l EXPLORATION & PRODUCTION This … · 2015-04-17 · l EXPLORATION & PRODUCTION l FINANCE &...
Transcript of l EXPLORATION & PRODUCTION This … · 2015-04-17 · l EXPLORATION & PRODUCTION l FINANCE &...
l E X P L O R A T I O N & P R O D U C T I O N
l F I N A N C E & E C O N O M Y
l N A T U R A L G A S
Vol. 20, No. 16 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of April 19, 2015 • $2.50
page4
Nageak battles health, Obamaadmin, enjoys Resources role
page10
Former Kiska CEO to leadTarsis-Estralla exploration
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of April 19, 2015
NEWS NUGGETSCompiled by Shane Lasley
l E X P L O R A T I O N
High-grade plan for Kensington gold mineCoeur Mining Inc. April 14 released a new high-grade mine
plan for its Kensington gold mine in Southeast Alaska that fore-
casts higher gold production at lower costs. From 2015 through
2020, the Kensington Mine is anticipated to average 128,000
ounces of gold at average costs applicable to sales of US$820
per ounce. Production in 2014 was 117,823 ounces of gold at
costs of US$951 per ounce. This new plan reflects the recent
discovery of the Jualin zone and indicates higher overall pro-
duction and cash flows due to the contribution of higher-grade
material from three nearby zones. The Jualin zone, located
approximately 8,250 feet from current mining activities, aver-
ages 0.619 ounces of gold per ton, which is more than three
times the average reserve grade at Kensington. Coeur says
ongoing drilling continues to expand this deposit. "Our recent
success identifying high-grade mineralization near existing
Kensington infrastructure has added higher-margin production
to our mine plan and significantly improved the expected eco-
nomics of the mine," said Coeur President and CEO Mitchell
Krebs. Expected capital expenditures include roughly US$3.5
million per year through 2018 for capitalized drilling, primarily
to upgrade the inferred mineral resources at Kensington and
Jualin. Spending for underground mine development is expect-
ed to average US$16 million per year through 2018 when pro-
duction from the inferred material is expected to be fully
ramped up. Development of a decline to Jualin is planned to
begin in July with initial production expected in mid-2017.
Greens Creek delivers 2M oz. silver in Q1Hecla Mining Co. April 12 reported that its silver production
for the first quarter of 2015 was 2.9 million ounces, a 16 per-
cent increase over the same period last year. Some 2.0 million
ounces of this silver was recovered from the Greens Creek
Mine in Southeast Alaska, a 14 percent increase from the first
three months of 2014. “Greens Creek, with higher grades and
recoveries, led another strong operating quarter for Hecla – sil-
ver production is among the highest in our history,” said Hecla
President and CEO Phillips S. Baker Jr. The Idaho-based silver
miner attributes this
increased production pri-
marily to mine sequencing,
higher silver grades and
higher silver and gold
recoveries. The company
said changes made to the
flotation circuit in the
fourth quarter is resulting
in higher silver recovery,
the value of which is being outweighed a slight loss in zinc
recovery. The 15,239 ounces of gold produced at Greens Creek
during the first quarter exceeded the same period last year by 2
percent. The Greens Creek mill operated at an average of 2,172
tons per day in the first quarter. Hecla’s Lucky Friday Mine in
Idaho produced 836,719 ounces of silver during the first quarter
of this year, up 20 percent from the same period of 2014. The
mill operated at an average of 825 tpd in the first quarter. The
company’s Casa Berardi Mine in Quebec recovered 25,412
ounces of gold during the first quarter, down 19 percent from
the same period last year. Hecla said the mine experienced
lower grades as a result of mine sequencing and recoveries
were lower due to new metallurgical characteristics of the ore
from the 118 Zone requiring adjustments to the plant which are
expected to improve recoveries in the second quarter. The mill
operated at an average of 2,090 tpd in the first quarter. “In
March we celebrated 50 years on the NYSE, and I see our cur-
rent mix of three operating mines to be the strongest in our his-
see NEWS NUGGETS page 10
Whistler sale pendingProspective buyer could advance Southcentral Alaska porphyry project
By SHANE LASLEYMining News
I t has been nearly four years since any significant
exploration has been carried out at the Whistler
property, but a preliminary deal for Kiska Metals
Corp. to sell it could mean a renewed focus on this
copper-gold project in Southcentral Alaska.
Under a non-binding agreement reached April 9,
Alternative Earth Resources Inc. would acquire full
ownership of Whistler in exchange for issuing Kiska
24.5 million of its shares, which would represent half
of the company’s shares upon completion of the
exchange.
This Whistler deal is part of Kiska’s ongoing strat-
egy to realize value from its extensive portfolio of
exploration properties in Alaska, British Columbia,
Ontario, Nevada and Australia.
“This transaction further strengthens Kiska’s com-
mitment to the prospect generator business model and
greatly increases the company’s flexibility,” explained
Kiska President Grant Ewing. “Kiska will no longer
incur any holding or exploration costs, and it retains
excellent carried participation in the future upside of
the Whistler Project through its large shareholding in
AER.”
Thermal to mineralAlternative Earth Resources, which until recently
was focused on finding and developing geothermal
resources, has been seeking the right project to jump
into mineral exploration sector.
“I believe the timing is right relative to possible
improvement in gold and metal prices; however,
Alternative Earth’s available cash is sufficient to sus-
tain the company and the Whistler assets through sev-
eral years, if necessary,” Alternative Earth CEO Brian
Fairbank said, upon announcing the proposed acquisi-
tion.
At the end of 2014, Vancouver, B.C.-based
Alternative Earth had US$2.18 million in cash and
was expecting to recover US$150,000 from bonds
being held to secure reclamation work on geothermal
wells in Nevada and California.
Much of the money the company has in the bank is
from the sale of its geothermal assets in 2014, funds it
plans to put toward “opportunities in the mining sector
with projects having indicated resources in safe juris-
dictions,” according to Alternative Earth’s financial
filings for the end of 2014.
The company believes the Whistler project fits the
bill.
“Alternative Earth is pleased with the potential
acquisition of the significant Whistler deposit, the
encompassing porphyry gold-copper district and the
physical project assets following an extensive search
and due diligence process,” said Fairbank.
Whistler depositLocated in the Alaska Range about 95 miles north-
west of Anchorage, the Whistler property is situated in
the Kahiltna Terrane, an assemblage highly prospec-
tive for world-class porphyry copper-gold and intru-
sive gold deposits. The massive Pebble copper-gold-
molybdenum project – situated about 165 miles south-
west of Whistler – is the largest such deposit found
there.
“The super-giant Pebble deposit and the Whistler
deposit are the only porphyry copper-gold resources
currently defined in the Kahiltna assemblage, which
speaks to the immature exploration setting of this
belt,” Kiska said in a 2014 report on Whistler.
The 65-square-mile Whistler property, itself, is
known to host at least two porphyry centers and one
area prospective for an intrusive-related gold deposit.
The Whistler property is anchored by its namesake
deposit, which was discovered by Cominco Alaska in
the late 1980s and was further delineated by
Kennecott Exploration, Geoinformatics Exploration
Inc. and Kiska Metals.
A total of 48 holes drilled into the Whistler deposit
through 2011 has outlined an indicated resource of
79.2 million metric tons grading 0.51 grams per met-
ric ton gold, 1.97 g/t silver and 0.17 percent copper
(2.25 million gold-equivalent ounces), and an inferred
resource of 145.8 million metric tons averaging 0.40
g/t gold, 1.75 g/t silver and 0.15 percent copper (3.35
million gold-equivalent ounces).
In addition to upgrading the substantial open-pit
delineated inferred resource at Whistler, infill drilling
is expected to expand upon some higher-grade zones
see WHISTLER SALE page 11
The Idaho-based silver minerattributes this increased
production primarily to minesequencing, higher silver
grades and higher silver andgold recoveries.
SHA
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The 65-square-mile Whistler property is known to host at least two porphyry centers, the Whistler depositwhich lies under the ridge to the right; and the Island Mountain prospect located in the mountains about 14miles to the south.
Drilling at Island Mountain has encountered two dis-tinct zones of mineralization: an upper gold-copperbreccia and a deeper pyrrhotite-gold zone.
This week’s Mining News
Prospective buyer could advance Southcentral Alaska Whisterporphyry project. Read more in Mining News, page 9.
Shell plan is outCompany hopes for Chukchi drilling this year; BOEM says plan complete
By ALAN BAILEYPetroleum News
The Bureau of Ocean Energy Management has
deemed Shell’s Chukchi Sea exploration plan
complete, has published the plan on the BOEM web-
site and is inviting public comments on the docu-
ment. Shell wants to resume its Chukchi Sea explo-
ration drilling program during this summer’s Arctic
open water season and has begun mobilizing its
drilling fleet. However, the company will need a gov-
ernment approved plan before it can start drilling —
a public comment period is part of the regulatory pro-
cedure that can lead to plan approval.
The review of Shell’s plan had been delayed as a
result of an appeal against the lease sale in which
Shell purchased its Chukchi Sea leases. BOEM had
to rework the environmental impact statement for the
sale and issue a new record of decision before
reviewing any lease-related documentation.
Careful scrutiny“We will be carefully scrutinizing this revised EP
to determine whether it meets stringent environmen-
tal and regulatory standards,” said Dr. James Kendall,
the director of BOEM’s Alaska OCS Region, when
announcing the publication of the plan on April 10.
“We have posted Shell’s revised EP online, and we
see SHELL PLAN page 20
Interior gas bill movesTwo versions: House passes gas project, AIDEA bonding; Senate Resources just gas
By KRISTEN NELSONPetroleum News
Two versions of a bill to promote natural gas
for the Fairbanks area moved in the Alaska
Legislature April 15.
As introduced, the administration bill removed
the restriction that a liquefied natural gas project
for the Interior must be based on the North Slope.
House Bill 105 passed that body by a 37-2 mar-
gin April 15 and includes the major elements of the
bill as proposed — the elimination of the require-
ment that the Interior gas project use North Slope
natural gas; an adjustment of Alaska Industrial
Development and Export Authority bond authority
amounts to reflect inflation; and termination of old
bond authorizations AIDEA has not used.
Among other changes, House Finance also
added to what AIDEA could bond — a hydroelec-
tric project and the rebuilding of Southcentral elec-
tric transmission lines.
It all started with the goal of removingfour words, “from the North Slope,” fromthe Interior gas project authorized in SB
23 in 2013. —Rep. Steve Thompson, R-Fairbanks
see INTERIOR GAS BILL page 18
Shake up for BC dreamsCombined forces of Shell, BG Group puts at least 1 Canadian LNG plan in doubt
By GARY PARKFor Petroleum News
The proposed merger of Royal Dutch Shell and
BG Group sets the stage for a drastic, long-
predicted weeding out of Canada’s overcrowded
LNG field.
Assuming that anti-trust authorities don’t
attempt to block the deal, the combined company
will make it easier to eliminate one and possibly
two of British Columbia’s 19 LNG ventures.
Shell Chief Executive Officer Ben van Beurden
dropped a clear hint during a conference call when
he said that incorporating the BG portfolio will
“bring important new LNG optionality to Shell.”
“In Canada, for instance, both companies have
plans on the drawing board for LNG exports ...
from British Columbia. There is clearly some
scope for review there, as you can imagine.”
Shell’s investor presentation documents bol-
stered that view by identifying BG’s Prince Rupert
plan as overlapping with its own LNG strategy in
British Columbia.
Decision already stalledThe United Kingdom-based BG had already
stalled an investment decision on its Prince Rupert
Randy Ollenberger, a BMO oil and gasequity analyst, said his company has longanticipated consolidation among Canada’sLNG players even without the Shell-BG
transaction.
see LNG FIELD page 19
Shell’s BG Group takeover, companyrefocus could impact Alaska
Shell’s $66 billion takeover of BG Group, one of the world’s
largest natural gas companies, has sent shock waves around the
energy world. But will any of those merger vibrations reach
Alaska, especially given Shell’s multi-year attempts to explore in
the state’s Arctic offshore?
One thing does seem clear. In the interest of maintaining its
debt at an acceptable level, and given the new business opportu-
nities that the amalgamation with BG Group will bring, Shell
anticipates cutting back on its exploration spending as part of a
complete rework of the company’s business strategy. And the
company merger would seem to indicate a focus by Shell on nat-
ural gas, natural gas liquids and deepwater developments.
Shell’s Alaska venture is part of what the company character-
Governor sets out LNG plan in April 10 letter to legislators
Leaders in the Alaska Legislature
have been asking Gov. Bill Walker what
his plan is for moving forward with the
Alaska LNG project. Former Gov. Sean
Parnell negotiated an equity position for
the state in the project, which the previ-
ous Legislature approved; that project is
in the pre-front end engineering design
phase.
Walker has said he wants to expand
the state-owned Alaska Stand Alone
Pipeline plan from the 500 million cubic feet per day project
the Alaska Gasline Development Corp. has been studying to
see SHELL REFOCUS page 18
see WALKER PLAN page 19
GOV. BILL WALKER
2 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
Petroleum News North America’s source for oil and gas newscontents
GOVERNMENT
FINANCE & ECONOMY
LAND & LEASING
FACILITIES
7 DOI releases well control regulations
Proposed rule addresses offshore well blowout risksthrough new requirements for blowout preventers, well design and drilling reporting
Shell plan is out
Company hopes for Chukchi drilling this year; BOEM says plan complete
Interior gas bill moves
Two versions: House passes gas project, AIDEA bonding; Senate Resources just gas
Shake up for BC dreams
Combined forces of Shell, BG Group puts at least 1 Canadian LNG plan in doubt
ON THE COVER
Shell’s BG Group takeover, companyrefocus could impact Alaska
Governor sets out LNG planin April 10 letter to legislators
ENVIRONMENT & SAFETY
6 AOGCC issues two exploration permits
5 Moving off the sidelines
5 Spillover hits wider area
4 Nageak battles health, Obama administration
6 Persily says fiscal plan best alternative
8 ConocoPhillips expects flat production
13 SAExploration seeking storage site
EXPLORATION & PRODUCTION
14 Selected trucks begin moving on Dalton
13 Spring forecast drops oil prices further
13 State finalizes AVCG deals on North Slope
NATURAL GAS
PIPELINES & DOWNSTREAM15 Stalling threatens Canadian economy
Banking official cites governmental bickering in pipeline,LNG project delays; says nation’s economy, export prospects at risk
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14 Judge issues Greenpeace restraining order
PETROLEUM NEWS • WEEK OF APRIL 19, 2015 3
Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status
Alaska Rig StatusNorth Slope - Onshore
Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay 03-15B BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay 03-12i BPDreco D2000 Uebd 19 (SCR/TD) Nanuq CD4-93A ConocoPhillipsAC Mobile 25 Kuparuk 2L-316 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 1D-143 ConocoPhillipsTSM 7000 Arctic Fox #1 Wildcat Qugruk-8 Repsol
Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse, under contract to Repsol Repsol for winter explorationMid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location, Brooks Range Petroleum Under contract to Brooks Range PetroleumEmsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Deadhorse, under contract 1050E to ExxonMobil for 2015
Emsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedOilwell 2000 33-E Prudhoe Bay Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse , under contract to Repsol Repsol for winter explorationOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse, under contract to Repsol Repsol for winter explorationAcademy AC electric Heli-Rig 106-E (AC-TD) Deadhorse, under contract to Great Bear Petroleum Great Bear for winter drilling
Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site 7-33 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site K-06D BPIdeco 900 3 (SCR/TD) Milne Point MP-K-37 Hilcorp
Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP
North Slope - Offshore
BPTop Drive, supersized Liberty rig Inactive BP
Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island SP04-SE5 ENI
Nabors Alaska DrillingOIME 1000 19AC (AC-TD) Oooguruk ODSN-02 Caelus Alaska
Cook Inlet Basin – Onshore
Miller Energy ResourcesMesa 1000 Rig 37 Mobilized to North Fork to begin Miller Energy Resources drilling this winter
All American Oilfield LLCIDECO H-37 AAO 111 In All American Oilfield’s yard in Kenai, Alaska Available
Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Sterling, Stacked out at D&D yard Available
Nabors Alaska DrillingContinental Emsco E3000 273E Kenai AvailableFranks 26 Kenai StackedIDECO 2100 E 429E (SCR) Kenai Stacked
SaxonTSM-850 147 Ninilchik Unit, Bartolowits pad Hilcorp Alaska drilling Frances #1TSM-850 169 Swanson River Hilcorp Alaska
Cook Inlet Basin – Offshore
XTO EnergyNational 110 C (TD) Idle XTO Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform RU-1, workover Cook Inlet Energy Hilcorp Alaska LLC (Kuukpik Drilling, management contract) Monopod Platform, Workovers Hilcorp Alaska LLC
Patterson UTI Drilling Co LLC 191 West McArthur River Unit #8 Cook Inlet Energy
Mackenzie Rig Status
Canadian Beaufort Sea
SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available
Central Mackenzie Valley
AkitaTSM-7000 37 Racked in Norman Well, NT Available
Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of April 16, 2015.
Active drilling companies only listed.
TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig
This rig report was prepared by Marti Reeve
Baker Hughes North America rotary rig counts* April 10 April 2 Year AgoUS 988 1, 028 1,831Canada 99 100 212Gulf 31 29 52
Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992 *Issued by Baker Hughes since 1944
The Alaska - Mackenzie Rig Report is sponsored by:
JUDY
PAT
RICK
By STEVE QUINNFor Petroleum News
When House Rep. Bennie Nageak
returned for his second term in
January, he didn’t just want a seat on the
House Resources Committee. No, he
wanted to share the gavel with David
Talerico and serve as co-chair for the next
two years. And why not, he says. After all
this Barrow Democrat who aligns himself
with the majority caucus has the resource
fields in his own backyard.
Nageak arrived in Juneau ready to cut
his teeth into a new position, but with a
hearty resume in leadership. He served as
an assemblyman and mayor for the North
Slope Borough and vice chair of the
Alaska Board of Game. He also founded
the Indigenous Peoples Council on Marine
Mammals.
Upon his arrival,
however, came news
that the Obama
administration
planned to place the
1002 area of the
Arctic National
Wildlife Refuge
under wilderness
designation and that
followed restrictions
placed on offshore drilling.
Nageak, who grew up in Kaktovik,
quickly became a social media sensation
speaking out against the administration’s
actions while calling for Alaskans to have
a greater voice in how the resources on
state and federal land get developed.
While fighting for the state Nageak
fought for his own health, having knee sur-
gery, a subsequent infection and then a
hospitalization when his heart rate escalat-
ed.
Through it all, he kept his sense of
humor, reminding folks how many shop-
ping days remained until his birthday.
A healthy Nageak sat down with
Petroleum News to discuss his views.
Petroleum News: So you’re in yoursecond term. Why were you interested inbecoming co-chair of the ResourcesCommittee?
Nageak: The resources we depended on
are from the most part rural Alaska. Most
of the oil and gas produced right now is
from Prudhoe Bay and other fields, and
our part of the world. I’m always interest-
ed in being a proponent of oil and gas
activity in my part of the world, plus any
activity of resource development —
renewable or non renewable resources —
everywhere.
I know in Bristol Bay,
there is a big fight over who
should be doing what in
what area and in what areas.
What really gets me is
when I talk to people in that area is it’s OK
for you to come up here and make billions
in my part of the world, but you can’t
allow our companies to go down there and
make billions with the resources you have.
We can’t access that. You have potential
right there, but you are blocking it, but
your neighbor just to the west of you is
looking to develop a mine and they are
looking to build a gas line to power all of
that. So, as a side benefit, this has the
potential to go to some of those villages to
reduce the costs in that part of the world,
that part of Alaska.
It gets to me when people say you can’t
do this in my area but we can do it some-
where else and not allow other people to
do what’s being done in my part of the
world.
Petroleum News: You’ve touted howyou strike a balance between subsistenceand resource development. How is it thatyou strike that balance?
Nageak: We’ve done it from the get-go.
We have home rule government and it’s
the size of Indiana and Minnesota com-
bined. In that area we have all kinds of
activity plus fish and game we rely on off-
shore and on shore. We work real hard to
make sure any development done is done
according to state and municipal laws.
Municipal law can’t exceed state law and
state law can’t exceed federal law, and so
we need to work together and we have
worked together to make sure our
resources are developed and it’s done in a
safe manner.
I’ve been involved in this for more than
40 years. We are the only municipality —
I think in the United States — with a divi-
sion of wildlife management. We know
how important renewable resources are to
us. We’ve done fish studies. We’ve done
caribou studies. We’ve done migratory
birds and wild life management.
If you go to the department of wildlife
management, one wall is nothing but stud-
ies that have been done over the years.
And we have the experts. Those people
there have been there for almost over 30
years, a lot of them 20 or more. So we
have continuity on that.
Right now we are ready to go whaling,
and they are still studying the whales.
Every time there is one har-
vest they take the organs and
study them. The bowhead
whale is the most studied
whale in the world — in the
world. We know a lot more
about the bowhead whale. The migratory
routes, everything about the bowhead
whale, is most understood than any other
whale in the world.
When we get the whale, we know
everything about it because our people
have done those studies since back in the
1970s until everything we’ve done today.
You know there are more and more
species of fish coming to our part of
world, and it’s not interfering with
resource development. We depend on
white fish and the ciscoes and Dolly
Varden are there and they have been there,
but now we have more and more salmon
swimming to our part of the world.
Five years ago the Department of Fish
and Game has done pink salmon studies
on the North Slope. We see a lot of it. Me
and my best friend, we start out with white
fish, then the pinks come. There are a
whole lot more coming every year.
That’s my backyard — non-renewable
and renewable resources. That’s why I’m
on resources.
Petroleum News: So in your first yearof resources, what have you learned?
Nageak: I don’t know as much as I
should. I thought I knew a lot of stuff.
I’ve worked for federal government,
state government boards and commissions;
I’ve negotiated treaties; I’ve been to
l G O V E R N M E N T
Nageak battles health, Obama administrationBarrow Democrat enjoying sharing gavel as House Resources co-chair, working resource issues, looks forward to LNG special session
4 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
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Monday — Friday, 4:30 pm — 9:00 pm
Saturday & Sunday, 12:30 pm — 9:00 pm
Ph: 907-277-1200
Conveniently located in Midtown
(Valhalla Center)
555 W. Northern Lights
Anchorage, Alaska
www.BombayDeluxe.com
Order on-line for pick-up or delivery at www.FoodOnTheWay.com
BENNIE NAGEAK
see NAGEAK Q&A page 17
By GARY PARKFor Petroleum News
C anada’s industrial heartland — the
provinces of Ontario and Quebec —
have joined British Columbia in making an
end-run around a sluggish federal govern-
ment and deciding to put a price on carbon
emissions.
But Alberta, the largest provincial con-
tributor to greenhouse gas emissions, is giv-
ing no indication that it is willing to move
beyond its 2007 carbon levy on major emit-
ters by joining Ontario and Quebec in a cap-
and-trade system.
The Canadian government’s position is
even less clear now that it has failed to sub-
mit new carbon emissions reduction targets
to the United Nations by a March 31 dead-
line.
After years of procrastinating, other than
rejecting cap-and-trade as a threat to
Canada’s oil and natural gas production, the
government of Prime Minister Stephen
Harper has made a fresh pledge.
Harper said April 11 he will unveil tar-
gets for GHGs before a G7 meeting in June
and ahead of a pivotal UN climate summit
in Paris before Christmas.
The federal government on April 13
chastised Canada’s 10 provincial govern-
ments for not meeting their own targets to
reduce GHGs — a strategy that was quickly
condemned as a brazen move by Harper to
deflect attention from his own administra-
tion’s failure to meet its 2020 targets or to
produce anything approaching a national
policy.
Provinces jump inAmid the continuing confusion, the pre-
miers of Ontario (Kathleen Wynne) and
Quebec (Philippe Couillard) joined forces
April 13 in the world of cap-and-trade,
upstaging an April 14 Climate Summit of
the provinces and three territories.
When Wynne announced her province
was joining Quebec and California by intro-
ducing a carbon price, she defied the Harper
government which has lampooned cap-and-
trade as a “job-killing tax.”
“We oppose carbon taxes and any
schemes that seek to raise revenue — either
directly or indirectly — from hardworking
Canadians,” said a spokesman for federal
Environment Minister Leona Aglukkaq —
a stance that Liberal party environmental
spokesman John McKay described as
“juvenile drivel.”
But Wynne was not about to waver.
“Call it carbon pricing, cap-and-trade, a
market mechanism, or ... if you must, go
ahead and call it a tax,” she said. “Most of
us will not be fooled because for most of us
the label is not important. What’s important
is that we make progress.
“My hope is that at some point the feder-
al government will work on a process that
will support what the provinces are doing. I
believe that having a federal partner who is
not standing on the sidelines, but is engaged
in the discussion will help.”
Couillard said climate action is likely to
be a theme in the federal election campaign,
expected in October, arguing it is incumbent
on Canada, as an oil-producing nation, to
act.
Prentice in tight raceAlberta Premier Jim Prentice was unable
to attend the Climate Summit. He is
engaged in a tight three-way fight with the
New Democratic Party and Wildrose lead-
ing to a provincial election on May 5, which
could see his governing Conservative party
defeated after 12 consecutive victories and
44 years in power.
During a campaign stop in Calgary,
Prentice said “cap-and-trade is not some-
thing that I support or that I think is in the
best interests of Alberta,” although he
pledged that Alberta will remain a “con-
structive ally” of the other provinces in
working on climate change measures.
The pressure on Alberta to take a more
aggressive role intensified in a report issued
earlier in April by Canada’s EcoFiscal
Commission, a group of economists, who
are campaigning for a federal carbon tax.
They estimate that even if the federal
government will not lead the way, the costs
of applying different carbon pricing regimes
in the provinces and territories would
amount to only 0.4 percent of gross domes-
tic product, or C$8 billion of a C$2 trillion
national economy.
Levy high enough?Alberta has taken pride in proclaiming
that it is showing the way to North
American petroleum-producing jurisdic-
tions by imposing a C$15 per metric ton
carbon levy on the largest greenhouse gas
emitters who exceed a minimum target.
But Chris Ragan, chairman of the
EcoFiscal Commission, said the Alberta
regulation is not changing behavior because
it is not high enough and doesn’t cast a wide
enough net.
He said a carbon tax would “increase the
price of carbon-intensive products, which is
what it is supposed to do.”
In 2012, Alberta accounted for 17.5 per-
cent of Canada’s GDP, 11.2 percent of the
country’s population and 37.5 percent of
national GHG emissions, which are project-
ed to increase by another 20 percent by
2020 as oil sands production grows.
In contrast, Ontario has 38.6 percent of
Canada’s population and accounts for 38.7
percent of GDP and 23.9 percent of GHG
emissions.
Oil sands energy intensiveThe energy intensive requirements of oil
sands development account for 27 percent
of Alberta’s GHGs, followed by 14 percent
from coal-fired power plants, while Ontario
derives its electricity from nuclear and
hydro plants.
According to the EFC report, the across-
the-board average cost of Alberta’s carbon
levy is a mere 77 cents per metric ton, not
the C$15 the government is fond of quoting.
In contrast, British Columbia collects
C$30 per metric ton through 7 cents per liter
of gasoline, while the Quebec and Ontario
cap-and-trade programs would charge an
expected C$11 per metric ton.
British Columbia captures C$1.2 billion
per year from its tax, Quebec expects to
bring in C$425 million and Alberta collects
C$55 million.
Ontario’s industrial sector is left to pon-
der the threats and opportunities of that
province’s cap-and-trade plan until Wynne
finalizes key details later this year.
The battered manufacturing sector —
like the petroleum sector in Western Canada
— wants to make sure the regulations don’t
result in new competitive pressures,
although clean-tech industries which spe-
cialize in energy-efficient technologies and
low-carbon fuel alternatives are hoping they
will benefit from market incentives to
develop new customers.
If Ontario follows the lead of its future
partners, Quebec and California, it will
issue free emission allowances to industries
such as refining and cement to protect
investment and jobs in U.S. states and
Canadian provinces that don’t have car-
bon pricing. l
l E N V I R O N M E N T & S A F E T Y
Moving off the sidelinesOntario, Quebec, Canada’s industrial provinces, ready to join cap-and-trade emissions market; Alberta won’t join; feds promise plan
PETROLEUM NEWS • WEEK OF APRIL 19, 2015 5
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FINANCE & ECONOMYSpillover hits wider area
The fallout from low oil prices is starting to hit a wider section of the Canadian
economy, affecting jobs and investment, according to 100 companies surveyed by
the Bank of Canada, the equivalent of the U.S. Federal Reserve.
Over the next year, fewer companies expect to invest in machinery and equip-
ment, to expand sales or to hire, the bank said in its quarterly outlook survey.
“Lower oil prices continue to dampen the overall sales outlook of firms,
weighing on investment and hiring intentions,” the survey said.
The bank estimated that hiring intentions are at their weakest level since the
recession in 2009, with the condition showing up beyond the oil patch and affect-
ing “most sectors and regions,” notably in Canada’s Prairie region and the indus-
trial heartland of Ontario and Quebec.
However, the bank said, some businesses indicate that “lower oil prices and a
weaker currency support their business outlook and the majority anticipate a pos-
itive impact from strong U.S. economic growth.”
But those businesses outside the oil sector also said they “expect the benefits
to unfold only gradually in the future.”
The survey, which reflected the makeup of the Canadian economy, found that
labor shortages affecting the ability of companies to meet demand are “less
intense than they were a year ago, particularly in the Prairies.”
The conclusions back up the recent warning by Bank of Canada Gov. Stephen
Poloz that the negative effects of the oil price shock will be felt hard and early,
while the benefits will take longer to materialize.
Poloz said the Canadian economy in the first quarter will be “atrocious” and
fall short of the 1.5 percent annual growth rate forecast by the bank.
—GARY PARK
By KRISTEN NELSONPetroleum News
With Gov. Bill Walker and leaders of the Alaska
Legislator at loggerheads over plans for an Alaska
liquefied natural gas project, Larry Persily told the
Anchorage Chamber of Commerce April 13 that he feels
for the Alaska Gasline Development Corp., which, like a
kid in a contested divorce, is in the middle of the battle.
That battle is playing out in House Bill 132, which sits
on the governor’s desk awaiting a
promised veto.
The governor wants AGDC to
expand the Alaska Stand Alone
Pipeline to make it economically
viable — what Walker describes as
an alternative to the Alaska LNG
project in which the state is an equity
partner with the North Slope produc-
ers and TransCanada — but what
legislative leaders see as competition.
HB 132 says AGDC cannot spend
money appropriated for ASAP on expanding that project
until the earliest of the AKLNG partners signing agree-
ments to move the project into front-end engineering
design, one of the resource owners dropping out of AKLNG
or July 1, 2017.
Persily, formerly federal gas line coordinator and now a
special assistant for oil and gas to Kenai Peninsula Borough
Mayor Mike Navarre, said the disagreement between the
governor and the Legislature doesn’t get the state closer to
having a project and makes us look screwy to the market.
Calling it a mess, and a costly mess, Persily said that given
the state’s fiscal situation, the $180 million at stake is a lot
of money to spend.
Persily said going it alone on a gas project is only an
option if you can write a check or get financing — and
2020, when money would be needed, is about the time the
state will be broke.
Issues that need settlingAmong the issues that need to be settled are property
taxes, which start the year the equipment hits the dock and
are a big issue for the project because those taxes have to be
paid when there is no cash flow, Persily said.
Another issue is setting valuation: The state and the
companies have been fighting over the value of the oil
pipeline since it was built. The solution for AKLNG is
negotiating payment in lieu of taxes, which requires cre-
ation of a formula so both communities and companies
know what property tax will be. The governor has intro-
duced a preliminary bill to start dealing what that issue, he
said, noting that it isn’t an issue that will be settled this year.
The other side of that issue — what the split will be
between the state and communities — is one the companies
want no part of, Persily said.
Another contentious issue will be the impact aide fund
to cover costs during construction. He said indirect effects
will be an issue there.
Then there is fiscal stability.
Persily said when Alaskans hear that term they think it
means they have been cheated.
The issue for a project like this one, he said, with 20-year
contracts signed for LNG, is that the companies can’t take
the chance that taxes will quadruple over that period. No
one builds an LNG project without knowing the tax rates,
he said.
The fiscal issue needs to be viewed over the 20-year
period of an LNG contract, not in any given year when the
state’s revenues from the project may spike up or down,
Persily said.
Leverage issueThe issue for the companies is that they know they will
always be deep pockets for the state, and are concerned that
they are the only deep pockets.
While the governor wants leverage, Persily said, the
companies know the state is desperate — we have no
money. He said better leverage would be if we had a fiscal
plan and could tell the companies “we can wait” for a better
deal. You’ve got to be able to walk away from the table,
Persily said.
There is global competition, but other projects also have
their problems, and Alaska has a number of advantages: a
short tanker route; gas with high Btu value; proven
reserves; dependable production; LNG production more
efficient at cold temperatures; and the state as an equity
partner.
Prudhoe Bay reservoir management has been focused on
oil production, with natural gas used to maximize that pro-
duction. But by the mid-2020s, Persily said, it will be time
to take off some gas and get cash for it.
LNG projects are done for long-term income, he said,
for good cash flow — it’s not something you do to strike it
rich.
What are the odds for AKLNG? Persily said he couldn’t
provide odds, but said as producers and markets look for
diversification, both in location and in pricing index, and
the producers also look to diversify their portfolios, if
China’s economy keeps moving and as other countries also
grow LNG imports, AKLNG is viable with the right market
at the right cost. l
l N A T U R A L G A S
Persily says fiscal plan best alternativeFormer federal gas line coordinator tells Anchorage Chamber ability to walk away best negotiating tool; state needs money for that
6 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
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EXPLORATION & PRODUCTIONAOGCC issues two exploration permits
The Alaska Oil and Gas Conservation Commission issued two permits in early
April. The agency gave Great Bear Petroleum Operating LLC a permit to drill the
Talitha No. 2 well in the central North Slope, south of Prudhoe Bay, along the Dalton
Highway.
The agency also gave Repsol E&P USA Inc. a permit to drill the Qugruk No. 9 well
in the Colville River Delta. The agency previously issued a permit for the Qugruk No.
9 well in mid-January this year. The new permit has a slightly different bottomhole
location.
Toward the end of 2014, Great Bear announced a three-well exploration program
on its leases west of the haul road. The company began exploring the region in 2012.
After several years of conducting seismic and other fieldwork, the company has
resumed drilling operations this year, looking for both conventional and unconven-
tional targets.
Drilling activities took longer to begin than anticipated this year. In February, the
company said it would likely only drill two wells this winter: Alkaid and Talitha.
LARRY PERSILY
see PERMITS ISSUED page 7
JUD
Y P
ATR
ICK
By ALAN BAILEYPetroleum News
T he Department of the Interior has
published proposed new regulations
for well control, for the drilling of off-
shore oil wells on the U.S. outer conti-
nental shelf. The proposed regulations,
developed in the aftermath of the
Deepwater Horizon disaster in the Gulf of
Mexico, place stringent requirements on
well design and on the use of equipment
such as blowout preventers.
“Both industry and government have
taken important strides to better protect
human lives and the environment from oil
spills, and these proposed measures are
designed to further build on critical les-
sons learned from the Deepwater Horizon
tragedy and to ensure that offshore opera-
tions are safe,” said Interior Secretary
Sally Jewell, when announcing the publi-
cation of the proposed regulations on
April 13. “This rule builds on enhanced
industry standards for blowout preventers
to comprehensively address well design,
well control and overall drilling safety.”
Brian Salerno, director of the Bureau
of Safety and Environmental
Enforcement, said the proposed regula-
tions would require improved control of
the repair and maintenance of well con-
trol equipment such as blowout preven-
ters.
“It would provide verification of the
performance of equipment designs
through third party verification, enhanced
oversight of operations through real-time
monitoring viewed onshore, and require
operators to, during operations, utilize
recognized engineering best standards
that reduce risk,” Salerno said.
Publication of the proposed regula-
tions in the Federal Register on April 15
is followed by a 60-day public comment
period.
Industry knowledgeJanice Schneider, assistant secretary
for land and minerals management, com-
mented on the effort that had been made
in collecting the best ideas for the preven-
tion of well control incidents and
blowouts, using industry knowledge.
“This rule proposes both prescriptive
and performance-based standards that are
based on this extensive engagement and
analysis,” Schneider said.
In an April 13 press conference, Jewell
picked up on the performance based
aspects of the regulations, commenting
that the rule can allow for evolving new
technologies by providing a mechanism
for companies to propose techniques that
can meet the performance standards.
“There is room in this regulation … to
continue to keep up with industry best
practices, as long as it can be demonstrat-
ed that they will do as good or a better job
than was proposed in the regulations,”
Jewell said.
Salerno said that Interior had estimat-
ed the total cost to industry of implement-
ing the requirements specified in the reg-
ulations to be $883 million over 10 years.
However, Jewell pointed out that, with
many drilling operators having already
put many of the requirements into place,
that cost is not incremental to the new
rule being implemented. And the cost is
small in relation to the cost of a major
blowout incident such as the Deepwater
Horizon, Schneider commented.
Double shear ramsThe new regulations require the use of
blowout preventers with double shear
rams, the devices used to cut through and
seal the drill pipe of an out-of control
well. Having two rams at an appropriate
spacing, rather than one ram, dramatical-
ly reduces the possibility of some non-
severable joint or other feature of the pip-
ing impeding the shearing operation,
Salerno told the April 13 press confer-
ence. According to information provided
by BSEE the double shear ram require-
ment follows a specification that is
already a baseline industry standard.
In addition, the regulations require the
use of technology that centers the drill
pipe during a shearing operation — pip-
ing that had shifted off center in the
blowout preventer is believed to be a rea-
son for the failure of the blowout preven-
ter in the Deepwater Horizon disaster.
Other blowout preventer requirements
include the incorporation of up-to-date
industry standards and requirements for
the design, manufacture, repair and main-
tenance of the devices. And the regula-
tions require an annual review by a
BSEE-approved third party of blowout
preventer repair and maintenance
records. Under the proposed rule, third-
party certification of a blowout preven-
ter’s shearing capability would also
become more rigorous.
An operator would need to report any
blowout preventer failure data, and infor-
mation about control system leaks, to
BSEE.
And the proposed regulations set per-
formance objective and standards for
remote operated vehicles used to assist in
closing blowout preventer stacks.
BOP testing frequencyBSEE would require blowout preven-
ters used during well workover opera-
tions to be tested at the same frequency as
the testing done for blowout preventers
used for regular drilling. However, the
agency is also requesting comments on
whether the mandated frequency of test-
ing should be reduced from every 14 days
to every 21 days, or possibly increased to
every seven days.
BSEE is also considering the mandat-
ed use of equipment that could shear
through any drill string component, rather
than just straightforward drill pipe. Given
that this type of shearing capability does
not currently exist, the agency is request-
ing comments on the concept, rather than
l G O V E R N M E N T
DOI releases well control regulationsProposed rule addresses offshore well blowout risks through new requirements for blowout preventers, well design and drilling reporting
PETROLEUM NEWS • WEEK OF APRIL 19, 2015 7
Anchorage: (907) 248-0066Prudhoe Bay: (907) 440-0084
Fax: (907) 248-44295631 Silverado Way, Suite G
Anchorage, AK 99518www.pesiak.com
is proud to represent Weatherford Casing Accessories
Providing project management professionals for major projects throughout Alaska and the world for over 30 years.Great Bear discovered Talitha through a
2013 seismic survey but needed to acquire
an additional lease to properly target the
prospect. The company was able to acquire
the lease during a recent sale and to con-
vince the Alaska Department of Natural
Resources to “fast track the issuance of the
lease,” which allowed the company to drill
this winter.
Repsol is conducting a three-well pro-
gram this winter, which is its fourth season
of exploration in the region between the
Kuparuk River unit and Colville River unit.
The Qugruk No. 9 well is nestled
between the Qugruk No. 1 and Qugruk No.
6 wells, which Repsol drilled in early 2013
and the Qugruk No. 5 and Qugruk No. 7
wells, which the company drilled in early
2014. The company is using three rigs for
the program.
Repsol recently asked the state to form
the Pikka unit over some 63,304 acres of
the region, including many of the wells
from this and prior years. The three wells
Repsol is drilling this year would fulfill an
initial work commitment for the proposed
unit.
—ERIC LIDJI
continued from page 6
PERMITS ISSUED
The new regulations require theuse of blowout preventers withdouble shear rams, the devices
used to cut through and seal thedrill pipe of an out-of control well.
see WELL CONTROL page 15
By ERIC LIDJIFor Petroleum News
ConocoPhillips expects its oil produc-
tion in Alaska to be flat over the near
term, as increased development drilling
and a slate of projects currently in devel-
opment will offset “unmitigated” field
declines to keep production levels
“roughly flat” through 2017.
If so, the next few years would be a
rarity in a basin where oil production has
been consistently declining for nearly
three decades — save a brief uptick when
ConocoPhillips brought the Alpine field
into production nearly 15 years ago.
Perhaps more interesting,
ConocoPhillips appears to be considering
a range of North Slope development proj-
ects that, presumably, could offset
declines in the mid-term.
That said, Alaska remains a maturing
basin. Analysts wanted to know how
Alaska compared to unconventional
opportunities in the Lower 48, such as the
Eagle Ford shale of south Texas and the
Bakken formation of North Dakota,
where ConocoPhillips and its subsidiaries
are leading players. The growth of those
basins has greatly increased
ConocoPhillips’ oil production in the
Lower 48, after years of focusing on nat-
ural gas.
“Some people have asked us, with all
the great opportunities that you have in
the Lower 48 unconventional, why are
you growing your capital in Alaska,”
ConocoPhillips’ Executive Vice President
Al Hirshberg said during an annual meet-
ing for investors and analysts on April 8.
“We are the biggest producer in Alaska,
and with the improved fiscal terms that
we’ve gotten there now, it does support
increased investment for us on our proj-
ects there and in our development drilling
around our current infrastructure.”
Alaska offers “legacy cash flows from
all the investments we’ve made in the
past few years,” Hirschberg said, and is
“in a bit of a resurgence” with a slew of
new projects.
Later this year, ConocoPhillips
expects to bring two major projects into
production. The DS-2S project would be
the first new drill site at the Kuparuk
River unit in more than a decade. The
CD-5 project would be the newest satel-
lite of the Alpine field. The company is
also working to bring the 1H NEWS proj-
ect at Kuparuk into production by early
2017.
Near-term workAdditionally, the GMT-1 development
at the Greater Mooses Tooth unit in the
National Petroleum Reserve-Alaska is
“progressing toward sanctioning,” even
though the company delayed a sanction-
ing decision earlier this year, siting per-
mitting uncertainties.
The company is also conducting very
early engineering and design work for the
Alaska LNG Project to bring North Slope
natural gas to markets outside the state.
That is a much more complex project and
much less certain to move forward than
other Alaska efforts.
The project remains “on the edge,”
according to Chairman and CEO Ryan
Lance.
“Now the advantage of the Alaska
North Slope is it’s a resource that is
known. We are injecting 8 bcf a day
around the horn for pressure maintenance
at Prudhoe Bay and there’s a lot of gas
resources,” he said. “The risk in that proj-
ect is the execution on the technical side.
It is building a pipeline, building a plant
and building the infrastructure.”
Mid-termThose projects have all been discussed
regularly in recent years.
In a chart shown to analysts,
ConocoPhillips outlined other “conven-
tional” opportunities across its global
portfolio, including 10 projects across its
North Slope holdings.
The CD-5, DS-2S and 1H NEWS proj-
ects are all grouped in the “execution”
phase, along with current development
projects in China and the North Sea. The
GMT-1 project is in the “optimize” phase,
along with another phase of the China
project — Bohai Bay.
ConocoPhillips appears to be consid-
ering many other Alaska projects, though.
A long-discussed development in the
west end of the Prudhoe Bay unit, in
which ConocoPhillips is an important
working interest owner, is in the “concept
select” phase.
The nine global projects listed as being
in the “appraise” stage include four
Alaska projects: GMT-2 at the Greater
Mooses Tooth unit, the nearby Bear Tooth
unit, the Fiord West satellite of Alpine
and 1N and 1P NEWS developments at
the Kuparuk River unit. l
l F I N A N C E & E C O N O M Y
ConocoPhillips expects flat productionSlate of Alaska North Slope development projects could stem declining production by 2017; a range of projects potentially on deck
8 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
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page10
Former Kiska CEO to leadTarsis-Estralla exploration
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of April 19, 2015
NEWS NUGGETSCompiled by Shane Lasley
l E X P L O R A T I O N
High-grade plan for Kensington gold mineCoeur Mining Inc. April 14 released a new high-grade mine
plan for its Kensington gold mine in Southeast Alaska that fore-
casts higher gold production at lower costs. From 2015 through
2020, the Kensington Mine is anticipated to average 128,000
ounces of gold at average costs applicable to sales of US$820
per ounce. Production in 2014 was 117,823 ounces of gold at
costs of US$951 per ounce. This new plan reflects the recent
discovery of the Jualin zone and indicates higher overall pro-
duction and cash flows due to the contribution of higher-grade
material from three nearby zones. The Jualin zone, located
approximately 8,250 feet from current mining activities, aver-
ages 0.619 ounces of gold per ton, which is more than three
times the average reserve grade at Kensington. Coeur says
ongoing drilling continues to expand this deposit. "Our recent
success identifying high-grade mineralization near existing
Kensington infrastructure has added higher-margin production
to our mine plan and significantly improved the expected eco-
nomics of the mine," said Coeur President and CEO Mitchell
Krebs. Expected capital expenditures include roughly US$3.5
million per year through 2018 for capitalized drilling, primarily
to upgrade the inferred mineral resources at Kensington and
Jualin. Spending for underground mine development is expect-
ed to average US$16 million per year through 2018 when pro-
duction from the inferred material is expected to be fully
ramped up. Development of a decline to Jualin is planned to
begin in July with initial production expected in mid-2017.
Greens Creek delivers 2M oz. silver in Q1Hecla Mining Co. April 12 reported that its silver production
for the first quarter of 2015 was 2.9 million ounces, a 16 per-
cent increase over the same period last year. Some 2.0 million
ounces of this silver was recovered from the Greens Creek
Mine in Southeast Alaska, a 14 percent increase from the first
three months of 2014. “Greens Creek, with higher grades and
recoveries, led another strong operating quarter for Hecla – sil-
ver production is among the highest in our history,” said Hecla
President and CEO Phillips S. Baker Jr. The Idaho-based silver
miner attributes this
increased production pri-
marily to mine sequencing,
higher silver grades and
higher silver and gold
recoveries. The company
said changes made to the
flotation circuit in the
fourth quarter is resulting
in higher silver recovery,
the value of which is being outweighed a slight loss in zinc
recovery. The 15,239 ounces of gold produced at Greens Creek
during the first quarter exceeded the same period last year by 2
percent. The Greens Creek mill operated at an average of 2,172
tons per day in the first quarter. Hecla’s Lucky Friday Mine in
Idaho produced 836,719 ounces of silver during the first quarter
of this year, up 20 percent from the same period of 2014. The
mill operated at an average of 825 tpd in the first quarter. The
company’s Casa Berardi Mine in Quebec recovered 25,412
ounces of gold during the first quarter, down 19 percent from
the same period last year. Hecla said the mine experienced
lower grades as a result of mine sequencing and recoveries
were lower due to new metallurgical characteristics of the ore
from the 118 Zone requiring adjustments to the plant which are
expected to improve recoveries in the second quarter. The mill
operated at an average of 2,090 tpd in the first quarter. “In
March we celebrated 50 years on the NYSE, and I see our cur-
rent mix of three operating mines to be the strongest in our his-
see NEWS NUGGETS page 10
Whistler sale pendingProspective buyer could advance Southcentral Alaska porphyry project
By SHANE LASLEYMining News
I t has been nearly four years since any significant
exploration has been carried out at the Whistler
property, but a preliminary deal for Kiska Metals
Corp. to sell it could mean a renewed focus on this
copper-gold project in Southcentral Alaska.
Under a non-binding agreement reached April 9,
Alternative Earth Resources Inc. would acquire full
ownership of Whistler in exchange for issuing Kiska
24.5 million of its shares, which would represent half
of the company’s shares upon completion of the
exchange.
This Whistler deal is part of Kiska’s ongoing strat-
egy to realize value from its extensive portfolio of
exploration properties in Alaska, British Columbia,
Ontario, Nevada and Australia.
“This transaction further strengthens Kiska’s com-
mitment to the prospect generator business model and
greatly increases the company’s flexibility,” explained
Kiska President Grant Ewing. “Kiska will no longer
incur any holding or exploration costs, and it retains
excellent carried participation in the future upside of
the Whistler Project through its large shareholding in
AER.”
Thermal to mineralAlternative Earth Resources, which until recently
was focused on finding and developing geothermal
resources, has been seeking the right project to jump
into mineral exploration sector.
“I believe the timing is right relative to possible
improvement in gold and metal prices; however,
Alternative Earth’s available cash is sufficient to sus-
tain the company and the Whistler assets through sev-
eral years, if necessary,” Alternative Earth CEO Brian
Fairbank said, upon announcing the proposed acquisi-
tion.
At the end of 2014, Vancouver, B.C.-based
Alternative Earth had US$2.18 million in cash and
was expecting to recover US$150,000 from bonds
being held to secure reclamation work on geothermal
wells in Nevada and California.
Much of the money the company has in the bank is
from the sale of its geothermal assets in 2014, funds it
plans to put toward “opportunities in the mining sector
with projects having indicated resources in safe juris-
dictions,” according to Alternative Earth’s financial
filings for the end of 2014.
The company believes the Whistler project fits the
bill.
“Alternative Earth is pleased with the potential
acquisition of the significant Whistler deposit, the
encompassing porphyry gold-copper district and the
physical project assets following an extensive search
and due diligence process,” said Fairbank.
Whistler depositLocated in the Alaska Range about 95 miles north-
west of Anchorage, the Whistler property is situated in
the Kahiltna Terrane, an assemblage highly prospec-
tive for world-class porphyry copper-gold and intru-
sive gold deposits. The massive Pebble copper-gold-
molybdenum project – situated about 165 miles south-
west of Whistler – is the largest such deposit found
there.
“The super-giant Pebble deposit and the Whistler
deposit are the only porphyry copper-gold resources
currently defined in the Kahiltna assemblage, which
speaks to the immature exploration setting of this
belt,” Kiska said in a 2014 report on Whistler.
The 65-square-mile Whistler property, itself, is
known to host at least two porphyry centers and one
area prospective for an intrusive-related gold deposit.
The Whistler property is anchored by its namesake
deposit, which was discovered by Cominco Alaska in
the late 1980s and was further delineated by
Kennecott Exploration, Geoinformatics Exploration
Inc. and Kiska Metals.
A total of 48 holes drilled into the Whistler deposit
through 2011 has outlined an indicated resource of
79.2 million metric tons grading 0.51 grams per met-
ric ton gold, 1.97 g/t silver and 0.17 percent copper
(2.25 million gold-equivalent ounces), and an inferred
resource of 145.8 million metric tons averaging 0.40
g/t gold, 1.75 g/t silver and 0.15 percent copper (3.35
million gold-equivalent ounces).
In addition to upgrading the substantial open-pit
delineated inferred resource at Whistler, infill drilling
is expected to expand upon some higher-grade zones
see WHISTLER SALE page 11
The Idaho-based silver minerattributes this increased
production primarily to minesequencing, higher silver
grades and higher silver andgold recoveries.
SHA
NE
LASL
EYSH
AN
E LA
SLEY
The 65-square-mile Whistler property is known to host at least two porphyry centers, the Whistler depositwhich lies under the ridge to the right; and the Island Mountain prospect located in the mountains about 14miles to the south.
Drilling at Island Mountain has encountered two dis-tinct zones of mineralization: an upper gold-copperbreccia and a deeper pyrrhotite-gold zone.
By J. P. TANGENSpecial to Mining News
Environmentalists are often perceived
as watermelons (Green on the out-
side and Red on the inside) by the busi-
ness community because of their total
disregard of the social costs associated
with their advocacy. Certainly, it seems
fundamental that they freely embrace fis-
cal impact in their guerilla attacks; how-
ever, implying that they are committed
Communists overstates the motivation of
all but the most extreme individuals.
For me, the definition of a
Communist is someone dedicated to
blind social equity characterized by the
redistribution of assets by a strong cen-
tral authority. While that definition may
fit some environmentalists, certainly it is
not a shoe that can be worn on every
foot.
We can all agree, I think, that as the
result of their heavy-handed tactics,
Draconian rules have emanated from the
federal government to preclude the most
persnickety of eventualities. The effect,
in general has been to achieve positive
objectives – a swimmable Lake Erie, for
example – through internalizing the bur-
den of toxic discharges to the cost of
goods sold.
The regulatory standards, however,
divide the productive sector into two
camps, those who physically (and finan-
cially) can comply and those who are
driven out of business. Axiomatically, it
is the smaller and more fragile entities
that suffer from this paradigm, leaving
the field to well-funded, broad-based
enterprises that have the commitment to
survive.
In Alaska’s mining industry, we can
easily identify the winners and losers in
this context. Two mineral deposits stand
out. The first is the huge molybdenum
deposit at Quartz Hill within the Misty
Fiords National Monument. Notably,
although the Misty Fiords area was
early-on identified as one of Alaska’s
“crown jewels” in the jargon of national
interest lands enthusiasts, the area where
the molybdenum deposit is situated was
not included or deemed worthy of pro-
tection. Once the deposit was identified
(and patented to the claimants), the
boundaries of the reservation, which
became the Monument, were expanded.
The deposit still could have been
developed (witness Greens Creek, which
was similarly situated but in a different
“crown jewel”); however, the owners of
Quartz Hill elected to not make the end-
less financial commitment needed to
fight the battle to a conclusion. The
argument against development was that
the mine would adversely impact the
salmon population (shades of the Pebble
Project!) even though it was demonstrat-
ed that the only impact that molybdenum
would have on fish was that if they were
force-fed enough of it, there would be no
room in their stomachs for nutritious
food so they would starve to death.
Hundreds of top quality mining jobs at
Quartz Hill were lost because of this
officious governmental intervention.
Contrast Quartz Hill with the
Kensington Project. There the debate
was over a perched mountain lake iden-
tified as ideal for tailings disposal. The
existing lake was very deep, and the
depth of the lake inhibited expansion of
the fish population, which favored the
limited shallows for breeding and rear-
ing.
Confronted with heavy-handed objec-
tions by environmentalists and abetted
by their fellow travelers inside the
Environmental Protection Agency, the
owners of the project were compelled
and committed to carry their battle to the
Supreme Court of the United States for
vindication. Now the Kensington Mine
burbles along as a compliant producer of
gold, a good employer and a contributor
to the Juneau tax base. Notably, no
salmon were harmed in the making of
this project.
There is a virtually endless liturgy of
projects in Alaska that fall into this tem-
plate, and not just mining projects.
From one end of the state to another,
environmentalists crawl out of the wood-
work to whine about how disturbing the
countryside will destroy the natural
beauty of Alaska or put some critter,
whether marine, aquatic, avian or terres-
trial at some sort of risk.
The facts, in their book, are just laid
out by the proponents of development to
confuse the issue. It does not matter that
the agencies and regulators the environ-
mentalists themselves created to carry
their water at public expense are over-
seeing the permitting and operation of
the projects. In their view, if a project is
permitted, no matter how stringent the
stipulations, the permitting entity has
failed its duty. In brief, no project is a
good project.
Environmentalists are not all
Communists, but they unequivocally
have a blatant disregard for the damage
they cause. To call them Reds would be
to overstate their level of sophistication,
but it cannot be denied that their every
campaign incorporates an economic tac-
tic that redounds to the detriment of the
community, the state and the nation. As
the summer approaches and we all enjoy
the watermelons of the season, before
you spit a seed or two on the ground,
think of the environmental impact. l
l O P I N I O N
Environmentalists aren’t all watermelonsOpponents to mineral development invariably employ fiscal tactics; however, that does not mean environmentalists are Communists
10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF APRIL 19, 2015
Shane Lasley PUBLISHER & NEWS EDITOR
Rose Ragsdale EDITOR-IN-CHIEF (contractor)
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
Judy Patrick Photography CONTRACT PHOTOGRAPHER
Forrest Crane CONTRACT PHOTOGRAPHER
Tom Kearney ADVERTISING DESIGN MANAGER
Renee Garbutt CIRCULATION MANAGER
Mapmakers Alaska CARTOGRAPHY
ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647
NEWS • [email protected]
CIRCULATION • 907.522.9469 [email protected]
ADVERTISING Susan Crane • [email protected] Yonker • [email protected]
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
independent contractors
North of 60 Mining News is a weekly supplement of the weeklynewspaper, Petroleum News.
NORTHERN NEIGHBORSCompiled by Shane Lasley
Minto production exceeds expectationsCapstone Mining Corp. April 13 reported that its copper production for the
three months ending March 31 totaled 23,700 metric tons, with by-products of
zinc, molybdenum, lead, silver and gold. The Minto Mine in Yukon Territory pro-
duced 4,095 metric tons of copper in concentrates, 37,919 ounces of silver and
3,792 oz. gold. This production was significantly higher than planned due to ore
from Area 118 underground that was above model grades, combined with the min-
ing of an area required for water storage, which was not in the mine plan. The cur-
rent plan has the mill continuing to process underground and stockpiled ore, with
surface mining on hold until a pending water use license amendment is issued.
The Yukon Water Board held a hearing on the amendment during the first week of
March, and Capstone anticipates its issuance in the second quarter. Capstone’s
Pinto Valley Mine in Arizona produced 15,809 metric tons of copper in concen-
trate and cathode, and the company’s Cozamin Mine in Mexico produced 3,373
metric tons of copper in concentrate during the first three months of 2015.
Explorers Weber, Blythe form AlianzaEstrella Gold Corp. April 8 reported that its shareholders have approved a plan
for Tarsis Resources Ltd. to acquire all of the outstanding shares of Estrella. Under
this arrangement, Estrella shareholders will receive one common share of Tarsis
for each Estrella share held. Upon completion of the merger, a 10-1 share consoli-
dation will take place and the combined company will change its name to Alianza
Minerals Ltd. Estrella CEO Jason Weber will serve as the president and CEO of
Alianza; and Tarsis CEO Marc Blythe will be COO of the merged company.
Alianza will be a prospect generator focused on the Americas, particularly the
cordilleran regions that characterize western North and South America. The com-
pany will have four projects in Peru, 10 in Nevada, three in Mexico, and five in
Yukon Territory and the flexibility to acquire new projects in the Americas as
opportunities arise. The business combination is expected to close by April 30,
along with a financing of up to C$2 million.
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.
Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: [email protected]
Phone: 907.229.6289 • Fax: 907.522.9583
tory,” said Baker. “We believe that our
portfolio of mines, particularly Greens
Creek, which is recognized as a world-
class silver mine, provides operating stabil-
ity to weather current market conditions.”
Hecla reported US$194 million of cash
and cash equivalents on hand at the end of
March.
DGGS releases data for emerging Tok area
The Alaska Division of Geological &
Geophysical Surveys April 8 issued a
report from the 2014 Tok electromagnet-
ic and magnetic geophysical survey,
which covers roughly 2,500 square kilo-
meters (965 square miles) centered
roughly 56 kilometers (35 miles) west–
southwest of Tok. The west and north-
east portions of the survey area contain
numerous known copper, gold, and gold-
silver-copper-lead-zinc prospects, some
with drill-identified precious and base-
metal resources documented in the
Alaska Resource Data Files. Notable
prospects at or near the survey area
include: the Tetlin copper-gold project;
continued from page 9
NEWS NUGGETS
see NEWS NUGGETS page 11
within the deposit. These include an area of
shallow higher grade mineralization seen as
ideal place to start mining, an area in the
northern part of the deposit, and a higher
grade core zone hypothesized to exist at
depth.
Orbiting WhistlerWhile Whistler is the most advanced
deposit, roughly 20 other prospects and
deposits have been identified on the proper-
ty.
Many of these prospects are found in the
Whistler orbit, a roughly 20-square-mile
region that includes the Whistler deposit as
well as the Raintree and Rainmaker discov-
eries.
“All of these bona fide porphyry
prospects are open for expansion with fur-
ther diamond drilling and represent imme-
diate growth potential to the resource base,”
Kiska said of the discoveries in the Whistler
orbit.
While the Whistler deposit outcrops on a
ridge, making it easy to find, the other
prospects in the Whistler orbit are largely
covered with a 10- to 15-meter layer of gla-
cial till in the valley below, making the
underlying geology tough to discern from
the surface.
Located some 1,800 meters east of the
Whistler deposit, Raintree West has the
most drilling of the Whistler orbit prospects.
Like all of the blind prospects at
Whistler, Raintree West was first identified
with airborne geophysics. Drilling in 2008
and 2009 identified two zones of mineral-
ization. Both of these zones were intersect-
ed in hole WH09-002, which cut 128.7
meters of 0.56 g/t gold and 0.16 percent
copper from a depth of 59 meters; and 40
meters of 0.98 g/t gold and 0.21 percent
copper from 429 meters.
Drilling at Raintree North, Raintree
South and Rainmaker has identified por-
phyry copper-gold mineralization similar to
Raintree West.
Dagwood and Snow Ridge, two other
prospects in the larger Whistler corridor
area, show geophysical and geochemical
characteristics that suggest peripheral-style
porphyry mineralization may exist, but have
yet to be drilled.
Gold-rich targetsIsland Mountain and Muddy Creek, situ-
ated in the southern half of the Whistler
property, provide additional gold-rich
exploration targets.
Island Mountain, located about 14 miles
south of the Whistler deposit, was discov-
ered by Kiska in 2009.
IM-09-001, the discovery hole at Island
Mountain, cut two distinct mineralized
zones. The upper 150 meters — which aver-
aged 0.72 g/t gold, 2.37 g/t silver and 0.16
percent copper — is similar to the mineral-
ization found at the Whistler deposit. The
mineralization in the lower 106.9 meters of
the hole — which averaged 1.22 g/t gold,
0.69 g/t silver and 0.05 percent copper —
more closely resembles the gold-dominant
mineralization being investigated at
Millrock Resources Inc.’s Estelle property a
couple of miles to the west.
Muddy Creek, a gold target about six
miles northwest of Island Mountain, is a
promising intrusion-related gold target.
Muddy Creek’s potential is underscored
by the 4.72 g/t gold average grade of 150
rock samples collected over a four-square-
mile area. This geochemical work in con-
junction with a geophysical survey has out-
lined seven prospects.
Only three holes have been drilled at
Muddy Creek, two of which intersected
gold mineralization. MC11-001 cut 38.8
meters averaging 0.52 g/t gold-equivalent
and MC11-002 cut 44.2 meters averaging
0.51 g/t gold-equivalent.
If it finalizes a deal for the Whistler proj-
ect, Alternative Earth said, “New explo-
ration will incorporate an in-depth review,
fresh analyses and integration of the consid-
erable trust of geophysical, geological,
drilling and assay data, along with new
prospecting and geophysical surveys.”
The company indicates that further geo-
physics “to map structure, better determine
the geometry of established targets, identify
new targets, and to prioritize future explo-
ration and development drilling” is among
its top priorities for the property.
In addition to a large land package with
an established porphyry deposit and a num-
ber of promising copper and gold prospects,
the Whistler project comes with a number
of physical assets and upgrades that will
make future exploration easier and less
expensive.
In 2011, Kiska completed the construc-
tion of a 50-person camp and a gravel
airstrip capable of landing a Boeing DC-3
aircraft near the Whistler orbit area of the
property.
A four-mile gravel road connects the
camp and airstrip to the Whistler deposit.
In addition to living quarters, the camp
comes with a generator; wireless satellite
phone and internet system; wireless cell
phone service; water well; septic system;
two core logging facilities; core cutting
facility; core storage area; and a large main-
tenance garage for servicing all rolling stock
and camp equipment.
The on-site rolling stock includes a Cat
D6 bulldozer; two skid-steers; a 30-ton
articulating haul truck; 10 snowmachines;
and eight all-terrain vehicles.
A definitive and binding agreement for
the Whistler project is expected in April and
Alternative Earth Resources’ shareholder
meeting to approve the transaction is sched-
uled for June 23. l
11NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF APRIL 19, 2015
kinross.com
Daniel and Aileen Valdez know firsthand what “family friendly” means. Eleven years ago, Daniel
started as a Mill Operator; now he’s the mine’s Ore Processing Reliability Engineer. When he’s not
parenting, hunting, snowboarding or restoring his ’51 Chevy pickup, he’s hard at work. What’s great about Fort Knox is the “opportunity for
on-the-job training and a chance to advance in the company,” says Daniel.
For Aileen, a Fort Knox Accountant Tech, it’s all about numbers. But outside of work? It’s all about volunteering with the American Heart Association, taking courses at UAF and caring for their young daughter. “We work close to
home,” Aileen says. “Fairbanks is awesome, Fort Knox is family friendly, and you can’t beat the
competitive wages and benefits.” The Valdez family is a prime example of how a
flourishing community and a supportive workplace go hand-in-hand.
Our People Our Community
Tushtena gold project; and Delta poly-
metallic project. DGGS says the
absence of known mineral prospects
in the remainder of the survey area is
likely related to the lack of public
data. By increasing the geologic
understanding of the area survey, the
state agency aims to catalyze new pri-
vate-sector exploration with the ulti-
mate goal of discovering deposits wor-
thy of development and production.
The Tok survey report, Geophysical
Report 2015-2, is available for free
download at
http://dx.doi.org/10.14509/29347, and
includes final processed data in point,
line, image, map, and grid formats.
Supporting documentation also is pro-
vided in multiple formats. Future
releases from the survey will include
data interpretations, reports, and flight
videos.
NovaCopper still plansbig Arctic program
NovaCopper Inc. April 9 provided
an update on its projects and finances
for the three months ended Feb. 28.
For the quarter, NovaCopper reported
a net loss of US$1.5 million, com-
pared with a net loss of US$2.6 mil-
lion for the corresponding period in
2014. The company said lower expen-
ditures this year are primarily due to a
decrease in professional fees, salaries
and mineral property expenses offset
by an increase in stock-based compen-
sation expense. NovaCopper is cur-
rently focused primarily on advancing
the Arctic deposit in Northwest Alaska
to feasibility over the next two to
three years. Subject to the availability
of capital, the company plans to spend
US$8 to US$10 million during the
2015 field season, primarily to
upgrade the Arctic in-pit inferred
resources to the measured and indicat-
ed categories; and to collect in-pit
geotechnical and metallurgical data.
Environmental and engineering stud-
ies to gather information for the feasi-
bility study are also planned. Work at
the Bornite deposit, located a few
miles south of Arctic, will focus on
evaluating potential synergies between
the projects as well as opportunities to
extend the potential mine life of the
Upper Kobuk Mineral Projects in the
Ambler mining district. During the
first quarter of 2015, NovaCopper
continued to focus efforts on support-
ing the Alaska Industrial Development
Export Authority toward drafting an
Environmental Impact Statement to
permit the Ambler Mining District
Industrial Access Road, which would
provide access to Arctic, Bornite and
other projects in the district. Despite
cuts to state of Alaska budget,
NovaCopper anticipates the permitting
process will continue and expects to
be able to provide an update in the
second quarter of 2015. At Feb. 28,
NovaCopper had cash and cash equiv-
alents of about US$4 million and
working capital of US$3.7 million. l
continued from page 9
WHISTLER SALE continued from page 10
NEWS NUGGETSNovaCopper is currently
focused primarily on advancingthe Arctic deposit in NorthwestAlaska to feasibility over the
next two to three years.
12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF APRIL 19, 2015
Anchorage (907) 563-3822 (800) 478-3822Fairbanks (907) 455-9600Juneau (907) 780-4030 (888) 399-4030Ketchikan (907) 247-2228
Link-Belt TCC1100 Hydraulic CraneNorth Dakota
IN THE WORLDLink-Belt, the best in construction
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IN ALASKACMI, the best sales and product support lineup.
IN YOUR CORNER
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PETROLEUM NEWS • WEEK OF APRIL 19, 2015 13
5304 Eielson Street • Anchorage, AK 99518 907.563.9060 • www.gdiving.com
COMMERCIAL DIVINGOFFSHORE SUPPORTMARINE CONSTRUCTIONENVIRONMENTAL SERVICESPROJECT MANAGEMENTLOGISTICAL SUPPORT
MORE THAN JUST A DIVING COMPANY
EXPLORATION & PRODUCTIONSAExploration seeking storage site
SAExploration Inc. wants to use the Franklin Bluffs pad for summer storage.
The seismic company wants to use 8 acres of the pad to store sleigh camps and
seismic equipment, Permit and Regulatory Manager Suzan Simonds told the
Alaska Department of Natural Resources in a land use permit application from
late February.
The permit would start this year and last through 2019.
Through a joint venture subsidiary Kuukpik SAE, SAExploration conducted a
seismic survey on behalf of Repsol USA E&P Inc. along the Colville River, south
of Nuiqsut.
The company was scheduled to perform a separate survey in the Oliktok Point
region on behalf of ConocoPhillips Alaska Inc., although ConocoPhillips delayed
the program, saying that the region was too crowded with other activities this year
to support a survey.
ConocoPhillips has said it will consider the program again in a future budget
cycle.
—ERIC LIDJI
LAND & LEASING
l F I N A N C E & E C O N O M Y
Spring forecast dropsoil prices furtherANS production forecast also down for 2015-16, but up slightly for2017-18, 2019-24; non-North Slope numbers up slightly this year
By KRISTEN NELSONPetroleum News
T he Alaska Department of Revenue’s
spring forecast, released April 3,
reflects lower oil prices than the depart-
ment forecast in its fall forecast, released
in December.
“The spring revenue forecast highlights
the revenue uncertainties that are being
created by the fall in oil prices and its
impact on revenue over the next several
years,” Revenue Commissioner Randall
Hoffbeck said in a statement.
General fund unrestricted revenue for
fiscal year 2015 is now estimated at $2.2
billion, some $400 million less than the
$2.6 million from the fall forecast; fiscal
year 2016 general fund unrestricted rev-
enue is also projected at $2.2 billion, the
department said.
Hoffbeck said the spring “forecast is
driven by an expectation of an average
price of oil in the mid-$60s for the next 15
months. The assumption is that oil produc-
tion is expected to be at least 500 thousand
barrels per day the next two fiscal years.
“Compared to the fall 2014 forecast, the
revenue forecast for spring 2015 projects
lower revenue from FY 2017 through the
end of the ten-year period to reflect a lower
price path,” he said.
Price differencesIn the fall forecast the department pro-
jected ANS West Coast prices of $76.31
per barrel for FY 2015, $66.03 in FY 2016,
$93.18 in FY 2017 and prices breaking the
$100-mark through the end of the forecast
period, peaking at $134.39 in FY 24.
The spring forecast, by contract, fore-
casts $67.49 per barrel for FY 2016, the
same $66.03 in FY 2016, but then lower
prices through the end of the forecast peri-
od, peaking at only $124.34 in FY 24, and
not breaking the $100-per-barrel mark
until FY 2020, two years later than the fall
forecast.
Compared to the fall forecast, ANS
West Coast is down $8.82 in FY 15, the
same in FY 16, and down by amounts from
$6.52 to $14.49 per barrel through FY
2024.
Hoffbeck said oil prices in the spring
forecast have been reduced “for the next
nine years, relative to the last forecast peri-
od, although we believe the price will be
back over $80 by FY 2017.”
Production differencesThe spring Alaska North Slope produc-
tion forecast varies from the fall forecast in
both directions, with percent changes
ranging from down 0.7 percent to up 1.8
percent and volume changes in the range
of 1,400 barrels per day to 6,200 bpd.
In the fall forecast, FY 2015 production
was projected at 526,100 bpd, 509,500 of
that from the North Slope. In the spring
forecast Alaska production is estimated at
524,900 bpd, 508,000 of that from the
North Slope.
Non-North Slope production for FY
2015 was estimated at 16,600 bpd in the
fall forecast, and was increased to 16,900
bpd in the spring forecast. Non-North
Slope production otherwise remains the
same between the forecasts, dropping
gradually through the forecast period to
7,000 bpd in 2024.
The North Slope production estimate
between the two forecasts is down for FY
2015 and FY 2016 by 1,500 bpd 4,600 bpd
respectively. The spring forecast ups the
North Slope forecast by 1,400 bpd in FY
2017 and by 3,100 bpd in FY 2018, drops
it by 3,300 bpd in FY 2018, and then
shows increases each fiscal year, ranging
from 6,200 bpd in FY 2021 to 4,300 bpd in
FY 2020.
The North Slope production forecast
drops below 500,000 bpd in FY 2019, and
hits 320,300 bpd in FY 2024.
Over the next two fiscal years,
Hoffbeck said, petroleum revenues —
considering “price, production, and the
minimum tax rate” — will be more than
$1.6 billion per year, with about another
half billion coming to the state’s general
fund unrestricted revenue from non-petro-
leum taxes and fees. l
State finalizes AVCG deals on North SlopeThe state recently finalized several lease transactions between Alaska Venture
Capital Group LLC, its partners and a subsidiary and the companies of a three-
party joint venture.
The Alaska Department of Natural Resources approved the assignment of var-
ious working interests and royalty interests in a package of North Slope leases
from AVCG, Ramshorn Investments LLC and Brooks Range Development Corp.
to TP North Slope Development LLC, MEP Alaska LLC and Caracol Petroleum
LLC.
AVCG and Ramshorn recently sold their Alaska holdings to those three com-
panies for $450 million. The leases in question are outside the Southern
Miluveach unit, which the companies are working to bring into production. The
leases in question include acreage in the Beechey Point unit and the Badami units,
as well as much un-unitized acreage.
The state denied a series of requests to assign small overriding royalty interests
in many of those same North Slope leases to those same three companies.
Also in March, BP Exploration (Alaska) Inc. assigned 1.25 percent royalty
interest in two segments of lease ADL 355021 at the Milne Point unit to Hilcorp
Alaska LLC. BP recently sold a 50 percent working interest in the unit to Hilcorp,
which became operator.
Terminations, royalty interestsThe state terminated a North Slope lease held by Sun-West Oil & Gas Inc. for
non-payment of rent. The lease — ADL 390822 — was on the coast of the Arctic
National Wildlife Refuge, at the mouth of Pokok Bay. The company owns another
lease nearby.
The state also terminated two offshore Cook Inlet leases held by the James C.
Casper & Laurel L. Casper Living Trust, also for non-payment of rent. The leases
— ADL 391593 and ADL 391594 — were in the vicinity of Kalgin Island, which
is a critical habit area.
Several small royalty owners assigned small overriding royalty interests — all
in increments of less than 1 percent — in four leases at the Cook Inlet Energy-
operated Redoubt unit. The Eldon and Frances Ford Trust assigned small overrid-
ing royalty interests in ADL 17658 at the ConocoPhillips-operated Beluga River
unit to David E. Ford, Robert A. Ford and Douglas D. Ford. The Locke Jacobs
Estate assigned a 3 percent royalty interest in lease ADL 733 at the North Fork
unit to Evangeline N. Jacobs.
—A copyrighted oil and gas lease map from Mapmakers Alaska was a researchtool used in preparing this story.
—ERIC LIDJI
By DAN JOLINGAssociated Press
Alaska’s rugged Dalton Highway
reopened April 12 to limited traffic
with 30 northbound trucks making the
first crossing in a week to resupply
Alaska North Slope oil fields.
A 6-mile stretch near the northern end
of the road just south of Deadhorse had
been impassible for a week because of
unprecedented overflow from the
Sagavanirktok River, commonly referred
to as the Sag River, which runs parallel to
the highway and the trans-Alaska
pipeline.
The department reopened the road at
8:30 a.m. with 30 trucks carrying loads
most critical to oil field operations.
“My understanding was that it was pri-
marily food,” said Meadow Bailey,
spokeswoman for the Alaska Department
of Transportation and Public Facilities.
Hundreds of loads waitingAfter an inspection, 30 southbound
trucks were allowed to make the trip. The
trickle of trucks was a start but hundreds
more loads were waiting in Fairbanks
about 483 miles to the south to resupply
oil field workers.
“They need food, they need fuel, they
need general supplies,” she said.
The 414-mile Dalton Highway is a
mostly gravel road that starts 84 miles
north of Fairbanks. Despite crossing hun-
dreds of miles of Arctic and sub-Arctic
tundra and the Brooks Range, the road
rarely closes. Bailey said it had closed
twice for 24 hours because of storms in
her seven years with the Transportation
Department.
Sag River overflow turned the high-
way 8 miles south of Deadhorse into an
ice sheet. The road shut down for three
days two weeks ago and for another seven
days beginning April 5.
The river is shallow with braided
channels that shift as they fill with
deposits of sand or gravel. Department
officials said a combination of cold, snow
and wind likely caused ice to form on the
bottom of the river, pushing water out of
channels.
“As it’s freezing on the bottom, it’s
pushing running water on the top,” Bailey
said.
Some 5-foot delineators coveredThe highway on both sides is marked
with 5-foot delineators — posts with
reflectors on the top — so that truckers
can tell where the road edge is as they
drive in snowy conditions. There’s so
much ice on the road, some delineators
are sticking up only 1 foot and some are
almost covered by ice and moving water,
Bailey said.
“As far as you can see, it’s an ice
sheet,” Bailey said. “You can’t tell where
the channels of the river are anymore.”
Bailey by mid-afternoon did not know
how many trucks had passed. Department
officials said they would continue to
alternate north- and southbound groups
between inspections as long as road con-
ditions remain stable.
Gov. Bill Walker declared a disaster
the week of April 6, allowing contractors
to work on overflow alongside state
employees. The department reported
April 12 there were 28 people and 26
pieces of equipment working to keep the
road open.
Excavators worked off the road
attempting to break ice and dig a diver-
sion ditch to channel water away from the
road. Side dump trucks were carrying in
snow to build compacted berms to keep
water off the road. Plows and graders
attempted to widen the road.
The oil fields were not completely
stranded. Flights continued to Deadhorse.
Some companies used off-road trucks that
can cross tundra to move fuel past the
blocked road, Bailey said.
The temperature at Deadhorse just
before 2 p.m. April 12 was 9 degrees with
winds at 12 mph, according to the
National Weather Service.
The road grade is scheduled to be
raised 7 feet in a construction project this
summer.
“Nothing like Mother Nature stressing
the need for this project,” Bailey said. l
14 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
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EXPLORATION & PRODUCTIONJudge issues Greenpeace restraining order
On April 11 Judge Sharon Gleason from the federal District Court in Alaska
issued a temporary restraining order against Greenpeace, banning protesters from
the environmental organization from boarding or otherwise interfering with the
operation of drilling vessels under charter to Shell for the company’s planned
exploration drilling in the Chukchi Sea.
One of the vessels, the semi-submersible Polar Pioneer, is being carried across
the Pacific Ocean by heavy lift vessel, the Blue Marlin, en-route to the U.S. West
Coast, prior to transiting north to Alaska. The Greenpeace ship the Esperanza has
been tracking the Polar Pioneer across the Pacific in protest against Shell’s
Chukchi drilling plans.
On April 6 a team of six Greenpeace activists climbed aboard the Polar Pioneer
from a small inflatable boat using climbing ropes, before setting up camp on the
drilling vessel. The following day Shell filed a complaint in District Court, seek-
ing an injunction against the boarding and against future Greenpeace interference
with vessels operated by Shell in its Alaska drilling program. According to an
Associate Press report the Greenpeace protesters disembarked from the Polar
Pioneer on April 11, with Greenpeace saying that safety concerns arising from
rough seas had triggered the evacuation.
Shell, in its complaint to the District Court, claimed that Greenpeace, by board-
ing the Polar Pioneer, had violated international maritime regulations and tres-
passed on private property. Shell also claimed that, in interfering with Shell’s
operations, Greenpeace is liable for private nuisance as a consequence of conduct-
ing a civil conspiracy. In her April 11 order Judge Gleason found that the uninvit-
ed protestors on board the Polar Pioneer would likely cause irreparable harm to
Shell, thus justifying the issuing of a temporary restraining order. However, hav-
ing heard oral arguments in the case that Shell had raised, the judge said that Shell
needs to provide further arguments justifying an injunction covering all of the
vessels engaged in its Chukchi exploration project — the judge set a date of April
28 for a hearing in the case.
—ALAN BAILEY
l F A C I L I T I E S
Selected trucks beginmoving on DaltonSagavanirktok River overflow has made road to North Slopeimpassible; with emergency declared, private contractors join effort
A convoy of trucks heads north near Mile400 of the Dalton Highway.
ALA
SKA
DO
T
By GARY PARKFor Petroleum News
B ickering and indecision among
Canadian governments must be set
aside so that Canada’s oil and gas producers
can access offshore markets before those
buyers turn their attention to other supply
sources, said Brian Porter, chief executive
officer of the Bank of Nova Scotia, one of
Canada’s five largest banks.
He told his bank’s annual meeting that it
is now time for Canada’s political leaders to
“come together” to engage in a vigorous
pursuit of global markets.
“Our inability to deliver energy to world
markets is detrimental to Canada’s econo-
my,” he said. “It is also detrimental to our
country’s brand and future economic
prospects for all Canadians.”
Porter’s decision to lead the banking sec-
tor into the public debate on pipelines
comes as four proposals to ship crude bitu-
men from the Alberta oil sands to the
United States, Asia and Europe become
increasingly bogged down in contentious
regulatory hearings and face growing
objections from municipal governments,
environmental groups and First Nations.
He said it is long past time for Canada to
move beyond squabbling that is acting as a
significant constraint to exports of “mean-
ingful quantities of energy” that would
allow Canada to become one of the world’s
largest producers of oil and gas.
“Without the ports and pipelines needed
to deliver Canada’s energy products global-
ly, importing nations will source their ener-
gy supply elsewhere,” Porter said. “Gaps in
our infrastructure will have long-term con-
sequences for our economy.
“We must make global access for
Canadian energy a national priority and
then make it a reality.”
He said the decline in tax and royalty
revenues from low oil and gas prices and
shrinking exports to the United States “will
constrain our federal and provincial govern-
ments’ ability to invest in important areas
such as education and health care.”
Porter noted that TransCanada’s pro-
posed Energy East pipeline to deliver 1.1
million barrels per day of Western Canadian
crude to domestic refineries as well as open
new markets in Europe and Asia is falling
behind its timetable and its prospect of
injecting C$35 billion into the national
economy and creating tens of thousands of
jobs.
Other pipelines trapped in a gridlock
include TransCanada’s 830,000 bpd
Keystone XL line to the U.S. Gulf Coast
and two delivery systems from the oil sands
to the British Columbia coast — Kinder
Morgan’s application to triple capacity on
its Trans Mountain system to 890,000 bpd
and Enbridge’s 525,000 bpd Northern
Gateway pipeline.
The four projects represent about 3 mil-
lion bpd of incremental production, mostly
from the oil sands.
In addition, several plans to export LNG
are becoming increasingly challenged by
opponents of fossil fuel development.
That battle has intensified with the leak-
age on April 11 of an estimated 2,700 liters
of bunker oil from the cargo ship MV
Marathassa, which was moored off one of
Vancouver’s most popular beaches waiting
for a berth.
Vancouver Mayor Gregor Robertson
and British Columbia Premier Christy
Clark both heaped blame on the Coast
Guard for taking four hours to answer
reports of the spill and another six hours to
place booms around the vessel.
That fueled the objections of critics who
say Canada and British Columbia are far
from having the “world-class” spill
response program which governments and
industry have promised will be in place
before crude and LNG tankers start deliver-
ies from Canada’s coasts. l
l P I P E L I N E S & D O W N S T R E A M
Stalling threatens Canadian economyBanking official cites governmental bickering in pipeline, LNG project delays; says nation’s economy, export prospects at risk
PETROLEUM NEWS • WEEK OF APRIL 19, 2015 15
Alaska Resource Education presents
the
Call 907-276-5487 or email [email protected]
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requiring its use at this time.
The proposed regulations require shore-
based, real-time monitoring of offshore
drilling operations that involve deep water
and high temperatures or high pressures.
This arrangement, which would also apply
to certain high-risk wells in shallow water,
would enable technical experts onshore to
provide a “second set of eyes,” observing
what is happening. BSEE staff would have
access to this capability.
In terms of improved drilling safety, the
proposed regulations set required criteria
for safe drilling margins between down-
hole drilling fluid weights and rock pore
pressures. And there are specified perform-
ance criteria for drilling and completion
equipment. New guidelines would set obli-
gations for the appropriate use of well cas-
ing centralizers to ensure the effective
cementing of a well.
Drilling safetyThere are also new requirements for the
safe decommissioning of wells.
In an April 13 statement Steven
Colville, president and CEO of the
International Association of Drilling
Contractors, said that the drilling industry
has already been applying lessons learned
from the Deepwater Horizon disaster.
“IADC welcomes regulation that is
both sensible and transparent and we are
very interested in the opportunity to work
with BSEE on regulation that enables oper-
ations while protecting our people and the
environment,” Colville said. “IADC’s
members will be participating in joint
industry workgroups to carefully consider
and prepare a response to the finer points
of this comprehensive and detailed propos-
al.”
The Wilderness Society issued a state-
ment urging finalization of regulations as
soon as possible, in the interests of prevent-
ing another offshore drilling disaster. l
continued from page 7
WELL CONTROL
16 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
Companies involved in Alaska and northern Canada’s oil and gas industry
All of the companies listed above advertise on a regular basis with Petroleum News
Oil Patch Bits
AAECOM Environment
aeSolutions
Air Liquide
Aircaft Rubber Mfg. (ARM-USA)
Alaska Clean Seas (ACS)
Alaska Communications
Alaska Dreams
Alaska Marine Lines
Alaska Metrology & Calibration Services . . . . . . . . . . . . . .14
Alaska Railroad
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American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Arctic Controls
Arctic Slope Telephone Assoc. Co-op.
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AT&T
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Brooks Range Supply
Calista Corp.
Canrig Drilling Technology
Carlile Transportation Services
Chevrolet of South Anchorage
CHI Aviation
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.
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Doyon Drilling
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exp Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
F. Robert Bell and Associates
Fairweather
Five Star Oilfield Services
Flowline Alaska
Fluor
Foss Maritime
Fugro
G-MGBR Oilfield Services
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GCR Tires & Service
Global Diving & Salvage . . . . . . . . . . . . . . . . . . . . . . . . . . .13
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GMW Fire Protection
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Greer Tank & Welding
Guess & Rudd, PC
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HDR Alaska
IFR Workwear
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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
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MagTec Alaska
Mapmakers of Alaska
MAPPA Testlab
Maritime Helicopters
Miller Energy
Motion Industries
N-PNabors Alaska Drilling
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NANA WorleyParsons
NASCO Industries Inc.
Nature Conservancy, The
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North Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
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Pacific Alaska Lumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Pacific Pile
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Petroleum Equipment & Services . . . . . . . . . . . . . . . . . . . . .7
PND Engineers Inc.
PRA (Petrotechnical Resources of Alaska)
Price Gregory International
Resource Development Council
Ravn Alaska (formerly Era Alaska)
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Total Safety U.S. Inc.
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Unique Machine
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Usibelli
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Vigor Alaska
Volant Products
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Fairweather recognized at safety & health conferenceFairweather LLC was a presenter at the
recent 2015 Alaska Governor’s Safety &Health Conference, addressing relevanthealth, safety and environment topics andearning two significant HSE achievementawards.
The conference, hosted by the AlaskaSafety Advisory Council, was held at theDena’ina Convention Center in Anchorage,March 24-26. The goal of the event was toencourage the coordination and sponsorshipof policies, activities and actions designed toreduce the loss of human and materialresources in the state of Alaska.
Fairweather was recognized with the 2015 Governor’s Award for Safety Excellence atthe conference. This award is presented to Alaskan companies that demonstrate exemplarysafety and health procedures and good corporate citizenship.
In addition, Fairweather Safety Manager Gordon Randall was the recipient of the 2015Everett Award. This award was established in 2012 in honor of Denali Safety Council
Director “Safety Herb” Everett. The Everett Award recognizes individuals, still active in theprofession, that have dedicated their lives to the advancement of safety inside and outsidethe workplace.
Along with his duties as a safety manager for Fairweather, Gordon serves with AKDMAT 1, an Anchorage-based volunteer disaster management preparedness group thatstages large disaster drills for the municipality. Gordon also sits as a facilitator on theNorth Slope Road Safety Coalition, tasked with identifying and mitigating driving hazardsencountered on the North Slope. For more information visit www.fairweather.com.
Crowley announces membership in the Trident AllianceCrowley Maritime Corp. has announced its membership in the Trident Alliance, a coali-
tion of shipping owners and operators that share a common interest in robust enforce-ment of existing maritime sulphur regulations. In joining, Crowley has signed a statementof commitment, certifying that the company agrees to comply with sulfur regulations andsupport the robust and transparent enforcement of these regulations.
Because sulphur-restricting regulations have resulted in increased fuel costs for ship-ping companies, many unscrupulous operators have violated regulations by burning cheap-er, non-compliant, higher sulfur fuels. Doing so not only results in increases in harmfulemissions, but also places companies that are committed to complying with fuel sulfur
see OIL PATCH BITS page 18
CO
URT
ESY
FAIR
WEA
THER
PETROLEUM NEWS • WEEK OF APRIL 19, 2015 17
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Russia and Canada, worldwide to advocate
against animal rights groups. I’ve done a
lot, but this is new.
Case in point, back in the late ’80s and
early ’90s, they start working toward stop-
ping things like the seal pupping in
Newfoundland and Nova Scotia. It was a
way of life. They sold the pelts to the
European market and London. The animal
rights groups stopped that.
Guess what — they created havoc with
fisheries near those provinces in Canada. A
bunch of us from Alaska, Greenland and
Canada went to England at the time. We
did a show with all of the artifacts we have
from the Arctic at the museum of natural
history.
We found a guy from Canada who was
full-blooded Indian who directed an
orchestra. We asked the London
Philharmonic Orchestra if we could have
this Indian, if we could have them direct a
show and they said yes. We had the show.
It was a tremendous success.
After that the guy from Canada and I
were invited to go on BBC for a show that
broadcasts at noon all over the world. We
had 15 minutes to talk about our way of
life and how impactful it is for people out-
side our area to try and stop what we do
for a living.
Petroleum News: So in the context ofspending your life educating othersabout your way of life, what else haveyou learned about this job?
Nageak: I know a lot of the internation-
al stuff and thought I knew a lot when I
was on a local commission and vice chair
of our board of game. But there is a whole
lot more to the committee process. I didn’t
know much of that. Now I know a lot
more than I did about how we do things
through the committees.
Petroleum News: Soon the U.S. willtake over as chair for the Arctic Council.What kind of voice would you like tohave?
Nageak: I’d like them to advocate more
for offshore activity. It’s not going to go
away. What’s ironic is the environmental-
ists and the Interior Department, especially,
are trying to stop offshore drilling when
about 75 miles away from where Shell is
going to be there are Russians working off-
shore and they don’t have restrictions such
as ours. They want to stop oil activity
along the coast. The companies have
trained our people for oil spills, and if they
(Russians) have a spill it’s going to drift
over to our part of the world from the
Bering Straits and all the way up north.
That’s what upsets me. Here we are
again. We are being restricted but all of
this stuff that’s going to happen, if it hap-
pens, is going to come from the Russians.
There is no panic form the world. We don’t
hear it from the rest of the world unless we
want to do it. Now look at what
Greenpeace is doing.
No one hears these things, how we
depend on our resources. If they are so
concerned about oil and gas activity off-
shore, then help us out and let us develop
our oil and gas resources onshore in
ANWR. That’s what we want, but we
don’t have that ability. Now the federal
government is talking about closing off
activity offshore. Here we go again. Big
brother is watching.
They need to listen to us. We know. We
who live here studied our oceans, our
lands.
We’ve studied it. We understand. We
know more than the federal government
ever will. If we see something wrong, we
report it right away. We should do more
anywhere. We can train our people and we
can be right there if anything happens.
Petroleum News: Would you like tosee a stronger indigenous voice on theArctic issues?
Nageak: Oh yeah. There is none now.
Canada had an Inuit (Leona Aglukkaq)
serving as chair. Finally, we are going to
get the chair post, and we get someone
from the East Coast who hasn’t spent
much time up here and so there we go
again. We are left out of one of the most
important organizations ever created to
watch our part of the world that combines
several countries and here we are: left out
again. We aren’t trusted. With all the
knowledge we have about our part of the
world, we are not even trusted to be their
chair. We have a lot of people in Alaska
who have chaired state, national and inter-
national organizations. We’ve done every-
thing and we aren’t invited to sit on the
dang council as a leader of the U.S. Arctic
just as Canada did when they had the posi-
tion. We are always frustrated when our
own federal government doesn’t give a
dang about us.
Petroleum News: You were certainlyoutspoken about that in January. Thepositions you took were a hit on socialmedia. Did you ever think of yourself asusing social media to get the word out?
Nageak: I didn’t start it. People just
took my words and spread them. That’s
how it happened. I’m glad it happened and
I’m glad it happened that way. Now I think
I’ve got to do more. I got to do more in
reaching out to both houses of Congress. I
was going to do some this spring during
the interim, but my health got in the way. I
almost died twice, according to what my
wife said.
Everything that could happen to me
happened. But I’m feeling better now.
Everything happened all at once, first
news from Washington. Then my health.
I’m on so much medication. They are try-
ing to tweak it. Sometimes it has an
impact on me. I finally think I’ve got the
dosage right.
But I really want to get back out there
and tell people about where we live and
why it’s important that the rest of the
country knows about it.
I try to get a respite from the serious-
ness of what’s going on. You have to not
be serious all of the time. You have to be
humorous. I still want people to laugh.
Petroleum News: So back here inJuneau are you looking forward to hav-ing a special session on the natural gasline and LNG export project? That willbe some heavy lifting for your commit-tee.
Nageak: Everybody in the whole world
is pin pointing that activity because it’s a
special session. We couldn’t get our work
done during the regular session.
Everybody is going to be watching
because whatever happens during the spe-
cial session is going to have an effect to
the state, the nation and the world because
of the size of the project. Japan is
involved. China may be involved. During
the committee hearings we heard about
what different countries wanting natural
gas. They are watching.
When we get to a special session, it’s
going to be more intense and I hope it is.
People need to understand that we are a
resource state — renewable and non
renewable — and are getting pushback
from every entity national and internation-
ally. We need people to understand we are
fighting for our lives in this case. We need
more activity.
It’s not going to last long. We are see-
ing the Middle East and they are fighting
amongst each other. National events and
statewide events take a backseat when
international events happen. But when
international events happen, things seem
to pick up in Alaska.
Look around. We are having problems
in Indonesia. We’ve got problems in
Russia. We are having problems in China.
They are having second thoughts that
Russia is trying to build through China.
There is a lot of movement internationally
that will have a tremendous impact on the
state. We need to be vigilant and see
what’s going on, understand what’s going
on so we can react to things that may hap-
pen that might benefit us.
Petroleum News: So when would youlike to have a special session on the gasline? Any particular time or just whenthey are ready?
Nageak: It’s going to happen when
both sides decide it’s going to happen. The
governor might do it. We may do it too.
We’ll see what happens. He’s alluding to
that happening in so many words. Our
leadership in the House and Senate is
alluding to it.
Petroleum News: Setting aside thedifferences driven by HB 132. Do yousee any progress and do you like theprogress being discussed?
Nageak: You call it progress. I call it
turmoil right now. I call it who is going to
blink first. That’s how I look at it. Who is
going to blink first? Both sides are so
hardheaded. Neither wants to give up what
each side is entitled to through the state
process.
Petroleum News: Repsol just made anannouncement to advance a project.What are your thoughts on that?
Nageak: I know the people involved.
My former chief of staff is working for
them now. I’ve known them since the
1970s. I know the players. I’m pretty
excited. Look at the small oil companies
here and there are more coming. Other
people want to come in and looking at
places where the big companies aren’t
interested in. They are coming in and find-
ing more oil. Of course we knew there is
more oil there. They just had to go out and
find it. Then they find out there is more
than they thought. The east side of
Colville, they are finding more oil and the
smaller companies are moving toward
those resources.
The smaller companies need to go to
1002 in Kaktovik and start working there.
Once they start doing it, the big guys will
follow. We should encourage those smaller
companies to go to areas where the big
companies don’t want to go. ASRC has
land. The state has land.
Petroleum News: OK, so getting backto that. Is it realistic to think that the1002 area will ever get developed?
Nageak: I still have that hope that
something is going to happen. Some cata-
strophic event is going to happen that we
are going to need those resources. There is
so much turmoil in the world; there are
countries fighting against each other.
Anything that happens in Russia is going
to have an impact in how we deal with
them. Same with other countries like in
South America. But that guy over there
(Vladimir Putin) in Russia is just a little
bit too unpredictable. One day is doing
something and the next day he’s doing
something else. Tomorrow will be some-
thing else. Just watch. l
continued from page 4
NAGEAK Q&A
izes as its long-term opportunity set, a set of
programs designed to establish a future
resource base and which includes heavy oil
development, and exploration and develop-
ment in regions such as Iraq and
Kazakhstan.
“We are going to take steps to refocus
the company, particularly in the longer term
opportunity set,” Ben van Beurden, Shell
CEO, commented during an analyst call
following the announcement of the BG
Group deal. “We plan to reduce our explo-
ration activity and exploration spend,
reflecting of course BG’s development
pipeline and the uptick in Shell’s explo-
ration performance recently, particularly in
the Gulf of Mexico.”
No specificsSimon Henry, Shell chief financial offi-
cer, said that BG’s undeveloped resource
positions, especially in Brazil, coupled with
opportunities arising from Shell’s explo-
ration success in the Gulf of Mexico, will
enable Shell to “dial back” on its explo-
ration for several years. However, neither of
the Shell executives was willing to be spe-
cific on which projects might be dropped as
part of Shell’s new strategy. Beurden said
that details of the revised strategy would not
emerge until after the BG deal closes. Shell
has indicated that closure will likely happen
early in 2016.
The Independent, a British newspaper,
has reported Henry as having said that
Alaska is a key frontier basin that Shell will
“vigorously pursue” if the company finds
large volumes of oil, but that the company
could equally well leave the state if explo-
ration fails to yield satisfactory results.
“If we are able to drill this year, see what
is in those reservoirs, it will change our
thinking one way or another,” the
Independent reported Henry to say. “It’s a
bit of a binary outcome — but, if the value
is there it’s not something you walk away
from … it’s only a small number of wells
that will tell us what the potential of the play
is.”
Curiously, Shell’s acquisition of BG will
give Shell working interests in some Arctic
onshore leases. BG Alaska E&P Inc. owns
interests in 94,508 acres of state leases in
the southern part of the North Slope, as well
as interests in 566,234 acres of federal leas-
es in the National Petroleum Reserve-
Alaska. The company acquired the leases in
the mid-2000s during a period of height-
ened interest in potential natural gas devel-
opment in the Brooks Range foothills
region. The leases have lain dormant for a
number of years.
—ALAN BAILEY
Meanwhile, Senate Resources, also
acting April 15, stripped the companion
bill, Senate Bill 50, of all of the AIDEA
bonding changes, leaving just an amend-
ed version of the bill removing the
requirement that North Slope natural gas
be used for the Interior energy project.
Just four wordsAs Rep. Steve Thompson, R-
Fairbanks, co-chair of House Finances,
said in carrying the bill on the House floor,
it all started with the goal of removing
four words, “from the North Slope,” from
the Interior gas project authorized in SB
23 in 2013.
That project, which AIDEA dropped at
the end of 2014 when it didn’t pencil out,
called for building a liquefaction plant on
the North Slope and trucking LNG to
Fairbanks. The bill also provided for dis-
tribution line construction in the Fairbanks
area. It is viewed as providing a short-term
source of natural gas for Interior con-
sumers in advance of a major North Slope
gas pipeline.
AIDEA is now looking at sourcing nat-
ural gas in Cook Inlet, which is the source
of existing LNG provided to some 1,000
customers in the Fairbanks area by truck
from a small LNG plant near Point
MacKenzie.
HB 105 underwent a considerable
metamorphosis in House Resources,
which moved a version April 8 with a
number of amendments to which adminis-
tration officials objected. Some items,
such as a requirement that the project be
regulated by the Regulatory Commission
of Alaska, were removed from the House
Finance version.
Both House versions included a
requirement that AIDEA submit quarterly
reports on the Interior energy project to
the Legislature, including a description of
progress on all project components; an
update on local distribution infrastructure
build out; to-date and anticipated conver-
sions to natural gas; and an accounting of
funds used and expected to be used,
including loans, grants and bonds.
Another element retained in the
Finance version reflects concern that
AIDEA could compete with private enti-
ties in obtaining natural gas. It prohibits
AIDEA from entering into gas supply con-
tracts without obtaining legislative
approval — unless for the benefit of an
LNG facility or distribution utility owned
by AIDEA or a subsidiary, and is to pro-
vide the utility with a natural gas supply to
serve customers in Interior Alaska.
The Senate versionSB 50 as passed out of Senate
Resources includes the same quarterly
report requirement.
It also defines the project as providing
“natural gas to Interior Alaska as a pri-
mary market” and adds intent language
specifying that the increased geographic
flexibility provided in the act is solely to
“advance the Interior energy project”
authorized in 2013. “This Act does not
expand the scope of the project nor
authorize any other activity beyond
accomplishing those stated goals”; the
intent language also specifies that AIDEA
will “use an open and competitive solici-
tation process to select private entities to
participate in developing the liquefied nat-
ural gas production plant capacity and
affiliated infrastructure described in this
Act.”
Senate Resources Chair Cathy Giessel,
R-Anchorage, said in the April 15 meeting
that due diligence requires putting the
AIDEA bonding adjustments in another
bill, and said SB 50 had been scaled to
focus on Interior energy.
Sen. John Coghill, R-North Pole, said
the intent language was to ensure that the
focus remains solely on advancing an
Interior gas project. Coghill also said he is
concerned with Cook Inlet as a source of
natural gas for the Interior because he
believes while Interior would have had the
first offtake contract on the North Slope
and would be the last to lose that contract,
in Cook Inlet it would likely be the last to
get a contract and the first to lose it. l
18 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
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restrictions, like Crowley, at a competitive disadvantage. The Trident Alliance is committedto improve enforcement of these regulations in an effort to hold every operator account-able and eliminate the competitive disadvantages that result from deliberate non-compli-ance.
“The threat of weak enforcement of sulphur regulations is escalating fast. Responsibleindustry is taking the initiative to mitigate this threat, serving the best interests of theenvironment and human health as well as creating a level playing field for business. Byspeaking with one, united voice we have the greatest chance to bring about change,”said Roger Strevens, Trident Alliance chairman, on the organization’s website.
In addition to enforcement of existing sulphur regulations, the Trident Alliance is alsoworking to raise awareness of the issue, foster transparency around the operators’ sulfurcompliance activities and develop initiatives to foster innovation in practicable enforce-ment technologies.
ASRC reaches historic revenue sharing milestoneFor the first time since incorporation, Arctic Slope Regional Corp. has distributed in
excess of 1 billion dollars to the other Alaska Native regional corporations as part of its7(i) obligation. 7(i) distributions are made annually; a recent payout from ASRC wasapproximately $125 million.
“Every region in the state benefits from ASRC’s 7(i) distribution, and the more than abillion dollars in total is a testament to the hard work and dedication of ASRC employees,as well as the importance of responsible natural resource development,” said Rex A. RockSr., ASRC president and CEO. “However, in light of this milestone, it’s an importantreminder that oil production continues to decline on the North Slope. That decline in pro-duction as well as low oil prices will likely affect future 7(i) payouts.”
A provision inside the Alaska Native Claims Settlement Act of 1971 requires the origi-nal 12 land-based Alaska Native regional corporations to share 70 percent of their rev-enue from resource development on their ANCSA conveyed lands. ASRC’s 7(i) applicablerevenue comes mostly from resource development in the Colville River Delta, mainlyAlpine and other satellite oil fields.
Editor’s note: All of these news items — some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a full color magazine that serves as a marketingtool for Petroleum News’ contracted advertisers. The next edition will be released inSeptember.
continued from page 16
OIL PATCH BITS
continued from page 1
INTERIOR GAS BILL
continued from page 1
SHELL REFOCUSBG Alaska E&P Inc. owns interestsin 94,508 acres of state leases in thesouthern part of the North Slope, aswell as interests in 566,234 acres of
federal leases in the NationalPetroleum Reserve-Alaska.
a larger project which he believes is needed as a backup,
should the AKLNG project not move forward, and also
as leverage in negotiating with the state’s equity partners
in AKLNG — BP, ConocoPhillips and ExxonMobil.
Legislators have asked the governor to put his propos-
al in a bill so hearings can be held on the plan.
He hasn’t done that, but did lay out his plan going for-
ward in an April 10 letter to legislators.
As he has said previously, the governor plans a “45-
day due diligence review” by a state gas line team of all
material related to AKLNG. Walker said he would be the
first governor “who does not start over” on a new gas
line plan for the state, but also said he needs to “fully
understand the AKLNG project details,” and noted that
most of the AKLNG project material negotiated last year
was confidential.
He said it is possible that the terms of the joint venture
agreement negotiated last year “are such that with some
modifications, there may not be a need for a backup
plan.”
“The requested terms I would like made have already
been conveyed in meetings I have had with the AKLNG
partners, so they will come as no surprise. However, my
team’s ability to successfully negotiate any modifica-
tions to the JVA depends on Alaska having an economi-
cally viable backup plan.”
The governor did not specify in his letter to legislators
what modifications he is seeking.
House Bill 132Legislative leaders objected when the governor said he
wanted money appropriated for the 500-million-cubic-feet
ASAP plan to be used to study expanding that project.
House Majority Leader Mike Chenault, R-Nikiski, intro-
duced House Bill 132, which prohibits use of funds appro-
priated for the original ASAP to study expanding the proj-
ect. That bill has passed both bodies.
Legislators have argued that expanding ASAP would put
the state — an equity partner in AKLNG — in competition
with itself.
In his April 10 letter the governor thanked both Chenault
and Senate President Kevin Meyer, R-Anchorage, “and
their respective staff for the many hours working with me
and my staff on a way forward on HB 132.”
He said they share the same goal of getting North Slope
natural gas to Alaskans and to world markets, but “we were
unable to resolve significant points of disagreement on HB
132, which I am therefore vetoing.”
Expanded ASAPThe governor told lawmakers it would take an estimated
$85 million to get to a FEED decision for an upsized ASAP
line, with funds used to re-engineer the pipeline for
increased throughput; re-work the plans for gas condition-
ing facilities on the North Slope and begin work for design-
ing compressor stations; continue permitting under the
National Environmental Policy Act; and cover project-relat-
ed costs.
Walker said those efforts would take 12-14 months,
through the second quarter of 2016.
AKLNG is projected to reach a point where the partners
could decide to move to FEED in the second quarter of
2016, so presumably the two projects would be on a similar
timeline.
The governor said the pipeline route for an expanded
ASAP would terminate in Cook Inlet.
The state would be in control of the financing strategy
for ASAP, “and will be in a position to attract funding from
buyers interested in investing in our project,” he said,
adding that ASAP would not be competing with the produc-
ers for financing sources, nor would the state be dependent
on alignment among the producers.
Walker concluded his letter by asking that legislators
vote no when asked to override his HB 132 veto.
HB 132 was transmitted to the governor April 1 and is
due back April 18; this session of the Legislature is sched-
uled to end April 19.
—KRISTEN NELSON
PETROLEUM NEWS • WEEK OF APRIL 19, 2015 19
LNG Exports until at least 2017 after
gaining regulatory approval to export
from 14 million to 21.6 million metric
tons a year, citing the need for more time
to examine the economics while it
searched for gas supplies and LNG buy-
ers.
That plan may already have been on
the skids according to Noel Tomnay, the
head of Wood Mackenzie’s LNG
research, who said that over the last six
months all of the senior employees at the
Canadian operation have left, including
the head, Madeline Whitaker, who took a
position elsewhere in the company in
March and has not been replaced.
BG declined to comment on any devel-
opments in its LNG plans six months
after announcing its final investment
decision would be delayed beyond its
original 2016 target.
Although doubt accumulates around
its British Columbia scheme, BG is a big
LNG player as an original investor in
Trinidad’s Atlantic LNG project founded
with Amoco; as owner of the Lake
Charles LNG terminal in the U.S. Gulf;
and as a stakeholder on the United
Kingdom’s Dragon LNG terminal.
Shell at more advanced stageShell’s LNG Canada project (with
partners from China, Japan and South
Korea holding a combined 50 percent
stake) is at a more advanced stage, target-
ing shipments of 12 million to 24 million
metric tons a year, but it, too, has backed
away from earlier plans to come on
stream in 2020.
However, Tomnay said that closure of
the Shell/BG deal this year would likely
mean the C$40 billion venture will be
built.
He said the project has “got buyers in
the partnership, it’s developing a pipeline,
it’s well ahead with engineering ... so the
Shell project is well advanced.”
TransCanada has the lead role in build-
ing a pipeline from northeastern British
Columbia to the liquefaction and tanker
terminal.
Karl Johannson, president of
TransCanada’s natural gas pipelines busi-
ness, told the Financial Post that his com-
pany has seen no signs of Shell “putting
down the tools on the project. As a matter
of fact, Shell has come out publicly and
said North American LNG projects are
some of its priorities globally. We are still
pretty confident that we are attached to a
winner.”
Looming LNG glutOthers are less positive.
Overshadowing the global outlook is a
looming glut of LNG, with Moody’s
Investors Service warning on April 7 that
the “vast majority” of North American
projects face cancellation because of the
collapse of oil prices that LNG propo-
nents had once eagerly tried to use in
negotiating LNG deliveries to Asia.
Whatever emerges, the combined port-
folios of Shell and BG would represent
about 16 percent of the “global LNG mar-
ket, further propelling Shell’s position as
a leader in this sector,” said RBC Capital
Markets analyst Biraj Borkhataria in a
research note.
Shell now delivers 34 million metric
tons per year of LNG to customers, led by
its Nigerian LNG operation, which was
first designed to squeeze more cash out of
gas flared from its oil field in the Niger
Delta and has since turned into a highly
profitable enterprise.
Randy Ollenberger, a BMO oil and gas
equity analyst, said his company has long
anticipated consolidation among
Canada’s LNG players even without the
Shell-BG transaction.
Otherwise he said the deal would have
only “minimal impact” on other Canadian
operations, which include Shell’s focus
on the oil sands and unconventional
gas/liquids, none of which overlap with
BG’s assets.
“Shell may dispose of some non-core
unconventional assets, but again they
would likely have pursued that anyway,”
he told the Globe and Mail. l
continued from page 1
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WALKER PLANThe governor told lawmakers it would take an
estimated $85 million to get to a FEED decisionfor an upsized ASAP line, with funds used to re-engineer the pipeline for increased throughput;re-work the plans for gas conditioning facilities
on the North Slope and begin work fordesigning compressor stations; continue
permitting under the National EnvironmentalPolicy Act; and cover project-related costs.
invite the public and all interested stake-
holders to review the document and provide
us with comments.”
BOEM must conduct an environmental
assessment and a technical analysis, before
deciding on whether to approve the plan.
Comments for the environmental assess-
ment must be submitted by April 20, while
comments on the plan itself are due by May
1.
“The execution of our plan remains con-
tingent on achieving the necessary permits,
legal certainty and our own determination
that we are prepared to explore safely and
responsibly,” said Shell spokeswoman
Megan Baldino in an email response to
BOEM’s April 10 announcement. “We con-
tinue to work on securing the final permits
needed to continue exploration.”
Permits that Shell still requires include
authorizations from the National Marine
Fisheries Service and the U.S. Fish and
Wildlife Service for the accidental distur-
bance of marine mammals.
Environmental organizations remain
opposed to oil drilling in the Arctic offshore.
“There is no compelling reason for the
rush to give Shell another chance this sum-
mer,” said Susan Murray, Oceana’s deputy
vice president, Pacific, referencing prob-
lems associated with Shell’s 2012 Arctic
drilling program. “There is still no proven
way to respond to a spill in icy Arctic
waters, and new safety and prevention rules
are not in place.”
Up to six wellsShell’s Chukchi Sea program envisages
drilling up to six wells, presumably over
several annual drilling seasons, in the
Burger prospect, located about 70 miles
northwest of the village of Wainwright.
Burger has a large geologic structure known
to hold a major natural gas pool and Shell
hopes to find that there is also oil in the
structure. The company plans to concurrent-
ly use two drilling vessels, the drill ship
Noble Discoverer and the semi-submersible
drilling unit Transocean Polar Pioneer.
Each drilling rig will act as a backup
relief well rig for the other, should one rig
become incapacitated during a well loss-of-
control incident. A relief well would plug
the problem well bore with cement. And,
with previous versions of Shell’s Chukchi
Sea plan having just one drilling rig operat-
ing in the Chukchi, the new plan involves
an increase in the number of Chukchi Sea
drilling support vessels relative to those ear-
lier plans.
In 2012 the Noble Discoverer drilled the
top section of the Burger A well, the first of
Shell’s wells in the Burger prospect. But, in
the absence of a containment dome system,
one of the Shell’s Arctic oil spill contin-
gency assets, the company was unable to
complete the well in that year. Shell will
presumably re-enter and finish the well, if
this year’s drilling season progresses as
planned.
July 1According to the exploration plan the
drilling units will move north through the
Bering Strait, into the Chukchi Sea, around
July 1, to transition to the location of the
Burger prospect as soon as the ice and
weather conditions permit. In addition to
drilling the actual wells, the drilling vessels
may also prepare for further wells by
drilling seafloor “cellars,” the excavations
in the seafloor used to house wellheads and
blowout preventers below the maximum
depth of any sea-ice gouges, Shell’s plan
says.
However, Shell may use a new remote
operated vehicle for digging out well cel-
lars, the plan says. The vehicle would sit on
the seafloor and use an excavator bucket, a
rotating cutter, a drill and other implements
for excavation. Apparently the device,
which has been used elsewhere for trench-
ing pipelines, would present a number of
practical advantages over conventional cel-
lar drilling, including a considerable reduc-
tion in the amount of fluids that would need
to be pumped into the sea.
The plan says that the number of wells
drilled within a single drilling season will
depend on sea-ice conditions and on the
overall length of the season. However, each
drilling unit should be able to complete a
single well during a season and possibly
complete a well cellar or start a second well,
the plan says.
If a well is initiated but not completed
within the drilling season, the well will be
suspended and secured for possible re-entry
in a subsequent season.
Oil spill defenseDuring drilling, a remote operated vehi-
cle will be connected to the well blowout
preventer by umbilical cord, thus enabling
the blowout preventer to be activated
remotely, subsea. In accordance with cur-
rent regulations, the blowout preventer will
be tested every 14 days, the plan says. Shell
will also store a device known as a capping
stack on one of the ice management vessels
that is part of the drilling fleet. In the event
that the blowout preventer fails to stem the
flow of oil resulting from a well blowout,
the capping stack could be lowered on the
blowout preventer to seal the wellhead and
optionally flow oil to surface vessels.
As a further line of defense against a
potential oil spill, Shell will have its Arctic
containment dome, housed in a purpose-
modified barge, the Arctic Challenger. The
containment dome can be lowered over a
seafloor oil leak, to gather spilling oil and
deliver the oil to surface vessels for storage.
The Arctic Challenger will be staged in
Kotzebue Sound, as will tugs and barges for
oil containment.
An oil spill response vessel accompanied
by support vessels will stand by, on loca-
tion, during drilling operations that may
encounter hydrocarbon bearing zones.
Two tankersShell plans to position two oil tankers in
the Chukchi while drilling is in progress.
One tanker will hold fuel for the drilling
fleet while also having storage capacity for
gathered, oil, should a well control incident
arise. The second tanker will provide addi-
tional storage capacity for gathered oil.
Vessels, operating from the port of Dutch
Harbor in the Aleutian Islands, will main-
tain supplies for the drilling fleet. However,
additional resupply operations may take
place via Kotzebue Sound in northwest
Alaska. About 30 supply trips will be
required in a single drilling season.
The town of Barrow will be the primary
base for aviation operations. Shell plans to
maintain a 75-person camp in Barrow for its
personnel and may lease additional accom-
modation in the town. The company plans
to moor two vessels in Goodhope Bay,
Kotzebue Sound, for crew changes, and
may also use rooms in the village of
Kotzebue, Shells plan says. l
20 PETROLEUM NEWS • WEEK OF APRIL 19, 2015
continued from page 1
SHELL PLAN