DNR Commissioner Mack describesoil production uptick, opportunities

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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

l E X P L O R A T I O N & P R O D U C T I O N

l E X P L O R A T I O N & P R O D U C T I O N

Vol. 22, No. 49 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of December 3, 2017 • $2.50

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of December 3, 2017

Freeman: Rise in mineral investments,prices lifts mood at miners convention

NEWS NUGGETSCompiled by Shane Lasley

Stellar drilling tops expectationsPolarX Ltd. Nov. 23 reported that assays from the first fiveholes drilled at Zackly confirm the high$grade copper-goldmineralization in this skarn deposit on the Stellar property.Significant results from the first five holes include: 14.5 metersof 2.5 percent copper and 2 grams per metric ton gold from adepth of 34.9 meters; 5.3 meters of 2 percent copper and 2.7 g/tgold from 9.7 meters; and 3.5 meters of 3.9 percent copper and2.2 g/t gold from 99.1 meters. PolarX said these grades exceedthose from historical drilling. A historical resource for Zacklyoutlines 1.54 million metric tons grading 4.5 g/t (218,944ounces) gold and 2.9 percent (66.9 million pounds) copper.This year’s 13-hole drill program at Zackly included 11 holesdesigned to validate previous drill intersections and betterdefine the deposit. In addition to the stellar grades, PolarX saidsome of this year’s holes cut mineralization over significantlywider intercepts than their historic twins. These results will helpunderpin a revision of the historical copper and gold resource toAustralian Joint Ore Reserves Committee (JORC) mineralreporting standards, which is similar to National Instrument 43-101 standards in Canada. Results from eight holes are pendingand the updated mineral resource for Zackly is slated for com-pletion early in 2018. PolarX, which acquired Stellar earlier thisyear, has combined it with the neighboring Caribou Dome cop-per property and renamed the merged properties the AlaskaRange project. Millrock Resources Inc., which owns a 10.74percent interest in PolarX, executed the 2017 drill program atZackly.

Signs of San Diego Bay porphyryCopperBank Resources Corp. Nov. 28 said this year’s rockand soil sampling program at San Diego Bay is a good firststep in understanding the porphyry copper-gold potential of thisproject on the Alaska Peninsula. Geologists collected 37 grabrock samples and 173 soil samples during the summer programat San Diego Bay. The soil samples were collected over threeareas: San Diego Bay in the southeast; Renshaw Point on theeastern side of the property, and an area near Balboa Bay on thewestern side of the property. The best values came from aroundBalboa Bay where a copper-gold-molybdenum-silver anomalywas traced for 2,700 meters along a northeast trend and anapparent average width of 500 meters. This area covers the

TRIL

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NC

.

Rich store of high-grade metals such as Trilogy Metals’ Arctic deposit in Northwest Alaska highlight Alaska’s richminerals endowment and need for additional infrastructure.

see NEWS NUGGETS page 10

page8

l M I N E F I N A N C E

MIL

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Early results from 13 holes drilled into Zackly are confirming thehigh-grade gold-copper resource previously outlined at this vol-canogenic massive sulfide deposit at PolarX’s Alaska Range project.

Matter of perspectiveInternational mine financier shares outsider view of Alaska mining sector

By SHANE LASLEYMining News

A laska’s mining sector is in a global competi-tion for mining investment, making it critical

for the state to tout its strengths and address itsweakness if it wants to attract the capital needed toexpand the industry.

During a presentation at the Alaska MinersAssociation fall convention, Doug Silver, a portfo-lio manager for Orion Mine Finance, provided aninternational financier’s perspective of Alaska min-ing sector’s strengths and where it could be doingbetter.

“I have the privilege of working in the world ofinternational mine finance, and my firm puts upconstruction capital for metal mining companies,”Silver said. “I want to give you a perspective ofAlaska from my view.”

From his office in Denver, Colorado, Silver seesa number of advantages for Alaska in the interna-tional battle for mining dollars but says the state hasa couple of hurdles to overcome in order to makemine financiers comfortable with putting up thehundreds of millions of dollars needed to build alarge mine here.

Alaska advantagesSilver, who entered the mining world as a geolo-

gist more than 30 years ago, placed Alaska’s world-class mineral endowment at the top of his list ofAlaska’s strengths in terms of drawing mininginvestment to the Far North state.

While not spending too much time delving intoAlaska’s well documented minerals potential, themine financier did note the state’s abundant basemetals, commodities that are expected to increase in

value over the coming years.“For those of you that have copper, zinc and

nickel, the future is very rosy indeed,” he said.Alaska’s lack of an income tax is another attrac-

tive quality that helps make mining in Alaska morecompetitive in the eyes of investors.

Besides its minerals wealth, Silver said naturalresources being an integral part of Alaska’s cultureand the resident’s general favorable view of miningare other significant advantages Alaska has over itscontemporaries.

“Which is critical, this is what the Lower 48 doesnot have,” he said.

Alaska Native advantageSilver sees the Alaska Native Claims Settlement

Act and the resulting Alaska Native corporations asanother Alaska advantage.

“This is an edge Alaska has,” he said of AlaskaNatives’ well organized and straightforward busi-ness approach to mining.

He said, however, this favorable view is notwidely shared by the international finance commu-nity due in part to the reputation of First Nationsgroups in neighboring Canada.

“Canada’s Indigenous People are always doingthings that are not necessarily helping business,”Silver said.

He said small bands of First Nation peoples inCanada have derailed major mining projects, whichadds risk for firms looking to invest in mines.

“We can’t have to go through nine different lev-els of First Nations approvals to want to investsomewhere,” the mine financier explained.

Silver said many of his contemporaries have theunfounded view that Alaska has similar issues.

see PERSPECTIVE page 10

This week’s Mining News

International mine financier shares outsider view of Alaska min-ing sector. Read more in North of 60 Mining News, page 7.

Two targets at PutuConoco well, sidetrack south of CRU target separate ‘western,’ ‘eastern’ prospects

By ERIC LIDJIFor Petroleum News

ConocoPhillips Alaska Inc. is targeting two

prospects with its Putu exploration program.

The proposed directional Putu No. 2 well and

vertical Putu No. 2A sidetrack will penetrate and

evaluate two separate prospects, the local sub-

sidiary of the global independent exploration and

production company revealed in recent permitting

filings.

The Putu No. 2 well will “evaluate the reservoir

and hydrocarbon potential of the western prospect,

provide control for picking core point for the Putu

No. 2A well, if needed, and increase the accuracy

of the velocity model for depth prediction,” the

company wrote in an amended plan of develop-

ment submitted to the state Division of Oil and Gas

on Nov. 20. The company intends to drill the Putu

OK on Nenana drillingDoyon board approves plan for 4th exploration well in basin for summer 2018

By ALAN BAILEYPetroleum News

T he board of Doyon Ltd. has sanctioned the

drilling of a fourth exploration well, the

Totchaket No. 1 well, in the Nenana basin, the

Native regional corporation for the Alaska Interior

has announced. The drilling will take place during

the summer of 2018.

The drilling targets are prospects identified

from a 64-square-mile 3-D seismic survey that

Doyon conducted last winter in the more northerly

part of the basin, James Mery, Doyon vice presi-

dent for lands and natural resources, has told

Petroleum News. The prospects lie in a combina-

tion of state of Alaska leases and Doyon owned

subsurface. Doyon plans to drill the well to a depth

of about 12,500 feet, penetrating the Grubstake,

Sanctuary and Healy Creek formations.

Mery also commented that amplitude anomalies

in the seismic data suggest the presence of hydro-

carbons —natural gas or possibly light oil — at

A great NS opportunityArmstrong geologist comments on Pikka project, involvement of Oil Search

By ALAN BAILEYPetroleum News

T he discovery and development of a major oil

pool in the Nanushuk formation in the Pikka

unit could mark the start of a major resurgence in

oil production from Alaska’s North Slope,

Armstrong Energy geologist Colby VanDenburg

told the Resource Development Council’s annual

conference on Nov. 15. Armstrong, in partnership

with Repsol, has been planning an oil field devel-

opment in the unit and has recently signed an

agreement for Australia-based Oil Search Ltd. to

join the partnership that is developing the field.

As previously reported in Petroleum News, Oil

Search is purchasing a 25.5 percent interest in the

Pikka unit and adjacent exploration acreage and

37.5 percent interests in the Horseshoe block to the

south. Oil Search also has an option to purchase all

of Armstrong’s interest in the acreage by June 30,

2019.

see PUTU TARGETS page 16

see NENANA DRILLING page 14

see NS OPPORTUNITY page 13

The Putu program is an effort to expanddevelopment of the Colville River unit to

the south, into a region that has intriguedConocoPhillips and others for more than a

decade.

Doyon plans to drill the well to a depth ofabout 12,500 feet, penetrating the

Grubstake, Sanctuary and Healy Creekformations.

And the Pikka development appears tomark the emergence of a whole new oil

play concept on the North Slope.

BSEE approves Nikaitchuq NorthThe Bureau of Safety and Environmental Enforcement has

approved an application by Eni U.S. Operating Co. for a per-

mit to drill an extended reach exploration well into the

Nikaitchuq North prospect in federal leases on the outer con-

tinental shelf of the Beaufort Sea. Eni hopes to start drilling

the well in mid-December.

Success with this winter’s drilling could lead to the drilling

Bilbao: Alaska needs to compete;resources exceed potential demand

Some 40 years after the start of oil production from

Alaska’s North Slope, Alaska oil needs to be able to compete

in global oil markets if the industry is going to continue to

thrive in the coming decades, Damian Bilbao, BP Exploration

(Alaska) vice president, commercial ventures, told the

Resource Development Council’s annual conference on Nov.

CIRI Wind requests new connectionCIRI Wind LLC, a subsidiary of Cook Inlet Region Inc.,

has requested interconnection with Chugach Electric

Association for a proposed addition to a CIRI-operated wind

farm on Fire Island, offshore Anchorage, Chugach Electric

told the Regulatory Commission of Alaska in a Nov. 14 filing.

The existing wind farm, with 11 wind turbines and an output

capacity of 17.6 megawatts, went online in September 2011,

see NIKAITCHUQ NORTH page 15

see BILBAO AT RDC page 15

see CIRI WIND page 13

2 PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

Petroleum News North America’s source for oil and gas newscontentsGOVERNMENT

PIPELINES & DOWNSTREAM

NATURAL GAS

EXPLORATION & PRODUCTION

6 Joint development agreement preliminary

2 State OKs BlueCrest’s Cosmo drilling plan

11 AOGCC reduces fine to Tolsona Oil & Gas

4 Promising situation for Alaska oil & gas

DNR commissioner reflects on recent uptick in oil production,potential for future oil, gas development on the North Slope

12 Sasol pulls out of $14B US gas-to-liquids plant

Two targets at PutuConoco well, sidetrack south target separate prospects

OK on Nenana drillingDoyon board approves 4th exploration well in basin for 2018

A great NS opportunityGeologist comments on Pikka project, involvement of Oil Search

ON THE COVER

BSEE approves Nikaitchuq North

CIRI Wind requests new connection

Bilbao: Alaska needs to compete;resources exceed potential demand

To advertise in Petroleum News,

contact Susan Crane

at 907.770.5592 petroleumnews.com

100%FOCUSED ON RESULTSDelivering innovative site characterization and asset integrity solutions to de-risk infrastructure projects on land and in the marine environment.

Fugro, Tel: +1 907 561 3478 Email: akprojects@fugro.com, www.fugro.com

l E X P L O R A T I O N & P R O D U C T I O N

State OKs BlueCrest’s Cosmo drilling planBy KRISTEN NELSON

Petroleum News

T he Alaska Division of Oil and Gas has approved

BlueCrest Alaska Operating LLC’s fourth plan of

development for the Cook Inlet Cosmopolitan unit. The

division received the 4th POD for Cosmopolitan in late

September (see story in Oct. 8 issue of Petroleum News)

and approved the plan Nov. 28.

For the 4th POD period, which covers 2018,

BlueCrest plans to drill at least one new well or sidetrack

and evaluate production of the H14 and H16 wells

drilled in 2016.

The company’s plan for the 3rd POD, which covered

this year, was to drill up to five onshore wells or laterals

from the Hansen onshore pad. The company said that

during the 3rd POD it completed construction of the

BlueCrest Rig No. 1 at the Hansen Production Facility.

“We currently have the largest most powerful operating

rig in Alaska,” BlueCrest said.

Under the 3rd POD BlueCrest spud the H16 well Nov.

29, 2016, and successfully drilled it to 22,810 feet meas-

ured depth. The rig was released to move to the H14

lower lateral well March 11.

BlueCrest completed a frack job on the H16 well and

began production, which in September was 330 barrels

per day from that well.

The H14 lower lateral was spud March 22 and com-

pleted May 13 at a depth of 23,415 feet MD but the com-

pany ran into difficulties setting liner and ultimately

drilled three sidetracks before completing the well to

22,300 feet MD in September.

BlueCrest had planned to drill as many as five oil pro-

duction wells or laterals as part of the 3rd POD and did

drill two wells and three laterals, although only two were

productive.

4th PODIn its approval letter for the 4th POD the division said

that as of June the Cosmopolitan unit has produced

111,000 barrels of oil and 16,422 thousand cubic feet of

natural gas, with 2016 average production of some 136

barrels of oil and 439 mcf of natural gas per day.

BlueCrest said it will need some revisions to an

approved permit to drill for the H12 because of changes

to the completion package, and plans to file for drilling

permits for the H16 upper lateral and H16 exploratory

lateral late this year or in early 2018.

BlueCrest will also be evaluating results of the H14

lower lateral and H16 lower lateral, both targeted to the

Hemlock, in determining its path forward.

The company said it would like to drill and complete

a test of the Starichkof zone, and said that prior to com-

pleting evaluation of wells drilled this year it believes

the H16 upper lateral into the Starichkof zone is the best

candidate.

“Given the complexity of the well completions, it is

reasonable for BlueCrest to carefully evaluate its well

design and drilling and completion techniques before

drilling the next well,” the division said in approving the

4th POD. l

The company said it would like to drill andcomplete a test of the Starichkof zone, and said

that prior to completing evaluation of wellsdrilled this year it believes the H16 upperlateral into the Starichkof zone is the best

candidate.

PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017 3

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907-264-73871-800-955-9556

By ALAN BAILEYPetroleum News

In an upbeat talk on Nov. 15 during the

Resource Development Council’s

annual conference, Alaska Department of

Natural Resources Commissioner Andy

Mack provided his insights into a recent

increase in North Slope oil production

and the potential for more production in

the future. Mack also commented that he

sees the export of natural gas from the

North Slope as being important in the

future of Alaska’s oil industry.

Mack complemented the DNR team

that manages what he characterized as a

world-class resource base in the state. He

also praised the “tremendous effort” that

the oil industry has made in upping oil

production from the

North Slope fields.

Reversing a trendOn June 30,

2015, following a

consistent track

record of a 5 percent

annual decline in

North Slope oil pro-

duction, daily North

Slope production stood at about 500,000

barrels per day, Mack said. However, by

the end of June the following year pro-

duction had risen to an average of

514,000 bpd. At the end of June, 2017,

the figure had reached 524,000 bpd. And

indications since June are that the produc-

tion has continued the same climbing

trend, he said.

Following that initial uptick in 2016

DNR decided not to comment until a

more consistent trend could be estab-

lished. However, as the climb in produc-

tion persisted in the following year, the

agency made an amendment to its pro-

duction forecast in the spring of 2017. An

evaluation of what was happening then

led to a rework of the state’s 10-year pro-

duction forecast, resulting in a prediction

of a production level of just under

500,000 bpd, with the possibility of near-

ly 600,000 bpd, as far into the future as

2027.

Almost across the board, companies

have been exceeding their own expecta-

tions, using re-invested dollars and inge-

nuity to produce more. It is remarkable,

for example, that production has

increased at Prudhoe Bay, Mack said.

“We can’t say enough about the efforts

of industry and we can’t be more excited

about what we’re seeing,” he said.

Future opportunitiesDNR has been spending a great deal of

time trying to understand the future

opportunities for oil production, both

considering production from state lands

and considering opportunities in federal

territory, Mack said.

On state lands, a number of develop-

ments are being planned or are underway.

For example, ConocoPhillips has

announced that production has begun at

its 1H NEWS development in the

Kuparuk River field, and planned devel-

opment in the Pikka unit, near the

Colville Delta, could result in a major

production uptick.

“We want to push the permits there to

achieve production there as quickly as

possible,” Mack said in reference to the

Pikka development, commenting that the

payday for the state does not arrive until

royalties appear from oil production.

For federal land, Gov. Walker sent a

letter to Interior Secretary Ryan Zinke,

prior to Zinke’s visit to Alaska in May,

requesting a re-opening of the manage-

ment plan for the National Petroleum

Reserve-Alaska.

“We think there are some opportuni-

ties that are not available in the current

plan,” Mack said.

Although the state is very excited

about the upcoming NPR-A lease sale,

the present management plan only allows

leasing in around half of the reserve’s 23

million acres.

“We think there are some areas that are

not as sensitive to wildlife and subsis-

tence concerns that should be opened up,”

Mack said. “We’re working through that

and taking a very active role.”

The state is also playing an active role

in current efforts to open the coastal plain

of the Arctic National Wildlife Refuge for

oil and gas exploration, he said.

The outer continental shelfIn a current court case the state is also

supporting the federal administration in

its defense of President Trump’s order

cancelling President Obama’s withdrawal

of the Chukchi Sea and much of the

Beaufort Sea from future oil and gas leas-

ing. In addition to the Arctic outer conti-

nental shelf being a region where it is

possible to conduct business safely,

development in the region is extremely

important to the state, Mack said. And the

Outer Continental Shelf Lands Act gives

the state of Alaska a financial and legal

interest in the more nearshore areas of the

OCS, through, for example, the Liberty

field that Hilcorp plans to develop in fed-

eral waters.

While the offshore Northstar field

straddles both state and federal waters,

Liberty will be the first field entirely on

federal lands of the Arctic OCS and a

model project, by which other projects on

the federal OCS will be judged, Mack

said.

“It is a very strong project that has

been put together by a very deft team,” he

said, praising the owner companies for

the project, in which BP and Arctic Slope

Regional Inc. are partnering with Hilcorp.

Seismic dataMack also commented on the avail-

ability of high quality seismic data,

including modern 3-D seismic, through

the Division of Geological and

Geophysical Services’ Geologic

Materials Center. This data have been

obtained from companies in conjunction

with state production tax credits for the

4 PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

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l G O V E R N M E N T

Promising situation for Alaska oil & gasDNR commissioner reflects on recent uptick in oil production and potential for future oil and gas development on the North Slope

“We want to push the permitsthere to achieve production thereas quickly as possible,” Mack said

in reference to the Pikkadevelopment, commenting that the

payday for the state does notarrive until royalties appear from

oil production.ANDY MACK

see MACK ADDRESS page 6

PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017 5

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Kuparuk, De-Mob ConocoPhillips Dreco 1000 UE 16 (SCR/TD) Standby Dreco D2000 Uebd 19 (SCR/TD) Alpine CD5-19 ConocoPhillipsAC Mobile 25 StandbyOIME 2000 141 (SCR/TD) Kuparuk, Stack Out ConocoPhillips 142 (SCR/TD) Kuparuk 1H-101 ConocoPhillips TSM 7000 Arctic Fox #1 Stacked

Hilcorp Alaska LLC Rig No.1 Milne Point Hilcorp Alaska LLC

Nabors Alaska DrillingAC Coil Hybrid CDR-2 (CTD) Deadhorse BPAC Coil CDR-3 (CTD) Kuparuk ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse AvailableMid-Continental U36A 3-S Deadhorse AvailableOilwell 700 E 4-ES (SCR) Deadhorse AvailableDreco 1000 UE 7-ES (SCR/TD) Deadhorse AvailableDreco 1000 UE 9-ES (SCR/TD) Deadhorse AvailableOilwell 2000 Hercules 14-E (SCR) Deadhorse AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location AvailableOilwell 2000 Canrig 1050E 27-E (SCR-TD) Deadhorse AvailableOilwell 2000 33-E Deadhorse AvailableAcademy AC Electric CANRIG 99AC (AC-TD) Deadhorse AvailableOIME 2000 245-E (SCR-ACTD) Kuparuk AvailableAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse AvailableAcademy AC electric Heli-Rig 106AC (AC-TD) Deadhorse Available

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay AvailableSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay AvailableIdeco 900 3 (SCR/TD) Prudhoe Bay AvailableRig Master 1500AC 4 (AC/TD) Oliktok Point, well OP-03 ENI

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, NIK North Mod ENI

Nabors Alaska DrillingOIME 1000 19AC (AC-TD) Cold Stack

Cook Inlet Basin – Onshore

BlueCrest Alaska Operating LLCLand Rig BlueCrest Rig #1 Anchor Point, BlueCrest Alaska Operating LLC drilling production section of H14

Glacier Oil & Gas Rig 37 West McArthur River Unit Workover Glacier Oil & Gas

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 Stacked out west side of Cook Inlet Available

SaxonTSM-850 147 Stacked Hilcorp Alaska LLCTSM-850 169 Stacked Hilcorp Alaska LLC

Cook Inlet Basin – Offshore

Hilcorp Alaska LLCNational 110 C (TD) Platform C, Stacked Hilcorp Alaska LLC Rig 51 Steelhead Platform, Stacked Hilcorp Alaska LLC Rig 51 Monopod Platform, Drilling Hilcorp Alaska LLC Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151, Stacked Seward

Furie Operating AlaskaRandolf Yost jack-up Nikiski, OSK dock Furie

Glacier Oil & GasNational 1320 35 Osprey Platform, activated Glacier Oil & Gas

Kuukpik Drilling 5 Granite Point, Well GP24-13RD2 Hilcorp Alaska LLC

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 November 29, 2017.

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* Nov. 22 Nov. 17 Year AgoUnited States 923 915 593Canada 215 208 174Gulf of Mexico 22 18 23

Highest/LowestUS/Highest 4530 December 1981US/Lowest 404 May 2016 *Issued by Baker Hughes since 1944

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By KRISTEN NELSONPetroleum News

The joint development agreement

signed Nov. 9 in Beijing envisions

Alaska working with major Chinese enti-

ties to come to an agreement for Chinese

participation in Alaska LNG. Signatories

for the state were Gov. Bill Walker and

Keith Meyer, president of the Alaska

Gasline Development Corp. Chinese sig-

natories were the president of China

Petrochemical Corp., known as Sinopec,

the vice chairman of CIC Capital Corp.

and the chairman of Bank of China Ltd.

The agreement was released Nov. 21

at a press availability where Walker pro-

vided background on what led to the

China agreement, stressing the impor-

tance of market involvement in the agree-

ment, and Meyer gave an overview and

noted that a lot of work will be required

to finalize agreements for Chinese partic-

ipation in an Alaska LNG project.

Introductory statements in the agree-

ment note that Alaska is interested in

commercializing the natural gas on the

North Slope and the Chinese companies

“have expressed their preliminary inter-

ests in the development of Alaska LNG”

because of the potential for huge growth

of natural gas consumption in China.

The agreement says that the parties

will work together on a framework to

advance AKLNG, with a focus on oppor-

tunities for collaboration in AKLNG,

including system design. The agreement

describes the proposed project, notes that

significant work has been done and that

the project is in the process of receiving

environmental approval, and says the

state, through AGDC, is the sole owner of

the project and will be developing the

system with one or more strategic part-

ners in countries which consume LNG.

Scope of workThe JDA says the parties will work

together on a scope of work defined in the

agreement, including the opportunity for

delivering 75 percent of the LNG pro-

duced from Alaska to China “at a cost-

based and stable price utilizing the bene-

fits of strategic financing and invest-

ment,” strategic financing opportunities

and a transparent investment model.

The agreement notes that there is an

opportunity for Sinopec to be involved in

engineering, procurement, construction

and project management and in the pro-

ject’s overall development.

But AGDC would remain in control,

Meyer said, and as with construction of

the trans-Alaska oil pipeline, while large

construction firms would have construc-

tion oversight, they would use Alaska

firms and labor.

6 PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

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Better.

surveying. Some of the data can be tied to

state leases, while other was collected

from regions such as the NPR-A and the

nearshore waters of the Beaufort Sea.

“We as a state are going to use that

information to leverage interest in state

acres,” Mack said.

Strategic infrastructureThe state administration is also taking

steps to promote the construction of

strategic infrastructure, especially roads,

on the North Slope. Rather than the top-

down approach that the state has used in

the past to address this issue, this time

around the state has talked to the North

Slope communities and the North Slope

Borough mayor, seeking community

ideas and asking for opportunities to

work together, Mack said. As a conse-

quence, DNR has formulated an agree-

ment and the Legislature has appropriat-

ed some funding, he said. Strategic infra-

structure can be really helpful in support-

ing access to remote locations such as

Smith Bay, Mack said, referencing the

site of a major oil discovery by Caelus

Energy.

North Slope gasMack also commented that an October

2015 order by the Alaska Oil and Gas

Conservation Commission, approving an

expanded offtake of natural gas from the

Prudhoe Bay field, had represented a

recognition that the economics of North

Slope gas are rapidly changing. After

many stops and starts for North Slope gas

pipeline projects it is now time to think

critically about how to take gas from

Prudhoe Bay, Mack said.

“The best way to increase more oil

production is to build a gas pipeline,” he

said. l

continued from page 4

MACK ADDRESS

l N A T U R A L G A S

Joint development agreement preliminaryIntroductory statements in the agreement note that Alaska is interestedin commercializing the natural gas on the North Slope and the Chinese

companies “have expressed their preliminary interests in thedevelopment of Alaska LNG” because of the potential for huge growth of

natural gas consumption in China.

see CHINA AGREEMENT page 11

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of December 3, 2017

Freeman: Rise in mineral investments,prices lifts mood at miners convention

NEWS NUGGETSCompiled by Shane Lasley

Stellar drilling tops expectationsPolarX Ltd. Nov. 23 reported that assays from the first five

holes drilled at Zackly confirm the high�grade copper-gold

mineralization in this skarn deposit on the Stellar property.

Significant results from the first five holes include: 14.5 meters

of 2.5 percent copper and 2 grams per metric ton gold from a

depth of 34.9 meters; 5.3 meters of 2 percent copper and 2.7 g/t

gold from 9.7 meters; and 3.5 meters of 3.9 percent copper and

2.2 g/t gold from 99.1 meters. PolarX said these grades exceed

those from historical drilling. A historical resource for Zackly

outlines 1.54 million metric tons grading 4.5 g/t (218,944

ounces) gold and 2.9 percent (66.9 million pounds) copper.

This year’s 13-hole drill program at Zackly included 11 holes

designed to validate previous drill intersections and better

define the deposit. In addition to the stellar grades, PolarX said

some of this year’s holes cut mineralization over significantly

wider intercepts than their historic twins. These results will help

underpin a revision of the historical copper and gold resource to

Australian Joint Ore Reserves Committee (JORC) mineral

reporting standards, which is similar to National Instrument 43-

101 standards in Canada. Results from eight holes are pending

and the updated mineral resource for Zackly is slated for com-

pletion early in 2018. PolarX, which acquired Stellar earlier this

year, has combined it with the neighboring Caribou Dome cop-

per property and renamed the merged properties the Alaska

Range project. Millrock Resources Inc., which owns a 10.74

percent interest in PolarX, executed the 2017 drill program at

Zackly.

Signs of San Diego Bay porphyryCopperBank Resources Corp. Nov. 28 said this year’s rock

and soil sampling program at San Diego Bay is a good first

step in understanding the porphyry copper-gold potential of this

project on the Alaska Peninsula. Geologists collected 37 grab

rock samples and 173 soil samples during the summer program

at San Diego Bay. The soil samples were collected over three

areas: San Diego Bay in the southeast; Renshaw Point on the

eastern side of the property, and an area near Balboa Bay on the

western side of the property. The best values came from around

Balboa Bay where a copper-gold-molybdenum-silver anomaly

was traced for 2,700 meters along a northeast trend and an

apparent average width of 500 meters. This area covers the

TRIL

OG

Y M

ETA

LS I

NC

.

Rich stores of high-grade metals such as Trilogy Metals’ Arctic deposit in Northwest Alaska highlight Alaska’sworld-class minerals endowment and the need for additional infrastructure across the Last Frontier.

see NEWS NUGGETS page 10

page8

l M I N E F I N A N C E

MIL

LRO

CK

RES

OU

RC

ES I

NC

.

Early results from 13 holes drilled into Zackly are confirming thehigh-grade gold-copper resource previously outlined at this vol-canogenic massive sulfide deposit at PolarX’s Alaska Range project.

Matter of perspectiveInternational mine financier shares outsider view of Alaska mining sector

By SHANE LASLEYMining News

A laska’s mining sector is in a global competi-

tion for mining investment, making it critical

for the state to tout its strengths and address its

weakness if it wants to attract the capital needed to

expand the industry.

During a presentation at the Alaska Miners

Association fall convention, Doug Silver, a portfo-

lio manager for Orion Mine Finance, provided an

international financier’s perspective of Alaska min-

ing sector’s strengths and where it could be doing

better.

“I have the privilege of working in the world of

international mine finance, and my firm puts up

construction capital for metal mining companies,”

Silver said. “I want to give you a perspective of

Alaska from my view.”

From his office in Denver, Colorado, Silver sees

a number of advantages for Alaska in the interna-

tional battle for mining dollars but says the state has

a couple of hurdles to overcome in order to make

mine financiers comfortable with putting up the

hundreds of millions of dollars needed to build a

large mine here.

Alaska advantagesSilver, who entered the mining world as a geolo-

gist more than 30 years ago, placed Alaska’s world-

class mineral endowment at the top of his list of

Alaska’s strengths in terms of drawing mining

investment to the Far North state.

While not spending too much time delving into

Alaska’s well documented minerals potential, the

mine financier did note the state’s abundant base

metals, commodities that are expected to increase in

value over the coming years.

“For those of you that have copper, zinc and

nickel, the future is very rosy indeed,” he said.

Alaska’s lack of an income tax is another attrac-

tive quality that helps make mining in Alaska more

competitive in the eyes of investors.

Besides its minerals wealth, Silver said natural

resources being an integral part of Alaska’s culture

and the resident’s general favorable view of mining

are other significant advantages Alaska has over its

contemporaries.

“Which is critical, this is what the Lower 48 does

not have,” he said.

Alaska Native advantageSilver sees the Alaska Native Claims Settlement

Act and the resulting Alaska Native corporations as

another Alaska advantage.

“This is an edge Alaska has,” he said of Alaska

Natives’ well organized and straightforward busi-

ness approach to mining.

He said, however, this favorable view is not

widely shared by the international finance commu-

nity due in part to the reputation of First Nations

groups in neighboring Canada.

“Canada’s Indigenous People are always doing

things that are not necessarily helping business,”

Silver said.

He said small bands of First Nation peoples in

Canada have derailed major mining projects, which

adds risk for firms looking to invest in mines.

“We can’t have to go through nine different lev-

els of First Nations approvals to want to invest

somewhere,” the mine financier explained.

Silver said many of his contemporaries have the

unfounded view that Alaska has similar issues.

see PERSPECTIVE page 10

By CURT FREEMANSpecial to Mining News

For the first time in five long years,

the mood at the recently held Alaska

Miners Association Convention in

Anchorage was buoyant, the result of a

slow but steady turnaround on mineral

investments in the state.

Additional new corporate interest in

the state emerged during the past 30

days, and sources of exploration funds

coming to Alaska continue to shift, with

estimates for 2017 suggesting that 62

percent of this financing comes from

Canadian concerns, 18 percent from

U.S.-based concerns and a surprising 20

percent from Australia.

Strong base metal prices are con-

tributing to profitable production from

the Red Dog and Greens Creek mines,

while stable precious metal prices sup-

port strong mining operations at Fort

Knox, Pogo, Kensington and Greens

Creek. The short and long-term view of

most of the industry is a slowly strength-

ening industry demand for Alaska’s raw

materials.

One final sure sign of a turnaround:

At the recent RBC Annual Senior Gold

Conference, major gold producers

played down any significant interest in

new mergers or acquisitions, making me

think they are all looking for just that

sort of opportunity!

Western AlaskaCOPPERBANK RESOURCES CORP.

announced additional results from a 13

diamond-drill-hole, 3,690-meter, 2017

drill program on its 100-percent- con-

trolled Pyramid copper project near Sand

Point. Significant results include hole

17PY037, which is entirely outside the

historical resource envelope and was

mineralized from 7.3 meters over its

entire length, returning 324.3 meters

grading 0.31 percent copper. In addition,

17PY035 intersected a total of 251

meters grading 0.41 percent copper,

including a near-surface intercept of 137

meters of 0.45 percent copper and a sec-

ond deeper interval of 114 meters of

0.37 percent copper; and hole 17PY036

intersected 179.5 meters of 0.37 percent

copper. The results from 17PY035 and

previously reported drill holes confirm a

minimum length of 800 meters for the

Main Zone. The company also

announced that it has commissioned a

remote sensing radar and hyperspectral

survey of the project to help map struc-

tural and alteration features of the

deposit.

Interior AlaskaKINROSS GOLD CORP. announced

third-quarter 2017 results from the Fort

Knox mine near Fairbanks. The mine

produced 101,041 ounces of gold at a

cost of $641 per oz in the three months

that ended Sept. 30, compared with

110,396 oz of gold at a cost of $743/oz

in the year-previous period. Production

decreased slightly compared to the same

period a year ago, largely due to lower

amounts of tonnage placed on the heap

leach pad. Operating costs decreased

year over year due to a decrease in oper-

ating waste mined and lower contractor

costs as the site began to transition to the

completing of more maintenance func-

tions in-house. The mill treated

3,228,000 metric tons of ore grading

0.88 grams-per-metric-ton gold with a

mill recovery of 81 percent. The heap

leach saw additions of 6.088 million

metric tons of ore, grading 0.26 g/t gold.

FREEGOLD VENTURES LTD. report-

ed results from its 2017 drilling program

on the Shorty Creek copper-molybde-

num-gold prospect near Livengood.

Significant results from the Hill 1835

prospect include hole SC17-01, which

returned 360 meters grading 0.24 percent

copper, 0.07 g/t gold and 4.04 grams per

metric ton silver, hole SC17-02, which

intersected 339 meters grading 0.30 per-

cent copper, 0.05 g/t gold and 5.72 g/t

silver, and hole SC17-03, which inter-

sected 105.2 meters grading 0.27 percent

copper, 0.05 g/t gold and 6.75 g/t silver.

Nine holes have been drilled within the

700 x 1,000-meter magnetic high at Hill

1835, which remains open both laterally

and at depth. Porphyry-style mineraliza-

tion is associated with potassic and per-

vasive sericite alteration, within horn-

felsed sedimentary rocks that are cut by

porphyritic dykes and sills. The copper

mineralization is primarily chalcopyrite

with subordinate bornite. Assays are

pending on one hole completed in the

center of a 2,500 meter by 2,000-meter

magnetic anomaly at the Steel Creek

prospect, 2,500 meters north of the Hill

1835 area.

CONTANGO ORE INC. announced

that PEAK GOLD LLC, the company’s

joint venture with Royal Alaska, a whol-

ly-owned subsidiary of ROYAL GOLD

INC. has funded $28.7 million to date of

their optional $30 million capital invest-

ment in the joint venture with the phase

3 2017 limited drilling program at its

Peak gold project near Tok. The phase 3

program, completed in mid-October,

consisted of eight holes offsetting the

previously announced West Peak

Extension area, and while five of these

holes intersected gold-bearing intervals,

the thickness was not comparable to the

phase 2 program hole that originally

generated the interest in the zone. The

company also announced that a stream

sediment sampling program was com-

pleted on its Noah block, west of the

main resource area. The sampling identi-

fied three areas with anomalous gold or

gold/copper stream sediments where fol-

low-up work is warranted.

Alaska RangeAlaska newcomer QUANTUM

RESOURCES LTD. reported the acquisi-

tion of several prospects in the western

Alaska Range. The company has indicat-

ed that it acquired the right to earn into

several prospects from AK MINERALS

PTY LTD., including the Chip-Loy nick-

el-copper-cobalt sulfide project and the

Estelle gold project. The Chip-Loy

prospect contains disseminated to mas-

sive sulfides, mainly pyrrhotite and chal-

copyrite, with minor cubanite and spha-

lerite, and trace galena, bravoite, violar-

ite, tetradymite as well as undetermined

cobalt-nickel-iron arsenides. The

prospect lies at the contact of a magnetic

high and magnetic low zone adjacent to

a southeast-northwest trending fault

extending into the Roberts prospect. At

Estelle, a series of gold and copper-gold

prospects occur over a 20-mile north-

south distance in Jurassic and

Cretaceous marine sedimentary rocks

that are intruded by the 65-66 Ma gran-

odiorite of Mount Estelle plutonic com-

plex. Under terms of the deal, Quantum

will pay about US$155,000 in cash and

can earn a 30 percent initial interest by

spending US$300,000 on exploration

over the first 12 months from the date of

exercise of the option, a further 21 per-

cent interest through spending an addi-

tional US$1million on exploration over

the first 2 years from the date of exercise

of the option, and a further 19 percent

interest through spending an additional

US$2 million on exploration in years

three and four from the date of the exer-

cise of the option. Quantum can continue

to fund the projects through to comple-

tion of a bankable feasibility study, at

which point if AK Minerals decides not

to contribute proportionately, its interest

will dilute to a minimum 15 percent and

a 2 percent net smelter return production

royalty. Welcome to Alaska Quantum

Resources Limited!

Southeast AlaskaHECLA MINING COMPANY

announced final production results for

the third quarter of 2017 at its Greens

Creek mine in Southeast Alaska. Output

totaled 2,344,315 oz of silver and 12,563

oz of gold, compared with 2,445,328 oz

of silver and 11,988 oz of gold, in the

third quarter of 2016. The mill operated

at an average of 2,391 short tons per day,

a life-of-mine record for the operation.

The average grade of ore mined during

the quarter was 13.65 ounces per short

ton silver, compared with 15.4 oz/t silver

in the year-previous period. Average by-

product grades were 0.089 oz/t gold,

2.77 percent lead and 7.47 percent zinc.

During the third quarter, the mine pro-

duced 2,344,315 ounces of silver, 12,563

oz gold, 4,851 tons lead and 14,325 tons

zinc. The cash cost per silver ounce

dropped to a negative US15 cents, down

dramatically from US$4.80 in the third

quarter 2016. Less silver production

resulted from lower grades due to mine

sequencing. Lower costs were attributed

to higher base metal prices and record

mill production rates. 2017 silver pro-

duction is estimated to total 7.8 million

to 8.2 million oz, while gold production

l C O L U M N

Turnaround lifts mood as miners gather Sources of investment in exploration shift in Alaska, while the state’s producing mines boost output on strength of higher prices

8NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

Shane Lasley PUBLISHER & NEWS EDITOR

Kay Cashman EXECUTIVE PUBLISHER & FOUNDER

Rose Ragsdale CONTRIBUTING EDITOR

Mary Mack CEO & GENERAL MANAGER

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Curt Freeman COLUMNIST

J.P. Tangen COLUMNIST

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Renee Garbutt CIRCULATION MANAGER

Mapmakers Alaska CARTOGRAPHY

ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647

NEWS • 907.229.6289publisher@miningnewsnorth.com

CIRCULATION • 907.522.9469 circulation@petroleumnews.com

ADVERTISING Susan Crane • 907.770.5592scrane@petroleumnews.com

FAX FOR ALL DEPARTMENTS907.522.9583

NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News, a weekly newspaper.To subscribe to North of 60 Mining News,

call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.

Several of the individualslisted above are

independent contractors

North of 60 Mining News is a weekly supplement of the weekly newspaper, Petroleum News.

Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: publisher@MiningNewsNorth.com

Phone: 907.229.6289 • Fax: 907.522.9583

TheauthorThe author

Curt Freeman,CPG #6901, is awell-known geol-ogist who lives inFairbanks. He pre-pared this column CURT FREEMANNov. 27. Freeman can be reached bymail at P.O. Box 80268, Fairbanks, AK99708. His work phone number atAvalon Development is (907) 457-5159and his fax is (907) 455-8069. His emailis avalon@alaska.net and his website iswww.avalonalaska.com.

see FREEMAN page 9

is pegged at 51,000-53,000 oz. On the

exploration front, drilling in the third

quarter targeted the Deep 200 South,

East Ore, Gallagher and the Upper Plate

zones. Exploration drilling on the Deep

200 South Zone extended the 200 South

Bench mineralization south of current

resources. Drilling on the East Ore,

Gallagher and Upper Plate zones upgrad-

ed and expanded the known resource.

Previous drilling on the East Ore,

Gallagher and Upper Plate zones also

delivered strong assay results.

Significant intercepts in the East zone

include 75.1 oz/t silver, 0.16 oz/t gold,

5.32 percent zinc and 2.67 percent lead

over 9.5 feet in an area without previous-

ly identified resources and another

exploration drill hole intercepted 11.0

oz/t silver, 0.13 oz/t gold, 12.8 percent

zinc and 7.3 percent lead over 7.7 feet

within an area of no previously identi-

fied mineralization. Additional explo-

ration is planned for the East zone in

2018. Significant intervals from the

Upper Plate Ore Zone included 75.2 oz/t

silver, 0.09 oz/t gold, 6 percent zinc and

3 percent lead over 5.4 feet. This miner-

alization is close to underground mine

infrastructure and only 300 feet below

the mine portal. Drilling of the Gallagher

Zone identified new mineralization

between current resources and included

11.6 oz/t silver, 0.09 oz/t gold, 5.2 per-

cent zinc and 2.5 percent lead over 32.3

feet. Surface drilling was completed on

targets in the Gallagher, East Ore and

5250 zones. Drilling on the Gallagher

Zone intersected mineralized sheared

veins and breccia intervals of up to 100

feet thick containing higher-grade inter-

vals of 1.5 feet to four feet wide that

have up to 15 percent zinc and 4.0 oz/t

silver. This mineralized structure appears

to be the same Klaus Shear identified

within the mine workings east of the

Gallagher fault. The mineralized Klaus

Shear now extends 1,500 feet west of the

mine and over 3,000 feet north to south.

Drilling successfully intercepted the

main mine horizon of the 5250 Zone

over 2,000 feet south of the known

resource showing promising alteration at

the contact.

CONSTANTINE METAL

RESOURCES LTD. reported additional

assay results for four drill holes from

resource expansion and upgrade drilling

at the AG Zone at its Palmer vol-

canogenic massive sulfide deposit near

Haines. A total of 10,718 meters were

drilled as part of the recently completed

dual focus resource expansion and

regional exploration drill program. The

2017 program included 10 holes for

3,221 meters at South Wall, 13 holes for

4,993 meters at the AG Zone, three holes

for 1,006 meters at the Cap prospect, and

six geotechnical holes totaling 1,499

meters. Drilling at AG Zone has contin-

ued to successfully define the zone with

step-outs along strike and to depth from

the initial discovery holes. Significant

new results include 30.5 meters grading

7.3 percent zinc, 0.2 percent lead, 0.1

percent copper, 6 grams-per-metric-ton

silver, 0.1 g/t gold from hole CMR17-92,

7.8 meters grading 6.69 percent zinc,

0.81 percent lead, 0.11 percent copper,

34.6 g/t silver, 0.26 g/t gold from hole

CMR17-99, 41.3 meters grading 5.79

percent zinc, 0.15 percent lead, 0.14 per-

cent copper, 9.2 g/t silver, 0.05 g/t gold

from hole CMR17-96 and 127.6 meters

grading 0.98 percent zinc, 0.32 percent

lead, 0.04 percent copper, 184.2 g/t sil-

ver, 0.4 g/t gold from hole CMR17-94.

Collectively, the drill-defined strike

length is 225 meters, a vertical dip length

of 275 meters and all sides are open to

expansion. Mineralization consists of

stacked stratabound zones, including a

high-grade silver-gold upper zone, and a

zinc-rich lower zone. The additional

drilling also has shown that most of the

AG Zone occurs on the steep, relatively

planar limb, of a large-scale fold struc-

ture. Mineralization is stratigraphically

correlative with high-grade surface

prospects located hundreds of meters

along trend to the northwest (Waterfall

and CAP) and southeast (JAG). l

9NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

continued from page 8

FREEMAN

l O P I N I O N

First step taken to curb Interior abusesComptroller General’s finding that the Eastern Interior Land Management Plan is a ‘rule’ means that the plan can be set aside

By J. P. TANGENSpecial to Mining News

A lthough the Bureau of Land

Management has been devel-

oping land management plans for

decades, in the past those plans have

had two qualities that made them

tolerable. First, they were relatively

easy to live with and second, they

were reasonably understandable.

There can be no doubt, however,

that the earlier plans violated

unequivocal prohibitions of the

Alaska National Interest Lands Act

against restrictive land management

practices on the public domain.

During the past decade, the noose has tightened around

the neck of Alaskans who seek to develop resources on

federal land. The number of new federal mining claims

versus the number of new state claims is a sad testament

against the United States continuing to own up to two-

thirds of Alaska.

The discrepancy in new mining locations is not solely

attributable to land management practices. The regulatory

quagmire that has developed regarding the regulation of

mining is also to blame. The offensive against mining is

not unique to Alaska, but it still hits Alaska hard.

Far fewer bureaucrats within the BLM have advanced

credentials relating to regulating mining than those trained

as “planners.” It appears that the planning contingent

aspires to ensure that resource development on BLM land

is circumscribed and ultimately extinguished.

However, one faint glimmer of hope has emerged. A

statute called the Congressional Review Act, long forgot-

ten and rarely used, has been employed to force regulatory

agencies to conform to the law. Under the CRA, when an

agency promulgates a “rule” purportedly pursuant to its

statutory authority, it must submit that rule to Congress

which, in turn, may adopt a joint resolution of disapproval.

If signed by the President, the rule is

overturned.

The Comptroller General of the

United States is the arbiter of what

constitutes a rule. If an agency does

not submit a proposed action to

Congress, a member of Congress

may request the Comp-Gen’s advice

as to whether it should have done

so.

This is what has happened in the

case of the BLM’s Eastern Interior

Land Management Plan. BLM

determined that the plan was not a

rule, so U. S. Sen. Lisa Murkowski ,

R-Alaska, requested the Comp-Gen

to determine whether it should have been submitted to

Congress. On Nov. 15, the Comp-Gen opined that the

plan was subject to the CRA. It now remains for the dele-

gation to initiate appropriate resolutions in each house of

Congress to disapprove of the plan.

The plan ought to be disapproved for several reasons;

first it violates ANILCA by imposing restrictive manage-

ment burdens on enormous tracts of federal land. We

were clearly promised in ANILCA that there would be no

more such restrictions; nonetheless, BLM has blatantly

disregarded this statutory mandate.

Second, the magnitude of the plan is a major reason to

be concerned. It affects four separate planning areas: The

White Mountains Planning Area (over 1 million acres);

the Steese Planning Area (about 1.3 million acres); the

Fortymile Planning Area (nearly 1.9 million acres) and the

Draanjik Planning Area (about 2.4 million acres) – in the

aggregate over 2.5 percent of the federal land in the state.

Of that land, only 4,000 acres in the White Mountains

are recommended for being opened to mineral leasing,

while 98 percent of the Steese Planning area would

remain closed to mineral leasing and location, 40 percent

of the Fortymile area would remain closed and 77 percent

of the Draanjik would continue to be closed.

A third reason for disapproving BLM’s plan is that it is

a monument to abuse of the land management process. To

be sure, the planning process was ostensibly “transparent”

inasmuch as a variety of stakeholders including the Alaska

Miners Association had the opportunity to comment; but

the magnitude of the plan, including the environmental

impact statement and the numerous appendices was a

mammoth pill to swallow – far too voluminous for the

average prospector or placer miner to deal with.

It is encouraging that this is the second time in recent

weeks the Comp-Gen has concluded a land management

plan to be a CRA rule. In October, he also issued an opin-

ion that the Draconian 2016 Amendment to the Tongass

National Forest Land and Resources Management Plan

was also a rule. Resolutions of disapproval are currently

pending in Congress.

Finally, the position of the U. S. Department of the

Interior regarding BLM’s plan is not clear. When the

Comp-Gen requested Interior’s views on the plan, the

department could not respond due to the lack of a “more

complete leadership team.” In other words, defending the

BLM’s recommendation was not an Interior priority.

We can only hope that the Alaska delegation to

Congress will promptly turn its attention to causing a joint

resolution disapproving the plan to be forwarded to

President Trump and that he will sign it into law.

Readers of this column should consider recommending

this to the Alaska delegation and get friends and neigh-

bors to do so as well. We have a golden opportunity to

quash this obnoxious land management plan. l

The plan ought to be disapproved for severalreasons; first it violates ANILCA by imposingrestrictive management burdens on enormous

tracts of federal land. We were clearlypromised in ANILCA that there would be nomore such restrictions; nonetheless, BLM hasblatantly disregarded this statutory mandate.

Mining & thelaw

The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached atjpt@jptangen.com or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.

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“The Native corporations here have been cast in the

context of the Canadian First Nations,” he said.

“You have an entirely different business structure and

it is one, in my opinion, that works a hell of a lot better,”

he added.

The portfolio manager suggested that Alaska and its

Native corporations need to do more to market the unique

opportunity of doing business with Alaska’s First People.

“It is not that the corporations are tough, it is the cor-

porations aren’t differentiating themselves from their

Canadian counterparts, who are setting the perception

about what it is like to work with Native corporations,” he

said.

Two weaknessesWhen it comes to attracting mining dollars, Silver said

Alaska mining has two weaknesses – sparse infrastructure

and the controversy surrounding the Pebble Mine project

in Southwest Alaska.

From a financial perspective, infrastructure is a major

factor for a mine investor trying to pencil out development

and operations costs versus a potential return.

“Don’t underestimate infrastructure – it is absolutely

huge when we make decisions about where we want to

invest,” he said.

Silver said Canadian governments do a much better job

at developing the infrastructure needed to attract mining

investments.

For example, Quebec is investing heavily into Plan

Nord, a major infrastructure project aimed at supporting

the natural resources extraction sector in the northern

reaches of the province.

This 25-year plan is expected to foster more than C$80

billion in energy, mining and forestry investments and

result in some 20,000 jobs a year for the duration.

Silver said the Northwest Transmission Line, an indus-

trial-grade power line that runs through the Golden

Triangle region of northwestern British Columbia is

another example of a Canadian jurisdiction’s commitment

to mining infrastructure.

“In B.C., they put at C$700 million powerline up

through the center of the province so they could drop the

(electrical) costs from C90 cents per kilowatt-hour to C15

cents,” he said. “You don’t think that makes them compet-

itive?”

The mine investor said the lack of access in Alaska is

something the government should address.

“There is no question this is an issue, and it is an issue

that is easy to fix – build roads, build bridges,” Silver said.

“This is what governments are supposed to do,” he

added.

Silver said the bad publicity surrounding Pebble causes

second thoughts in the minds of investors who are weigh-

ing the risks of investing in Alaska mining.

“Pebble is causing more image problems and media

problems for Alaska than anything else and it needs to be

fixed,” he said.

Silver said it does not matter so much to the investment

community what is decided on Pebble as long as the issue

is resolved by the people who live here.

“I think Alaskans should figure out whether they want

Pebble – not the federal government and not the interna-

tional investment community,” he said.

Nothing to do with AlaskaWhile Silver gives Alaska a pretty good grade overall,

he cautions the next wave of mining investments could be

slow coming.

The mine finance manager said this measured flow has

“nothing to do with Alaska,” but is a product of a more

cautious approach by global mining companies and

banks.”

“Big projects are very difficult to fund – they are diffi-

cult to fund because major mining companies don’t want

them, the big banks are gone and there’s a very limited

amount of capital,” Silver explained.

Despite this, mining investments are on the rise.

“Money is starting flow in again, it started last year and

continues to get better,” he said.

Silver said the view of Alaska as place to invest in

mines is mostly favorable from his office in Denver but

the Far North state is in a tough competition for limited

dollars currently being invested around the world. l

continued from page 7

PERSPECTIVE

gold bearing Oh Boy Vein in its southwestern part.

CopperBank said the metal assemblage identified

could reflect the presence of a porphyry-style miner-

alization. The area sampled near an intrusion at

Renshaw Point revealed a soil anomaly of nearly 400

meters in length returning silver values averaging

more than 1 gram per metric ton and local gold val-

ues over 0.2 g/t along the intrusive contact. The com-

pany said more work will be necessary to see if the

anomaly is due to the presence of epithermal veins.

The tested area around an intrusion of San Diego

Bay returned a single gold anomalous sample and no

significant values for other metals of interest. "The

2017 exploration campaign at San Diego Bay sug-

gests that significant copper and gold mineralization

could be present at depth, such as at Pyramid located

10 kilometers (six miles) to the west,” said

CopperBank Executive Chairman Gianni Kovacevic.

Results from this year’s program will be used to ori-

ent future work programs. CopperBank has commis-

sioned a technical report for San Diego Bay, which

will be augmented by a planned structural and hyper-

spectral study. l

continued from page 7

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TimelineThe first timeline in the agreement is

May 31, by which time the parties hope to

be able to determine the Chinese disposi-

tion of 75 percent of the LNG; identify

how much involvement Sinopec will have

in engineering and construction; develop

“the general framework and indicative

pricing for potential and customary strate-

gic financing and international project

financing for Alaska LNG”; and explore

the feasibility for the parties to invest in

the project.

The goal for definitive agreements is

the end of 2018, which is when the agree-

ment expires unless the parties agree to

extend it. The agreement also notes that

any party may withdraw upon notice to

the other parties.

Meyer said the goal is to have final

agreements in place in 2018 so that a final

investment decision can be made in 2019,

with construction to start that year. l

continued from page 6

CHINA AGREEMENT

l G O V E R N M E N T

AOGCC reduces fine to Tolsona Oil & GasBy KRISTEN NELSON

Petroleum News

The Alaska Oil and Gas Conservation Commission

has reduced a fine imposed in May on Tolsona Oil

and Gas Exploration LLC from the $380,000 to

$92,000, citing steps the company has taken since the

fine was imposed to comply with AOGCC regulations

and the fact that the company now proposes to plug and

abandon the Tolsona 1 well, the cause of the fines.

The commission cited numerous violations by

Tolsona and said those violations were of requirements

the agency imposed when it approved Tolsona’s request

to suspend the Tolsona No. 1 well, including the compa-

ny’s failure to provide pressure reports, failure to afford

AOGCC inspectors the opportunity to witness pressure

tests and failure to install a required pressure gauge.

Tolsona requested reconsideration of the commis-

sion’s May decision and a hearing was held Sept. 12.

Communication issuesThe commission had made numerous efforts to get

information from Tolsona on the suspended Tolsona

well in the Copper River basin prior to issuance of the

May order, including a notice of the proposed order.

In a June 23 response to the commission’s order the

company said: “immediately upon receipt of the Order,

Tolsona performed a comprehensive internal investiga-

tion, which revealed numerous deficiencies in Tolsona’s

communication, both internally and with the AOGCC.”

Tolsona said those deficiencies were caused by changes

to personnel, loss of experienced technical capacity,

failure to create internal communication redundancy

and a lack of oversight in communication.

The company told the commission it had remedied

equipment deficiencies and communication issues.

In its Nov. 29 final order, the commission reviewed

the basis for its finding of violations or noncompliance

with regulations, as well as its attempts to communicate

with the company.

Tolsona responseAfter the commission issued its May order, the com-

pany’s CEO called to say the company had not received

the notice of proposed enforcement action. In response

the commission supplied copies of the notice and signed

certified mail receipts and Tolsona initiated an internal

investigation.

The required pressure gauge was installed June 1 and

on June 15 Tolsona provided notice to the commission

so that inspectors could witness wellhead pressure read-

ings. This was the first time, the commission said, that

Tolsona had provided the required notice.

On June 23 Tolsona submitted a request for reconsid-

eration of the civil penalties.

Commission’s conclusionThe commission said there is no dispute that the vio-

lations occurred, and said Tolsona has implemented

steps to ensure compliance will occur in the future.

“Tolsona’s demonstrable disregard for regulatory

compliance precludes any finding that it acted in good

faith,” the commission said. While there were serious

violations there was no injury to the public, but the

absence of any effort by the company to correct the vio-

lation “and the need to deter such behavior weigh

strongly in the penalty imposed.”

The commission said steps Tolsona has taken to

ensure compliance for future work, and the company’s

statement that it plans to plug and abandon the Tolsona

1 well, “warrant reduction of the proposed civil penal-

ties.”

The reduced penalties include $60,000 for failure to

install appropriate gauges on all annuli on the Tolsona 1

well and $32,000 for failure to provide monthly pres-

sure reports on the well.

This is the commission’s final decision and may be

appealed to superior court; any appeal to the court must

be filed within 30 days. l

Don’t miss another issue!Subscribe to Petroleum News: Call 907.522.9469

The reduced penalties include $60,000 forfailure to install appropriate gauges on all

annuli on the Tolsona 1 well and $32,000 forfailure to provide monthly pressure reports on

the well.

12 PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

Oil Patch Bits

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

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Carr joins US Bureau of Ocean Energy Management The U.S. Bureau of Ocean Energy Management said it has hired

Megan Carr, Ph.D., as the supervisor of the Alaska region’s resourceevaluation office, where she will supervise a team of about 20 geol-ogists and geophysicists.

Carr is a certified professional geologist and comes to BOEMwith more than 15 years of experience in the environmental sci-ences, geological sciences and academia. She holds a bachelor’sdegree in geology, with focus on hydrologic modeling, from BaylorUniversity; and a master’s in environmental science with focus onsoils and natural resource management, also from Baylor. Her Ph.D.is in geophysics from the University of Tennessee, with her disserta-tion concentrating on how to quantitatively combine data sets forimproved subsurface imaging and discriminating targets of interest.

Carr is a triathlete who also volunteers as the service unit manager of Alaska GirlScouts, where she supports the development of 56 troops in South Anchorage and leadsher own troop of 8th-grade girls.

Air Liquide Engineering & Construction wins contract Air Liquide Engineering & Construction recently signed a new agreement with Cargill for

engineering and supply of a world-scale biodiesel plant in Wichita, Kansas.The state-of-the-art biodiesel plant is planned to start operation in January 2019 and

will produce 60 million gallons of biodiesel per year.The agreement is another step in the long term partnership between the two compa-

nies. Air Liquide Engineering & Construction has already built six biodiesel plants for Cargillworldwide.

Air Liquide Engineering & Construction’s leading edge Lurgi biodiesel technology offersa complete oleochemical production chain and provides customers with a range of plantoptions designed to maximize efficiency, improve the quality of the product, help to mini-mize operating costs and environmental footprint.

Domenico D’Elia, vice president and chairman of Air Liquide Engineering & Construction,said, “We are delighted to sign a new agreement with our long standing customer Cargill.This is yet another proof of the competitiveness of our most advanced and best performingbiodiesel technology. We extend our leadership in Europe and Asia in this field and ourambition is to achieve the same result in the Americas.”

MEGAN CARR

l P I P E L I N E S & D O W N S T R E A M

Sasol pulls out of $14B US gas-to-liquids plantASSOCIATED PRESS

L ow oil prices and a volatile market are prompting a

South African energy and chemical company to drop

plans for an $11 billion to $14 billion U.S. plant to convert

natural gas to liquid fuels and to pull out of Canadian

shale.

“Sasol will not invest in further greenfields gas-to-liq-

uids projects,” the company said Nov. 23 in a news release

posted on its website. Its current GTL plants “are generat-

ing good returns and cash flows,” but new projects aren’t

worth it in the current market, the statement said.

The company had announced in January 2015 that it

was delaying final investment plans for the plant near

Lake Charles because of a collapse in world oil prices.

“I hate to see ... that the gas to liquids project is not

being able to happen,” but it’s a minor setback in $100 bil-

lion in development across southwest Louisiana, said

Calcasieu Parish Police Juror Hal McMillin. He said that

includes an $11.1 billion ethane cracker being built by

Sasol, which has an ethylene plant, an alumina plant and

an alcohol plant operating in the area. l

supplying power to Chugach Electric. For

several years CIRI has been promoting its

concept of a phase two expansion of the

farm, but thus far has not succeeded in

signing up any customers for the

increased power output.

Chugach Electric told the commission

that CIRI Wind has proposed two alterna-

tive options for new wind facilities on

Fire Island: an 11 turbine system with a

20.35 megawatt nameplate capacity, or a

five turbine system with a 9.25 megawatt

capacity. In either case the new system

would connect to Chugach Electric’s

power transmission system at an existing

connection point on Fire Island. In its

connection request CIRI Wind said that it

anticipates commercial operation of the

new system to begin in September 2018,

with an expected project life of 25 years.

Commercial challengesAlthough appealing as a non-polluting,

renewable form of energy with a pre-

dictable and stable cost profile, the Fire

Island wind farm has to compete on cost

with alternative sources of power, in par-

ticular power from natural gas fueled

power stations. A key cost factor is the

variable nature of wind power output,

given the natural variability of the

strength of the wind that drives the wind

turbines. Alaska Railbelt electric utilities

have said that their provision of power

generation that can offset the varying

wind power would cost money, thus

adding to the wind power cost. Chugach

Electric has also said that it has had to cur-

tail some of the peak output from the

existing Fire Island farm, because the

electric utility’s power generation facili-

ties cannot always accommodate the fluc-

tuating power.

The fragmented ownership by multiple

utilities of the Railbelt power transmission

grid also presents a challenge for inde-

pendent power producers such as CIRI

Wind, given the manner in which fees

charged for shipping power across the

grid can stack up, as power crosses grid

segments owned by different operators.

On the other hand, the Fire Island wind

farm sits adjacent to Chugach Electric’s

sector of the grid, thus enabling the direct

feed of the wind power into Chugach

Electric’s system.

Qualifying facilityChugach Electric told the commission

that CIRI Wind has requested intercon-

nection for the proposed additional wind

power as what is referred to as a “qualify-

ing facility,” under the terms of state reg-

ulations driven by the federal Public

Utilities Regulatory Policies Act, or

PURPA. Under PURPA, a statute

designed to encourage use of renewable

energy sources, electricity utilities are

required to purchase power under reason-

able terms from qualifying, independent

renewable power facilities. The regula-

tions determining what may be considered

reasonable terms are complex and require

a utility to calculate both the cost of inte-

grating a varying renewable power source

into its system and the benefit to be gained

from the use of the renewable energy.

Two tariffs requestedCIRI Wind has requested a tariff for

each of its two wind farm expansion

options and has asked for the tariffs within

60 days of its request, a request submitted

to Chugach Electric on Nov. 6. Chugach

Electric has told the commission that it

will file a tariff specific to the 20.35

megawatt facility by Jan. 5 and, if possi-

ble in the time available, will also supple-

ment the tariff with information pertinent

to the 9.25-megawatt concept.

In a Nov. 23 letter to CIRI Wind,

Chugach Electric said that, under the

terms of the utility’s tariff, CIRI Wind

would need to cover Chugach Electric’s

cost of responding to the interconnection

request. That cost is estimated at $94,000,

including $49,000 for an engineering firm

to prepare a conceptual design and cost

estimate for expanding the capacity of the

submarine power transmission cables

between Fire Island and the mainland —

the existing cables do not have the capac-

ity or life expectancy to handle the pro-

posed new usage, Chugach Electric said.

—ALAN BAILEY

PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017 13

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Confidence in Oil SearchVanDenburg emphasized Armstrong’s

confidence in Oil Search as a reliable

company that has been in business since

1929 and that is involved in some major

projects in Papua New Guinea.

“So they have some staying power,”

VanDenburg said.

He commented that the company is

involved with ExxonMobil and Total in

two major liquefied natural gas operations

in Papua New Guinea, as well as being

operator of all of the producing oil wells

in the country. Armstrong has enjoyed a

long-term relationship with Oil Search

through employee connections. Oil Search

has long experience of handling the logis-

tics of working in remote and rugged envi-

ronments. The company is not shy of

involvement in really big, long-term proj-

ects, enjoys a proven record in safety and

environmental responsibility, and has an

excellent track record in working with

local communities, VanDenburg said.

“For all these reasons we think they’re

truly a perfect fit for the Nanushuk proj-

ect,” he said.

Armstrong in AlaskaVanDenburg characterized Armstrong

Energy’s latest venture at Pikka as the lat-

est of a series of Alaska initiatives result-

ing from the often counter-conventional

thinking of the company’s founder, Bill

Armstrong. In 2001 Armstrong, in his first

foray into Alaska, began exploring for oil

on the North Slope, despite universal

advice that the region was the solely the

domain of major oil companies. The

upshot was the discovery of the Oooguruk

and Nikaitchuq fields, now owned and

operated by Caelus Energy and Eni,

VanDenburg said.

After developing the North Fork gas

field in the southern Kenai Peninsula, in

2008 Armstrong returned to the search for

North Slope oil, disregarding convention-

al wisdom at the time of an oil price crash,

and during a frenzy by industry to chase

shale gas in the Lower 48. A partnership

between Armstrong and Repsol drilled 19

wells and acquired three 3-D seismic sur-

veys. The result has been the Nanushuk

discovery, with published recoverable oil

reserves of 1.2 billion barrels of oil,

VanDenburg said

Multi-billion dollar investmentThe plan is to develop the project, a

multi-billion dollar investment, through

the drilling of about 146 wells from three

drill sites on the east side of the Colville

River. The development will involve the

construction of about 35 miles of pipeline

and 25 miles of road. A central processing

facility will handle field production, pro-

jected at some 120,000 barrels per day.

The development primarily targets the

Nanushuk reservoir but is expected to

also result in production from a reservoir

found in Alpine C sands, VanDenburg

said.

“This is a very large project and will

create a lot of jobs for the state,” he said,

adding that engineering design work and

support for North Slope operations would

bring jobs to Anchorage.

Major new playAnd the Pikka development appears to

mark the emergence of a whole new oil

play concept on the North Slope.

The thick sands that form the initially

discovered reservoir at Pikka can be

traced along a zone more than 40 miles in

length. So, defying convention to drill

close to the discovery, Bill Armstrong

ordered the drilling of the Horseshoe well

about 21 miles to the south, at the south-

ern tip of the reservoir sand system,

VanDenburg said. Then, with that well

discovering the same sand and oil charge

as at Pikka, it became possible to confirm

the existence of one large oil field, with

potentially more than 10 billion barrels of

oil in place, he said.

“When you’re chasing fields of that

size, it changes everything,” VanDenburg

said.

Moreover, the same geology extends

for hundreds of miles across the National

Petroleum Reserve-Alaska, with 46

prospects identified on just one seismic

line, he said. ConocoPhillips has been

able to repeat success in the oil play in its

Willow discovery in the northeastern

NPR-A. And there is much more out

there, VanDenburg said.

Fields such as Pikka and Willow,

together with other discoveries in the new

play, can make a material difference to

the declining trend of North Slope oil pro-

duction that started in 1988, he said. l

continued from page 1

NS OPPORTUNITY

continued from page 1

CIRI WIND

several levels in the subsurface.

“We see multiple prospects at several

horizons,” Mery said.

Doyon is particularly focused on find-

ing oil but thinks that the basin also holds

substantial volumes of gas. The seismic

anomalies have the potential to be a game

changer for the corporation, Mery said.

East of the TananaThe planned drill site lies east of the

Tanana River, north of where the Nenana

River flows into the Tanana and 10 to 12

miles west of the Parks Highway, Mery

said. Rather than building a substantial,

all-season road to the site, summer access

to the site will primarily be by river, sup-

ported from the town of Nenana 20 miles

to the south by barge and crew boat. A

small, less than one-mile access road will

connect a barge landing on the Tanana to

the gravel drill pad. The pad, road and

barge landing will be constructed during

the winter.

Doyon has still to determine which

drilling rig to use for the project and is

evaluating a couple of options, Mery said.

In addition to the promising seismic

results, wells that Doyon has previously

drilled have encouraged the Native corpo-

ration in its exploration efforts, Mery

said. The Nunivak No. 2 well, drilled in

2013, penetrated several hundred feet of

gas saturated sand, but the gas pressure

was too low for commercial production.

Doyon concluded that the prospect’s

hydrocarbon trap had failed at some time

in the past. However, the gas did include

propane, a finding that provided evidence

for a thermal rather than biogenic origin

for the gas and, hence, the possibility of

oil in the basin. And then the Toghotthele

No. 1 well, drilled in 2016, encountered

several dozen oil shows, indicating that

oil had moved through the subsurface at

some time in the past.

Convenient locationThe Nenana basin, a large sediment-

filled basin southwest of the city of

Fairbanks, is conveniently located near

the road and rail transportation corridor

between Southcentral Alaska and the

Interior, thus making the basin an attrac-

tive target for potential oil or gas develop-

ment. The hour-glass shaped basin has a

relatively shallow saddle in the middle,

near the town of Nenana, and deeper sub-

basins to the north and south. Doyon has

previously drilled three wells in the basin,

all on the central saddle, at locations into

which Doyon hoped hydrocarbons had

flowed from deeper sections of the basin.

The deepest sub-basin is in the north,

where Doyon now plans to drill. Basin

depths in this area are thought to be suffi-

cient to subject coals, the likely hydrocar-

bon sources, to temperatures and pres-

sures conducive to the formation of oil.

Prior to last year’s 3-D seismic survey,

Doyon conducted 2-D surveys in the

northern part of the basin in 2012 and

2014. The 2014 survey also revealed

some direct hydrocarbon indicators, Mery

said.

The new drilling targets are adjacent to

the hydrocarbon kitchen in the north. The

seismic hydrocarbon indicators also point

to other prospects that could become

drilling targets in the future, Mery said. In

addition, while the leakage of hydrocar-

bons in potential traps to the south may be

related to the uplift of the rocks in that

area, the northern part of the basin

appears relatively undisturbed, he said.

Gas for Fairbanks?Doyon says that, had the trap for the

reservoir penetrated by the Nunivak No. 2

well not failed, the reservoir could have

delivered some 150 billion to 180 billion

cubic feet of natural gas, enough gas to

supply Fairbanks for more than 25 years.

Success at Totchaket No. 1 could result in

a similar size of gas resource, Doyon

says.

As part of a Doyon news release

announcing the Totchaket drilling deci-

sion Mery commented on the potential

impact of the Alaska Industrial

Development and Export Authority’s

Interior Energy Project on Doyon’s

efforts in the Nenana basin. As part of the

IEP, Interior Gas Utility in Fairbanks is

about to decide on whether to agree to

purchase Pentex Natural Gas Co. from

AIDEA, a deal that would provide IGU

with a liquefied natural gas supply from

the Cook Inlet basin and would be funded

through an AIDEA financing, including a

loan with a 50-year term.

“Although our primary target is oil,

our gas prospects are greater,” Mery said.

“So it is unfortunate timing to see the

Interior Gas Utility ready now to commit

to a course of action with AIDEA which

will tie Fairbanks for at least a generation

to imported LNG by truck at much less

favorable price projections. This potential

IGU purchase also eliminates the option

for use of future Nenana gas as well as

foreclosing future opportunities to tap

into any North Slope gas export line.” l

14 PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

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COSPONSORS Ahtna, Inc. Alaska Communications American Marine International Andeavor Arctic Slope Regional Corporation ASRC Energy Services Calista Corporation Chugach Alaska Corporation CLIA Alaska Cook Inlet Region, Inc. ENSTAR Natural Gas Company Fugro Hotel Captain Cook & the Voyager Inn Little Red Services Lynden Pacific Environmental Corporation Pebble Partnership Sealaska Corporation SRK Consulting (U.S.), Inc. Sumitomo Metal Mining Pogo LLC Teck Alaska Van Ness Feldman LLP Westward Fishing Company Westward Seafoods, Inc.

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continued from page 1

NENANA DRILLING

TMI?l E X P L O R A T I O N & P R O D U C T I O N

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oleumNews.com

page 20MEA PLANTsee

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.YY.ELLY

15. Moreover, continuing efficient operations in the

North Slope oil fields can help the economics of export-

ing natural gas from the Slope, by reducing the unit cost

of supply of the gas, Bilbao said.

Currently, Alaska accounts for less than 1 percent of

worldwide oil production, a figure

that represents a substantial drop

from the 5 percent of world pro-

duction that came from the state in

the mid-1980s, Bilbao cautioned.

Resources exceed demandBilbao said that currently there

are about 2.5 trillion barrels of

known worldwide oil resources

that could be produced using exist-

ing technologies. But the projected

worldwide oil demand between 2010 and 2050 only

amounts to about half of that volume. So, to be sold in

the future oil market, oil will need to be competitive on

price.

“You’d better be sure that the price of your oil, deliv-

ered to market, is less than everybody else’s,” Bilbao

said. “That’s why we continue to focus on how do we

make Alaska’s oil as competitive as possible.”

He said that BP sees global oil demand rising but then

flattening out around 2030 to 2035. Despite a continuing

debate about the possible impact of electric car use on

that demand, BP does not envisage market penetration

by these vehicles having a substantial impact on oil

usage. Even a 100-fold increase in electric car adoption

beyond the current worldwide level of about 1.2 million

vehicles would only reduce oil demand by about 1 mil-

lion barrels per day from a projected demand of about

102 million barrels per day in 2035, Bilbao said.

SB 21 impactIn terms of Alaska’s competitiveness in the global oil

market, the state took a major step forward with the pas-

sage of the Senate Bill 21 production tax legislation in

2014, Bilbao said. Following the tax change a steady oil

production decline of 6 to 8 percent per year has flat-

tened out over the last two or three years, and production

has even grown somewhat, Bilbao said.

While continuing vibrant levels of investment in

Alaska oil can hold the production decline rate to per-

haps 1 percent, reverting to uncompetitive tax policies

would cause a reversion to a decline rate of around 6 per-

cent. At the same time, there is a threshold of some

300,000 barrels per day in trans-Alaska oil pipeline

throughput — go below that threshold and the oil

becomes significantly more expensive to ship. Hence,

holding the decline rate at 1 percent could result in 6.5

billion barrels of competitive oil being exported through

the pipeline, compared with just 1.5 billion barrels at a 6

percent decline rate. That extra 5 billion barrels repre-

sents $66 billion for the state in terms of taxes and roy-

alties, Bilbao said.

However, flattening the North Slope production, as

envisaged by the Alaska Department of Revenue, will

require a combination of exploration, field development

and improved efficiency in operational fields, he said.

New development, improved efficiencyOn the exploration front, Armstrong Energy,

ConocoPhillips, Caelus Energy and others have been

discovering more North Slope oil — the state has fore-

cast that these new discoveries can add 40,000 bpd of oil

throughput to the trans-Alaska pipeline by 2025. There

are also new developments in existing fields and discov-

eries: Point Thomson expansion, 1H NEWS in the

Kuparuk River field and the planned Moose Pad devel-

opment at Milne Point. There are also the potential Nuna

development in the Oooguruk field and the development

of the Liberty field.

In the Prudhoe Bay field BP has been focusing on

operational efficiency, with efficiency improvements

achieved over the past three years being equivalent to

about another 10,000 to 12,000 bpd flowing down TAPS

without any addition to the field facilities. That is equiv-

alent to bringing a whole new oil field on line every year,

Bilbao said.

In fact, Bilbao said, more than 90 percent of the oil

remaining to be produced from the Prudhoe Bay field

will come from existing well bores through existing field

facilities. Production of that oil will depend on continu-

ing to operate the field responsibly and efficiently, ensur-

ing that the oil can continue to compete in the world mar-

ket.

AKLNGBilbao also congratulated Gov. Bill Walker and others

involved in the Alaska liquefied natural gas project on

the recent agreements signed with the Chinese.

“The agreements last week are an important marker in

confidence in a 40-year future for oil and gas flowing

from Alaska,” he said.

To compete in Japan with gas coming from the U.S.

Gulf Coast, for example, it will be necessary to deliver

gas to Tokyo Bay at around $8 per thousand cubic feet.

Continuing operating efficiency in the North Slope oil

fields can help achieve that price target by reducing the

cost of the gas supply by around 50 cents per thousand

cubic feet. Then, by making North Slope gas more com-

petitive, Alaska can benefit from production from the

state’s large gas resource, as well as from the production

of oil, Bilbao said.

“In BP we believe in that 40-year future,” he said,

adding that Alaska has the people and resources to real-

ize that future potential.

—ALAN BAILEY

PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017 15

(907) 562-5303 | akfrontier.com

Safety Health Environment Quality

THE TEAM THAT

DELIVERSof a second extended reach well next

winter. BSEE says that Eni is conducting

the drilling in partnership with Shell.

Eni will drill the well from an existing

drill pad on the artificial Spy Island, a

part of the operating Nikaitchuq oil field

in state nearshore waters of the Beaufort.

The federal Nikaitchuq North leases lie

in the Harrison Bay Block 6423 unit,

immediately north of the state leases.

The idea is to test for new resources

that can be added to the reserves for the

Nikaitchuq field, and to enable increased

production at the field. Eni has said that

the existing production facilities can han-

dle production rates significantly higher

than at present.

“Responsible resource development in

the Arctic is a critical component to

achieving American energy dominance,”

said BSEE Director Scott Angelle when

announcing the permit approval. “BSEE

is committed to working with our

Alaskan Native and industry partners by

taking a thoughtful and balanced

approach to oil and gas exploration,

development and production in the

Arctic.”

“BSEE Alaska Region staff conducted

a thorough and complete review of Eni’s

well design, testing procedures and safety

protocol,” said Mark Fesmire, BSEE

Alaska Region director. “Exploration

must be conducted safely, and responsi-

bly in relation to the Arctic environment

and we will continue to engage Eni as

they move forward with drilling its

exploratory well.”

—ALAN BAILEY

continued from page 1

BILBAO AT RDC

continued from page 1

NIKAITCHUQ NORTH

DAMIAN BILBAO

In fact, Bilbao said, more than 90 percent ofthe oil remaining to be produced from the

Prudhoe Bay field will come from existing wellbores through existing field facilities.

No. 2A sidetrack to evaluate “the eastern

prospect,” although information gained

from the first well could prove sufficient.

The descriptions “western” and “east-

ern,” and the fact that the well is direc-

tional while the sidetrack is vertical, sug-

gest a simple geography difference

between the two prospects. Depths will

reveal whether the wells are also targeting

different formations.

The Putu program is an effort to

expand development of the Colville River

unit to the south, into a region that has

intrigued ConocoPhillips and others for

more than a decade.

A well and sidetracks drilled in the

area in 2008 by Brooks Range Petroleum

Corp. encountered hydrocarbons in sever-

al horizons, including in the Nanushuk

formation.

ConocoPhillips originally intended the

drill the Putu well last winter but said that

it delayed the project to accommodate the

concerns of local communities. The state

required the company to drill at least one

well this year to keep from losing the

acreage.

After months of regulatory delibera-

tions, the Department of Natural

Resources approved an expansion of the

unit in August 2017 to include the Putu

acreage to the south. The approval

required ConocoPhillips to drill one well

in 2018 and one by 2020. The two-well

program planned for this winter, if com-

pleted, would satisfy both commitments.

The Alaska Division of Oil and Gas is

taking comment on the plan through Dec.

22.

AccommodationsGiven the proximity of the program to

Nuiqsut, ConocoPhillips is incorporating

some unusual features into what would

otherwise be a fairly typical exploration

program.

The company plans to drill the well

and the sidetrack this coming winter from

an ice pad to be constructed on an island

between the main and Nechelik Channel

in the Colville River Delta, some 2.8

miles west of Nuiqsut. The 640,000-

square-foot ice pad (800 feet by 800 feet)

is planned for on ADL 390674 and will

include a temporary camp capable of

housing approximately 65 people. The

company plans to access the site by ice

road.

ConocoPhillips plans to power its

drilling operations using six Tier 4 diesel

generators located on a 40,000-square-

foot ice pad (200 feet by 200 feet) located

one mile north of the drilling site and con-

nected back to the rig using a 13.8-kilo-

volt transmission line encased in a 25-

foot wide and 25-inch thick block of ice.

The offsite generator and associated

transmission line will also power the

work camp, which will have a back-up

diesel generator in case of power outages,

equipment malfunction or other emergen-

cies.

The ice-encapsulated power line will

be distinct and separate from the ice road

used to accommodate truck traffic to the

drilling pad. The power line will be

housed in a special ice-encapsulated cas-

ing where it crosses beneath the existing

Alpine Resupply Ice Road.

The atypical system is intended to alle-

viate the impacts of the drilling program

on nearby Nuiqsut, according to

ConocoPhillips. The company said it is

also developing a special “lighting plan”

for the project to reduce the amount of

lighting visible from the village.

The exploration program is planned

for surface land owned by the Kuukpik

Corp. The two parties have entered a sur-

face use agreement, according to

ConocoPhillips. The relevant subsurface

land is jointly owned by the state and

Arctic Slope Regional Corp.

ConocoPhillips expects drilling opera-

tions to run from mid-January to mid-

March 2018, with testing in the first half

of April and demobilization by the end of

the month. The company warned that the

unpredictability of tundra openings could

alter the schedule. l

16 PETROLEUM NEWS • WEEK OF DECEMBER 3, 2017

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alaska@amarinecorp.com

continued from page 1

PUTU TARGETS

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The company plans to drill thewell and the sidetrack this coming

winter from an ice pad to beconstructed on an island betweenthe main and Nechelik Channel inthe Colville River Delta, some 2.8

miles west of Nuiqsut. The640,000-square-foot ice pad (800feet by 800 feet) is planned for on

ADL 390674 and will include atemporary camp capable of

housing approximately 65 people.