l EXPLORATION & PRODUCTION Linc outlines Umiat · l EXPLORATION & PRODUCTION l TURAL GAS l...
Transcript of l EXPLORATION & PRODUCTION Linc outlines Umiat · l EXPLORATION & PRODUCTION l TURAL GAS l...
l E X P L O R A T I O N & P R O D U C T I O N
l N A T U R A L G A S
l E X P L O R A T I O N & P R O D U C T I O N
Vol. 20, No. 25 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of June 21, 2015 • $2.50
page10
Tangen: Court says MLUP can be functionally Irrevocable www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of June 21, 2015
NEWS NUGGETSCompiled by Shane Lasley
l R A R E E A R T H E L E M E N T S
Unga delivers high-grade gold-silverRedstar Gold Corp. June 11 reported multi-ounce gold
intercepts from the first two holes of a recently completed
eight-hole drill program on the Shumagin prospect at its
Unga gold project on the Alaska Peninsula. Hole 15SH011
cut 1.9 meters grading 5.89 ounces per ton gold and 2.4 oz/t
silver over 1.9 meters. Hole 15SH012 cut three intercepts:
1.03 oz/t gold and 6.1 oz/t silver over 2.0 meters; 0.49 oz/t
gold and 5.3 oz/t silver over 3.0 meters; and 3.88 oz/t gold
and 12.3 oz/t silver over 0.7 meters. “These are the drill
results from a new management team, and these results con-
firm our optimism for the Unga Gold Project, and the
Shumagin area specifically. We intersected mineralization
where we expected, with high-grade gold and silver grades,”
said Redstar Chairman Jacques Vaillancourt. The phase-1
program at Unga was designed to target various structural
elevations of the Shumagin vein system while systematically
testing for continuity of mineralization and obtaining geo-
logical constraint within areas of existing known high-grade
mineralization through infill drill holes, including the holes
reported above; and exploratory step-out drilling of the vein
system at depth and along strike to the northeast by about
100 meters through four step-out drill holes. Results from
the remaining six holes are pending. Redstar said a phase-2
drill program planned for later 2015 will maintain a focus on
the Shumagin prospect concurrent with exploration of other
known high-grade gold targets located within the Unga gold
project.
Graphite Creek claims conflict settledGraphite One Resources Inc. June 11 reported that its
wholly owned subsidiary, Graphite One (Alaska) Inc. has
come to an agreement with Ronald Sheardown for 28 Alaska
state mining claims covering the same lands purchased by
Graphite One in January 2012. This provides the company
ownership of both the jun-
ior and senior state mining
claims that overlap and
surround the 24 unpatented
federal claims that it leased
from Kougarok LLC. In
exchange for the claims,
Graphite One has agreed to
pay US$50,000 and issue 3
million common shares to
Sheardown. Sheardown
also will receive a royalty
interest equal to 1 percent of the net smelter returns received
on G1 Alaska claims, subject to Graphite One’s option to
purchase the royalty for US$500,000 at any time within 36
months following the start of mine production. Graphite One
Bottom of Formalso retained Sheardown to sit on its adviso-
ry board for three years. As part of this position, Sheardown
has been granted stock options to purchase 1 million
Graphite One common shares at C13 cents per share.
Graphite One’s Graphite Creek property now includes the 28
state mining claims acquired by G1 Alaska in 2012 plus the
claims acquired from Sheardown, 77 state claims staked by
G1 Alaska in 2012 and 24 leased federal claims. “With this
agreement, Graphite One (Alaska) now fully controls, free
of any conflicting locations, the right to possess and extract
100 percent of its identified resource,” said Graphite One
CEO Anthony Huston. “The company will also benefit from
being able to draw on Ron Sheardown’s extensive experi-
ence in major development projects, and he will be a great
asset to our board and management. Sheardown has been
see NEWS NUGGETS page 11
Ahead of the REE crowdUcore’s separation process draws investor; explorer eyes Bokan feasibility
By SHANE LASLEYMining News
Ucore Rare Metals Inc.’s exploration endeav-
ors are proving successful – not only in
expanding the heavy rare earth elements-enriched
deposit at the Bokan Mountain Project in
Southeast Alaska, but in discovering new tech-
nologies that advance rare earth refinement into
the 21st Century.
Hoping to cash in on this success, a “high net-
worth” American investor recently tendered a
US$1 million down payment toward royalties
offered by Ucore.
These royalties will not
come from the future sale of
rare earths mined at Bokan
Mountain. Instead, they will
derive from the sale of prod-
ucts and services related to
SuperLig
Molecular
Recognition Technology, a
proprietary rare earths and
specialty metals separation
method that
Ucore is
involved with developing.
All told, the un-named investor has agreed to
pay US$4 million in exchange for royalties associ-
ated with the cutting-edge REE separation technol-
ogy.
“The investment is favorable for Ucore since
there is no debt burden, and is prospectively non-
dilutive, given that shares will not be issued by
Ucore upon closing,” said Ucore President and
CEO Jim McKenzie. “What’s more, the transac-
tion is a vote of confidence from a major investor
in the remarkable growth potential of MRT, as well
as an endorsement and financing milestone for
Ucore, as it transitions towards near-term revenue
status and vertical integration.”
Separate technologyIBC Advanced Technologies, a Utah-based
company that develops and manufactures molecu-
lar recognition technology for a broad range of
applications, has successfully applied the tech-
nique to separating notoriously tightly interlocked
rare earth elements.
The MRT process is designed to bind selective-
ly with ions based on multiple parameters such as
size, chemistry, and geometry.
Using a pregnant leach solution prepared from
material taken from Dotson Ridge deposit at
Bokan Mountain, IBC Advanced Technologies
developed a three-step process for creating nearly
pure rare earths.
On June 16, Ucore announced that Dr. Reed
Izatt, a chemist and one of the founding principles
of IBC Advanced Technologies, and Steven Izatt,
president and CEO of IBC, would be joining
Ucore’s advisory board.
“With Ucore’s expanding focus on metals sepa-
ration technologies, the insights provided by Dr.
Reed Izatt and Mr. Steven Izatt, combined with the
benefit of IBC’s experience as the global leader in
MRT applications to the mining industry, will be
invaluable,” explained McKenzie.
In early March, Ucore reported that IBC’s MRT
process had separated all the individual rare earth
elements found at Bokan Mountain into salts of
greater than 99 percent purity, except for samarium
and gadolinium, which remained bound together.
Samarium and gadolinium have now been sep-
arated into individual salts, each with 99.2 percent
purity.
Not only did the process create pure salts across
the entire suite of rare earths, it did so while recov-
ering more than 99 percent of the REEs available
in the pregnant leach solution.
“We look forward to completing pilot-scale
testing of this promising nano-technology,” said
McKenzie.
Upon delivery of a fully functional pilot plant,
Ucore has agreed to pay IBC US$2.9 million for
rights to the potentially sector-changing technolo-
gy.
Under an agreement announced in March,
Ucore will hold a 60 percent interest in a joint ven-
ture with IBC to market and sell SuperLig
Molecular Recognition Technology for rare earth
separation and recycling applications, as well as
tailings processing applications.
“Perhaps most importantly, our licensing
arrangement includes the application of SuperLig
technology to the world recycling and tailings pro-
cessing sector – both for the recovery of rare earths
and all other metals,” McKenzie said at the time.
The US$4 million from the yet-to-be-named
investor will help pay for the rights.
In exchange, the investor will be granted royal-
ties equal to five percent of gross sales from the
first MRT installation or installations, payable
until the investment is recouped; and a net smelter
royalty equal to 2 percent of the net sales from
Ucore’s first C$50-million-per-year molecular
recognition technology client.
The investor has the option to increase the roy-
alty by up to 0.5 percent by putting up another
US$1 million by Aug. 13. An option to trade in the
royalties for Ucore shares is also on the table.
Upgrading BokanIn addition to finding new and improved ways
to separate rare earths, Ucore’s exploration has sig-
nificantly upgraded and expanded the REE
resources at the Dotson Ridge deposit of its Bokan
Mountain project.
This expansion is the result of a 4,000-meter
drill program completed last year.
The smaller of two rigs drilling at Bokan during
2014 focused on upgrading inferred resources to
the indicated category by infill drilling of the rare
earths deposit.
Of the 12 infill holes drilled, 10 cut significant
mineralization. One hole, LM 14-142, cut multiple
intercepts exceeding 1 percent TREO. Highlights
see UCORE PROGRESS page 11
“We look forward to completing pilot-scale testing of this promising nano-
technology.” —Jim McKenzie, presidentand CEO, Ucore Rare Metals Inc.
JIM MCKENZIE
This provides the companyownership of both thejunior and senior state
mining claims that overlapand surround the 24
unpatented federal claimsthat it leased from
Kougarok LLC.
This week’s Mining News
Rare earth element miner Ucore Rare Metals Inc. draws an investorfor its separation process. Read more in Mining News, page 9.
page3
Q&A: Same guy, different job,Persily from federal office to KPB
Linc outlines UmiatAustralian independent describes expanded development program for oil field
By ERIC LIDJIFor Petroleum News
A fter spending more than a year evaluating
drilling results, Linc Energy Ltd. has consider-
ably expanded its proposal for developing the
Umiat oil field on the North Slope.
The Australian independent recently outlined a
program calling for approximately 13 drilling pads
to accommodate 150 wells with drilling to begin as
early as 2021. The program is twice as large as and
would take several years longer than a previous ver-
sion.
The company has drilled two exploration wells
in recent years at the known oil field in the foothills
of the Brooks Range Mountains and the National
Petroleum Reserve-Alaska.
Umiat No. 18 in early 2013 took a vertical core
sample. Umiat No. 23H in early 2014 followed up
with the first horizontal well ever drilled at the
remote field. A subsequent flow test yielded a sus-
tained rate of 250 barrels per day of 38.5 degree API
gravity crude oil.
Those wells formed the foundation for reservoir
modeling efforts currently under way.
The company is envisioning a drilling program
with wells laid out of a 40-acre pattern, with wells
The season approachesShell starts moving fleet north for Chukchi drilling; permits slot into place
By ALAN BAILEYPetroleum News
E lements of Shell’s Chukchi Sea fleet are on
the move, heading north in preparation for
drilling during this season’s Arctic open water sea-
son.
The barge Arctic Challenger, holding Shell’s
Arctic oil containment system, a part of the com-
pany’s oil spill response capability, arrived in the
Aleutian Islands port of Dutch Harbor on June 14,
Shell spokeswoman Megan Baldino told
Petroleum News in a June 16 email. The semi-sub-
mersible drilling platform Transocean Polar
Pioneer is en route for Alaska, having left Seattle
on the U.S. West Coast at around 6 a.m. on June
15, Baldino said. Shell’s other drilling vessel, the
Noble Discoverer, remains at the Port of Everett to
continue its load out, she said.
Shell now has in place most of the permits that
Petronas at starting gateAsian partnership gives big lift to Canada’s energy industry with vow to proceed
By GARY PARKFor Petroleum News
A wide-ranging Asian consortium backing
British Columbia’s Pacific NorthWest LNG
consortium has become the first of 17 LNG pro-
posals in the province to make a solid commitment
to go ahead with its plans by investing C$12 bil-
lion to produce, process and ship Canadian natural
gas to the owners’ home markets.
TransCanada also reported four additional
agreements with First Nations, helping clear the
way for a C$5 billion investment linking shale gas
fields to the Pacific NorthWest liquefaction termi-
nal on Lelu Island, south of Prince Rupert.
The decision to tie the final knots on Canada’s
first LNG export venture came as the British
Columbia Legislature was winding up its spring
session, triggering a flush of excitement in a gov-
ernment that has pinned much of British
Columbia’s economic future on returns from LNG.
Deputy Premier and Natural Gas Development
Minister Rich Coleman described the announce-
ment by project operator, Malaysia’s state-owned
Petronas, as “a significant milestone for us.”
The Australian independent recentlyoutlined a program calling for
approximately 13 drilling pads toaccommodate 150 wells with drilling to
begin as early as 2021.
see UMIAT PROGRAM page 19
The company has assembled a major setof assets for responding to any oil spillemergency, including the containmentdome, a well capping stack, oil spillresponse vessels and a tanker for
collecting any spilled oil.
see DRILLING FLEET page 20
see ENERGY LIFT page 18
Coleman said that British Columbia’s vastgas resource, most of it stuck in the ground
with nowhere to go, is “basically sold.”
Caelus buying Smith Bay tractsfrom NordAq; plans winter drilling
Caelus Energy Alaska is expanding its North Slope opera-
tions to the west, acquiring 26 tracts in Smith Bay from
NordAq, and has announced plans to drill the Tulimaniq leas-
es this winter. Pat Foley, senior vice president of the compa-
ny’s Alaska operations, told a joint meeting of the House and
Senate Resources committees June 17 that he’d been locked in
a room for the past two days with representatives of NordAq,
Doyon Drilling, Cruz Construction and CIRI, finalizing the
deal, expected to close June 18 and be recorded June 19. He
said NordAq, which had planned to drill this past winter, was-
n’t able to carry out those plans.
A June 17 press release from Caelus, released after the June
17 committee hearing, said the company is acquiring a 75 per-
AIDEA buying Pentex; boardapproves $54 million acquisition
The Alaska Industrial Development and Export Authority will
buy a Fairbanks natural gas distribution utility in the hopes of
streamlining efforts to bring gas to the Interior.
The board of the public corporation approved a resolution
June 11 allowing AIDEA to invest $54 million to acquire Pentex
Alaska Natural Gas Co. LLC. The sale includes assets of the
company, including its distribution subsidiary Fairbanks Natural
Gas LLC.
Although AIDEA is touting immediate cost savings, the inten-
tion of the purchase is to quickly “transition” Fairbanks Natural
Gas to a “local control entity,” such as the municipal Interior Gas
Utility or the cooperative Golden Valley Electric Association.
The acquisition is expected to close by the end of July.
see CAELUS TRACTS page 18
see AIDEA BUY page 19
2 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
Petroleum News North America’s source for oil and gas newscontents
14 Cook Inlet Energy surrenders spare leases
Company returns 14 un-unitized leases throughoutthe Cook Inlet basin; independent investors make smaller transactions
13 Tax credits based on spend, taxes on price
Legislative committees hear admin overview on oil taxcredits, enalytica analysis, small producers, explorers on value of credits
7 M&A uncertainty prevails
Hopes for a gusher of deals in Canada lack clarity; signs from Crescent Point-Legacy deal pointto interest in energy assets by SOE
FINANCE & ECONOMY
3 Same guy, different job, renewed energy
Persily switches from federal to Kenai Peninsula Boroughoffice while tapping into wells of diverse skillsfor projected AKLNG hub
4 Alberta jitters grow
New government makes good on promise to raiseincome tax, expects to start review of royalties, climate policies later this year
GOVERNMENT
8 Legislators get update on Alaska LNG
Project work on schedule for 2016 FEED decision; fiscalcertainty from state needed; continuing role of TransCanada uncertain
NATURAL GAS
5 Reflections on Railbelt grid issues
RCA commissioners comment on some of the issuesrelating to the potential for unified operation of the power transmission system
6 ML&P proposes power dispatch solution
Offers service to utilities to help make best use of available electricity generation facilities on the Railbelt transmission grid
UTILITIES
15 Walsh named state pipeline coordinator
LAND & LEASING6 No substantial new info decisions
Caelus buying Smith Bay tractsfrom NordAq; plans winter drilling
AIDEA buying Pentex; boardapproves $54 million acquisition
Linc outlines Umiat
Australian independent describes expanded development program for oil field
The season approaches
Shell starts moving fleet north for Chukchidrilling; permits slot into place
Petronas at starting gate
Asian partnership gives big lift to Canada’senergy industry with vow to proceed
ON THE COVER
page11
Parnell heads governors’ 7-membercoastal states coalition E X P L O R A T I O N & P R O D U C T I O N
N A T U R A L G A S
E X P L O R A T I O N & P R O D U C T I O N
Vol. 17, No. 44 • www.PetroleumNews.comA weekly oil & gas newspaper based in Anchorage, Alaska
Week of October 28, 2012 • $2
The October issue of North of 60 Mining News is enclosed.
October Mining News inside
PHOTO BY CHRIS AREN D, COURT ES Y OF USI BELLI COA L MI NE I NC .
Thomas Tak e, ch arged w ith the large task of repairing
tires at the U sibelli Coal M ine in Healy, holds one of
some 4,500 high-paying mining jobs in Alaska. An
employment forecast published by the Alaska
Depa rtment of Labor and W or kforce Development in
October pegged the state’s mining sector job grow th
from 2010 t o 2020 at 19 percent. Page 14.
A special supplement to Petroleum NewsWEEK OFOctober 28, 2012
3 P en t a g o n ba ck s U cor e in no v a tio n
Contract ties DoD to Bokan, state-of-the-art method for extracting REEs
11 E m er a l ds g l im m e r in g o ld s e tt i n g
North C ountry Gold makes rare gem discovery in Nunavut greenstone belt
24 N e w G old t h ir s t y f or B l a ck w a te r
Miner dri lls 250,000 meters, makes vast land grab in gold-rich central BC
Budget planners cautious; landsales, well authorizations down
Bean counters and number crunchers are in full swing in
Canada assembling 2013 capital budgets against a worrying
backdrop of shaky industry forecasts, sharp declines in gov-
ernment land auctions and plunging new well permits issued
by regulators.The current betting points to troubles for the upstream,
reflected in gyrating oil and natural gas prices, and a contin-
uation of the lackluster showing in the drilling sector that has
extended over recent years.One of the early messages came from Schlumberger Chief
Executive Officer Paal Kibsgaard, who told analysts that liq-
uids activity in North America will “no longer be able to off-Hanging pipeline: September floodsleave Kenai area gas line dangling
Roads and railroad bridges weren’t the only things that
washed out in the heavy rains which hit Southcentral Alaska
in September. Marathon Oil, in the process of selling its Cook Inlet
assets to Hilcorp Alaska, is dealing with a washout along
Kalifonsky Beach Road near Kenai which left a segment of a
gas pipeline dangling. The Pipeline and Hazardous Materials Safety
Administration, PHMSA, described the situation and action it
requires in an Oct. 5 corrective action order. The affected line is a 20-inch diameter pipeline transport-
ing natural gas from the Kenai gas field to facilities south of
Kenai. PHMSA said the line was buried parallel to and with-
see BUDGET CAUTION page 18
see FLOODING AFTERMATH page 21
CD-5 is aliveConoco sanctions Alpine West; now needs partner approval; first oil by 2016
By ERIC LIDJIFor Petroleum NewsA fter years of permitting delays, ConocoPhillipsCo. is moving ahead on CD-5, the fourth satel-
lite of its Alpine field on the North Slope, the com-
pany announced Oct. 25.The ConocoPhillips board sanctioned the project
in October, Executive Vice President Exploration
and Production Matt Fox said during a third quarter
earnings call. “The project is now pending partner
approval, which is expected in November,” Fox said.
ConocoPhillips expects CD-5 production to begin
in 2016, Fox said. The company previously estimat-
ed construction would begin in 2014 with first oil in
late 2015.
After bringing the Alpine field at the Colville
River unit into production in 2000, ConocoPhillips
and its partner Anadarko brought three Alpine satel-
lites online over the following decade: Fiord in
August 2006, Nanuq in December 2006 and Qannik
in 2008. Also known as Alpine West, the CD-5 satellite
ConocoPhillips produced some 176,000barrels of oil equivalent per day in
Alaska during the third quarter, downsome 32,000 barrels of oil equivalent per
day from the same period last year.
see CD-5 page 22New field ‘challenge’ExxonMobil: Schedule is tight for achieving first production at Point Thomson
By WESLEY LOYFor Petroleum NewsM eeting the target date for starting productionfrom Alaska’s Point Thomson field will be “a
challenge,” an ExxonMobil executive said.The company has pledged to start producing natu-
ral gas condensate from the remote eastern North
Slope field by the winter of 2015-16.But it still has multiple permitting hurdles to clear
before it can begin construction of production facili-
ties and a pipeline to feed the condensate into the
existing North Slope transportation network.Company representatives appeared Oct. 23 at a
hearing of the Regulatory Commission of Alaska,
which is considering an ExxonMobil subsidiary’s
application for a certificate of public convenience and
necessity to build and operate the 22-mile pipeline.
One commissioner asked the ExxonMobil reps
whether they are on schedule with the Point Thomson
project.“We are on schedule, but it is very tight,” replied
Jeff Ray, vice president of PTE Pipeline LLC, the
company seeking the certificate for the Point
Aside from the certificate, ExxonMobilneeds a number of other major
authorizations before it can proceed withthe Point Thomson development.
see TIGHT SCHEDULE page 23Time for action is hereSouthcentral Alaska utilities are moving forward on options for gas imports
By ALAN BAILEYPetroleum NewsWith natural gas supplies from Cook Inlet set
to fall short of local gas demand by 2014 or
2015, the time has come tomove ahead with arrange-ments to supplement thoselocal supplies with importsfrom elsewhere, Southcentralpower and gas utility executives told the
Regulatory Commission of Alaska during a public
meeting on Oct. 24. Southcentral residents and
businesses depend on gas both for power genera-
tion and for the heating of buildings.“I’m personally done wringing my hands,”
Bradley Evans, CEO of Chugach Electric
Association, told the commissioners, saying he
takes responsibility for ensuring continuity of gas
supplies for his utility. Chugach Electric currently
generates about 90 percent its power using gas-
fueled power plants.
Lee Thibert, senior vice president ofChugach Electric, said that the utilities
have asked potential shippers of importedgas for expressions of interest in theimport arrangements.
see GAS IMPORTS page 24
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By STEVE QUINNFor Petroleum News
T here doesn’t seem to be much
Larry Persily hasn’t done.
Reporter. Legislative aide. Editorial
writer. Deputy Revenue Commissioner.
Federal Pipeline Coordinator.
Now Persily calls the Kenai Peninsula
Borough his new employer. Mayor Mike
Navarre needed an oil and gas specialist
to tend to details but also do some heavy
lifting on major projects. His wealth of
knowledge on resource development,
particularly the Alaska LNG project, will
be the most visible, but Persily’s new job
as a special assistant runs deeper than
that.
Persily talked about his new role after
the federal pipeline coordinator’s office
closed over the winter, and his views on
the prospective LNG project.
Petroleum News: So talk about yournew job a little bit.
Persily: It’s, in many ways, similar to
what I was doing with the federal gov-
ernment certainly: tracking the project;
make sure the public knows as much
stuff about what’s going on; representing
the Kenai Borough’s interest in the proj-
ect; talking with community groups;
talking with the public trying to serve as
a liaison between the project and the
public. An informed public is better than
an uninformed or ill-informed public.
This project is going to have a mas-
sive impact, if it
goes ahead, on the
Kenai Peninsula
Borough from the
liquefaction plant
storage tanks,
marine terminal, 30
miles of pipeline on
bottom of Cook
Inlet, pipeline on
both sides of Cook
Inlet. The way I look at it is, you will
have half the value, or more, within the
boundaries of the Kenai Borough.
There are other oil and gas issues that
I’m tracking for the borough: BlueCrest
Energy down by Ninilchik, just all the
activity in Cook Inlet. The mayor was
looking to have somebody on staff who
had expertise on oil and gas, and repre-
sents the borough, not just Alaska LNG,
all the activity down here.
I’ve known Mike Navarre since he
was a legislator and I was a reporter in
Juneau a long time ago. I bumped into
Mike in January when I was presenting
at a Kenai economic development con-
ference. By then, we knew the (coordi-
nator’s) office was closing; it was just a
matter of when.
Mike told me he had just recently
presented to the Borough Assembly a
proposal to create a new position for oil
and gas consultant special assistant, and
I should keep it in mind, which I did. He
and I talked the next couple of months
and I started on March 10.
Petroleum News: Weren’t you leadstaffer on some Cook Inlet legislationwhen you worked for (Legislative Budget& Audit Chair) Mike Hawker?
Persily: Right, the Cook Inlet Natural
Gas Recovery Act. I helped with legisla-
tion for Cook Inlet gas storage and some
initial tax credit discussion. But I should
also clarify it’s not just oil and gas. Mike
Navarre knows the fiscal situation is
going to be tight in years ahead, not just
for the state but for the municipality so
he wants me to work on some projects
as we look at the borough’s fiscal situa-
tion and as we look at the state’s fiscal
situation, what can the municipalities do
to help. So I’ll be working on those
issues too
Petroleum News: So he is also tap-ping into your experience as a deputyrevenue commissioner?
Persily: Right. So basically I’m doing
the same thing I’ve done the past 20
years as deputy revenue commissioner,
legislative aide, federal gas line coordi-
nator and putting all of that to work. It
pays to get a job where you don’t have
to learn anything new.
Petroleum News: So you’ve worked atjust about every level — state, federaland local — and with what you just cov-ered in mind, what would you like toaccomplish with this appointment?
Persily: Certainly the Kenai Borough
and most of its residents welcome the
LNG project. It’s not only going to have
good impacts on the community but traf-
fic certainly during construction, demand
on services, fire, police, more traffic. So
the more actively involved the borough
can be speaking up during FERC pro-
ceedings, working with the project,
working with DOT, the better everyone
will be. I can’t say I’m going to make
Alaska LNG possible. That implies I’ve
got some God-like powers. I don’t. I like
to make it as publicly manageable to the
residents here and help translate between
residents and the project development
team so the misunderstandings are kept
to a minimum, and also serve as a
resource for other communities along the
route and the state to the extent that I
can.
Petroleum News How engaged is thecommunity right now? Do you sense abuzz or is it too early for that?
Persily: No. I think the fact that
Alaska LNG has been buying property
and either purchased property outright or
executed options on property to more
than 550 acres of the 800 acres they are
trying to amass for the liquefaction plant
and marine terminal. You don’t keep that
a secret. People are sensing this has the
possibility over being very real.
So yeah, I’d say the buzz is building
but there is still that cynicism, that skep-
ticism that we’ve heard before that
you’re going to have to overcome. But
l G O V E R N M E N T
Same guy, different job, renewed energyPersily switches from federal to Kenai Peninsula Borough office while tapping into wells of diverse skills for projected AKLNG hub
PETROLEUM NEWS • WEEK OF JUNE 21, 2015 3
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4 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
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l G O V E R N M E N T
Alberta jitters growNew government makes good on promise to raise income tax,expects to start review of royalties, climate policies later this year
By GARY PARKFor Petroleum News
A lbertans are getting their first taste
of life under a socialist government
and many in the province’s backbone
industry have decided they won’t stick
around for the appetizer to be served, let
alone the main course.
Rolling out a shortened legislative
agenda on June 15, the administration of
Premier Rachel Notley delivered on the
campaign promises that gained the New
Democratic Party a landslide victory on
May 5 by targeting an increase in corpo-
rate taxes to 12 percent from 10 percent,
hiking taxes on wealthier Albertans to 12
percent for those making more than
C$125,000 and 15 percent for those
above C$300,000.
The legislative outline also vowed to
eliminate political donations from corpo-
rations and labor unions.
But the government has delayed until a
fall session of the Legislature its plans to
review energy royalties and to unveil its
first budget, when the revenue impact of
the oil and natural gas sector’s slump will
be known.
All Notley would disclose was her
resolve to move ahead with a study of
royalties.
The government’s legislative outline
said only that the government will
“review how the people of Alberta ... will
be rewarded for the development of their
own energy resources.”
It also highlighted the need to “demon-
strate real leadership on the environment
and climate change” and urged a stronger
partnership with Canada’s other nine
provinces through a national energy strat-
egy.
Push expectedThe assumption among a wide cross-
section of observers is that Alberta will
join the push for an expanded carbon tax
above the C$15 per metric ton it imposes
on large emitters of carbon dioxide.
Notley said it’s important to move
carefully on changes to royalties or cli-
mate policy, but “we also know that we
can’t have it hanging over everyone’s
head indefinitely.”
That was an indirect acknowledge-
ment of stirrings that are already resulting
in further capital spending cuts by leading
explorers and producers, Canadian
Natural Resources and France’s Total,
and drastically slashing upstream jobs.
The Canadian Association of Oilwell
Drilling Contractors announced June 15
that the number of working days in the
drilling sector will see jobs shrink to
25,110 this year from 49,950 in 2014,
down another 2,500 from its prediction
six months ago.
Those estimates are based on an antic-
ipated 43 percent drop to 6,612 in the
number of wells drilled, with the average
number of rigs working nose-diving to
184 from a fleet of 768.
Royalty review citedCAODC President Mark Scholz linked
the downturn in activity to uncertainty
surrounding the pending royalty review,
along with uncertain natural gas demand
for LNG plants in British Columbia and
ongoing depressed commodity prices.
However, he said his organization is
“very much engaged” in discussions with
the Notley government, although “we
don’t really know where things are going
to be six months from now ... that is lead-
ing to additional uncertainty in a market
that probably doesn’t need it right now”
and spreads a cloud over future invest-
ment.
The realities are evident in Alberta
government auctions of exploration
rights, with non-oil sands bidding raising
C$136 million in the first 10 sales com-
pared with C$1.74 billion in the same
period of 2011.
Calgary-based investment banker
Peters & Co. forecast that drilling activity
will fall each quarter this year, reaching a
trough in the first quarter of 2016.
For those counting on hope over the
longer term, the Canadian Association of
Petroleum Producers offered a shred of
optimism earlier in May when it forecast
Canadian oil production (conventional
and from the oil sands) will rise to 5.3
million barrels per day by 2030 from the
current 3.7 million bpd, but that trails by
1.1 million bpd the industry lobby group
predicted a year ago.
Investor meetings postponedThe degree of pain and anxiety within
the overall production sector has been
swift, with CNR, which operates the
Horizon oil sands project and is one of
Canada’s top three conventional oil and
gas producers, postponing meetings with
investors until it can finalize spending
plans.
It said that due to uncertainty created
by the Alberta government capital will be
allocated “prudently in areas in which we
operate” until there is greater clarity sur-
rounding the province’s royalty, taxation,
environmental and greenhouse gas poli-
cies.
Total — the fifth-largest Western oil
see ALBERTA JITTERS page 5
By ALAN BAILEYPetroleum News
As part of a continuing investigation
into the pros and cons of reforming
the way in which the Alaska Railbelt power
transmission grid is managed, during a
May 27 meeting of the Regulatory
Commission of Alaska the commissioners
reflected on the various arguments for and
against reform. The state Legislature has
mandated that the commission investigate
whether there would be benefit in transfer-
ring the management of the grid to some
form of independent operator.
As part of its investigation, the commis-
sioners heard testimony from Antony Scott
from the Alaska Center for Energy and
Power. As previously reported by
Petroleum News, during a series of weekly
presentations Scott overviewed the com-
plex issues relating to grid management
reform. The commission has also received
written comments on the grid management
question.
Currently, ownership and operation of
the grid by five independent utilities leads
to inefficiencies in the use of power gener-
ation facilities on the grid. And, while the
grid infrastructure is aging and susceptible
to single points of failure, the utilities say
that they lack the financial resources to
undertake major grid upgrades.
Complex issuesBut, unifying the management of the
grid would raise some complex manage-
ment and commercial issues. So, would the
end result of unification justify the pain
involved in the transition from the current
management structure?
Commission Chairman Robert Pickett
commented that he would need to be con-
vinced that there would be tangible benefits
that would exceed the costs of reform
before he would support a reform proposal.
And although the grid as a whole may be
operating on a less than optimal basis, the
utilities have done a good job of “keeping
the lights on,” doing the best they can with-
in their own territories and using bilateral
agreements between utilities where neces-
sary, Pickett said.
However, although there is much uncer-
tainty over the scale of the benefits to be
gained from grid management reform,
there is a powerful argument in support of
a new management structure for the grid,
Pickett said. Pickett also made a compari-
son between the fragmentary nature of the
transmission grid operation and what used
to be the fragmented ownership of the
Cook Inlet gas pipeline infrastructure —
the pipeline system, which used to be char-
acterized by expensive and time-consum-
ing contention over tariff issues, has been
unified recently as a result of an ownership
change. The unification of the pipeline sys-
tem will prove beneficial for gas producers,
Pickett said.
Lack of consensusBoth Pickett and Commissioner T.W.
Patch commented on what they perceive as
a lack of consensus among the utilities over
what needs to be done. Patch added that he
did not see much willingness by individual
utilities to make sacrifices for the common
good. Moreover, since there are unresolved
issues regarding the allocation among the
utilities of savings gained from grid unifi-
cation, the value of unification remains
uncertain, he said. That raises questions
over whether creating some form of inde-
pendent operator for the grid would be the
most effective option for efficient electrical
transmission, Patch said.
On the other hand, the commission
needs tools such as the ability to oversee an
integrated energy resource plan and the sit-
ing of new power generation facilities, to
avoid some recent issues, such as the con-
struction of excess power generation
capacity, he said.
Commissioner Stephen McAlpine
expressed regret that some of the money
that had been invested recently in new
power generation capacity had not, instead,
been put into transmission upgrades. In the
current political climate, the likelihood of
the state Legislature granting additional
funds for transmission upgrades “is almost
nonexistent,” he said. Given that situation,
the three utilities at the center of the grid —
Chugach Electric Association, Municipal
Light & Power and Matanuska Electric
Association — may have to work more
cooperatively, with the more peripheral
utilities — Homer Electric and Golden
Valley Electric Association — operating
more independently, he commented.
However, several commissioners
expressed concern about the concept of
either the Legislature or the commission
trying to enforce reform against the utili-
ties’ wishes.
Commissioner Janice Wilson comment-
ed on the many studies that have been con-
ducted over the years into transmission grid
reform, with none of those studies ulti-
mately resulting in grid unification.
Both Wilson and Pickett commented on
the importance of the reliability of power
supplies, especially given questions over
the fragility of the grid and the lack of
redundancy in the current transmission
infrastructure. It would be useful to have
clarity over the commission’s authority to
regulate reliability issues across multiple
utilities, Wilson said.
The commissioners anticipate making
their determination on the transmission
grid management question after they fin-
ish accepting comments on the issue on
June 17. l
l U T I L I T I E S
Reflections on Railbelt grid issuesRCA commissioners comment on some of the issues relating to the potential for unified operation of the power transmission system
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company and a major investor in two
leading oil sands projects — warned the
government that raising taxes in the
already high-cost oil sands sector could
have a dramatic impact on spending.
Total Chief Executive Officer Patrick
Pouyanne said the oil sands already rank
near to the bottom in terms of return on
capital among global oil and gas plays.
He told the Globe and Mail that an
increased burden on oil sands operators
will “just accelerate the freezing of proj-
ects. I would not be inclined to invest
more there.”
Total is a partner with operator Suncor
Energy and Teck in construction of the
Fort Hills mine and phase two of
ConocoPhillips’ Surmont steam-injection
operation.
Whether these opening salvos will
prompt Notley to protect rather than
undermine Alberta’s greatest source of
wealth-creation will probably generate
even more summer heat pending details
of her government’s plan to turn election
pledges into reality. l
continued from page 4
ALBERTA JITTERS
The commissioners anticipatemaking their determination on the
transmission grid managementquestion after they finish
accepting comments on the issueon June 17.
By ALAN BAILEYPetroleum News
Anchorage electric utility Municipal
Light & Power is offering power
dispatch services to the other utilities on
the Alaska Railbelt transmission grid, to
evaluate the benefits to be gained from
the most efficient use of power stations
on the grid, James Trent, ML&P general
manager, told the Regulatory
Commission of Alaska on June 3. ML&P
has implemented a state-of-the-art com-
puter system for managing the dispatch
of electrical power and is offering to use
the system to help other utilities make
optimum use of power generation facili-
ties and to collect data on any resulting
economic benefits, Trent told the com-
missioners. The proposed arrangement
would last for one year, on a trial basis,
at no cost to the utilities that sign up.
To date four of the five Railbelt utili-
ties have concurred with implementing
the proposed service, Trent said.
At issue is the question of what is
referred to as “economic dispatch,” an
arrangement whereby hour-by-hour
power demand on an electricity grid is
met by preferentially operating the low-
est cost sources of energy.
Trent said that the computer system
that ML&P is now using to manage its
own economic dispatch is operating suc-
cessfully throughout the Lower 48 and is
also used in Europe. Under the proposed
one-year program ML&P would use the
system to provide utilities on a day-
ahead basis the information that they
need to decide which of their power gen-
erators to run, with the utilities retaining
the ability to choose whether to follow
the advice that the system provides. The
system would then track the cost savings
achieved, depending on the decisions
that individual utilities make, Trent said.
The system takes into account numerous
economic factors, he said.
At the end of the one-year trial it
would be possible to assess the effective-
ness of the computer system in managing
economic dispatch on the Railbelt grid,
Trent said. The hope is that the arrange-
ment would also enable the evaluation of
actual cost savings from economic dis-
patch, thus providing data for evaluating
future benefits to be gained from
improving the way in which the power
transmission grid is managed and operat-
ed.
Although, ideally, under an economic
dispatch arrangement, maximum use of
the most economic power source would
always be used, in practice this ideal
must be balanced against limitations in
the transmission system’s capacity to
carry power, and against the need to have
some redundant power available to
ensure the reliability of the power sup-
ply.
David LeVee, a power forecasting
consultant, told the commissioners that
the computer system that ML&P is using
takes into account the various constraints
in a power generation and transmission
system when determining the optimum
balance of power generation usage. It is
possible to specify the constraints, so
that the system can determine when
transmission loads, for example, would
hit the transmission limits, he said.
There has been a multi-year debate in
Alaska over whether or how to change
the manner in which the Railbelt trans-
mission grid is managed and operated, to
address the current grid’s shortcomings
and ultimately facilitate economic dis-
patch. In the latest phase of this debate
the state Legislature has tasked the com-
mission with making a recommendation
on whether management of the grid
should be transferred to some form of
independent operator.
Trent told the commissioners that,
although ML&P has been actively
involved in discussions over various
models for the unified operation of the
Railbelt grid, the utility has been unable
to make an effective business case for
adopting any of the models proposed.
However, the implementation of eco-
nomic dispatch is embedded in all pro-
posals, he said. ML&P’s proposed
arrangement would provide the opportu-
nity for at least some economic savings
from the more efficient use of Railbelt
power generation, Trent told the com-
missioners. l
6 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
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l U T I L I T I E S
ML&P proposes
Railbelt power
dispatch solutionOffers service to utilities to help make best use of availableelectricity generation facilities on the Railbelt transmission grid
LAND & LEASINGNo substantial new info decisions
The Alaska Division of Oil and Gas has issued a decision of no substantial new
information for the state’s fall 2015 Beaufort Sea, North Slope and North Slope
Foothills areawide oil and gas lease sales.
The division issued a call for new information in March and received comments
from the Alaska Regional Office of the National Park Service, which commented on
the North Slope Foothills lease sale area’s shared boundary with the Gates of the
Arctic National Park and Preserve. Gates of the Arctic is south of the Foothills areaw-
ide lease sale.
The division said the National Park Service commented that oil and gas activities
are incompatible with the purposes of the park and preserve and said effects on park
and preserve resources and values from oil and gas activities on adjacent state lands
should be evaluated and factored into leasing decisions and requested the opportunity
to review lease sale information for lands near the boundaries of the park and preserve.
The director’s response to those comments was that mitigation measures in the
final finding along with state and federal requirements are sufficient to protect park
resources and said it would not supplement the finding with new lease sale stipula-
tions. NPS also expressed concerns about drainage of resources from park and pre-
serve lands, and the division said Alaska Oil and Gas Conservation Commission
statutes protect correlative rights.
The division also said agency and public information was requested at the time the
2011 final finding was made for the sale, and no comments were made at that time
about areas of special concern requiring mitigation. The division also said no specific
substantial new information was offered in the NPS comments.
—PETROLEUM NEWS
Call today: 907.522.9469
By GARY PARKFor Petroleum News
C hances that the Canadian oil patch
could come to life with a round of
merger-and-acquisition deals, providing
help to a reeling oil market, is an ongoing
topic that lacks any sense of clarity.
So far transactions this year have been
only intermittent, further inhibited by the
absence of any sign from the Canadian
government that it might relax rules on
acquisitions by foreign state-owned com-
panies.
Market sources say that hard line may
have put a clamp on a months-long effort
by debt-burdened Legacy Oil + Gas to find
a buyer that reportedly attracted interest by
a state-owned enterprise, believed to be
Chinese, who have retreated from the lime-
light over the past three years.
Word from the street pointed to a “non-
binding” bid that was worth more than the
successful offer by Crescent Point Energy
of C$563 million for Legacy, plus an
assumption of C$967 million in debt,
which valued Legacy shares at C$2.85,less
than 30 percent of the company’s 52-week
high of C$10.03.
If concluded, the deal will boost
Crescent Point’s current production of
152,500 barrels of oil equivalent per day by
22,000 boe per day (82 percent oil and liq-
uids), of which more than 15,000 boe per
day is from Bakken plays in Saskatchewan,
Manitoba and North Dakota.
The assets include 1.64 million acres, of
which 336,000 acres are in southeastern
Saskatchewan; 940 net internally identified
drilling locations; and proved plus proba-
ble reserves of 102.7 million boe, repre-
senting a reserve life index of 14.1 years
based on output of 20,000 boe per day.
Activist investment firmThe deal came two months after activist
investment firm FrontFour Capital Group
arrived on the scene, acquiring 6.8 percent
of Legacy’s shares and demanding three
board seats along with improved corporate
governance.
Zachary George, who leads FrontFour,
said the Crescent Point offer was a win for
his firm, which acquired its Legacy hold-
ings for C$2 a share, noting that there is
significant interest in Legacy’s
Saskatchewan acreage.
Whatever money might have been put
on the table for Legacy, the company said
in a circular the late overture would have
been “subject to a number of Canadian and
foreign regulatory approvals, which would
introduce material transaction risk and
delay.”
Although details are scarce, it is
believed the Chinese SOE that approached
Legacy was not among Beijing’s power-
houses, such as CNOOC, Sinopec or
PetroChina. Even so, it suggests interest
remains strong in Canadian energy assets,
despite the Canadian government’s virtual
ban on foreign SOEs taking control of oil
sands projects.
Catharine Sterritt, managing director,
global equity, at the Bank of Nova Scotia,
said SOE investments in Canada have “not
worked out” as planned, consuming more
capital and time than anticipated.
Otherwise, deal-making has been
restricted to small- and mid-sized produc-
ers, such as Whitecap Resources’ C$517
million cash and share purchase of
Beaumont Energy, a Saskatchewan light oil
producer; Torc Oil’s C$430 million
takeover of Surge Energy; and
Tourmaline’s C$257 million acquisition of
Perpetual Energy, which operated in the
Alberta Deep Basin.
Only C$5 billionThe value of corporate and asset deals in
Canada’s energy sector tallied about C$5
billion for the first five months of 2015,
compared with C$20 billion in the first half
of 2014.
Adam Waterous, co-head of global
equity at the Bank of Nova Scotia, told the
Globe and Mail the big deals that have
occurred over the past three years were
“really the weak being culled from the
herd. We don’t have that situation today.”
Suncor Energy and Encana have issued
word that they are in no hurry to complete
transactions, with Encana Chief Executive
Officer Doug Suttles suggested some com-
panies will survive rather than get swal-
lowed up because capital markets have
been more inclined to issue debt and equi-
ty.
Crescent Point Chief Executive Officer
Scott Saxberg holds the view that if
Alberta’s New Democratic Party govern-
ment changes its royalty regime that will
open the door to “companies such as our-
selves to buy Alberta-based companies for
discount value.” l
l F I N A N C E & E C O N O M Y
M&A uncertainty prevailsHopes for a gusher of deals in Canada lack clarity; signs from Crescent Point-Legacy deal point to interest in energy assets by SOE
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Better.
By KRISTEN NELSONPetroleum News
L egislators got a required update on the
Alaska LNG Project June 16, hearing
from the project manager, commercial
group members and the administration.
The presentation was made to a joint
meeting of the House and Senate
Resources committees held in Nikiski,
where legislators also had an opportunity
to view the proposed site of the liquefied
natural gas plant. An update on the project
is required every four months.
Steve Butt of ExxonMobil, the Alaska
LNG project manager, said $294 million
has been spent to date, $187 million on the
preliminary front end engineering and
design phase of the project.
While it’s not part of the Alaska LNG
project, natural gas from Point Thomson
on the North Slope will be necessary for
the project, and Butt said the third well for
the initial production system at the field is
near completion. Point Thomson will ini-
tially produce condensate, with natural gas
reinjected into the field; new wells and gas
processing facilities will need to be built at
the field. Prudhoe Bay, expected to pro-
vide the majority of natural gas for
AKLNG, will also require modifications
and new facilities which will be managed
by BP, the unit operator.
Western Cook Inlet routeAmong the work completed, Butt said,
is a technical rationale for the western
route in Cook Inlet. He said the route, des-
ignated “RevB,” is complete, and aligned
with the Alaska Gasline Development
Corp., which is working on a smaller alter-
nate line in the event AKLNG fails to
move forward.
He said that before detailed work was
done the preference was for the eastern
route because that would not require cross-
ing the Susitna River.
But, he told legislators, once the Susitna
is crossed construction is pretty easy, with-
out the challenges presented in the mouth
of Knik Arm — on the eastern route —
where silts are laid down in such volume
that the weight settling on a pipeline could
be a problem.
The technical rational for the western
route includes:
•A shorter overall pipeline length than
the eastern route;
•The onshore portion of the western
route avoids Captain Cook State Park, the
Susitna Gunnery Range, agricultural areas
and critical wetlands;
•Comparable onshore construction
costs and schedules to the eastern route;
•Significantly fewer offshore construc-
tion challenges, including: closer to deeper
water, lower current, fewer shipping inter-
ruptions, less protected species impact,
avoiding Chugach Electric Association
buried power cables; and
•Relatively stable seabed as opposed to
active seabeds on the eastern route.
Offtake application in JulyBill McMahon of ExxonMobil, pre-
senting for the commercial team, said the
project hopes to be in a position to put in a
formal application to the Alaska Oil and
Gas Conservation Commission for gas off-
take at Prudhoe Bay in July, and have a
final ruling on Prudhoe Bay offtake before
the end of the year.
On the issue of agreements which need
to be reached, McMahon said ExxonMobil
believes good progress is being made.
Dave Van Tuyl of BP said the challenge is
that all agreements are substantive and
time is limited, but said BP has committing
to putting the necessary resources to work
on each agreement to get them done, with
separate teams working on them, so
they’re not all going through the same fun-
nel.
Darren Meznarich of ConocoPhillips
said they’re working hard on agreements
and hoped they would have made more
progress by now; the focus, he said, is on
problem solving, trying to find solutions.
Vincent Lee of TransCanada said the
firm transportation services agreement
with the state was the most relevant to
TransCanada, and current discussions are
on hold because the administration is look-
ing at different options. TransCanada holds
the state’s interest in the pipeline portion of
the project, and pays the state’s contribu-
tion for that work. Under the FTSA, the
state would agree to pay TransCanada for
shipment of natural gas on TransCanada’s
share of the pipeline, reimbursing
TransCanada for the monies it puts into the
project by paying for gas shipment. Gov.
Bill Walker has indicated that he wants the
state to exercise its option to buy out
TransCanada, an option it can exercise by
the end of this year.
What’s most important?Asked where the Legislature should be
focused, McMahon said property tax legis-
lation, the payment in lieu of taxes; review
and ratification of fiscal contracts; and any
commercial agreements what require leg-
islative agreement.
Dan Fauske, president of the Alaska
Gasline Development Corp., said to him
the gas balancing agreements were the
most daunting. He said the agreements
mentioned would benefit the project, but
without gas balancing there is no project.
We need to get that done, he said, calling
progress slow.
Van Tuyl said another item, in the
purview of the administration, is a royalty
in kind election, which is something the
commissioner of the Department of
Natural Resources must do to allow the
state to take royalties in kind, making up a
portion of the 25 percent state gas owner-
ship, the remainder of which would come
from the state taking its production tax in
gas.
Constitutional amendment?Asked if a constitutional amendment
would be needed to allow fiscal certainty
for the project, Van Tuyl said BP is confi-
dent with existing language in the constitu-
l N A T U R A L G A S
Legislators get update on Alaska LNGProject work on schedule for 2016 FEED decision; fiscal certainty from state needed; continuing role of TransCanada uncertain
8 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
1740 E. 5th Avenue, Anchorage, AK 99501 (866) 931-4354 www.helimaxaviation.com
Unmatched CapabilityFull range ofequipment for loads up to 22,000 lbs.
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Passenger service also available
see LNG UPDATE page 14
page10
Tangen: Court says MLUP can be functionally Irrevocable
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of June 21, 2015
NEWS NUGGETSCompiled by Shane Lasley
l R A R E E A R T H E L E M E N T S
Unga delivers high-grade gold-silverRedstar Gold Corp. June 11 reported multi-ounce gold
intercepts from the first two holes of a recently completed
eight-hole drill program on the Shumagin prospect at its
Unga gold project on the Alaska Peninsula. Hole 15SH011
cut 1.9 meters grading 5.89 ounces per ton gold and 2.4 oz/t
silver over 1.9 meters. Hole 15SH012 cut three intercepts:
1.03 oz/t gold and 6.1 oz/t silver over 2.0 meters; 0.49 oz/t
gold and 5.3 oz/t silver over 3.0 meters; and 3.88 oz/t gold
and 12.3 oz/t silver over 0.7 meters. “These are the drill
results from a new management team, and these results con-
firm our optimism for the Unga Gold Project, and the
Shumagin area specifically. We intersected mineralization
where we expected, with high-grade gold and silver grades,”
said Redstar Chairman Jacques Vaillancourt. The phase-1
program at Unga was designed to target various structural
elevations of the Shumagin vein system while systematically
testing for continuity of mineralization and obtaining geo-
logical constraint within areas of existing known high-grade
mineralization through infill drill holes, including the holes
reported above; and exploratory step-out drilling of the vein
system at depth and along strike to the northeast by about
100 meters through four step-out drill holes. Results from
the remaining six holes are pending. Redstar said a phase-2
drill program planned for later 2015 will maintain a focus on
the Shumagin prospect concurrent with exploration of other
known high-grade gold targets located within the Unga gold
project.
Graphite Creek claims conflict settledGraphite One Resources Inc. June 11 reported that its
wholly owned subsidiary, Graphite One (Alaska) Inc. has
come to an agreement with Ronald Sheardown for 28 Alaska
state mining claims covering the same lands purchased by
Graphite One in January 2012. This provides the company
ownership of both the jun-
ior and senior state mining
claims that overlap and
surround the 24 unpatented
federal claims that it leased
from Kougarok LLC. In
exchange for the claims,
Graphite One has agreed to
pay US$50,000 and issue 3
million common shares to
Sheardown. Sheardown
also will receive a royalty
interest equal to 1 percent of the net smelter returns received
on G1 Alaska claims, subject to Graphite One’s option to
purchase the royalty for US$500,000 at any time within 36
months following the start of mine production. Graphite One
Bottom of Formalso retained Sheardown to sit on its adviso-
ry board for three years. As part of this position, Sheardown
has been granted stock options to purchase 1 million
Graphite One common shares at C13 cents per share.
Graphite One’s Graphite Creek property now includes the 28
state mining claims acquired by G1 Alaska in 2012 plus the
claims acquired from Sheardown, 77 state claims staked by
G1 Alaska in 2012 and 24 leased federal claims. “With this
agreement, Graphite One (Alaska) now fully controls, free
of any conflicting locations, the right to possess and extract
100 percent of its identified resource,” said Graphite One
CEO Anthony Huston. “The company will also benefit from
being able to draw on Ron Sheardown’s extensive experi-
ence in major development projects, and he will be a great
asset to our board and management. Sheardown has been
see NEWS NUGGETS page 11
Ahead of the REE crowdUcore’s separation process draws investor; explorer eyes Bokan feasibility
By SHANE LASLEYMining News
Ucore Rare Metals Inc.’s exploration endeav-
ors are proving successful – not only in
expanding the heavy rare earth elements-enriched
deposit at the Bokan Mountain Project in
Southeast Alaska, but in discovering new tech-
nologies that advance rare earth refinement into
the 21st Century.
Hoping to cash in on this success, a “high net-
worth” American investor recently tendered a
US$1 million down payment toward royalties
offered by Ucore.
These royalties will not
come from the future sale of
rare earths mined at Bokan
Mountain. Instead, they will
derive from the sale of prod-
ucts and services related to
SuperLig Molecular
Recognition Technology, a
proprietary rare earths and
specialty metals separation
method that Ucore is
involved with developing.
All told, the un-named investor has agreed to
pay US$4 million in exchange for royalties associ-
ated with the cutting-edge REE separation technol-
ogy.
“The investment is favorable for Ucore since
there is no debt burden, and is prospectively non-
dilutive, given that shares will not be issued by
Ucore upon closing,” said Ucore President and
CEO Jim McKenzie. “What’s more, the transac-
tion is a vote of confidence from a major investor
in the remarkable growth potential of MRT, as well
as an endorsement and financing milestone for
Ucore, as it transitions towards near-term revenue
status and vertical integration.”
Separate technologyIBC Advanced Technologies, a Utah-based
company that develops and manufactures molecu-
lar recognition technology for a broad range of
applications, has successfully applied the tech-
nique to separating notoriously tightly interlocked
rare earth elements.
The MRT process is designed to bind selective-
ly with ions based on multiple parameters such as
size, chemistry, and geometry.
Using a pregnant leach solution prepared from
material taken from Dotson Ridge deposit at
Bokan Mountain, IBC Advanced Technologies
developed a three-step process for creating nearly
pure rare earths.
On June 16, Ucore announced that Dr. Reed
Izatt, a chemist and one of the founding principles
of IBC Advanced Technologies, and Steven Izatt,
president and CEO of IBC, would be joining
Ucore’s advisory board.
“With Ucore’s expanding focus on metals sepa-
ration technologies, the insights provided by Dr.
Reed Izatt and Mr. Steven Izatt, combined with the
benefit of IBC’s experience as the global leader in
MRT applications to the mining industry, will be
invaluable,” explained McKenzie.
In early March, Ucore reported that IBC’s MRT
process had separated all the individual rare earth
elements found at Bokan Mountain into salts of
greater than 99 percent purity, except for samarium
and gadolinium, which remained bound together.
Samarium and gadolinium have now been sep-
arated into individual salts, each with 99.2 percent
purity.
Not only did the process create pure salts across
the entire suite of rare earths, it did so while recov-
ering more than 99 percent of the REEs available
in the pregnant leach solution.
“We look forward to completing pilot-scale
testing of this promising nano-technology,” said
McKenzie.
Upon delivery of a fully functional pilot plant,
Ucore has agreed to pay IBC US$2.9 million for
rights to the potentially sector-changing technolo-
gy.
Under an agreement announced in March,
Ucore will hold a 60 percent interest in a joint ven-
ture with IBC to market and sell SuperLig
Molecular Recognition Technology for rare earth
separation and recycling applications, as well as
tailings processing applications.
“Perhaps most importantly, our licensing
arrangement includes the application of SuperLig
technology to the world recycling and tailings pro-
cessing sector – both for the recovery of rare earths
and all other metals,” McKenzie said at the time.
The US$4 million from the yet-to-be-named
investor will help pay for the rights.
In exchange, the investor will be granted royal-
ties equal to five percent of gross sales from the
first MRT installation or installations, payable
until the investment is recouped; and a net smelter
royalty equal to 2 percent of the net sales from
Ucore’s first C$50-million-per-year molecular
recognition technology client.
The investor has the option to increase the roy-
alty by up to 0.5 percent by putting up another
US$1 million by Aug. 13. An option to trade in the
royalties for Ucore shares is also on the table.
Upgrading BokanIn addition to finding new and improved ways
to separate rare earths, Ucore’s exploration has sig-
nificantly upgraded and expanded the REE
resources at the Dotson Ridge deposit of its Bokan
Mountain project.
This expansion is the result of a 4,000-meter
drill program completed last year.
The smaller of two rigs drilling at Bokan during
2014 focused on upgrading inferred resources to
the indicated category by infill drilling of the rare
earths deposit.
Of the 12 infill holes drilled, 10 cut significant
mineralization. One hole, LM 14-142, cut multiple
intercepts exceeding 1 percent TREO. Highlights
see UCORE PROGRESS page 11
“We look forward to completing pilot-scale testing of this promising nano-
technology.” —Jim McKenzie, presidentand CEO, Ucore Rare Metals Inc.
JIM MCKENZIE
This provides the companyownership of both thejunior and senior state
mining claims that overlapand surround the 24
unpatented federal claimsthat it leased from
Kougarok LLC.
10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JUNE 21, 2015
By J. P. TANGENSpecial to Mining News
“For now we see through a glass,darkly….” I Corinthians 13:12
On May 29, 2015 the Alaska Supreme
Court handed down two opinions
relating to the Pebble Project: The first
reversed the Superior Court’s holding in
Nunamta Aulukesti, et al, v. State, et al,
regarding the revocability of
Miscellaneous Land Use Permits, or
MLUPs, and the second reversed the
lower court’s award of costs and attorney’s
fees against the plaintiffs in the Nunamta
case.
If obfuscation is integral to the stereo-
type of the legal profession, certainly the
Nunamta and its sister decision ring true to
that precept. In the simplest terms, the
court held that MLUPs can, under some
circumstances, convey an interest in state
land. Where that insight becomes blurry,
however, is in knowing in advance when
that will occur. The court’s opinion relied
heavily upon two earlier decisions,
Northern Alaska Environmental Center v.
State, (2 P.3d 629 (Alaska 2000)) (which
also gave no real clue as to when to expect
“functional irrevocability” to engage in the
permitting process) and SOP, Inc. v. State,
(310 P.3d 962 (Alaska 2013)), where the
court differentiated between a “license,”
defined as a permit that is revocable at the
will of a grantor and an easement, which is
a disposal of state land requiring public
notice under Article VIII, section10 of the
Alaska Constitution.
Being careful not to hold “that all
MLUPs are disposals of interests in state
land” the court made it clear that “[p]ublic
notice is constitutionally required only
when a MLUP is functionally irrevoca-
ble.”
The court then proceeded to tell us that
there are two tests for functional irrevoca-
bility. The first test arises when a threshold
investment has been made. In the case of
the Pebble Project, it appears that the
threshold amount might be $300 million.
The court observes that “[t]he potential
loss of an investment of this magnitude
could deter DNR from cutting short PLP’s
exploration process by revoking … or not
renewing a permit” issued under 11 AAC
96.040 after a determination that the revo-
cation is in the state’s interest.
According to the court, “where large
sums have been invested, the government
is effectively forced to honor the full term
of the permit….” This insight should give
comfort to future investors in Alaska who
will surely prefer to have the security of
their investments established before spend-
ing the money as opposed to afterward, as
the regulation now suggests.
The second test, which is somewhat
more complicated, relates to whether plug-
ging boreholes and burying non-toxic
drilling waste, as required by permit stipu-
lations, renders the issuance of a MLUP a
conveyance. Presumably, there is a quanti-
tative aspect to this test as well; but noth-
ing can be gleaned from the opinion.
Clearly, if buried drilling mud or borehole
plugs are “lasting alterations to the land,”
then the ashes from any fire, the field dis-
posal of any human waste or the exhaling
of carbon dioxide when working around a
drill rig could qualify.
Of course, because MLUPs are integral
to mineral exploration on state land, min-
ers (as well as anyone else doing anything
requiring a permit) will probably have to
be aware of the Nunamta decision. The
State is undoubtedly going to have to redo
the regulations to at least clarify where the
de minimis limit is, assuming there is one.
Notably, public notice is not necessarily
the equivalent of “public interest” determi-
nation; however, for public notice to be
effective, the permitting timeline will be
extended and the demands on the
Department of Natural Resources will
increase, all at a somewhat inconvenient
time in our state’s history.
The second decision handed down by
the court on May 29 related to the award
of costs and attorney’s fees in the Nunamta
case. In the first decision, the court recited
that “[a]ll the permits that were challenged
in this case have expired. As to them, this
case is moot…. [b]ut still pending are pro-
ceedings in which the State and PLP are
seeking large awards of attorney’s fees and
costs. Since these awards depend on a pre-
vailing party determination, this case
remains a live controversy for the purpose
of determining which party prevailed.”
The court then declared Nunamta and
the other plaintiffs below were the prevail-
ing party and remanded the application to
the Superior Court, which had previously
found the case frivolous, for determining
what they are entitled to recover under the
Supreme Court’s decision.
Despite the efforts of the state
Legislature to circumscribe the ability of
purportedly public interest claimants to
escape liability for their litigious predilec-
tions, it appears that the state may be
obliged to fund the war chest of the envi-
ronmentalists once again, the budgetary
shortfall notwithstanding.
Some versions of the Bible translate the
Greek word “agape” as used in Saint
Paul’s first epistle to the Corinthians to
mean something between “charity” and
“love;” however, whether the Supreme
Court loves environmentalists or is sim-
ply charitable to them, I confess, I still
see through the glass only darkly. l
l O P I N I O N
Supreme Court reminds us of St. PaulA MLUP might be functionally irrevocable, giving you an interest in state land, if you spend enough money or you plug a borehole
Mining & thelaw
The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached [email protected] or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.
WHATEVER
WHENEVER
WHEREVER
judypatrickphotography.comCreative photography for the oil & gas industry.
907. 258.4704
11NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF JUNE 21, 2015
Shane Lasley PUBLISHER & NEWS EDITOR
Rose Ragsdale CONTRIBUTING EDITOR
Mary Mack CEO & GENERAL MANAGER
Susan Crane ADVERTISING DIRECTOR
Heather Yates BOOKKEEPER
Bonnie Yonker AK / INTERNATIONAL ADVERTISING
Marti Reeve SPECIAL PUBLICATIONS DIRECTOR
Steven Merritt PRODUCTION DIRECTOR
Curt Freeman COLUMNIST
J.P. Tangen COLUMNIST
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Tom Kearney ADVERTISING DESIGN MANAGER
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ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647
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FAX FOR ALL DEPARTMENTS907.522.9583
NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News, a weekly newspaper.To subscribe to North of 60 Mining News,
call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.
Several of the individualslisted above are
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North of 60 Mining News is a weekly supplement of the weekly newspaper, Petroleum News.
NORTHERN NEIGHBORSCompiled by Shane Lasley
Amaruq drilling exceeds expectationsAgnico Eagle Mines Ltd. June 10 reported that results from the 2015 phase
1 exploration program at the Amaruq gold project in Nunavut exceeded expec-
tations. Drilling during this program filled a gap under Whale Lake with signif-
icant gold grades and good widths, including 19.8 grams per metric ton gold
(capped) over 5.0 meters in hole AMQ15-187; and 15.9 g/t gold (capped) over
14.6 meters in hole AMQ15-181. The drilling also confirmed a new gold struc-
ture about 100 meters north of the Whale Tail deposit, including 6.1 g/t gold
(capped) over 4 meters and 9.7 grams g/t gold (capped) over 3.8 meters in hole
AMQ15-177. In February, Agnico Eagle announced an initial inferred mineral
resource for Amaruq of 6.6 million metric tons at 7.07 g/t (1.5 million ounces)
gold. The company said the Whale Tail infill drilling suggests a larger resource
is to come. More than 102 holes (27,750 meters) of the first phase 2015
Amaruq drill program were completed as of May 31, when seven drill rigs
were in operation on the project. Most of this drilling has been to fill the for-
mer gap under Whale Lake, which is now successfully completed to a depth of
200 meters. To date the Whale Tail deposit has been defined over about 1,200
meters of strike and extends from surface to a depth of more than 370 meters
depth. It remains open at depth and to the southwest. The phase-1 program
also included reconnaissance drilling at Mammoth Lake and the area between
the R zone and Whale Tail. Agnico says it expects three drills to be added to
the program by the end of June. Agnico Eagle has a 100 percent interest in the
Amaruq project, which consists of 114,761 hectares (283,580 acres) of Inuit-
owned and federal crown land, about 50 kilometers (30 miles) northwest of the
Meadowbank mine.
Milestone permit for Red Chris issuedImperial Metals Corp. June 16 reported the receipt of an amended British
Columbia Environmental Management Act Permit for its Red Chris copper-
gold mine in northwestern British Columbia. The amended permit, which the
B.C. Ministry of Environment issued to Red Chris Development Co. Ltd. on
June 12, replaces the previously issued short-term authorization. This permit
allows the mine to discharge tailings into the tailings storage facility and dis-
charge water from the facility subject to water quality guidelines. Imperial said
the amended permit is an important milestone for Red Chris as it ensures the
mine can operate on a continuous basis, subject to the conditions of the permit.
Akie drilling aims below Cardiac CreekCanada Zinc Metals Corp. June 12 reported that crews have been mobilized
to the Akie zinc-lead-silver property in northeastern British Columbia in prepa-
ration of a planned 5,000-meter drill program primarily targeting the lower ele-
vations of the indicated and inferred sections of the mineral resource at Cardiac
Creek. The company said the central core represents the highest grade and
thickest area of the deposit and the down-dip extent of this core will be the pri-
mary target area for the 2015 drilling. Other work planned for the 2015 season
includes field assessment of high-priority geophysical targets identified through
ongoing airborne gravity data interpretation; and focused soil geochemistry in
select areas. Environmental studies, including surface and groundwater sam-
pling, also are ongoing. l
Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: [email protected]
Phone: 907.229.6289 • Fax: 907.522.9583
from this hole include 2.42 meters of 1.03
percent TREO, 2.76 meters grading 1.65
percent TREO, 3.37 meters grading 1.9
percent TREO and 2.88 meters grading
1.12 percent TREO.
The larger rig drilled five holes aimed
at expanding the resource to depth. The
best intercept of this drilling was 3.0
meters averaging 0.755 TREO, of which
43 percent were HREOs, in hole LM14-
143.
Incorporating these holes in the calcu-
lations, the deposit now contains an esti-
mated indicated resource of 4.79 million
metric tons averaging 0.6 percent (63.54
million pounds) total rare earth oxides, a
roughly 63 percent increase over the 2.94
million metric tons of indicated resource
included in a 2013 estimate.
Additionally, the deposit has 1.05 mil-
lion metric tons of inferred resource aver-
aging 0.6 percent (13.96 million lbs.)
TREO.
About 39 percent of the TREO in both
categories are the higher valued heavy
rare earths.
The updated resource provides some
of the final bits of information for
Ausenco Engineering Canada Inc. to
complete a feasibility study for Bokan
Mountain.
The feasibility study builds upon a
preliminary economic assessment com-
pleted by Tetra Tech in 2012 that outlines
an underground mine feeding 1,500 met-
ric tons of ore to a 750-metric-tons-per-
day mill and a state-of-the-art processing
facility at Bokan Mountain.
The operation outlined in the PEA
envisions the production of about 2,500
tons of rare earth oxides per year during
the first five years of full production;
including an annual output of 105 tons of
dysprosium oxide, 15 tons of terbium
oxide, and 568 tons of yttrium oxide.
With the feasibility study in the works,
Ucore has already initiated permitting
and the company plans to have a plan of
operations submitted by early 2016.
Ucore believes the exploration and
development of its heavy rare earth-
enriched Bokan Mountain project, along-
side the cutting-edge REE refining tech-
nology separates it from other rare earth-
focused companies in North America.
“This resource upgrade, together with
our recent advances in molecular recogni-
tion technology for refining applications,
makes for a compelling mine-to-metal
story at Bokan,” observed McKenzie. l
continued from page 9
UCORE PROGRESS
involved in mineral exploration in Canada, USA, Greenland, Russia and Africa
for more than 50 years. He is recognized as the co-discoverer (with Murray
Watts) of the Baffinland Iron Mines Corp.’s Mary River deposit in Nunavut and
was part of the team that discovered the Asbestos Hill and Raglan Nickel
deposits in Quebec and the Black Angle Mine in Greenland.
NovaCopper-Sunward merger approvedNovaCopper Inc. June 16 reported that its proposed acquisition of Sunward
Resources Ltd. received overwhelming approval by the shareholders of each
company at their respective shareholder meetings. Under the terms of an arrange-
ment announced in April, each shareholder of Sunward will receive 0.3 of a
NovaCopper share for each common share of Sunward held. Some 99.36 percent
of the shares represented at the NovaCopper meeting were voted in favor of the
issuance of common shares of NovaCopper in connection with the arrangement.
Similarly, 99.98 percent of the shares represented at the Sunward meeting were
voted in favor of the arrangement. Sunward has roughly 142.33 million shares
outstanding, making the deal worth about US$27.6 million. At the end of 2014,
the Colombia-focused exploration company had US$20.95 million in cash and
cash equivalents. Combined with the nearly US$4 million NovaCopper already
had in its coffers, the merged entity would have plenty of cash to complete a fea-
sibility study for the Arctic deposit, the next step toward developing mines at the
Upper Kobuk Minerals projects in Northwest Alaska.
First-pass Hilltop exploration completeNorthern Empire Resources Corp. and Sonoro Metals Corp. June 15 said they
have completed the first phase of field work at the Hilltop Gold project located
some 45 miles southeast of Fairbanks. The phase-1 program, which began in
May, included 8.2 miles (13.2 kilometers) of road improvements to provide
access to priority zones; eight trenches excavated and mapped over a total strike
extent of 213 meters; six test pits completed in areas with prospective geology;
228 rock samples collected from trenches and test pits; 397 soils collected across
the Hilltop block; and initial prospecting and reconnaissance work. “We believe
significant discovery potential exists in the Richardson Gold District, particularly
on this large land package at Hilltop,” said Northern Empire Chairman John
Robins. “We also are highly impressed with Alaska as an exploration jurisdiction.
The combination of ease of permitting, excellent access, ample power, and sup-
portive and competent local expertise reduces risks and costs and provides excel-
lent upside for investors.” The companies expect to receive analytical results
from the soil and rock sampling programs in early July.
Prioritizing Elephant Mt. gold targetsEndurance Gold Corp. June 11 said the summer 2015 exploration program at
its Elephant Mountain gold property in Interior Alaska has begun. Previous explo-
ration has confirmed an intrusive-hosted target encompassing two gold-arsenic
soil and rock sample anomalies (the North and South Zone targets) and an
induced polarization chargeability anomaly (the Central Zone target) lying
between the two soil anomalies that has never been drill tested. Elephant
Mountain is located in an active placer gold mining region about 76 miles (123
kilometers) west of Fairbanks and can be accessed by road and all-terrane vehicle
trails from the mining community of Eureka. Crews are currently clearing access
trails from Eureka, which will be followed by the auger drilling program. l
continued from page 9
NEWS NUGGETS
12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JUNE 21, 2015
By KRISTEN NELSONPetroleum News
A joint meeting of Alaska’s House and Senate
Resources committees, held in Kenai June 17,
heard an overview on oil and gas tax credits from the
Alaska Department of Revenue, an analysis by consult-
ants enalytica and views from some of the state’s smaller
producers and explorers on the role of credits in attract-
ing investment.
Revenue Commissioner Randy Hoffbeck told legisla-
tors the administration did not take a position on tax
credits this year because it did not want to get into a
debate on the issue. He said credits are an integral part of
the financing and economics of projects and said the
administration would not have unilaterally tried to reduce
credits. Going forward, he said, the administration will
engage in a discussion on the best way to look at credits,
but, he said, it would not be proper just to cut them off.
Ken Alpert, director of Revenue’s Tax Division, gave
legislators an overview of tax credits, and said since the
2007 transition into the PPT oil and gas tax system, some
$7.4 billion in credits have been used, $4.3 billion against
tax liability by those with production and $2.2 billion in
refunded credits by new producers and explorers devel-
oping new fields.
On the current state deficit, Alpert said the main rea-
son for the deficit is that the price of oil is half what it
was. He said taxes go down faster than prices when
you’re taxing on net profits. Alpert also said the state is
not losing money on oil, the state’s cash flow issues are
the result of policy — credits are fixed and tied to spend-
ing, he said, while taxes are tied to price.
Weaker fundamentalsJanak Mayer and Nikos Tsafos of enalytica, analysts
contracted by the Legislative Budget and Audit
Committee, analyzed oil prices and government vs. pro-
ducer take based on prices.
Tsafos said the oil price drop was due to weaker fun-
damentals: U.S. production has grown over the past five
years and that growth was initially offset by unplanned
outages elsewhere in the world caused by events such as
civil war in Libya and sanctions on Iran.
But in 2014, he said, some worldwide production
began to come back on, while U.S. production continued
to boom, and expectations for worldwide demand started
to drop. And OPEC decided to let the market show what
the price should be, at what price do American producers
start to go bankrupt?
Low oil prices are creating a response in activity in the
U.S., Tsafos said, with the rig count dropping, but pro-
duction hasn’t crashed because not all rigs or wells are
equal — you can cut 20-30-40 percent of rigs and only
have a minor impact on production, because those cuts
are on the most marginal projects.
Impact on stateThe big picture for state revenues and credits, Mayer
said, is that a drop in the West Coast price for North
Slope crude from $107 per barrel to $67 is a 37 percent
decline in average price, but because net value falls more
sharply when price falls, that 37 percent decline in oil
price produces a 63 percent decline in total revenues.
Comparing $107 per barrel oil with $67 per barrel,
Mayer said under the current tax system at $107 per bar-
rel government take (state and federal) is 68 percent,
while at $67 oil, government take is 88 percent. Producer
value is $19.20 per barrel at $107 oil and $2.40 per barrel
at $67 oil, he said.
Comparing the state’s tax systems under ACES and
Senate Bill 21, the current system, government take is
roughly the same at $107 oil — 69 percent under ACES
and 68 percent under SB 21.
But, Mayer said, at $67 per barrel, government take
under ACES would have been only 76 percent, while
under SB 21 it is 88 percent.
He said the analysis is based on figures from
Revenue’s spring forecast: starting with an oil price and
identifying the cost of transport, operating and capital
costs, royalty, property tax, production tax and state and
revenue corporate income tax.
On the credits issue, Cook Inlet and North Slope are
very different, Mayer said: Cook Inlet receives approxi-
mately 50 percent of credits for purchase, but generates
only 5 percent of revenue. In Cook Inlet the production
tax is essentially ELF — low, a fixed rate on gas and gen-
erally no tax on most oil production — but with signifi-
cant credits.
Value of creditsLegislators heard the value of credits from two pro-
ducers and one company working on a production proj-
ect.
Pat Foley of Caelus Energy Alaska told the commit-
tees that Caelus, a privately held independent exploration
and production company, was attracted to Alaska by the
SB 21 tax regime. The company acquired Pioneer
Alaska’s producing Oooguruk field on the North Slope
and has expanded that field with development at Nuna,
acquired additional North Slope acreage from the state
and is just closing on acquisition of a 75 percent interest
in NordAq Alaska acreage in Smith Bay (see story on
page 1).
Benjamin Johnson of BlueCrest Energy, a privately
owned company developing the Cosmopolitan field in
Cook Inlet, said projects in Alaska must compete for
investment with opportunities in other areas, and told
legislators that continuation of tax credits could be a
good investment. At Cosmopolitan, he said, BlueCrest’s
projected future tax credits would be some $190 million
through 2019, some 35 percent of total spending at
Cosmopolitan during that time, while state royalties for
l F I N A N C E & E C O N O M Y
Tax credits based on spend, taxes on priceLegislative committees hear admin overview on oil tax credits, enalytica analysis, small producers, explorers on value of credits
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see TAX CREDITS page 15
tion.
Fauske said he’s watched and listened
to that debate, and hopes it won’t be
required because of the time it would take
to get a constitutional amendment on a
general election ballot, but said it appears
that it will be required.
Ken Vasser, general counsel for AGDC,
said he wasn’t speaking for the state, but
the constitutional question on taxes is
whether one Legislature can bind subse-
quent Legislatures, and said the state con-
stitution is clear — the ability to tax won’t
be given away.
He said he thinks a constitutional
amendment will be required if part of the
agreement for the project is setting taxes
and having those taxes apply for a number
of years.
McMahon said the first time a vote
could happen would be in the 2016 general
election, and he said as long as other criti-
cal work continues, the project could main-
tain its schedule for first gas. He said, how-
ever, that ExxonMobil shares BP’s view
that the constitution is sufficient as it is. He
said one of the challenges of a public vote
is that it will be a solid answer, and if the
people say no, it’s difficult to think of what
recovery plan you have to provide a
durable and predictable fiscal plan.
Van Tuyl said if a constitutional amend-
ment were offered in the context of a spe-
cific set of facts and a contract agreed to
and passed by the Legislature that might be
an easier thing than a vote in the abstract.
McMahon said he agreed with Van
Tuyl, that if a constitutional amendment
approach is taken it will be critical to have
the contract known and available to people
so they would know what they were sign-
ing on to — so they would see the prize.
Property taxesCommissioner of Revenue Randy
Hoffbeck said the administration was
working on a simplified methodology for
property tax levied on the AKLNG project.
Bills were introduced late in the session, he
said, to get the issue out for discussion.
Hoffbeck said there has been good feed-
back and some proposed changes, and dis-
cussions on the language with both the pro-
ducers and the Municipal Advisory Gas
Project Review Board. He said significant
progress had been made in discussions
with the producers and with the MAG
group, with language being worked. He
said the administration wants a simple
method that’s robust and dependable and is
moving forward with that task.
He also said that within the last month
the administration is working more dili-
gently on payments during construction,
with a meeting in early July on how impact
payments — payments for impact on com-
munities during construction —are done
elsewhere.
Property tax, Hoffbeck said, is a very
large portion of total government take and
the most consistent of tax flows because it
is not price related. Because it is so impor-
tant, it can’t be dealt with any earlier than
the rest of project economics.
Hoffbeck said the state will likely be the
largest recipient of property tax, so it’s not
just a municipal issue, and said that part of
the puzzle, the split between the state and
municipalities, is still ahead. And that part
of the puzzle, he said, does not involve
the producers, just the state and the
municipalities. l
14 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
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LNG UPDATE
l L A N D & L E A S I N G
Cook Inlet Energy surrenders spare leasesCompany returns 14 un-unitized leases throughout the Cook Inlet basin; independent investors make smaller transactions
By ERIC LIDJIFor Petroleum News
Cook Inlet Energy LLC surrendered 14 leases in May,
according to the most recent report on leasing activity
in the state published by the Alaska Department of Natural
Resources.
The leases are scattered throughout the Cook Inlet
region.
ADL 392219 and ADL 392220 were offshore leases
between the Cook Inlet Energy-operated Redoubt unit and
the Kenai Peninsula coastline near Nikiski. The leases were
scheduled to expire in late April 2023. Neither had been
drilled, although the Pan-American Forelands State Unit
No. 1 well was drilled just outside ADL 392220.
ADL 392221 and ADL 392222 were to the west of the
Redoubt unit and south of the Tiger Eye unit. Both wells
were set to expire in late May 2023. Neither had been
drilled.
ADL 392228, ADL 392229, ADL 392230, ADL 392231
and ADL 392232 were on the west side of Cook Inlet, west
of the Trading Bay unit. They were set to expire in late April
2023, except for ADL 392232, which would have expired
in late May 2023. ADL 392229 was the location of the
Cherryville Corp. Middle River State unit No. 2 well.
ADL 392237, ADL 392238 and ADL 392239 were just
to the north. The leases were set to expire in late May 2023.
ADL 392238 was the location of Shell’s Middle River State
No. 1 well. ADL 392239 was the location of ARCO’s
Middle River State Unit No. 1.
ADL 392233 and ADL 392234 are along the Kenai
Peninsula coastline south of Point Possession. The leases
were set to expire in late May 2023. Neither had been
drilled.
Toward the end of 2014, Cook Inlet Energy parent com-
pany Miller Energy Resources Ltd. decided to pursue low-
risk activities at its existing developments for the time
being.
Other activitiesKasper Profit Sharing and the Kasper Family
Partnership have separately requested the transfer of vari-
ous small royalty interests (all in values less than 1 percent)
at three leases at the Redoubt unit — ADL 381201, ADL
381003 and ADL 381003 — to the Kasper Family Trust.
The Wheeler Retained Annuity Trust has similarly request-
ed the transfer of small royalty interests (both in values less
than 1 percent) in two leases at the Redoubt unit — ADL
378114 and ADL 374002 — to Wheeler Enterprises LLC.
Sally Selby Nesbit has requested the transfer of a royalty
interest (less than 1 percent) in a lease at the Beluga River
unit — ADL 17658 — to the Nesbit Family Trust.
Stellar Oil and Gas LLC has requested the transfer of
small royalty interests (less than 1 percent) in lease ADL
391094 to seven individual and corporate investors.
Clyde T Boyer Jr. has requested the transfer of various
royalty interests (all in values less than 1 percent) in four
leases associated with the North Fork unit and one lease at
the nearby Nikolaevsk unit to Clyde T Boyer Jr. and Vivian
C. Finlay.
Peter Michael Foley and Melissa McCarty Foley have
requested the transfer of a 0.05 percent royalty interest in
six Kitchen Lights unit leases to Shawn Bartholomae, who
in turn requested a transfer of the same interest in the same
leases to Dr. David Bailey.
Also in May, the state assigned a Beaufort Sea lease to
Hilcorp Alaska LLC. l
—A copyrighted oil and gas lease map from MapmakersAlaska was a research tool used in preparing this story.
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oil and gas produced from Cosmopolitan
would be more than $600 million at a $65
per barrel average oil price.
John Barnes of Hilcorp Alaska said the
company’s goal is to get Alaska costs
competitive with what it costs Hilcorp in
the Lower 48. The company has achieved
that in Cook Inlet, he said, and its goal is
to do that on the North Slope. Hilcorp
began operations in Cook Inlet in 2012
and in 2014 became operator at the
Endicott, Milne Point and Northstar fields
on the North Slope.
Hilcorp’s investment in Cook Inlet
since it acquired fields there has been
more than a billion dollars, Barnes said,
some $330 million a year invested —
compared to some $80 million a year
invested by the previous operators.
He said the state has to decide if it
wants a tax structure that works against
investment. l
continued from page 13
TAX CREDITS
GOVERNMENTWalsh named state pipeline coordinator
Jason Walsh has been named to head the State Pipeline
Coordinator’s Office in the Alaska Department of Natural
Resources.
The office is responsible for developing and maintaining
large-diameter oil and gas pipeline right-of-way leases and
lease compliance efforts for multiple pipelines, including the
trans-Alaska oil pipeline.
Walsh is a lifelong Alaskan with a breadth of natural
resources management experience. After attending graduate
studies in natural resource planning at the University of
Vermont, Walsh held a variety of positions during a decade-
long tenure at DNR, including land planning and development for the Division of
Mining, Land and Water and facilitating right-of-way lease coordination for the
Point Thomson export pipeline and the Alaska Stand Alone Gas Pipeline.
As a member of the state’s Point Thomson permit team, Walsh received a
Governor’s Denali Peak Performance Award in 2013 and was soon after promoted
to operations manager of the SPCO.
Most recently Walsh has served as acting deputy pipeline coordinator and led
SPCO through relocation to the new Geologic Materials Center and initial plan-
ning and permitting activities for the proposed AK LNG project.
“I am honored to lead this team of knowledgeable and hard-working individu-
als and remain committed to DNR’s mission of ensuring that the use of Alaska’s
natural resources is consistent with the public interest,” Walsh said in a statement.
—PETROLEUM NEWS
JASON WALSH
purchasing land, having crews out
drilling bore holes and testing water
wells, doing surveys, holding communi-
ty meetings, people are not dropping the
cynicism and pessimism, but there are
cracks in the cynicism and pessimism,
and people are starting to see the possi-
bility that this is really good work.
Petroleum News: So as you look athow things are now, what gives you opti-mism and what gives you pause aboutthe prospects of Alaska LNG?
Persily: the market gives me pause.
I’m glad that Conoco, BP, Exxon and
TransCanada are looking at using their
own money and not mine because I get
nervous. The commodity markets —
whether it’s cotton, sugar, oil and gas,
iron ore — make everybody nervous,
particularly the energy markets the last
couple of years.
Aside from that I guess what gives
me encouragement is that I see a serious
effort made by the companies bringing
in key people, bringing in people with
expertise on projects from around the
globe, and not just bringing them in for a
couple of days but setting them up as
permanent members of the Alaska LNG
team, and committing substantial
resources.
Yes it is a methodical approach. Yes it
is a careful, measured approach, and I
know many people would like to speed
it up and the problem is when you speed
it up, you make mistakes and you started
spending too much money.
The other thing is if you look at reser-
voir management in Prudhoe Bay which
is where most of the gas will come from.
If you look at reservoir management in
the 2020s and beyond, good reservoir
management dictates that it’s time to
start taking off some of that gas so you
are not going to appreciably damage oil
recovery.
You’ve used the gas for decades by
that point to push the oil over in the
reservoir for collection. Now you can
start finally in the 2020s to pull off some
of that gas — not all of it — and start
diverting some of it into the line. Begin
making money off gas continue making
money off of oil. As the cliché goes: the
time has come.
I guess I see a serious effort, but back
to what gives me pause is the market
which no one can control. At some
point, the companies will reach that
decision where they have to check the
market and make their corporate invest-
ment decision.
Petroleum News: Down here inJuneau, there has been some back andforth between the governor and leadingmembers of the House and Senate. Somesay that’s to be expected with a new gov-ernor, but at some point it also has toease up. Where does this need to end?
Persily: Yes, the governor and signifi-
cant number of legislators are at odds as
to how to proceed with the state-spon-
sored, state-supported backup gas line
project. A significant number of legisla-
tors and the governor are at odds with
the Alaska LNG partnership. The gover-
nor has talked about wanting more own-
ership and more control. The governor
has had a more contentious relationship
with the industry in the past in his role
as attorney for Valdez on oil pipeline
property tax assessments. At some point,
if it’s not going to jeopardize the project,
the governor and the legislators need to
agree a little bit more. They are never
going to agree completely whether it’s
gas line, budgeting, ferry system man-
agement.
They need to agree more on how to
proceed: How much ownership stake
should the state have? What is the role
of the Alaska Gasline Development
Corp. backup project? How much money
should be put into it? How actively
should they pursue it so it doesn’t get in
the way or conflict with the producers
on the bigger project?
I guess there is never going to be 100
percent agreement, but a little less dis-
agreement would be good for the proj-
ect. The governor has an opening for the
Alaska Gasline Development Corp.
board. One of his nominees was rejected
by the Legislature.
Filling that opening would be an
opportunity for the governor to extend
the proverbial extension of the olive
branch if he could find a nominee that
would be acceptable to him and the
Legislature. That would signal: “hey, I’m
willing to work together. I’m not going
to nominate somebody who you are
going to reject. I’m going to put some-
one up you will support.”
As I’m looking for opportunities to
get along, that open seat on the Alaska
Gasline Development Corp. would be an
opportunity to mends those shaky
fences.
Petroleum News: We’ve been underSB 138 for about a year now. What kindof changes are you seeing the last year?
Persily: One thing Alaskans are going
to do differently is we’ve been trained
over the decades to follow the daily
price of oil. It determines the capital
budget, it determines state spending, it
determines the fate of elections and how
much money we have to pass around.
But the daily price of LNG really
doesn’t mean squat in this. The industry
has historically built these megaprojects
on long-term contracts. Long-term con-
tracts are eroding a little bit this year as
there is an oversupply. But looking
ahead to the 2020s demand, nobody is
going to build a $40 billion project on
speculation like they do a duplex or a
zero lot line in South Anchorage.
You are still going to have to have
long-term contracts because that’s how
you get financing. Yes, long-term con-
tracts are down now. But the question
see PERSILY Q&A page 17
continued from page 3
PERSILY Q&A
16 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
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Oil Patch BitsWelsh receives professional land surveyor license
F. Robert Bell and Assoc. is pleased to announce that BrendanWelsh has earned his Alaska professional land surveying license. Welshhas successfully passed the Principles and Practice of Surveying exam,which covers specific topics in surveying such as standards, legal prin-ciples, and professional practices, business practices and types of sur-veys.
This is Welsh’s second certification in less than a year. In October oflast year, he earned his Certified Federal Surveyor certification. Welsh isa civil engineer and land surveyor at Bell and Associates and has hadmore than seven years’ experience with roads, schools, and other edu-cational facilities; and residential, commercial and public works devel-opment projects.
His surveying experience includes conducting topographic and boundary surveys as well asconstruction staking. He is currently leading the North Slope surveying effort in the AK LNGproject. Using his knowledge of surveying practices and procedures, he regularly performsoffice data processing and analysis in preparation of as-builts, plot plans, topographic maps,and design surveys for clients. Welsh is knowledgeable in using various surveying equipmentsuch as total station and other data collectors. He has a bachelor of science in civil engineeringand forest engineering from Oregon State University.
Global establishes Southern California locationGlobal Diving & Salvage Inc. is pleased to announce the expansion of its California region-
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AAECOM Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
aeSolutions
Air Liquide
Alaska Clean Seas (ACS)
Alaska Communications
Alaska Dreams
Alaska Marine Lines
Alaska Metrology & Calibration Services
Alaska Railroad
Alaska Rubber
Alaska Steel Co.
Alaska Textiles
Alaska West Express
Alpha Seismic Compressors
American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Arctic Controls
Arctic Slope Telephone Assoc. Co-op.
Arctic Wire Rope & Supply
ARCTOS
Armstrong
ASRC Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
AT&T
Avalon Development
B-FBP
Bald Mountain Air Service
Battelle Anchorage
Bombay Deluxe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Brooks Range Supply
Calista Corp.
Canrig Drilling Technology
Carlile Transportation Services
Chevrolet of South Anchorage
CHI Aviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ClearSpan Fabric Structures
CN Rail
Colville Inc.
Computing Alternatives
CONAM Construction
ConocoPhillips Alaska
Construction Machinery Industrial
Cook Inlet Energy
Crowley Solutions
Cruz Construction
Delta Leasing
Denali Industrial
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Dowland-Bach Corp.
Doyon Anvil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Doyon Drilling
Doyon, Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Doyon Universal Services
Egli Air Haul
exp Energy Services
F. Robert Bell and Associates
Fairweather
Five Star Oilfield Services
Flowline Alaska
Fluor
Foss Maritime
Fugro
G-MGBR Oilfield Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
GCI Industrial Telecom
GCR Tires & Service
Global Diving & Salvage
Global Geophysical Services . . . . . . . . . . . . . . . . . . . . . . . .20
GMW Fire Protection
Golder Associates
Greer Tank & Welding
Guess & Rudd, PC
Harley Marine Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Hawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
HDR Alaska
IFR Workwear
Inspirations
Judy Patrick Photography
Kenworth Alaska
Kuukpik Arctic Services
Last Frontier Air Ventures
Learn to Return
Lister Industries
Lounsbury & Associates
Lynden Air Cargo
Lynden Air Freight
Lynden Inc.
Lynden International
Lynden Logistics
Lynden Transport
MagTec Alaska
Mapmakers of Alaska
MAPPA Testlab
Maritime Helicopters
Miller Energy
Motion Industries
N-PNabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Nalco
NANA WorleyParsons
NASCO Industries Inc.
Nature Conservancy, The
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NMS Lodging
Nordic Calista
North Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Northern Electric Inc.
Opti Staffing Group
Pacific Alaska Lumber
Pacific Pile
PacWest Drilling Supply
Paramount Supply Company
Parker Drilling
PENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Petroleum Equipment & Services
Polyguard Products
PND Engineers Inc.
PRA (Petrotechnical Resources of Alaska)
ProComm Alaska
Price Gregory International
Resource Development Council
Ravn Alaska (formerly Era Alaska)
Q-ZSAExploration
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Sophie Station Suites
STEELFAB
Stoel Rives
Taiga Ventures
Tanks-A-Lot
The Local Pages
Think Office
Total Safety U.S. Inc.
TOTE-Totem Ocean Trailer Express . . . . . . . . . . . . . . . . . . . . .4
Totem Equipment & Supply . . . . . . . . . . . . . . . . . . . . . . . . .15
TTT Environmental
UIC Design Plan Build
UIC Oil and Gas Support Services
Unique Machine
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Usibelli
Verizon
Vigor Alaska
Volant Products
Weston Solutions, Inc.
BRENDAN WELSH
isn’t where they are today. The question
is where are they going to be in 2024
and where does the market think it’s
going to be for signing long-term con-
tracts.
Last year was great if you were sell-
ing LNG on the spot market, getting
$20 per million Btu. This year, not so
good. You’re getting $7 to $8 for the
same molecules, but as we know from
oil prices they go up and they go down.
Long term over a 30-year to 40-year
project life for Alaska LNG, where are
they going to be is what matters. Not
today’s low or today’s high
Petroleum News: You had noted theimportance of a 30-year project life inone of your reports looking at the per-mit application with the EnergyDepartment. Why is that important?
Persily: The expectation at this point
is it will run more than 30 years. The
ConocoPhillips plant at Nikiski opened
up in 1969. That’s been running for 46
years without any significant problems.
Generally long-term LNG sales and
purchase contracts have been running
15 to 20 years.
Of late there are more spot and
short-term sales because buyers are say-
ing boy I can get cheaper prices in the
spot market, let me sign some contracts
in the short-term market and see where
this falls out. I’m not aware of any 30-
year contracts. The difference between
the initial contracts signed and the use-
ful life of the equipment can be great.
If this gets built between gas in
Prudhoe, gas in Point Thomson, gas that
hasn’t even been found yet because
nobody has even explored for gas, this
thing could last for 40 to 50 years.
The 30 years was a factor in the
export permit that Alaska LNG asked
for. The Department of Energy gave a
conditional approval. The longer you
can get for export, it means the longer
you can go without having to go back
for approval again. It’s more value to
you if you can get 30 years rather than
20 years. You’ve got an extra 10 years
before you go back and ask for permis-
sion again. That was a plus for the proj-
ect.
Petroleum News: It seems like thefederal agencies are realizing the scopeof the project — possibly hitting $65billion — is anything remotely close tothis emerging from around the world?
Persily: There is a project called
Gorgon in Australia which is supposed
to come online next year. It’s about $54
billion. A lot of the $54 billion is the
gas field development cost which you
don’t have at Prudhoe and a very
expensive CO2 sequestration where
they are going to re-inject the CO2 deep
underground. In Alaska, they are
already doing re-injecting of water,
CO2. So there are components of
Gorgon that you don’t have here. That’s
the most expensive.
Then there is Yamal LNG in the
Russian Arctic. It’s $27 billion, but
that’s a little misleading because the
Russian government is paying for the
port and airport and other infrastructure
so the Russian developers don’t have to
foot the bill.
Keep in mind Alaska LNG is 2012
dollars so it will be the most expensive.
The Lower 48 projects being built or
proposed are all greenfield. They
already have storage tanks and jetties
because they are being built on the site
of an underutilized import terminal.
Petroleum News: Say, I know I’veasked you this before, but where is thecompetition coming from at least versusthe AKLNG project?
Persily: The competition is world-
wide in that it’s Gulf of Mexico proj-
ects; it’s British Columbia West Coast
projects; it’s African nations; it’s expan-
sions of LNG capacity. Because LNG is
in a ship, unlike a pipeline, it can really
go anywhere. It’s going to come down
to what is the demand and what supply
is out there. You can end up with swaps
where U.S. gas produced in the Gulf
Coast goes to Europe instead of Asia,
but maybe some Mideast gas that would
have gone to Europe doesn’t go there
and instead goes to Asia. Once those
tankers are on the ocean, they can go
anywhere, it’s just a matter of figuring
out shipping costs and where it makes
the most sense to send that cargo. So in
that sense, everybody is our competitor,
not one particular location or one par-
ticular project. It’s who can get into the
market at a price that attracts buyers
and on a schedule that attracts buyers.
Petroleum News: Once on awhile wehear how we’ve missed the window.How do you feel about that?
Persily: I met an interesting guy at a
conference in Singapore in February
who said he has never been a great
believer in windows. His response was
a lot of people get hurt trying to jump
through the window while it’s still
open. Every year there are multiple util-
ities around the world who are signing
contracts for future deliveries. There is
not a window today that won’t come
back. The sooner you can get into the
market, the sooner you can start earning
a return on your investment. Surely you
would like to get into the market when
people are willing to sign higher value
contracts.
Petroleum News: There are a lot ofsteps toward reaching FID (final invest-ment decision). Is there any step morecrucial than the next?
Persily: As far as what Alaskans will
see, to stay on schedule and get to front
end engineering and design (FEED)
next summer. That’s a billion-dollar-
plus commitment to stay on schedule.
The next one would be for the compa-
nies to submit their final environmental
reports and complete their application
to FERC which is tentatively scheduled
for late summer 2016. If they make
those decisions to spend the money on
FEED, go to FERC with full reports
and a clean application that would be a
serious indication that there is progress.
Petroleum News: So with that inmind, what would you like to seeaccomplished by year’s end?
Persily: Certainly, it would be good
to see progress on fiscal negotiations
between the state and its partners, the
producers. That would involve taxes
and fiscal stability to the developers and
the state so you can count on the rev-
enue. It would be good to see progress
on commercial and fiscal negotiations
this year so everybody would feel more
comfortable making that big FEED
decision next year.
Petroleum News: Can the state be apartner and a regulator at the sametime?
Persily: The Legislature passed it and
the public seems to support it so it’s
something that Alaska is going to have
to learn how to manage. There will be
moments when you scratch your head
and say, what am I going to do? Can
they manage it? Will it be difficult at
times? Yes. Is it insurmountable? No.
But it’s a unique situation that I cannot
find anywhere else in the country where
the state takes an equity role in a proj-
ect like this. Hey, this is Alaska. We
love being unique. We love being dif-
ferent. l
PETROLEUM NEWS • WEEK OF JUNE 21, 2015 17
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PERSILY Q&A
cent working interest in NordAq Energy
Inc.’s Tulimaniq leases in Smith Bay,
some 150 miles west of Prudhoe Bay.
The area is “well documented for its
extensive hydrocarbon potential,” the
company said. Slightly more than
117,000 acres (gross) and 26 leases were
assigned to Caelus Energy Alaska Smith
Bay LLC, a wholly owned subsidiary of
Caelus, the company said.
Caelus, as operator, will lead the
exploration program this winter.
Foley, testifying at a committee hear-
ing on the state’s tax credits, told legisla-
tors that without the state’s oil tax credits
the company would not be planning to
drill wells at Tulimaniq.
Caelus has recently sanctioned its
onshore Nuna oil development at the
North Slope Oooguruk field which it
operates and acquired 323,000 North
Slope acres in the state’s fall lease sales.
Defining Smith Bay “The NordAq team has done a great
job of defining the geologic potential at
Smith Bay,” Caelus President and CEO
James Musselman said in the company’s
release. “Our team is ready to take the
helm and get to work on exploring and
appraising the Tulimaniq play. What we
see in this region has us all pretty moti-
vated.”
Musselman said Caelus’ winter explo-
ration planning is under way, and said the
company looks forward to continuing its
strong working relationships with North
Slope communities, the North Slope
Borough and state and federal regulators
to ensure a smooth transition.
“We’re also extremely fortunate to be
supported in our efforts by North Slope
veterans Doyon Drilling and Cruz
Construction. The winter exploration
operation will require upwards of 400
personnel to drill 1-2
exploration/appraisal wells — it’s a large-
scale program,” Musselman said.
He also said the state’s oil fiscal sys-
tem, including exploration credits, is what
attracted Caelus to Alaska in 2013 and
said it has been a “key component in the
company’s recent business decisions.”
NordAq commentsNordAq Energy Chief Executive
Officer Paul Devine said his company is
encouraged by Caelus’ commitment to
Alaska and the experience Caelus brings
to the project.
“NordAq is very grateful to have a
partner of their caliber to operate on our
behalf, and commit the energy and capital
to a significant play like Tulimaniq.”
“We are also very grateful to CIRI
Energy, NordAq’s secured lender, for the
role it played in facilitating this important
transaction,” Devine said.
Where is Tulimaniq?Smith Bay is roughly 150 miles from
Kuparuk River unit Drill Site 2P and
some 70 miles from Barrow. NordAq had
proposed drilling from a single ice island
in some 1 to 4 feet of water near the
mouth of the Ikpikpuk River, with a 64-
man drilling camp and a 19-man camp at
the staging pad, either Oliktok Point or
DS-2P Pad. NordAq proposed two access
routes, with route selection to depend on
weather and sea ice conditions at the time
of project startup in December 2014. The
priority route was along Harrison Bay and
the Kogru River, maximizing the use of
sea and lake ice and allowing smoother
travel; the staging for this route would
have been just offshore from Oliktok
Point.
The alternate route would have begun
from a staging area at DS-2P or an adja-
cent ice pad, cross the Colville River at
Ocean Point and proceed along the histor-
ical travel route before heading north to
the Tulimaniq drill site.
—KRISTEN NELSON
“Obviously, it means we can be compet-
itive globally. This is great news for British
Columbia,” he said.
The partners are Petronas 62 percent,
China’s Sinopec 15 percent, Indian Oil
Corp. 10 percent, JAPEX 10 percent and
PetroleumBrunei 3 percent.
Coleman said that British Columbia’s
vast gas resource, most of it stuck in the
ground with nowhere to go, is “basically
sold.”
He expressed confidence that the consor-
tium’s remaining loose ends can be tied
together, creating thousands of construc-
tion, service and gas development jobs,
potentially giving Canada’s energy industry
its greatest lift since the Alberta oil sands
started on their growth path in the 1980s.
Pacific NorthWest could also provide
Western Canadian gas producers with a
market outlet to offset a crippling loss of
export sales in the United States.
Coleman expects the British Columbia
Legislature will reconvene in July to sign
off on the project.
Federal approval neededIn addition, the proponents need regula-
tory approval from the Canadian govern-
ment covering environmental issues,
notably measures to mitigate threats to a
salmon spawning area — a decision that
may not be made until after a federal elec-
tion expected in October.
As well, there are delicate negotiations
involving the provincial government and
the consortium to conduct with the Lax
Kw’alaams First Nation which rejected an
offer of C$1.14 billion in benefits over 40
years to protect a salmon habitat adjacent to
Lelu Island.
“We will work with them to solve their
issues,” Coleman pledged. “There is some
additional design work and some research
being done to accommodate those concerns
... you will see that the Lax Kw’alaams will
come together with other First Nations that
have already endorsed the project.”
He said that dealing with the loose ends
could see construction start in the final quar-
ter, with the first LNG shipments occurring
in 2019, opening the way for a total invest-
ment in the project of C$36 billion.
Canada’s Natural Resources Minister
Greg Rickford said LNG has the “potential
to diversify our energy markets and product
offering, creating jobs and economic
growth for Canadians.”
John Winter, chief executive officer of
the British Columbia Chamber of
Commerce, said the Pacific NorthWest
breakthrough is a “truly historic announce-
ment ... once-in-a-generation stuff. It is rare
that we witness a brand new industry com-
ing to British Columbia.”
AltaGas next in lineNext in line is a group led by Calgary-
based AltaGas, whose Chief Executive
Officer David Cornhill said the Douglas
Channel project at Kitimat may even beat
Pacific NorthWest to market if it makes a
final investment decision this year.
The much smaller venture, with plans
for first-phase shipments of 550,000 metric
tons a year — compared with Pacific
NorthWest’s initial goal of 12 million met-
ric tons — could start deliveries by late
2018.
“There is nothing we see at this point
that will stop us,” he said. “There are some
tight deadlines, so it’s not a walk in the park,
but clearly we think it’s achievable.”
The other leading edge contender is the
LNG Canada project, led by Shell Canada,
with Korea Gas, Mitsubishi and PetroChina
as stakeholders, which is working towards a
final investment decision in 2016, targeting
eventual shipments of 24 million metric
tons a year.
Bruce Ralston, natural gas spokesman
for British Columbia’s opposition New
Democratic Party, said his party is hopeful
there will be a final signing off by Petronas,
but pointed an accusatory finger at Premier
Christy Clark for making such sweeping
promises in the 2013 election, including the
use of LNG revenues to build a C$100 bil-
lion Prosperity Fund.
“There are no shovels in the ground
yet,” he said, while insisting that First
Nations must be involved as “true part-
ners” in the industry. l
18 PETROLEUM NEWS • WEEK OF JUNE 21, 2015
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continued from page 1
ENERGY LIFT LNG naysayers air doubtsAgainst a renewed chorus of hope that British Columbia will enter the global
LNG trade, there is no shortage of doubters who say export projects will not be
viable at current natural gas prices.
The International Energy Agency, in a five-year outlook for the gas market,
said “prospects for (Canadian) LNG projects have deteriorated and no plant is
expected to be operational (before 2020).”
“One of the key — and largely unexpected — developments of 2014 was weak
Asian demand,” IEA Executive Director Maria van der Hoeven said.
“Indeed, the belief that Asia will take whatever quantity of gas at whatever
price is no longer a given. The experience of the past two years has opened the
gas industry’s eyes to a harsh reality: in a world of very cheap coal and falling cost
for renewables, it was difficult for gas to compete.”
The IEA said “new LNG projects will struggle to get off the ground at current
prices” — a claim that critics of the British Columbia government use to explain
why Premier Christy Clark has been so willing to meet industry demands for
lower taxes and greater incentives.
Natural Gas Development Minister Rich Coleman said his government is well
aware that it is operating in a competitive environment.
“We are aware of the short-term challenges outlined in the (IEA) report and
have plans to address them,” he said, without offering further details.
Jennifer Winter, of the University of Calgary’s School of Public Policy, said
British Columbia’s LNG hopes are “definitely a lot worse” than they were a few
years ago because of the glut of international supply.
“Australia started building facilities 10 years ago and now they are coming on-
line. As well there are existing facilities that have ended their 20-year contracts
and have spare capacity to sell on the spot market,” she said.
Currently, seven LNG projects have received final investment decisions in
Australia, which is poised to become the world’s largest exporter by 2018.
In addition, Africa is expanding its production, although the lack of a regula-
tory regime is likely to slow development in Tanzania and Mozambique, while
Russia, supported by huge reserves, has signed two large export deals with China
that could supply 17 percent of that country’s needs.
Andrew Weaver, the only Green Party member of the British Columbia
Legislature, said the government should not be promoting LNG in the face of a
shrinking global market.
“I would describe that as irresponsible, desperate and reckless,” he said.”It’s
reckless economic policy to continue down this path, chasing a falling market.”
—GARY PARK
continued from page 1
CAELUS TRACTS
As part of the deal, AIDEA intends to
sell the Pentex subsidiaries Titan Alaska
LNG LLC and Arctic Energy
Transportation LLC to the Hilcorp sub-
sidiary Harvest Alaska LLC for $15.5
million. The sale is expected to close
sometime in the third quarter.
“We expect the Pentex acquisition to
be a short-term strategic investment that
can play a significant role in helping
achieve long-term success for the Interior
Energy Project,” AIDEA Executive
Director John Springsteen said in a state-
ment. “This acquisition will promote an
integrated gas distribution system that can
be built and operated in a more efficient
manner for the benefit of Interior Alaska
residents and businesses.”
AIDEA made a point of describing the
acquisition as a “temporary” measure that
will better integrate existing efforts to
expand the gas distribution grid through-
out the Interior.
With its access to cheaper capital
unavailable to private companies, AIDEA
believes it can reduce costs for existing
Fairbanks Natural Gas customers by
some 13.3 percent this coming winter.
AIDEA believes a consolidated distribu-
tion system could eventually save as
much as $1.8 million annually in opera-
tional efficiencies. “The ultimate goal of
this transition will be a single, locally
controlled utility serving the Interior,”
Springsteen said.
AIDEA expects to complete this tran-
sition within two years and earn approxi-
mately $2.91 million in the process. That
would translate to a 5.06 percent rate of
return.
The deal will cut the existing Pentex
operation in half.
Currently, through its various sub-
sidiaries, Pentex liquefies Cook Inlet nat-
ural gas at a facility in Point MacKenzie
and trucks it to Fairbanks for storage and
distribution.
If all the components of the deal close
as expected, Harvest Alaska will take
over the liquefaction and trucking opera-
tions through its acquisition of Titan and
Arctic Energy Transportation, leaving
AIDEA to focus on storage and distribu-
tion in Fairbanks.
As a public utility, Fairbanks Natural
Gas will no longer be subject to regula-
tion by the Regulatory Commission of
Alaska. Instead, AIDEA will adopt rate-
setting procedures.
This further zigzags the twisted history
of the Interior natural gas market.
After a contracting hiccup in Cook
Inlet nearly cut off supplies to Fairbanks
in late 2006, regulators required
Fairbanks Natural Gas to find an alterna-
tive source of natural gas.
The utility negotiated a gas supply
agreement with a North Slope operator in
2008. But to make use of the contract, the
utility needed to build an expensive lique-
faction plant.
Fairbanks Natural Gas sought public
assistance to fund the project. Instead, the
Parnell administration launched the
Interior Energy Project. The public-pri-
vate partnership would use grants, bonds
and loans to finance an LNG trucking
operation from the North Slope.
As the lead agency in the project,
AIDEA ultimately selected the interna-
tional infrastructure firm MWH America
Inc. to be its private sector partner for the
Interior Energy Project. In doing so, it
passed over bids by Pentex and by
Spectrum Alaska LLC.
At the same time Pentex was facing
competition for the upstream portion of
its project, Fairbanks Natural Gas also
faced competition for the downstream
portion of the project.
Fairbanks Natural Gas asked regula-
tors to expand its existing service area in
the city of Fairbanks to include much of
the Fairbanks North Star Borough.
Expecting to soon become a large monop-
oly, the utility voluntarily accepted rate
regulation. The Regulatory Commission
of Alaska had previously exempted the
company from rate regulation to help it
better compete against the unregulated
fuel oil companies so dominant in
Fairbanks.
Annoyed with the slow pace of
Fairbanks Natural Gas expansion in the
region, the three municipalities in the
Fairbanks North Star Borough jointly
formed a competing utility, called the
Interior Gas Utility. They asked regula-
tors for a competing service area. The
debate between the two utilities was
unusually heated and at times veered into
ugliness.
The RCA ultimately rejected the
Fairbanks Natural Gas application in
favor of the Interior Gas Utility applica-
tion. That left Fairbanks Natural Gas
without a liquefaction plant, without an
opportunity to expand and with an expen-
sive rate case to swallow.
For a time it seemed the Fairbanks
North Star Borough would be served by
two utilities.
Through the grant-making portion of
the Interior Energy Project, AIDEA fund-
ed Interior Energy Project distribution
pipelines and an expansion of Pentex’s
storage capacity.
Toward the end of 2014, Pentex
announced plans to sell its liquefaction
subsidiary to Harvest Alaska. It also
sought regulatory approval for a 10-year
contract with Hilcorp, which would limit
the amount of natural gas Fairbanks
Natural Gas needed from the North Slope.
In early 2015, the deal between
AIDEA and MWH fell through. The
problem was largely about cost. MWH
questioned whether it could hit the pric-
ing target AIDEA desired.
AIDEA saw the acquisition of Pentex
as a way to braid the various frayed
threads of the Interior Energy Project by
making it easier to create an integrated
grid in the Interior.
—ERIC LIDJI
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The program outline is the most detailed development
proposal yet from Linc and is significantly larger than
ideas the company presented seven months ago. In an
annual report from late October 2014, after both wells
were drilled, the company anticipated “that the initial
development of Umiat could include the drilling of up to
70 wells.”
The current program also offers a more detailed devel-
opment timeline. The company expects permitting and
engineering to continue through 2019 and procurement,
fabrication and installation to continue through 2023. The
company would begin drilling the Lower Grandstand for-
mation in early 2022 and the Upper Grandstand in early
2023.
Those dates are far more specific than previous fore-
casting from the company.
In August 2012, before it began drilling, Linc
announced an “aggressive timeline” to bring Umiat into
production in five to seven years, with peak production of
50,000 barrels per day. By October 2013, after completing
only one of a proposed four-to-five-well program, Linc
said it planned “to aggressively develop this field once
commerciality is determined” but no longer offered a spe-
cific timetable for bringing the field online.
A production forecast shows the field coming online in
2023, peaking at 50,000 barrels per day by 2026 and
declining gradually to approximately 5,000 bpd by 2047.
Although discovered nearly 70 years ago, the Umiat oil
field has remained undeveloped because of its remote
location and complex geology. Linc believes it has solved
the latter challenge by combining horizontal drilling with
a well-tinkered completion strategy.
The former challenge remains formidable, especially at
current oil prices.
The previous exploration campaigns required Linc to
build a 102-mile snow road connecting Umiat to the
Dalton Highway. A development would require a gravel
road or a complex transportation scheme to carry equip-
ment and supplies to the existing Umiat airstrip. And a
successful development would need to support a 100-mile
pipeline.
The State of Alaska spent years studying a proposed
“Road to Umiat,” only to set the project aside amid criti-
cism from nearby villages, skepticism from lawmakers
and a budget shortfall that made grand infrastructure proj-
ects unfeasible for foreseeable future.
Although it surely would have welcomed a publicly
funded road, Linc always maintained it could make Umiat
economic even if it had to finance the road itself.
Engineering work over the past two years initially
identified 12 potential routes for connecting the field to
existing infrastructure. Of those, six were believed to be
viable based on allowable road grades and attempts to
avoid environmentally sensitive areas.
The company is currently comparing three alternatives
(see map).
The Toolik East route would branch in a northwesterly
direction from the Dalton Highway north of Pump Station
4 and the Toolik Research Station. The Franklin Bluffs
route would head south-southwest from the Franklin
Bluffs staging area north of Pump Station 2. The
Meltwater route would use existing roads through the
Prudhoe Bay and Kuparuk River units and continue south
and then southwest along a newly built road. l
continued from page 1
UMIAT PLAN
continued from page 1
AIDEA BUY
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it needs for its drilling program but is still
waiting for a letter of authorization from
the U.S. Fish and Wildlife Service for the
unintended disturbance of some marine
mammals during drilling operations, and
the company has yet to obtain approved
permits to drill in the Chukchi, Baldino
said.
In May the Bureau of Ocean Energy
Management approved Shell’s Chukchi
Sea exploration plan.
Burger prospectShell has previously said that it hopes
to move its fleet into the Chukchi Sea in
early July. The company wants to operate
its two drilling vessels concurrently,
drilling exploration wells in the Burger
prospect, about 70 miles northwest of the
Chukchi coastal village of Wainwright.
“We remain committed to operating in
a safe, environmentally responsible man-
ner and look forward to exploring our
Chukchi leases in the weeks to come,”
Baldino said.
In 2012 Shell drilled the top hole sec-
tion of the Burger A well before having to
suspend the drilling operation because the
company’s oil containment system was
not ready for use. The company had
planned to re-enter and complete that well
when its drilling program restarted.
However, in May of this year Ann
Pickard, Shell’s executive vice president
for the Arctic, told the Houston Chronicle
that the company now plans to drill two
new wells in 2015, targeting the south-
western and southeastern edges of the
Burger prospect. The Burger A well was
closer to the center of the prospect,
Pickard said. Pickard told the Chronicle
that the decision to drill the two new
wells was based on the results of recent
seismic data processing and that Shell had
determined that the new wells were more
likely to prove out an oil find than the
Burger A well.
Strategic playWith the Chukchi Sea having the
attributes of a world-class petroleum
basin, Shell sees its Arctic venture as a
long-term strategic play to establish a
future source of major oil resources. The
company says that, despite the challenges
of operating in such a remote region, the
drilling in relatively shallow water will be
straightforward and safe, with multiple
oil spill prevention procedures and tech-
nologies in place. The company has
assembled a major set of assets for
responding to any oil spill emergency,
including the containment dome, a well
capping stack, oil spill response vessels
and a tanker for collecting any spilled oil.
But environmental organizations and
their supporters remain adamantly
opposed to Shell’s plans, saying that
Arctic offshore oil exploration and devel-
opment pose unacceptably high risks to
the fragile Arctic environment.
Environmental activist organization
Greenpeace said that its vessel Esperanza
had launched an inflatable boat carrying
an activist from the indigenous communi-
ty ahead of the Polar Pioneer as the
drilling unit left Seattle, while two
Greenpeace swimmers had accompanied
the small protest boat. Earlier, a fleet of
kayakers had assembled in the Seattle
port, in protest at Shell’s plans.
On May 8 District Court Judge Sharon
Gleason ordered a preliminary injunction
imposing a number of restrictions on
Greenpeace, including banning people
associated with the organization from
interfering with or boarding 29 specified
vessels. Gleason also imposed exclusion
zones around the vessels. Greenpeace has
since appealed the preliminary injunction
to the Court of Appeals for the 9th
Circuit. In a June 12 order rejecting a
Greenpeace motion to dismiss Shell’s
request for the injunction, Gleason com-
mented on the Greenpeace boarding of
the Polar Pioneer in early April while the
drilling rig was being transported across
the Pacific Ocean. Gleason said that this
action was “sufficiently akin to piracy” to
justify court jurisdiction on the high seas,
outside U.S. territorial waters.
Contingency plan upheldIn a crucial court decision, on June 11
a majority of a three-judge panel in the
Court of Appeals for the 9th Circuit
rejected an appeal against the approval
by the Bureau of Safety and
Environmental Enforcement of Shell’s
Chukchi Sea oil spill prevention and
response plan. Had the court upheld the
appeal, Shell would presumably have had
to place its Chukchi Sea drilling plans on
hold.
A group of 10 environmental organi-
zations had originally launched the
appeal in federal District Court in Alaska
in 2012, claiming that Shell’s plan over-
estimated the quantity of oil that could be
recovered following an oil spill; that the
plan did not adequately consider the
impact of sea ice in trapping oil; and that
Shell had not described its Arctic oil con-
tainment system. The appeal also claimed
that BSEE should have conducted an
environmental analysis under the terms
of the National Environmental Policy Act
in conjunction with its review of the plan.
After the District Court dismissed the
appeal in August 2013, the plaintiffs ele-
vated the appeal to the 9th Circuit.
In rejecting the appeal, the panel of
9th Circuit judges said that the plaintiffs
had misinterpreted language in the con-
tingency plan regarding oil recovery
rates, and that BSEE had not acted arbi-
trarily in approving the plan. The panel
majority said that, because Shell’s plan
met statutory requirements, BSEE had to
approve it. And, given the non-discre-
tionary nature of this approval, the
agency did not have to call for a consul-
tation under the Endangered Species Act,
nor was a review under the National
Environmental Policy Act required.
Judge Dorothy Nelson dissented from
the majority decision, saying that BSEE
had discretion to approve or disapprove
Shell’s plan and, thus, should have initi-
ated an Endangered Species Act consul-
tation and an environmental review.
Meantime, a group of environmental
organizations is continuing an appeal
against the legality of the 2008 Chukchi
Sea lease sale in which Shell purchased
its leases. On June 17 federal District
Court Judge Ralph Beistline approved a
new schedule for the case, with all briefs
required by Oct. 9. l
continued from page 1
DRILLING FLEET EPA authorizes Shell drilling dischargesThe Environmental Protection Agency has authorized waste discharges from
Shell’s drilling operations in the Chukchi Sea this summer. The authorization
comes under the terms of a National Pollutant Discharge Elimination System gen-
eral permit for Chukchi Sea exploration and applies to operations by the drilling
vessels Noble Discoverer and Polar Pioneer at four locations on the Burger
prospect, about 70 miles northwest of the Chukchi coastal village of Wainwright.
The discharges authorized include water-based drilling fluids and drill cut-
tings; domestic waste; and bilge water.
The four drilling sites referenced in the authorization consist of the Burger F,
Burger J, Burger S and Burger V wells, in water depths ranging from 145 to 148
feet. Shell has said that it anticipates drilling two wells this year, in the southwest-
ern and southeastern edges of the Burger prospect. That would appear to point to
the J and the V wells, based on a well location map submitted by Shell to EPA.
—ALAN BAILEY
NOAA issues IHA for Shell overflightsThe National Oceanic and Atmospheric Administration Fisheries Service has
issued an incidental harassment authorization, allowing the unintended, minor
disturbance of marine mammals by overflights of the Beaufort and Chukchi seas
that Shell plans to conduct this year in conjunction with its Chukchi Sea drilling
program. According to a Federal Register notice for the issuance of the authoriza-
tion, Shell wants to use overflights to conduct surveys of the sea-ice break up at
the beginning of the open water season and of the freeze up at the end of the sea-
son. The company plans to use fixed wing aircraft and helicopters, with the timing
of the surveys depending on ice and weather conditions, the notice says.
The Fisheries Service requires measures designed to mitigate disturbance
caused by the overflights, including a requirement for a protected species observer
to participate in each flight; the maintenance of a one-mile radius from areas with
high seal concentrations; and engagement with local communities to avoid distur-
bance to subsistence activities.
—ALAN BAILEY