ng New l EXPLORATION & PRODUCTION Shell plan approved
Transcript of ng New l EXPLORATION & PRODUCTION Shell plan approved
l E X P L O R A T I O N & P R O D U C T I O N
l U T I L I T I E S
l G O V E R N M E N T
Vol. 20, No. 20 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 17, 2015 • $2.50
page5
Q&A: Giessel has ambitious plans,sees plenty of work for interim
page10
Tangen: Congress moves on definition of WOTUS
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 17, 2015
NEWS NUGGETSCompiled by Shane Lasley
l E X P L O R A T I O N
Bokan REE resource gets an upgradeUcore Rare Metals Inc. May 11 reported a significant
upgrade and expansion of the mineralized resources at theDotson-Ridge deposit of its Bokan Mountain rare earths projectin Southeast Alaska. The deposit nowcontains an estimated indicated resourceof 4.79 million metric tons averaging 0.6percent (63.54 million pounds) total rareearth oxides, a roughly 63 percentincrease over the 2.94 million metric tonsof indicated resource included in a 2013estimate. Additionally, the deposit has1.05 million metric tons of inferredresource averaging 0.6 percent (13.96million lbs.) TREO. About 39 percent ofthe TREO in both categories are the high-er valued heavy rare earths. “We’re pleased to announce thisimportant resource upgrade as Ucore continues its progresstoward production,” said Ucore President and CEO JimMcKenzie. “This resource upgrade, together with our recentadvances in molecular recognition technology for refiningapplications, makes for a compelling mine-to-metal story atBokan.”
Insiders back US$1.5M Zazu financingZazu Metals Corp. May 8 reported completion of the final
tranche of a US$1,497,800 million non-brokered private place-ment financing. In a second tranche, Zazu sold more than 3.46million common shares of the company at US20 cents each forgross proceeds of
US$692,800. Zebra
Holdings and InvestmentsS.a.r.l., a company con-
trolled by a trust settled bythe late Adolf H. Lundin,purchased more than 2.16million of these shares.
Zebra, which previously
owned or controlled
8,860,280 Zazu shares,
owns roughly 19.9 percentof the company’s issued and outstanding shares upon comple-tion of the offering. Zazu Chairman and CEO Gil Atzmonbought 1 million of the shares offered in the second tranche.Atzmon, which previously owned or controlled 5,789,500 Zazushares, owns roughly 12.3 percent of the company’s issued andoutstanding shares upon completion of the offering. Zazuintends to use proceeds from the offering for developmentexpenditures related to its Lik zinc-lead-silver project inNorthwest Alaska and general working capital purposes.
Ruptured line spills tailings at PogoSumitomo Metal Mining Pogo
May 7 reported to AlaskaDepartment of EnvironmentalConservation that a ruptured linespilled roughly 90,000 gallons ofpaste backfill at the Pogo goldmine in Interior Alaska. The 8-inch line delivers paste backfill, amixture of tailings and cement,into the underground mine for disposal. Once underground, theconcrete created from the tailings fills mined-out areas, provid-ing support for continued mining. The backfill material isreported to contain 1-3 parts-per-million cyanide but is ren-dered inert by the high pH of the concrete mixture. Once hard-ened, the spilled tailings are being removed with heavy equip-ment and hand tools.
Palmer doubles in sizeTough markets fail to slow resource expansion at SE Alaska VMS project
By SHANE LASLEYMining News
While many of its peers are struggling to findmoney to continue exploration at their
promising mineral prospects and deposits,Constantine Metal Resources Ltd. has managed toforge ahead with hefty programs at its copper- andzinc-rich Palmer project in Southeast Alaska. Thisincludes C$7.13 million invested in exploring thevolcanogenic massive sulphide deposit in 2014.
Last year's program, funded by Dowa Metals &Mining Co. Ltd., along with drilling completed atPalmer in 2010 and 2013, have culminated in a 97percent expansion of the resource, compared to thelast time a calculation was completed for thedeposit in 2010.
The results of the resource estimate publishedby Constantine on May 11 outlines an inferredresource of 8.125 million metric tons averaging1.41 percent (252.6 million pounds) copper, 5.25percent (940.4 million lbs.) zinc, 0.32 grams permetric ton (83,600 ounces) gold and 31.7 g/t (8.3million oz.) silver for Palmer.
“The resource estimate significantly increasesthe size of the deposit, highlighting the tremendoussuccess of recent drill campaigns and the growingpotential of the project,” said ConstantinePresident and CEO Garfield MacVeigh. “It is opento expansion in most areas with the thickest part ofthe deposit located at the current down-dip limit ofthe South Wall Zone where mineral zoning andgeophysics support potential for a high-grade cop-per core within a more extensive area of zinc-cop-per-barite mineralization.”
Constantine and Dowa are continuing to explorethis growth potential with a US$5 million programbudgeted for this year.
Good dealMost of the new resource reported by
Constantine has been added since Dowa joined asa funding partner at Palmer in 2013.
According to an agreement inked betweenDowa and Constantine in February of that year, theTokyo-based smelting and mining company canearn a 49 percent stake in Palmer by investingUS$22 million in the VMS project over a four-yearspan.
At the time, some analysts felt that Constantinewas giving up too large a portion of the Palmerproject for the money. Following two years ofresource expansion in tough equity markets, how-ever, the deal has worked out well for both parties.
“We felt from the beginning the scale of invest-ment Dowa is making to earn 49 percent wouldgive us a good chance to establish a resource atPalmer with potential for mine viability,”Constantine Vice President of Exploration DarwinGreen told Mining News.
Dowa, which got its start from mining Kurokodeposits in northern Japan, has more than 120years of experience exploring for, mining andsmelting ore from VMS deposits like the one atPalmer. This makes the Southeast Alaska projectan ideal fit for the Tokyo-based company’s expert-ise.
Additionally, being located only 33 miles from
a Pacific Rim deep-sea port at Haines, a mine atPalmer would be well-situated to provide zinc andcopper concentrates to Dowa’s state-of-the-artsmelters in Japan.
For its part, Constantine is benefiting fromDowa’s vast VMS experience and a partnershipdeal that is structured in a way that allows it tocomplete multimillion-dollar exploration pro-grams, while avoiding a significant dilution fromselling shares in a market that has been unkind tojunior mining companies.
“It has been very refreshing to be able to focusnear 100 percent of our efforts at growing andbuilding the asset at Palmer, and avoid the distrac-tion of constantly chasing financings, which in thismarket has become a Herculean task,” Green said.
As part of the agreement, Constantine receivesannual cash payments totaling US$1.25 millionover four years. This, along with any other optionpayments and management fees received, hasallowed the company to maintain a healthy bankaccount.
“We are currently cash-flow positive, which is abizarre and privileged position to be in,” observedGreen.
At the end of January, the company hadC$636,135 in cash and its working capital totaledC$664,811.
Continued expansionOver the previous two years, Dowa has invested
roughly US$10 million in advancing the VMSdeposit and has agreed to invest another US$5 mil-lion in 2015.
This work is primarily targeting expansion ofGlacier Creek, a region of the project that consistsof five inter-related subzones of massive sulfidemineralization – RW East, RW West, and SouthWall zones 1, 2 and 3.
The South Wall zones are parallel layers of near-ly vertical VMS mineralization. At the upper extent
see PALMER DOUBLES page 10
JIM MCKENZIE
Zazu intends to useproceeds from the offering
for developmentexpenditures related to its
Lik zinc-lead-silverproject in NorthwestAlaska and general
working capital purposes.
CO
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Drilling at Palmer in 2014 cut copper- and zinc-richmineralization at a 400-square-meter conductiveplate identified with downhole geophysics.
The 8-inch linedelivers paste backfill,a mixture of tailingsand cement, into the
underground mine fordisposal.
This week’s Mining News
Tough markets fail to slow resource expansion at SoutheastAlaska’s Palmer VMS project. More in North of 60 Mining, page 9.
Shell plan approvedBOEM issues its conditional go ahead to planned Chukchi Sea exploration drilling
By ALAN BAILEYPetroleum News
O n May 11 the Bureau of Ocean Energy
Management announced its conditional
approval of Shell’s plan to drill up to six exploration
wells in the Chukchi Sea, starting this year. The
company wants to search for oil in the Burger
prospect, about 70 miles northwest of the Chukchi
coastal village of Wainwright. The BOEM approval
is subject to several conditions, including Shell
obtaining all of the permits needed for its operations
and the company complying with the requirements
of the Marine Mammals Protection Act and the
Endangered Species Act.
“We have taken a thoughtful approach to careful-
ly considering potential exploration in the Chukchi
Sea, recognizing the significant environmental,
social and ecological resources in the region and
establishing high standards for the protection of this
Notley rattles industryNew Alberta premier ponders royalty review, chooses pipeline winners, losers
By GARY PARKFor Petroleum News
Canada’s Calgary-based petroleum
industry is foaming at the mouth
over the stunning election of a left-of-
center New Democratic Party govern-
ment in Alberta, while incoming Premier
Rachel Notley is trying to tiptoe between
introducing a new style of government
and accepting the reality that energy con-
tributes 25 percent of her province’s gross domes-
tic product.
If she is unable to pull off that high-wire act,
Alberta could find itself in even deeper economic
trouble
Her campaign promise of a royalty
review has the industry flailing in all
directions, unaccustomed to not getting
its way with the Alberta government in
the 65 years since the province entered
the oil-producing age.
During the 44 years of Progressive
Conservative administrations that ended
May 5, the industry was able to wield a
club over the government, threatening
and, occasionally even delivering on those threats,
to withdraw billions of dollars in capital invest-
MEA moves to new plantUtility has own power supply after transition into new gas-fueled Eklutna plant
By ALAN BAILEYPetroleum News
M ay 1 was something of a red-letter day for
power utility Matanuska Electric
Association, as the utility finally switched over to
supplying its own electricity from its new power
plant at Eklutna, northeast of Anchorage.
After several years of planning, design and con-
struction, the Eklutna plant actually started to ramp
up its operations in December, when the first of its
10 massive Wartsila reciprocating engines fired up.
By Jan. 31 four of the engines became commer-
cially available, with all 10 engines then being
operational on March 27, Julie Estey, Matanuska
Electric’s director of public relations, has told
Petroleum News.
Delay in startupThe electric utility had originally planned on a
full startup of the power plant at the end of 2014,
the time at which a previous arrangement expired,
under which the utility had been purchasing much
see SHELL PLAN page 19
see NOTLEY ERA page 15
see MEA PLANT page 20
RACHEL NOTLEY
Mainly because of the cost of the gassupply for the Eklutna plant, MatanuskaElectric customers will see rate increasesas a consequence of the plant coming on
line, the utility has said.
Thumbs down to LNG offer; FirstNations has salmon concerns
Chances of a breakthrough in relationships between LNG
proponents and British Columbia First Nations have been
snuffed out almost as fast as they surfaced.
A small aboriginal community in the province’s northwest
unanimously spurned an offer of C$1.15 billion in cash and
5,400 acres of land in return for endorsing the Petronas-led
Pacific NorthWest LNG project.
Other members of the Lax Kw’alaams nation living in
Prince Rupert and Vancouver have yet to hold their votes
ahead of a May 12 membership meeting in Vancouver.
It took only a few days from the initial cash-and-land offer
for 180 members off Lax Kw’alaams living in the Port
BP challenging Oliktok rates;issue over expected gas volumes
BP Exploration (Alaska) Inc. is challenging a rate increase on
the Oliktok Pipeline.
The North Slope producer wants state regulators to investigate
the proposed increase, which BP called “unsupported, unjust and
unreasonable.” The changes propose a more than six-fold
increase in the rate to ship natural gas through the pipeline
between the Prudhoe Bay unit and the Kuparuk River unit.
According to BP, owner Oliktok Pipeline Co. assumed “unrealis-
tically low” throughput on the pipeline and may have failed to
accurately calculate costs that have already been recovered
through earlier shipping fees.
“There may be other reasons why the dramatic increases in the
revised rates are not just and reasonable which will become
apparent upon investigation,” attorneys for BP wrote to the
see LNG OFFER page 14
see OLIKTOK RATES page 18
CO
URT
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SHEL
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The drill ship Noble Discoverer
2 PETROLEUM NEWS • WEEK OF MAY 17, 2015
Petroleum News North America’s source for oil and gas newscontents
7 AOGCC schedules enforcement hearing
The case involves alleged safety valve system violations at Cook Inlet Energy’s Sword No. 1 oil well; hearing set for Aug. 4
GOVERNMENT
5 Resources Chair Giessel has ambitious plans
Anchorage Republican says there is plenty of work to be done during interim, leading up to special session on Alaska LNG project
6 EIA forecasts $61 Brent average in 2015
US crude production averaged 9.3 million bpd in March,expected to decline June thru September, average 9.2 million bpd this year
Shell plan approved
BOEM issues its conditional go ahead to planned Chukchi Sea exploration drilling
Notley rattles industry
New Alberta premier ponders royalty review,chooses pipeline winners, losers
MEA moves to new plant
Utility has own power supply after transitioninto new gas-fueled Eklutna plant
ON THE COVER
Thumbs down to LNG offer; FirstNations has salmon concerns
BP challenging Oliktok rates;issue over expected gas volumes
ENVIRONMENT & SAFETY
4 Walker signs Herron’s Arctic policy bill
LAND & LEASING8 State makes leases transactions for April
8 Nutaaq Pipeline files for tariff increase8 Agencies update unified spill response plan
4 Off-road tundra travel closed on May 11
7 Shell slows oil sands project
8 Shell says it will move drilling rigs to Seattle
EXPLORATION & PRODUCTION
FINANCE & ECONOMY
14 Enstar signs for new North Fork gas supply
14 RCA investigates CEA rate increase
NATURAL GAS
PIPELINES & DOWNSTREAM
UTILITIES13 ADEC seeks changes to oil handling regs
14 PWSRCAC elects slate of board officers
14 Study finds Port Valdez shrimp OK to eat
13 Conoco to expand 2 Kuparuk drilling pads
13 AIDEA approves BlueCrest Cosmo loan
13 Miller gets second NYSE delisting notice
LEARN TO RETURN, Inc.ALASKAN OWNED AND OPERATED FOR 30 YEARS
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SIDEBAR, Page 19: Court issues injunction against Greenpeace
SIDEBAR, Page 20: BSEE inspects Shell’s spill response equipment
page11
Parnell heads governors’ 7-membercoastal states coalition E X P L O R A T I O N & P R O D U C T I O N
N A T U R A L G A S
E X P L O R A T I O N & P R O D U C T I O N
Vol. 17, No. 44 • www.PetroleumNews.comA weekly oil & gas newspaper based in Anchorage, Alaska
Week of October 28, 2012 • $2
The October issue of North of 60 Mining News is enclosed.
October Mining News inside
PHOTO BY CHRIS AREN D, COURT ES Y OF USI BELLI COA L MI NE I NC .
Thomas Tak e, ch arged w ith the large task of repairing
tires at the U sibelli Coal M ine in Healy, holds one of
some 4,500 high-paying mining jobs in Alaska. An
employment forecast published by the Alaska
Depa rtment of Labor and W or kforce Development in
October pegged the state’s mining sector job grow th
from 2010 t o 2020 at 19 percent. Page 14.
A special supplement to Petroleum NewsWEEK OFOctober 28, 2012
3 P en t a g o n ba ck s U cor e in no v a tio n
Contract ties DoD to Bokan, state-of-the-art method for extracting REEs
11 E m er a l ds g l im m e r in g o ld s e tt i n g
North C ountry Gold makes rare gem discovery in Nunavut greenstone belt
24 N e w G old t h ir s t y f or B l a ck w a te r
Miner dri lls 250,000 meters, makes vast land grab in gold-rich central BC
Budget planners cautious; landsales, well authorizations down
Bean counters and number crunchers are in full swing in
Canada assembling 2013 capital budgets against a worrying
backdrop of shaky industry forecasts, sharp declines in gov-
ernment land auctions and plunging new well permits issued
by regulators.The current betting points to troubles for the upstream,
reflected in gyrating oil and natural gas prices, and a contin-
uation of the lackluster showing in the drilling sector that has
extended over recent years.One of the early messages came from Schlumberger Chief
Executive Officer Paal Kibsgaard, who told analysts that liq-
uids activity in North America will “no longer be able to off-Hanging pipeline: September floodsleave Kenai area gas line dangling
Roads and railroad bridges weren’t the only things that
washed out in the heavy rains which hit Southcentral Alaska
in September. Marathon Oil, in the process of selling its Cook Inlet
assets to Hilcorp Alaska, is dealing with a washout along
Kalifonsky Beach Road near Kenai which left a segment of a
gas pipeline dangling. The Pipeline and Hazardous Materials Safety
Administration, PHMSA, described the situation and action it
requires in an Oct. 5 corrective action order. The affected line is a 20-inch diameter pipeline transport-
ing natural gas from the Kenai gas field to facilities south of
Kenai. PHMSA said the line was buried parallel to and with-
see BUDGET CAUTION page 18
see FLOODING AFTERMATH page 21
CD-5 is aliveConoco sanctions Alpine West; now needs partner approval; first oil by 2016
By ERIC LIDJIFor Petroleum NewsA fter years of permitting delays, ConocoPhillipsCo. is moving ahead on CD-5, the fourth satel-
lite of its Alpine field on the North Slope, the com-
pany announced Oct. 25.The ConocoPhillips board sanctioned the project
in October, Executive Vice President Exploration
and Production Matt Fox said during a third quarter
earnings call. “The project is now pending partner
approval, which is expected in November,” Fox said.
ConocoPhillips expects CD-5 production to begin
in 2016, Fox said. The company previously estimat-
ed construction would begin in 2014 with first oil in
late 2015.
After bringing the Alpine field at the Colville
River unit into production in 2000, ConocoPhillips
and its partner Anadarko brought three Alpine satel-
lites online over the following decade: Fiord in
August 2006, Nanuq in December 2006 and Qannik
in 2008. Also known as Alpine West, the CD-5 satellite
ConocoPhillips produced some 176,000barrels of oil equivalent per day in
Alaska during the third quarter, downsome 32,000 barrels of oil equivalent per
day from the same period last year.
see CD-5 page 22New field ‘challenge’ExxonMobil: Schedule is tight for achieving first production at Point Thomson
By WESLEY LOYFor Petroleum NewsM eeting the target date for starting productionfrom Alaska’s Point Thomson field will be “a
challenge,” an ExxonMobil executive said.The company has pledged to start producing natu-
ral gas condensate from the remote eastern North
Slope field by the winter of 2015-16.But it still has multiple permitting hurdles to clear
before it can begin construction of production facili-
ties and a pipeline to feed the condensate into the
existing North Slope transportation network.Company representatives appeared Oct. 23 at a
hearing of the Regulatory Commission of Alaska,
which is considering an ExxonMobil subsidiary’s
application for a certificate of public convenience and
necessity to build and operate the 22-mile pipeline.
One commissioner asked the ExxonMobil reps
whether they are on schedule with the Point Thomson
project.“We are on schedule, but it is very tight,” replied
Jeff Ray, vice president of PTE Pipeline LLC, the
company seeking the certificate for the Point
Aside from the certificate, ExxonMobilneeds a number of other major
authorizations before it can proceed withthe Point Thomson development.
see TIGHT SCHEDULE page 23Time for action is hereSouthcentral Alaska utilities are moving forward on options for gas imports
By ALAN BAILEYPetroleum NewsWith natural gas supplies from Cook Inlet set
to fall short of local gas demand by 2014 or
2015, the time has come tomove ahead with arrange-ments to supplement thoselocal supplies with importsfrom elsewhere, Southcentralpower and gas utility executives told the
Regulatory Commission of Alaska during a public
meeting on Oct. 24. Southcentral residents and
businesses depend on gas both for power genera-
tion and for the heating of buildings.“I’m personally done wringing my hands,”
Bradley Evans, CEO of Chugach Electric
Association, told the commissioners, saying he
takes responsibility for ensuring continuity of gas
supplies for his utility. Chugach Electric currently
generates about 90 percent its power using gas-
fueled power plants.
Lee Thibert, senior vice president ofChugach Electric, said that the utilities
have asked potential shippers of importedgas for expressions of interest in theimport arrangements.
see GAS IMPORTS page 24
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PETROLEUM NEWS • WEEK OF MAY 17, 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 PBU 07-07C BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay PBU Z-15 BPDreco D2000 Uebd 19 (SCR/TD) Nanuq CD5-314 ConocoPhillipsAC Mobile 25 Kuparuk 2N-312 BPOIME 2000 141 (SCR/TD) Kuparuk 1D-143 ConocoPhillipsTSM 7000 Arctic Fox #1 Stacked
Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Nabors yards completing demobilization procedures Mid-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) Nabors yards completing demobilization proceduresOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Nabors yards completing demobilization proceduresAcademy AC electric Heli-Rig 106-E (AC-TD) Deadhorse Nabors yard Available
Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site E-15 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site F-36L1 BPIdeco 900 3 (SCR/TD) Milne Point MP-H-04 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 L1 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 May 14, 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* May 8 May 1 Year AgoUS 894 905 1,855Canada 75 79 145Gulf 33 33 58
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
4 PETROLEUM NEWS • WEEK OF MAY 17, 2015
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l G O V E R N M E N T
Walker signs Herron’s
Arctic policy billBy KRISTEN NELSON
Petroleum News
House Bill 1, establishing an Arctic pol-
icy for the state of Alaska, was signed
into law May 11 by Gov. Bill Walker.
Rep. Bob Herron, D-Bethel, the bill’s
sponsor and co-chair of the Alaska Arctic
Policy Commission, said it created the first
comprehensive Arctic policy for the state.
In a statement, Herron thanked Sen.
Lesil McGuire, R-Anchorage, co-chair of
the commission, the other commissioners
“and the many Alaskans that helped shape
HB 1.” He said it was now up to the gover-
nor and administration, “working with the
Legislature’s two Arctic committees, to use
the Alaska Arctic Policy Commission’s
Implementation Plan as a guide to execut-
ing Alaska’s Arctic policy.”
“The Arctic presents the best opportuni-
ties for Alaska’s future,” McGuire said in a
statement. She introduced the companion
bill, Senate Bill 16, and cited Herron and
the Alaska Arctic Policy Commission’s
work over the past two years for crafting the
state’s first Arctic policy.
First of its kind“This legislation is significant because it
is the first of its kind to define Alaska’s role
in the rapidly changing Arctic,” the gover-
nor said in a statement.
“Our country is an Arctic nation because
of Alaska. That is why it is absolutely criti-
cal that we have a seat at the table for Arctic
development discussions,” Walker said.
The governor’s statement reflected the
findings and intent of HB 1, which states
that “the state is what makes the United
States an Arctic nation” and goes on to say
“the entirety of the state is affected by the
activities and prosperity in the Arctic
region, and conversely, the Arctic region is
affected by the activities and prosperity in
the other regions of the state.”
The bill says it is the intent of the
Legislature that Arctic policy “be imple-
mented through statutes and regulations”
and “clearly communicate the interests of
residents of the state to the federal govern-
ment, the governments of other nations, and
other international bodies developing poli-
cies related to the Arctic.”
AAPC recommendationsThe bill says it is the policy of the state
of “uphold the state’s commitment to eco-
nomically vibrant communities sustained
by development activities consistent with
the state’s responsibility for a healthy envi-
ronment” and also says it is important “to
support the strategic recommendations of
the implementation plan developed by the
Alaska Arctic Policy Commission” and to
encourage consideration of AAPC recom-
mendations to promote economic and
resource development; address infrastruc-
ture and response capacity gap to support
the Arctic region; support healthy commu-
nities; and support existing and foster new
science and research that aligns with state
priorities for the Arctic. l
EXPLORATION & PRODUCTIONOff-road tundra travel closed on May 11
The Alaska Department of Natural Resources said May 11 that the North Slope has
closed for off-road travel, and vehicles need to be off the tundra by May 14.
The closure reflected an assessment completed May 11, with results the same for
the three areas opened this season — western coastal, eastern coastal and lower
foothills.
DNR said snow pack “has list its integrity, and liquid water is found in tundra-snow
interface,” with patches of exposed tundra.
The western coastal area opened Dec. 17; the eastern coastal area opened Dec. 23;
the lower foothills opened Feb. 20.
The upper foothills never opened, and DNR said there is deep snow and thick snow
slabs throughout the area, insulating the tundra and causing soil temperatures to
remain above the 5 degrees C criterion for opening. DNR said that “given the optimal
snow conditions, typical winter off-road travel may be approved on a case-by-case
basis” in the upper foothills.
The department said the snow pack had degraded rapidly over the May 9-10 week-
end, and encouraged all projects to move equipment off the tundra prior to the May
14 deadline.
DNR said its staff would be on the North Slope the week of May 11 to continue
monitoring snow conditions, ice road and off-road travel projects and other activities.
—PETROLEUM NEWS
By STEVE QUINNFor Petroleum News
Sen. Cathy Giessel closed out the regu-
lar session as Senate Resources
Committee chair for the third straight
year. This represents what many lawmak-
ers believe to be needed continuity as the
state gets closer to debating prospective
contracts to advance a large-diameter nat-
ural gas pipeline to an LNG export facility
in Nikiski.
The Anchorage Republican says the
committee will be busy during the interim
reviewing various developments including
how the recent Interior Energy Project
advances. But she is also hoping the
AKLNG project is the subject of a special
session this fall.
Giessel spoke to Petroleum News, first
reviewing the regular session, then offer-
ing a look ahead.
Petroleum News: What’s your take onhow things went during the session?
Giessel: I am concerned that the focus
on budget causes a slip in the timeline. A
property tax bill was introduced, but it did
not include a PILT provision, despite the
revenue commissioner saying it would. It
seemed to be a template bill, requiring
work in the interim to gain credibility and
legislative passage.
The AGDC appointments were made
on time. At issue was the expertise for
some of the appointees. That was reflected
in the votes for two of those appointees.
Hopefully, the governor now appoints
people with really high technical expertise
comparable to the three he replaced.
What was troubling during this session
was a conflation of tax credits for oil and
gas development, and a call for new rev-
enues. Don’t get me wrong; we are in
unchartered waters with the budget short-
fall. But oil pays nearly 90 percent of that
bill.
We are a state that’s second biggest
source of revenue is a tobacco tax. We do
not pay a state income or sales tax, and
our citizens continue to receive a dividend
from the Permanent Fund Earnings. It is
critical to remember the source, oil, that
foots the bill for all our public needs and
wants.
I want to take this opportunity to set
the record straight: the amount of govern-
ment take at the state level from the major
oil companies is still greater than the cred-
its they receive for production. If that was
not the case, there would be no revenue in
this year’s budget to
spend, no royalties
going into the per-
manent fund. Money
is going in there.
Still, it felt like
the focus was on
making sure
progress was contin-
uing forward on
AKLNG, but like I
said most of the focus was on the budget
and how we would be proceeding with
our resource development and grow our
economic pie so to speak.
We know we are in times of constraint
so the goal of the Resources Committee,
of course, is to increase the amount of
revenue coming in. We’ve seen Caelus
being given the royalty modification. So
that’s a good thing. They are moving for-
ward with that project.
Many other projects on the Slope are
moving forward because of tax credits for
smaller independents. That’s all positive.
We still see wonderful gas developments
and/or oil exploration, of course in Cook
Inlet. Again because of those tax credits
for Cook Inlet. So we’ve been trying to
kind of keep things moving forward has
been our focus, I’d say.
Petroleum News: Can you talk a littlebit more about that tax issue? That was ahot-button topic, and still is, during thebudget debate over priorities and whatneeds to be cut and what should be kept.
Giessel: Tax credits for the majors on
the North Slope is meant to encourage
production. And it’s funny how the recent
reports of flat production are being cast as
bad news. Back in 2013, when SB 21 or
MAPA (More Alaska Production Act) was
being deliberated, Alaska was suffering
from a 7 percent annual decline in TAPS
throughout. We have pushed back the
decline curve, an event many opponents
said was not realistic.
We don’t have any control over what
OPEC does on oil prices. We cannot influ-
ence the needle on the price oil is sold at
around the world. The one real tool in our
house is encouraging production, and we
have done it.
Not only that, but people need to
remember that SB 21-MAPA is bringing
in more revenue at current prices than
ACES, the previous tax regime. There
actually is a floor, and the tax credits go
away under MAPA when the prices get
near that lower price threshold. ACES, the
previous tax policy, didn’t have that. We
protected the state from a double shock: a
drop in prices but also a true negative
drop in revenue.
I asked the Department of Revenue to
summarize for me the total amount of tax
value in a barrel of oil at today’s prices of
about $60 per barrel. At that price of oil,
under the SB 21 tax policy, the total state,
federal and local property taxes scoop 75
percent of the value of a barrel of oil. The
producers get to take home 25 percent of
the value of the barrel of oil. We are still
getting a majority share of the value for
our oil.
There is another element
to the tax credits, and that is
the tax credits paid to small
producers, independents,
and Cook Inlet explorers.
Those credits make up the
bulk of the total amount of
dollars being thrown around. This is really
important because these are different cred-
its serving very different purposes.
We hear from the minority and from
this governor that we should not be
beholden to the Big Three producers. We
need energy security. Well, again, short-
term memory loss may come into play
here. I remember when, three years ago,
we were talking about brown-outs in
Southcentral due to a lack of natural gas.
We were seriously talking about importing
LNG.
The irony of that, and the ramifications
to the reliability of the Railbelt’s intertie
aside, imagine what the fluctuations of a
heating bill would be then. We put those
credits in place, and now we have an
amazing gas supply coming online.
Schools are of no value if they aren’t
heated. Businesses can’t function without
a stable energy source. Those tax credits
offset the economic costs to the state of
the largest population area not having an
energy source. Our next challenge is to
secure stable, lower cost energy source for
the Interior.
If one looks at who supported those
independent and Cook Inlet credits that
make up most of our tax credits amounts,
you’ll be surprised. Some are the very
same people saying that we are giving
away our resource for pen-
nies on the dollar, and
assigning that tax credit lia-
bility to companies that are
not actually receiving those
credits, that is, the large pro-
ducers on the North Slope.
Oh well, it’s complicated.
Petroleum News: So you’ve been ableto stay busy as busy as you had hoped,even with no significant gas line deci-sions to make?
Giessel: Well, there haven’t been any
decisions to make, well except for the
pipeline right-of-way bill. We asked the
governor for that bill. He did deliver it.
We asked DNR and Fish and Game to go
over it and over it because we didn’t want
any errors in the identification of proper-
ties. We did find a couple of other slight
changes in Senate Finance but we did get
l G O V E R N M E N T
Resources Chair Giessel has ambitious plansAnchorage Republican says there is plenty of work to be done during interim, leading up to special session on Alaska LNG project
PETROLEUM NEWS • WEEK OF MAY 17, 2015 5
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By KRISTEN NELSONPetroleum News
T he U.S. Energy Information
Administration s forecasting a North
Sea Brent average crude oil price of $61 a
barrel this year and $70 in 2016. The
agency said in its May 12 Short-Term
Energy Outlook that the forecast prices are
$1 per barrel higher for this year and $5
per barrel lower for next year than in its
April forecast.
Brent averaged $60 per barrel in April,
up $4 from March and the highest monthly
average this year. “Despite increasing
global inventories, several factors con-
tributed to higher prices in April,” EIA
said, “including indications of higher glob-
al oil demand growth, expectations for
declining U.S. tight oil production in the
coming months, and the growing risk of
unplanned supply outages in the Middle
East and North Africa.”
West Texas Intermediate averaged $54
per barrel in April, up $7 from March, with
moderating Cushing, Oklahoma, invento-
ries, expected declines in U.S. tight oil
production and increasing U.S. refinery
runs putting upward pressure on the WTI
price.
Production declineEIA said the estimate for U.S. crude oil
production in March was 9.3 million bar-
rels per day, but the agency expects pro-
duction to decline from June through
September before growth resumes. Based
on its price forecast, EIA said it is project-
ing U.S. crude oil production to average
9.2 million bpd in both 2015 and 2016, and
said the 2015 forecast was down 40,000
bpd, 0.5 percent, from the April forecast,
while the 2016 was down 100,000 bpd, 1.1
percent.
U.S. crude oil production averaged 8.7
million bpd in 2014.
“Lower oil prices and fewer rigs
drilling for crude will take a bite out of
U.S. oil production growth this year and in
2016,” EIA Administrator Adam
Sieminski said in a statement. The agency
said the number of rigs drilling for oil in
early May was the lowest in almost five
years.
“While there are fewer rigs drilling for
crude, U.S. oil production this year is still
on track to be the highest in more than four
decades,” Sieminski said.
In March, EIA was forecasting 9.3 mil-
lion bpd this year and 9.5 million bpd in
2016, close to the peak 9.6 million bpd
annual average of U.S. production in 1970.
Increasing production in 2016EIA said it expects U.S. onshore pro-
duction to decline beginning in the second
quarter of 2015 “because of unattractive
economic returns in some areas of both
emerging and mature production regions.
Reductions in 2015 capital expenditures,
cash flows, and low-cost credit availability
have encouraged companies to defer
investment or redirect investment away
from marginal exploration and research
drilling to focus on core areas of major
tight plays.”
The agency said projected crude oil
prices for this year are high enough for
development drilling to continue in the
core areas of the Bakken, Eagle Ford,
Niobrara and Permian basins. “Companies
with lower drilling and debt-service costs
that operate on acreage in the sweet spots
of these regions are expected to continue
to drill highly productive wells in 2015.”
EIA said with WTI crude oil prices
expected to rise to an average of $67 per
barrel in the second quarter of 2016
drilling activity is expected to pick up,
with companies taking advantage of lower
costs for leasing, drilling and well comple-
tions, “resulting in growing production
beginning in the second quarter of 2016.”
Federal offshore and Alaska production
are “less sensitive to short-term price
movements than is onshore production in
the Lower 48 states,” the agency said, and
federal offshore production is projected to
rise although Alaska production continues
to fall.
Henry Hub downEIA is forecasting an average Henry
Hub natural gas price of $2.93 per million
British thermal units this year and $3.32
per million Btu next year, down 14 cents
and 13 cents respectively from the
agency’s April forecast.
Natural gas prices fell in April, then
rose slightly in the early part of May.
“Production and inventories remain abun-
dant, which is expected to keep prices at
relatively low levels in 2015,” EIA said.
Natural gas production averaged 70.46
billion cubic feet per day last year and is
projected to average 74.77 bcf per day this
year and 76.03 bcf per day in 2016, a pro-
jected increase of some 4.5 bcf per day, 6
percent, this year, and 1.3 bcf per day, 1.7
percent, in 2016, “reflecting continuing
production growth in the Lower 48 states,
which more than offsets the long-term
declining production in the Gulf of
Mexico.”
While natural gas prices are expected to
remain low, the agency said it expects
increases in drilling efficiency and increas-
es in oil production will continue to sup-
port growing natural gas production, with
most growth expected to come from the
Marcellus shale.
Increases in production are expected to
decrease demand for natural gas imports
from Canada growth in exports to Mexico,
particularly from the Eagle Ford in South
Texas. l
l F I N A N C E & E C O N O M Y
EIA forecasts $61 Brent average in 2015US crude production averaged 9.3 million bpd in March, expected to decline June thru September, average 9.2 million bpd this year
6 PETROLEUM NEWS • WEEK OF MAY 17, 2015
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By WESLEY LOYFor Petroleum News
T he Alaska Oil and Gas Conservation
Commission has scheduled a public
hearing on an enforcement action involving
a well on the west side of Cook Inlet.
The hearing comes at the request of
Cook Inlet Energy LLC, which operates the
Sword No. 1 oil well.
The AOGCC, which regulates drilling,
on May 1 issued a decision and order
imposing a $446,000 civil penalty against
the company for safety valve system (SVS)
violations.
David Hall, chief executive officer for
Cook Inlet Energy, on May 11 requested a
hearing on the case.
The AOGCC has scheduled the hearing
for 9 a.m. Aug. 4 at the commission’s
offices at 333 W. 7th Ave., Anchorage.
Anchorage-based Cook Inlet Energy is a
subsidiary of Tennessee-based Miller
Energy Resources Inc.
The directional, extended-reach Sword
No. 1 well is located near the company’s
West McArthur River oil field. The well
began production on Nov. 17, 2013, accord-
ing to the commission’s order.
The order says “multiple violations”
occurred between production startup and
March 7, 2014.
“Every oil well is required to be
equipped and maintained with a functional
SVS,” the order says. “The SVS must be
maintained in good operating condition at
all times. There are also established specific
requirements for testing to verify the SVS
integrity.”
A Dec. 11, 2013, inspection revealed the
well had no functional SVS, the order says.
“Specifically, the surface safety valve
was defeated and the subsurface safety
valve, though installed, was not opera-
tional,” the order says.
Further, records show no performance
test of the SVS had been done within five
days of production startup as required, the
order says.
Records indicate the SVS was defeated
for 42 days between startup and Jan. 5,
2014.
“The Sword No. 1 was producing for
that entire period,” the order says. “CIE has
offered no evidence to the contrary.”
Cook Inlet Energy argued the Sword No.
1 well was an “unconventional completion”
requiring an alternative SVS, the order says.
The order quotes the company as saying:
“Careful considerations were taken in
the planning and design for the initial pro-
duction from Sword No. 1 to ensure a safe
and successful operation. Given the nature
of the unconventional way of producing
Sword No. 1 coupled with the fact that safe-
ty valve systems are geared toward more
conventional completions, CIE implement-
ed several comparable safety systems in
addition to the SVS. These comparable
safety systems are equally effective and add
additional layers of protection to prevent an
uncontrolled release of hydrocarbons to the
surface.”
The order says Cook Inlet Energy
acknowledged that the subsurface safety
valve failed a performance test on Feb. 16,
2014, and that steps were not taken to shut
in the well within 48 hours as required, the
order says.
The commission said it considered miti-
gating circumstances in reducing the penal-
ty from the $806,000 originally proposed to
$446,000.
But the commission also noted Cook
Inlet Energy’s “history of noncompliance.”
An attachment to the order lists seven other
cases such as unauthorized flaring, unau-
thorized production, and unapproved work.
“Even after commencement of this
enforcement action, CIE continues to
demonstrate that regulatory compliance
remains a challenge,” the order says. l
l G O V E R N M E N T
AOGCC schedulesenforcement hearingThe case involves alleged safety valve system violations at CookInlet Energy’s Sword No. 1 oil well; hearing set for Aug. 4
PETROLEUM NEWS • WEEK OF MAY 17, 2015 7
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EXPLORATION & PRODUCTIONShell slows oil sands project
Royal Dutch Shell has put itself on the wait-and-see list in Alberta’s oil sands by
delaying first production from its 80,000 barrels per day Carmon Creek in-situ project
in the northwest Peace River region by at least two years until 2019.
The C$3 billion venture got the corporate go-ahead in October 2013, but has fallen
victim to Shell’s capital spending pullback to US$33 billion this year from US$35 bil-
lion.
Chief Financial Officer Simon Henry said on Shell’s website that the company is
dealing with a “dynamic picture” that involves a “series of pragmatic decisions on
new opportunities.”
As a result, spending on resource plays has been cut by 20 percent, while Carmon
Creek is being re-staged, although the company said the project remains on its priority
list.
A spokesman said there is still time to make adjustments to the project schedule “to
ensure the long-term competitiveness of a project that will ultimately have a lifespan
of more than 30 years.”
Although low crude prices are not the reason for ordering a delay, the market
downturn does give Shell time to identify cost reductions on Carmon Creek, he said.
The project is designed to include a 630-megawatt cogeneration power plant, of
which 500 megawatts are to be sold into the Alberta power grid.
Shell has also pulled the plug on an application for its Pierre River oil sands mine,
but Canadian President Lorraine Mitchelmore said the mine remains a “long-term
opportunity.”
—GARY PARK
ASSOCIATED PRESS
R oyal Dutch Shell says it has a valid
lease for Seattle terminal space and
a tight timeline to prepare its fleet for
exploratory oil drilling in Arctic waters so
it plans to move its drill rigs to Seattle
despite the protests of activists and a port
commission request that it wait.
Royal Dutch Shell has been planning
to base its fleet at Terminal 5 for six
months each year when it’s not exploring
for oil in the Arctic. Seattle Mayor Ed
Murray threw a wrench into those plans
May 11 when he said the port can’t host
Shell’s offshore Arctic fleet until it gets a
new land-use permit.
Foss Maritime plans to appeal
Seattle’s position that Royal Dutch Shell
can’t use the Port of Seattle’s Terminal 5
under the existing permit.
The company says it intends to pro-
vide its customer, Shell, with the services
it needs to prepare to explore for oil in
Alaska.
The Noble Discoverer arrived in
Everett, north of Seattle, on May 12 and
the Polar Pioneer, which has been parked
in Port Angeles on the Olympia
Peninsula, is expected to arrive in Seattle
by May 15.
The city of Seattle has said the use of
the terminal as a base for drill rigs isn’t
allowed under the port’s current land-use
permit, which is for cargo operations.
Foss said it will appeal that determina-
tion and forge ahead with its plans in the
meantime. On May 12, the Port of Seattle
Commission voted to appeal as well,
while it also voted to ask Foss to ask Shell
to delay any moorage of oil exploration
vessels pending further legal review.
The port commission wants to appeal
the city’s interpretation of cargo use at the
terminal.
Shell — time of essenceA Shell spokesman said time is of the
essence and the company’s plans are
unchanged.
“We understand the Port
Commission’s request for more time,”
Shell spokesman Curtis Smith said in an
email, “but given the short windows in
which we have to work in the Arctic, and
our shared view that Shell’s lease and the
supporting contract with Foss is valid, we
have made the decision to utilize
Terminal 5 under the terms originally
agreed upon by the parties involved —
including the Port of Seattle.
“Rig movement will commence in the
days to come.”
Foss was adamant as well.
Company President Paul Stevens said
the port commission knew full well what
activities would be occurring at the termi-
nal when it granted the lease.
“We’re going to proceed,” he said. l
8 PETROLEUM NEWS • WEEK OF MAY 17, 2015
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l E X P L O R A T I O N & P R O D U C T I O N
Shell says it will move
drilling rigs to Seattle
LAND & LEASINGState makes leases transactions for April
The Alaska Department of Natural Resources issued a package of leases in
April.
The state issued 41 leases acquired by three companies in a November 2014
North Slope lease sale. The Armstrong-subsidiary 70 & 148 LLC took 37 leases.
Caelus Alaska Exploration Co. LLC took three leases. ConocoPhillips Alaska Inc.
took one lease.
Also in April, the state formalized the expansion of the Hilcorp-operated
Granite Point unit in Cook Inlet. The expansion could more accurately be
described as a merger: Hilcorp expanded the South Granite Point unit to include
the leases of the adjacent Granite Point field. The expanded unit is now known as
“the Granite Point unit.”
The expansion went into effect retroactive to March 1, 2015.
—ERIC LIDJI
Nutaaq Pipeline files for tariff increaseNutaaq Pipeline LLC has filed for a substantial tariff increase for the Badami
Oil Pipeline, which carries crude oil from the Badami field on the eastern side of
the North Slope to the tie-in point with the Endicott Pipeline.
The current rate is $5.21 per barrel; the proposed rate is $8.95 per barrel.
Miller Resources Inc. finalized acquisition of an indirect controlling interest in
Nutaaq late last year.
Nutaaq originally filed for 2015 rates premised on throughput from two new
1,000 barrel-per-day wells which were expected online in July. “Due to the sharp
decline in global crude oil market conditions that have impacted the North Slope,
the wells were not drilled and the throughput projections will not be on target,”
Nutaaq said in its revised tariff filing.
Nutaaq said the revised tariff of $8.95 per barrel “was calculated by dividing
the original cost estimate, net of 2014 carryover, by a new production forecast
which is lower than the original” forecast which included the two new wells.
Actual production for January through March was used in the calculation, and
an annual decline rate was applied.
Nutaaq said no additional wells are planned at Badami through the end of
2015.
The requested effective date for the tariff is June 1.
—PETROLEUM NEWS
PIPELINES & DOWNSTREAM
ENVIRONMENT & SAFETY
Agencies updateunified spillresponse plan
The Alaska Department of
Environmental Conservation, the
U.S. Coast Guard and the
Environmental Protection Agency
are updating the federal and state uni-
fied plan for oil spill response in
Alaska. The plan provides a basis for
oil spill contingency planning in the
state.
Updates to the plan better define
the process for making plan changes
and define the role of a newly formed
steering committee for the plan,
ADEC said May 5. The steering
committee consists of representatives
of the three state and federal agencies
that maintain the plan. The plan
changes are designed to simplify the
process for making plan updates and
to provide a better mechanism for
resolving differences of opinion over
the updates, ADEC said.
A draft version of the revised plan
is available for review on the ADEC
website. Comments on the changes
are required by June 15.
—ALAN BAILEY
Updates to the plan betterdefine the process for makingplan changes and define the
role of a newly formedsteering committee for theplan, ADEC said May 5.
page10
Tangen: Congress moves on definition of WOTUS
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 17, 2015
NEWS NUGGETSCompiled by Shane Lasley
l E X P L O R A T I O N
Bokan REE resource gets an upgradeUcore Rare Metals Inc. May 11 reported a significant
upgrade and expansion of the mineralized resources at the
Dotson-Ridge deposit of its Bokan Mountain rare earths project
in Southeast Alaska. The deposit now
contains an estimated indicated resource
of 4.79 million metric tons averaging 0.6
percent (63.54 million pounds) total rare
earth oxides, a roughly 63 percent
increase over the 2.94 million metric tons
of indicated resource included in a 2013
estimate. Additionally, the deposit has
1.05 million metric tons of inferred
resource averaging 0.6 percent (13.96
million lbs.) TREO. About 39 percent of
the TREO in both categories are the high-
er valued heavy rare earths. “We’re pleased to announce this
important resource upgrade as Ucore continues its progress
toward production,” said Ucore President and CEO Jim
McKenzie. “This resource upgrade, together with our recent
advances in molecular recognition technology for refining
applications, makes for a compelling mine-to-metal story at
Bokan.”
Insiders back US$1.5M Zazu financingZazu Metals Corp. May 8 reported completion of the final
tranche of a US$1,497,800 million non-brokered private place-
ment financing. In a second tranche, Zazu sold more than 3.46
million common shares of the company at US20 cents each for
gross proceeds of
US$692,800. Zebra
Holdings and Investments
S.a.r.l., a company con-
trolled by a trust settled by
the late Adolf H. Lundin,
purchased more than 2.16
million of these shares.
Zebra, which previously
owned or controlled
8,860,280 Zazu shares,
owns roughly 19.9 percent
of the company’s issued and outstanding shares upon comple-
tion of the offering. Zazu Chairman and CEO Gil Atzmon
bought 1 million of the shares offered in the second tranche.
Atzmon, which previously owned or controlled 5,789,500 Zazu
shares, owns roughly 12.3 percent of the company’s issued and
outstanding shares upon completion of the offering. Zazu
intends to use proceeds from the offering for development
expenditures related to its Lik zinc-lead-silver project in
Northwest Alaska and general working capital purposes.
Ruptured line spills tailings at PogoSumitomo Metal Mining Pogo
May 7 reported to Alaska
Department of Environmental
Conservation that a ruptured line
spilled roughly 90,000 gallons of
paste backfill at the Pogo gold
mine in Interior Alaska. The 8-
inch line delivers paste backfill, a
mixture of tailings and cement,
into the underground mine for disposal. Once underground, the
concrete created from the tailings fills mined-out areas, provid-
ing support for continued mining. The backfill material is
reported to contain 1-3 parts-per-million cyanide but is ren-
dered inert by the high pH of the concrete mixture. Once hard-
ened, the spilled tailings are being removed with heavy equip-
ment and hand tools.
Palmer doubles in sizeTough markets fail to slow resource expansion at SE Alaska VMS project
By SHANE LASLEYMining News
While many of its peers are struggling to find
money to continue exploration at their
promising mineral prospects and deposits,
Constantine Metal Resources Ltd. has managed to
forge ahead with hefty programs at its copper- and
zinc-rich Palmer project in Southeast Alaska. This
includes C$7.13 million invested in exploring the
volcanogenic massive sulphide deposit in 2014.
Last year's program, funded by Dowa Metals &
Mining Co. Ltd., along with drilling completed at
Palmer in 2010 and 2013, have culminated in a 97
percent expansion of the resource, compared to the
last time a calculation was completed for the
deposit in 2010.
The results of the resource estimate published
by Constantine on May 11 outlines an inferred
resource of 8.125 million metric tons averaging
1.41 percent (252.6 million pounds) copper, 5.25
percent (940.4 million lbs.) zinc, 0.32 grams per
metric ton (83,600 ounces) gold and 31.7 g/t (8.3
million oz.) silver for Palmer.
“The resource estimate significantly increases
the size of the deposit, highlighting the tremendous
success of recent drill campaigns and the growing
potential of the project,” said Constantine
President and CEO Garfield MacVeigh. “It is open
to expansion in most areas with the thickest part of
the deposit located at the current down-dip limit of
the South Wall Zone where mineral zoning and
geophysics support potential for a high-grade cop-
per core within a more extensive area of zinc-cop-
per-barite mineralization.”
Constantine and Dowa are continuing to explore
this growth potential with a US$5 million program
budgeted for this year.
Good dealMost of the new resource reported by
Constantine has been added since Dowa joined as
a funding partner at Palmer in 2013.
According to an agreement inked between
Dowa and Constantine in February of that year, the
Tokyo-based smelting and mining company can
earn a 49 percent stake in Palmer by investing
US$22 million in the VMS project over a four-year
span.
At the time, some analysts felt that Constantine
was giving up too large a portion of the Palmer
project for the money. Following two years of
resource expansion in tough equity markets, how-
ever, the deal has worked out well for both parties.
“We felt from the beginning the scale of invest-
ment Dowa is making to earn 49 percent would
give us a good chance to establish a resource at
Palmer with potential for mine viability,”
Constantine Vice President of Exploration Darwin
Green told Mining News.
Dowa, which got its start from mining Kuroko
deposits in northern Japan, has more than 120
years of experience exploring for, mining and
smelting ore from VMS deposits like the one at
Palmer. This makes the Southeast Alaska project
an ideal fit for the Tokyo-based company’s expert-
ise.
Additionally, being located only 33 miles from
a Pacific Rim deep-sea port at Haines, a mine at
Palmer would be well-situated to provide zinc and
copper concentrates to Dowa’s state-of-the-art
smelters in Japan.
For its part, Constantine is benefiting from
Dowa’s vast VMS experience and a partnership
deal that is structured in a way that allows it to
complete multimillion-dollar exploration pro-
grams, while avoiding a significant dilution from
selling shares in a market that has been unkind to
junior mining companies.
“It has been very refreshing to be able to focus
near 100 percent of our efforts at growing and
building the asset at Palmer, and avoid the distrac-
tion of constantly chasing financings, which in this
market has become a Herculean task,” Green said.
As part of the agreement, Constantine receives
annual cash payments totaling US$1.25 million
over four years. This, along with any other option
payments and management fees received, has
allowed the company to maintain a healthy bank
account.
“We are currently cash-flow positive, which is a
bizarre and privileged position to be in,” observed
Green.
At the end of January, the company had
C$636,135 in cash and its working capital totaled
C$664,811.
Continued expansionOver the previous two years, Dowa has invested
roughly US$10 million in advancing the VMS
deposit and has agreed to invest another US$5 mil-
lion in 2015.
This work is primarily targeting expansion of
Glacier Creek, a region of the project that consists
of five inter-related subzones of massive sulfide
mineralization – RW East, RW West, and South
Wall zones 1, 2 and 3.
The South Wall zones are parallel layers of near-
ly vertical VMS mineralization. At the upper extent
see PALMER DOUBLES page 10
JIM MCKENZIE
Zazu intends to useproceeds from the offering
for developmentexpenditures related to its
Lik zinc-lead-silverproject in NorthwestAlaska and general
working capital purposes.
CO
NST
AN
TIN
E M
ETA
L R
ESO
UR
CES
LTD
.
Drilling at Palmer in 2014 cut copper- and zinc-richmineralization at a 400-square-meter conductiveplate identified with downhole geophysics.
The 8-inch linedelivers paste backfill,a mixture of tailingsand cement, into the
underground mine fordisposal.
of South Wall, a fault cuts and folds the
three layers at which point they lay nearly
flat. South Wall Zone 2 and Zone 3 are of
the same age strata as two strata drilled at
RW, the flat lying limb of the deposit.
When Dowa began funding the proj-
ect, these zones encompassed roughly 4.1
million metric tons of calculated resource
and showed the potential for significant
expansion.
Of the 16 holes drilled in 2014, two
stand out for the width of the mineraliza-
tion cut and the zinc and copper grades of
the thick intercepts.
Hole CMR14-54, the first hole to
intercept the large conductive plate iden-
tified with downhole geophysics, cut 22.1
meters grading 2.48 percent copper, 4.05
percent zinc, 24 g/t silver and 0.39 g/t
gold. This intersection, a 150-meter
down-plunge step-out, provided tantaliz-
ing evidence that a large and high-grade
portion of the South Wall Zone continues
further down the mountain.
“Hole CMR14-54 not only expands
the footprint of the South Wall zones but
10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 17, 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
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Forrest Crane CONTRACT PHOTOGRAPHER
Tom Kearney ADVERTISING DESIGN MANAGER
Renee Garbutt CIRCULATION MANAGER
Mapmakers Alaska CARTOGRAPHY
ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647
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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
Rickford: Mining matters to CanadiansCanada Minister of Natural Resources Greg Rickford May 11 commemorat-
ed the 19th National Mining Week, which ran from May 11 to 17. “National
Mining Week is an opportunity to recognize Canada’s international leadership
and innovation in the mining sector and to underscore the importance of mining
to communities across the country,” he said. One of the largest mining nations
in the world, Canada produces more than 60 minerals and metals. “Quite sim-
ply, mining matters to Canadians. It is a cornerstone of our economy and pro-
vides benefits from coast to coast to coast. The mining and mineral processing
industry generates close to $60 billion for Canada’s GDP, employs more than
380,000 Canadians, including 10,000 Aboriginal Peoples, and accounts for one-
fifth of Canada’s merchandise exports,” said Minister Rickford. In Economic
Action Plan 2013, the Government of Canada committed $100 million over
seven years to renew the Geo-mapping for Energy and Minerals program to sig-
nificantly advance and modernize geological knowledge in the North. Economic
Action Plan 2015 proposes spending C$22 million over five years on a geo-
science initiative focused on deeper deposits; and C$23 million on another five-
year program looking into the technological innovation needed to separate and
develop rare earth elements and chromite. “Our government’s plan for responsi-
ble resource development is enhancing Canada’s position as a global mining
and exploration giant, creating jobs and opportunity for Canadians,” said
Rickford.
Seabridge targets Deep Mitchell at KSMSeabridge Gold Inc. May 12 said the 2015 exploration program at its KSM
Project in northwestern British Columbia is planned to begin with drilling at the
lower elevations of the Mitchell valley and then proceed to Kerr and Iron Cap.
Over the past two years, Seabridge has targeted higher grade core zones beneath
KSM’s near surface porphyry deposits, resulting in the discovery of Deep Kerr
and the Iron Cap Lower Zone, two copper-rich deposits that have added nearly
one billion metric tons to project resources. This year’s main target is a possible
higher grade core zone beneath Mitchell, the largest deposit at KSM. A high res-
olution airborne magnetic survey has recently been completed to aid in refining
the drill targets, particularly at Mitchell. “The potential under Mitchell has been
our top exploration target for more than four years but earlier attempts to drill it
ran into technical difficulties. We believe we now have a reliable solution that
will enable us to complete holes into this high value target,” explains Seabridge
Chairman and CEO Rudi Fronk. This year’s program at KSM is considerably
smaller than previous years, reflecting the completion of an environmental
assessment process which culminated in provincial and federal approvals in
2014. The company said the C$16.4 million financing completed last month
will provide plenty of funds to complete its planned 2015 program.
Schaft Creek JV continues optimizationCopper Fox Metals Inc. May 6 said the summer field program for the Schaft
Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: [email protected]
Phone: 907.229.6289 • Fax: 907.522.9583
see NORTHERN NEIGHBORS page 11
l O P I N I O N
Solons seek clarityon ‘waters of U.S’Though it is too soon to break out the champagne, Congresshopefully will pass bipartisan legislation to bring the EPA to heel
By J. P. TANGENSpecial to Mining News
A fter six years of lackluster perform-
ance under the leadership of Sen.
Harry Reid, D-Nev., Congress now
appears poised to seize the initiative and
rein in the U.S. Environmental Protection
Agency’s ambitious assertion of jurisdic-
tion over the waters of the United States.
The EPA has long used the Clean Water
Act as a federal zoning tool and implicit-
ly asserted jurisdiction over virtually
everything that is wet, ever has been wet
or ever will be wet. In Alaska, because
permafrost comes within the agency’s
definition of something wet, tens and tens
of millions of acres within the state have
been regarded as wetlands and, therefore,
waters of the United States that EPA feels
justified in attempting to regulate.
The definition of what constitutes
waters of the United States has been con-
troversial since the early 1970s and the
EPA has been persistent in pushing the
envelope at every opportunity, taking the
question twice to the Supreme Court of
the United States, without having the
matter meaningfully resolved. Most
recently, the EPA promulgated an
extremely aggressive definition of what
comprised the waters of the United
States; however, because the EPA took
the position that its definition did not
constitute a change in the law, it argued
that it was not subject to the numerous
fail-safes that Congress had enacted to
ensure that the Agency’s interpretation of
its jurisdiction did not sublimate the man-
dates of other agencies of government.
States that produce the commodities
upon which we all rely are frequently
sparsely populated and depend on vast
tracts of land, often public land, to pro-
duce the corn and cattle and timber and
copper that our society demands. The
economies of those states generally are
dependent upon the availability of water
and access to land that is sometimes wet.
Although the EPA commonly gives pass-
ing weight to the economic impact of its
regulations, the focus of its regulatory
efforts is invariably to control and restrict
rather than foster and encourage resource
development and commodity production.
Alaskans have long suffered from this
singular bias; however, we are not alone.
In the land between the Appalachians and
the Rockies, farmers and cattlemen have
borne the unrelenting brunt of the EPA’s
insensitivity, and now, through their con-
gressional delegations, Democrats and
Republicans alike, they are fighting back.
On May 12, the U.S. House of
Representatives passed H.R. 1732 by a
vote of 261-155, with the support of 24
Democrats. The U.S. Senate is also con-
sidering bipartisan legislation to require
the Secretary of the Army and the
Administrator of the EPA to propose a
regulation revising the definition of the
waters of the United States and this time
to comply with the Administrative
Procedures Act, the Regulatory
Flexibility Act, the Small Business
Regulatory Enforcement Fairness Act,
the Unfunded Mandates Act, and
Executive Orders 12866, 13563 and
13132; all things the EPA decided that it
did not have to do when it proposed its
rule last year.
The legislation consistently is an effort
to leverage the EPA into a mode wherein
it is regulating pollution of traditional
waterways and not underground hydrolo-
gy or isolated water bodies. It is legisla-
tion that bodes well for resource develop-
ers throughout the nation and especially
in Alaska and bears watching.
Assuming that the legislative process
is now working again, and that the House
and Senate will agree on a bill that has
strong bipartisan support, all that remains
is for the President to sign it into law.
The current proposals are reasonable on
their face, are consistent with the best
interests of the national economy and
should be met with the President’s
approval.
For the first time in more than six
years, the light of hope is appearing on
the distant horizon. Let this be the first of
many measures that meet the needs of the
nation. l
continued from page 9
PALMER DOUBLES
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.
see PALMER DOUBLES page 11
opens up the opportunity for considerable
further expansion and will be a focus for
ongoing drilling,” MacVeigh said at the
time. “The thickness and high copper
content associated with a large conduc-
tive target enhances the potential around
this new area.”
While not as rich in copper, CMR14-
65 cut higher grade zinc across the widest
mineralized intercept to-date at Palmer.
Intersecting the conductor plate at
South Wall about 50 meters east and 50
meters above hole 54, hole 65 cut 89
meters grading 0.79 percent copper, 5.03
percent zinc, 21.1 g/t silver and 0.32 g/t
gold. This long intercept included 15.4
meters of 0.5 percent copper and 7.9 per-
cent zinc in an upper zone and 37.4
meters of 1.2 percent copper and 6.0 per-
cent zinc in the lower zone.
Both holes targeted a 400-square-
meter conductive plate that has proven to
be a rewarding resource expansion target
at Palmer, and will be the first area target-
ed when drilling resumes in early June.
In addition to expanding the conductor
plate, the company is looking forward to
testing an area farther down the moun-
tain.
“We are also really excited about test-
ing the faulted offset of the zone below
the Kudo fault. The zone appears to be
thickening with depth up to the edge of
where it intersects the fault, and mineral
zoning suggests increasing copper grade
and potential for a copper-rich vent center
at depth,” said Green.
Barite-richUpon reporting the new resource,
Constantine also noted that a significant
portion of this deposit is barite, a high-
density material widely used as a weight-
ing agent in drill muds to prevent
blowouts during oil and gas exploration.
Common throughout most of the min-
eralization at Palmer, barite presents mul-
tiple benefits for the potential develop-
ment of the project.
First, unlike pyrite, barite is a stable
sulfur-bearing mineral that is not prone to
acid rock drainage.
Second, the mineral sells for more
than US$100 per ton, providing the
potential for selling a product that would
normally be sent to tailings. According to
the U.S. Geological Survey, the United
States imports 79 percent of its barite,
most of which comes from China.
The resource area at Palmer is estimat-
ed to consist of roughly 14 percent barite
by volume or about 24 percent by weight,
making the Southeast Alaska project a
potential domestic source for the mineral.
While the junior still has to work out
whether it can economically produce a
marketable product from the barite at
Palmer, management is hopeful.
“Of significance is the fact we would
likely be pulling any barite from the
rougher tails after already being milled,
and passed through the copper and zinc
flotation circuits. So (there) shouldn’t be
a lot of additional process cost,” Green
said.
In the meantime, Constantine and
Dowa will continue efforts to expand the
barite-rich VMS deposit.
“We are very pleased with progress to
date and, with $12 million left to spend
over the next two years, believe we are on
the right track,” Green added. l
11NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF MAY 17, 2015
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Creek copper-gold project in northwestern British Columbia is expected to start
in early June. The Schaft Creek joint venture – 25 percent Copper Fox, 75 per-
cent Teck Resources – is planning a 2,500-meter diamond drill program to test
the depth of copper mineralization observed in veins on surface and in
hydrothermal breccia at the LaCasse zone. Work on a comminution (grinding)
study to determine power requirements and circuit design; modelling of the geo-
metallurgical domains for the Schaft Creek deposit; and other studies related to
optimization work for the Schaft Creek deposit is ongoing. If warranted by the
new studies, updating of operating and capital costs, flow-sheet design criteria,
and a new financial simulation are planned for later in the year. A feasibility
study completed in 2013 outlined a 130,000-metric-ton-per-day open-pit mine
operating for 21 years at Schaft Creek based on proven and probable reserves of
940.8 million metric tons averaging 0.27 percent copper, 0.19 grams per metric
ton gold, 0.018 percent molybdenum and 1.72 g/t silver.
Canada Zinc readies to drill CardiacCanada Zinc Metals Corp. May 12 outlined a 5,000-meter drill program that
will focus primarily on its Cardiac Creek zinc-lead-silver deposit at its Akie
project in northern British Columbia. Crews are to mobilize to the project early
in June and drilling is expected to continue into September. A total of 126 holes
(53,750 meters) have been drilled on the
Akie property, 78 of which contribute to
an NI 43-101-compliant resource estimate
for the Cardiac Creek deposit. An addition-
al 35 drill holes test the Cardiac Creek
horizon over a 7,000-meter strike length,
or other exploration targets on the proper-
ty. The primary goal of the 2015 program
is to expand the down-dip extents of the
high-grade core to the Cardiac Creek deposit. “We strongly believe the recent
upturn in the price of zinc is signaling the beginning of the long-expected dra-
matic decline in global zinc inventories and lack of new supply. In the face of
the looming zinc shortage, Canada Zinc Metals is positioned as a premier zinc
explorer with a world-class zinc deposit situated in a geopolitically and finan-
cially stable jurisdiction,” said Canada Zinc Metals President and CEO Peeyush
Varshney.
High-grade zinc cut at Prairie CreekCanadian Zinc Corp. May 5 reported that the first four drill holes of an ongo-
ing underground drill program cut the high-grade zinc structure targeted at the
Prairie Creek Mine in the Northwest Territories. The 6,000-meter drill program
is testing for new areas of mineralization in proximity to the mine workings and
aiming to convert a portion of the large inferred mineral resource at Prairie
Creek to the indicated category for potential inclusion in an update of the pre-
liminary feasibility study scheduled to be completed later this year. In this par-
ticular area of the mine, the mineralization occurs either in the Main Quartz
Vein – a high-grade, steeply dipping, fault structure that hosts the majority of
the defined reserves and resources – or in the Stockwork Zone – a series of nar-
row high-grade veins occurring at an oblique angle to the MQV. All four holes
intersected the MQV structure, the best of which cut 3.03 meters grading 30.5
percent zinc, 27.5 percent lead and 289 grams per metric ton silver. Three of the
holes intersected the Stockwork Zone, the best of which cut 3.63 meters grading
11.9 percent zinc, 7.2 percent lead and 89 g/t silver. l
continued from page 10
NORTHERN NEIGHBORS
continued from page 10
PALMER DOUBLES“It has been very refreshing to beable to focus near 100 percent of
our efforts at growing andbuilding the asset at Palmer, andavoid the distraction of constantlychasing financings, which in thismarket has become a Herculean
task.” –Darwin Green, vicepresident of exploration,
Constantine Metal Resources Ltd.
The primary goal of the 2015program is to expand the
down-dip extents of the high-grade core to the Cardiac
Creek deposit.
12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 17, 2015
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Conoco to expand 2
Kuparuk drilling padsBy KRISTEN NELSON
Petroleum News
K uparuk River field operator
ConocoPhillips Alaska has applied
to the Alaska Department of Natural
Resources’ Division of Oil and Gas to
amend its unit plan of operations for the
field for two pad expansions.
This work is in addition to the ongoing
construction of Drill Site 2S in the south-
west corner of the field, expected to come
online at the end of the year to accommo-
date 24 wells and produce some 8,000
gross barrels per day at peak. That drill site
will develop a Kuparuk reservoir accumu-
lation in the southwest corner of the unit
discovered by ARCO in the late 1980s.
ConocoPhillips appraised the discovery in
early 2012 with the Shark Tooth No. 1
well. ConocoPhillips received partner
approval for the development in late 2014.
DS-2G pad expansionThe first expansion application,
received by the division in early February,
is for an expansion of the Drill Site 2G pad
in the south central portion of the field.
ConocoPhillips said the expansion
would require the placement of some
8,596 cubic yards of gravel fill material
onto tundra to expand the existing pad by
some 1.17 acres, accommodating nine new
wells and associated infrastructure. The
company said in its description that the
project would include installation of new
header and tie-in lines, nine well houses
and a new remote electrical and instrument
module to support the new wells.
Project work is expected to begin Aug.
1 this year and be completed by Aug. 1,
2016.
DS-3O pad expansionThe division received a unit plan of
operations amendment in early March for
expansion of the Drill Site 3O pad. DS-3O
is at the northern edge of the unit, just
south of Oliktok Point.
This expansion will require placement
of some 16,842 cubic yards of gravel fill
material onto tundra to expand the existing
pad to the north and northwest by some
1.75 acres, with the expansion described as
needed to accommodate new wells and
infrastructure which will be permitted at a
future date. As with the DS-2G expansion,
project work is expected to begin Aug. 15
this year and be completed by Aug. 1,
2016.
The division is accepting comments on
both applications by June 8.
Alaska projects continuingWhile ConocoPhillips has announced
companywide cuts in response to the drop
in oil prices, the company has said it is pro-
ceeding with major projects announced for
Alaska. In addition to the DS-2S construc-
tion, that includes work on CD-5 in the
National Petroleum Reserve-Alaska,
development of Northeast West Sak and a
seismic shoot at Greater Mooses Tooth 1 in
NPR-A. l
—A copyrighted oil and gas lease mapfrom Mapmakers Alaska was a researchtool used in preparing this story.
ENVIRONMENT & SAFETYADEC seeks changes to oil handling regs
The Alaska Department of Environmental Conservation has proposed changes
to the regulations for the prevention of pollution from oil and other hazardous
substances, including the regulations for oil spill prevention and response plans.
Among other things, the changes confirm that gas exploration and production
facilities do not need an oil spill contingency plan and clarify a number of issues
relating to the amendment, review and renewal of plans.
Comments on the changes are required by 5 p.m. on June 6.
—ALAN BAILEY
AIDEA approves BlueCrest Cosmo loanDuring its April 30 meeting the board of the Alaska Industrial Development
and Export Authority approved a loan of up to $30 million to BlueCrest Energy
Inc. for an onshore drilling rig for the development of the Cosmopolitan oil field.
The field lies off the southern Kenai Peninsula near Anchor Point, but BlueCrest
plans an oil development from onshore using directional drilling into the deep
Hemlock and Starichkof formations. The company hopes to start onshore produc-
tion by early 2016, with the offshore development of some relatively shallow oil
and gas pools to commence at a later time.
AIDEA says that exploration and testing activities over the last 30 years at
Cosmopolitan have revealed sizable oil reserves in the field and that three inde-
pendent analysts, including one that AIDEA hired, have confirmed the resource.
The analysts have also verified the field’s ability to support oil production in
excess of 8,000 barrels per day, AIDEA says.
“We are pleased to move forward in support of BlueCrest in their Cook Inlet
development program,” said AIDEA Executive Director John Springsteen.
“AIDEA’s financial participation in this rig will not only help secure long-term
energy supplies for Alaskans, it will create job growth and advance the region’s
economy.”
The rig in question, which BlueCrest plans to use for up to seven years, has a
3,000 horsepower drive and a more than 30,000-foot reach capability, AIDEA
says. And bringing Cosmopolitan on line will create about 45 oilfield jobs and
more than 25 further jobs in the trucking operation needed to transport oil from
the field to the Tesoro refinery at Nikiski, AIDEA says.
—ALAN BAILEY
FINANCE & ECONOMY
FINANCE & ECONOMYMiller gets second NYSE delisting notice
Miller Energy Resources Inc. has received more uncomfortable correspondence
from the New York Stock Exchange.
The Tennessee-based company disclosed that it received a May 6 notice saying
Miller was out of compliance with the listing requirements of the exchange.
“The company is below compliance with respect to a rule requiring that NYSE-
listed companies maintain an average market capitalization and stockholders’ equity
greater than $50 million over a 30 trading-day period,” Miller said in a May 12 press
release.
This is the second notice of noncompliance the struggling company has received
from the exchange.
On April 23, the company received a notice indicating it was in danger of delisting
because the average closing price of Miller’s common stock had been less than $1
over a period of 30 trading days.
Miller said it intends to follow NYSE procedures to regain compliance.
Meantime, the company’s shares will continue to be listed on the exchange.
Miller’s stock closed May 13 at 58 cents.
The company’s main focus is oil and gas production in Alaska.
—WESLEY LOY
14 PETROLEUM NEWS • WEEK OF MAY 17, 2015
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NATURAL GASEnstar signs for new North Fork gas supply
Enstar Natural Gas Co., though its affiliate Alaska Pipeline Co., has signed an
agreement with Cook Inlet Energy Inc. for a continuing supply of natural gas from
the North Fork gas field in the southern Kenai Peninsula, Enstar told the
Regulatory Commission of Alaska on April 30. The commission must approve the
gas supply agreement before the agreement can go into operation.
The North Fork field has been supplying gas to Enstar since 2011 under a gas
sales agreement that ends around Sept. 1 of this year, with the newly filed supply
agreement becoming effective upon termination of that previous agreement.
Under the new agreement, which Enstar says will not increase any existing rate
or charge, Cook Inlet Energy will sell North Fork gas to Enstar at a continuous
rate of 2.5 million cubic feet per day until March 31, 2016, with the possibility of
extending the contract for a further six months. The price of the gas will be $6.03
per thousand cubic feet.
The new agreement also has a provision to enable Enstar to purchase addition-
al gas, but without any obligation on Cook Inlet Energy to sell that gas. And,
while Cook Inlet Energy is responsible for the payment of any royalties and other
expenses associated with the gas production, Enstar will incur the cost of trans-
porting the gas by pipeline after receiving the gas from the gas producer.
—ALAN BAILEY
RCA investigates CEA rate increaseThe Regulatory Commission of Alaska has opened an investigation into a rate
increase proposed by Southcentral utility Chugach Electric Association. Chugach
Electric has told the commission that it needs to raise its rates to cover a $21.3
million revenue shortfall resulting from the end of an agreement under which the
Southcentral Alaska utility had been supplying power to Palmer-based Matanuska
Electric Association. Matanuska Electric has recently replaced its Chugach
Electric supply with its own power from a new power station at Eklutna.
To recover its loss of revenue Chugach Electric wants to increase its rates for
the wholesale power delivered to the city of Seward and for retail sales to
Chugach Electric’s own customers. The utility also wants to increase the fees that
it charges for transporting power through its transmission system, as well as
increasing the rates for some other services. The utility says that the rate increases
would likely trigger a 6 to 7 percent increase in Seward electricity bills, and a 2
to 4.5 percent increase for Chugach Electric customers.
The changes went into effect on May 1, on a refundable basis if the new rates
are not ultimately approved.
On April 30 the commission issued an order setting the formal wheels in
motion for an investigation into the proposed rates. In that order the commission
said that it is granting the requested increases in rates for power sales but that
Chugach Electric cannot recover any of the revenue shortfall from an increase in
the rates for power transmission and other services.
—ALAN BAILEY
PWSRCAC elects slate of board officers The Prince William Sound Regional Citizens’ Advisory Council, at its recent
annual board meeting in Valdez, elected new board officers. The newly elected
executive committee includes:
President, Amanda Bauer, representing the city of Valdez.
Vice president, Thane Miller, representing Prince William Sound Aquaculture
Corp.
Treasurer, Orson Smith, from the city of Seward.
Secretary, Bob Shavelson, representing the Oil Spill Region Environmental
Coalition.
Three members at large include Melissa Berns, representing the Kodiak Island
Mayors Association; Robert Archibald from the city of Homer; and Patience
Andersen-Faulkner, representing Cordova District Fishermen United.
The new board officers will serve for a year.
The Valdez-based council is a congressionally sanctioned body with voting
members representing local governments and commercial fishing, tourism,
Native and other interests. It monitors the Alyeska oil terminal and associated
tanker operations, sponsors research and offers input to regulators and the oil
industry on issues such as spill response readiness.
—WESLEY LOY
Study finds Port Valdez shrimp OK to eatThe shrimp are safe!
That’s the upshot of research into whether shrimp caught in Port Valdez are con-
taminated with Alaska North Slope crude oil, the Prince William Sound Regional
Citizens’ Advisory Council said in a May 11 press release.
For the shrimp study, the council said it worked with the scientists from the
National Marine Fisheries Service Auke Bay lab in Juneau.
Small amounts of crude oil hydrocarbons enter the waters of Port Valdez from dis-
charge from the oil tanker terminal’s ballast water treatment facility, the council said.
“The amount of ballast water processed by the facility has declined in recent years.
This decline is in part because decreased oil flow through the pipeline means fewer
UTILITIES
Simpson area to deliver a unanimous
standing vote to challenge plans for a pro-
posed natural gas pipeline and liquefac-
tion terminal on Lelu Island just south of
Prince Rupert.
Siting concernsThe residents raised particular concerns
about siting the facilities at the mouth of
the Skeena River, which is one of British
Columbia’s critical salmon rivers, con-
cerned about the impact of dredging on
traditional fishing grounds.
“It is the worst place they could have
chosen on the whole north coast,” said
Luanne Roth of the T. Buck Suzuki
Foundation.
Lax Kw’alaams tribe member Malcolm
Sampson asked why the proponents would
have chosen the Skeen River “of all
places” to build an LNG plant.
He said the cash offer of benefits over
40 years was not even discussed during the
packed meeting.
“Too much was at stake to wipe out a
whole river,” Sampson said, describing the
atmosphere at the meeting as “very tense.”
The proposal included an initial pay-
ment of C$27.8 million, followed by annu-
al installments starting at C$13 million and
rising to C$50.5 million in the final year,
plus 5,400 acres of land valued at C$108
million in the Prince Rupert harbor area,
and the promise of jobs for qualified abo-
riginals.
Pacific NorthWest President Michael
Culbert thanked the Max Kw’alaams
council for the chance to make a presenta-
tion at the meeting.
He said that “out of respect to the ongo-
ing process overseen” by the council it
would be “premature and improper to
comment further.”
Port Simpson resident Donnie Wesley,
a life-long fisher, said the community vote
sent a decisive message to the British
Columbia and Canadian governments that
his First Nation takes a serious view of
environmental matters.
He said the vote was a “proud moment
for our people. We stood our ground.”
Lax Kw’alaams Mayor Gary Reece
said the council would not comment on the
outcome of the first of three scheduled
votes by 3,700 members of the community
until those living outside Port Simpson
cast their ballots.
No aboriginal vetoWhatever the final outcome of the Lax
Kw’alaams voting, rejection of the Pacific
NorthWest offer does not mean the end of
the project.
Robin Junger, a lawyer specializing in
aboriginal and environmental law, told
Business in Vancouver that governments
have a duty to consult First Nations, and, if
necessary, mitigate impacts on aboriginal
rights, but that does not amount to an abo-
riginal veto.
Nor are companies obliged to strike
revenue sharing agreements like that
offered by Petronas, even though such
deals can go a long way toward coopera-
tion and participation by aboriginals.
First Nations can request a judicial
review if a project is approved without
their consent, but they would have to
demonstrate how the government failed in
its duty to consult and accommodate,
Junger said.
He said courts rarely issue an injunction
suspending a work permit while reviews
are heard.
—GARY PARK
ENVIRONMENT & SAFETY
see VALDEZ SHRIMP page 18
continued from page 1
LNG OFFER
PETROLEUM NEWS • WEEK OF MAY 17, 2015 15
ment if it didn’t have its way.
The initial industry reaction to the
stunning election outcome is a barely dis-
guised move to lean on the new adminis-
tration.
Certain tax increaseTypical of the mood in corporate
Calgary – which faces a certain increase
in its tax rate to 12 percent from 10 per-
cent — Scott Saxberg, chief executive
officer of Crescent Point Energy, said a
stock market swoon on May 6, the day
after the NDP victory and the
Conservative party demise, will only be
magnified if Notley decides to carry out
her pledge to review whether Albertans
are getting a “fair share” from the
resources they own.
The S&P/TSX energy index, reacting
to the election, lost C$13 billion in value
on May 6, while companies had already
slashed about C$33 billion from their
2015 capital budgets in response to the oil
price dive.
“If the NDP create further uncertainty
on royalties and change royalties to
impact valuations, it will provide an
opportunity for companies such as our-
selves to step in and buy Alberta-based
companies for a discount value,” Saxberg
told reporters.
He said potential buyers would be
well-positioned for if and when the gov-
ernment was forced to back down from
any royalty increases to stem the outflow
of investments, as it did five years ago
after the only attempt in Alberta govern-
ment history to raise royalties.
“It’s not hurtful to foreign companies,
it’s hurtful to local companies, because
they’re all invested here,” he said. “If you
drop the valuation of a company because
you change the rules and create uncertain-
ty, it creates opportunity and discount
value.”
Saxberg earlier noted that Crescent
Point collects only 4 percent of its rev-
enue and 2 percent of its cash flow from
Alberta government lands and has bud-
geted to spend only C$40 million in the
province this year.
But he was emphatic that Crescent
Point is ready to shift that spending to its
major operations in Saskatchewan, where
he noted the government has left royalties
untouched in 30 years, and the Bakken
and Uinta plays in the United States.
Lower royalties availableA report by Calgary-based ITG
Investment Research noted that
Saskatchewan and British Columbia
charge lower royalties than Alberta for
similar production.
The company said that in a “worst-
case scenario” that if Alberta royalty hol-
idays introduced in 2011 to offset the new
royalties introduced in 2009, the royalties
on a typical liquids-rich gas well would
climb to 21 percent from the current 9
percent, slashing the net value of that well
to C$400,000 from C$2.3 million.
A report by Dundee Capital Markets
identified 21 Calgary-based companies
that would be exposed to royalty changes
because of their leaseholdings on govern-
ment land, observing that “capital is
extremely mobile and can easily move
out of Alberta at the first sign of uncer-
tainty.”
Reaching outFaced with this early backlash Notley
wasted no time reaching out to the indus-
try, to assure producing companies and
business leaders they have nothing to fear
from her government.
“What I said very clearly during the
campaign is that while we may believe
there is some new consideration that
needs to occur, that it will be done collab-
oratively and in partnership with our key
job creators in this province,” she said.
“I am hopeful that over the course of
the next two weeks they will come to
realize things are going to be just A-OK
here in Alberta.”
Notley said her objective is “getting
the best deal for Albertans, protecting our
economy and ensuring that we grow jobs
— we don’t lose jobs — because we
know that’s fundamental to the strength
of Alberta. We’re going to be balanced,
measured, reasoned.”
In addition to the royalty fears, Bill
Andrew, chairman of mid-size producer
Long Run Exploration, said that although
most of his peers are adopting a “wait and
see” approach, he would not be surprised
to see interest shift to exploration
prospects in British Columbia and
Saskatchewan.
Hydraulic fracturingHe expressed concern about NDP sig-
nals that a Notley government might also
take a fresh look at the environmental
impact of hydraulic fracturing.
In that realm, the new premier has
been less than clear so far on her plans for
climate change measures and tougher
environmental controls in the oil sands.
Gary Leach, president of the Explorers
and Producers Association of Canada,
which speaks for 200 small and medium
oil and gas producers, said the election
outcome “was not what industry would
have preferred, but I think this is a very
sophisticated industry that’s prepared to
work with politicians of any stripe.”
He said the industry faces a heavy
workload to “provide reassurance and
clarity on some major policy issues for
investors who provide so much of the
capital that, when it’s put to work in
Alberta, creates jobs for Albertans.”
However, Leach said a royalty review
would cause more short-term pain as pro-
ducers try to recover from a severe oil
patch downturn since oil prices went on a
skid last summer.
Uncertainty will cause investors “to sit
on their wallets and that’s going to delay
a resumption of economic growth in
Alberta,” noting there were a lot of “unin-
tended consequences” from the mishan-
dled royalty review conducted by former
Premier Ed Stelmach.
Investment concernTim McMillan, chief executive officer
of the Canadian Association of Petroleum
Producers, said the energy sector is “fun-
damental to the economic success of
(Alberta and Canada) and as an industry
we want to make sure that Alberta contin-
ues to be positioned for investment.”
He said CAPP will not give up on the
work it started with former Premier Jim
Prentice to streamline the regulatory
regime, though “not at the expense of
compromising our standards.”
On the pipeline front, Notley has put
herself at odds with Prime Minister
Stephen Harper, who has championed the
four multibillion dollar projects to the
United States and both Canadian coasts.
While declaring her hope to “build
bridges and open markets for Alberta oil
without getting a black-eye (in the
process),” Notley has interpreted the
NDP’s overwhelming election victory as
“clear authority to make tough choices.”
No more lobbyingBased on that view, she has decided to
put an end to the lobbying by her prede-
cessors in the United States for
TransCanada’s Keystone XL project and
has effectively suggested that Enbridge’s
should give up on its Northern Gateway
plans.
Notley said there has been “no realistic
objective” to the frequent visits by her
predecessors to sway opinion in the U.S.
on Keystone XL since the pipeline is
bogged down in U.S. domestic politics.
In any event, she wants to see a greater
focus on shipping refined crude products
from Alberta rather than raw bitumen,
despite the reluctance of the petroleum
industry to embark on building upgraders
or refineries.
Others agree that the selling missions
to the U.S. have achieved little or nothing.
“I’m not sure what they accom-
plished,” said Steven Paget, an analyst at
FirstEnergy Capital. “I’m not sure pulling
it back is going to change much.”
TransCanada not giving upTransCanada is not giving up, saying
the “value of the energy industry to
Canadians is unquestionable.”
“Market access for Alberta’s crude oil
remains a top priority and we remain
committed to developing projects such as
Keystone XL and Energy East to supply
U.S. and Canadian refineries,” the com-
pany said.
Notley is even more emphatic that the
Northern Gateway proposal, to export
525,000 barrels per day of raw bitumen to
Asia, which Enbridge says has already
cost it C$500 million, is a no-go.
She rates the C$8 billion project as a
lost cause, even though it has received
conditional approval from the Canadian
government, which triggered 17 aborigi-
nal lawsuits.
“Gateway is not the right decision. I
think that there’s too much environmental
sensitivity there and I think there’s a gen-
uine concern by indigenous communi-
ties,” she said.
“Quite frankly, anyone who knows
how these things unfold knows nothing is
happening there for decades.”
Ed Whittingham, executive director of
the Pembina Institute, said the 209 federal
conditions attached to Northern Gateway
pose a bigger challenge than the new
Alberta government’s stance.
“I don’t think having the support (of
Alberta) or not is going to make a big dif-
ference at this point. It’s really in the
hands of the British Columbia govern-
ment,” he said.
Cutting lossesCoastal First Nations leader Art
Sterritt said it is time that Enbridge “cut
its losses and put this to bed. It will allow
everyone to move on. We’re spending lots
and lots of dollars to oppose this. We have
court cases going on. We’d really rather
get on with building a true diverse econo-
my.”
Enbridge is clinging to hope, saying it
“looks forward to sitting down with the
new premier to discuss her concerns.”
Although Notley keeps hammering
home her pitch for Alberta-based refiner-
ies, she has indicated support for the other
two proposals to build pipelines out of the
province — TransCanada’s Energy East,
which is designed to add a portion of
Bakken crude in its 1.1 million bpd
capacity and Kinder Morgan’s Trans
Mountain expansion, which focuses
exclusively on moving oil sands produc-
tion — even though they face the same
set of opponents as Keystone XL and
Northern Gateway. l
continued from page 1
NOTLEY ERA
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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
Alaska Railroad
Alaska Rubber
Alaska Steel Co.
Alaska Textiles
Alaska West Express
Alpha Seismic Compressors
American Marine
Arctic Controls
Arctic Slope Telephone Assoc. Co-op.
Arctic Wire Rope & Supply
ARCTOS
Armstrong
ASRC Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
AT&T
Avalon Development
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Battelle Anchorage
Bombay Deluxe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Crowley Solutions
Cruz Construction
Delta Leasing
Denali Industrial
DET-TRONICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Dowland-Bach Corp.
Doyon Anvil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Doyon Drilling
Doyon, Limited
Doyon Universal Services
Egli Air Haul
exp Energy Services
F. Robert Bell and Associates
Fairweather
Five Star Oilfield Services
Flowline Alaska
Fluor
Foss Maritime
Fugro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
G-MGBR Oilfield Services
GCI Industrial Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
GCR Tires & Service
Global Diving & Salvage
Global Geophysical Services
GMW Fire Protection
Golder Associates
Greer Tank & Welding
Guess & Rudd, PC
Hawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
HDR Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
IFR Workwear
Inspirations
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Kenworth Alaska
Kuukpik Arctic Services
Last Frontier Air Ventures
Learn to Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Lister Industries
Lounsbury & Associates
Lynden Air Cargo
Lynden Air Freight
Lynden Inc.
Lynden International
Lynden Logistics
Lynden Transport
MagTec Alaska
Mapmakers of Alaska
MAPPA Testlab
Maritime Helicopters
Miller Energy
Motion Industries
N-PNabors Alaska Drilling
Nalco
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NASCO Industries Inc.
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Nordic Calista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
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Northern Electric Inc.
Opti Staffing Group
Pacific Alaska Lumber
Pacific Pile
PacWest Drilling Supply
Paramount Supply Company
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PND Engineers Inc.
PRA (Petrotechnical Resources of Alaska)
Price Gregory International
Resource Development Council
Ravn Alaska (formerly Era Alaska)
Q-ZSAExploration
SAFWAY
Sophie Station Suites
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Tanks-A-Lot
The Local Pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Think Office
Total Safety U.S. Inc.
TOTE-Totem Ocean Trailer Express
Totem Equipment & Supply . . . . . . . . . . . . . . . . . . . . . . . . . .4
TTT Environmental
UIC Oilfield Support Services
Unique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Univar USA
Usibelli
Verizon
Vigor Alaska
Volant Products
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Vigor expands its new build capacity in TacomaFabrication teams at Vigor Industrial’s
Tacoma, Washington, shipyard have deliv-ered three 60-foot by 24-foot by 15.5-footbreasting barges to Foss Maritime. Thebarge system will be used to moor Shell’sdrill rigs at Terminal 5 in Seattle,Washington, where the company is sched-uled to ready its fleet for Arctic drilling thissummer.
The project was completed in less thantwo months and created 60 family wagejobs for the Tacoma yard and its subcontractors. “We are so pleased that our Tacoma ship-yard is now building new vessels,” said Bryan Nichols, Vigor Fab sales manager. “Over theyears, Tacoma teams have earned a stellar reputation for quality commercial ship repairand major refits. Adding new builds to its resume increases our capacity in the region.”
“With Tacoma’s history of satisfied customers in refits and module construction, thiswas a logical next step,” added Nichols. “Our goal has been to create facilities that fill theneeds of different types of customers. Tacoma offers the responsiveness of a smaller yardwith the resources of the broader Vigor family.”
Cindy Shake inducted into Anchorage Athena Society Cindy Shake of AECOM was inducted into the Anchorage Athena
Society at the annual luncheon March 30. The Anchorage AthenaSociety is a program of the Anchorage Chamber of Commerce andlocal chapter of an international organization. The society describesits purpose as encouraging the potential of women as valued mem-bers and leaders of the business community.
Shake is an award-winning communication professional, whowas named the 2014 Marketer of the Year by the AmericanMarketing Association, Alaska Chapter. She was principal of a suc-cessful graphic design firm for more than 25 years and has 30 yearsof combined professional experience in marketing, business devel-opment, management, communications and graphic design.
Global Diving & Salvage announces addition of GTS Global Diving & Salvage is pleased to announce the addition of Global Technical
Services to its existing three core services, marine construction, marine casualty response
see OIL PATCH BITS page 18
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PETROLEUM NEWS • WEEK OF MAY 17, 2015 17
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the right-of-way bill completed. The pay-
ment in lieu of taxes bill (PILT) was really
a rough draft and really didn’t get much
vetting at all. That will be a project that
may take over during the interim. It is a
piece they will need as the negotiating
team goes forward with the AKLNG proj-
ect because we will want the property
taxes to have a bit more certainty for the
companies, for our partners and for us.
Petroleum News: Did the PILT billcome a bit late for your liking?
Giessel: Very late.
Petroleum News: What is your out-look on how things are right now withthe AKLNG project?
Giessel: Well, I am cautiously opti-
mistic. What I am hearing from AGDC
and the AKLNG people, things are mov-
ing forward. I’m hopeful that will contin-
ue. Of course, I have concern the governor
is spending time and money to do a 45-
day review of the AKLNG project and I’m
hoping that the outcome is one that still
supports that project going forward.
I certainly understand as the state’s new
chief executive that he would want in-
depth information about the most signifi-
cant project that we have. At the same
time, I’m hopeful the people doing this
review have the experience, credentials
and expertise to give it a proper vetting, so
we’ll see how that turns out.
Gov. Walker is well intentioned, and
there are growing pains to a new adminis-
tration. That said, his talk of a competing,
line to AKLNG is disconcerting. It is espe-
cially so when Gov. Walker talks about a
pipeline that is, at minimum, 51 percent
bought and paid for by the state, at a time
when we are facing an $8 billion budget
shortfall over the next two years.
Despite not having our side of the
house in order, our partners in AKLNG
are plowing ahead. We want to make sure
the negotiating teams for the state contin-
ue to hash out the best agreements with
our other partners.
There are many types of agreements
that need to be made. Exxon lead engi-
neer, Steve Butt, and his team are really
hard at work. It looks like pre-feed devel-
opment work will be done by this fall. We
have to reach agreements in order to give
them more work to do. This is an A-plus-
plus team; to keep that band together they
need sheets of music. For all the criticism
of the parties in the past (some of it
frankly well founded), I don’t want the
state of Alaska to be the party that holds
up the project this time, after we’ve
demanded a gas pipeline for over 40
years.
Overall, this was by no means an oil
and gas session. We did pass SB 70, a
right-of-way bill. It passed the Senate
unanimously and I’m pretty sure it passed
the House as well in such a fashion.
Petroleum News: Several lawmakers,including yourself, have gone out of yourway to give the governor the benefit ofthe doubt for being new in his role. Thatsaid how would you characterize theLegislature’s relationship with the gover-nor?
Giessel: Well, I think that the governor
and the Legislature spent the last session
getting to know each other. The governor
was learning the process and the rules of
various branches of government. I think
he has a clearer picture now that the
Legislature is a separate but equal branch,
and where we fall in the government
structure. I’m hoping that will make our
relationship going forward a bit smoother,
perhaps a bit more mutually respectful, but
that remains to be seen. I think we need to
be patient with each other and a bit more
respectful.
Petroleum News: Do you think thatrespect could be tested in October ifthere is a special session?
Giessel: Yes, it certainly could, and I’m
hoping that doesn’t happen. It would not
benefit the state if that were to happen.
Petroleum News: Do you still want tosee a special session in the fall?
Giessel: Yes, I think first of all, it
would mark a continued movement for-
ward of AKLNG because there will be
then some contracts for the Legislature to
review, and that’s a good thing. It would
also be a time when we could address the
payment in lieu of taxes issue. There may
be need for additional attention to the
budget, depending on what happens with
this first special session.
Petroleum News: One of the budgetissues lingering is AGDC money beingremoved from the budget to fund educa-tion. Under the governor’s new budgetproposal, he wants money put back in.He says he needs it for negotiations withTransCanada. What do you make of that?
Giessel: I’m not clear what that means.
We signed a memorandum of understand-
ing with TransCanada and I’m not sure
what finances would be needed to go for-
ward in negotiating further. That was
never defined, so I’m confused by that.
Petroleum News: So does that giveyou pause about keeping money there orputting it back?
Giessel: Of course, yes.
Petroleum News: All that said are there
any other plans you might have for the
committee during the interim? You had
mentioned the PILT bill needing some fur-
ther work in other committees.
Giessel: We are going to be taking the
update reports that are in statute. There
will be come confidentiality issues with
the in-depth updates for legislators.
We’ll also have the public updates. The
Senate Resources Committee and any
other legislator who want to come to the
confidential briefing.
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continued from page 5
GIESSEL Q&A
see GIESSEL Q&A page 18
Regulatory Commission of Alaska in an
April filing requesting an investigation.
Oliktok Pipeline Co. has only responded
to BP in a general way. The company said it
“denies all of BPXA’s allegations that
Oliktok’s proposed rates are unsupported,
unjust, unreasonable, or excessive.”
Because the Regulatory Commission of
Alaska has already implemented the rates of
a temporary basis while it conducts a stan-
dard review of the proposal, Oliktok
Pipeline felt it would “unnecessarily burden
the record” to respond to all the claims now;
those questions will be addressed naturally
through the investigation.
In its original filings, though, the compa-
ny had said the initial months of service
indicated that throughput was much lower
than expected, yielding a $9.2 million rev-
enue shortfall.
Various functionsThe Kuparuk Pipeline Co. built what is
now known as the Oliktok Pipeline in 1980,
as a 16-inch crude oil pipeline leaving the
Kuparuk River unit. When Kuparuk
Pipeline built a 24-inch crude oil pipeline
for the field, in 1985, it converted the small-
er line to deliver gas from the Kuparuk
River unit to Pump Station 1 of the trans-
Alaska oil pipeline.
Oliktok Pipeline Co. was created to
operate the renamed pipeline. Today, the
company is a subsidiary of ConocoPhillips
Alaska Inc., which operates the Kuparuk
River unit.
That function lasted until 1988, when the
Oliktok Pipeline stopped operations. The
pipeline resumed operations about 1995,
this time shipping natural gas and natural
gas liquids the opposite direction, to the
Kuparuk River unit, for enhanced oil recov-
ery.
The pipeline made another change in
2014, this time to deliver only gas to the
Kuparuk River unit to power field opera-
tions. The oil field had typically produced
enough associated gas to inject into the field
for enhanced oil recovery with volumes left
over to power field operations. Declining
oil production in recent years meant declin-
ing gas production, making imports neces-
sary. Those shipments began in November
2014.
As a 26.36 percent owner (and operator)
of the Prudhoe Bay unit and a 38.2 percent
owner of the Kuparuk River unit, BP has
interests on both ends of the Oliktok
Pipeline.
Old charges less than $1Under the proposed changes, the cost to
ship a thousand cubic feet of gas from
Prudhoe Bay to the Milne Point connection
would increase to $2.55, from 41 cents. The
cost to ship a thousand cubic feet of gas
from Prudhoe Bay to the Kuparuk River
unit would increase to $3.34, from 54 cents.
In April, the Regulatory Commission of
Alaska approved the increase on a tempo-
rary and refundable basis while it consid-
ered the matter.
The main argument is over throughput.
Generally speaking, when a pipeline is car-
rying fewer supplies, it must compensate by
increasing rates. With regulated pipelines,
operators use actual throughput figures
from recent years to estimate future ship-
ments.
Those calculations can become compli-
cated when a pipeline is new or beginning
new service. BP believes Oliktok Pipeline
Co. estimated throughput for the coming
year based on initial rates without consider-
ing what might happen once service is
“fully ramped up.”
On top of that, BP believes throughput
will only rise as Kuparuk River unit oil pro-
duction — and therefore associated gas pro-
duction — continues to decline as the field
ages.
Another point of contention is the age of
the pipeline. BP believes Oliktok Pipeline
may have calculated the age of the pipeline
from 1985, when natural gas shipments
began under the Oliktok Pipeline name,
rather than from 1980, when the pipeline
was built.
—ERIC LIDJI
18 PETROLEUM NEWS • WEEK OF MAY 17, 2015
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Anyone from the administration, too,
they are certainly welcome. We will be
inviting Deputy (Resources)
Commissioner (Marty) Rutherford, who
has signed the confidentiality agreement.
ADGC board members as well will be
there. We’ll be getting an update on things
going forward, or any glitches if there are
any.
Petroleum News: During your commit-tee hearings, you noted how SB 57, cleanair act bill, is also a priority for the interimand moving forward. What’s driving thisbill?
Giessel: The concern of course is these
rules being promulgated by the EPA are
intended to discontinue coal-powered gen-
eration. Here in Alaska we depend on that
coal. It is one of our low-cost fuel sources.
The rules we anticipate would be unattain-
able. The bill requests the Department of
Environmental Conservation to do a cost
analysis impact in Alaska. It would be part
of their work anyway, but we are asking
them to do it a more structured format and
something the Legislature will be able to
review. The number one request in the bill
is that we seek an exemption for the state
of Alaska.
So we will work on that as well. But the
Resources Committee will want an update
on the Interior Energy Project. We passed
HB 105, and we will want to hear the
progress. It is an important issue to get
affordable energy to Fairbanks and time is
of the essence.
Petroleum News: Let’s talk about theIEP bill. You say you want to monitorprogress, but what would you expect tohear so soon?
Giessel: It’s not necessarily that they
will have completed aspects, but we want
to watch the progress as they go forward
and what the fiscal analysis looks like,
how they are making the decision of
what’s economic and what’s not. They set
the target price of $15 of gas delivered to
the burner tip in Fairbanks. That’s a pretty
high bar. I’m wondering, first of all, how
they set that bar. Second, if they are able
achieve it, that would be pretty impressive.
You might have heard me say at the end of
the committee meeting that the Resources
Committee is concerned that AIDEA does-
n’t step in between the private sector’s
process in the sale of assets, and it felt like
that was happening. They say it wasn’t.
I’m interested in following that process
and making sure that wasn’t going on.
Petroleum News: OK, looking even fur-ther ahead. I realize you’ve noted plans forthe interim and a hope for the fall specialsession, but can you provide a look aheadfor the second year of the 29th Legislaturein January?
Giessel: I want to focus on a climate of
stability for investment. Oil prices are driv-
ing investment into very conservative
plays. SB 21 did that. Despite higher gov-
ernment take at these prices, this is a better
overall system because it is stable and con-
sistent.
I continue to have an interest in what
our shale oil opportunities look like. We
have not heard much about Great Bear
Petroleum’s work in the last few years. I
recall several Senate Resources Committee
meetings in years past in which very opti-
mistic forecasts were made about oil pro-
duction from our shale deposits.
Next session will be touching up any-
thing not covered in the fall special session
related to AKLNG. Our goal is to get to a
FEED decision by the second quarter of
next year. That’s a big deal. That’s tens of
billions of dollars in this project, that’s six
TAPS projects bundled into one.
That’s good jobs for our labor force,
getting our trade halls, technical education
and job centers jammed with new folks
learning a trade that will give them good
paying wages for nearly a decade. This is
the legacy I want to leave our next genera-
tion, just as my generation benefited from
TAPS and North Slope oil discovery.
My focus on next session is keeping
track of the long haul. We cannot be penny
wise and pound foolish. There is not an
income tax high enough, or an industry
robust enough, to replace the revenue we
get from oil.
Our biggest shot at growing the pie is a
gas pipeline. I will be focusing on that.
Any legislation that undercuts that, includ-
ing raising taxes after we’ve spent the last
10 years doing nothing but argue and
change oil taxes, will not get a warm wel-
come from me. l
continued from page 17
GIESSEL Q&A
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OIL PATCH BITS
tankers. In addition, all of the tankers in
Prince William Sound are now double-
hulled which means that ballast water is
typically separated from the oil cargo
tanks and does not need to be treated at
the facility. Improvements in ballast
water treatment processes have further
lowered the discharge of hydrocarbons
from the terminal. As a result, hydrocar-
bons discharged into Port Valdez have
decreased by about 90 percent, for some
of the more toxic hydrocarbon fractions,
since the early 2000s.”
The council press release continued:
“Even though the amount is small, the
hydrocarbons have the potential to con-
taminate organisms in the area. Traces of
hydrocarbons from the terminal and
tanker operations have been detected in
bay mussel and sediment samples taken
in Port Valdez. The council has been
monitoring mussels and sediments in the
region for the last 21 years. While our
data shows that hydrocarbons in the port
have been declining in recent years, these
detectable levels in local shellfish raised
concerns among people who harvest
shrimp from the area, which prompted
the council to test hydrocarbon levels in
shrimp from the port.
“The short takeaway message from
the study is hydrocarbon tainting of
shrimp muscle is not a concern for the
shrimp fishery in Port Valdez and
observed concentrations do not pose a
human health risk.”
The report is online at www.pwsr-
cac.org.
—WESLEY LOY
continued from page 1
OLIKTOK RATES
continued from page 14
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Court issues injunction against GreenpeaceOn May 8 Judge Sharon Gleason from the Federal District Court in Alaska
granted a request from Shell for a preliminary injunction banning environmental
organization Greenpeace from interfering with or boarding any of a list of 29 ves-
sels that Shell plans to use in an exploration drilling program in the Chukchi Sea
this summer. Included in the list are the drilling vessels Polar Pioneer and Noble
Discoverer. The injunction also applies to some buoy and anchor systems, and to
some aviation facilities in Barrow. In addition, the judge has banned people asso-
ciated with Greenpeace from entering specified safety zones around the vessels,
and has banned Greenpeace from operating drones within the area of the Burger
prospect where Shell plans to drill.
The ban on interfering with the specified vessels applies on the high seas; in
the U.S. exclusive economic zone; in U.S. navigable and territorial waters; and
when the vessels are located in U.S. ports.
In early April a team of Greenpeace protestors boarded the Polar Pioneer while
the drilling vessel was being transported across the Pacific Ocean.
Coast Guard zonesThe U.S. Coast Guard has already established safety zones around Shell ves-
sels operating in the Puget Sound and Seattle area and has proposed other safety
zones around the company’s vessels operating in the Dutch Harbor and Broad Bay
areas of the Aleutian Islands, and in Kotzebue Sound. The Coast Guard has also
proposed a safety zone around the drill ship Noble Discoverer, when that vessel
is on location drilling for Shell in the Chukchi.
In the interests of avoiding confusion, the court has set safety zones for the
Puget Sound area that match those set by the Coast Guard. Elsewhere, recogniz-
ing that the court-ordered safety zones specifically target Greenpeace, an organi-
zation that has already boarded one of Shell’s vessels, the court has mandated
larger safety zones than the Coast Guard. Greenpeace has stated that it is willing
to act illegally in its opposition to Shell’s activities, thus raising questions over
whether the organization would ignore the Coast Guard’s safety zone rules, Judge
Gleason said in justifying the size of the court-ordered zones.
The court mandated safety zones extend out 500 or 1,000 meters from a vessel,
depending on the type of vessel and type of vessel operation, while the vessel is
in transit. And the court requires 1,500-meter safety zones around the drilling ves-
sels Noble Discoverer and Polar Pioneer while those vessels are engaged in
drilling operations. There will also be restricted airspace to an altitude of 3,000
feet around certain vessels that have helidecks, and around other vessels engaged
in helicopter hoisting.
A serious riskIn ordering the preliminary injunction, Gleason agreed with Shell that
critical ecosystem, our Arctic communities,
and the subsistence needs and cultural tra-
ditions of Alaska Natives,” said BOEM
Director Abigail Ross Hopper. “As we
move forward, any offshore exploratory
activities will continue to be subject to rig-
orous safety standards.”
James Kendall, BOEM Alaska regional
director, commended the team effort
involved in reviewing Shell’s exploration
plan.
“We’d like to thank the experts in our
cooperating agencies, the tribal govern-
ment representatives who took time out
from their busy schedules to do govern-
ment-to-government consultations and of
course the many members of the public and
stakeholder organizations who provided us
with valuable comments during the review
process,” Kendall said.
Other approvalsShell hopes to start moving its drilling
fleet into the Chukchi in early July, with the
approved exploration plan being a key
requirement for implementing the drilling
program. Among the permits and approvals
that Shell still needs are permits to drill
from the Bureau of Safety and
Environmental Enforcement. Shell has also
applied to the National Marine Fisheries
Service for approvals for the minor unin-
tended disturbance of marine mammals
during the company’s operations.
The Department of the Interior says that
it is undertaking an ambitious program to
strengthen and modernize its outer conti-
nental shelf energy regulations, with the
release of proposed new drilling safety
rules and proposed new safety standards
for Arctic exploration. Many features of the
new Arctic standards have been included as
conditions that Shell must comply with in
its Chukchi Sea drilling, BOEM says.
But, as has become the norm in the long
saga of Shell’s recent efforts to explore in
the Alaska Arctic offshore, reactions to
BOEM’s decision have been highly polar-
ized, between those who support Arctic
offshore development and those who view
Shell’s planned operations as posing too
high an environmental risk.
Support from lawmakersAlaska lawmakers, seeing Shell’s pro-
gram as having high economic value both
for the state and for the nation, have
expressed their strong support for BOEM’s
decision.
“Approval of Shell’s exploration plan
for Alaska’s Chukchi Sea marks another
important step toward the United States
assuming a leadership role in the Arctic,”
said Sen. Lisa Murkowski, R-Alaska, chair
of the Senate Energy and Natural Resources
Committee. “With an estimated 25 percent
of the world’s undiscovered conventional
oil and gas resources and active exploration
by countries like Russia, it’s critical that we
move forward as a nation and set the stan-
dard for responsible development in the
Arctic.”
Murkowski stressed the importance of
federal agency collaboration, to ensure that
conditions imposed by permits are work-
able.
“With this latest milestone, I am cau-
tiously optimistic and stand ready to contin-
ue working with the agencies to ensure
exploration is conducted safely for the max-
imum benefit of Alaskans and our nation,”
Murkowski said.
“I’m pleased to hear that the Department
of Interior conditionally approved Shell’s
revised Chukchi Sea exploration plan,” said
Sen. Dan Sullivan, R-Alaska. “As I said to
Department of Interior Secretary Sally
Jewell during a February meeting, the fed-
eral government needs to work with the
states and with private industry to unleash
our country’s enormous economic potential
and become the world’s energy super-
power. For years, the Obama administration
has stymied efforts to achieve this impor-
tant national goal through regulatory delays
and restricting access to federal lands in
Alaska. I hope that this announcement is a
new approach by the federal government.”
Environmentalist oppositionEnvironmental organizations hold a dif-
ferent perspective.
“Once again, our government has rushed
to approve risky and ill-conceived explo-
ration in one of the most remote and impor-
tant places on Earth,” said Susan Murray,
Oceana deputy vice president, Pacific.
“Shell’s need to validate its poorly planned
investment in the U.S. Arctic Ocean is not a
good reason for the government to allow
the company to put our ocean resources at
risk. Shell has not shown that it is prepared
to operate responsibly in the Arctic Ocean,
and neither the company nor our govern-
ment has been willing to fully and fairly
evaluate the risks of Shell’s proposal.”
“The Interior Department has continual-
ly paved the way for Shell to drill this sum-
mer and today’s hasty decision is no differ-
ent. The Obama administration has green-
lighted Shell’s risky and dirty Arctic Ocean
drilling plans — coming to this latest deci-
sion only weeks after opening Shell’s plans
for public comment,” said Cindy Shogan,
executive director, Alaska Wilderness
League.
LitigationBOEM’s decision to approve Shell’s
exploration plan came after a lengthy delay
continued from page 1
SHELL PLAN
see SHELL PLAN page 20
see INJUNCTION page 20
of its power from Anchorage-based
Chugach Electric Association. But, fol-
lowing some issues that arose during the
installation and testing of the equipment
at the plant, Matanuska Electric had to
delay the startup into the first quarter of
2015 — the utility formed an agreement
with Chugach Electric to continue pur-
chasing power from the Anchorage utility
until the end of March, although the utili-
ties subsequently extended that agree-
ment through to the end of April.
Under the agreement, Chugach
Electric undertook to buy power equiva-
lent to at least the output from four of the
Eklutna engines, Estey said. Essentially,
Chugach Electric was buying some of its
power from Matanuska Electric while
also selling power back to Matanuska
Electric, to fill the Matanuska and
Susitna valleys utility’s needs.
This arrangement enabled Chugach
Electric to test its capabilities to remotely
control the Eklutna plant, while also
enabling Matanuska Electric to rotate the
engines at Eklutna out of service, to con-
duct initial routine maintenance on the
equipment, Estey commented.
Now, after April 30, with the agree-
ment with Chugach Electric having come
to an end, Matanuska Electric is obtain-
ing its power from the new Eklutna plant,
and from hydropower systems at Eklutna
and at Bradley Lake on the Kenai
Peninsula, Estey said. However,
Chugach Electric is providing power and
natural gas dispatch services for the
Eklutna plant, under a separate agree-
ment designed to help Matanuska
Electric transition into becoming a power
generation business, rather than simply
providing electricity distribution services
to its customers.
Mainly because of the cost of the gas
supply for the Eklutna plant, Matanuska
Electric customers will see rate increases
as a consequence of the plant coming on
line, the utility has said.
Dual fuelAlthough planning for a power gener-
ation facility that primarily uses natural
gas as fuel, Matanuska Electric opted for
the use of reciprocating engines rather
than turbine generators, to enable dual-
fuel operation, with the possibility of
running the engines on diesel fuel as an
alternative to gas. This arrangement, in
which the engines can seamlessly switch
between the two fuels, protects the gener-
ation system against any shortfall in the
gas supply.
In addition, with having 10 reciprocat-
ing engines, it is easy to rapidly vary the
power output from the plant, thus poten-
tially enabling the plant to add value to
the Alaska Railbelt power grid by coun-
terbalancing the fluctuations in power
output from non-firm power systems
such as wind farms. l
20 PETROLEUM NEWS • WEEK OF MAY 17, 2015
in the agency’s completion of its review of
the plan, a delay that resulted from a long-
running appeal in federal court by environ-
mental organizations over the legality of
the lease sale in which Shell purchased its
Chukchi Sea leases. In the latest twist in
that appeal case, the federal District Court
in Alaska had mandated a rework of the
environmental impact statement for the
lease sale, with that rework to be followed
by a new record of decision for the sale.
Although BOEM was able to review
Shell’s exploration plan after the company
filed the document in August of last year,
the agency was not allowed to issue a for-
mal decision on the completeness of the
plan, nor make a plan approval decision,
until after Interior’s new record of decision
had been issued. In the event, BOEM
issued its revised supplementary environ-
mental impact statement for the lease sale
in February and at the end of March
Interior issued its record of decision,
affirming the sale.
It is not clear what will happen next in
the lease sale appeal. On May 4 District
Court Judge Ralph Beistline issued an
order requiring parties in the case to file on
or before June 1 either a proposed briefing
schedule for the case or an updated status
report.
Meantime, an appeal challenging
Shell’s Chukchi Sea oil spill prevention
and response plan has yet to be resolved. A
panel of judges in the Court of Appeals for
the 9th Circuit heard oral arguments in this
case in August 2014 but has remained
silent since then — a decision in the case
could appear at any time.
The Burger prospectThe Burger prospect that Shell is target-
ing is a dome-shaped geologic structure 25
miles in diameter. Following the drilling of
a single well into the structure by Shell in
1989-90 during an earlier phase of explo-
ration, geologists know that the structure
holds a large natural gas resource, estimat-
ed in a range of 8 trillion to 27 trillion cubic
feet, in sandstone broadly equivalent to the
reservoir sands of the Kuparuk River oil
field in the central North Slope. Shell is
now betting on the presence of oil, presum-
ably under the gas, in the Burger structure.
Nobody knows whether the oil is actu-
ally there. However, Shell has conducted
high resolution seismic surveying across
the structure and, while seismic cannot
detect oil, the company has said that it
thinks that there is likely to be oil in the
prospect. If so, the oil pool could be very
large.
When Shell last drilled in the Chukchi,
in 2012, the company was only able to drill
the top hole section of a single new Burger
well, having had to terminate the drilling
because its Arctic containment dome, a key
new piece of its oil spill response capabili-
ties, had not been ready in time for deploy-
ment, having failed some operational test-
ing. The company has successfully tested
the dome ahead of this year’s planned pro-
gram — the company anticipates stationing
the dome on the barge Arctic Challenger in
Kotzebue Sound. As part of its extensive
oil spill prevention and response kit, Shell
also has a capping stack, to seal a well head
should a well blowout preventer fail.
This year Shell plans to tackle its Burger
drilling with the simultaneous use of two
drilling units, the drill ship Noble
Discoverer and the semi-submersible
drilling rig Transocean Polar Pioneer. In
addition to conducting the drilling, each rig
will act as a backup to the other, should a
well loss-of-control incident require the
drilling of a relief well to plug a problem
well bore. l
BSEE inspects Shell’s spill response equipmentIn late April two members of staff from the Bureau of Safety and
Environmental Enforcement’s Oil Spill Preparedness Division, Alaska, inspected
Shell’s oil spill responder training and the deployment of oil spill response equip-
ment in Valdez, Alaska. Shell is preparing for planned exploration drilling in the
Chukchi Sea this summer.
Shell’s contracted oil spill response organizations Arctic Slope Regional Corp.
Energy Services and Ukpeagvik Inupiat Corp. own and operate the equipment.
BSEE says that all oil exploration operators must have a BSEE approved oil
spill response plan and that the agency conducts inspections and deployment exer-
cises, some unannounced, to validated the viability of a plan and the proficiency
of the personnel involved in plan implementation.
Following a recent demonstration of Shell’s undersea oil containment dome, a
key component of the company’s Arctic oil spill response arsenal, BSEE Director
Brian Salerno commented that Arctic operations require extra effort towards safe-
ty and environmental protection.
“We are leaving no stone unturned to ensure operators have addressed all rel-
evant risks,” Salerno said. “It is equally important that operators be prepared to
respond in the event of an incident, especially in a scenario which threatens the
environment.”
—ALAN BAILEY
Greenpeace’s actions pose a serious
risk to human life. It was merely fortu-
itous that an accident had not happened
during the April boarding of the Polar
Pioneer, Gleason said.
Shell spokeswoman Megan
Baldino, responding to the court order,
said that Shell is always willing to
engage in honest discussion about the
challenges of Arctic energy exploration
but that the company cannot condone
Greenpeace’s unlawful and unsafe tac-
tics.
“We’re pleased the judge recog-
nized the risk posed by Greenpeace’s
illegal activities, including the board-
ing of the Polar Pioneer drill rig in
April,” Baldino said in a May 8 email.
“We don’t want a repeat of previous
illegal stunts; they jeopardize the safety
of the people working on board and the
protestors themselves.”
Greenpeace expressed its disagree-
ment with the court decision.
“It’s disappointing to see the court
ruling that Shell has the right to jeop-
ardize our environment and our econo-
my without being accountable to socie-
ty,” said Greenpeace USA Executive
Director Annie Leonard. “Instead of
saying Greenpeace can’t go near Shell,
our government should be saying Shell
can’t go near the Arctic. That’s the best
way to safeguard the public.”
—ALAN BAILEY
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SHELL PLAN
continued from page 19
INJUNCTION
continued from page 1
MEA PLANT