.” percent a year worldwide until 2030, is the fastest growing Guerrant repeated what all the North Slope producers The number of companies with “demonstrated capabil- part of energy demand growth, he said. involved in the Alaska gas project have said, that the proj- ities and financial strength to effectively participate in ect has “significant risk.” managing these world-scale projects” is limited, “and the Producers take risk He said the project must compete commercially with major owners of Prudhoe Bay are strongly represented on “The North American gas market is the most competi- other sources of natural gas supply. this elite list,” Guerrant said. tive gas market in the world and producers now take all the The Alaska project has advantages, Guerrant said: He also reviewed ExxonMobil’s expertise in arctic price and budget risk as they develop new supplies,” financially strong participants with strong project execu- developments and said “we continue to spend more on Guerrant said. Capital is invested on trust that a project will tion skills “and a resource owner, the State of Alaska, who technology than any other oil and gas company — about be commercially viable “and make a reasonable profit over can provide the fiscal framework that will allow the proj- $4 billion since 2001.” a very long period of time.” ect to proceed.” The company is also, he said, the “largest non-govern- mental producer of natural gas in the world.” ●

● FINANCE & ECONOMY Royal Dutch sweetens Shell Canada bid Company adds another C$1 billion to offer for minority shares; Jan. 23 C$45 per share offer replaces earlier offer of C$40 per share

By GARY PARK minimum” to complete a valuation process. I.G. Investment Management, with 6 mil- Andrew Potter, an oil and gas analyst at For Petroleum News That independent committee endorsed lion shares, said it will not sell its stake. UBS Securities Canada, said the exercise the higher bid Jan. 23 after advisor CIBC There is now talk that some shareholders puts the spotlight on the value of the oil hree months after putting C$7.7 billion World Markets said the bid was “fair from will bypass the Shell Canada board and take sands for players looking to expand their on the table, Royal Dutch Shell caved a financial viewpoint to (minority) share- their case directly to the parent company. holdings in the region. T in to mounting pressure by adding holders.” Bassett director of equity research Gary He said the C$45 per share offer is a 13 another C$1 billion to its bid for the But it appears the latest offer is still not Aitkin said C$45 is inadequate for a com- percent premium on Shell Canada’s net minority shares of Shell Canada, a 12.5 per- high enough to sway all investors. pany that is not struggling or in need of cap- asset value, but he is not ruling out a second cent increase that falls short of 15 to 20 per- While some U.S. investment managers ital. He said there is no reason why the sub- increase. cent being demanded by some minority have indicated they are ready to settle for sidiary’s profitability and growth can’t con- shareholders. something close to C$45, Calgary-based tinue. Compelling reason The deal is grabbing industry-wide Bissett Investment Management (with 4.4 Len Recipe, president of Jarislowsky for gaining ownership attention as the possible yardstick for an million shares) wants better than C$46 and Fraser, said he can never recall a case when For Shell there is a compelling reason to expected flood of consolidations in the Jarislowsky Fraser (with 29.5 million a parent company has offered full value for gain ownership of Canadian assets that Canadian oil and gas sector this year, with shares or 17 percent of the minority hold- a takeout of minority shareholders. The would give a substantial life to its reserves. special emphasis on the value of oil sands ing) has told the Shell Canada special com- only way to achieve that value is to hold an assets. mittee the sale price should be above C$50. auction, he said. see BID page 6 It occurs as rumors swirl around a possi- ble attempt by France’s Total to acquire Nexen for something in the range of C$20 billion, while Husky Energy and Talisman Energy remain high on many lists of takeover targets. Eager to rebuild its global reserves, Shell in late October made a cash offer of C$40 a share for the 22 percent of Shell Canada it doesn’t already own. Since then the subsidiary’s shares have stuck resolutely above C$42, peaking lately at close to C$45 and the investment com- munity has speculated that a new offer would be in the range of C$46-$48 and could push through C$50. Shell, in submitting its revised offer of C$45, said it intends to proceed through a takeover bid and is conditional on half the outstanding shares being tendered. The deadline for acceptance is Feb. 26. Company hasn’t satisfied minority investors From the outset there was a strong view that Shell would fail to win over the minor- ity investors. When the offer was first announced, Shell Canada Chief Executive Officer Clive Mather said a special committee of his board would take a “number of weeks at 6 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● EXPLORATION & PRODUCTION Noble plans fast-track development Raton startup expected in 2008 from subsea development of natural gas interval, Pony sidetrack recovers record drilling core

By RAY TYSON encountered one target with “high quality Noble and its partners have said little publicly about estimated reserves For Petroleum News pay” and that a second objective was at Raton and Redrock. However, Noble and EPL disclosed in separate identified, “the quality and extent of xploration and production inde- statements last year that appraisal drilling would be used to formulate a which is currently under evaluation.” pendent Noble Energy is currently single development plan for both discoveries, indicating Raton and As it turned out, the Noble-Samson- E planning a fast-track subsea devel- Redrock are strong candidates for a joint field development. EPL alliance got its property at a bargain opment of a natural gas interval dis- price, submitting the only bids on two covered at the company’s Raton prospect Mississippi Canyon blocks adjoining the on Mississippi Canyon block 292 in the ered in the U.S. Gulf, Hess said. The Raton appraisal well was drilled Redrock discovery, with combined high Noble Energy, in addition to its fast- to evaluate a deep section below the deepwater Gulf of Mexico, with first pro- bids of less than $1 million. The trio track-to-production from one of Raton’s Raton gas discovery on Mississippi duction from the zone expected during doled out single winning bids of just horizons, also reported Jan. 16 that initial Canyon 248 announced in June 2006. the first half of 2008, the company said. $411,840 for Mississippi Canyon block results from the first Raton appraisal well Noble holds a 50 percent interest in the Meanwhile, a sidetrack off the Hess- 160 on Redrock’s northern flank, and on Mississippi Canyon Block 292 Raton project. Partners Samson Offshore operated Pony discovery well on Green $475,200 for Mississippi Canyon block encountered hydrocarbons “in the antici- and Energy Partners Ltd. each hold a 25 Canyon Block 468 — also in the deepwa- 203 on Redrock’s western flank. pated sand intervals” and was temporari- percent stake in the project. ter U.S. Gulf — encountered 280 feet of Thus far, the alliance has identified ly abandoned. oil saturated sandstone in Miocene age some 11 prospects on deepwater acreage “Additional technical work is needed Raton just five miles from Redrock reservoirs after penetrating 60 percent of held jointly by the three companies. to evaluate future options,” the company its geological objective. Hess said drilling The Raton discovery well, drilled to a “Noble has assembled a high quality port- said. The appraisal well is in 3,400 feet of was halted due to “mechanical reasons” total measured depth of 20,106 feet, folio of deepwater prospects,” said David water and reached a total measured depth after successfully recovering 450 feet of encountered 90 feet of hydrocarbon pay Adams, Samson’s executive vice presi- of 20,913 feet, Noble Energy said. conventional core, the most ever recov- over three zones. While not a large dent of exploration. “Given Noble’s amount of pay by U.S. Gulf standards, experienced and highly talented employ- Raton happens to be just five miles from ees, we are confident this partnership will another Noble-Samson-EPL discovery, be profitable and rewarding.” EXPLORATION & PRODUCTION Redrock. Noble and its partners have said little Pony sidetrack sets core record publicly about estimated reserves at State opens upper foothills to tundra travel Raton and Redrock. However, Noble and Hess’ Pony sidetrack well, drilled to The upper foothills area of state North Slope lands is now open for winter off- EPL disclosed in separate statements last roughly 2,700 feet northeast of the dis- road tundra travel. year that appraisal drilling would be used covery well to a depth of 30,634 feet, The Alaska Department of Natural Resources’ Division of Mining, Land and to formulate a single development plan established a record for the deepest con- Water said that in field sampling Jan. 17 it documented that the upper foothills has for both discoveries, indicating Raton and ventional drilling core ever recovered in met the criteria for opening — nine inches of snow and minus 5 degrees C or cold- Redrock are strong candidates for a joint the Gulf of Mexico, Hess said Jan. 4. er soil temperature at a depth of 30 centimeters. field development. Casing was set across the oil-bearing Effective 13:00 hours, Jan. 18, the tundra was open to all vehicles in the upper “The results of the initial well at Raton interval to allow for future production foothills area for the 2006-07 winter season, the division said. are encouraging, particularly in light of from the well, the company added. All tundra opening areas on state lands are now open. the proximity of the well to our Redrock The oil-bearing section in the Pony The opening applies only to those operators who have valid off-road vehicle discovery,” said Dave Stover, Noble’s sidetrack well is similar in thickness and travel permits to operate on state-owned lands on the North Slope, the division said. senior vice president for North America. quality to the equivalent interval in the Snow is thin in some areas, the division said, and those areas should be avoided Redrock is on Mississippi Canyon discovery well, which was drilled to or special construction methods used to protect the tundra surface. The ground may block 204 and was drilled to a measured 32,448 feet and encountered 475 feet of also be relatively soft in areas with heavily drifted snow. depth of 23,365 feet in 3,334 feet of oil saturated sandstone, Hess said. The division said attention should be given to its stipulation regarding winter off- water. “Results to date have been consistent with road vehicle travel and said state personnel will conduct site inspections periodical- The Noble-led joint venture has man- pre-drill expectations.” ly to ensure compliance. aged to piece together an impressive Total hydrocarbon resource on the —PETROLEUM NEWS acreage position consisting of eight con- Hess acreage is estimated to be in the tiguous federal leases in Mississippi range of 100 million to 600 million barrels Canyon, a resource-rich area of the of oil equivalent. Hess holds a 100 percent continued from page 5 horizon, a major leaseholding near the Central Gulf of Mexico dominated by working interest in the Pony prospect. Queen Charlotte Islands offshore British major oil companies and large E&P inde- Hess said it would next drill an BID Columbia. pendents. appraisal well with the Ocean Baroness Everything suggests the Canadian unit is Interestingly, the partners did not dis- rig at the Pony No. 2 location about 7,400 The package includes billions of barrels poised to make a sharp increase in its cur- close their initial Redrock discovery until feet northwest of the discovery well. in Alberta’s three oil sands regions rent 6 percent contribution to Shell’s overall after the March 2006 Central Gulf of In May 2006, Hess announced prelim- (Athabasca, Cold Lake and Peace River), production. Mexico lease sale, in an apparent effort to inary drilling results for the Pony prospect all of them under active development; 11.4 Taking control of Shell Canada would minimize bidding competition on explo- based on information collected down to percent of the Mackenzie Gas Project; also give the parent company a free hand to ration blocks close to the Redrock the 29,658-foot level. The company said access to deep gas plays in the Alberta fully integrate the oil sands operations into prospect, including Raton. Later the part- then additional objective sections were Foothills; 31.3 percent of the Sable gas field its refining network. ● offshore Nova Scotia; and, on the distant ners reported that the Redrock well still to be tested. ● PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 7

● PIPELINES & DOWNSTREAM Sandahl: pipeline boom in the offing Possible link to U.S. East Coast one of lines that could bring 1.32 million bpd of oil sands production by 2015, Enbridge says

By GARY PARK ing in 2009. Spearhead came on stream last March and has posed in-service date extended from 2010-11 to 2012-14. For Petroleum News eventual capacity of 125,000 bpd from Chicago to Cushing, But Sandahl was emphatic that the project is “a matter of Oklahoma, when not if.” spider’s web of new oil pipelines spreading out from • A US$200 million, 200,000 bpd extension from For Enbridge and rival Kinder Morgan Canada an added Alberta, including a possible link to the U.S. East Chicago to the U.S. Gulf Coast, followed by a second challenge has been crossing British Columbia because of A Coast, could handle an additional 1.32 million barrels Spearhead expansion in 2011 to add 100,000 bpd at a cost extensive national and provincial parks and demands from per day of production from the oil sands by 2015, a of US$215 million. aboriginal communities. senior official with Enbridge said. • An Eastern PADD II pipeline from Patoka, Ill., to the Also in the works is a proposed 250,000 bpd standalone Speaking to an Insight Information oil sands conference Gulf Coast, carrying 250,000 bpd in 2010 and costing pipeline from Alberta to Texas by privately held Altex in Calgary, Rick Sandahl, Enbridge’s senior vice president US$280 million. Energy. of market development, said there will be a need for “sig- • The 400,000 bpd Gateway pipeline to the British Alex President and Chief Executive Officer Jack nificant infrastructure changes going forward,” estimating Columbia coast for tanker shipment to Asia and California. Crawford told the Calgary conference the pipeline would the cost at C$6.15 billion. reduce the risk of upgrading bitumen in Alberta and would “Getting to existing markets isn’t adequate,” he said. Possible pipeline to U.S. East Coast new compete on a cost-basis with other expansion alternatives. “You need to have pipelines to get to new markets.” The new item in the mix is the possible pipeline to the He said the U.S. Gulf Coast market already has coking Sandahl laid out the following possible projects: U.S. East Coast, where there is growing interest among capacity and most refiners have significant expansion plans. • A C$1.4 billion system delivering 300,000 barrels per refiners in oil sands production, although Sandahl empha- In addition, Crawford said, many contracts with produc- day from the Chicago area to refineries at Philadelphia, sized that discussions are “very early, very preliminary.” ers in Venezuela and Mexico will expire soon, while Baltimore and New Jersey by 2010-12. An eastern pipeline An Enbridge spokesman would not be drawn, for “com- Venezuelan President Hugo Chavez is threatening to reduce could also open access to Canadian refineries, notably in petitive reasons,” into predicting an outcome from the cur- exports to the U.S. Montreal. rent round of discussions. Altex is now in the process of finalizing contract terms • Expansion of Enbridge’s Spearhead system with The Gateway project has been slowed by negotiations to and reviewing its final design, confident “we’ve got the capacity to ship 65,000 b/d at a cost of US$55 million, start- obtain commitments from anchor shippers, with the pro- right product for the right market,” Crawford said. ●

● GOVERNMENT Grappling with the nuclear genie Canadian, Alberta governments uncertain how to handle public debate; reactor sales by Atomic Energy of Canada also an issue

Knight and Renner insist there are no pro- By GARY PARK Alberta Energy Research Institute Executive Director Eddy Isaacs said For Petroleum News posals before them and, if that day arrives, that even if a nuclear reactor is shown to be economically feasible it there is certain to be prolonged public hile governments dither and dis- could be decades away given the regulatory approvals needed and the debate. agree, the nuclear option to power likelihood of strong public opposition. The scope of such a challenge is Although concerned about the disposal W Alberta’s oil sands is taking on a life rapidly becoming evident as environmentalists and the three opposition of nuclear waste, they say the chances of a of its own. federal parties have aired their concerns. disastrous nuclear accident have diminished Two independent sources expect to know over the years. within the next few weeks whether there is reiterated that it’s “something I’m very keen footed the new Alberta government of It’s possible the government will find serious interest in building a nuclear power on.” Premier Ed Stelmach. itself in the public arena sometime this year. plant in northern Alberta. Stelmach, Energy Minister Mel Knight Nuclear plans in the works Meanwhile, the Canadian and Alberta AECL has struggled with reactor sales and Environment Minister Rob Renner have governments are uncertain how to handle Lunn’s crusading is seen partly as a been scrambling to offer a clear-cut govern- Energy Alberta Corp., a private Calgary- what is likely to be a volatile public debate desire by him to find outlets for the Candu ment policy. based company, said it could unveil plans by over the issue. reactors manufactured by Atomic Energy of In the space of a few months, Ralph this spring for a possible 750-megawatt, But Canada’s Natural Resources Canada Ltd., or AECL, a federal corpora- Klein, Stelmach’s predecessor, went from C$3 billion plant and has indicated it is cur- Minister Gary Lunn prodded things along tion. describing nuclear power as a “least accept- rently studying three different sites in the Jan. 17 when a new federal clean-air pro- AECL has 48 reactors operating in sever- able” energy source for the oil sands to con- province. gram freed up C$230 million over the next al countries, but has struggled to make new ceding “we have to consider” the option. Separately, EnergyINet — a coalition of five years to research clean-coal technology, sales in recent years. The new cabinet agrees on one thing — carbon capture and storage and “next-gener- Lunn’s nuclear boosterism has wrong- it will not close the door to debate, but see NUCLEAR page 8 ation” nuclear power. “We must not become just an energy superpower, but we must become a clean- energy superpower,” he said. To that end, Lunn has been the govern- ment’s most outspoken booster of the nuclear alternative to the consumption of natural gas in oil sands extraction and pro- cessing and a means of lowering greenhouse gas emissions. Having already declared that the use of nuclear energy is a matter of when not if, he 8 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● GOVERNMENT Premier Williams goes to mat — again Newfoundland premier doesn’t give a hoot about Big Oil as he adds Hibernia to his list of projects targeted for better returns

By GARY PARK although the latest peak has been 180,000 Labrador.” A spokeswoman for the Hibernia con- For Petroleum News bpd and that will slide to 100,000-110,000 sortium told reporters the partners intend to bpd for up to eight weeks while repairs are Conditional approval in December work with the government and the offshore he huffing and puffing that character- made to a production generator. The Hibernia South proposal got condi- petroleum board to seek a resolution. izes Newfoundland Premier Danny tional approval in December from the Newfoundland opposition leader Gerry T Williams is reaching a point where he Hibernia generally a success story Canada-Newfoundland and Labrador Reid told The Canadian Press news agency threatens to blow his own house Hibernia has generally been a success Offshore Petroleum Board requiring the that Williams does not seem able to “make down. story for Williams’ government, with partners to submit a detailed plan for the a deal with anybody. ... Right now he is tak- Hell-bent on doing whatever it takes to drilling programs raising reserves from an entire field by Jan. 31 and to reach com- ing a gamble because it could have far- squeeze better returns out of his offshore original 520 million barrels to 1.2 billion mercial agreements before starting produc- reaching impacts as to how the oil industry oil and gas resources, Williams in the past barrels. tion. views this province and the possibility of nine months has derailed progress on a C$5 Newfoundland alone has collected Newfoundland Natural Resources doing business here.” billion plan to develop the Hebron field and C$1.2 billion in royalties and taxes over the Minister Kathy Dunderdale said the appli- Dunderdale does not buy warnings from has now stalled plans past nine years, not including a C$2 billion cation failed to fully outline various devel- analysts and observers that, if to add 223 million payout under a revised federal-provincial opment strategies, did not clearly state new Newfoundland pushes too hard the indus- barrels of oil to the offshore accord, with returns from the benefits, such as jobs for the province, and try may head, as the Hebron partners did, to Hibernia project. Hibernia, Terra Nova and White Rose failed to disclose what impact Hibernia more stable, predictable regions. By chance or not fields lifting Newfoundland’s productivity South development could have on initiat- She said the government is merely “tak- — he says it’s pure to double the national rate. ing offshore natural gas development. ing the responsibility we have as stewards chance — it’s the But Williams is adamant his province is “We do not support a position that we of this resource very, very seriously.” same four companies entitled to more. should approve first and get the informa- who are caught up in Unable to reach agreement on royalties, tion later,” she said. Orphan basin well under way the Hibernia ruling: taxes and a possible Newfoundland equity “We are not prepared to approve the The industry may not have to wait long DANNY WILLIAMS ExxonMobil, which stake in the venture, he brought work on board’s decision that would take ... resolu- to test that sentiment. is at the top of Williams’ hit list, Chevron, Hebron to a halt. The partners disbanded tion of these issues out of the hands of the A Chevron-led partnership, along with Petro-Canada and Norsk Hydro. their project team, sending many of their provincial government. ExxonMobil, Imperial Oil and Shell The latest setback for the industry talented employees to other jobs around the “Just as the industry players need cer- Canada is into its sixth month of drilling a occurred Jan. 17 when the Newfoundland world. tainty to do business, so does the C$140 million exploratory well in the government rejected regulatory approval Williams offered one small crumb of province,” she said. deepwater Orphan basin, with hopes of for the quartet of companies to start pro- consolation to the oil companies Jan. 18, Dunderdale — echoing her boss — said opening up four oil pools that could hold ducing from their Hibernia South discov- insisting that the Hebron and Hibernia dis- her government’s responsibility as stew- upwards of 3 billion barrels. ery in 2008, forecasting the addition could putes were “not related in any matter what- ards of the oil and gas resources is to The wildcat is being drilled in 7,900 feet stretch Hibernia’s production life to 2030 soever.” “ensure we maximize the benefits from of water and is targeting a subsea depth of from 2020. As blunt as ever, Williams said he is not these developments and these resources. 24,300 feet. The pool could have yielded 50,000 worried about “alienating the oil industry. “We must not decide the fate of our Depending on the results and perhaps barrels per day, bolstering Hibernia’s over- ... Big Oil is not my interest. My protection resources based on piecemeal decisions on the consortium’s view of where all chances of achieving 200,000 bpd, is for the people of Newfoundland and and short-term goals.” Williams’ strategy is heading Chevron could drill as many as 12 wells. Canada supports board approval A second test of the government looms Underscoring the Canadian govern- as Husky Energy seeks offshore petroleum ment’s displeasure with Williams’ crusad- board approval for a C$600 million expan- ing, including threats to introduce “use or sion of its White Rose project which could lose it” legislation that would force compa- be part of extending the field’s operating nies to relinquish leases unless they devel- life by 2 to 3 years from the initial 12-15 oped them within a specified period, a years. spokeswoman for Natural Resources The pool holds estimated recoverable Minister Gary Lunn said the minister sup- reserves of up to 30 million barrels. On its ports the offshore petroleum board’s heels are two other finds — one estimated approval for Hibernia South to move at 40-100 million barrels and the other at ahead. 509-200 million barrels — that need more work to firm up the numbers. ●

continued from page 7 away given the regulatory approvals needed and the likelihood of strong pub- NUCLEAR lic opposition. The scope of such a challenge is rapid- government agencies and several produc- ly becoming evident as environmentalists ers, including Shell Canada, Canadian and the three opposition federal parties Natural Resources, EnCana and Nexen have aired their concerns. — has a January deadline in a call for pro- The Alberta-based Pembina Institute, posals on alternative fuel sources which is expected to yield at least one pitch for a an environmental think tank, said a nuclear plant. nuclear plant is neither practical nor A steering committee of the coalition appropriate. will study all of the proposals, looking for A new study by the institute showed the most efficient technology, and deliver that although a nuclear plant might be free its findings this fall. of greenhouse gas emissions, the industry Alberta Energy Research Institute has considerable environmental impacts Executive Director Eddy Isaacs said that stemming from uranium mining, refining, even if a nuclear reactor is shown to be conversion and fuel fabrication, operation economically feasible it could be decades of a plant and waste fuel management. ● PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 9

● EXPLORATION & PRODUCTION FEX pushes forward in NPR-A But warns that oil and gas industry needs improved Alaska business environment; PPT shaves 25% off NPV of exploration projects

By ALAN BAILEY Tax incentives for England urged people to seek ways of extending the North Slope Petroleum News drilling multiple wells in a single exploration drilling season, with a review of the criteria for the tundra

n Jan. 19 at the Alaska Support drilling season might PATRICK JUDY travel opening date. He said FEX supports ideas for state or federal Industry Alliance’s annual Meet be another possibili- staging areas in remote areas, to enable equipment to be stored close to O Alaska conference Timothy ty. exploration areas during the summer. England, senior manager of explo- ration for Talisman Energy, painted a good PPT will drain 25 England said. He also said that industry improve the business environment, or are news/bad news picture of his company’s percent of value and government need to take the appropri- we content with having this (current situa- Alaska operations. On the one hand FEX, But England TIMOTHY ENGLAND ate steps to curtail “nuisance legislation,” tion) as the ghost of our oil patch future?” Talisman’s Alaska subsidiary, is forging slammed the state’s saying that he had estimated that industry England asked. “… We need to drill a lot ahead with an aggressive exploration pro- switch from a petroleum severance tax to had expended about $40 million in prepar- more exploration wells on the North Slope gram in the National Petroleum Reserve- PPT, the new oil and gas production tax. ing for the September 2006 NPR-A lease, a to even have a chance to offset that Alaska. On the other hand issues such as The substantial increase in the state’s oil substantial part of which was subsequently decline.” land access, rising costs, permitting ineffi- and gas tax revenues under PPT will drain postponed following a court case. And England emphasized that when ciency and the Alaska tax regime threaten profits from oil and gas projects, he said. “Those (costs) are large numbers and making investment decisions the oil the viability of Alaska petroleum explo- England used a cash flow curve for a we are less receptive to keep doing that in industry can manage the technical risks ration and development, England said. typical oil and gas exploration, develop- the future … and we’ve got to get it fixed,” inherent in petroleum exploration; the England reviewed the history of NPR-A ment and production project to illustrate England said. industry cannot manage factors outside its petroleum exploration and said that FEX, the problem. Exploration and development England urged people to seek ways of own control. with almost 1.5 million gross acres under costs trigger a large negative cash flow in extending the North Slope exploration “In NPR-A exploration, industry is fac- lease, was continuing from some deep the early years of a project, England said. drilling season, with a review of the criteria ing major subsurface risks on the reservoir drilling done by industry in the early Only after perhaps 10 years does the pro- for the tundra travel opening date. He said quality, trap integrity and hydrocarbon 1980s. But modern drilling equipment is duction of hydrocarbons from the new that FEX supports ideas for state or federal phase,” England said. “These are the risks enabling the drilling to be done much more development start to remove the red ink staging areas in remote areas, to enable that, as explorers, we can manage, if we quickly than in the past, he said. In the win- from the cash balance sheet. And a compa- equipment to be stored close to exploration know what the rules of the game are and ter of 2005-06 FEX drilled the NPR-A ny like FEX looks at the net present value, areas during the summer. what the potential reward is.” Aklaq 2 well and a sidetrack. or NPV, of the cash flows for the entire “That could be a joint federal and state The company is planning to spud anoth- project life when assessing whether to initiative, and we’ve had some discussion Bullish on NPR-A er deep well, the Aklaqyaaq No. 1, on Jan. invest capital in the project. in that regard,” England said. “… We’ve 27 — the well should take about 57 days to England emphasized that FEX with its “When we look at the economics of our got to figure out ways to get our equipment complete, England said. At around NPR-A partner Petro-Canada remains exploration efforts we account for all of in use for more days in a season to drill Christmas FEX started moving the Nabors bullish on the prospects for oil and gas that future capital. … The change from the those extra wells.” 14E rig to the Aklaqyaaq location; the development in NPR-A. severance tax to the PPT took 25 percent of England also criticized the regulatory Nabors rig had been stacked at the FEX “We’re taking a long-term view to our net present value that we calculate process for North Slope operations as Cape Simpson staging area over the sum- developing our subsurface knowledge and when we bring those cash flows back to lengthy, repetitious and expensive. People mer. our experience in building in our second present value,” England said, adding that need to find ways of reducing the redun- FEX is also moving the Akita-Doyon operating season,” England said. “… We FEX is now banking on high future oil and dancy involved in doing multiple environ- Arctic Wolf rig 180 miles across rough tun- are developing good partnerships with the gas prices to restore the economics of its mental assessments in the same area year dra from Prudhoe Bay to drill the Amaguq North Slope Borough stakeholders and we NPR-A exploration initiatives. after year. Multi-year permitting might pro- No. 2 well in NPR-A, England said. hope that will help us bring future devel- vide one solution, he suggested. opment. … We are doing some very excit- “We should have completed our second Land access ice pad today and we’re expecting to spud ing stuff. … We have 157 people out in the Access to North Slope land is also prov- Stemming the decline our Amaguq No. 2 well on Feb. 7,” field right now.” ing problematic, England said. There has England said. From the state’s perspective, the crucial England ended his presentation with a been a time lag of two years between suc- If the drilling goes according to plan question is how to stem the decline in oil photograph of the Cape Simpson oil seep cessive NPR-A lease sales, and third party FEX will spud a third NPR-A well, the production, England said. To address that on the Beaufort Sea coast of NPR-A. pressure has caused lease sale cancellations Aklaq No. 6, later in the winter, which decline both industry and the state need to “It’s still there and it’s massive,” he and postponements, he said. totals three wells in NPR-A this winter, address some critical issues, if they want said. “… There is the potential for massive “The federal administration should real- down from a previous goal of as many as to increase North Slope exploration and deposits untapped … out in NPR-A, but ly think about holding more frequent lease five wells. Industry observers said five development activity. we need to drill a whole bunch more wells sales, providing greater access to its lands,” ● wells could only have been possible if the “Do we tackle these problems and to find them.” company had had earlier tundra access. Continuing challenges England said that NPR-A exploration continues to face many of the challenges that existed during exploration of the 7 ½, ""  ", ,
/ * "* t region 20 years ago. In particular opera- tional costs are very high and becoming higher. England quoted data from the U.S.
ÌÊ -Ê “«œÞiiÊi>Ș}]ÊÜiÊ >ÛiÊ>ÊÎä‡Þi>ÀÊ ˆÃ̜ÀÞÊ Department of Labor showing that, for example, the cost of diesel increased by 80 œvÊ«>À̘iÀˆ˜}ÊÜˆÌ ÊÌ iʜˆÊ>˜`Ê}>Ãʈ˜`ÕÃÌÀÞÊ̜ʫÀœÛˆ`iÊ percent and the cost of steel increased by >VVœ“«ˆÃ i`Êi“«œÞiiðÊœˆ˜ÊœÕÀÊÌi>“t 56 percent between 2004 and 2006. “The whole cost basis is going up for 7iÊÃÌ>vvÊvœÀÊ«ÀœviÃȜ˜>]Ê>`“ˆ˜ˆÃÌÀ>̈Ûi]Ê the work that we do,” England said. England said that industry can manage ÌiV ˜ˆV>Ê>˜`ʈ˜`ÕÃÌÀˆ>Ê«œÃˆÌˆœ˜Ã°Ê7iʜvviÀ\ its costs through partnerships, cost sharing, by becoming more efficient and through UÊ ÝVii˜ÌÊÜ>}iÃÊÊÊUÊi>Ì ÊLi˜iwÌÃÊÊ the use of new technologies. He also said that the state could help with the cost issues UÊ,ïÀi“i˜ÌÊ«Àœ}À>“ — he especially praised the state’s explo- ration incentive tax credit program. iÌÊÕÃÊ i«ÊޜÕÊw˜`ÊÌ iÊi“«œÞiÀʜvÊޜÕÀÊ`Ài>“ð “Without those substantial exploration incentive credits we wouldn’t be here,” England said. “That substantially affects our ability to compete for cash to explore in xÈääÊ Ê-ÌÀiiÌ Alaska.”
˜V œÀ>}i]Ê
ʙ™x£n The state might also be able to help in ­™äÇ®ÊÓÇ·Ó{Îä other ways, England suggested, perhaps “«œÞii i>Ș} through tax credits for operational efficien- >Ê`ˆÛˆÃˆœ˜Êœv

>˜>}i“i˜Ì -iÀۈVià ÜÜÜ°˜“Ãi“«œÞiii>Ș}°Vœ“ cies such as the use of modern drilling rigs. 10 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 COURTESY CONOCOPHILLIPS ALASKA CONOCOPHILLIPS COURTESY

ConocoPhillips Alaska’s North Slope capital projects continue to consist of development drilling at Kuparuk and Prudhoe Bay; the development of heavy oil at West Sak; and the develop- ment of the Alpine field satellites. Fiord (pictured above) and Nanuq, north and south respectively of Alpine, came online in 2006.

● EXPLORATION & PRODUCTION Conoco continues Alaska investments By ALAN BAILEY “In the year 2007 we’ll probably drill five exploration about 10 trillion cubic feet of its net gas reserves. Petroleum News wells and we’re looking at 3D seismic programs in the “If you put the two projects together, they’re great Chukchi and Beaufort Seas,” Limbacher said. opportunities but they both have significant challenges onocoPhillips’ Alaska capital investment looks to associated with them,” Limbacher said. “…We believe that remain steady at about $800 million in 2007. That Difficult business climate we’re a world leader in the supply gas to the market place. C was one of the messages delivered by Randy ConocoPhillips sees an increasingly difficult worldwide … We’re the largest supplier of natural gas in North Limbacher, the company’s vice president for explo- business climate, with much of the world’s petroleum America.” ration and production-Americas, at the Alaska Support resources only available to state-run oil companies. Limbacher said that ConocoPhillips will be seeking to Industry Alliance’s annual Meet Alaska conference on Jan. “Only about 10 percent of the world’s available hydro- extend the export license for the Nikiski LNG plant on 19. But rising costs mean “we don’t get quite as many proj- carbons resources are available to companies like ours,” Alaska’s Kenai Peninsula — the current license expires in ects in for the same amount of dollars,” Limbacher said. Limbacher said. 2009. (See related story in this issue.) That $800 million compares with ConocoPhillips’ $12.5 At the same time, taxation on the oil industry has been And the company is anxious to proceed with the North billion of upstream capital investment worldwide — Alaska increasing. Slope gas pipeline. holds about 2 billion barrels of the company’s worldwide “The type of (fiscal) terms that we have available to us “We’re in a position now where we need to finalize our proven crude oil equivalent reserves of 11.4 billion barrels, to pursue oil and gas projects have changed quite a bit,” proposal with the state,” Limbacher said. “This is a project he said. The company’s Alaska operation produces more Limbacher said, citing Alaska’s change to PPT, the new oil that we want to go forward. It’s a project that we believe can than 300,000 barrels per day of the company’s total crude and gas production tax, as an example. happen. … There are a lot of details that need to come out oil production of 2.4 million to 2.5 million barrels per day. In addition, shortages of skilled labor are pushing up in the next several weeks and we look forward to seeing The company’s North Slope capital projects continue to labor costs. And taken together, many of the changes in the them.” consist of development drilling at Kuparuk and Prudhoe business environment are rolling up into an overall increase But Limbacher cautioned about major risks such as gas Bay; the development of heavy oil at West Sak; and the in the oil industry cost structure. price volatility. One particular risk surrounds the question development of the Alpine field satellites (the Nanuq and “Since the ’98, ’99 timeframe, the cost to find, develop of the timing of gas pipeline construction, to ensure that Fiord satellites came on line in 2006). Limbacher said the and produce a barrel of oil around the world by industry has people view natural gas as a reliable energy source in the Kuparuk 1J development at West Sak is more than 50 per- roughly doubled,” Limbacher said. “… We certainly have United States. In recent years coal has started to somewhat cent complete and should be finished in 2008. some challenges ahead of us.” supplant natural gas as a power generation fuel, he said. “We’re currently evaluating the next development phase Overall, however, the gas pipeline project has merit. within the northeast West Sak area,” Limbacher said. Getting gas to market “When we look at it we take a very long-term view. We Limbacher described the company’s North Slope devel- But Limbacher said that, with his company’s involve- think that North America needs this gas,” Limbacher said. opment projects as “important projects in helping offset ment in proposals for both the Mackenzie gas project in “We think that this is a project that’s good for our company. some of the decline that we’ve seen on the North Slope.” Canada and an Alaska North Slope gas pipeline, We think that it’s a project that’s good for the state of ● But continuing North Slope exploration also figures ConocoPhillips sees the potential of connecting to market Alaska. And we want to see it built.” large in ConocoPhillips’ capital expenditure. PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 11

● EXPLORATION & PRODUCTION FINANCE & ECONOMY Synenco has Northern Lights dancing Chevron moving Unshaken by a massive rise in its upstream mining and extraction budget, Synenco Energy has approved a 2007 capital budget for its Northern Lights oil sands project of C$235 million, up from C$118 million in 2006. The start-up company holds a 60 percent stake and is operator of the project. forward in inlet, The balance is held by a Canadian arm of China’s Sinopec. This year’s spending is earmarked for engineering, regulatory applications and other pre-construction costs. It expects to start production in 2010 and recover 1.3 billion barrels of bitumen on North Slope at a peak rate of 100,000 barrels per day over 30 years. But the partnership has stirred controversy by announcing it plans to fabricate modules weighing 2,000 tons in Asia, thus lowering its mining and extraction By ALAN BAILEY ANWR is ever re-opened. costs from its most recent estimate of C$5.6 billion (itself a startling rise from an Petroleum News What about the eastern North Slope’s Point Thompson unit that abuts ANWR initial C$1.7 billion), while reducing the field construction workforce in Alberta ith 40,000 barrels of oil production and is thought to contain significant to 900 from 2,000. per day, Chevron is Alaska’s reserves of oil and gas? The move to take construction offshore poses a challenge for Alberta’s new W fourth largest crude oil producer, “We did have 25 percent of that,” he Premier Ed Stelmach, who is a vigorous advocate of keeping as much of the Scott Davis, vice president, mid- quipped, adding that the Alaska value-added aspects of the oil sands within the province. continental business unit leader of Department of Natural Resource termina- —GARY PARK Chevron North America, told Meet Alaska tion of the unit was a blow to his company. conference attendees on Jan. 19. But the Chevron has filed litigation challenging company has ambitious plans to expand its the decision. GOVERNMENT operations in the “In our opinion the field is really a gas Cook Inlet basin and field and needs to be developed as such,” Barnes: Alaska needs to fix permitting, regs on the North Slope. he said, in reference to controversy about While Alaska is to be complimented on providing access with its areawide leasing “We plan to … how the field should be developed. He said

JUDY PATRICK JUDY program, the state has “a difficult, a complex permitting, regulatory (and) political increase investment if it weren’t such a challenging field to environment,” says John Barnes, Marathon Oil’s Alaska production operations man- in Alaska not (only) develop it would have come on line a long ager. over the next three time ago. years but over the The result, Barnes told The Alliance’s Meet Alaska conference in Anchorage Jan. next 15 to 20 years,” Applauds transparent 19, is “longer lead times, fiscal uncertainty (and) project uncertainty.” Davis said. gas line negotiations “Doing it the Alaska way isn’t really positive,” he said. “We need to turn the Alaska way into doing it quicker.” After purchasing “We’re very opti- Davis said construction of a North Unocal in 2005, mistic about our For a starter, he said, “lots of efficiencies” could be gained in the regulatory process. ability to supply this Slope pipeline is critical to bringing Point Chevron took “a Marathon operates in Cook Inlet, producing some 160 million net cubic feet a day local market Thompson into play and that Chevron sup- of natural gas, Barnes said, selling “to basically every potential customer out there,” hard look” at its (Southcentral ports the North Slope producers’ proposal newly acquired Cook Alaska) in years to including supplying about 50 percent of the natural gas used by local utilities. Recent come,” Scott Davis for a pipeline to the U.S. Midwest through Inlet assets, he said, Marathon investments have brought on a new field, Ninilchik, increased production said, noting that Canada. from older fields and brought new gas pipelines into regulated service. concluding there was Chevron’s Cook Inlet “All of us have to be aligned, not just a lot of oil and gas gas plans include While the company has a staff of only about 40, three-quarters on the Kenai more drilling at the big three (producers). … We do yet to be discovered. Peninsula, it uses the equivalent of about 250 full time employees through its contrac- Granite Point and applaud the governor’s initiative to be tors. The industry’s aging workforce is a concern, he said, “and trying to get young, “We are we going more exploration in transparent (in gas line negotiations). … to be investing south Kenai. talented individuals to get the education and come into the workforce is something that We think that’s a good step.” we all have to worry about.” aggressively out Fiscal certainty is very important, he there to see that happen.” “And … as an industry … we don’t have the reputation we should as technology said. “We have to know what we’re going leaders.” Chevron’s total onshore and offshore to be dealing with when going in.” Cook Inlet basin production is about “The world needs Alaska resources, but Alaska needs world markets,” he said and Worldwide there is considerable fiscal “… we have to compete for investment,” since capital flows to areas with the best 25,000 barrels per day of oil equivalent, uncertainty but Davis said Alaska is an which includes natural gas, he said. returns. especially tough environment, with high Operating costs are higher in Alaska, which puts Alaska projects at a competitive “We’re planning a multi-year develop- operating costs, long permitting times and ment program” starting later this year that disadvantage, he said. “To overcome that we have to be quicker, we have to be more labor shortages for a huge pipeline project. efficient in how we spend our money and the projects we bring on.” This is where includes new drilling and waterflood And although Chevron sees good and expansion, as well as testing some new Alaska’s permitting and regulatory processes hurt, he said. bad aspects to Alaska’s new oil and gas Forging cooperation, streamlining the regulatory process and letting the market geologic horizons in the Jurassic, below production tax, he said the company the level of the current oil fields, Davis work will help meet the Alaska challenges, he said. applauds the investment incentives that —KRISTEN NELSON said. the tax provides. ● Chevron takes the supply of natural gas to Southcentral Alaska very seriously and is “very optimistic” about its ability to sup- ply the local market in years to come,” he said, noting that Chevron’s inlet gas plans include more drilling at Granite Point and more exploration in south Kenai. “There is quite a bit of development to be done at Beluga River. … There are mul- tiple programs in place to be carried out … to make sure we continue to supply gas.” Bullish on the North Slope “We’re very bullish about the future of the North Slope,” Davis said. He described Chevron’s North Slope holdings as “a mile wide and a mile deep,” with interests in Prudhoe Bay, Kuparuk, the Brooks Range Foothills, and an exten- sive exploration fairway in the White Hills area, which is south of the Kuparuk field and southwest of Prudhoe Bay. “It’s about 40 miles long and 20 miles wide,” Davis said. “We’re pretty excited about it. We will be drilling four wells in the winter season of ’07-’08.” Chevron and partner BP were the origi- nal players in the Arctic National Wildlife Refuge, with Chevron operating the only exploration well in the 1002 area. Davis said his company is waiting to see if 12 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● EXPLORATION & PRODUCTION EXPLORATION & PRODUCTION Koreans quick to probe oil sands lease As part of a global drive to control its crude oil supplies, the South Korean BP ‘ready to go’ government’s oil company is wasting no time pushing ahead with plans to devel- op its 9,600 acre oil sands lease in Alberta. The Canadian subsidiary of state-controlled Korea National Oil Corp. has drilled 15 core holes on the property in the six months since it acquired the poten- on slope gas line tial 250-million-barrel prospect from Newmont Mining for US$270 million, and plans another 18 wells to go along with a three-dimensional seismic program this By ALAN BAILEY winter to get a better fix on the prospect. “You will see BP’s actions, not its Petroleum News KNOC Canada chief representative Jin Hyung Song told a Calgary conference words, as we move forward the timetable for the Black Gold project involves filing a regulatory application in P America President and Chairman proudly, but understanding that 2008 and, pending approval, starting construction of the C$750 million facility in Bob Malone assured the Alaska 2009. we recognize the mistakes that B Support Industry Alliance’s Jan. 19 have been made — we’re learning Initial production is scheduled for 2010, with a goal of 30,000 to 35,000 bar- Meet Alaska conference of BP’s rels per day. commitment to Alaska, including height- from them.” —BP America President and Chairman Bob KNOC Canada sole operator ened maintenance of existing oil facili- ties, the development of new petroleum Malone Although KNOC Canada is the sole operator, Song indicated the company, resources and a continuing intent to par- trans-Alaska pipeline and double-hulled because of its inexperience in the oil sands, might be open to asset swaps or other ticipate in the con- oil tankers. Three decades after startup arrangements to gain access to technology. struction of a natural Prudhoe Bay remains the largest oil field He said the company may also buy natural gas assets to hedge the cost of gas gas pipeline from in North America and one of the largest needed to fuel the thermal-recovery project and is trying to decide whether to the North Slope. JUDY PATRICK JUDY fields ever discovered; BP continues to build or purchase facilities to upgrade raw bitumen. “BP’s ready to pursue new ways to produce light oil Black Gold production would initially be sold into the North American market, go,” Malone said of from the field. but the eventual hope is to have output shipped by tanker to Korean refineries. the pipeline project, In addition to Prudhoe Bay, BP is The best hope for now is Enbridge’s planned Gateway pipeline, which could while expressing advancing the Beaufort Sea Liberty proj- involve tanker shipments of 300,000 bpd to Asian refineries, but it has been regret that the proj- ect. slowed by complex negotiations to obtain long-term shipping commitments with ect had not moved BP America “The project is awaiting final approval Chinese partners. forward in 2006. President and and a dedicated team is continuing to Song said his company has set a goal for 2015 of acquiring 2 billion barrels of “With each dis- Chairman Bob move it forward,” Malone said. reserves and production of 380,000 bpd to improve its energy security. cussion about the Malone Liberty will involve directional To date, it is involved in 28 projects in 15 countries, of which 18 are explo- North Slope gas drilling to a reservoir as far as 8 miles ration projects, he said. resources we come closer to a plan that’s from the surface drill site, thus enabling In a new energy vision released in December, the government set its sights on going to work for all parties,” Malone the development of offshore oil and gas meeting 35 percent of its energy requirements from overseas oil and gas assets said. “The economic interests of the state resources from onshore locations. compared with just 4.1 percent in 2005, while cutting its dependence on crude oil are aligned with our interests. … We both “This will open up entirely new oppor- for energy supply to 35 percent from 44.3 percent by hiking its use of renewables want something that generates the most tunities on the Slope,” Malone said. and nuclear power. revenue possible. … That’s why it’s in —GARY PARK our mutual interest to develop this line at Heavy oil lowest cost, most efficiently and with the most reliable system that we can possibly BP’s future in Alaska also includes the build.” state’s untapped heavy oil resources. North Slope gas needs to compete suc- “Current estimates are that there are 20 cessfully in an increasingly tough gas billion barrels of (heavy oil) resource, market, Malone said. He also commented which is roughly the size of Prudhoe on the enormous challenges inherent in Bay,” Malone said. the pipeline project, with an estimated The challenge is to find ways of devel- cost of $25 billion and the use of between oping this heavy oil in the arctic environ- 5 million and 6 million tons of high- ment — BP is bringing its global expert- strength steel. ise to bear on resolving the issues of “The new (North Slope) gas treatment heavy oil production, Malone said. plant alone … would be the largest gas “We plan to drill a test well and install treatment plant in the world,” Malone some facilities this year to begin looking said. at how to get … that heavy oil,” he said. BP here to stay Integrity of facilities Malone sought to dispel the latest Malone emphasized that, following rumor that BP was about to leave Alaska, BP’s problems over the past year at saying that ever since BP arrived in the Prudhoe Bay, the company is focused on state and drilled its first well rumors have ensuring the integrity of the existing circulated about BP’s lack of commit- North Slope facilities. ment to the state. “Our existing business is still the foun- “Our 50-year future in Alaska means dation,” Malone said. “With our partners we’re here to stay,” Malone said. “We we’re in the midst of a renewal effort to have a very, very focused program of ensure the integrity of our core business investments in the United States and we here in Alaska. In Prudhoe Bay major have a very focused program of invest- maintenance will increase to $185 million ments here in Alaska. … Alaska is offer- in 2007, a nearly fourfold increase from ing us one of the greatest opportunities 2004.” and the greatest stability for investment And that is just part of BP’s commit- anywhere in the world. … Alaska is the ment to learn from past mistakes, he said. second largest known resource base in “You will see BP’s actions, not its BP’s business, second only to Russia.” words, as we move forward proudly, but Malone said that BP has already made understanding that we recognize the mis- a huge investment in the North Slope, the takes that have been made — we’re learn- ing from them,” Malone said. ● PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 13

● GOVERNMENT Ethics debate heats up in Juneau Experts advise state legislators on strategies to restore public trust via overhaul of rules of conduct for citizen Legislature

By ROSE RAGSDALE report wrongdoing it, he added. “I would argue that if you don’t For Petroleum News and who do nothing Speer said it’s also important to make about ethics viola- make standards, you, as a body, certain the dilemma is really yours and not epublican leaders in the Alaska tions or illegalities will be subject to the person with your friend’s or your employer’s. Legislature have vowed to draft when they become the lowest standards.” If you go through all these stages and R ethics legislation to close loopholes aware of them. —Michael Josephson, founder of the Josephson still have an ethical dilemma, he advised in state laws, and Gov. Sarah Palin is “In the public Institute on Ethics applying the concepts of truth vs. loyalty; planning to craft her own ethics package. sphere, perception is self vs. community; short-term vs. long- Thanks to presentations Jan. 18-19 by everything,” he said. rules, all you’re doing is making your- term; and justice vs. mercy to the situation. two national ethics experts and an ethics “The accusation, MICHAEL JOSEPHSON selves vulnerable to the legally clever.” If that doesn’t clear it, he suggested white paper recently presented to the gov- itself, blemishes your using end-base thinking, where one does ernor, Alaska leaders may finally have the reputation and it blemishes the (entire Choose between right and right what is best for the greatest number of peo- tools needed to get it Legislature).” Butch Speer, Clerk of the House of ple, or rule-based thinking where one picks right. Josephson observed that people in Representatives in the Louisiana State the choice that should apply to everyone The new fervor for power are the ones most subject to tempta- Legislature, spoke to Alaska’s legislative else in the world. ethics reform in Juneau tions in our society, and in a healthy staffers Jan. 19. “Use these principles to reach and fol- reflects growing public Legislature, members can more easily After explaining that he has worked for low the highest right,” he concluded. ● pressure in recent months to clean up what resist temptation. the Louisiana State Legislature for 34 many Alaskans perceive to be state offices “Ethics rules are only as good as the years, he asked how many found it ironic Part two will focus on the Palin admin- run amok. body that enforces them,” he said. “The that he had been invited to speak on leg- istration’s white paper on ethics and leg- The ethical standards of Alaska’s part- purpose of ethics laws is not to make the islative ethics. islative reaction. time citizen Legislature grabbed the spot- dishonest person honest.” Rather it’s to “My only answer is that I’ve seen it all. light during state elections last fall after provide a healthy Legislature with the tools It’s all happened in my sight,” he said, FBI agents raided the offices of a half- to aggressively root out the “infection” that referring to the pervasive perception that dozen lawmakers Aug. 30. is damaging legislatures across the nation. Louisiana politics is rife with corruption. The issue has taken on new urgency this “I would argue that if you don’t make Speer defined ethics as not just follow- year since a federal indictment on bribery standards, you, as a body, will be subject to ing the law, but also “obeying the unen- charges against former state Rep. Tom the person with the lowest standards,” he forceable.” Anderson, R-Anchorage, and former said. Said another way, ethics is the choice to Senate President Ben Stevens, R- Josephson told the lawmakers they do more than the law requires and at the Anchorage, was fined more than $5,000 by should be outraged when they hear about same time, to do less than the law allows, the Alaska Public Offices Commission Jan. inadequate disclosures and other ethics he said. 11 for failing to disclose the names and violations. Instead, legislators tend to circle He cited the Alaska rule, which allows payments of several clients of one of his the wagons, become defensive, making lawmakers to accept gifts valued up to consulting firms. excuses for lawmakers who go astray. $250. He said legislators can’t take that Meanwhile, the FBI investigation is “I have yet to see a Legislature that much in gifts and still be ethical. ongoing and many predict more disclo- addresses what could happen,” he said. “Each of you have to define what values sures of wrongdoing. “They tend to do as little as possible.” you bring to the job,” he said. “Ethical Behind the scenes, the Legislature’s Josephson urged Alaska’s lawmakers to dilemmas are not decisions between right Select Committee on Ethics and a two- develop the broadest, most comprehensive and wrong. They are decisions between member ethics team appointed by Palin legislation they can envision and work to doing right and right.” have come forward with significant tools to get it enacted into law. Speer listed five tests a person can apply aid the reform process. “I promise you that it will not make to such a dilemma to make the ethical The select committee, which has both your life harder,” he said. “But if you choice: legal, code of conduct, gut feelings, legislators and private citizens for mem- address the problems one by one, some- front page and role model. While the first bers, invited two nationally known experts thing new will always come up. There’s three tests are fairly apparent, he said one on political ethics to conduct workshops always a legal way to do a wrong thing. applies the front page test by asking your- for Alaska lawmakers and their staffs Jan. You will be dealing with ethics violations self whether you would mind seeing your 18-19. forever. You are sentencing yourself to end- proposed action/decision splashed across Palin’s team, well-known Republican less Chinese torture, year after year, this the front page of the local newspaper. attorney Wev Shea and former Democratic new leak and that new scandal. Take the role model test by asking your- Anchorage legislator Ethan Berkowitz, “If you are not willing to go beyond the self if your personal role model would do wrote the white paper in December to guide Palin in drafting ethics legislation. Expert urges omnibus ethics bill Michael Josephson, founder of the Josephson Institute on Ethics in Los Angeles, spoke Jan. 18 on “Ethical Dimensions of Political Leadership.” Josephson, who fresh out of law school interned for former Alaska Sen. Ernest Gruening in the 1960s, cited Gruening’s strong ethical standards. Gruening was one of only two U.S. senators to vote against the Vietnam War in 1964. He told the lawmakers that every single day that they serve their ethical standards will be tested, and it is human to calculate the consequences. “We often know there is a gap between what we want to do and what we should do and then we find ourselves rationalizing,” he said. He cited at least 13 classic fallacies that people use to justify their unethical decisions and actions. Ethics reform should be about creating an environment in the Legislature where people don’t calculate and where they don’t just avoid wrongdoing but also refuse to tolerate wrongdoing by others, he said. Josephson said part of the challenge is fundamentally good people who do not 14 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● FINANCE & ECONOMY FINANCE & ECONOMY Return to normal cited for sagging oil prices The drop in Alaska oil prices represents a return to a more accurate reflection of House OKs taxes the value of the crude, not a significant decline, state analysts said. Oil prices hit a 20-month low when a barrel of Alaska North Slope crude oil dropped to $47.73 Jan. 18. The recent drop comes after record on oil companies Alaskans may not notice the highs just six months ago. However, the lower prices repre- difference over the next year, but Body plans to use money from fees and taxes, an estimated sent a normalizing market, not a sig- looking over the next decade, nificant decline, according to Kurt shrinking supplies could mean $15B, for renewable fuels; bill faces less certain future in Senate Gibson, acting deputy director of the price increases, Reynolds said. By H. JOSEF HEBERT state Division of Oil and Gas. The legislation “amounts to a Associated Press Writer “The price spike last year was prob- taking of private property” by ably the exception,” Gibson said, referring to 2005, a year of historic hurricanes. he House rolled back billions of forcing oil companies to After storms cut production in the Gulf of Mexico, the price of Alaska North dollars in oil industry subsidies Jan. renegotiate leases they view as Slope crude rose to meet lower supplies and peaked at a record $75.73 on July 14. T 18 in what supporters hailed as a valid contracts. “Eighty dollars wasn’t the real long-term value of a barrel of oil,” Gibson said. new direction in energy policy —Rep. Don Young, R-Alaska EIA credits high inventories, warm weather toward more renewable fuels. Critics said the action would reduce domestic Democratic majority of grandstanding The U.S. Energy Information Administration, which provides statistics and analy- oil production and increase reliance on and said the legislation was unneces- sis on energy industries, attributed the recent drop in prices to high inventories and a imports. sary. warm winter across the Lower 48. The energy legislation was the last of “We do not need a tax on domestic The price of crude oil directly affects gasoline prices but it is not the only factor six high-priority issues that House energy production and development,” driving prices and the effect is not immediate at the pump. Speaker Nancy Pelosi, D-Calif., had said Rep. Dennis Hastert, R-Ill., the for- Gas prices in parts of the country have dropped to $2 a gallon. pledged to push through during the first mer House speaker. “Increasing taxes on That’s not likely to last, said Doug Reynolds, an associate professor of oil and 100 hours of Democratic control. The our nation’s energy industry means one energy economics at the University of Alaska Fairbanks. bill passed by a 264-163 vote. thing — more reliance on foreign oil “It’s just kind of the lull before the storm,” he said. The bill’s prospects are uncertain the and gasoline.” Reynolds said world supplies are shrinking while demand is growing. Senate, where Democrats hold a narrow Added Rep. Don Young, R-Alaska: Though demand in the U.S. dropped 1 percent last year, Reynolds said, that does majority. The top Republican on the tax- “If you want to do things right, let’s tax not indicate a long-term trend and prices should rise again in response to the summer writing Senate Finance Committee, Sen. foreign oil.” driving season. Charles Grassley of Iowa, said the bill Young, who had on a bright red shirt, Alaskans may not notice the difference over the next year, but looking over the was “another pig in the poke” that tar- made reference to it when he said, “It’s next decade, shrinking supplies could mean price increases, Reynolds said. gets incentives necessary to promote the color of this bill we’re debating — How the prices affect consumers and producers depends on whether they hold or domestic drilling. Communist red.” The legislation not, Gibson said. If prices remain steady over the next year, it could create a budget- The legislation would impose a “con- “amounts to a taking of private proper- ary problem for the state. servation fee” on oil and gas taken from ty” by forcing oil companies to renego- “The state of Alaska is going to feel the impact, no doubt about it,” Gibson said. deep waters of the Gulf of Mexico; tiate leases they view as valid contracts, —THE ASSOCIATED PRESS scrap nearly $6 billion worth of oil he said. industry tax breaks enacted by Congress The bill would bar companies from in recent years; and seek to recoup roy- future lease sales unless they agree to alties lost to the government because of renegotiate flawed leases issued in an Interior Department error in leases 1998-99 for deep-water drilling in the issued in the late 1990s. Gulf of Mexico. Democrats said the legislation could Because of a government error, the produce as much as $15 billion in rev- leases did not contain a trigger for roy- enue. Most of that money would pay to alties if prices soared — as they have in promote renewable fuels such as solar recent years. and wind power, alternative fuels As a result, the companies have including ethanol and biodiesel and avoided $1 billion in royalties so far and incentives for conservation. stand to avoid an additional $9 billion “The oil industry doesn’t need the over the life of the leases, the Interior taxpayers’ help. ... There is not an Department says. American that goes to a gas pump that The White House said it strongly doesn’t know that,” said Majority opposes the new production fees and Leader Steny Hoyer, D-Md. Pump future lease bans. Those steps could prices topped $3 per gallon last year as reduce domestic production, according the oil industry earned record profits. to the administration. It views the repeal The bill, Hoyer said, “starts to move of the tax break for oil companies as our nation in a new direction” on energy unfairly singling out an industry. policy. That break, aimed at helping U.S. Republicans call bill grandstanding manufacturers compete against imports, has saved oil companies $700 million a The bill’s opponents accused the year, House Democrats say. ●

PIPELINES & DOWNSTREAM Flint Hills Refinery reports building fire

tier F ron N575A A small fire that broke out on Jan. 21 at Alaska’s largest crude oil refinery did

N575Q F rontier not interrupt production and refining operations, officials said. There were no injuries resulting from the fire at the Flint Hills Refinery in North Pole. It began in a service building near the processing unit and was quick- ly extinguished, said refinery spokesman Jeff Cook. “Everything worked like it’s supposed to,” Cook said. The refinery was required to notify the North Pole Fire Department and the Fairbanks North Star Borough Hazards Materials unit as a precaution, Cook said. The Fairbanks Fire Department was also called. Cook said the origin and cause of the fire were still under “a very deliberate” investigation as of the afternoon of Jan. 21. The Flint Hills Refinery produces petroleum products including gasoline, jet fuel, heating oil, diesel fuel and asphalt. It is a subsidiary of Kansas-based Koch Industries, Inc., and has a crude oil processing capacity of about 220,000 barrels per day. —THE ASSOCIATED PRESS PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 15

● GOVERNMENT Ex-Alberta-premier stokes home fires By GARY PARK paid off, then boosts the rate to 25 percent of net revenues regime would soon be under scrutiny when Finance For Petroleum News after operating costs.He noted that one recent assessment Minister Lyle Oberg can appoint a team of experts to sit on calculated that the royalty return on the Alberta oil sands a review panel. merging from years of self-imposed exile from the has declined over the last decade from C$3.39 per barrel to He also insisted that the “long-term goal of both the min- political arena, the man who led Alberta through the C$2.29 while production has doubled. ister and this government is to increase the value-added E 1970s is keeping the heat on a new provincial admin- “That’s just wrong in an era of high prices,” Lougheed (aspects of the oil sands) over the next decade.” istration to increase oil sands royalties and require declared, suggesting that the Alberta government has mis- But he urged a degree of pragmatism, suggesting that a producers to upgrade more bitumen domestically. managed oil sands growth and denied the people of the “certain amount of bitumen will always leave this Former Premier Peter Lougheed told a Calgary confer- province a fair return. province.” If projects now on the table all proceed, Alberta ence Jan. 16 he favors a slowing of oil sands development He said the depth of his feelings on the royalty issue is expected to produce 3.5 million barrels per day from the until new policies can be implemented. stems from the fact that the costs and inflationary pressures oil sands by 2020, of which 2.7 million bpd would be In particular he said royalties should be used as an incen- Albertans are facing in their day-to-day lives “are due to the processed in the province. tive to promote value-added upgrading in Alberta rather overheating in the oil sands and the over-building ... the Garry Mihaichuk, Husky Energy’s oil sands vice presi- than opening the door to unrestricted exports of bitumen to public, in growing degrees, are not finding (the current sit- dent, told the Calgary conference that it is in Alberta’s inter- US refineries. uation) acceptable.” ests to promote a diversified strategy that includes export- “People forget that (Alberta) owns the oil, we’re not just Lougheed said he supports the net profit concept, but ing some raw resources. the regulator,” Lougheed said. “We own it. If they want to said the huge project cost overruns mean a “significant He said his own company may establish a joint venture develop it, then it has to be done in an orderly way. deferral until the people of Alberta get their return on roy- some time in the next year to upgrade production in the “We should not be sending the raw bitumen down the alties.” U.S., following the lead of EnCana which struck a US$15 pipe.” He also said the government should consider incentives billion deal with ConocoPhillips last year to supply up to He said no license should be granted for future oil sands to reduce the “excessive use” of natural gas for fuel in oil 400,000 bpd to refineries in Illinois and Texas. projects that don’t include both mining and an upgrader. sands operations and find a better use for “this valuable and Marathon and BP are now scouting for similar deals to Lougheed has been a life-long advocate of building depleting resource.” In addition, he said the use of water, provide oil sands feedstock for their U.S. refineries. Alberta’s upgrading, refining and petrochemical sectors to expected to rise to 3 million bpd over the next decade, also Mihaichuk cautioned that any attempt to block bitumen capture more of the value from its natural resources. demands a solution. exports could flood the Alberta upgrading market and lower He also voiced concern that the government is receiving returns to producers and the government. less in absolute terms from a royalty regime that charges a Stelmach: royalties will be scrutinized He said Husky is trying to decide how best to manage its 1 percent royalty on gross revenues until capital costs are Newly elected Premier Ed Stelmach said the royalty risk, with the objective of spreading its portfolio. ●

FINANCE & ECONOMY FINANCE & ECONOMY Flaherty selling China on Canadian oil Canadian energy trusts pare payouts Canadian Finance Minister Jim Flaherty has given an extra prod to Chinese polit- The trickle is turning into a torrent as Canada’s energy income trusts buckle under ical and business leaders to look on Canada as a stable source of oil. a two-pronged slump in commodity prices and uncertainty in the capital markets. During a series of speeches and high-level meetings in Beijing, he said Canada In two days four oil and gas producers announced drastic cuts to their monthly cash “offers China and other nations a stable, secure and sustainable source of energy distributions and a majority is expected to follow suit. resources.” They were joined by Precision Drilling Trust, Canada’s largest service company and “In an uncertain and often volatile world, Canada is a secure source of the com- a barometer on the industry as a whole. modities most in demand and we’re making the investments necessary to unlock the In chopping 39 percent off its payout it blamed a “persistent decline in natural gas true potential our resources can offer,” he told a business audience. and oil price trends,” adding that “we only do as well as our customers.” He noted that China consumes 12 percent of global energy, but accounts for only Of those “customers,” the slashing was deep: Enterra Energy Trust, which produces 4 percent of the global economy, making it rightly concerned about future security and 13,000 barrels of oil equivalent per day in Alberta, British Columbia and Oklahoma, sustainability of the world’s energy resources.” made a 50 percent cut; Shiningbank Energy Income Fund cut by 36 percent; Progress Flaherty said the Alberta oil sands are forecast to produce 4.6 million barrels per Energy Trust 29 percent and Advantage Energy Income Fund 17 percent. day by 2015 — most current predictions stop at 3.5 million bpd — while C$400 bil- The betting is that Fairborne Energy Trust, Pengrowth Energy Trust, PrimeWest lion is expected to be invested in the Canadian energy sector over the next 8 years Energy Trust, Provident Energy Trust, Thunder Energy Trust and Trilogy Energy Trust (projects on the table for the oil sands total about C$120 billion over 10 years). won’t be far behind. He said there was a heavy emphasis on the potential of the oil sands during meet- For Shiningbank, which has already opted out of a C$496 million takeover of Rider ings with Chinese cabinet ministers and reported “significant interest” in the resource. Resources because of the federal tax ruling, it was the third cut in the past year. However, to date, only two of China’s state-owned oil companies (China National That lends weight to the view of analysts who say trusts were in trouble long before Offshore Oil Corp. and Sinopec) have minority stakes in startup oil sands projects, they faced a change in their tax status. while PetroChina has been negotiating an anchor stake in Enbridge’s proposed Now Shiningbank’s payout is estimated at 63 percent of its cash flow, compared Gateway pipeline which could deliver 300,000 bpd by tanker, starting in 2012-14. with the trust sector’s average 69 percent, which itself is a long cry from the early days The latest indications are that China is ready to provide engineering, equipment when trusts were counted on to distribute upwards of 90 percent. Those making cuts manufacturing and oil processing expertise to the oil sands, but Yingfeng Xu, an eco- all insist they need to keep more cash to improve their “financial flexibility” and their nomics professor at the University of Alberta, said China is not yet convinced the oil ability to take advantage of any opportunities that arise at such a volatile time. sands can become a major global supply source and, for that reason, is not interested The opportunities are forecast to include a lively round of consolidation as weak- in taking on an operator role. ened trusts look for mergers or get taken out. —GARY PARK —GARY PARK 16 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

Companies involved in Alaska and northern Canada’s oil and gas industry Business Spotlight ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS Hunter 3-D A Industrial Project Services Ace Transport Inspirations Acuren USA (formerly Canspec Group) Jackovich Industrial & Construction Supply FORREST CRANE Aeromed Judy Patrick Photography ACS Kenai Aviation ...... 7 Agrium Kenworth Alaska ...... 12 Air Liquide Kuukpik Arctic Catering Air Logistics of Alaska Kuukpik/Veritas ...... 15 Alaska Air Cargo Kuukpik - LCMF ...... 8 Alaska Anvil ...... 3 Last Frontier Air Ventures Alaska Coverall Lounsbury & Associates ...... 7 Alaska Dreams Lynden Air Cargo Alaska Frontier Constructors Lynden Air Freight Alaska Interstate Construction Lynden Inc. Phil Gilcrease, Manager Alaska Marine Lines Lynden International Commercial Department Alaska Railroad Corp. Lynden Logistics Alaska Rubber & Supply Lynden Transport Broadway Signs Alaska Steel Co...... 13 Mapmakers of Alaska Alaska Telecom 1Broadway Signs manufactures Marathon Oil Alaska Tent & Tarp ...... 18 signs for all applications. Aside from Marketing Solutions Alaska Textiles ...... 4 the obvious, the company now pro- Mayflower Catering Alaska West Express duces vehicle wraps and is proud to MI Swaco Alliance, The introduce the first ATV and snowmo- MWH American Marine ...... 18 bile wraps in Alaska. This means cus- MRO Sales Arctic Controls tomers can have any image or graph- Arctic Foundations N-P ics put on their snowmobiles or ATVs. Arctic Slope Telephone Assoc. Co-op. Broadway Signs also produces cus- Arctic Structures tom decals, stencils, custom-routed Nabors Alaska Drilling...... 20 Arctic Wire Rope & Supply ...... 14 aluminum, Plexiglas, and wood sig- NANA/Colt Engineering ASRC Energy Services nage for auto, work, or home. Natco Canada Engineering & Technology Phil Gilcrease has dabbled in Nature Conservancy, The almost every aspect of graphic design Operations & Maintenance NEI Fluid Technology — including Web design, print, sign Pipeline Power & Communications NMS Employee Leasing...... 9 design and manufacturing, anima- Regulatory and Technical Services Nordic Calista tion, and promotional design. He Avalon Development North Slope Telecom joined Broadway Signs in 2004 and Northern Air Cargo currently manages the commercial B-F Northern Transportation Co. department. Phil’s goal is to stay on Northland Wood Products the competitive front line of industry Badger Productions Northwest Technical Services trends while producing quality cus- Baker Hughes Offshore Divers ...... 4 tom products. He likes fly fishing, Bombay Deluxe Restaurant ...... 6 Oilfield Improvements snowboarding and snowmobiling. Bond, Stephens & Johnson Oilfield Transport Broadway Signs P.A. Lawrence Brooks Range Supply Pacific Power Products Capital Office Systems Panalpina...... 4 Carlile Transportation Services...... 5 PDC Harris Group ...... 3 Chiulista Camp Services Peak Oilfield Service Co. Computing Alternatives Penco CN Aquatrain Petroleum Equipment & Services Coldwell Bankers Petrotechnical Resources of Alaska Colville ...... 2 PGS Onshore CONAM Construction ProComm Alaska ConocoPhillips Alaska Prudhoe Bay Shop & Storage Construction Machinery Industrial PTI Group Contract Consultants Coremongers Crowley Alaska Q-Z Cruz Construction Dowland-Bach Corp. QUADCO Doyon Drilling ...... 19 Rain for Rent Doyon LTD...... 19 Residential Mortgage ...... 6 Doyon Universal Services ...... 19 Salt + Light Creative Egli Air Haul Schlumberger Engineered Fire and Safety Seekins Ford ENSR Alaska Spenard Builders Supply Epoch Well Services STEELFAB ESS Support Services Worldwide 3M Alaska Evergreen Helicopters of Alaska Tire Distribution Systems (TDS) Fairweather Companies, The ...... 10 Total Safety U.S. Inc. Flint Hills Resources TOTE Flowline Alaska Totem Equipment & Supply ...... 13 Friends of Pets Tubular Solutions Alaska Frontier Flying Service...... 14 UAA Department of Engineering Udelhoven Oilfield Systems Services ...... 3 G-M Unique Machine...... 12 Univar USA Grainger Industrial Supply Usibelli Great Northern Engineering U.S. Bearings and Drives Great Northwest VECO Hawk Consultants ...... 8 Welding Services H.C. Price ...... 11 WesternGeco Hilton Anchorage...... 17 Xtel International Holaday-Parks XTO Energy Horizon Well Logging Hotel Captain Cook All of the companies listed above advertise on a regular basis with Petroleum News PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 17 continued from page 1 “fully fleshed” and “commercially rea- is no negotiation going on with prospec- may not want to have released to their sonable, and that it will result in a project tive applicants over what the administra- competitors in this process.” BILL moving forward in a very specific fash- tion’s bill will contain. There is no “sit- The administration’s bias, Rutherford ion” is to put it in front of experts and the ting down and passing back and forth pro- said, “is that all the applications would be been an issue for many years in rural commercial applicants for feedback, posals,” Galvin said. “We’re telling them released. That’s the starting point.” Alaska “but it is becoming now a cost Rutherford said. what our idea is; we’re getting their feed- Palin said that while the companies driver in urban Alaska as well.” “We want to make sure that when we back … and then we take that information have proprietary information they want to Majority Leader Ralph Samuels, R- get through this process that we have the and process it as part of our decision mak- hold on to, and there are some legal rami- Anchorage, said legislators “need to be a vehicle that will result in a number of ing on what should be in the initial bill.” fications, “I would rather err on the side of little bit patient with the administration as applications so we need to talk to the peo- Galvin said the purpose of the discus- providing more information to the public.” they try to fine tune some of the ideas ple that we expect to be our applicants, to sions “is not to negotiate a deal: it’s to set The governor said that is “all the more they’ve got” for a gas pipeline project make sure that we create a product that up a framework that will allow maximum reason … why we have to be so adamant bill, and said “this is an excellent oppor- would be a process they’d want to partic- participation and to provide recognition on our part that we are going to provide tunity for us to educate all the members, ipate in,” said Galvin. of what the state is going to demand and what the ‘must haves’ are in front of the and not just the new members.” an understanding from the participants of public, so that they know what the criteria Samuels was to present some gas Maximizing benefits for Alaskans what they’re going to get in return and is that we’ll be using in judging these pro- pipeline basics at a meeting of House The Alaska Constitution will be the finally, making sure that what is offered posals.” Finance Jan. 25. He said the presentation basis for maximizing benefits for by the state is effective in getting the One possible approach, Galvin and would start with basic terms and “some of Alaskan, said Palin. “Generally speaking response that we want — which is mov- Rutherford said, is an executive summary the choices that any gas pipeline is going … it’s maximizing benefits for Alaskans ing the project forward.” of sorts. to have to deal with.” No matter what the when we develop any of our resources Rutherford said concerns they are hear- While the administration wants to make project is and who the players are, he and we start from there.” ing are that in a public process companies as much information as possible public, said, lawmakers have to understand the The specifics are what they’re working could be giving away “any commercial “we don’t want that to end up foreclosing difference between rolled-in and incre- on, she said. insight into how they do business or what our best competition,” Galvin said. “And mental tariffs. Asked how transparent the process their willingness will be on commercial so we’re trying to find a mix there that will Samuels said he thinks initial gas line will be, Galvin said the intent is “that the issues, such as tariff structure.” provide the public with the information the work can be done internally. “I don’t public will be able to see, and through the Galvin characterized the challenge as public needs to understand what these pro- think it’s worth the money to hire a lot of Legislature participate, in an initial deter- meeting “the public’s expectation of posals really are and what value they pro- consultants if there’s nothing to actually mination of … the state’s basically base- understanding why a particular project was vide, while also not foreclosing partici- look at,” he said. Once the basics are pre- line requirements for a proposal.” He said selected while still being sensitive to the pants.” sented, the Federal Energy Regulatory it is also anticipated that the public will be proprietary information that a company —KRISTEN NELSON Commission or the National Energy able to see proposals as they come in, “so Board could be invited in. they will understand the choices that were But you need to start with the basic, he made, ultimately, in deciding which proj- said: “You need to know these terms ect to do and then moving forward with before you’re going to understand what NATURAL GAS it.” the FERC’s even talking about.” The public will, through the Partnership weighs ‘syngas’ plant How much negotiation? Legislature, be able “to discuss what types and amounts of inducements it is Sherritt International, a diversified Canadian resource company, and the In a Jan. 18 press conference, Palin, willing to permit to move this project for- Ontario Teachers’ Pension Plan Board are exploring the prospect of building a Acting Commissioner of Natural ward,” said Rutherford. “That is com- C$1.5 billion plant in Alberta to produce synthetic gas from coal as a substitute Resources Marty Rutherford and pletely distinct from the … discussion for natural gas. Commissioner of Revenue Pat Galvin that occurred under the last administra- Under their Carbon Development Partnership, they hope to build and open a talked about the new gas pipeline act the tion where … there was never full disclo- pit mine and gasification plant 50 miles southeast of Edmonton to process coal administration is working on, the Alaska sure of what inducements were imbedded into “syngas” that would find a role as petrochemical feedstock or as a high-puri- Gasline Inducement Act or AGIA. within that proposed contract.” ty hydrogen. The criteria by which benchmarks will Rutherford said the new proposal will A disclosure document said the initial gasification unit would be able to make be evaluated will be in the bill, Galvin include what the administration believes 320 million cubic feet per day of syngas from coal and further refine it into 270 said. The administration expects “that the it is important for the state to receive from million cubic feet per day of hydrogen. applicants would provide the benchmarks the project: “… a reasonable tariff struc- The plant could make up to 12,500 metric tons per day of carbon dioxide for that they feel are appropriate and then the ture, an assured tariff structure, an enhanced oil recovery. proposals would be evaluated” based on assured process for expansion, for solicit- Syngas and hydrogen could find an outlet among companies that operate the criteria. ing interest in an expansion and then the steam-driven oil sands operations or those who upgrade the raw bitumen. Rutherford said the administration process by which expansion will occur.” But the partners say they have not yet established that their product will be wants to see competitive applications, Both are critical to the state “in terms of cheaper than natural gas. and the goal would be for the applicants our future ability to explore and develop A final decision to go forward will not be made until mid-year when prelimi- “to try to give us very specific bench- the additional resources that exist on the nary engineering will give them a better grip on the economics of a plant. marks, attainable benchmarks and expe- North Slope,” Rutherford said. For now, based on studies of other gasification plants around the world, they dient benchmarks so that we see real are optimistic a facility can open in 2011. movement forward on the project.” Not negotiating bill —GARY PARK As to when the Legislature will see the Both Rutherford and Galvin said there bill, the governor said it is “imperative that this is vetted in front of more experts,” and said she’s asked that the bill not be put into the Legislature’s hands for consideration “until we have absolute confidence that this is going to result in a project.” The best way to ensure the approach is 18 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 continued from page 1 MGP, it sets a goal of hiring NWT residents Analyst: deal one of many checkmarks continued from page 1 for 16 percent of the pipeline construction Chris Theal, an analyst at Tristone TRAINING jobs, which represents an average 790 jobs Capital, said the pact builds confidence BORDER a year over four years, although the MGP, in that the MGP will eventually happen, key success for him is a C$21 million job its drive for cost-control, is exploring com- He expects that choice will be although he described the deal as just one training fund, to be jointly funded by the pletion of the pipeline in only two years. based on the project that generates of many checkmarks. NWT government and the industry part- Once a pipeline is operating, northerners the “biggest netback to Alaska citi- He suggested that Imperial wouldn’t ners. will qualify for 72 percent or 138 of the full- zens.” have made the agreement public unless it Broken down, it would provide C$1 mil- time positions. Bell said NWT would raise objec- was committed to the project. lion a year over 10 years once construction But Bell concedes the NWT, with a pop- tions only if Alaska revived talk of a Rolheiser was more cautious. starts, then C$500,000 a year through the ulation of only 43,000, of whom only 2,000 subsidized floor price for the gas, Unwilling to characterize the pact as a project’s operating life, which Imperial Oil are unemployed, will be “challenged to which he said would be “market dis- positive step forward, he said it would spokesman Pius Rolheiser notes is “an meet the employment targets.” torting.” only become that if the project does pro- indefinite thing” because of uncertainty However, reaching a deal well in However, he said it appears that ceed. over how large the pipeline system will be advance of any final decision to proceed “issue has largely faded,” especially He told Petroleum News many “more and how much gas might be discovered if gives the NWT some time “to get out in since the last Congressional elections significant milestones” have yet to be the MGP proceeds. front ... and do as much as we can now” to that have removed the appetite in reached, covering regulatory approvals Bell told Petroleum News he views the put skills and employment programs in Washington for making concessions and conditions, final costs and construc- training program as a breakthrough because place, he said. to Big Oil. tion schedules, commercial agreements it is not confined to just pipeline construc- “Anybody who is eager and wants to —GARY PARK with producers and customers and a fiscal tion. The objective is to prepare northern work will be able to,” Bell said. framework with the federal government. residents for future exploration and devel- The overall significance of the agree- Although the agreement has been opment that will be a building block in a ment tends to be in the eye of the beholder. economic agreement is modeled along the signed and executed and takes effect 100-year industry. Bell rated the signing as a “big milestone lines of similar pacts for the NWT’s three immediately, most of the programs only ... a very good sign that moves this project Agreement modeled on mine pacts operating diamond mines. swing into action if a decision is made to Based on the regulatory filings for the ahead.” Three years in the making, the socio- go ahead, Rolheiser said. ● continued from page 1 ’99,” he said. degrees F Jan. 9 of this year. the past, Dieckgraeff told the commission. Enstar serves more than 125,000 But it took more gas to meet 2007 needs, Demand is not being met on peak days, he USEAGE meters and some 340,000 Alaskans with 292 million cubic feet compared to 272 mil- said, and additional work needs to be done more than 3,000 miles of distribution and lion cubic feet in 1999. The bulk of that, to stem the decline in deliverability. pulled from the liquefied natural gas plant transmission lines. It is the state’s largest 227 million cubic feet this year and 187 mil- And infrastructure work is needed to at Nikiski, which was shorted 35 million energy utility. lion cubic feet in 1999, was for Enstar gas transport natural gas to residential, commer- cubic feet. sales. The company also had commercial cial and industrial customers. It took all the producers working Changes since 1999 transport (16 million cubic feet this year vs. There are bottleneck issues: intercon- together to meet the peak need, he said. Dieckgraeff compared peak days on the 29 million in 1999); power transport (44 nects are needed between three lines and/or And it took working around bottle- system — one in 1999 and the one this year. million cubic feet this year vs. 56 million in fields. In particular, the North Cook Inlet necks, moving gas in ways it doesn’t usu- It was colder Feb. 3, 1999, minus 19 1999); and industrial transport (5 million field, which provides ConocoPhillips’ sup- ally move. “We’ve not seen this since degrees Fahrenheit, compared to minus 10 cubic feet Jan. 9 vs. none on Feb. 3, 1999). ply to the LNG plant, only connects to the Where the gas came from was dramati- plant, so a connection is planned this sum- cally different in 1999 than this year. mer between the line going to the plant and On Feb. 3, 1999, 89 million cubic feet CIGGS, the Cook Inlet gas gathering sys- came from production wells on the Kenai tem. Peninsula; 183 million cubic feet came from production wells on the west side, What’s the plan? including the Steelhead platform. The Jan. 9 peak was met by shorting the On Jan. 9, 170 million cubic feet came industrial plants and moving gas in ways it from the Kenai, but only 115 million of that doesn’t usually move. was from production wells: 55 million What if even more gas is needed? cubic feet came from gas storage. Dieckgraeff said Enstar would ask for From the west side this year Enstar got more gas from the LNG plant; ask power 122 million cubic feet, 114 million from utilities to decrease sales to customers out- production and 8 million from storage. side of Cook Inlet; bring power in from Fairbanks — instead of sending power to Drop in deliverability Fairbanks; and ask power customers to Dieckgraeff said there was more gas switch to other sources of power, such as available in 1999. hydro and fuel oil, where they can. On the previous peak, in 1999, Cook Commissioner Dave Harbour asked Inlet delivered 744 million cubic feet: 272 Dieckgraeff what else they could do in an million to the Enstar system; 78 million to emergency situation. Chugach Electric Association at Beluga; Dieckgraeff said if Enstar was getting 224 million to the LNG plant; 157 million everything it could from the industrial to the fertilizer plant; and 13 million to plants, and power from Fairbanks, and local Tesoro. plants were switching where they could to On Jan. 9, 2007, however, the total hydro and fuel oil, it would ask customers dropped to 531 million cubic feet: 292 mil- to conserve. lion to Enstar; 83 to CEA; 150 million to the The next step, he said, would be to con- LNG plant; zero to the fertilizer plant (shut- sider blocking off portions of the system. down for the winter); and 6 million cubic To cut people off you have to turn the feet to Tesoro. gas off at individual meters, he said. That, Dieckgraeff noted, is a loss of 200 Enstar might have to block off portions million cubic feet of deliverability. of the system to avoid getting into a situa- In addition to the drop in deliverability, tion where there isn’t enough gas to keep natural gas has to move differently than in pressure up in the system, which would mean the system would shut down. This, Dieckgraeff said, would be the “125,000- pilot light scenario” Enstar has discussed at the commission in the past. Former Enstar CEO Tony Izzo talked about the loss of adequate pressure in the system, calling it the “nightmare scenario,” at the Southcentral Energy Forum in September (see story in Oct. 1, 2006, issue of Petroleum News). Each meter, Izzo said, would have to be individually turned off; the lines would have to be tested and gas re-introduced; and each meter and pilot light would have to be individually restarted, work which could, collectively, take months.● PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 19 continued from page 1 drilled,” as local natural gas prices started said, the economics aren’t there to drill The LNG tankers were replaced in the to move toward world market prices. the wells because there is no utility late 1990s, Barnes said. EXTENSION “Southcentral still has a benefit vs. the demand for the gas. world market,” he said, but prices have The plant is in good shape, Jones said. Deliverability the issue to provide the economics for a spur line to gone from about $1.50 per thousand cubic Because the gas is almost 100 percent Recently there’s been a hitch in con- Southcentral from a North Slope gas feet to more than $4, which has spurred methane, with very small amounts of tracting for gas supply. pipeline. activity. impurities, in the old vessels at the plant The Regulatory Commission of Alaska And there’s been talk about using the Supply and demand are now in better “you see the chalk marks from the origi- rejected a proposed Marathon-Enstar plant as an LNG import facility “or bridg- balance, Jones said. Some 8.5 trillion nal measuring and cutting the steel” Natural Gas supply contract last year. ing tool until you get to that spur line. cubic feet of natural gas were discovered because the surfaces are so clean. Barnes said “the key point to remem- That won’t happen if that plant’s not run- in the Cook Inlet basin in the 1950s and Pieces of equipment have been ber out of that — it’s not an issue with the ning,” he said. 1960s when companies were searching replaced at the plant, most recently the gas.” RCA disagreed with the pricing Barnes said his answer to why an for oil. turbine on the fuel gas compressor, “so structure in the contract, he said, “it’s not extension should be granted is: “It makes “That’s why the LNG plant and the we’re making investments so the plant is good sense.” fertilizer plant were built, was to mone- able to go on into the future.” see EXTENSION page 20 License expires in 2009 tize all that excess gas,” Jones said. “We’ve still got some excess gas, Many gas discoveries were made in which is why we can go ahead and export the 1950s and 1960s when companies it,” he said. drilled for oil in the And because prices are up, “we can go Cook Inlet basin. ahead and drill,” Jones said. Wells at the The Kenai lique- North Cook Inlet field will be in-fill fied natural gas drilling, delineation wells, rather than plant, and the near- rank exploration, he said. by fertilizer plant, Marathon has been drilling for a num- were built to make ber of years — it built in its own rig for its use of the gas. onshore gas drilling seven years ago — The LNG facility and Barnes said drilling “activity has began operations in been part of our longer-term plans.” If 1969, the companies DARREN JONES there’s a market, he said, “there’s … said. It employs 58 resource opportunities to pursue” and people and supports extension of the LNG plant license “is a another 128 jobs in critical part of maintaining that market.” the Kenai communi-

JUDY PATRICK JUDY Marathon will continue to work ty. onshore, Barnes said: “We’ll stay where The present we’ve been playing.” export license expires in 2009; the What about the market? extension would Jones said the LNG plant’s customers allow export of “are very interested in gas from this proj- JOHN BARNES LNG for two more ect.” years, to 2011. Alaska gas is only 1.5 or 2 percent of The plant, operated by their supply now and would fit into their ConocoPhillips, is owned by supply portfolio, Jones said. ConocoPhillips (70 percent) and “They’ve told us … we’re interested; Marathon Oil Corp. (30 percent.) we’ll talk to you when the time is right.” Darren Jones, ConocoPhillips Alaska And that time will be right, he said, when vice president of commercial assets, told we have permission to export. They don’t Petroleum News in an interview after the want to negotiate a contract and then find announcement that the application has the gas can’t be exported. been turned into the Department of Based on DOE precedent you need a Energy but won’t be public until DOE gas sales contract for a five-year exten- determines it is complete and notices it in sion, Jones said, but not for a two-year the Federal Register. extension. The last two export license extensions As to how long the DOE process could have been for five years, he said. take, Jones said it took two years last Why a two-year extension? time. Jones said “it’s really a recognition of The drilling ConocoPhillips has the fact that there is a change in the Cook planned at its North Cook Inlet field is Inlet gas market,” with questions being tied to the export license extension. asked about whether or not there are suf- Without the export extension, Jones ficient supplies. He said the utilities “pretty much have gas through that time so it’s not a big issue there. At least they’ve identified gas sources.” Barnes said the extension issue is fed- eral, “although they will take input from the local communities and they will con- sider … the U.S. and local gas needs in their application review.” Extension would drive activity The extension would “drive increased activity for ConocoPhillips,” Jones said. Overall activities include additional seismic planned with partners at the Beluga gas field, which ConocoPhillips operates. The main source of ConocoPhillips’ gas for the LNG plant is the North Cook Inlet field, produced from the Tyonek platform. “We’re planning two to four additional wells” at a cost of $10 million to $20 mil- lion each to support the license extension, Jones said, “so one of the reasons this is a good thing is it helps drive increased upstream activity in Cook Inlet.” Natural gas drilling in the inlet was light from 1985 to 2000, Jones said, but in “the last five years 75 wells have been 20 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 continued from page 19 LNG plant acts as text with all the other issues that we’re bal- “We’re planning two to four that plan B, and ancing in terms of the regional supply pic- EXTENSION additional wells” at a cost of $10 that’s very valuable.” ture, as well as the direct economic benefit million to $20 million each to “We’re willing to that the plant provides to the local econo- about the gas available.” support the license extension, “so work with those my,” he said. “Gas was offered,” Barnes said, adding needs and turn the In addition to its importance to the that it’s not correct to say there is a gas one of the reasons this is a good thing is it helps drive increased plant up and down,” Kenai Peninsula economy, the LNG plant shortage. Jones said. That is “also important in terms of maintaining upstream activity in Cook Inlet.” RCA rejected the contract. “But the “subsidizes yours a demand picture” for a future connection issue that’s left hanging, really, is what is —Darren Jones, ConocoPhillips and my gas price. We BILL POPP with a North Slope gas pipeline spur into an acceptable price model?” Alaska vice president of don’t have to pay for Southcentral Alaska. The commission had previously commercial assets that backup.” “If that ever becomes a reality,” Popp accepted pricing models based on Henry Bill Popp, special assistant to the mayor said, “it’s going to be based in no small Hub spot market prices, but rejected this short-term deliverability, so one of the key and oil, gas and mining liaison at the part on having enough demand, which is contract. benefits of having the LNG plant is that Kenai Peninsula Borough, said that in the going to be focused quite a bit on the Barnes said it isn’t a gas issue, “it was it’s a key part of the Southcentral energy Lower 48, where utilities pay for gas stor- industrial side of the piece at the end of the about a price model that they were step- infrastructure. If we have a really cold day, age, “they pass that cost for storage on to pipe.” ping away from.” or if there was a system breakdown some- consumers.” How much gas is there? Depending on where, we can bypass the plant” and easi- Enstar opposes extension the study you look at, Jones said, there is ly provide that backup supply “with mini- Borough waiting to see application Enstar Natural Gas Co., the 1.6 to 1.7 tcf, with the Alaska Department mal impact to the facilities.” Popp told Petroleum News the borough Southcentral gas distribution utility, of Natural Resources showing about 1.6 If the LNG plant wasn’t there, “the administration supports the application opposes the extension. For now. tcf of resources “proved or probable local utilities would have to charge the being filed. “We are opposed to it as long as long- reserves in the basin.” consumers to either pay a lot more for But it hasn’t decided whether or not it term gas supply contracts are not in place But, Jones said, on the coldest days more people to drill more wells … or they will support the export extension applica- for consumers in Southcentral Alaska,” there is a deliverability challenge. would have to invest in a lot of storage.” tion. said Curtis Thayer, Enstar’s director of ConocoPhillips is putting in compres- Upstream companies are now trying to “We have not passed judgment yet on government and public affairs. sion at Beluga right now and put in com- develop storage, he said, “but you need whether or not we’re going to support the With the rejection by RCA of the Enstar pression on the Tyonek platform a couple that backup, you need a plan B if some- ultimate outcome of that application, contract with Marathon, Enstar starts to of years ago, Jones said. “The additional thing goes wrong, either short-term or if because we need to see it, we need to have a shortfall in gas in 2009 of 1.5 bil- wells we’re planning to drill help meet that there’s a breakdown in the system, the understand it and we need to put it in con- lion cubic feet a year, out of some 30 bcf the company expects to need in 2009. In 2010, he said, the shortfall would be 5 bcf. Those are estimates, Thayer said, because customers keep coming back to Enstar as other suppliers are unable to deliver gas. In 2006, 4 bcf returned to Enstar as customers, including the State of Alaska, the Anchorage School District, the Municipality of Anchorage and Fairbanks Natural Gas. This doesn’t change what Enstar makes because it charges to transport, but it needs more gas, Thayer said. The contract RCA rejected would have provided that supply through 2016 and into 2018. He said Enstar wants to see its long- term gas supply go past the extension peri- od. Enstar is planning to go out with a request for proposals to all Cook Inlet pro- ducers for gas starting in 2009, and hopes to get long-term contracts. But, he said, only Marathon responded to the last RFP. The Marathon contract took six months to negotiate and a year for the RCA process. It’s 2007 and Enstar has a shortfall in 2009, Thayer said. ● 3 Interview with new DEC commissioner J.P. Tangen: Alaska governor picked knowledgeable expert to head department

4 Plans under way for 2007 Alaska work Freeman: It’s the calm before the storm as drilling, helicopter contracts negotiated

14 Wolverine project's prospects come alive New study: Yukon zinc mine construction could begin this year if financing secured

A special supplement to Petroleum News

A WELDER WORKS ON A PIECE OF EQUIPMENT WEEK OF AT THE USIBELLI COAL MINE NEAR HEALY January 28, 2007 PHOTO BY CHRIS AREND/COURTESY USIBELLI COAL MINE 2 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● YUKON BCGold takes bold position in Yukon Aggressive prospector sells knowledgeable junior on potential of mineral claims near and contiguous to Minto and Carmacks deposits

By ROSE RAGSDALE For Mining News

CGold Corp., a Vancouver-based startup launched in February 2006, B has grabbed nearly 4 million acres of mineral claims adjacent to and near the Minto and Carmacks (Williams Creek) copper-gold deposits in west-central Yukon. BCGold said Nov. 27 that it entered into a letter of agreement with Shawn Ryan, a Dawson City, Yukon-based prospector and project generator, to acquire 100 percent ownership in 557 mineral claims compris- ing more than 11,640 hectares, or 3.84 mil- lion acres. Ryan staked the properties based on their proximity to the Minto and Carmacks deposits. The claims cover areas with sim- ilar geological, geochemical and geophys- ical characteristics known to reflect near- surface, porphyry-style copper-gold miner- alization. Minto and Carmacks are porphyry- style, high-grade bulk tonnage copper-gold deposits and are currently being developed by their respective owners Sherwood Copper Corp. and Western Copper Corp. Sherwood Copper expects to begin com- mercial production at Minto in the second quarter of 2007, while Western Copper anticipates startup of production at Williams Creek in the third quarter of 2008. “It is not very often that one can acquire a claim package of such quality and size, in an under-explored region on the doorstep of two deposits in the mine development stage,” said BCGold Vice President Brian P. Fowler. “The discovery potential for a ‘standalone’ deposit and/or supplemental mill feed for the Minto and Williams Creek mining operations are excellent. One couldn’t ask for better geological potential, logistics and project location.” The claims are in an area of the Dawson Range that has seen little follow-up explo- ration since the 1970s when Asarco Inc. and affiliates discovered the high-grade Minto deposit. The Minto and Williams Creek (Carmacks) deposits lie within a north- west-trending belt in western Yukon along the eastern margin of the Yukon-Tanana Composite Terrain, the latter being com- posed of several metamorphic assemblages and batholiths. The area is underlain by three main lithological assemblages. Intermediate to felsic intrusive and meta- intrusive rocks of the early Mesozoic Granite Mountain Batholith underlie much of the area and are interpreted to be intru- sive into the Yukon-Tanana Terrane (Gordey and Makepeace, 1999). The batholithic rocks are in fault and/or intru- sive relation with an unnamed package of altered mafic volcanic rocks to the north- east, and are un-conformably overlain by sedimentary rocks and volcanic flows of the Late Cretaceous Tantalus Formation and Late Cretaceous Carmacks Group, respectively. Outcrop sparse, brush thick, in area The area has potential for high-grade porphyry copper, gold and molybdenum mineralization. But regional structure is poorly understood because outcrop is very sparse (less than 1 percent) and the area is un-glaciated and deeply weathered. “It’s a tough place to look,” said Yukon see BCGOLD page 4 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 3

● GUEST COLUMN Mining and the Law: Governor picks knowledgeable expert to lead DEC By J.P. TANGEN ects. Prior to that, I worked mostly on land LH: I hope that my 23 years experi- Guest Columnist title issues. I worked in the land legal ence as an environmental attorney in Mining department at Alyeska Pipeline Service Alaska working with EPA, DEC and other & the hile the jury may still be out when Co. (for a contractor), assisting with right- agencies for a variety of clients has given it comes to our new governor, of-way work during construction of the me a good understanding of the environ- law W Sarah Palin, it sure seems like she Trans-Alaska Pipeline System. From there, mental programs administered by DEC The author, is starting off on the right foot. Every I went to work for several title companies. and the science behind these programs. I J.P.Tangen has administration must wrestle with the need also trust that I have gained insight into the been practicing to recruit high-quality leaders to head up JPT: What is your educational back- practical concerns regulated parties are mining law in J.P. TANGEN the state’s many agencies and departments. ground? faced with as they strive to meet all of Alaska since 1975. He can be reached at First, the best and the brightest must be their environmental obligations. Through [email protected] or visit his Web site at persuaded to put down their present voca- LH: I have a law degree from Lewis my involvement in the permitting of proj- www.jptangen.com. His opinions do not tions, usually at a substantial pay cut, to & Clark Law School in Portland. ects around the state I have become famil- necessarily reflect those of the publishers pursue a new direction; next, they are con- of Mining News and Petroleum News. fronted with the dilemma of whether to JPT: How did you happen to get see TANGEN page 4 relocate to Juneau involved with representing mining opera- with the attendant tions? life disruptions, or commute as the LH: I joined Hartig Rhodes Hoge & North of 60 Mining News is a monthly supplement of the weekly newspaper, Petroleum News. It will be published in the fourth or demands of state FORREST CRANE Lekisch after law school in 1983. The firm fifth week of every month. require; and finally was doing a substantial amount of oil and they must be pre- gas and mining related work. Because of ADDRESS Kay Cashman PUBLISHER pared to bear the my strong interest in natural resource P.O. Box 231651 scrutiny of the mobs development and environmental law, I Mary Lasley CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1651 that couldn’t or soon began working with the firm’s natural Kristen Nelson EDITOR-IN-CHIEF LARRY HARTIG EDITORIAL wouldn’t venture into resource clients. Over the years I contin- EDITOR (Contractor) Sarah Hurst Anchorage public service themselves but have the ued to become more and more focused on Susan Crane ADVERTISING DIRECTOR 907.522.9469 “constitutional right” to sling mud at those natural resource and environmental law Amy Spittler ASSOCIATE PUBLISHER Canada who do. matters. [email protected] Gov. Palin has asked Larry Hartig to be Curt Freeman COLUMNIST Gary Park CONTRIBUTING WRITER (CANADA) BOOKKEEPING & CIRCULATION her commissioner of Environmental JPT: Do you think that mining can be 907.522.9469 Conservation, and I, for one, loudly consistent with the need to protect the Allen Baker CONTRIBUTING WRITER Circulation Email applaud her choice. I asked Larry a series environment? Rose Ragsdale CONTRIBUTING WRITER [email protected] of questions designed to highlight his Tim Kikta COPY EDITOR record and introduce him to the populace, LH: I believe, like a majority of ADVERTISING Judy Patrick Photography CONTRACT PHOTOGRAPHER 907.770.5592 and here, in his own words, is his reply: Alaskans, that responsible resource devel- Forrest Crane CONTRACT PHOTOGRAPHER Advertising Email opment is critical to the state. Alaskans are [email protected] JPT: Larry — Tell us a little bit about also acutely aware of the risks to the land Steven Merritt PRODUCTION DIRECTOR your background and experience with and water of the state if development is not Tom Kearney ADVERTISING DESIGN MANAGER CLASSIFIEDS 907.644.4444 environmental regulation. done right. The public must have confi- Mapmakers Alaska CARTOGRAPHY dence in the companies who operate in Heather Yates OFFICE MANAGER FAX FOR ALL DEPARTMENTS LH: I have been an attorney in Alaska and the state agencies who regulate Michael Novelli CIRCULATION MANAGER 907.522.9583 Anchorage in private practice for the last them. It is important we all work together Shane Lasley RESEARCH ASSISTANT 23 years, primarily assisting mining, oil to build this public trust. and gas, and other resource companies in Chris Tuck INSIDE CIRCULATION SALES Several of the individuals complying with environmental laws. This JPT: As a newly appointed regulator, Dee Cashman CIRCULATION REPRESENTATIVE listed above are independent contractors work has included helping clients secure what experiences can you bring to the job permits from the Environmental Protection that will make the Department of Agency, DEC, the Corps of Engineers and Environmental Conservation more effec- NORTH OF 60 MINING NEWS is a monthly supplement of Petroleum News, other agencies for natural resource proj- tive in carrying out its mission? a weekly newspaper. To subscribe to Petroleum News and receive the monthly mining supplement, call (907) 522-9469 or sign-up online at www.PetroleumNews.com. The price in the U.S. is $78 per year, which includes Contact North of 60 Mining News: online access to past stories and early access to Petroleum News every week. Editor: Sarah Hurst [email protected] (Canada/Mexico subscriptions are $165.95; overseas subscriptions are $200) Phone: 907.248.1150 • Fax: 907.522.9583 Or, just purchase the online edition of Petroleum News, which also includes the Address: P.O. Box 231651, Anchorage, AK 99523 mining supplement and online access to past stories, for $49 per year. 4 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● GUEST COLUMN Alaska mining news summary: Plans under way for 2007 work

hhhh, the calm before the storm! tonne, 250 grams of silver per tonne, and 400 meters with concentrations of gold Over the last month the industry The 3.0 percent combined lead and zinc. Soil to 66 parts per billion, silver to 9.5 parts A slowed and took a collective samples collected on a 100 meter square per million, lead to 2,163 parts per mil- breath to enjoy friends, family and author grid placed over the Saddle Prospect lion, and zinc to 3,223 parts per million. the holidays in anticipation of another The author defined a new precious metal anomaly Pan concentrates collected from the head busy year in the Alaska mineral industry. Curt Freeman, over an area measuring 1,500 meters by of Quartz Creek yielded visible grains of The last month has already seen CPG #6901, is a 200 to 300 meters with concentrations of gold and values of uranium to 186.2 another new player enter the Alaska well-known geol- gold to 148 parts per billion and silver to parts per million and thorium to 685.9 mining scene and behind closed doors ogist who lives in 12.8 parts per million. parts per million. drilling, helicopter and personnel con- Fairbanks. He pre- A new gold prospect was found in Significant molybdenum-uranium tracts are being negotiated. pared this column CURT FREEMAN exposures of oxidized veins within mineralization also was found in silici- The annual Cordilleran Roundup min- Jan. 21. Freeman can be reached by intensely altered plutonic rocks along fied, syenite breccia at the Peace River ing convention in Vancouver is right mail at P.O. Box 80268, Fairbanks, AK Quartz Creek at the north end of the Prospect where rock samples gave con- around the corner and promises to be the 99708. His work phone number at claims. Grab samples of rocks, over a centrations of molybdenum from 587 to most exciting conference in over a Avalon Development is (907) 457-5159 distance of 550 meters of exposed gos- 632 parts per million, uranium from 65.8 decade. The conference is always attend- and his fax is (907) 455-8069. His email san, yielded gold values from 114 to 325 to 131.9 parts per million and silver to ed by both the “who’s who” of today’s is [email protected] and his web site is parts per billion, silver from 10.6 to 35.4 4.0 parts per million. mining industry as well as the “who will www.avalonalaska.com. parts per million, copper to 872 parts per Pan samples of alluvial gravels within be who” of tomorrow’s mining industry. million and combined lead and zinc to old placer workings on Dime Creek Trick is how to tell one from the other! results from its Granite Mountain project 2.1 percent. yielded grades of 1.4 to 3.5 grams of on the Seward Peninsula. The Gossan Ridge soil grid was coarse gold per cubic meter. Assays of Western Alaska Samples of mineralized rocks at the extended to the west and indicates a the pan concentrates yielded platinum surface of the Saddle Prospect yielded LINUX GOLD reported additional low-level precious metal anomaly over assays of up to 2.58 grams of gold per an area of about 1,300 meters by up to see FREEMAN page 5

continued from page 2 area is the substantial high-grade deposits already identi- Terms of the deal are subject to the approval of securi- fied there, Burke said. Though Minto is not a big discov- ties regulators in Canada and may be accelerated at BCGOLD ery yet, it is an exceptionally fine deposit by industry stan- BCGold’s option. dards, he said. For example, companies are developing The junior mining company said it intends to conduct government geologist Mike Burke. “The bush is really, mines in British Columbia containing 50 million tons of an aggressive, multi-disciplined exploration program on really thick.” ore with average grades of 0.3-0.5 percent copper, he said. the properties this year. It also aims to actively pursue The Yukon government conducted an airborne survey By comparison, Minto has 8 million tons, with average joint venture partners and alliances to share exploration of the whole belt in 2000-2001 using modern technology grades of 1.8 percent copper. risk and expenses. including magnetics and radiometrics, according to BCGold describes its mission as the pursuit of signifi- Burke. BCGold positioned to acquire 100 percent interest cant new precious and base metal deposits in British “That data has been sitting there, while reports on BCGold, a company with numerous mining industry Columbia and Yukon, particularly in underexplored his- exploration at the Minto and Carmacks deposits keeps professionals among its shareholders, is positioned to toric mining and exploration districts. getting better and better,” Burke said, noting that acquire 100 percent interest in the claims by paying Ryan Since completing an initial public offering in June and Sherwood Copper announced Jan. 9 that it has uncovered $300,000 in cash and 1 million units over a four-year peri- a private placement of $1 million in September, the junior a new area with exceptionally high grades of copper min- od. Each “unit” will consist of one share of BCGold’s has signed options on the Voigtberg and Toodoggone eralization at Minto using new exploration techniques. common stock and one-half of one common-share pur- properties in northern British Columbia with Kaminak “Mr. Ryan started looking at our airborne geophysics chase warrant. Each whole warrant can be exercised to Gold Corp. and Stealth Minerals Ltd., respectively. and compared it with what was known on the ground,” purchase one share of BCGold common stock for two BCGold and joint venture partner Kaminak Gold also Burke recalled. years after the date it is issued at a per-share price to be announced a significant new gold discovery on the Ryan, whom Burke described as an exceptional determined by a formula agreed upon by the two parties. Voigtberg property in September. A $350,000, four-hole prospector, developed targets in the area, staked them and BCGold also agreed to spend a minimum of $900,000 diamond drilling exploration program returned 51.15 then got BCGold interested. to develop the properties. meters of porphyry-style mineralization grading 1.03 The critical factor for explorationists looking at the grams per ton gold within altered volcanic rock. ● continued from page 3 advantages to the State of Alaska having sion of mine waste on the toxic release LH: I have spent more time in my primacy. These include having permit writ- inventory; do you have any thoughts as to practice representing mining companies TANGEN ers who better understand the Alaska envi- the appropriateness of this listing or than other types of resource client, but I ronment, are more accessible to the per- whether it should be changed somehow? have worked with major oil and gas com- iar with local concerns, such as subsistence mittees and public, and who can be more panies, independents and oil service com- hunting and fishing, commercial fishing, responsive to permitting needs. There are LH: I can certainly appreciate the panies in Alaska on a variety of matters. In and the need for a good public process to also challenges to taking over NPDES per- public’s interest in knowing the types and regards to logging, I have served on the try to avoid or minimize future conflicts. mitting. These include training or finding quantities of wastes that are being generat- state Board of Forestry for over 12 years. enough qualified permitting people to meet ed and managed in the state. It is important This board oversees and annually reports JPT: Do you have any thoughts with the needs of the program. Another chal- the information conveyed to the public be to the governor and Legislature on the regard to the state taking over the lead lenge will be adequately funding the pro- factually correct. There is certainly the risk state’s Forest Resource Practices Act. The from EPA concerning the issuance of gram while maintaining reasonable permit the terms “toxic release inventory,” when act governs harvest activity in riparian National Pollutant Discharge Elimination fees. applied to low-toxicity, well-managed areas. I was involved, through the Board of System permits? waste, could mistakenly imply there has Forestry, in the development of the current JPT: Mines are listed as a primary been an actual release to the environment FRPA regulations. I have also represented LH: There are a number of potential source of pollution because of the inclu- with dire consequences. Native corporations with mineral, timber and fish plant operations. I have found JPT: Do you have any substantial these different industries share many of the experience with the environmental prob- same environmental issues and require- lems of other major Alaskan industries ments. ● such as oil and gas, logging or fishing? PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 5 continued from page 4 At Mary’s East prospect 9, 10 drill gold mineralization in the blue quartz Rimfire Minerals Corp. said holes returned values greater than 0.01 veins. Sampling has now traced the Red FREEMAN Alaska-newcomer Evanachan Ltd. troy ounces of gold per bank cubic yard, Quartz vein system in float, outcrop and has signed an option agreement to ranging from 0.03 troy ounces of gold rubble samples along a 300 meter strike from 0.63 to 9.23 grams per tonne and explore Rimfire’s Goodpaster per bank cubic yard to 1.72 troy ounces length before plunging beneath a ground chromium to 1.2 percent. Documentation district holdings. of gold per bank cubic yard. cover. of early mining indicates that the placer A first phase exploration drilling pro- gold found on Dime Creek is of unusual- six years to earn a 60 percent interest in gram was also carried out on the compa- Other ly high purity, averaging 960 fine. a group of five properties. Upon vesting, ny’s newly acquired placer claims, in University of Alaska graduate Tom Eastern Interior Evanachan may obtain a further 10 per- particular the Topnotch prospect. Nine Albanese was recently named chief cent interest in the properties by com- holes were drilled, two of which yielded executive officer of Rio Tonto, one of FREEGOLD VENTURES LTD. pleting a feasibility study, may obtain an values greater than 0.01 troy ounces of the largest mining companies in the announced additional results from bulk additional 5 percent interest by providing gold per bank cubic yard. world. Tom worked his way up from a sampling on its Cleary Hill mine project loan financing to be repaid from field grunt through progressively more prospect on its Golden Summit project Rimfire’s cash flow from production. Southeast Alaska responsible positions to take the lead near Fairbanks. Additional results from BRAVO VENTURE GROUP INC. reins at Rio Tinto. Congratulations Tom! surface exposures of the Cleary Hill vein Alaska Range reported continued encouraging results On a much sadder note, Jeff Huber, indicated that gold mineralization FULL METAL MINERALS announced from surface sampling at the Woewodski another University of Alaska graduate, extends over an area more than 100 feet additional drill results from its Lucky Island project. The 2006 exploration pro- was killed at a mine accident at Red Dog wide with one channel sample taken on Shot project. gram included hand trenching at the in December. Many of us in the mining the bulk-sampled structure that assayed Significant results include hole C06- Miami Beach, Hattie and Krause’s show- industry in Alaska have worked with Jeff 31.0 grams per tonne over nine feet per- 39 which returned 0.40 meters averaging ings, followed by chip/channel and local over the years and will always remember pendicular to the strike of the vein. 154.5 grams of gold per tonne, hole bulk sampling of vein exposures. Closely his infectious smile, his attention to Sample results from the Currey zone C06-60 which returned 4.90 meters aver- spaced soil sampling was conducted at detail and his contagious enthusiasm. indicate that mineralization within the aging 11.6 grams of gold per tonne, hole the Miami Beach and Matt’s vein show- Our condolences to Jeff’s family. ● shear is fairly evenly distributed with C06-80 which returned 2.91 meters aver- ings, and prospecting was completed on gold grades in the 1.5 to 3 grams per aging 23.7 grams of gold per tonne and over a dozen other quartz vein showings tonne range. Grab samples of vein mate- hole C06-81 which returned 1.70 meters in the project area. rial within the polyphase shear returned averaging 82.6 grams of gold per tonne. Mechanical trenching was scheduled up to 77 grams of gold per tonne. The most significant result from the for the Matt’s vein showing, where pre- Bulk samples also were collected 2006 drilling program was the discovery viously reported values of up to 542 from the Alaska, Red, D8, Blue and of the fault-offset, northern extension to grams of gold per tonne were returned Wackwitz vein/shear zones where multi- the Lucky Shot shear, intersected north- from float and rubble outcrop sample. gram gold grades were collected from east of the past-producing War Baby Bulk sampling in this area will resume surface exposures. block. The last hole of the program, as soon as weather conditions allow in On the Colorado vein, which was C06-89, intersected the structure 300 2007. Significant values from sampling exposed but not bulk sampled, a three- to meters below surface, encountering 0.4 on other prospects include: 14.9 grams 12-inch wide quartz vein which has been meters of 19.3 grams of gold per tonne. of gold per tonne, 8.2 grams of gold per traced over a strike length of 580 feet This intercept extends the known strike tonne and 3.2 grams of gold per tonne in with five-foot chip channel samples length of the Lucky Shot shear to more grab and float vein samples from the assaying 4.3, 34.3 and 3.9 grams of gold than 1,800 meters. Virginia showing; a 9.8 grams of gold per tonne. This new discovery indicates that the per tonne grab sample from a vein at the Three grab samples in the trenches Lucky Shot shear is open for expansion Whiskey Pass showing; and 7.5 grams of assayed 16.5, 22.0 and 173 grams of to the west, east and north. During 2006 gold per tonne from a grab sample of gold per tonne. a total of 73 drill holes for 12,701 meters quartz vein and 3.0 grams of gold per Follow-up work was commenced with were completed on the Lucky Shot shear tonne over 2.0 m in channel sampling 5,000 feet of rotary air blast drilling in zone. For 2007 the company is planning from the Krause’s showing. The compa- approximately 100 shallow holes. These a minimum 10,000 meter diamond ny also reported more than 1 gram of holes will test an area extending from drilling program at Lucky Shot, expected gold per tonne (up to 3.8 grams of gold the northern margin of the Cleary Hill to to begin in April. per tonne) in 13 of 30 samples from the the South vein swarm that includes the newly discovered Red Quartz showing in D8, Red, Blue, Wackwitz and Currey Northern Alaska the southern part of the island. structures. Depending on results of the SILVERADO GOLD MINES LTD. Eight of the 13 anomalous samples initial 5,000 foot program, a total of returned silver values from 17.8 to 91.3 25,000 feet of short-hole drilling may be announced results from placer mining in the remaining underground portions of grams of silver per tonne. Gold mineral- completed. ization at Red Quartz has a strong asso- SUMITOMO METAL MINING CO. the Swede Channel on its Nolan property in the Brooks Range. The company has ciation with elevated Ag, As and Sb val- said commercial production has resumed ues, which is in sharp contrast to the rel- at its Pogo gold mine in the Goodpaster in excess of 8,000 loose cubic yards of pay gravel on the surface pile ready for atively low values of silver and pathfind- district. Mine operations had been inter- er elements typically associated with rupted by damage to its power supply processing in the spring. two months previously. Repairs to the facility were completed and production resumed in mid-December. TONOGOLD RESOURCES has signed two agreements with a private firm for the Rainbow-Aurora-Indian gold properties in the Goodpaster district. Structural morphology and age of the Pogo gold deposit are thought to be sim- ilar to those at Rainbow. A north-striking, post-mineral fault offsets the low-angle mineralized faults projected between Rainbow and Pogo. The terms of the agreement provide for an advanced royalty payment due April 30, 2007, a net smelter return of 2.5 per- cent upon production, modest work com- mitments and a buyout should explo- ration efforts succeed. RIMFIRE MINERALS CORP. said Alaska-newcomer Evanachan Ltd. has signed an option agreement to explore Rimfire’s Goodpaster district holdings. Rimfire has been active in the district since 1998 and in 2006 collected 243 silt, 1403 soil and 158 rock samples that will be used as a basis to target explo- ration in 2007. EVANACHAN has agreed to fund a total of $4.8 million in exploration over 6 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● SOUTHWEST ALASKA Pebble opponents don’t discourage COURTESY NORTHERN DYNASTY MINERALS DYNASTY NORTHERN COURTESY Northern Dynasty Fieldwork, community meetings for Pebble project will continue this year against backdrop of well-funded negative campaign

By SARAH HURST coming in from outside Alaska: the Gordon For Mining News and Betty Moore Foundation in San Francisco has given grants to the ampaigners against the Pebble cop- Renewable Resources Coalition, Trout per-gold project in southwest Alaska Unlimited and Washington, D.C.-based C look set to spend more money than Earthworks, which will receive $800,000 ever in 2007, but for mining junior over three years. The Gordon and Betty Northern Dynasty it will be business as Moore Foundation has already been fund- usual, with work at the site scheduled to ing salmon conservation efforts in the restart in early February. The Vancouver- Bristol Bay region for the past few years based company hopes to bring in bigger through The Conservation Fund, and that drill rigs to delineate the Pebble East zone, work brought Pebble to the foundation’s which has the potential to become an under- attention. ground mine adjacent to the proposed open “Right now we can’t support the Pebble pit. proposal — our greatest concerns are about Northern Dynasty will continue holding potential water diversion and disruption to meetings with local communities and habitat,” the foundation’s program manager recently hired Sean Magee as vice president for its wild salmon ecosystems initiative, of public affairs. Magee had previously Aileen Lee, told Mining News. “The plans been doing consulting work for the compa- that are on the table just don’t make sense. ny. “For the most part we are focused on the We think that the region should be perma- environmental and technical and engineer- nently protected. It’s the largest salmon- ing work, and stakeholder consultation, producing region in the world, so it’s a high reaching out to the people in the local com- priority for us.” The foundation will rely on munities, getting their input and making groups like the Renewable Resources Northern Dynasty plans to drill the Pebble East zone while also working on environmental sure their views are reflected in the study Coalition and Earthworks to determine how studies and engineering for the project. program and the design,” Magee told best to protect the Bristol Bay salmon, Lee Mining News. “Clearly we do have a well- said. funded opposition group that is using a Rep. Jay Ramras, R-Fairbanks, opposes number of different tactics. Their advertis- Pebble, and described it as an “ill-conceived ing spend is what you’d expect from project” because of its geographical loca- McDonald’s or Wal-Mart,” he added. tion at an Alaska Miners Association meet- The company believes that much of the ing in Fairbanks last December. “Bob funding for the anti-Pebble campaign has Gillam, who is very unique individual, has been coming from one individual, Bob a mind to assert a public ballot initiative to Gillam, the president of an Anchorage tax the industry depending on the industry’s investment advisory firm, McKinley posture toward the Pebble mine,” Ramras Capital Management, and owner of a lodge told the AMA. “That is like an ultimatum in the Pebble area. Gillam is one of the and something that you might want to con- founders of the Renewable Resources sider because it would put together pretty Coalition, a non-profit that is mainly dedi- draconian measures that would be pretty cated to fighting Pebble, and he has ties to punitive to the industry,” he added. the sport fishing association Trout Unlimited, which has joined the anti-Pebble Ballot initiatives not guaranteed campaign. In Alaska a ballot initiative calling for increased taxes on the cruise ship industry Funding to oppose Pebble was successful last year, although another also from outside Alaska Funding to oppose Pebble is now also see NORTHERN DYNASTY page 7 PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 7

● SOUTHWEST ALASKA Miners, jewelers, NGOs working together on responsible standards Alaskans offer to tell Pebble opponents tried a new angle at the beginning of this year with a series of advertisements in National Jeweler, an industry publication, calling on jewelers to pledge not to use gold sourced from the proposed mine. Washington, D.C.-based envi- truth about Pebble ronmental group Earthworks, which focuses on mining, paid for the ads. The appeal to jewelers doesn’t impress Toni Logan, vice president of Oxford New organization will present facts to public about economic Assaying & Refining in Anchorage. “A lot of self-serving interests are laying out a lot benefits of Northern Dynasty’s controversial copper-gold project of money to fight a mine they don’t even understand,” she told Mining News. In any case, jewelers don’t know where their gold originates from, Logan added. “One of the characteristics of gold that goes back 5,000 years is the anonymity of it. Since Biblical By SARAH HURST hope for jobs in that area,” Cattanach said. times it’s been re-melted and re-sold,” she said. Logan is a board member of the new For Mining News “We believe, and this is very important for many of us, that not allowing the project to Truth About Pebble organization that aims to inform the public about the project. broad spectrum of Alaskans who go forward through the permitting stage Nevertheless, consumers are increasingly demanding more ethical scrutiny of the support the proposed Pebble mine will send a chilling message to all compa- products they purchase, and the diamond industry has been under the microscope late- A have formed a non-profit organiza- nies looking to do business in Alaska,” he ly with the release of the Hollywood movie Blood Diamond, starring Leonardo tion to inform the public about added. DiCaprio and Jennifer Connelly. Northern Dynasty’s copper-gold project in Jewelers of America involved with initiatives the Bristol Bay region. Truth About Pebble Phillips: most of Alaska’s was officially launched at a meeting of the wealth has come from resources Jewelers of America, the national association for retail jewelers, is involved with various mining-related initiatives. In November 2005 the association’s president, Resource Development Council in Ever since it became a U.S. territory in Matthew Runci, wrote to former House Speaker Dennis Hastert opposing provisions Anchorage Jan. 18 with speeches by three 1912, most of Alaska’s wealth has come in a bill that would have given public land to corporations and private interests. of the new organization’s board members. from the development of natural resources, “JA supports meaningful reform to the clearly outdated Mining Act of 1872,” Truth About Pebble’s chairman, Dick Truth About Pebble’s vice chairman, Gail Runci wrote. “Our 11,000 member stores, spread throughout the United States, firm- Cattanach, who is executive director of the Phillips, told the RDC. Phillips, a graduate ly believe that mining reforms should include strict environmental regulations that Associated General of Nome High School and the University adequately protect our nation’s watersheds, forests and wildlife and should institute Contractors of of Alaska, was a two-term speaker of the fair market value fees for mining claims on federal lands.” The mining provisions in Alaska, told the RDC state’s House of Representatives in the the bill were removed at the last minute. that the opposition to 1990s, serving in the Legislature for a Some of JA’s current activities are a direct response to the Pebble project, accord- Pebble reminds him decade. ing to a statement the association gave to Mining News. “The public controversy that of the “distortions “When I was speaker of the House of has erupted concerning the proposed Pebble mine project in Alaska’s Bristol Bay and misrepresenta- Representatives, the revisions and updating watershed illustrates clearly the need for broadly agreed standards for the responsible tions” in the cam- of our well-established permitting process sourcing of minerals as well as an agreed method for evidencing adherence to these paign against open- was a high priority,” Phillips said. “We did standards,” the statement said. “Jewelers of America is working, along with individ- ing the Arctic not do this in a vacuum. All of the policy National Wildlife Dick Cattanach, ual jewelry retailers, mining companies and NGOs, on just such standards, through the chairman of Truth refinements were accomplished in an open Initiative for Responsible Mining Assurance (IRMA).” Refuge to oil drilling, About Pebble, public process. The best scientific advice wants to counter except that the anti- was applied while conforming to state and ANWR campaign is distortions and mis- IRMA launched in mid-2006 representations. federal guidelines and the adamant direc- mainly based outside tion of the people of Alaska to do things IRMA was launched in Vancouver in June 2006 and includes representatives from Alaska. Cattanach said he never expected right, and we are doing things right.” mining companies AngloGold Ashanti, BHP Billiton, DeBeers, Newmont, Rio Tinto to see such activities happening within the Alaska has the most environmentally and Xstrata as well as several NGOs, including Earthworks and the Renewable state. safe resource development projects in the Resources Coalition. The group intends to create an independent, third party assurance “I thought that there should be a fair and nation, Phillips told the RDC. The state’s system to ensure that mines operate in an environmentally and socially responsible level playing ground for the facts to come permitting system is commonly used as a manner, and hopes that the initial set of standards will be completed by July of this out and decisions to be made,” Cattanach model by other states and other countries, year. said. “We’re dealing with facts, not hyper- she added. “If we allow one group of bul- No individual mines or projects have been discussed by the IRMA participants, bole. We just want the facts to be known lies to influence and buy off all those that Newmont’s vice president for environmental affairs and sustainable development, and people to make an intelligent, con- must ensure our fair and equitable permit- Dave Baker, told Mining News. Baker is one of three industry representatives on scious decision,” he added. Truth About ting process, how will this affect future IRMA’s coordinating committee. “It’s been a very open and I think a very positive dia- Pebble’s members are Alaskans who development projects? The answer is nega- logue,” he said. “We focus on areas like the cyanide code, community consultation believe that the permitting process should tively, and it will be a disaster,” Phillips and information disclosure. ... It’s about building a supply chain of confidence; we’re be allowed to work, Cattanach told the said. “What truly bothers me is seeing an not going to try to track one ounce of gold from the mine to the retail case. We’ll be RDC. attempt by an organized group to prohibit able to say that it has been produced according to a certain set of principles, like a seal “We believe that if the project survives the permitting process to go forward with of approval.” the permitting process — and that’s an if — the Pebble mine. This attempt to limit the “Earthworks is trying to point to policies and mines that we think are steps in the it will provide economic opportunities to a process is so unfair that it is un-Alaskan right direction,” Earthworks President Steve D’Esposito told Mining News. large group of Alaskans that have little D’Esposito is one of four NGO and community representatives on IRMA’s coordi- see PEBBLE page 8 nating committee. He cited Stillwater Mining’s “good neighbor” agreement with a community in Montana and BHP Billiton’s policy not to dispose of tailings in rivers continued from page 6 majority, because it doesn’t,” Jenkins said. at new mines as examples of improved practices by the mining industry. “I’m optimistic that the silent majority will But Earthworks’ campaign against Pebble will continue. “There are some places NORTHERN DYNASTY become less silent. The company is doing where the other (nonmineral) natural resource values are too significant, and Pebble is one of those places,” D’Esposito added. ballot initiative that would have introduced everything that it’s in its rights to do, we’re —SARAH HURST a reserves tax on natural gas was defeated. complying with the law. We’re not going to The oil and gas industry tends to get more not do our job just because we know some- support from the public in Alaska than the body is going to disagree with us. If there is mining industry because profits from oil an anti-Pebble ballot initiative we have and gas indirectly increase the amount of resources that we would contribute to make the Permanent Fund Dividend, which is sure the facts are known.” paid annually to everyone who has been a An eventual victory for Pebble’s oppo- resident of the state for more than two nents could be hugely expensive for the years. State of Alaska, according to a 10-page “The most significant ‘ballot initiative’ legal memo written by Legislative Counsel was the state election,” Northern Dynasty’s Donald Bullock Jr. in December in chief operating officer, Bruce Jenkins, told response to a request for an opinion from Mining News. “The Democratic candidate Rep. Paul Seaton, R-Homer. “Since the was anti-Pebble, the Republican, Sarah claims have already been filed, a reclassifi- Palin, said wait and see.” Palin was elected cation of the land use could amount to a tak- governor last November. In the Bristol Bay ing of the mineral rights that have been region, Rep. Carl Moses — neutral on vested and a court could require the state to Pebble — lost his legislative seat on a coin compensate the holder for those rights,” toss after the primary election was tied. His Bullock wrote. If the state were to make its challenger, Bryce Edgmon, who opposes permitting requirements so stringent that Pebble, went on to win in the general elec- the developer could not economically pro- tion. ceed with the project, this might also be “It’s a mistake to jump to the conclusion considered a taking that would require com- that the anti-Pebble campaign reflects the pensation. ● 8 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● ALASKA Don’t disrupt permitting, commission says Defending mining projects from critics has become a priority for Alaska, and more funding and education are needed to do the job

By SARAH HURST DNR LMPT conducts themselves in professional manner process,” the report says. “The unpredictability of this sig- For Mining News free of bias, the perception of some is that this is not the nificant financial liability is an unnecessary hardship for case,” the report says. “If the Large Mine Permitting chief developing mines and a deterrent in attracting mining com- he Alaska Minerals Commission has made a long list of position were fully funded by the state, this criticism would panies to invest in Alaska.” recommendations in its report for 2007, from funding be largely alleviated,” it added. State funding for training is To improve the situation, the minerals commission rec- T for the Department of Natural Resources and education also necessary to keep personnel at the cutting edge of envi- ommends that the state should form a working group com- programs to ensuring that the Pebble project receives ronmental protection technology and methodology, the com- prising members of the mining industry, the Department of an objective legislative and regulatory process. As mining mission says. Natural Resources and the Department of Environmental activity in the state has increased at a record pace, the cam- Conservation to develop guidelines or policies related to the paigns against some large projects — including Pebble, $500,000 should be spent on education, promotion appropriate level of indirect costs to be included in financial Kensington and Rock Creek — have also gained momen- Turning to the question of improving the public’s under- assurance. tum in the courts and among the public. standing of the mining industry, the commission recom- “Controversy regarding the Pebble project threatens the mends that the administration and legislature should spend Lack of infrastructure a challenge integrity of Alaska’s land management and regulatory $500,000 on a statewide minerals education and promotion Lack of infrastructure, including power supplies, is one process and if not managed appropriately, will jeopardize program that would be conducted in 2008 and 2009. “Such of the biggest challenges hindering the development of Alaska’s ability to attract venture capital,” the report says. a program would have a positive influence on the attitude of mines in the state, and the minerals commission suggests “Mining industry opponents are using misinformation, polit- residents of the state toward the minerals industry by encour- that coal-fired generation offers the means to provide a sta- ical influence and money in an attempt to thwart the Pebble aging good science to be used as the criteria for project eval- ble long-term power supply to enhance the existing power project even before the detailed scientific review necessary uation,” the report says. “This will positively reflect on the grid in Alaska. “The existing power grid in Alaska does not for the EIS (environmental impact statement) and permitting acceptance of mining projects throughout the state and have an adequately diverse fuel mix, as it is currently criti- process has begun,” it continued. encourage further investment of risk capital.” cally dependent upon the uncertain supply and volatile pric- Pebble’s opponents are attempting to change the land-use To enhance existing educational programs, the commis- ing associated with Cook Inlet natural gas,” the report says. priorities or designations in the Bristol Bay area so that they sion asks the governor and legislature to appropriate The commission recommends that the governor and can keep the land “for their own private purposes,” the report $100,000 to the Department of Education for curriculum Legislature follow the Railbelt Energy Study recommenda- says. The minerals commission argues that a thorough and development of AMEREF (the Alaska Mineral and Energy tion and facilitate construction of expanded coal-fired power transparent project review should determine whether the Resource Education Fund), as well as funding for the engi- plants on both ends of the Railbelt grid. fishing industry can co-exist with a large mining operation. neering degree programs at the University of Alaska The minerals commission repeated several recommenda- It proposes that the Alaska Legislature should not change Fairbanks and for the position of president’s professor of tions that it had made in previous years, for example request- land-use designations in areas with valid existing rights and mining and energy technologies. ing that the governor and Legislature provide an adequate that the Legislature should not jeopardize the existing state budget to support the state as it assumes primacy over the and federal permitting process that has been established to Recommendation: approved guidelines needed National Pollutant Discharge Elimination System. The evaluate projects and mitigate potential impacts. The minerals commission also addresses the issue of Environmental Protection Agency currently conducts NPDES permitting, compliance and enforcement for Commission recommends state funding of chief position mine reclamation and closure, pointing out that some of the state’s informal policies on its requirements have led to dis- Alaska. The commission also requested again that the gov- Critics of the mining industry, and the Pebble project in agreements between permit applicants and the agencies, ernor and Legislature increase the rate of investment in geo- particular, have suggested that the Department of Natural with differences in each party’s calculations ranging up to physical surveys to more than $1 million per year; and that Resources’ Large Mine Permitting Team is biased because 300 percent. “Without approved guidelines, it is not possible the governor and Legislature establish an equitable, stable its staff’s salaries are dependent on user fees from project for mining companies to meaningfully conduct financial municipal tax system in the unincorporated regions of proponents. “While it is the view of the commission that the planning for an operation until very late in the permitting Alaska. ●

continued from page 7 for young people to find jobs in the region’s villages, is $5 a gallon.” Reimers said. Although Iliamna Development had no busi- Other board members of Truth About Pebble include PEBBLE ness experience, Northern Dynasty trusted it with con- Anchorage businesswoman Sharon Anderson, longtime tracts, she added. “We want everyone to know that it’s been Iliamna Natives board member Myrtle Anelon, Kenai and un-American,” she added. good for the economy out there,” Reimers said. “We’re businessmen Fred Braun and Bob Favretto, Anchorage worried about our environment; this is what we grew up assemblyman Dan Sullivan and Anchorage geologist Reimers: Economic problems have been ignored with, this is what my mom grew up with, is the fish; but we Chuck Hawley. Membership in the organization is free The economic problems of the Bristol Bay area were also need to look at something to (diversify) our economy, and it encourages anyone with an interest in the project to largely ignored until Northern Dynasty came in and put because as leaders we’re supposed to provide an economy, sign up. local residents in the spotlight, Truth About Pebble board and we were struggling.” Truth About Pebble received words of encouragement member Lisa Reimers told the RDC. Reimers is also a The leaders of Iliamna Natives want to allow from Matthew Nikolai, president and CEO of Calista, a board member of Iliamna Natives Limited and general Northern Dynasty to continue its studies, according to Native corporation for the Bethel area, where the Donlin manager of Iliamna Development Corp. Iliamna is one of Reimers. “As long as they can do a good, safe mine, we Creek gold project is providing jobs for local people. several villages close to the Pebble site. “All of a sudden have to look at it, and it’s been great working with Two Pebble opponents from the Bristol Bay Alliance we have all your attention, and before we were like, OK, Northern Dynasty, and the opportunities out there have also spoke during the question-and-answer session at the we need help, where is everybody, you know, we need to been very positive,” she said. “The local people in the RDC meeting, asking where they had made misrepresen- figure out our economy, how are our people going to sus- community have been taking pride in their work, we as a tations about the project and objecting to being character- tain ourselves,” Reimers said. corporation have been growing, and it’s been good. ... ized as bullies. “This is a free country; we can speak out Before the Pebble project there were few opportunities They can pay their fuel bills, they can pay for gas, which on what we believe,” said one of them, Mel Brown. ● PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 9

● NUNUVUT Wolfden pursues its Arctic ambitions Company advances Izok and High Lake copper-zinc projects in Inuit territory of Nunavut, receiving permits and submitting proposal

By SARAH HURST For Mining News

ntario-based Wolfden Resources rounded off 2006 by making progress in Nunavut — it received a O land use permit and water use license for the Izok project, and submitted a Comprehensive Proposal for the High Lake project to federal and territorial regu- lators, including the WOLFDEN COURTESY RESOURCES Nunavut Impact “KIA supports Review Board or development such as at NIRB. Izok and High Lake are both copper- the High Lake project so zinc projects. The per- long as there is a mits for Izok will allow balance between Wolfden to complete environment protection the construction of a and benefits for both new camp and to begin KIA and Wolfden.” exploration work. “Filing of the project —KIA President Donald Havioyak proposal with NIRB is the next step in the per- mitting process for the proposed High Lake mine, bring- ing the company one step closer to its goal to become a base metal producer at High Lake,” said Ewan Downie, Wolfden’s president and CEO. “We have worked hard during the preparation of this landmark document to ensure we have made our best efforts to adequately assess the impacts of the project. We look forward to working closely with NIRB and the various stakeholders in the coming review,” he added. Open pit and underground methods will be used at High Lake, according to the project proposal. The mine will be serviced by a 30-mile winter road during con- struction and a 33-mile all-season road during opera- tions, which will connect the mine site with a dock facil- see WOLFDEN page 10 Exploration and infill drilling at High Lake continues to add tonnage and additional prospective targets. 10 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 continued from page 9 WOLFDEN ity to be built at Grays Bay on Nunavut’s northern Coronation Gulf coast. The dock will be used to bring in equipment and supplies and ship out ore concentrate. The project is located in the Canadian Arctic, in a zone of continuous permafrost with 1-2 meters of sur- face thawing each summer. WOLFDEN COURTESY RESOURCES Mine life of 14 years expected High Lake is expected to have a mine life of about 14 years, with construction scheduled to start in 2008 and operations to begin in 2010. The peak number of personnel during construction is estimated at 440, with around 335 during operations. Indicated resources at High Lake amount to 14.3 million metric tons grading 2.34 percent copper, 3.53 percent zinc, 1.01 g/t gold and 75.69 g/t silver. The inferred resource is 1.3 million tons grading 1.17 percent copper, 3.35 percent zinc, 0.78 g/t gold and 764.52 g/t silver. Ongoing exploration and infill drilling continues to add tonnage and additional prospective targets. The primary processing facility on-site will concentrate the ore using conventional flotation circuits to separate the zinc and copper from the other non-valuable minerals. Associated gold and silver will be separated after shipment off-site. Tailings will be deposited into an impoundment and covered with water to inhibit oxidation and prevent acid generation and metal leaching. To ensure that the tailings remain under water, four dams will be constructed along the lake’s perimeter, which will also prevent uncontrolled release into the Kennarctic River. Wolfden will give preference to hiring qualified Inuit workers, the project proposal says. The company gathered traditional knowledge related to the High Lake project area with the help of local elders. “Wolfden acknowledges some archaeological sites will be disturbed and conducted field studies of archaeological sites in the project area,” a summary of the project proposal says. “Sites that were located include stone circles, caches, blinds, traps, inukshuks (landmarks) and stone tool scatter. Most sites can be avoided but at least six affected sites will require mitigation by data recovery. The remainder will be protected.” In January Wolfden signed an Inuit Owned Lands Access Agreement for High Lake with the Kitikmeot Inuit Association and KIA granted licenses for the project’s camp, access road, airstrip and winter trail routes. “KIA supports development such as at the High Lake project so long as there is a balance between environment pro- tection and benefits for both KIA and Wolfden,” said KIA President Donald Havioyak. ●

Dowland - Bach

- PLC Control Systems - Chemical Injection Systems - I ndustrial Hydraulic/Pneumatic Control - UL Listed Industrial Control Panels Equipment Packages (electrical) PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 11

● SOUTHWEST ALASKA Region benefits from Donlin Creek project Local hire commitment pays off as village residents escape from drugs and alcohol and are promoted to supervisory positions

By SARAH HURST For Mining News

laska’s Donlin Creek gold project is still sever- al years from becoming an operating mine, but A it has already made a huge impact on the lives of people in the surrounding rural communities. Since making a commitment in 1996 to employ as many Native corporation shareholders as possible, operator Barrick Gold achieved a shareholder hire rate of 92 percent in 2005, with a turnover rate of just 10 percent, down from 318 percent at the start of the project. Donlin Creek is a joint venture between NovaGold Resources and Barrick, with Barrick as operator. Previously NovaGold had partnered with Placer Dome, which was taken over by Barrick in late 2005. Barrick also tried to take over NovaGold recently, but was unsuccessful. The ongoing legal battles between the partners, who dispute the wording of the joint ven- ture agreement, have had little effect on employees at the site. If anything, the pace of work has stepped up as Barrick races to meet a deadline in November this year, by which time it must complete a feasibility study. In 2006 the project employed about 155 residents of the villages in the area, and another 50 people from Anchorage. The village residents included 29 from Aniak, 29 from Kalskag, 27 from Russian Mission, 16 from Crooked Creek and 12 from Bethel. Chiulista Camp Services, a wholly owned subsidiary of Native corporation Calista, acts as an agency to help Calista shareholders find work at the Donlin Creek project as drillers and helpers, core cutters, administrative assis- tants, heavy equipment operators, mechanics, caterers and for anything else that is required. The high employee turnover at the beginning of the project was largely due to failed drug and alcohol Donlin employees talk about the project tests. Now that people have seen that by adhering to the project’s rule that prohibits drugs and alcohol they south bank of the Kuskokwim River. He worked for can obtain responsible, high-paying jobs, many have the Bureau of Land Management for three years, the given up their bad habits. Substance abuse is a postal service for nine years and Mark Air for five scourge in rural Alaska, and Donlin Creek is helping years, but after that company went bankrupt he had to combat it. Without the project, there would be few difficulty finding another job and his family had to employment opportunities in the region. depend on food stamps for a while. In 1996 Morgan “There’s a continuous program of improvement in heard from a friend that Donlin Creek needed work- BILL BIEBER, GOLD BARRICK all skill levels,” George Gardner, president of ers, and said he was prepared to do anything there. Chiulista Camp Services, said at the Alaska Miners He was initially hired as a driller’s helper. Association’s convention in Anchorage Nov. 9. “If Morgan progressed from driller’s helper to core Leonard Morgan from Aniak visits schools in the region this goes into feasibility and in fact does become an to tell kids about the project. cutter and then to core cutting supervisor, followed operational mine, we’ll have an opportunity for those by stints in camp maintenance and as a camp man- employees to have a career in the industry, and that’s Leonard Morgan, personnel ager. “Recently they moved me up to shareholder something we are certainly looking forward to. and logistics supervisor hire coordinator,” he told Mining News. “I get to There’s a stronger sense of pride in the community, travel around the different regions and do a presen- Leonard Morgan has lived in Aniak for almost all within the workforce, and it has become, in my mind, tation. ... People thank me for getting them out of his life, a village with a population of 528 on the and in a lot of people’s minds, it’s become a model for food stamps and debt, they’re owning their own working with indigenous entities such as we are.” ● see EMPLOYEES page 12 12 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

continued from page 11 be a quick, easy fix. It’s going to take a while,” Woodmancy EMPLOYEES said. “It has a background in huge amounts of unresolved four-wheeler, snow machine, outboard motor, they can travel to Anchorage and grief. As the generations pass, go shopping.” people become less interested The schedule for most employees at Donlin Creek is two weeks on and two in the subsistence lifestyle weeks off, which Morgan appreciates because it gives him time to go fishing. because the world is moving BILL BIEBER, GOLD BARRICK His daughter also works at the project in administration, after starting out as a fast and they’re trying to keep kitchen helper. When he visits local schools to talk about Donlin Creek, Morgan up. It’s important to give peo- gets an enthusiastic reception. “The kids that we talk to are really all excited Virginia Woodmancy is the first full-time counselor ple the tools they need. I’m based at a remote camp in Alaska. about getting an education and what will be there if it does turn into a mine,” he just at the very beginning.” said. Woodmancy’s work is much more informal than it would be at a mental If an employee fails a random drug or alcohol test they are sent home, but health center, she said. Sometimes it just consists of a conversation during they are also given a chance to go to counseling and rehabilitation, Morgan lunch or in the corridor. Woodmancy sees individuals and also holds regular said. If they can show that they are going through treatment they may be able to Alcoholics Anonymous sessions and talking circles at the camp. There were return to work. Safety has always been the top priority for the project, but with seven deaths in the region in the last week of the year, which impacted some Barrick’s arrival safety has been taken to another level, he added. “I kind of like employees a lot, and Woodmancy held a group session to help them deal with how Barrick is operating right now,” Morgan said. “Learning more and more that. “Kudos to the management — they allow everyone to come,” she said. about it, environmental-wise I wouldn’t worry about it.” If Donlin Creek becomes a mine it could be a great boon for the area, —SARAH HURST Woodmancy thinks. “It’s a wonderful place, people are always smiling and friendly and happy to be here,” she said. “When I come back to camp from my Wassilie Kameroff, personnel and logistics supervisor days off they say, welcome home Ginny.” Wassilie Kameroff is a former mayor of Lower Kalskag, a village with a —SARAH HURST population of 252 on the north bank of the Kuskokwim River. He now lives in Anchorage. In 1996 he answered an ad for a shareholder hire coordinator at Donlin Creek. “There was a few of us and I happened to be one of the lucky Daniel Ausdahl, special project supervisor ones,” Kameroff told Mining News. “The most difficult part of my job is help- Daniel Ausdahl has lived in Kalskag all his life, a village with a population ing young people to work on a of 276 that lies two miles upriver from Lower Kalskag. Before he started at schedule, like 7 a.m. to 7 p.m. Donlin Creek he worked on the river barges, but in the winter of 2001 there Some still don’t understand wasn’t enough ice to start trucking at the end of the year and he decided to look that we have scheduled work for a new job. He was hired at Donlin Creek the following fall as a heavy out here and they have a diffi- equipment operator at the age of 22 and worked his way up to drilling coordina- cult time adjusting to it.” tor before being assigned his latest job. By 1999 the message was “Now I’m going to be doing a project of my own. It’s a peat project, that’s

getting out to people that they BILL BIEBER, GOLD BARRICK all I know about it,” Ausdahl could work at Donlin Creek told Mining News. Peat is and be sober and drug-free, being considered as a possible Kameroff said. “This is the Wassilie Kameroff has been working at Donlin fuel source for the proposed biggest thing that ever hap- Creek since 1996. mine. “When (the operations pened in our area in a long manager) told me I was going time,” he added. “We tried to get them to understand that mining isn’t how it to be doing something a little used to be.” Many of Kameroff’s nieces, nephews and cousins are employed by

bit different, I was excited BILL BIEBER, GOLD BARRICK the project. His daughter used to work there too, but she left to have children. about it, I felt the motivation, “A lot of people are talking about moving into Anchorage,” Kameroff said. and a little bit scared. I’m real- They are concerned about the high price of fuel oil, electricity and food in the ly hoping I don’t let them villages, he added. “Some go to town and check if they can make it in Daniel Ausdahl from Kalskag has been inspired to down and that I rise to the chal- think about going to college. Anchorage. ... Right now the rent is low, they have enough money to buy gro- lenge,” he added. ceries for a month. If they get sick they can go to the hospital.” Many villages “They’re trying to set everyone up here for success, not failure,” Ausdahl have no resident healthcare worker, so they have to travel to Aniak or Bethel if said. “It’s hands-on. They keep good track of you and what your performance is they fall ill. But so far only about 10 Donlin Creek employees have moved to like. Finding out the routine was difficult at first. After that it wasn’t that bad, if Anchorage, because not everyone can adapt to city life, Kameroff said. you keep an open mind and use a lot of teamwork, usually you do fine.” As a —SARAH HURST drilling coordinator Ausdahl met with the geologists to find out where sites had to be prepped and what roads had to be built, dealt with reclamation and water Virginia Woodmancy, camp counselor supplies, kept track of the people who were hauling the core, and made sure that the drillers had everything they needed. Virginia Woodmancy has lived in the village of Aniak for about six years. “I’ll always love working on the river, but when you get the privilege of Before that she lived in Valdez, and she has been in Alaska for a total of 21 working with people you grew up with your whole life, it’s actually pretty nice, years. She has worked for the Kuskokwim Native Association and started at we’ve been together since high school,” Ausdahl said. “I get to sleep in my own Donlin Creek last August, becoming the first permanent full-time counselor in a bed every night, I have my own little private tent, and the people here are just remote camp in Alaska, as far as she knows. friendly. My cousins and aunts and uncles come up, it’s really neat to see every- “I think any time people are working in a remote camp situation there’s a body working together and happy every day.” need for some kind of support apart from their co-workers and their supervi- Having the job makes Ausdahl use his time off wisely, he said. “It makes you sors,” Woodmancy told Mining News. Donlin Creek employees come to her to realize what’s really important in your life, like seeing my nieces and nephews talk about family issues, alcohol problems and work issues that they don’t know and spending time with my mom and dad.” Some families are being hurt how to go about resolving. “I help them to process through what they want to because the money people earn is being spent the wrong way, but overall the do,” she said. At the request of employees she also goes to the villages to meet percentage who drink is going down, Ausdahl thinks. their families. “I’m trying to get into college and get some kind of degree while I’m work- “In general when families are separated like that there’s got to be repercus- ing here,” Ausdahl said. “I’m looking towards business administration or man- sions, but that doesn’t mean it doesn’t get worked through,” Woodmancy said. agement, or if my math is good enough, maybe even mining engineering. I “Management pays attention to families. People work so well together here,” never really did have a reason to go to college before. I love being outside, I she added. Still, in some cases the influx of money has caused additional prob- love the land.” lems, enabling people to spend more on drugs and alcohol. “This isn’t going to —SARAH HURST PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 13

● YUKON Gifted junior targets uranium in Yukon Copper Ridge Explorations to acquire nearly 600,000-acre Borealis property near Dawson City as varied projects show promise

By ROSE RAGSDALE chemistry anomalies that lie within favor- For Mining News able “Mine Series” rocks along strike from the trend of open pits currently in production opper Ridge Explorations Inc., owner at Gibraltar. The Copper Ace South drill tar- of various precious and base metals- get area is less than 500 meters from the C rich properties in the Yukon Territory, northern edge of the Gibraltar North deposit, British Columbia and Alaska, is ven- a more recent discovery on the Gibraltar turing into uranium exploration in the property that is not yet in production. Yukon. Taseko Mines Limited has recently The Vancouver, B.C.-based junior min- announced a 25 percent mill expansion to ing company reached an agreement with 46,000 tonnes per day for the Gibraltar

Dawson City prospector Shawn Ryan to INC. COPPER RIDGE EXPLORATIONS COURTESY Mine, which will see annual production acquire 100 percent interest in the Borealis rates increased to 100 million pounds of uranium property about 30 miles northeast copper. Taseko has also announced the of that city. potential for additional, higher grade Under terms of the option, Copper Ridge reserves as a result of a successful explo- will pay $5,000 in cash, spend a minimum ration drilling program beneath and along of $600,000 on exploration at Borealis, issue strike from current reserves and open pits. 800,000 shares of common stock and grant • The Lucky Joe project, about 25 miles 100,000 nontransferable share purchase south of Dawson City. The target at Lucky warrants over a four-year period. Ryan will Joe is a metamorphosed porphyry deposit, retain a 1.5 percent net smelter royalty, half or possibly a variety of IOCG (iron oxide of which, or 0.75 percent NSR, Copper copper-gold) deposit as defined by two large Ridge can purchase for $1 million. copper and gold soil geochemical anom- The Borealis property covers nearly alies. 600,000 acres of the Deadman Stock, a mid- • The Yukon Olympic iron oxide copper- Cretaceous multiphase granitic unit of the gold project, on the Dempster Highway, 80 Tombstone Suite intrusive complex. miles north of Dawson City. The target at Uranium mineralization is associated with a Yukon Olympic is an Olympic Dam-type late-stage phase of syenite dykes within the IOCG style deposit. The Olympic Dam stock and occurs as structurally controlled Yukon prospector Shawn Ryan and Copper Ridge Explorations President and CEO Gerry deposit in Australia (3.8 billion tonnes at 1.1 lenses of pitchblende and as disseminations Carlson examine mineralized specimens from the Distincta showing at the Yukon Olympic iron oxide copper-gold project. percent copper, 0.4 kg/t uranium (U3O8) of uraninite within the syenite. and 0.5 g/t gold) is characterized by a large define targets for drill testing. ty-option agreement with Lomiko magnetic anomaly flanked by a gravity Discovery was in 1970s Mike Burke, a Yukon geologist, said Resources Inc. in which it may acquire up to anomaly that is caused by the iron-rich brec- The property was discovered in the Copper Ridge is known as a good explo- 60 percent interest in the Joss’alun copper cia body. The Yukon Olympic property 1970s by Chevron following a program of ration company and the provincial govern- property about 47 miles southeast of Atlin, occurs in a geological setting that is similar reconnaissance airborne surveying and ment is delighted that Ryan succeeded in B.C. Joss’alun is a high-grade copper mas- to Olympic Dam, occurring in host rocks of stream sediment sampling. Follow-up attracting the company’s interest to the sive sulphide discovery made by the B.C. similar age and with mineralization and prospecting discovered several areas of float Borealis prospect. Geological Survey and acquired by Copper alteration that is of a similar age and charac- and outcrop in the stock with significant ura- Copper Ridge is the successor company Ridge in 2002. ter. nium mineralization. In one area, 24 sam- to La Teko Resources Ltd., which discov- • The Scheelite Dome gold property in ples taken from a 10-by-60-meter talus train ered the True North gold deposit in Alaska Favorable results the Tintina Gold Province, about 22 miles returned values, ranging from 38 to 4,200 in the 1990s, Burke said. from several properties northwest of the town of Mayo, Yukon. parts per million uranium and averaging Led by longtime economic geologist Copper Ridge also reported favorable Road-accessible Scheelite Dome covers 2,100 ppm U, 0.21 percent. A sample of Gerald G. “Gerry” Carlson, the company’s results from a busy 2006 exploration season about 340,000 acres and is recognized as angular float from another area returned a exploration philosophy focuses on grass- at several other properties in the Yukon and one of the largest intrusion-related gold value of 9.7 percent U3O8. roots mineral exploration, where the entry British Columbia. Among them: systems in the Yukon. It occurs in a geo- In 1977, Chevron completed a program cost is low but the potential reward can be * The Copper Ace copper-molybdenum logical setting that is similar to that of of soil sampling, blast pit trenching and dia- very high and success will be contingent on porphyry prospect, which is adjacent to the Alaska’s Pogo deposit (7 million tonnes of mond drilling. The soil sampling successful- exploration skill and on carefully managed Gibraltar Mine in central British Columbia. 16.12 grams per ton gold) and Donlin ly defined several areas of anomalous urani- risk. The target at Copper Ace South is coincident Creek deposit (215 million tonnes of 2.4 g/t um mineralization that were followed-up Copper Ridge recently entered a proper- IP chargeability and copper in soil geo- gold). ● with 24 blast pit trenches. The trenching returned intervals of local mineralization grading up to 0.55 percent U over 1 meter. The drilling program consisted of 225 meters of small diameter core from 6 holes but was completed before the results of the soil sampling and trenching programs were received. The best result from the drilling was 0.14 percent U over 0.6 m. Copper Ridge officials say good poten- tial exists on the Borealis property for the discovery of both vein-hosted, high-grade uranium mineralization and bulk tonnage, lower-grade mineralization. An example of the latter is the Rossing mine in Namibia, currently one of the largest producing urani- um mines in the world. The Rossing mine has a reserve of 28.4 million tonnes, grading 0.04 percent U and a resource of 561 million tonnes of 0.03 percent U. Multi-parameter high-resolution survey this spring As soon as weather conditions permit in the spring of 2007, the company plans to fly a multi-parameter high-resolution airborne geophysical survey over the property. The results of this survey will be used to guide a follow-up program of mapping, prospect- ing, soil sampling and trenching in order to 14 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

● YUKON Wolverine project’s prospects come alive Construction of zinc mine in Canada’s Yukon could begin this year if financing can be secured, based on new feasibility study

By SARAH HURST Financing for Wolverine has not For Mining News yet been secured, but the ancouver-based Yukon Zinc’s development plan in the Wardrop ROSE RAGSDALE Wolverine project is technically and study provides for construction of V economically viable, according to the all-season road and an optimized feasibility study by mobilization of equipment to begin Wardrop Engineering released in January. The future of the project had been in in the first half of 2007, with doubt after a Hatch feasibility study last completion of the mill and May indicated that annual production facilities scheduled for the fourth would be lower than expected, causing quarter of 2008. consternation among the company’s shareholders. 53,400 tons of zinc, 4,860 tons of copper, The new study includes all informa- 6,010 tons of lead, 4.9 million ounces of tion from the C$19 million test mining silver and 20,200 ounces of gold con- and definition drilling program complet- tained in the zinc, copper and lead con- ed in 2005 and envisages an increase in centrates. These estimates are all higher the mine’s milling rate from 1,250 metric than those in the Hatch study, which pre- tons per day in the Hatch study to 1,400 dicted annual production of 33,342 tons tons per day. Annual metal production in of zinc. the first three years of full production at Higher estimated zinc prices turn Wolverine into a viable project, according to a new feasi- Mining reserves at Wolverine provide bility study. Wolverine is forecast at approximately for 9.5 years of operations, including 1.5 years of pre-production development. Conversion of inferred resources into mining reserves with more in-fill drilling could extend mine life an additional three years, according to the Wardrop study. Operating cost per ton is C$95.58, com- pared with C$100.51 in the Hatch study. Capital cost at the expanded production rate is estimated at C$183.2 million, com- pared with C$155.7 million in the Hatch study, and three-year full production cumulative pre-tax cash flow is estimated at C$217.7 million. Studies use different capital, operating, metal prices One of the reasons why the Wardrop study looks better than the Hatch study is because the Hatch study used fully escalat- ed capital and operating costs but long-term metal prices, Yukon Zinc’s president and CEO, Harlan Meade, told investors in a conference call Jan. 23. Hatch estimated the price of zinc at 74 cents per pound, while Wardrop uses two-year backward average pricing, resulting in an estimate of C$1.07 per pound. “At 74 cents and with some sig- nificantly lower recovery and a lower throughput rate, the net present value on a before-tax basis was slightly negative,” Meade said. The Hatch study’s assumptions for treat- ment and refining charges reflected a period of oversupply, according to Meade. There is now a long-term zinc supply deficit and Wardrop uses current pricing for treatment and refining charges. As for possible seleni- um penalties, Meade thinks they could be negotiated away because refiners are so eager to purchase zinc. In any case the penalty for selenium is about C$20 per ton of concentrate, which is “not all that signif- icant,” Meade told investors. In time there may even be an opportunity to negotiate payment for the selenium in copper and lead, he added. Financing for Wolverine has not yet been secured, but the development plan in the Wardrop study provides for construction of the all-season road and mobilization of equipment to begin in the first half of 2007, with completion of the mill and facilities scheduled for the fourth quarter of 2008. Full production is planned for the first quar- ter of 2009. Yukon Zinc received a quartz mining license on Dec. 5, 2006, providing the terms and conditions for the commence- ment of most construction activities at Wolverine. The company hopes to receive its water license in late summer 2007. ● PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 15

● UNITED STATES Mining report stirs industry buzz Researchers blame water pollution at mines on faulty modeling, regulatory failures; regulators, trade groups react to findings

By ROSE RAGSDALE recommended that a more in-depth study of the effec- For Mining News They say the studies were sponsored by a tiveness of common water quality mitigation measures group that focuses exclusively on opposing be undertaken. esearch prepared for mining industry critic mining development and the researchers, Earthworks claims that faulty water quality pre- Kuipers and Maest, have credibility problems. Problems could get worse R dictions, and mitigation and regulatory failures are If this situation is not improved, the environmental responsible for hard rock mining-related water site if that site is correctly characterized in its hydrology and financial impacts of inadequate mitigation measures pollution, primarily in the West. and geochemistry. But models now being used by regu- based on faulty modeling will continue to grow, The purpose of the studies, by consultant Jim Kuipers lators and mining consultants may be incorrect, Maest Earthworks predicted. of Butte, Mont., and Boulder, Colo.-based geochemist and Kuipers warned. The research also identified what Kuipers and Maest Ann Maest, was to review the history and accuracy of In the research for Earthworks, Kuipers and Maest referred to as “inherent risk factors that may lead to water quality predictions in environmental impact state- said the mines failed to compare predictions made before water quality impacts.” They suggested that “mines ments for major U.S. hardrock mines, according to they were permitted with their actual results. close to water resources with high acid drainage or con- Earthworks. They suggested that forming credible models taminant leaching potential need special attention in Kuipers and Maest found that water quality predic- “requires that the prediction be tested, and then the mod- terms of mitigation and characterization.” tions fail for two general reasons: the science of mine els adjusted based on the results. The process appears For the purpose of the study, “major mines” were water quality prediction is imperfect; and, the science of broken when it comes to predicting the impact of mines defined as having a disturbed area exceeding 100 acres mine water quality prediction is imperfectly applied at on water quality for mine permits.” and a financial assurance amount exceeding $250,000; mine sites. Kuipers and Maest also determined “that adverse or having a financial assurance of $1 million regardless Earthworks concluded that a mine quality prediction impacts to water quality are common at mine sites, and of acreage; or having a production history of greater than model can only realize its potential at an individual mine they are most often caused by failed mitigation.” They see REPORT page 16

● NORTHERN ALASKA Alaska settles RS 2477 trails dispute State establishes clear title, gains right to build road to Coldfoot-Chandalar area, with federal-Native corporation settlement

By ROSE RAGSDALE However, the will- beneficial to people “This is a win-win for us, a definitive For Mining News ingness of U.S. offi- who have been min- positive,” Schenk said. “It removes a cials to recognize the ing in the area for large impediment to opening the he State of Alaska has established state’s rights of way the past 20 years, Chandalar area to development, and it’s clear ownership of two historic trails resolved the costly said Steve Borell, also a positive for the general public that T in northern Alaska under a settle- litigation and assured executive director of enjoys recreational activities in the area. ment reached with federal and that Alaskans gain the the Alaska Mining Though the settlement will bring no Native corporation officials of the state’s access they need to Association. immediate benefits, Schenk said it is the claim to the trails under federal law RS more than 1 million “Though the state beginning of a process that should even- 2477, a top Palin administration official acres of state lands, STEVE BORELL MARTY RUTHERFORD doesn’t get fee sim- tually result in a road through the area. announced Jan. 11. Rutherford said. ple ownership of the The two trails are among many access Members of Alaska’s mining industry The state asserted its claim to these two rights of way, this clears up an access routes that Alaska claims under RS 2477, Jan. 18 applauded the settlement, which routes for several reasons, including well- question that has been lingering for some a federal law by which the government ends a lawsuit filed by state officials documented historical usage, current use time,” Borell said Jan. 18. “Hopefully, granted rights of way across federal lands against the U.S. government nearly two for mining, hunting, subsistence and recre- this will clear the way for a surface road not otherwise reserved for public use, to years ago. The suit sought to establish ation, and the access to state lands, she said. that can be used for most of the year.” encourage miners and settlers to expand Alaska’s clear title to rights of way for the Susan Schenk, a spokeswoman for into the western states and Alaska. 65-mile Coldfoot-Chandalar Lake trail Beneficial to people Little Squaw Gold Mining Co., said the Though RS 2477 was repealed in 1976, and the 85-mile Caro-to-Coldfoot trail, who have been mining settlement is good news for the compa- existing rights of way created under it are ● which share a common route across fed- Clearing up the title to the trails will be ny’s efforts to develop gold mining preserved under federal law. eral land managed by the U.S. Bureau of claims in the area. Land Management, off the Dalton Highway north of Fairbanks. “As far back as 1906 the Coldfoot- Chandalar Lake trail was used to access gold in the Chandalar area,” acting Alaska Commissioner of Natural Resources Marty Rutherford said in announcing the settlement. “As such, the trail is one of many rights of way estab- lished within Alaska under federal law. Establishing clear title to such historical routes is key to preserving our statehood rights and critical to opening access across the state.” Federal government didn’t recognize routes under RS 2477 In the settlement, both the federal gov- ernment and Alaska Native regional cor- poration Doyon Ltd. agreed to accept entry of a judgment quieting title to the rights of way in the state. Other defen- dants included other non-federal stake- holders with claims to land adjoining or surrounding the trails. While the settlement confirms the state’s rights of way for the two RS 2477 routes, the federal government did not formally recognize them as established under RS 2477. 16 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 continued from page 15 come of the predictions, the group said. Patty McGrath, mining Earthworks and the researchers also Formerly known as the Mineral REPORT coordinator for the Environmental suggested that “many state and federal Policy Center, Earthworks is Protection Agency Region 10, said agencies are not sufficiently funded to reputedly the leading anti-mining 100,000 ounces of gold, 100 million … “The study is based on older employ staff with the technical expertise group in the world, according to pounds of copper or the monetary value to provide appropriate analysis and over- equivalent in another metal. The environmental impact statements, Laura Skaer, executive director of and we feel our current EISs are sight of the mine permitting process. the Northwest Mining Association researchers found 183 U.S. mines met the They said increased funding should be doing a better job. … We do in Spokane, Wash. criteria over a 30-year timeframe. Of incorporated into agency budgets to those, 45 percent are still in operation. believe we have problems in this ensure that technical expertise is available Only one of the major mines, Pogo, in area, especially in Alaska where it guidelines in 2003 for the kind of work for permit review.” that companies need to do to get mining Alaska, is a new mine. is difficult to make predictions Though some members of Alaska’s Kuipers and Maest initially reviewed permits and for the agency to do to pre- because of climate variables” and mining community say the report con- 104 environmental impact statements and pare an EIS. other factors. tains useful and interesting information, “When I read Kuipers and Maest, I environmental assessments for 71 major others question its credibility. They say hardrock mines including gold, silver, nod my head,” McGrath said. “And water quality standards. Of the 19 mines the studies were sponsored by a group copper, platinum group metals, or PGMs, we’re going to look at our (guidelines) that exceed water quality standards, the that focuses exclusively on opposing min- molybdenum, lead and zinc in 10 mining to see if there is anything we need to pollutants that violated standards includ- ing development and the researchers, states. All of Alaska’s hardrock mines, add.” ed heavy metals, arsenic, sulfates and Kuipers and Maest, have credibility prob- except for the Red Dog zinc/lead mine, cyanide. Nine of the study mines devel- lems. were included in the review. It showed Study outdated, possibly biased oped acid drainage on site to date. that no predictive models were used in Mining industry officials question Among their recommendations to environmental impact statement process The researchers found 183 U.S. motivations behind the report as well as improve future water quality predictions, for the AJ Mine Project nor for the Fort mines met the criteria over a 30- its content. Kuipers and Maest suggested that regula- Knox, Kensington, Red Dog and True year timeframe. Of those, 45 Formerly known as the Mineral tors be required to review past predictions North mines. percent are still in operation. Only Policy Center, Earthworks is reputedly at other mines when permitting new the leading anti-mining group in the mines. They also recommended regula- one of the major mines, Pogo, in Greens Creek in case study world, according to Laura Skaer, execu- tors “require better information about the Alaska, is a new mine. tive director of the Northwest Mining A representative subset of 25 case mine site — before, during and after oper- Association in Spokane, Wash. study mines, including Alaska’s Greens ations.” “My answer to what I think of this Creek silver/gold/zinc/lead mine, was Earthworks recommended that proce- Mixed reaction from regulators report is ‘consider the source.’ For every selected to evaluate water quality predic- dures for selecting consultants should be “Earthworks is an advocacy group mine being litigated in the United States, tions. changed to avoid potential conflicts of that has been around for long time and the plaintiffs include Earthworks,” she Of the 25 mines, Kuipers and Maest interest. Agencies should independently generally is at odds with the mining said. “As for Kuipers and Maest, a good claimed that 76 percent polluted ground- select and pay consultants to conduct the industry,” said Tom Crafford, acting part of their livelihood comes from testi- water or surface water severely enough to studies. This should limit the ability of a director of the large mines team at the fying as expert witnesses for environ- exceed federal water quality standards. At mining proponent to influence the out- least 13 of those mines exceeded ground- Alaska Department of Natural mental groups that oppose mining.” Resources. Skaer said some of the Northwest Crafford said Alaska’s mining regula- Mining Association’s 1,500 members tors believe they have a good track have reported to her that material includ- SOUTHEAST ALASKA record. “There’s an approved monitoring ed in the Earthworks study is outdated program and the state does review the and other parts have been taken out of EPA resolves violations with mining monitoring reports,” he said. “We also context. require environmental audits every five “When you first read it, it looks like firm on SE Alaska Kensington mine years or less, depending on the mine. In water quality is not being protected, but doing that at the company’s expense, the the study has no analysis of permits or The developer of the Kensington gold mine near Juneau has agreed to pay state picks an independent consultant to enforcement actions,” she said. more than $100,000 to settle violations of the federal Clean Water Act, federal do the work.” Skaer said the study also loses con- officials announced Jan. 18. While the monitoring is not based on siderable credibility because the authors Coeur Alaska Inc. will pay an $18,334 penalty to the Environmental Protection comparisons of results with early predic- say they take sole responsibility for it Agency for allowing construction sediment and debris to run into nearby creeks tions, they are based on results from without providing the balance of a peer during heavy rainfall in 2005. samples collected and reports written in review. The company also has agreed to spend $90,000 for wetlands property near the ongoing monitoring process, he said. Juneau that will be protected from development. Crafford said the report’s charge that Borell has problems with report EPA officials said turbidity from storm water run-off and aluminum in the regulators do not compare actual results water could harm the area fisheries. “We have a lot of problems with this with predictions is misleading because “We hope this settlement sends the message statewide on the importance of report,” said Steve Borell, executive the regulators modify terms of mining protecting salmon-supporting waters from construction-related sediment dis- director of the Alaska Mining permits on an ongoing basis in response charges,” said Mike Bussell, director of the EPA Office of Compliance in Seattle. Association. “Jim Kuipers has been on to problems detected and violations of The company has since developed a storm water discharge plan and installed the fringes of the mining industry for a water quality standards. water filters to remove aluminum particles from waste water, according to the long time. He’s the environmental indus- Moreover, “we definitely pay atten- EPA. try’s technical guy for mining.” tion to predictions. We look at them very The mine, about 40 miles northwest of Juneau, is under construction and Borell said Maest’s involvement is critically,” he said. expected to begin operations next year. also troubling because she researched Following the report’s recommenda- The 3.6-acre wetlands property will be managed as a conservation easement by the regulations under which mining tions could make the process more the Southeast Alaska Land Trust. activities occur on Bureau of Land expensive without necessarily improv- Management land in 1999 as part of an —THE ASSOCIATED PRESS ing it, he said. independent panel of the National Though the State of Alaska has prob- Academy of Sciences and found no sig- lems attracting and retaining highly nificant problems. qualified people, Crafford said DNR’s “It’s interesting that now that she’s large mines team and the water-quality getting paid to do a report, she’s finding section of the Alaska Department of all these problems,” he said. Environmental Conservation have bene- Skaer agreed. She said Maest’s only fited from uncommon longevity among concerns back then were financial assur- the professionals on staff. ances for BLM’s management of the Patty McGrath, mining coordinator process and the need for competent con- for the Environmental Protection sultants. Agency Region 10, said the Kuipers and “We’re still looking through the Maest research is an “important study” report, Skaer added, but the timing of it that her agency is reviewing for “what coincides with the Democrats taking we can learn.” control in Congress, and we think it may “The study is based on older environ- be supposed to help (U.S. Rep.) Ray mental impact statements, and we feel Hall, D-W. Va., push for mining our current EISs are doing a better job,” reform.” McGrath said. “We do believe we have Reports based on Kuipers and problems in this area, especially in Maest’s research have been presented at Alaska where it is difficult to make pre- five major mining conferences during dictions because of climate variables” the past two years, Earthworks said. and other factors. For copies of the full reports and McGrath said EPA’s concerns were so additional background, go to great that the agency published its own www.mine-aid.org. ● Companies involved in Alaska and DIRECTORY northwestern Canada’s mining industry

The Red Dog mine in northwest Alaska.

Mining Companies duced one million tons of sub-bituminous coal this year. Flight Nurses and certified Flight Paramedics. Service, Supply & Equipment Air Liquide Fairbanks Gold Mining/Fort Knox Gold Mine Anchorage, AK 99518 Fairbanks, AK 99707 Contact: Brian Benson 3M Alaska Contact: Lorna Shaw, community affairs director Phone: (907) 273-9762 • Fax: (907) 561-8364 11151 Calaska Circle Phone: (907) 488-4653 • Fax: (907) 490-2250 Email: [email protected] Anchorage, AK 99515 Email: [email protected] Air Liquide sells, rents, and is the warranty station for Contact: Paul Sander, manager Web site: www.kinross.com Lincoln, Miller, Milwaukee, Victor and most other welding Phone: (907) 522-5200 Located 25 miles northeast of Fairbanks, Fort Knox is equipment and tool manufacturers. Alaska’s largest operating gold mine, producing 340,000 Fax: (907) 522-1645 ounces of gold in 2004. Email: [email protected] Alaska Cover-All Website: www.3m.com 6740 Jollipan Crt. Rimfire Minerals Corp. Serving Alaska for over 34 years, 3M Alaska offers total Anchorage, AK 99507 Vancover, BC V6C 1G8 Canada solutions from the wellhead to the retail pump with a Contact: Paul Nelson, mgr. Contact: Lisa May, Mkt. Coordinator broad range of products and services – designed to Phone: (907) 346-1319 Phone: (604) 669-6660 improve safety, productivity and profitability. Fax: (907) 346-4400 Fax: (604) 669-0898 E-mail: [email protected] Ace Transport Email: lisam#rimfire.bc.ca Contact: Scott Coon Anchorage, AK 99502 Web site: www.rimfire.bc.ca Phone: (907) 646-1219 Contact: Henry Minich, owner Gold and silver projects in Alaska, Yukon, BC and Nevada. Fax: (907) 646-1253 Phone: (907) 243-2852 • Phone: (907) 229-9647 (cell) Preferred partner of senior mining firms. Partnered with Email: [email protected] Fax: (907) 245-8930 • Email: [email protected] the world’s three largest gold producers. National Call Center: 1-800-268-3768 Specializing in heavy hauling. Equipment includes 85-ton We are the Alaska dealers for Cover-All Building Systems. lowboy. Usibelli Coal Mine Steel framed, fully engineered, LDPE fabric covered, Fairbanks, AK 99701 portable buildings in 18 to 270 foot widths and any length. Contact: Bill Brophy, vp cust. relations Aeromed International Anchorage, AK 99503 Phone: (907) 452-2625 • Fax: (907) 451-6543 Alaska Earth Sciences Contact: Brooks Wall, director Email: [email protected] • Web site: www.usibelli.com Anchorage, AK 99515 Phone: (907) 677-7501 • Fax: (907) 677-7502 Other Office Contact: Bill Ellis, Rob Retherford Email: [email protected] P. O. Box 1000 • Healy, AK 99743 or Dave Lappi, owners Web site: www.ykhc.org Phone: (907) 683-2226 Phone: (907) 522-4664 • Fax: (907) 349-3557 Usibelli Coal Mine is headquartered in Healy, Alaska and Aeromed International is an all jet critical care air ambu- lance fleet based in Anchorage. Medical crews are certified has 200 million tons of proven coal reserves. Usibelli pro- see next page 18 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

Email: [email protected] Lynden A full service exploration group that applies earth sciences Alaska Marine Lines • Alaska Railbelt Marine for the mining and petroleum industries providing Advertiser Index Alaska West Express • Lynden Air Cargo prospect generation, evaluation and valuation, exploration Lynden Air Freight • Lynden International concepts, project management, geographic information 3M Alaska Lynden Logistics • Lynden Transport systems and data management. We also provide camp sup- Ace Transport ...... 5 Anchorage, AK 99502 port and logistics, geologic, geochemical and geophysical Aeromed International Contact: Jeanine St. John surveys. Air Liquide Phone: (907) 245-1544 • Fax: (907) 245-1744 Alaska Cover-All Email: [email protected] Alaska Dreams ...... 16 Alaska Frontier Constructors The combined scope of the Lynden companies includes Alaska Earth Sciences ...... 4 P.O. Box 224889 truckload and less-than-truckload highway connections, Alaska Frontier Constructors Anchorage, AK 99522-4889 scheduled barges, intermodal bulk chemical hauls, sched- Alaska Interstate Construction (AIC) Contact: John Ellsworth, President uled and chartered air freighters, domestic and interna- Alaska Railroad ...... 12 Phone: (907) 562-5303 tional air forwarding and international sea forwarding Fax: (907) 562-5309 Alaska Steel Co. services. Email: [email protected] Arctic Controls Alaskan heavy civil construction company specializing in Arctic Foundations ...... 3 MRO Sales Arctic and remote site development with the experience, Bombay Deluxe Restaurant ...... 7 Anchorage, AK 99518 equipment and personnel to safely and efficiently com- Chiulista Camp Services/Mayflower Catering . . .11 Contact: Don Powell plete your project. CN Aquatrain Phone: (907) 248-8808 • Fax: (907) 248-8878 Construction Machinery ...... 20 Email: [email protected] Alaska Interstate Construction (AIC) Dowland-Bach ...... 10 Website: www.mrosalesinc.com 601 West 5th Avenue, Suite 400 Egli Air Haul MRO Sales offers products and services that can help solve Anchorage, Alaska 99501 Fairbanks Gold Mining/Fort Knox Gold Mine . . .15 the time problem on hard to find items. Contact: David Thomas Jackovich Industrial & Construction Supply ...... 4 Phone: (907) 562-2792 • Fax: (907) 562-4179 Judy Patrick Photography ...... 9 Northern Air Cargo Email: [email protected] • Web site: www.aicllc.com Lynden 3900 W. International Airport Rd. AIC provides cost-effective solutions to resource develop- MRO Sales Anchorage, AK 99502 ment industries. We provide innovative ideas to meet each Nature Conservancy, The ...... 14 Contact: Mark Liland, acct. mgr. Anch./Prudhoe Bay requirement through the provision of best-in-class people Northern Air Cargo ...... 2 Phone: (907) 249-5149 and equipment coupled with exceptional performance. Pacific Power Products Fax: (907) 249-5194 Pacific Rim Geological Consulting Email: [email protected] Alaska Steel Co. Panalpina ...... 12 1200 W. Dowling Website: www.nac.aero PTI Group Serving the aviation needs of rural Alaska for almost 50 Anchorage, AK 99518 Residential Mortgage ...... 8 Contact: Joe Lombardo, vice president years, NAC is the states largest all cargo carrier moving Salt+Lite Creative ...... 13 nearly 100 million pounds of cargo on scheduled flights to Phone: (907) 561-1188 Usibelli Coal Mine ...... 6 Toll free: (800) 770-0969 (AK only) 17 of Alaska’s busiest airports. NAC’s fleet of DC-6, B-727, U.S. Bearings & Drives and ATR-42 aircraft are available for charters to remote Fax: (907) 561-2935 Veco Email: [email protected] sites and flag stops to 44 additional communities. Fairbanks Office: Pacific Power Products 2800 South Cushman to Canadian and Lower 48 markets for 38 years. Anchorage, AK 99507 Contact: Dan Socha, branch mgr. Phone: (907) 522-3434 • Fax: (907) 522-1198 Phone: (907) 456-2719 Construction Machinery Web site: www.pacificdda.com Fax: (907) 451-0449 5400 Homer Dr. Other office: Fairbanks, AK 99709 Kenai Office: Anchorage, AK 99518 In Alaska, we are distributors for Detroit Diesel, Allison and 205 Trading Bay Rd. Contact: Ron Allen, Sales Manager Kohler. We have served Alaska for over 30 years with quali- Contact: Will Bolz, branch mgr. Phone: (907) 563-3822 ty products for the petroleum industry. Phone: (907) 283-3880 Fax: (907) 563-1381 Email: [email protected] Fax: (907) 283-3759 Pacific Rim Geological Consulting Web site: www.cmiak.com Full-line steel and aluminum distributor. Complete process- Fairbanks, AK 99708 Other Offices: ing capabilities, statewide service. Specializing in low tem- Contact: Thomas Bundtzen, president Fairbanks office perature steel and wear plate. Phone: (907) 458-8951 • Fax: (907) 458-8511 Phone: 907-455-9600 • Fax: 907-455-9700 Email: [email protected] Arctic Controls Juneau office Geologic mapping, metallic minerals exploration and Anchorage, AK 99501 Phone: 907-780-4030 • Fax: 907-780-4800 industrial minerals analysis or assessment. Contact: Scott Stewart, president Ketchican office Phone: (907) 277-7555 • Fax: (907) 277-9295 Phone: 907-247-2228 • Fax: 907-247-2228 PTI Group Email: [email protected] Wasilla Office Edmonton, AB, Canada T6N 1C8 Website: www.arcticcontrols.com Phone: 907-376-7991 • Fax: 907-376-7971 Phone: (800) 314-2695 • Fax: (780) 463-1015 An Alaskan owned and operated company since,1985, Email: [email protected] Arctic Controls has been highly successful as manufacturer Egli Air Haul Website: www.ptigroup.com representatives for the state of Alaska in the Process P.O. Box 169 PTI Group Inc. is the premium supplier of integrated Control and Instrumentation field. King Salmon, AK 99613. Contact: Sam Egli remote site services. Offering full turnkey packages or indi- Arctic Foundations Phone: (907) 246-3554 vidual services such as construction, catering and waste- Anchorage, AK 99518-1667 Fax: (907) 246-3654 water treatment, PTI delivers above and beyond client Contact: Ed Yarmak Email: [email protected] expectations. Phone: (907) 562-2741 • Fax: (907) 562-0153 Web site: www.egliair.com U.S. Bearings & Drives Email: [email protected] Serving Alaska since 1982, we perform a wide variety of Anchorage, AK 99518 Website: www.arcticfoundations.com flight operations, including airplane and helicopter charter, Contact: Dena Kelley, branch mgr. Soil stabilization – frozen barrier and frozen core dams to aerial survey, and specialized operations such as external Phone: (907) 563-3000 • Fax: (907) 563-1003 control hazardous waste and water movement. load work, powerline maintenance, aerial filming and Email: [email protected] • Web site: Foundations – maintain permafrost for durable high capac- videography. www.bearings.com ity foundations. Jackovich Industrial & Construction Supply U.S. Bearings & Drives has been providing solutions to it Chiulista Camp Services/Mayflower Catering Fairbanks, AK 99707 customers for over 25 years. We offer quality components, Anchorage, AK 99507 Contact: Buz Jackovich name brands and highly trained personnel. Contact: George B. Gardner, pres/gm Phone: (907) 456-4414 • Fax: (907) 452-4846 Phone: (907) 278-2208 • Fax: (907) 677-7261 Anchorage office VECO Email: [email protected] Phone: (907) 277-1406 • Fax: (907) 258-1700 949 E. 36th Ave., Ste. 500 The 100 percent Alaska Native owned and operated cater- 24- hour emergency service. With 30 years of experience, Anchorage, AK 99508 ing company on the North Slope, catering and housekeep- we’re experts on arctic conditions and extreme weather. Contact: Emily Cross ing to your tastes, not ours. Phone: (907) 762-1510 Judy Patrick Photography Fax: (907) 762-1001 CN Aquatrain Anchorage, AK 99501 Email: [email protected] Anchorage, AK Contact: Judy Patrick Web site: www.VECO.com Contact: Laurie A. Gray, agent Phone: (907) 258-4704 • Fax: (907) 258-4706 VECO is a multi-national corporation that provides services, Phone: (907) 279-3131 Email: [email protected] project management, engineering, procurement, construc- Toll Free: (800) 999-0541 • Fax: (907) 272-3963 Website: JudyPatrickPhotography.com tion, operations and maintenance – to the energy, resource CN Aquatrain has provided Alaska with dependable access Creative images for the resource development industry. and process industries and the public sector. PETROLEUM NEWS • WEEK OF JANUARY 28, 2007 NORTH OF 60 MINING 19

● BRITISH COLUMBIA Prosperity project could live up to name Taseko Mines happy with pre-feasibility study for British Columbia property, which would be the company’s second mine if developed

By SARAH HURST An updated, detailed feasibility For Mining News study for Prosperity is currently aseko Mines’ Prosperity gold-cop- being performed by Hatch per project in south-central British Associates, and is due to be T Columbia could have a mine life of completed in May. 19 years at a milling rate of 70,000 metric tons per day, according to a pre- feasibility level study that was complet- refineries around the world. Based on the ed in January. Vancouver-based Taseko pre-feasibility study, the project would is a subsidiary of Hunter Dickinson, the employ up to 485 permanent personnel. group that includes Northern Dynasty, Another 70 contractors would be which is developing the Pebble project employed in areas including catering, con- in Alaska. Taseko operates the Gibraltar centrate haulage, explosives delivery and copper mine, also in south-central bussing. British Columbia. “These results are a key step towards The Prosperity project is about 78 demonstrating the viability of our miles southwest of the city of Williams Prosperity project,” said Russell Lake in the Cariboo-Chilcotin region of Hallbauer, Taseko’s president and CEO. British Columbia. The pre-feasibility “While there is still more work required to study indicates that the property hosts complete the feasibility study, there is sig- proven and probable reserves of 480 nificant opportunity held within this asset million tons, grading 0.43 grams of and we are confident that the economics gold/ton and 0.22 percent copper. The will be further improved at the full feasi- study was done using long-term metal bility study level. These additional copper prices of U.S.$1.50 per pound for cop- and gold reserves, when combined with per, U.S.$500 an ounce for gold, and an the 1.5 billion pounds of copper in the exchange rate of U.S.$0.80/C$1.00. Gibraltar reserves, further strengthen According to the pre-feasibility study, Taseko’s position for growth.” the total pre-production capital cost of An updated, detailed feasibility study for Prosperity is currently being performed the mine would be C$756 million and ing and extending current road access Concentrate would move by truck by Hatch Associates, and is due to be com- the operating cost would be C$5.78 per and constructing the mine facilities and The copper-gold concentrate from pleted in May. An environmental assess- ton milled over the life of the mine. an electricity transmission line. The Prosperity would be hauled by highway ment under the Canadian and British Prosperity’s pre-tax internal rate of mine plan envisions a large-scale con- trucks to an expanded load-out facility at Columbia Environmental Assessment Acts return would be 14 percent, with a six- ventional truck shovel open pit mining McLeese Lake for rail transport to various is now in progress. Submission of the year payback. Pre-production work and milling operation. would take two years, including upgrad- points of sale, but mostly through the Port Environmental Impact Assessment is of Vancouver for shipment to smelters and scheduled for April 30 of this year. ● 20 NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 28, 2007

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