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

� G O V E R N M E N T

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

Vol. 18, No. 20 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 19, 2013 • $2.50

page4

Chenault discusses passage of oiltax, in-state gas pipeline bills

Apache Alaska plans to conduct a 3-D seismic survey project in thewestern part of the Kenai National Wildlife Refuge. See story page 8.

Kenai seismic plannedU

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E Spudding CosmoBuccaneer spuds first well, seeks more time to complete offshore programs

By ERIC LIDJIFor Petroleum News

Buccaneer Energy Ltd. has spud a well atCosmopolitan, but the company is asking the

state for additional time to complete its largerwork program at the Cook Inlet prospect.

A local subsidiary of the Australian independ-ent started drilling the Cosmopolitan No. 1 explo-ration well off the coast of Anchor Point on May13, according to the company.

Buccaneer is using its Endeavour jack-up rig todrill the well in some 80 feet of water. The com-pany expects the 8,000-foot well to take approxi-

see COSMO WELL page 17

Point Thomson progressWork on the ground well under way on Exxon’s long-awaited Alaska project

By WESLEY LOYFor Petroleum News

ExxonMobil is starting to make real strides on itsPoint Thomson development on Alaska’s North

Slope.Construction contractors for the oil giant have

been focusing on two project components — the cen-tral pad, and the pipeline that will tie the field into theexisting North Slope oil transportation network to thewest.

ExxonMobil is aiming to begin production of nat-ural gas condensate, a light hydrocarbon liquid, byMay of 2016.

The initial production level is expected to be10,000 barrels a day, a small volume in the context of

overall North Slope oil production, which currentlyexceeds 550,000 barrels daily.

But the project is regarded as a key first steptoward a potential multibillion-dollar effort to fullyexploit one of North America’s largest undevelopedoil and gas fields.

ExxonMobil has two major partners in the field,BP and ConocoPhillips.

The Australian firm WorleyParsons, along withFluor, is providing overall project management.

Central pad camp set upKim Jordan, an ExxonMobil spokeswoman in

Houston, told Petroleum News on May 15 that mod-

see THOMSON PROGRESS page 18

Win stuns BC pollstersGovernment of Premier Clark re-elected; industry has unresolved questions

By GARY PARKFor Petroleum News

B ritish Columbia Premier ChristyClark and the voters of her province

sent the political pollsters and punditspacking May 14 in an election that has var-iously been called the Comeback of theCentury or the Turnaround of the Ages.

Those who might have anticipated wak-ing up on May 15 to a new government gottheir wish. It just wasn’t the one they expected.

Faced with 18 months of polls that had her laggingby as much as 22 percentage points, the pugnaciousClark faced up to the electorate with a relentless grinand an upbeat message that only her Liberal partycould be trusted to manage the economy, eliminate

the debt and create jobs.During the month-long campaign she

dragged the polling margin against thesocialist New Democratic Party back tosingle figures, but she was still largelybeing written off.

When the ballots were counted, Clarkhad extended Liberal rule from 2001 tothe next election in 2017, apparently win-ning over voters with her message of astrong economy to create jobs, while por-

traying the NDP as a “tax and spend” party.

Liberals claim winning marginAlthough recounts were still likely in several con-

stituencies the Liberals were elected or leading in 50

CHRISTY CLARK

see ELECTION STUNNER page 19

Conoco: Shark Tooth by late ’15KRU drill site follows ’12 well

ConocoPhillips Alaska Inc. expects to bring its Shark Toothsatellite online by late 2015.

The most prolific oil company in the state is permitting a 24-well drilling pad, an access road and a gravel mine, as well asassociated pipelines and power lines, at the oil field in the south-west corner of its Kuparuk River unit. The Shark Toothprospect, also known as Drill Site 2S, would be near existingDrill Site 2K pad, 1.5 miles east of the Tarn Road.

ConocoPhillips told the state it expects to begin mining activ-ities toward the end of the year, install infrastructure early nextyear and bring the satellite online near the end of 2015. Drillingwould conclude some 18 months later in mid 2017, but, asConocoPhillips noted in its application, “As detailed design pro-gresses, the schedule may be modified.”

The project description is an expanded version of the oneConocoPhillips filed with the U.S. Army Corps of Engineers

NWT launches Valdez trial balloonfor moving Canadian oil to Asia

Northwest Territories Industry Minister David Ramsay hasreopened debate on an option for moving crude from the Albertaoil sands and Canadian Arctic to Asia by way of Valdez.

He told Petroleum News he is in theearly stages of exploring the possibilitywith political leaders in Alberta, theYukon and Alaska

The routing is viewed by the NWTgovernment as a chance to deliver crudeto Asian markets by avoiding the opposi-tion that faces proposals by Enbridge andKinder Morgan to build the NorthernGateway and Trans Mountain expansionacross British Columbia and to takeadvantage of underutilized capacity on the trans-Alaska oilpipeline.

In Houston for the Offshore Technology Conference,Ramsay placed the idea on the table with Alaska Gov. SeanParnell and is hoping for a follow-up meeting in August.

“We will get some work done by the NWT government and

see SHARK TOOTH page 19

see TRIAL BALLOON page 19

DAVID RAMSAY

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Buccaneer is using its Endeavour jack-up rig to drillthe Cosmopolitan well in some 80 feet of water.

2 PETROLEUM NEWS • WEEK OF MAY 19, 2013

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

NATURAL GAS

LAND & LEASING

FINANCE & ECONOMY

EXPLORATION & PRODUCTION

ENVIRONMENT & SAFETY

6 Brent to average $104 in 2nd half

WTA discount to Brent crude oil below $9 in April,expected to average $13 in 2013, $9 in 2014; US crude oil forecast up from April

7 Canada locks horns with Europe

Oliver issues threat of WTO challenge of EU fuel-quality directive, retreats from trade treat; labels scientists as ‘unrealistic’

9 Coast Guard preparing for Arctic summer

Plans a comprehensive range of operations for openwater season as Arctic traffic increases; budget cuts will impact operating hours

8 F&W assesses Apache seismic survey plan

Agency has published draft environmental assessmentfor proposal to conduct a 3-D seismic program in the northern Kenai Peninsula

contents

GOVERNMENT

5 Alberta grows reserves, looks for payoff

4 Chenault: Legislative session successful

15 Meteorological stations planned on Slope10 India wants Canadian barriers lowered

15 Exxon spill council funds tsunami cleanup

14 USCG holding hearing on Kulluk grounding

14 Coast Guard, BSEE sign offshore agreement

14 BSEE issues safety culture policy statement

13 State approves lease deals in April

9 USGS obtains Gulf gas hydrate data

11 Northstar: 3 million barrels in 2012

Report says Beaufort Sea field averaged 8,300 barrelsper day; has some production from two new oil pools as well as main reservoir

12 President issues U.S. Arctic strategy

Sets out three-pronged approach to advancing U.S. interests while protecting environment, cooperating with other Arctic nations

15 What’s going on in the southern Kenai?

Companies build lease positions in an area of obscuregeology but intriguing potential near the edge of the Cook Inlet basin

13 Interior plays spar on service areas

Fairbanks Natural Gas, Interior Alaska Natural Gas Utilityeach tell the Regulatory Commission of Alaskato be wary of the other

Conoco: Shark Tooth by late ’15KRU drill site follows ’12 well

NWT launches Valdez trial balloonfor moving Canadian oil to Asia

Spudding Cosmo

Buccaneer spuds first well, seeks more time to complete offshore programs

Point Thomson progress

Work on the ground well under way on Exxon’s long-awaited Alaska project

Win stuns BC pollsters

Government of Premier Clark re-elected; industry has unresolved questions

ON THE COVER

SIDEBAR, Page 18: Walker presses court challenge

PETROLEUM NEWS • WEEK OF MAY 19, 2013 3

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

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay X-10, workover BPDreco 1000 UE 16 (SCR/TD) Milne Point MPL-20, workover BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD1-49 ConocoPhillipsAC Mobile 25 Prudhoe Bay U-16 BPOIME 2000 141 (SCR/TD) Kuparuk 3C-10 ConocoPhillips

Kuukpik 5 Rigged up on Umiat Disp#1 Linc Energy Oprations Inc. to spud December 2013 Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Prudhoe Bay StackedAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillips Dreco 1000 UE 2-ES (SCR-TD) Prudhoe Bay Available Mid-Continental U36A 3-S Prudhoe Bay Available Oilwell 700 E 4-ES (SCR) Prudhoe Bay Available Dreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Prudhoe Bay AvailableOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Prudhoe Bay Available Oilwell 2000 17-E (SCR/TD) Prudhoe Bay Stacked Emsco Electro-hoist -2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Prudhoe Bay Stacked Emsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Prudhoe Bay AvailableOilwell 2000 33-E Prudhoe Bay AvailableAcademy AC Electric CANRIG 99AC (AC-TD) Prudhoe Bay AvailableAcademy AC Electric CANRIG 105AC (AC-TD) Prudhoe Bay preparing to moblilize Doyon Ltd.

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site E-01B BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site G-12C BPIdeco 900 3 (SCR/TD) Kuparuk Well 1C-16 ConocoPhillips

Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay currently on F pad BPNOV ADS-10SD 273 Prudhoe Bay projected to move BP to W-51 drill site on Wednesday, May 13

North Slope - Offshore

BPTop drive, supersized Liberty rig Inactive BP

Nabors Alaska DrillingOIME 1000 19AC (AC-TD)) Oooguruk ODSN-02 Pioneer Natural ResourcesOIME 2000 245-E (SCR-ACTD) Oliktok Point ENI

Doyon DrillingSky Top Brewster NE-12 15 (SCR/TD) Spy Island S132-W2 ENI

Parker DrillingNOV ADS-10SD 273 (SCR) Prudhoe Bay 02-13C BP

Cook Inlet Basin – Onshore

Kenai Land VenturesLLC (All American Oilfield Associates, labor Contract)Taylor Glacier 1 Kenai Loop Drilling Pad #1 Buccaneer Energy Ltd.

All American Oilfield AssociatesIDECO H-37 AAL 111 On the West side for NordAq Energy NordAq Energy’s Tiger Eye Central Well

Aurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Nicolai Creek 10, workover Aurora Gas Doyon DrillingTSM 7000 Arctic Fox #1 Swanson River SCU 41A-04 Hilcorp Alaska LLC Nabors Alaska DrillingContinental Emsco E3000 273E Kenai AvailableFranks 26 Kenai StackedIDECO 2100 E 429E (SCR) Stacked in Kenai Available Rigmaster 850 129 Kenai AvailableAcademy AC electric Heli-Rig 106-E (AC-TD) Kenai Avaiable

Cook Inlet Basin – Offshore

XTO EnergyNational 110 C (TD) Idle XTO

Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1

Cook Inlet EnergyNational 1320 35 Osprey Platform RU-1, Cook Inlet Energy workover

Hilcorp Alaska LLC (Kuukpik Drilling, management contract) Monopod Platform A-7 Completion Hilcorp Alaska LLC 428 Anna Platform, preparing rig for Hilcorp Alaska LLC upcoming drilling and well work

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 Wells, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of May 16, 2013.

Active drilling companies only listed.

TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig

This rig report was prepared by Marti Reeve

Baker Hughes North America rotary rig counts* May 10 May 3 Year AgoUS 1,769 1, 764 1,974Canada 118 121 120Gulf 47 48 45

Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992 *Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by:

JUDY

PAT

RICK

By STEVE QUINNFor Petroleum News

House Speaker Mike Chenault’sresource development priority is

about to become a reality. The in-state nat-ural gas pipeline project he and colleagueRep. Mike Hawker pushed is ready forGov. Sean Parnell’s signature.

House Bill 4 empowers the AlaskaGasline Development Corp. to move for-ward to an open season for an in-state nat-ural gas pipeline, putting this project onparallel tracks with a larger-diameter lineto tidewater for in-state and export use.

Fresh off what Chenault calls one ofthe most successful sessions he’s seensince first entering office in 2001, thestate’s only three-time House Speaker satdown with Petroleum News to review thesession and take a look at what’s ahead forthe Legislature.

Petroleum News: When you considerpassage of the oil tax reform bill SenateBill 21 and your HB 4, how would you

rate the work donein the legislative ses-sion?

Chenault: Thisyear has been one ofthe most productivesessions that we’vehad. We dealt withtwo big issues andmoved forward withthose: gas and oiltax. We also kept the operating budget to asmaller increase that it’s been in years. Wealso passed a capital budget that wasresponsible. It wasn’t too big in my opin-ion. It wasn’t too small. It took care of alot of needs in the state of Alaska, certain-ly not all of them. We got quite a bit doneand it was all for the positive.

Petroleum News: We know there are noguarantees of any kind of return, for SB21 but what do you like about the bill andwhat do you believe its potential is?

Chenault: I think all of the hope andpotential is that we see more investment

into the state of Alaska, not only by thebig three but by newer investors. The ulti-mate goal is to have more production andmore oil flowing through the TAPS.That’s the way I look at it.

Petroleum News: What provision in SB21 do you think will most drive that?

Chenault: Each section is important todifferent developers, depending onwhether you’re a small guy or a big guy,each one of those you may be able to takeadvantage of to your favor and make youreconomics look better as far as gettingmore of your company invested dollarsinto the state of Alaska than elsewhere.

Petroleum News: This kind of changehas been pursued the last three years.What’s changed other than the legislativelineup?

Chenault: If you look at most other oilproducing regimes across the U.S., you’veseen over the years, they have increasedtheir production levels. Alaska hasn’t. Ibelieve the major reasonwhy Alaska hasn’t is simplybecause the tax rate is toohigh and they have beenable to invest in other oilprovinces and make moremoney. I think SB 21 bringsAlaska back into the game. We’ll see thatinvestment continue to grow over the nearterm and the long term.

Petroleum News: If the investmentdoesn’t grow, then you could have a two-pronged argument that SB 21 didn’t go farenough or it’s simply a giveaway for notworking. Do you think you’ll have thatproblem?

Chenault: I don’t think we are going tohave that problem. We’ll see the genera-tion of more investment in Alaska and thatmore investment will certainly turn intomore production. That is the crux behindSB 21. We get more investment. Thatturns into more production. That turns intomore money for the state of Alaska.

Petroleum News: The final passagevote was pretty close. What does that tellyou?

Chenault: I don’t know what it reallytells you. Some people say boy you justbarely got enough to get it past so it mustnot be good. Unless it’s a bill they want. Ifit’s a bill they want, they say great job.You got the votes you needed to pass. Itonly needs 21 and 11 and the governor tosign it.

You know, everyone has their ownideas whether they were the Democrats orsome Republicans. Some thought it wenttoo far. Some didn’t like a particular pieceof it. I can’t fault anyone for voting any

whichever way they voted. Sometimes we wonder if it’s only 21,

whether that’s better or not. I’ve had billspass the House with 22 votes and thenewspapers crucify you saying, “Oh myGod. It only passed with 22 votes.” But ifit’s a bill that somebody else wants and itmay not be popular for a number of differ-ent reasons, people will celebrate, saying,“Hey, we got that passed.” But the rule is21, 11 and 1 for it to become law.

Petroleum News: You’ve got good newsrecently. ConocoPhillips said they wouldfollow through on what they told WallStreet and Repsol said the bill makes adifference in developing their discoveries.Has it really made a difference already?

Chenault: I believe Repsol said eitherlast year or the year before last that “heywe love the credits and everything ACESprovides, but if we find a developablefield, we are concerned about the tax onit.” Most of the people utilizing the creditsliked the credits of ACES, but they didn’t

like the tax rate associatedwith ACES. Can you saythey made this investmentbecause of the tax change? Idon’t know if you can reallysay that, but it’s going in theright direction. We are hear-

ing about projects that have a chance ofcoming online versus where they werepulling projects off the board because theydidn’t make economic sense under ACES.

Petroleum News: Let’s switch to natu-ral gas. Again, what do you think is thepotential for advancing a gas pipelineproject under HB 4?

Chenault: I think the potential is verygood. AGDC will continue on with theirengineering. They will make sure theyhave all their permits in place. They cur-rently have the state right-of-way permits.They have the federal EIS (environmentalimpact statement). So I believe they willhave all the permits needed for the federalright of way and they will continue engi-neer work and go to an open season in2014. Hopefully they will have buyers andshippers make commitments on both endsof this thing, and they will sign precedentagreements, work their way through anyissues they have and be able to put apipeline project on the table and get gas toAlaskans by 2019.

I think if we get to an open season andwe’ve got the buyers out there who areinterested in buying the gas, it doesn’tforce gas producers to sell that gas, but ifthere is a market out there that is econom-ic to make money on it, this helps themmake the decision.

� G O V E R N M E N T

Chenault: Legislative session successfulHouse speaker discusses passage of governor’s oil tax bill, in-state gas pipeline bill, says market will determine where gas goes

4 PETROLEUM NEWS • WEEK OF MAY 19, 2013

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CORRECTIONArticle Eight Section 1

The Q&A with Rep. Beth Kerttula in the May 12 issue of Petroleum News con-tained an incorrect reference to the Alaska Constitution. The citation should havebeen to Article Eight Section 1, not to Article One Section 8.

Petroleum News apologizes for the error.

MIKE CHENAULT

see CHENAULT Q&A page 17

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

Alberta grows reserves, looks for payoffBy GARY PARK

For Petroleum News

Fueled by growth in situ developmentand production in its oil sands, Alberta

posted a 14 percent rise in conventional oilproduction in 2012, a 10 percent jump incrude bitumen output and a 9.5 percentincrease in reserves, intensifying the chal-lenge of how to get those volumes to mar-ket.

In its annual numbers update, theprovince’s Energy Resources ConservationBoard, ERCB, said conventional crude out-put for last year was 204 million barrels,thermal recovery logged 363 million barrelsand mining operations yielded 340 millionbarrels, for a total of 2.48 million barrels perday.

For the first time, in situ volumes exceed-ed mining and the ERCB expects that gap tocontinue widening as Alberta’s annual rawcrude bitumen production climbs to 3.8 mil-lion bpd by 2022.

Remaining crude bitumen reserves wereestimated at 168 billion barrels, a drop of 0.7percent from 2011, while conventionalcrude is at 1.7 billion barrels.

Conventional lifespan 8-10 yearsERCB chief economist Carol Crowfoot

said that unless Alberta finds more reservesits conventional holdings have a lifespan ofonly eight to nine years.

“We’re in a maturing basin and on theconventional side, even though we’re seeinga definite change in trend from decliningproduction, it’s a diminishing pie of remain-ing reserves,” she said.

Conventional natural gas reserves inAlberta stood at 33 trillion cubic feet enter-ing 2013, a drop of 3 percent during theyear, while reserves of natural gas liquidswere 1.6 billion barrels, virtually unchangedfrom the previous year.

The reserves estimates do not includeshale oil, shale gas and shale gas liquids,which Crowfoot said represent a “treasuretrove of resources” which would be reflect-ed if development started to take place on amajor scale.

The application of new technologiesdemonstrates the industry talent for exploit-ing conventional fields and the oil sands,adding to the transportation bottlenecks andthe drag on prices for heavy oil producers.

‘Massive increase’ in crudeAl Monaco, chief executive officer of

Enbridge, said the industry is “in the midstof a massive increase in North American

crude. That’s generally good news, howeverthe lack of pipeline capacity is causing sig-nificant regional price disparities.

“We’re all concerned about the short-term and longer-term effects this could haveon energy development,” he said.

The conventional surge is largely theresult of horizontal drilling combined withmultistage hydraulic fracturing that haveunlocked formations long considereduneconomical.

Scott Saxberg, chief executive officer ofCrescent Point Energy, has no worries aboutwhether further technological change willenable Alberta to sustain its conventionalproduction.

“We’re at the front end of change,” hesaid. “In the next five to 10 years we’regoing to see even more advances in technol-ogy and the knowledge we have arounddeveloping these assets using fracking andhorizontal drilling.”

Trent Yanko, chief executive officer ofLegacy Oil + Gas, said the peak will beshort-lived because of the cost of using thenew techniques and the sharp per-welldecline rates, but Jim Evaskevich, chiefexecutive officer of Yangarra Resources,said his company is finding that as its resultsimprove the costs come down as the fracksbecome larger and better.

Bitumen production upOf Alberta’s major bitumen producing

regions, where the number of producingwells increased to 11,500 in 2012 from2,300 in 1992, Athabasca last year delivered547,000 bpd, Cold Lake 394,000 bpd andPeace River 127,000 bpd, with Athabascabenefitting from the evolution of steam-assisted gravity drainage, or SAGD, devel-opment.

By 2022, the ERCB expects mined bitu-men to reach 1.6 million bpd, decreasingover the decade from 48 percent of totalbitumen output to 42 percent, while in-situbitumen volumes, based on projects thathave been approved, are forecast to grow to2.2 million bpd.

The report estimated that the supply costfor a generic in-situ SAGD project, produc-

ing 30,000 bpd with a capital cost range ofC$750 million to C$1.5 billion, is equivalentto $50-$80 West Texas Intermediate equiva-lent per barrel.

For a generic standalone mine producing100,000 bpd with a capital cost range ofC$5.5 billion to C$7.5 billion, supply costwould be $70-$85 WTI per barrel.

The cost calculation changed significant-ly from previous years, including anincrease in natural gas consumption for aSAGD operation.

Upgrading in Alberta of bitumen produc-tion edged up to 899,000 bpd from 862,000bpd in 2011 and accounted for 7 percent ofin-situ production, with the ERCB targeting9 percent in 2022.

Upgrading not keeping paceOver the forecast period, and despite

pressure from several quarters to keep moreof the value-added end of bitumen produc-tion in Alberta, the regulator expects the per-centage of bitumen upgraded in the provinceto decline to 38 percent from 52 percent, asin-situ production growth outpaces the

increase in upgrading capacity.In 2012, the five refineries in Alberta

with a combined processing capacity469,000 bpd, used 292,000 bpd of upgradedbitumen and 18,000 bpd of non-upgradedbitumen.

The ERCB said that with resurgent lightoil supplies in Western Canada and the U.S.Midwest and an oversupplied U.S. Midwestmarket, discounting of upgraded bitumenand Western Canadian light oil will likelycontinue in the short term.

The largest export markets for Albertaupgraded and non-upgraded bitumen havetraditionally been the U.S. Midwest, with arefining capacity of 3.58 million bpd and theU.S. Rocky Mountain region at 616,000bpd.

But those markets are currently oversup-plied because of the surge in light oil outputand limited pipeline capacity to othermarkets, spurring efforts to reach marketssuch as the U.S. Gulf Coast with refiningcapacity of 8.8 million bpd. �

PETROLEUM NEWS • WEEK OF MAY 19, 2013 5

The reserves estimates do notinclude shale oil, shale gas and

shale gas liquids, which Crowfootsaid represent a “treasure trove of

resources” which would bereflected if development started to

take place on a major scale.

By KRISTEN NELSONPetroleum News

The U.S. Department of Energy’sEnergy Information Administration is

projecting the Brent crude oil spot price toaverage $104 per barrel for the second halfof the year and $101 per barrel in 2014.After increasing to $119 per barrel in earlyFebruary, the Brent crude oil spot price fellto $97 per barrel in mid-April and then

recovered to $105 per barrel May 3, EIAsaid in its May 2013 Short-Term EnergyOutlook, released May 7.

The agency expects the Brent crude oilspot price to average $104 per barrel in thesecond half of the year and $101 per barrelnext year.

EIA said the projected discount of WestTexas Intermediate crude oil to Brent,which was more than $20 per barrel inFebruary and fell to less than $9 per barrel

in April, is expected to increase in the nearterm and average $13 per barrel this yearand $9 per barrel in 2014.

On the domestic production side, EIAsaid it has revised its U.S. crude oil pro-duction forecast upward from April by120,000 barrels per day for 2013 and by310,000 bpd for 2014, with productionnow forecast to rise from an average of 7.1million bpd in the first quarter of this yearto 8.5 million bpd in the fourth quarter of2014.

The Henry Hub natural gas spot price,which averaged $2.75 per million Britishthermal units last year, is expected to aver-age $3.80 per million But this year and $4per million Btu in 2014, up 27 cents and 40cents, respectively, from EIA’s April fore-cast.

Global numbersEIA said it estimates that global fuels

consumption outpaced production in thefirst quarter of the year, but expects pro-duction to exceed consumption in the sec-ond quarter, “consistent with the recentdecline in crude oil prices.”

Liquids fuel production from non-OPEC countries is expected to increase by1.1 million bpd this year and by 1.8 millionbpd in 2014, an upward revision of 0.2 mil-lion bpd in the 2014 figure from the Aprilforecast, EIA said.

“North America accounts for most ofthe projected growth in non-OPEC supplyover the next two years because of contin-ued production growth from U.S. tight oilformations and Canadian oil sands,” theagency said.

Growth is also expected in Central andSouth America by an average of 160,000bpd, EIA said, “as Brazil and Colombiabring new production on line.”

OPEC supply is projected to fall by 0.5million bpd this year and then rise by 0.1million bpd in 2014, with most of the 2013decline from Saudi Arabia, where produc-tion averaged 2.7 million bpd in the firstquarter of the year, higher than the 2.1 mil-lion bpd average during the first quarter of2012, but lower than the 3.8 million bpdaverage from 2009 through 2011.

EIA said it projects OPEC surpluscapacity to increase to an average of 4.6million bpd in the fourth quarter next year.

The Brent crude oil price is expected toaverage $106 per barrel this year, downfrom $112 in 2012, and to average $101per barrel in 2014.

US production forecastEIA said the growing supply of domes-

tic light crude oil in the Midcontinent hasalready prompted both midstream anddownstream changes.

“Pipelines like Seaway that were onceused to carry imported oil up from GulfCoast ports to reach Midwest refiners havebeen reversed and are moving inland crudeoil down to the Gulf, and their capacity isbeing dramatically expanded,” the agencysaid.

There is also new pipeline infrastructureunder construction, including the southernportion of Keystone XL, slated to be inoperation by year-end, with more pipelineconstruction proposed, along with “majordevelopments in rail transport, where ship-ments of crude increased dramatically in2012 compared to 2011,” EIA said.

The agency also said significantchanges in refining are expected over thenext few years to accommodate the grow-ing supply of domestic light-sweet crudeoil.

U.S. crude oil production is projected torise from an average of 6.5 million bpd lastyear to 7.4 million bpd this year and 8.2million bpd in 2014.

“Drilling in tight oil plays in theonshore Williston, Western Gulf andPermian basins is expected to account forthe bulk of forecast production growthover the next two years,” the agency said.

Continued exploration success in themajor plays in the Permian Basin is behindthe EIA’s increase in its short-term fore-cast.

EIA said it “expects improvements indrilling and completing horizontal wellsfrom multiwell drilling pads in the PermianBasin, which give operators greater accessto large areas of resources in a number ofstacked plays from a single surface loca-tion.” �

� F I N A N C E & E C O N O M Y

Brent to average $104 in 2nd halfWTA discount to Brent crude oil below $9 in April, expected to average $13 in 2013, $9 in 2014; US crude oil forecast up from April

6 PETROLEUM NEWS • WEEK OF MAY 19, 2013

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cents and 40 cents, respectively,from EIA’s April forecast.

EXPLORATION & PRODUCTIONLower Foothills closed to off-road travel

The Alaska Department of Natural Resources has closed the Lower FoothillsOpening Area on the North Slope to all off-road travel activities, effective May13. A 72-hour window was provided for the completion of all off-road travel cur-rently in progress in the area.

Other areas of the North Slope remain open to off-road travel, DNR’s Divisionof Mining, Land & Water said, with snow depths well above opening standards inall areas except the Lower Foothills. The division said snow structure was ade-quate for off-road travel, but dark gravel spots in ice roads should be removed tomaintain ice road integrity.

Temperatures in the Lower Foothills area “have been above freezing during theday” with varying levels of snow deterioration observed. Snow may be adequatefor travel in some Lower Foothills areas, the division said, and travel extensionsmay be granted on a case-by-case basis.

Summer off-road tundra travel is scheduled to begin July 15 but “applies onlyto those holders of valid permits who obtain specific project approval and is fur-ther limited to those vehicles approved by the Division of Mining, Land andWater for summer off-road travel,” the division said.

—PETROLEUM NEWS

By GARY PARKFor Petroleum News

Canada’s Natural Resources MinisterJoe Oliver, in waging an almost sin-

gle-handed crusade, threatened a trans-Atlantic trade scrap over the oil sandsbefore partially backing down.

Taking a break from his seeminglyendless visits to the United States toargue for Keystone XL, he tackled theEuropean Union’s planned fuel-qualitydirective that singles out the oil sands asenvironmentally dirty to the point ofranking as the most harmful to the plan-et’s climate.

Oliver said thedirective is “dis-criminatory towardsCanadian oil and notsupported by scien-tific facts” — aclaim that wasimmediately chal-lenged by 12 climatescientists and energyexperts, who saidgovernment policy was delaying transi-tion to an economy that was less relianton carbon.

“The responsibility for preventingdangerous climate change rests withtoday’s policymakers,” the academicssaid in a letter to Oliver.

Investment shift proposedThe EU’s directive would shift invest-

ment towards lower-carbon oil sourcesand could reduce carbon dioxide emis-sions by an estimated 19 million metrictons per year, or the equivalent of remov-ing 7 million cars from European roads.

Oliver, on a trip across the Atlantic,wasted no time wading into deeperwaters, declaring that the Canadian gov-ernment would consider launching acomplaint with the World TradeOrganization, WTO, the global arbiter ofcommercial disputes, if the EU proceededwith its directive that would impose animport tax on crude bitumen imports byraising costs on refiners.

Although Canada has no currentexports of oil sands production to Europe,its desperate push for new global marketshas brought the prospect closer, withTransCanada and Enbridge both on theverge of proposing pipelines to tankerports on the North American Atlanticseaboard.

In Brussels, Oliver told a news confer-ence: “We are going to take whateveraction we need to and may well go theWTO. We will defend our interests vigor-ously.”

The WTO has the power to order theEU to change its rules if they are found tobe unfair, but reaching that point wouldtake years.

EU defends proposalMatthias Brinkmann, EU ambassador

to Canada, said he believes the WTOwould find no fault with the fuel-qualitydirective, adding “We are confident ourmeasure will be non-discriminatory andscience-based and will stand the test inthe WTO.”

He also said Oliver was getting aheadof himself, given that the directive is stillin draft form.

Brinkmann also rejected any notionthat a WTO appeal would undermine EU-

Canada free trade talks, which started in2009 and are entering their final stages,although a number of issues pose stum-bling blocks.

Having entered territory that wouldnormally come under International TradeMinister Ed Fast, Oliver assured reportersthat he was “not threatening anything,”conceding the oil sands dispute and tradetalks are separate matters.

“We have always kept and will contin-

ue to keep separate the issue of tradenegotiations and the fuel-quality direc-tive. That’s something which theEuropeans also want to do. So there is noissue,” he said.

Softening his line even more, Oliversaid Canada is “hoping for a positiveresult” on the fuel directive, “so we’re notanticipating having to go to any otherstep.”

Oliver: world needs energyAfter meetings in Brussels, Paris and

London, he said EU commissioners, gov-ernment officials and industry leadersshowed a “growing recognition that the(directive) needs amendment to achieveits objectives (of a 6 percent reduction inthe carbon density of the EU’s transportfuels by 2020) and I’m more encouragedthan I was a year ago.”

Oliver said the scientists were pursu-ing an unrealistic goal amidst forecaststhat global energy demand will rise by 33percent over the next 25 years.

“Even under the most optimistic sce-narios for renewable, hydrocarbons, fos-sil fuels, will represent at least 63 percentof the source of energy by 2035. So wehave to be realistic. The world needsenergy,” he said.

Meanwhile, the government of PrimeMinister Stephen Harper has taken a leafout of Alberta’s strategy book by runningads May 13 in publications targeted atlobbyists and lawmakers in Washington,D.C., touting Keystone XL as a big partof the answer to U.S. energy needs andlaunched a website containing the sameinformation. �

� F I N A N C E & E C O N O M Y

Canada locks horns with EuropeOliver issues threat of WTO challenge of EU fuel-quality directive, retreats from trade treat; labels scientists as ‘unrealistic’

PETROLEUM NEWS • WEEK OF MAY 19, 2013 7

The EU’s directive would shiftinvestment towards lower-carbon

oil sources and could reducecarbon dioxide emissions by anestimated 19 million metric tons

per year, or the equivalent ofremoving 7 million cars from

European roads.

JOE OLIVER

By ALAN BAILEYPetroleum News

A s part of a major program of 3-Dseismic surveying in Alaska’s Cook

Inlet basin, Apache Alaska plans to con-duct an on-land survey in about 142,000acres of the northern Kenai Peninsula,where the company wants to seek explo-ration drilling targets in subsurface landowned by Cook Inlet Region Inc., theNative regional corporation forSouthcentral Alaska. Apache is aggres-sively searching for as-yet-undiscoveredoil and gas resources in the Cook Inletbasin and has said that it views the acqui-sition of modern, high-resolution 3-Dseismic data as an essential prerequisite toexploration drilling in the basin’s chal-lenging geology.

Special use permitThe Kenai Peninsula land lies within

the perimeter of the Kenai NationalWildlife Refuge, administered by the U.S.Fish and Wildlife Service. Consequently,Apache has had to apply for a special usepermit from Fish and Wildlife to enablethe company to conduct the surface oper-ations required for the survey. Under theterms of the U.S. National EnvironmentalPolicy Act Apache’s permit applicationtriggered an environmental assessmentthat will lead to a decision by Fish andWildlife as to whether the proposed sur-vey would have a significant environ-mental impact. And that decision will inturn determine whether the agency can

immediately issue a permit, or whetherfurther environmental review is neces-sary.

In April Fish and Wildlife issued adraft environmental assessment for theplanned survey, with public comments onthe draft document required by May 31.

Two phasesAccording to the environmental

assessment Apache anticipates conduct-ing the survey operations in two phases:one in the winter of 2013-14 and the otherin the winter of 2014-15. The companyplans to use a survey technique in whicheach seismic recorder works within itsown sealed node, each node independent-ly recording the sound signals from theseismic sound source while using globalpositioning system technology and satel-lite-based timing to accurately positionand time the recording. This technique,which Apache has successfully used in asurvey on the west side of Cook Inlet,minimizes environmental disturbance byeliminating the need to cut seismic linesthrough surface vegetation for the layingof cable. A seismic crew carries the seis-mic nodes, each about the size of a largefood can, into position by backpack.

Only approved snow machines will beallowed for off-road surface transporta-tion within the refuge, the environmentalassessment says.

The source of the seismic sound sig-nals will be explosive charges, set at

8 PETROLEUM NEWS • WEEK OF MAY 19, 2013

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

F&W assesses Apache seismic survey planAgency has published draft environmental assessment for proposal to conduct a 3-D seismic program in the northern Kenai Peninsula

Apache Alaska plans to conduct a 3-D seismic survey project in the western part of the KenaiNational Wildlife Refuge (KNWR).

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see APACHE SEISMIC page 10

PETROLEUM NEWS • WEEK OF MAY 19, 2013 9

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� G O V E R N M E N T

Coast Guard preparingfor Arctic summerPlans a comprehensive range of operations for open water seasonas Arctic traffic increases; budget cuts will impact operating hours

By ALAN BAILEYPetroleum News

A lthough federal budget cuts, knownas sequestration, are impacting U.S.

Coast Guard operations, the Coast Guardwill continue its program of Arctic activi-ties during this year’s open water season,Lt. Veronica Colbath, Coast Guard externalaffairs officer, told Petroleum News May 9.

The Coast Guard is still formulating itsdetailed plans but will deploy cutters, air-craft and personnel to the region, Colbathsaid.

“They will maintain a presence in theArctic region and engage in operations thatencompass a variety of Coast Guard mis-sions,” she said.

Traffic growthAlthough Shell will not be mounting an

Arctic offshore drilling campaign this year,an operation that triggered some significantCoast Guard activity last year, the continu-ing growth in Arctic vessel traffic and traf-fic through the Bering Strait is causing theCoast Guard to maintain a significant sum-mer presence in northern waters. Shippingtraffic has doubled in the past two years,Colbath said.

However, it is likely that sequestrationwill impact the operational hours of theagency’s cutters and aircraft, she said.

The Coast Guard will conduct outreachwith Arctic communities and will leveragepartnerships with federal, state, local andtribal partners to ensure maritime safety,Colbath said. In addition, the Coast Guardwill conduct a major oil spill seminar withthose partners, and with industry represen-tatives. And the Coast Guard will bring oneof its buoy tenders to the Arctic to conduct

a towing exercise with the Canadian CoastGuard.

The icebreaker Healy will conduct somescience missions, while the Polar Star, theCoast Guard’s heavy icebreaker that hasjust returned to duty after a major refit, willtravel to the Arctic to conduct ice trials. ThePolar Star’s crew will test the vessel’s icebreaking capabilities, while the crew willalso undergo training to ensure operationalreadiness, Colbath said. The Coast Guardalso plans to conduct other marine surfacepatrols, she said.

One issue yet to be resolved is the ques-tion of where to locate the Coast Guard’sArctic forward operating base for searchand rescue — last year the agency operatedfor four months out of Barrow, at the north-western end of the North Slope. This yearthe agency is considering the Chukchi Seacoastal village of Kotzebue as a base loca-tion, perhaps making use of the AlaskaNational Guard facility that is locatedthere. Kotzebue would be convenientlypositioned for dealing with vessel trafficplying the Bering Strait. With the straitbeing very narrow and not having a trafficscheme, the Coast Guard is concernedabout the possibility of a vessel collisionor grounding, Colbath said. �

Steadily increasing vessel traffic in recent years as Arctic sea ice cover shrinks is driving aheightened U.S. Coast Guard presence in the Arctic region.

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The icebreaker Healy will conductsome science missions, while the

Polar Star, the Coast Guard’s heavyicebreaker that has just returned toduty after a major refit, will travelto the Arctic to conduct ice trials.

NATURAL GASUSGS obtains Gulf gas hydrate data

As part of a multiyear program of gas hydrate research in the Gulf of Mexicobeing conducted by the U.S. Geological Survey, the Bureau of Ocean EnergyManagement and the U.S. Department of Energy, USGS researchers haveobtained high-resolution seismic data and images of some known gas hydratedeposits.

Gas hydrates are ice-like substances, formed under certain temperature andpressure conditions, in which gas becomes trapped in a lattice of water molecules.The gas in the hydrates generally consists of methane, the primary component ofnatural gas. And, with the hydrates able to concentrate large volumes of gas intorelatively small volumes of hydrate, people view the hydrates as a potential pro-lific source of natural gas for use as a fuel.

The recent seismic data acquisition built on some previous research involvingan expedition in 2009 that drilled into gas hydrate deposits in reservoir-qualitysands. The seismic data now allows the researchers to more fully place thesedeposits into their geologic context.

“This expedition represents a significant milestone,” said USGS EnergyResources Program Coordinator Brenda Pierce. “The data and imagery provideinsight into the entire petroleum system at each location, including the source ofgas, the migration pathways for the gas, the distribution of hydrate-bearing sedi-ments, and the traps that hold the hydrate and free gas in place. The USGS has aglobally recognized research effort studying gas hydrates in settings around theworld, and this project combines our unique expertise with that of other agenciesto advance research on this potential future energy resource.”

Gas hydrate research in northern Canada, on Alaska’s North Slope and off-shore Japan has demonstrated the technical feasibility of producing natural gasfrom hydrates. But no one has yet shown that the hydrates can be viably producedon a commercial scale over extended time periods.

—ALAN BAILEY

By GARY PARKFor Petroleum News

Over the past five years China’snational oil companies have invested

C$33.3 billion in Canada’s oil and gas sec-tor, about 43 percent of the C$77 billion indeals initiated by foreign buyers.

But of the 15 countries involved inM&A transactions there has been onenotable absentee — India.

The subcontinent has talked for yearsabout its desire to round up assets, or evenentire companies, as it has looked outsideits borders for oil and gas resources to off-set declining production and reserves amidrising demand at home.

And there have been unconfirmedreports that Oil India Ltd. made a non-binding bid that is still being pursued ofC$5 billion last year for ConocoPhillips’ 50percent stake in six oil sands assets thathold about 15 billion barrels of bitumenresources.

However, India’s strategies have varied

from those of its emerging Asian economicrivals for reasons that range from its finan-cial resources, appetite for risk and bothcorporate and political aims.

Changes in rulesNow it finds that changes to foreign

investment rules since last year’s takeoverof Nexen by China National Offshore OilCorp. have limited the ability of its state-owned companies to gain controllingstakes in oil sands producers.

From India’s standpoint, its reluctanceto take the plunge in Canada has been com-pounded by what the head of a delegationfrom several companies said earlier in Mayis the lack of infrastructure needed to getCanadian production to overseas markets.

A.M.K. Sinha, director of India OilCorp’s planning and business develop-ment, told reporters that until the barriersare removed India will be hesitant aboutsigning term contracts to lift crude.

In addition, he said, the Indian govern-ment requires its state-owned companies todeal only with other national oil compa-nies, or NOCs, of which there are none inCanada and the current administration ofPrime Minister Stephen Harper is neverlikely to turn the clock back to the days ofPetro-Canada.

Sinha said India is eager to diversify itssources of oil as it faces a projectedincrease in demand to 7.5 million barrelsper day by 2035 from the current 3.5 mil-lion bpd.

He said India is importing 44 percent ofits crude and 79 percent of its natural gasrequirements from the Middle East, but isalways seeking new options.

Sinha said India’s preference is to relyon energy imports rather than equityinvestments, making LNG the preferred

way to gain a foothold in Canada.

Option with Nova ScotiaCoincidentally, H-Energy, a subsidiary

of one of India’s largest privately heldproperty developers, made a move in thatdirection by signing an option agreementwith the Nova Scotia government to builda gas liquefaction facility and export termi-nal in the Atlantic Canada province.

That affirmed Sinha’s observation thatCanada’s east coast offers quicker access toIndia’s west coast refining hub for crudeoil, giving a boost to TransCanada’s tenta-tive plans to move Western Canadian crudeto Quebec and possibly the Atlantic coast.

Deepak Obhrai, parliamentary secretaryto Canada’s Foreign Affairs Minister JohnBaird, said exports of 10 million metrictons a year from the Goldboro LNG projectare proposed for Nova Scotia.

He said a second project could involvereversing the Canaport import LNG facili-ty in New Brunswick.

Indian state-run utility GAIL is alsoexploring new LNG offtake deals with pro-ducers in North America, said GajendraSingh, executive director for explorationand production.

He said GAIL wants up to 12 metrictons a year of LNG in additional long-termdeals over the next four years to meet asharp expected increase in India’s regasifi-cation capacity, which is forecast to climbto 48.5 million metric tons a year by 2017from today’s 14.8 million metric tons.

Singh said two deals, with CheniereEnergy and Dominion Cove, have beensigned in the United States and GAIL hasopened an office in Houston to follow upon new opportunities. �

� G O V E R N M E N T

India wants Canadian barriers lowered

10 PETROLEUM NEWS • WEEK OF MAY 19, 2013

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depths of up to 35 feet in shallow drillholes that are back filled to minimize anyground disturbance. Apache will use asmall drilling unit, slung under a helicop-ter for carriage to drill sites, to drill theshot holes, the assessment says.

20,000-foot depthWith a target depth of about 20,000

feet for the base of its required 3-D seis-mic images, Apache plans an approxi-mately 40,000-foot square grid ofreceivers for each seismic shot. Recorderswill be placed at 165-foot intervals alongparallel lines one-quarter mile apart, witha total of 4,368 recording nodes requiredfor each shot, the assessment says.

Starting near the coast, on the westside of the survey area, the seismic crewwill progressively move east, transferringthe receivers on the westerly trailing edgeof the survey grid to the eastern leadingedge after each shot, the environmentalassessment says.

The Alaska National Interest LandsConservation Act, the 1980 federal statutethat established the Kenai NationalWildlife Refuge, includes provisions thatallow access to privately owned landwithin the refuge for economic or otherpurposes, provided that this access doesnot violate regulations designed to protectspecified refuge values, the assessmentsays. �

continued from page 8

APACHE SEISMIC

Sinha said India’s preference is torely on energy imports rather thanequity investments, making LNG

the preferred way to gain afoothold in Canada.

PETROLEUM NEWS • WEEK OF MAY 19, 2013 11

By ALAN BAILEYPetroleum News

T he Northstar oil field, operating froman artificial island in Alaska’s

Beaufort Sea, produced a total of 3 millionbarrels of oil in 2012, with an average dailyoil production rate of 8,300 barrels, accord-ing to the Northstar unit 10th plan of devel-opment, submitted by field operator BP tothe Alaska Department of NaturalResources, or DNR, at the end of March.According to data published by the AlaskaOil and Gas Conservation Commission, bythe end of March the field had achieved anaccumulated production of 157 million bar-rels of oil since startup in 2001.

Production from Northstar peaked at anaverage of 68,700 barrels in 2004 and hassteadily declined since then.

The field is owned 98.6 percent by BPExploration (Alaska) Inc. and 1.4 percentby Murphy Exploration (Alaska) Inc.

Field reservoirsNorthstar’s main oil reservoir lies in the

Ivishak formation, in rocks equivalent tothe main reservoir of the giant Prudhoe Bayfield on the mainland to the south. Some oilalso comes from an adjacent part of theShublik formation, a rock unit that forms amajor oil source for many North Slope oilfields.

The rate of production decline atNorthstar in recent years has been alleviat-ed somewhat by oil production from tworeservoirs outside the original, main oilreservoir. One of these reservoirs, referredto as “Fido,” consists of a separate and dis-tinct geologic structure in the northeast sec-

tor of the Northstar unit, in rocks equivalentto the main Northstar reservoir. The otherreservoir, directly above the main produc-ing reservoir, consists of a sand unit in theKuparuk formation, equivalent to part ofthe assemblage of reservoir sands in theKuparuk River field to the southwest.

Following a 2011 DNR directive to con-tract the Northstar unit to match the field’s“participating area,” the area containing thefield’s producing reservoir, DNR gave BPthe opportunity to define a separate Fidoparticipating area, to ensure that the Fido oilaccumulation would remain within the unit.The agency also told BP to define a partic-ipating area for the Kuparuk reservoir.

Federal landThe Northstar unit straddles both state

and federal land on the Beaufort Sea conti-nental shelf, with the Fido structure beinglocated entirely in federal land. And accord-ing to BP’s plan of development, in January2012 the company applied to the federalBureau of Safety and Environmental

Enforcement, or BSEE, and to DNR toform a Fido participating area, with BSEEsubsequently approving the participatingarea in June 2012.

According to the participating areaapplication, Fido consists of a “four-wayfaulted trap,” penetrated by a single pro-duction well and completely isolated fromthe main Northstar reservoir. Relativelyuniform rocks with few barriers to oil flowin the reservoir enable excellent oil recov-ery, while subsurface water drives produc-tion without the need for water to be inject-ed from the surface, the application says.

According to the participating areaapplication, the Fido accumulation wentinto production in May 2008 with an initialflow rate of 8,000 barrels per day, with thatrate declining to about 600 barrels per dayby January 2012. By October 2011 theaccumulation had produced 2.2 million bar-rels of oil, with an estimated ultimaterecovery of 2.9 to 3.4 million barrels.

HooliganThe Northstar plan of development says

that in June 2012 BP applied to the state andfederal agencies for another participatingarea, called Hooligan, to encompass theKuparuk reservoir. The agencies have yet toissue a decision on this application.

The Hooligan application says that pro-duction from the Kuparuk reservoir startedin November 2010, when BP placed a plugabove the level of the Ivishak in one of theNorthstar production wells, while alsoopening a sliding sleeve in the well in the

Kuparuk sand. And with several Northstarwells penetrating the Kuparuk en route tothe deeper Ivishak, BP has been able to usewell data in combination with seismic datato map out the structure of the “Hooliganfield,” while inferring the locations of vari-ous fluid contacts within the structure.

Production has continued using that sin-gle modified well. By April 2012 theKuparuk reservoir had produced about 13billion feet of natural gas and about620,000 barrels of condensate, with the gasbeing injected into the Northstar Ivishakreservoir for pressure maintenance, theHooligan participating area applicationsays. Production rates in June 2012 were 26million cubic feet per day of gas and 970barrels per day of condensate, the applica-tion says.

Currently the Kuparuk productioncomes only from a single sand unit, referredto as the Kuparuk C sand. But there is apossible future opportunity for productionfrom another sand, the Kuparuk A, theapplication says.

And recent upgrade work on theNorthstar production island would appearto express confidence in the continuingvalue of the Northstar field as a whole —BP has now completed the relocation andreplacement of base camp facilities on theNorthstar island, the plan of developmentsays. �

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

Northstar: 3 million barrels in 2012Report says Beaufort Sea field averaged 8,300 barrels per day; has some production from two new oil pools as well as main reservoir

And recent upgrade work on theNorthstar production island would

appear to express confidence inthe continuing value of the

Northstar field as a whole — BPhas now completed the relocation

and replacement of base campfacilities on the Northstar island,

the plan of development says.

By ALAN BAILEYPetroleum News

In what appears to be a signal ofincreased national awareness of the

United States’ role as an Arctic nation,President Obama has issued a “NationalStrategy for the Arctic Region,” a docu-ment that sets out high-level priorities forfederal government actions relating to theArctic.

“The Arctic is one of our planet’s lastgreat frontiers,” Obama said in a statementaccompanying the new strategy document.“Our pioneering spirit is naturally drawnto this region, for theeconomic opportuni-ties it presents and inrecognition of theneed to protect andconserve this unique,valuable and chang-ing environment.”

According to aWhite House state-ment high-level offi-cials from the Obama administration willmeet in June with the state administration,Alaska Natives and others to discuss howbest to move forward with strategy imple-mentation. The National Security Staffwho prepared the strategy document saysthat during the coming summer it willdevelop an implementation plan for thestrategy — that plan will include imple-mentation roles and responsibilities.

Three prioritiesThe strategy sets out three “lines of

effort” for the federal government in theArctic:

1. To advance U.S. security interests byensuring that vessels and aircraft can oper-ate in the Arctic; by establishing an appro-priate Arctic infrastructure; and by pro-moting responsible energy development inthe region.

2. To pursue responsible stewardship ofthe Arctic through environmental protec-tion; the establishment of an integratedArctic management framework; the chart-ing of the Arctic region; and the improved

understanding of the Arctic through scien-tific research and the use of traditionalknowledge.

3. To strengthen international coopera-tion in the Arctic through bodies such asthe Arctic Council and through accessionto the United Nations Convention on theLaw of the Sea.

And the strategy sets out some princi-ples to guide government actions. Oneprinciple is to ensure the maintenance ofthe Arctic as an area free of conflict, bysupporting international legal principles offreedom of navigation and by promotingthe peaceful resolution of disputesbetween nations. Another principle is touse the best and most current scientific andtraditional knowledge to inform decisionmaking. Also, the federal government willfoster partnerships with the State ofAlaska, Arctic states, other internationalpartners and the private sector for the effi-cient advancement of U.S. strategic Arcticpriorities “in this austere fiscal environ-ment,” the strategy document says. Andthe government will consult with AlaskaNatives, recognizing tribal governments’unique legal relationship with the U.S.government, the document says.

Oil and gasThe document says that oil and gas

development in the U.S. Arctic comeswithin the U.S. administration’s “all of theabove” approach to meeting U.S. energyneeds, an approach that includes theexpansion of oil and gas production aswell as the use of new renewable energyresources.

“Within the context of this broaderenergy security strategy … we are com-mitted to working with stakeholders,

industry and other Arctic states to explorethe energy resource base, develop andimplement best practices, and share expe-riences to enable the environmentallyresponsible production of oil and naturalgas as well as renewable energy,” the doc-ument says.

The document also says that economicdevelopment must be balanced against theneed to protect both the environment andthe region’s cultural values.

“Responsible stewardship requiresactive conservation of resources, balancedmanagement and the application of scien-tific and traditional knowledge of physicaland living environments,” the documentsays.

CollaborationAnd the strategy recognizes collabora-

tion and cooperation with other Arcticnations as a means of achieving Arcticprosperity within the context of environ-mentally sustainable activities.

“Arctic nations have varied commer-cial, cultural, environmental, safety andsecurity concerns in the Arctic region,” thestrategy document says. “Nevertheless,our common interests make these nationsideal partners in the region.”

The United States also needs to workwith non-Arctic states that are interested inthe Arctic region, to advance commonobjectives such as the promotion of safeArctic shipping, the document says.

In summary, the document says that theadministration seeks “a collaborative andinnovative approach to manage a rapidlychanging region.” The melting of Arcticsea ice can transform global climates andecosystems, as well as transforming glob-al shipping, energy markets and othercommercial interests, the document says.

“The unique Arctic environment willrequire a commitment by the United Statesto make judicious, coordinated infrastruc-ture development decisions, informed byscience,” the documents says. “To meet hischallenge we will need bold, innovativethinking that embraces and generates newand creative public-private and multina-tional cooperative models.”

Delegation supportThe Alaska congressional delegation

expressed its support for the strategy.“I welcome the release of the adminis-

tration’s National Strategy for the ArcticRegion, identifying strategic priorities forthe United States in the Arctic region forthe next 10 years — and their top lineacknowledgement that America is anArctic nation,” said Sen. Lisa Murkowski.“As the strategy notes, issues such as cir-cumpolar maritime transit, greater accessto resources and the needs of the indige-nous people of the Arctic are coming to theforefront and the Arctic’s importance tothe United States as a nation demandsgreater attention.”

“I’m pleased this administrationresponded to our request to recognize theenormous opportunities and challenges ina changing Arctic,” said Sen. MarkBegich. “Until now, the U.S. was the onlyArctic nation lacking a formal strategy andeffort to coordinate federal agencies intheir approach to the Arctic. Now the chal-lenge will be committing to the icebreak-ers, Arctic ports and dedication to sciencewhich is vital to sustainable managementof the Arctic.”

“Finally! It’s about time that theAdministration acknowledged the impor-tance of a strong presence in the Arctic,”said Rep. Don Young. “From ... shippingto tourism, power projection to resourcedevelopment, I am glad that the adminis-tration has at least released something thatreflects our need to be a leader in theArctic. I was also pleased to see the WhiteHouse pay special attention to buildingand maintaining a strong relationship withAlaska Natives on Arctic issues.”

“While there are no concrete commit-ments in the strategy released today, wewelcome the White House’s acknowledge-ment that the Arctic will play a significantrole in our nation’s future,” said AlaskaGov. Sean Parnell. “Alaska is America’sArctic, and we look forward to having aprominent role working with the federalgovernment on these issues that willimprove the lives of Alaskans and movethe United States back into a leadershiprole among Arctic nations.”

Environmentalist responseHowever, some environmental organi-

zations have questioned the inclusion ofoil and gas development in the strategy.

“President Obama’s ‘all of the above’strategy for the Arctic region is not theright path forward — he can’t drill in theArctic to burn more oil while hoping tosolidify his climate legacy,” said CindyShogan, executive director of the AlaskaWilderness League. “President Obamashould address climate change by stoppingfuture drilling in the Arctic. The only realsolution to domestic security and climatechange is to curb our fossil fuel addiction,resulting in lowered carbon emissions anddependence on foreign oil.”

“That it advocates for oil and gasdrilling in the region under the guise ofenergy security makes a mockery of therest of the document,” Greenpeace DeputyCampaigns Director Dan Howells said ofthe strategy. “It makes it apparent thatPresident Obama is prepared to under-mine his recent commitments to tacklingclimate change.” �

� G O V E R N M E N T

President issues U.S. Arctic strategySets out three-pronged approach to advancing U.S. interests while protecting environment, cooperating with other Arctic nations

12 PETROLEUM NEWS • WEEK OF MAY 19, 2013

“While there are no concretecommitments in the strategy

released today, we welcome theWhite House’s acknowledgement

that the Arctic will play asignificant role in our nation’sfuture.” —Alaska Gov. Sean Parnell

BARACK OBAMA

By ERIC LIDJIFor Petroleum News

T he battle over bringing liquefied nat-ural gas to the Interior is getting

testy.In an increasingly complicated tangle

arising from longstanding disputes, threeentities competing to market North Slopenatural gas supplies are accusing oneanother of being unfit to serve a less-densely populated section of the FairbanksNorth Star Borough.

The Regulatory Commission of Alaskais considering cases from two competingentities interested in providing natural gasdistribution to North Pole, Eielson AirForce Base and areas in between:Fairbanks Natural Gas LLC and InteriorAlaska Natural Gas Utility.

In one case, the for-profit FairbanksNatural Gas wants to expand its existingservice area in Fairbanks and believes reg-ulators should reject the Interior AlaskaNatural Gas Utility application because itlacks concrete sources for supplies andfinancing. In the other case, the InteriorAlaska Natural Gas Utility wants a certifi-cate to serve a similar section of FairbanksNorth Star Borough and believes regula-tors should reject the Fairbanks NaturalGas application because the company hasnot met its targets for expansion in the past.

And from the sidelines, the for-profitSpectrum Alaska LLC is asking to join theproceedings, saying the outcome willimpact its plans for a North Slope LNGfacility.

In Alaska, regulated utilities haveexclusive rights within a service area.

Eight years without expansionThe IANGU believes Fairbanks Natural

Gas is trying to lock up the local market.The RCA certificated Fairbanks Natural

Gas in 1997 and has expanded its servicearea twice — in 1999 and 2005. The serv-ice area now covers an area bounded by theFairbanks International Airport, theUniversity of Alaska Fairbanks and FortWainwright.

The various growth projectionsFairbanks Natural Gas has made publiclysince becoming certificated never came topass. For instance, Fairbanks Natural Gassaid in 1997 that it expected to have morethan 4,000 customers by 2002, but today

the company serves only around 1,100customers. Although regulated utilities aregenerally required to provide service to alleligible and interested customers with theirservice areas, Fairbanks Natural Gasserves the same customer base it served in2005, at the time of its most recent expan-sion, the IANGU noted in comments to theRegulatory Commission of Alaska.

This lag suggests Fairbanks NaturalGas is not “fit, willing and able,” the three-fold test regulators use to determine if autility can provide service, according to theIANGU.

“Thousands of residents within itsexisting service area have been waiting forFNG to provide gas service for over adecade and a half. FNG should fulfill itsexisting commitments to serve before it ispermitted to expand those commitments toa new service area which IGU is proposingto serve,” IANGU attorney Robin Brenawrote.

While Fairbanks Natural Gas expects toserve some 1,926 residential and 53 com-mercial customers within the proposedexpansion area, IANGU believes it canserve some 12,839 residential and 527commercial customers within the samearea. And while Fairbanks Natural Gasproposes to spend $47.2 million buildingout storage and distribution into the expan-sion area, the IANGU is proposing tospend nearly $500 million. “At best,FNG’s proposal lacks the necessary visionto adequately provide gas service to thepotential customers either within its exist-ing service area or the new service area,”Brena wrote.

What about supplies?Fairbanks Natural Gas called the com-

ments “erroneous.”Criticizing Fairbanks Natural Gas for

failing to meet its growth projections is“unwarranted,” according to the utility,because constrained supplies out of CookInlet over the past decade prevented theutility from adding customers. AfterFairbanks Natural Gas lost a supply con-tract with Aurora Gas in 2006 because ofthose constraints, the RegulatoryCommission of Alaska cautioned the util-ity against further expansion.

The commission ultimately requiredFairbanks Natural gas to file bi-monthlyupdates about its supply situation, arequirement the utility continues touphold today.

In 2008, Fairbanks Natural Gassecured a long-term gas supply from theNorth Slope, but it has been unable to uti-lize the contract so far because of the lackof infrastructure.

The utility says it has worked hardsince then to improve the economic cli-mate for natural gas in the Interior,including lobbying for tax changes andworking to create a recent public-privatepartnership with the Alaska IndustrialDevelopment and Export Authority tofinance a liquefied natural gas facility onthe North Slope to serve a trucking oper-ation.

“The North Slope LNG plant will bethe result of the hard work that FNG hasbeen doing for the last 10 years,” thecompany wrote in comments on May 13.“FNG and its related companies cannotdevelop the LNG plant by themselves.They need support from the State. But theState would not be supporting an LNGplant if not for the efforts of FNG.”

As far as the discrepancies between

the competitors, Fairbanks Natural Gasclaims IANGU is making a bad compari-son. The 12,839 residential customersIANGU expects to serve is a projection to2021 while the 1,926 residential cus-tomers Fairbanks Natural Gas expects toserve is a projection to 2015, according toFairbanks Natural Gas. By 2021,Fairbanks Natural gas said it expects toserve some 8,549 residential customers.

But Fairbanks Natural Gas called thedifference “meaningless.” Both entities“propose to serve all the customers in thenew area who can be served economical-ly and who will actually want gas service.FNG estimates that there are 8,549 suchcustomers. IGU projects that there are12,839. Whichever projection is correctwill apply to both applicants,” FairbanksNatural Gas wrote. “If there are 8,549potential customers in the new servicearea, IGU will be limited to serving thatmany customers. In the unlikely eventthat there are 12,839 potential customers,FNG will be happy to serve them all.”

Supplies and financingThen Fairbanks Natural Gas shifted

from defense to offense.The utility said regulators should

reject the IANGU application as incom-plete because the municipal utility doesnot yet have financing in place or a gassupply contract.

In its application, the IANGU said itwould borrow nearly $500 million at lowinterest to fund an infrastructure buildout, but the utility has “no documentarysupport from a lender willing to extendcredit on these extraordinarily generous

PETROLEUM NEWS • WEEK OF MAY 19, 2013 13

� L A N D & L E A S I N G

State approves lease deals in AprilBy ERIC LIDJI

For Petroleum News

T he Alaska Department of Natural Resourcesapproved a number of lease deals in April.

On the North Slope, Repsol E&P USA Inc. trans-ferred a 7.5 percent working interest and 6.25 percentroyalty interest in 31 North Slope leases to partner GMTExploration Co.

William D. Armstrong requested transferred royaltyinterests — between 0.03119 percent and 0.0625 per-cent — in more than 100 North Slope and Beaufort Sealeases to Edward Y. Teng.

Richard Donnelly transferred a 0.378659 workinginterest and 0.33132505 royalty interest in ADL 47560in the Point Thomson unit to the David P. DonnellyTrust and an identical working and royalty interest inthe lease to the David P. Donnelly Jr. Trust.

Daniel K. Donkel and Samuel H. Cade transferredthree leases to Polar Petroleum Alaska Corp. PolarPetroleum aims to explore and develop two Donkel andCade prospects.

Nordaq Energy Inc. has transferred 1 percent royaltyinterests in 11 Beaufort Sea leases to four smallinvestors for a total of 44 transfers. The offshore leases— ADL 392182 through ADL 392192 — are in SmithBay, and FEX previously leased the acreage. The fourinvestors are Tramlaw LKC, Tekram LLC, Hugh Northand Robert Warthen.

In the Interior, Cedar Creek Oil & Gas Co. has trans-ferred a small interest in four leases to various partnersin an ongoing natural gas exploration campaign in theNenana Basin.

The small independent transferred a 5 percent work-ing interest and 4.35 percent royalty interest in ADL392383, ADL 392384, ADL 392385 and ADL 392386 to

Doyon Ltd. Cedar Creek retained a 0.25 percent over-riding royalty interest in all four leases.

Also, Windmill Canton LLC transferred a 10 percentworking interest and 8.75 percent royalty interest in thefour leases to Doyon Ltd. Additionally, Cedar Creekrequested to transfer a 0.25 percent royalty interest in allfour leases to Windmill Canyon.

In Cook Inlet, William A. Hutto has asked to transfersmall royalty interests in six leases to Kita D. Wilcher.The leases are ADL 391210, ADL 391211, ADL 2095and ADL 733 at the North Fork unit and ADL 388209and ADL 390514 at the Nikolaevsk unit. �

—A copyrighted oil and gas lease map fromMapmakers Alaska was a research tool used in prepar-ing this story.

� N A T U R A L G A S

Interior plays spar on service areasFairbanks Natural Gas, Interior Alaska Natural Gas Utility each tell the Regulatory Commission of Alaska to be wary of the other

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GOVERNMENTUSCG holding hearing on Kulluk grounding

As part of its investigation into the grounding of the Kulluk, Shell’s Arctic floatingdrilling platform, the U.S. Coast Guard is holding a hearing in Anchorage to gathertestimony on the circumstances surrounding the incident. The Kulluk ran aground inthe northern Gulf of Alaska during a severe storm on Dec. 31 while under tow fromDutch Harbor to the U.S. West Coast. The vessel was subsequently refloated and hassince been transported to a Singapore shipyard for repair.

In early January Rear Adm. Thomas Ostebo, commander of the U.S. Coast Guard17th District, ordered a formal marine casualty investigation of the Kulluk grounding.The Anchorage hearing, which starts at noon on May 20 and may continue throughthe end of the month, will call witnesses from the Coast Guard, Shell, Noble Corp.and other organizations, the Coast Guard said. Noble Corp. was operating the Kullukfor Shell. At his point it is not certain how long the entire investigation will take tocomplete, but a major investigation of this type typical extends over several months,Coast Guard spokesman Petty Officer 1st Class David Mosley told Petroleum News.The result of the investigation will be a report with findings on the incident and withrecommendations for potential future actions for improved marine safety, the CoastGuard said. The Coast Guard has previously said that the investigation results will bemade public.

—ALAN BAILEY

GOVERNMENTCoast Guard, BSEE sign offshore agreement

The U.S. Coast Guard and the Bureau of Safety and EnvironmentalEnforcement, or BSEE, have signed an agreement to better coordinate theirefforts in the oversight of safety and environmental protection on the U.S. outercontinental shelf. The two agencies have overlapping responsibilities in that theCoast Guard has an oversight and enforcement role in the maintenance of marinesafety while BSEE, an agency within the Department of the Interior, enforcessafety and environmental protection requirements for the offshore oil and gasindustry.

“Both BSEE and the Coast Guard have specialized expertise in the manage-ment of safety and environmental protection programs offshore,” said BSEEDirector James Watson in announcing the new agreement. “This agreement withthe Coast Guard will bring together resources and expertise from both agencies aswe work to ensure both orderly resource development and protection of thehuman, marine and coastal environments.”

“The Coast Guard and BSEE share the goal of keeping our oceans clean andoffshore workers safe,” said U.S. Coast Guard Rear Adm. Joseph Servidio. “Thisagreement solidifies the commitment of each regulatory agency to work acrossagency boundaries in order to develop a coordinated regulatory approach that pro-motes safety through the use of safety management systems.”

The agreement involves each agency appointing an interagency coordinator,with these coordinators meeting regularly to address issues such as any need forjoint policies or guidance, and the need for coordination of the Coast Guard andBSEE requirements for company safety and environmental management systems.At a minimum frequency of once per year the coordinators will also facilitate ajoint Coast Guard and BSEE inspection and evaluation of offshore facilities. And,under the terms of the new agreement, the two agencies will review and discussall regulatory projects relating to safety management on the outer continentalshelf.

—ALAN BAILEY

BSEE issues safety culture policy statementThe Bureau of Safety and Environmental Enforcement, or BSEE, has issued a

final version of its safety culture policy statement for offshore oil and gas opera-tions. Rather than being a prescriptive set of mandatory requirements for busi-nesses working in the offshore, the policy presents guidance in the form of somecritical values and behaviors that BSEE expects companies to encourage andexhibit. BSEE published the policy statement in draft form in December and hastaken into account comments received on that draft.

“The human factor is the critical element in offshore safety,” said BSEEDirector James Watson when announcing publication of the policy statement.“Prescriptive regulations can reduce risks to worker safety and the environment,but they alone are not enough. Everyone working in the offshore industry mustadhere to a set of core values that places safety above all else.”

The statement encompasses nine characteristics that BSEE sees as essential toan organization’s safety culture: leadership commitment to safety values andactions; procedures for the prompt identification and evaluation of hazards, andfor the effective management of risks associated with these hazards; personalaccountability for safety and environmental stewardship by all individuals; afocus on safety and environmental stewardship during the planning and control ofwork activities; opportunities for continuous improvement by seeking ways toensure safety and environmental stewardship; encouragement for people to raiseconcerns without fear of reprisal; communications that maintain a focus on safe-ty and environmental stewardship; a culture of trust and respect, with a focus onteamwork and collaboration; and the encouragement of an inquiring attitude thatquestions how things are done and avoids complacency.

BSEE says that the safety culture policy will work alongside its new rulerequiring outer continental shelf oil and gas operators to implement safety andenvironmental management systems.

—ALAN BAILEY

terms,” according to Fairbanks NaturalGas. As a municipal entity, the IANGUbelieves it can secure low-cost financingthrough avenues not available to a privatecompany like Fairbanks Natural Gas.

Additionally, the IANGU has said itwould seek a supply contract when plansfor a North Slope LNG plant become“more defined.” Fairbanks Natural Gasaccused the utility of assuming “that gaswill be available, in the quantities itdesires, and at a price it wishes to pay.These assumptions are subject to consid-erable doubt.” This “considerable doubt”comes from the recent rise in North Slopegas prices, according to FairbanksNatural Gas.

Spectrum wants inWhile the two players battle it out,

Spectrum Alaska wants its positions to beheard.

The Regulatory Commission ofAlaska recently issued the company acertificate to build a liquefied natural gasplant on the North Slope. In its applica-tion, Spectrum said it intended to servethe North Slope transportation market,but would consider other markets in thestate. Presumably, those markets couldinclude the Interior because Spectrumcalled itself “a competitor for natural gassales” in the proposed expansion area.

In its request to be made a party to theFairbanks Natural gas proceedings,Spectrum said the case should considerthe relationship between the soon-to-be-rate-regulated Fairbanks Natural Gas andits non-rate regulated supply affiliatePolar LNG LLC. It also asked regulatorsto consider making Fairbanks NaturalGas an open access distribution utility. �

continued from page 13

INTERIOR SPARRING

PETROLEUM NEWS • WEEK OF MAY 19, 2013 15

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

What’s going on in the southern Kenai?Companies build lease positions in an area of obscure geology but intriguing potential near the edge of the Cook Inlet basin

By ALAN BAILEYPetroleum News

The State of Alaska’s Cook Inlet areawide lease saleon May 8 saw companies picking up a series of leas-

es along a fairway of land in the southern KenaiPeninsula, north of Kachemak Bay, near the eastern mar-gin of the Cook Inlet basin. Hilcorp Alaska in particularfilled in a lease position that it had started to establishwith leases it purchased in the state’s May 2012 sale.

Buccaneer Energy has also established a lease positionin the same area, where it plans to drill an explorationwell in its West Eagle unit this summer.

So, what is driving the interest in this area? And doesHilcorp, in particular, have its eye on an explorationplay? The company has said in the past that its main inter-est in the Cook Inlet basin is developing oil and gasresources from existing fields.

These southern Kenai Peninsula leases are not associ-ated with any known oil or gas field. And only two explo-

ration wells have been drilled in the area: the AnchorRiver No. 1, drilled in 1961, and the South Caribou HillsUnit No. 1, drilled in 1970. These wells apparentlyencountered gas shows but no oil.

Asked about Hilcorp’s lease purchases on the KenaiPeninsula, company spokeswoman Lori Nelson said thatthe company had been pleased with the outcome of thesale.

“We believe there is still a lot of life left in Cook Inletand the new leases simply allow us to strengthen ourposition in an area of interest,” Nelson told PetroleumNews in a May 14 email.

The producing oil and gas fields of the Cook Inletbasin lie along a couple of major north-northeast trendinggeologic structures known as anticlines, structures inwhich the rock strata have been folded upwards, formingelongated dome-like folds that can trap pools of oil andgas. With the more easterly of these known structuresrunning up the western side of the Kenai Peninsula, couldthere be other untested structures to the east, towards the

edge of the basin where the new leasing interest hasemerged?

Geologist David Hite told Petroleum News that,whereas there are good rock exposures along the shore ofKachemak Bay, immediately south of the recently leasedarea, relatively little is known about the subsurface geol-ogy inland, near the eastern edge of the basin. ASouthcentral Alaska natural gas study published by theDepartment of Energy in 2004 and co-authored by Hitecomments that a geologic map of the Kenai Peninsulapublished in 1976 points to the possibility of anticlinalstructures in the east.

“The magnitude and character of these structures is yetto be fully appreciated,” the report says. “They aremapped with a high degree of certainty in the KachemakBay and in the vicinity of Chickaloon Bay (on the north-ern Kenai Peninsula), but the area between is poorlyunderstood.” �

ENVIRONMENT & SAFETYExxon spill council funds tsunami cleanup

The Exxon Valdez Oil Spill Trustee Council has authorized nearly half a milliondollars for cleanup of Japanese tsunami debris littering Alaska beaches.

The money will go to a nonprofit organization, Gulf of Alaska Keeper, which hasworked for several years to gather and dispose of ocean trash washing up on Alaska’scoastline. The council is a federal-state partnership formed to oversee ecosystemrestoration using the $900 million civil settlement Exxon paid for the 1989 tankergrounding that released nearly 11 million gallons of Alaska North Slope crude oil intoPrince William Sound.

The council has three state and three federal trustees, including such officials asAlaska’s attorney general and the Alaska administrator for the National MarineFisheries Service.

Over the years, the trustee council has expended funds for research, restoration,land purchases and other projects.

The devastating Japanese tsunami in March 2011 swept a great deal of debris outto sea. The potential for this debris to wash up on Alaska’s coast has been a major con-cern for Alaska’s elected officials.

Gulf of Alaska Keeper, in a funding application submitted to the trustee council inDecember, said massive volumes of tsunami debris already have hit the state. Someof the heaviest deposits have been found on the shores of Montague and Kayakislands.

Much of the debris is lightweight and easily collected, such as Styrofoam and otherplastic products. But removing all of it will require “an industrial-scale cleanupapproach,” the organization said.

The trustee council, at its Feb. 21 meeting, unanimously approved a resolution pro-viding $483,088 for Gulf of Alaska Keeper’s tsunami debris removal effort.

—WESLEY LOY

ENVIRONMENT & SAFETYMeteorological stations planned on Slope

The National Oceanic and Atmospheric Administration plans to establish threesmall meteorological stations on Alaska’s North Slope as part of a climate changestudy.

Each station will have a 10-foot aluminum tripod tower, said a May 7 publicnotice from the Alaska Department of Natural Resources. Solar panels and batterieswill supply power.

The stations will be installed along the Dalton Highway between milepost 357,near Pump Station 2 of the trans-Alaska oil pipeline, and milepost 377.

“All locations are west, and within walking distance, of the Dalton Highway,” thenotice said.

NOAA intends to install one station during the upcoming summer, and the othertwo in 2014.

Because the stations will be on state land, NOAA is making application to DNR’sDivision of Mining, Land and Water. DNR said it intends to issue a five-year permit.

The public notice said the meteorological stations will be part of a study to “inves-tigate possible positive feedbacks to the climate system in which warming of the per-mafrost causes carbon to be released as greenhouse gas emissions (carbon dioxideand methane),” amplifying climate change.

The three stations will support an aircraft measurement campaign.“Basic climate variables including soil moisture, air temperature, and solar radia-

tion will be collected in addition to carbon dioxide and methane. The data obtainedfrom the ground-based systems will be compared to the aircraft measurements madeover the same type of tundra. The information gathered will then be used to scale upto a much larger region of the North Slope,” the notice said.

—WESLEY LOY

16 PETROLEUM NEWS • WEEK OF MAY 19, 2013

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G-MGBR EquipmentGCI Industrial Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Global Diving & SalvageGMW Fire ProtectionGolder AssociatesGreer Tank & WeldingGuess & Rudd, PCHawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11HDR AlaskaInspirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Intertek MoodyJackovich Industrial & Construction SupplyJudy Patrick PhotographyKenworth AlaskaKuukpik Arctic ServicesLarson Electronics LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Last Frontier Air VenturesLister IndustriesLittle Red Services, Inc. (LRS)Lounsbury & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5LW Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Lynden Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Lynden Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7MagTec AlaskaMapmakers of AlaskaMAPPA TestlabMaritime HelicoptersM-I SwacoMotion IndustriesM.T. Housing

N-PNabors Alaska DrillingNalcoNANA WorleyParsonsNASCO Industries Inc.Nature Conservancy, TheNC MachineryNEI Fluid TechnologyNordic CalistaNorth Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Northern Air CargoNorthrim BankNorthwest Technical ServicesOil & Gas SupplyOpti Staffing GroupPacWest Drilling SupplyPENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Pebble PartnershipPetroleum Equipment & Services . . . . . . . . . . . . . . . . . . . .19PND Engineers Inc.Polyguard ProductsPRA (Petrotechnical Resources of Alaska)Price Gregory International

Q-ZSAExplorationSeekins FordShell Exploration & ProductionSophie Station SuitesSourdough Express Inc.STEELFABStoel RivesTaiga VenturesTanks-A-LotTEAM Industrial ServicesThe Local PagesTire Distribution Systems (TDS)Total Safety U.S. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13TOTE-Totem Ocean Trailer ExpressTotem Equipment & SupplyTTT EnvironmentalUdelhoven Oilfield Systems ServicesUMIAQUnique MachineUnivar USA URS AlaskaUsibelliWeston SolutionsXTO Energy

Experienced oil and gas lawyer joins Stoel RivesStoel Rives LLP, a leading U.S. business law firm, said May 6 that it

is pleased to announce that Tina Grovier has joined its Anchorage officeas a partner in the firm’s Environment, Land Use and Natural Resourcesgroup. Grovier is recognized as a leading oil, gas and mining lawyer.During her 15-year career she has helped secure federal and state per-mits for the first non-conditional state right of way for a North Slopenatural gas pipeline, Alaska’s first heap leach facility, Alaska’s first third-party natural gas storage facility and Anchorage’s first commercial-grade wind farm. Grovier regularly represents pipeline and telecommu-nication carriers and other public utilities before the RegulatoryCommission of Alaska and state courts. In addition, she has broadappellate, litigation, arbitration and commercial transaction experience.

“I am pleased to welcome Tina to the Anchorage office,” said Anchorage managing partnerJim Torgerson. “Her strengths will benefit our oil, gas and mining clients here in Alaska andbeyond.”

An active member of the Anchorage community, Grovier has been involved with the UnitedWay as co-chair of the Tocqueville Society and with the YWCA, and has also volunteered hertime with AWAIC Summer Solstice and served as a legal advisor for the Anchorage Youth Court.

Crowley enters liquefied natural gas marketCrowley Maritime Corp.’s petroleum services group said May 8 that it is entering the lique-

fied natural gas market by acquiring Carib Energy LLC. Florida-based Carib Energy, founded in2011, was the first company to receive a small scale, 25-year, LNG export license from the U.S.Department of Energy for LNG transportation from the U.S. into Free Trade Agreement countries.

While Crowley’s overall strategic focus on the LNG market will span several of its diversifiedbusiness lines and leverage its storied history and success in the marine, project management,energy and transportation fields, Carib Energy provides an induction into the emerging energymarket from which the company can grow its concentration on LNG transportation.

A Crowley LNG services group has been formed within Crowley’s petroleum services busi-ness unit. It is being headed up by Vice President of Business Development Matt Jackson, whoreports to Rob Grune, senior vice president and general manager, petroleum services. This teamwill marshal Crowley’s extensive resources to serve the LNG market through LNG vessel designand construction; transportation; product sales and distribution, and full-scale, project manage-ment solutions.

The acquisition of Carib Energy, which becomes a wholly owned subsidiary of CrowleyPetroleum Services, now provides Crowley an immediate book of business for the supply, trans-portation, and distribution of LNG via 10,000 gallon ISO tanks.

see OIL PATCH BITS page 17

TINA GROVIER

PETROLEUM NEWS • WEEK OF MAY 19, 2013 17

Petroleum News: So what role doesgovernment play and what role does themarket play in these two projects?

Chenault: The market is always goingto determine the project. Right now thepipeline is a 36-inch, 1,440 psi carryinghalf a billion cubic feet of gas a day,according to law. The market may changethat. I don’t see it changing it to being asmaller pipeline. It has the opportunity tomake it a larger pipeline. Whether it’s toincrease in pressure, or whether thatwould be an increase in wall thickness inpipe or pipe diameter. If the market comesback with a larger commitment to buy gasand sell gas certainly that opens up othervenues. Right now it’s scheduled to cometo Cook Inlet. But if the buyers and sellersdecided they wanted it to go to Valdez, orsomewhere else, they could put that stipu-lation in there. And if they want to sell ourgas, and the price is right, then that gasline project is going to go where the mar-ket dictates, not where Alaska dictates.

Petroleum News: You got a lot of push-back on this bill, at least from Valdez.Have you ever seen that kind of push-back? What are your thoughts on that?

Chenault: We didn’t get pushback froma lot of places. We did get pushback fromValdez. I kind of looked at it and I won-dered what MVP stood for (MaximumVolume Pipeline). Valdez felt they neededa way in and try to tell Alaskans the big-ger pipeline is better. Well, I can tell youthe bigger pipeline is better. It makes bet-ter economic sense. I’ve been saying thatsince we started this. Unfortunately, unless— as some propose — someone wants tospend $40 (billion) or whatever the figure

is, economics is going to drive this proj-ect. I don’t fault Valdez for doing what itwas doing. I think it was pretty shortsight-ed. The message most people got was thatValdez was looking out for Valdez only,not the rest of the state of Alaska. Theyspent about $1 million. Unfortunately that$1 million could have been spent on a$914,000 capital request they put in thebudget to put a new roof on the school.They chose to spend that $1 million in adifferent way. At the end of the day, youcan see through the votes not only in theHouse, but in the Senate, that ad campaigndid nothing but waste money.

It’s frustrating because we’ve worked40 years to build this pipeline and we’vetried the same thing over and over again.We’re not one pipeline joint closer to put-ting pipe in the ground. This is a differentway to approach it.

We think it takes some of the uncer-tainty out of it. If we’ve got a projectthat’s engineered and that your buyers andyour shippers can look at, have faith in thenumbers and pencil the numbers out andwork it out.

We keep hearing Japan wants to buyour gas, and Korea and China. Sure theywant to buy our gas, but they want toknow what the gas is going to cost beforethey make a commitment to do that. Theyare not going to make a commitment untilthey know exactly what those costs aregoing to be to move the gas from PrudhoeBay to tidewater and tidewater to wherev-er they would like it delivered. We cantalk about it all day long, but until theysign on the dotted line that’s never goingto happen.

Petroleum News: If a pipeline projectdoes advance during the interim, do yousee a special session to draft any further

gas tax legislation or longer-term fiscalterms or is that something that takes pri-ority next session?

Chenault: It’s early to say. I don’t seeanything happening on the horizon todaythat would warrant a special session. Ithink that may be an issue we take up nextsession or start looking at next session. Idon’t see where it gets to where we have aspecial session. Certainly if it was war-ranted and if it were important enoughthat we needed to take that issue up, Iwould be in favor of going down anddoing that.

Petroleum News: Do you see discus-sions about Arctic development willemerge now that some of the other heavyhitting items off the plate?

Chenault: I think they will. You knowwe got bad news from Shell with prob-lems they had with the Kulluk andConocoPhillips has delayed their moveinto the Arctic for at least a year.

I do think this coming session we’ll betalking not only about oil and gas devel-opment in the Arctic but also how do weas a state protect the state’s interest inregards to America being an Arctic nation.I think Alaskans understand what thatmeans for the most part. I don’t think thatthe U.S. government understands that theU.S. is an Arctic nation and we need totake steps to make sure that we protectour interest and that we take care of theArctic as it gets developed.

We need to be a big player in that. Yousee China and others build big ice break-ing ships. China is not even an Arcticnation, but they are going up and puttingforth a presence to be considered anArctic nation when in reality or not. Myconcern is does the U.S. and does Alaskaprotect our interest in the Arctic?

Petroleum News: What do you thinkthe state can do?

Chenault: We’ve got a task force puttogether. They are going to come backwith recommendations. We need to lookat the possibility of a port up north wherewe can have our cutters and an ice stationup north so we can have that presence upthere. Right now I just don’t feel like theU.S. is putting forth enough effort tomake sure enough people know we are anArctic nation and we are there to protectour interest in the Arctic.

Petroleum News: So people think we’remore of a state that has Arctic borders butwe’re not necessarily an Arctic nation?

Chenault: I would think so. I wouldalmost be willing to be that if you did asurvey of folks down south asking if youthink the U.S. is an Arctic nation, proba-bly most of them would say no. I’massuming the people in Congress, theObama administration and the Senate allknow that we are. But how important of adiscussion is going on in D.C., I don’tknow. It’s probably not the level that itshould be.

Petroleum News: What do you as legis-lators do about that?

Chenault: Every opportunity we get aslegislators or even Alaskans get, we needto have our voices heard. We need to takethe steps needed to makes sure Russia,Canada and China know that we are anArctic nation and we need to take care ofour interests. I realize we’re an Arcticstate, but we are also an Arctic nationwhether we like it or not. �

continued from page 4

CHENAULT Q&A

mately 45 days to drill. Within the week before the announce-

ment, a subsidiary of the company calledBuccaneer Alaska Operation LLC askedthe state for nearly three additional yearsto complete its two-well work commit-ment at Cosmopolitan.

The request asked the state Division ofOil and Gas to move the deadline forcompleting the two wells to April 15,2016, from June 5, 2013. It also asked thestate to modify the existing timetable toallow the company to drill the wells dur-ing the summer drilling season, as well asin winter.

Buccaneer said it needed the addition-al time to accommodate “project delays,”but in a timeline submitted to the state thecompany also appears to be seeking theflexibility to move its jack-up drilling rigbetween its numerous offshore prospectsin the Cook Inlet basin.

Buccaneer intended to drill atCosmopolitan last year, but was delayedwhen its Endeavour jack-up rig wasdocked in Homer for several months afterarriving from Asia.

Development this year? In its request, Buccaneer envisions

using its Endeavour jack-up rig to com-plete the 8,000-foot Cosmopolitan No. 1well by June, but from there its proposedtimetable bifurcates.

Under one scenario, Buccaneer wouldmove its rig north to drill and test the16,000-foot Southern Cross No. 1 well bylate September, and move it north againto drill the 8,000-foot Northwest CookInlet No. 1 well before the usual end ofthe upper Cook Inlet summer drilling sea-son in late October. From there,

Buccaneer would tow the rig to the southto drill the Cosmopolitan No. 2 well or tobegin a winter development program.

Under the second scenario, Buccaneerwould move the rig from CosmopolitanNo. 1 to Cosmopolitan No. 2 this summerand later continue on to the two northernprospects.

In both scenarios, Buccaneer imaginesthe possibility of a winter development atCosmopolitan at the end of this year, pre-sumably dependant on explorationresults.

The filings include no mention of arecent deal where Buccaneer farmed-inthe deep oil development rights at theConocoPhillips-operated North CookInlet unit. In its announcement of thedeal, Buccaneer said it expected to shuffleits upcoming workload.

1967 discoveryCosmopolitan No. 1 is the most recent

in a 55-year effort to development theprospect.

Pennzoil discovered an oil accumula-tion in the Starichkof sands of the LowerTyonek at Cosmopolitan in 1967, report-ing a 750-foot oil column with 24-27degree API oil. An offset well to thenortheast the same year appraised the for-mation and collected core samples, butPennzoil ultimately decided againstdeveloping the field.

A ConocoPhillips predecessor subse-quently acquired the acreage, and formedthe Cosmopolitan unit in 2001.

The company drilled the Hansen No. 1well up dip of the Starichkof State No. 1in 2002, encountering oil in theStarichkof and Hemlock intervals, anddrilled the Hansen 1A sidetrack in 2003.A 50-day flow test on the sidetrack aver-aged 550 barrels per day of oil.ConocoPhillips completed a 3-D seismicsurvey over the unit in 2005.

Pioneer acquired the prospect in 2007and drilled the Hansen 1A-L1 in 2010.The well was a lateral off the 2003 side-track completed with fracture stimulationand the results led Pioneer to concludethat the Cosmopolitan reservoir was“lower quality than most other producingoil fields of the Upper Cook Inlet.” Still,a short pilot project to truck oil to Nikiskiproduced 33,504 cumulative barrels ofoil. Pioneer eventually relinquished theprospect, saying that despite “encourag-ing” results from the workover and frac-

ture stimulation, “subsequent flow testresults and engineering studies indicatedthat the resource potential was not aslarge as originally estimated.”

Buccaneer acquired the prospect inearly 2012 in partnership with the pri-vately owned Fort Worth-based companyBlueCrest Energy II LP. Buccaneer oper-ates the leases and owns a 25 percentstake. BlueCrest owns 75 percent.

Buccaneer believes its jack-up rigimproves the economics of Cosmopolitanby keeping the company from having todrill all wells, including injection wells,from the onshore pad. The prospect alsogives Buccaneer the opportunity to use itsrig in winter, when the offshore prospectsin the upper Cook Inlet become too icy toexplore. �

continued from page 1

COSMO WELL

ASRC responds to BLM strategic cleanup planASRC said May 9 that it is pleased that the longstanding need for the cleanup of the U.S.

Navy exploration program on the North Slope continues to be addressed by the Bureau ofLand Management.

The 2013 Strategic Plan carries a significant work commitment by the BLM. All North Sloperesidents will be grateful when the most hazardous and pressing remnants of more than 40years of Navy-sponsored explorations are remediated to make the lands safe and clean.

ASRC firmly believes that the cost of the cleanup of the Navy exploration program shouldcome from the federal government itself, as it is with all formerly used defense sites, for exam-ple, and not from any federal funds that would have otherwise been allocated directly toNorth Slope communities.

Arctic Slope Regional Corp. is owned by and represents the business interests of the ArcticSlope Inupiat. Corporate headquarters are based in Barrow, Alaska, with administrative andsubsidiary offices in Anchorage and throughout the United States. ASRC, along with its familyof companies, is the largest Alaskan-owned company, employing approximately 10,000 peopleworldwide. The company has five major business segments: petroleum refining and marketing,energy support services, construction, government services and resource development.

continued from page 16

OIL PATCH BITS

Buccaneer intended to drill atCosmopolitan last year, but was

delayed when its Endeavour jack-uprig was docked in Homer for several

months after arriving from Asia.

ules for a permanent work camp wereplaced on their foundations at PointThomson’s central pad in April.

The work camp was built at a fabricationyard in the Anchorage area, she said.

More infrastructure development isplanned for the summer, including the com-missioning of the camp, completion andcertification of an airstrip, and installationof a permanent service pier, Jordan said.

The field hugs the shore of the BeaufortSea, about 60 miles east of Prudhoe Bayand just west of the Arctic National WildlifeRefuge.

The project design calls for three drillpads, with the central pad to host theprocess and compression equipment neededto produce the gas condensate. These heavyindustrial modules are not yet on the NorthSlope as ExxonMobil focuses for now onbasic site preparation.

Two wells have been drilled on the padalready, and are in suspended status.

ExxonMobil will produce the conden-sate through a process known as cycling,where natural gas is brought to the surfacefor collection of the liquids. The dry gaswill then be shot back underground for stor-age. The project is expected to cycle 200million cubic feet of gas per day.

It’s a challenging project, for a numberof reasons.

The Point Thomson site is remote, andmaterials and equipment must be brought inby coastal barge or by ice road.ExxonMobil this year built an ice road fromthe west that was open from February untillate April.

With respect to production, ExxonMobilwill have to contend with very high pres-sures in the Point Thomson reservoir. Thecompany says 10,000 pounds per squareinch of compression will be required toreinject the gas.

The export pipelineA vital component of the Point Thomson

project is the new 22-mile export pipelinethat will carry the liquids production west toBadami, a former BP unit now operated bySavant Alaska. From there, the liquids willmove through the Badami pipeline and ulti-mately end up in the trans-Alaska oilpipeline.

The Point Thomson pipeline will runalong the coast to Badami. Like manypipelines in the North Slope oil fields, thePoint Thomson line will be above groundand insulated, and will rest on bracketsknown as “vertical support members,” orVSMs.

Graham Smith, spokesman for the StatePipeline Coordinator’s Office, said leasecompliance specialists made three trips tothe Slope to check on the pipeline work,which just wrapped up for the season.

“Definitely making some seriousprogress,” Smith said. “All the VSMs arehammered in.”

The next step will be to lay the actualpipe, and that should occur next winter, hesaid.

The straight pipe already is in Alaska,stockpiled in Fairbanks, Smith said. Thebends have yet to be delivered.

Jordan, the ExxonMobil spokeswoman,said workers installed about 2,200 VSMs.She confirmed that the export pipeline andgathering line will be installed next winter.

The 12-inch export pipeline will featurea design capacity of 70,000 barrels per day,well above the 10,000 barrels per day ofcondensate ExxonMobil expects to produceinitially. The surplus capacity will accom-modate fuller Point Thomson development,and maybe production from other easternNorth Slope developments.

The budget for the pipeline alone is $253million, ExxonMobil has said. �

18 PETROLEUM NEWS • WEEK OF MAY 19, 2013

Walker presses court challenge, saysPoint Thomson deal was improper

Bill Walker, an announced candidate for governor in 2014, is continuing hiscourt challenge of the state’s landmark Point Thomson settlement.

Point Thomson is a rich oil and gas field on Alaska’s eastern North Slope. InMarch 2012, the state and oil companies holding leases at Point Thomson strucka deal resolving years of legal conflict over the field, and laying out a schedule forits long-awaited development.

The settlement was a major policy objective for Gov. Sean Parnell, who soughtto spur production from Point Thomson, and also boost chances for a North Slopenatural gas pipeline.

The field holds an estimated 8 trillion cubic feet of gas, or about a quarter ofthe known reserves on the North Slope, plus large volumesof crude oil and other petroleum liquids.

Walker, however, argues the Point Thomson settlement isa bad deal for the state, and that the Parnell administrationtook unlawful shortcuts in signing it.

The matter now is pending before the Alaska SupremeCourt, where Walker is appealing his loss in a lower court.

Second run for governorOn April 25, Walker announced he will challenge Parnell

in the 2014 Republican primary.The Anchorage attorney and former mayor of Valdez took on Parnell in the

2010 primary, coming in second with about 33 percent of the vote. Parnell took50 percent and Ralph Samuels tallied 14 percent.

In announcing again for governor, Walker said the state “lacks strong leader-ship, vision and a roadmap for our state’s future.”

Alaska, he said, has become a state “whereby the major North Slope oil com-panies now dictate our tax and resource development policy.” He cited a tax billParnell pushed through the Legislature this year that “returns billions of dollarseach year to the major oil companies without any corresponding requirement thatany of that money be spent in Alaska.”

Walker long has been an advocate for a gas pipeline, and for development ofPoint Thomson.

But he contends the Parnell administration’s settlement with field operatorExxonMobil and its partners was improper, skirting the normal public process andleaving the oil companies with too much control over the field.

‘Citizen taxpayer’The March 29, 2012, settlement between the state and ExxonMobil, BP and

ConocoPhillips ended a seven-year fight for control of the undeveloped PointThomson field.

The Parnell administration says the deal contains strong terms that will drivethe companies to either produce from the field or suffer costly consequences,including the loss of leased state acreage.

ExxonMobil is now working on the early stages of an initial development atPoint Thomson. The project will involve producing a modest 10,000 barrels per

day of natural gas condensate, with field startupscheduled for spring 2016.

Acting as a “citizen taxpayer,” Walker onMay 29, 2012, filed an “administrative appeal”in state Superior Court in Anchorage challengingthe Point Thomson settlement, as signed by DanSullivan, commissioner of the Department ofNatural Resources, and Attorney GeneralMichael Geraghty.

The state moved to have Walker’s lawsuitthrown out, and Judge Catherine Easter grantedthe motion on Dec. 7, 2012.

Easter, however, didn’t rule on the substance of Walker’s arguments. Rather,she ruled that her court lacked jurisdiction over his administrative appeal. Sheheld that Geraghty had discretion to enter into the Point Thomson settlement, andthat Sullivan’s signature on the deal was “not an appealable decision.”

On to the high courtOn Jan. 9, Walker appealed Easter’s decision to the Alaska Supreme Court.

Walker argues Easter should have kept the case and let it play out.Walker’s opening brief discusses his numerous problems with the Point

Thomson settlement.“The sweeping scope and economic significance of the Point Thomson

Settlement Agreement to the people of Alaska is truly unique,” says the brief,signed by Walker’s law partner, Craig Richards.

In general, Walker says, the settlement is not in the best interests of the state orits citizens.

Walker argues the agreement was “negotiated and executed in secret,” with noopportunity for the public or Legislature to review or object to its terms.

Walker further contends the agreement contains “no firm work commitments”for ExxonMobil and the other working interest owners in the field.

And he says the Parnell administration circumvented the normal procedures, or“checks and balances,” that should apply to many terms in the Point Thomson set-tlement.

Walker also argues the settlement contains provisions that illegally “contractaround” DNR regulations governing the management of oil and gas units.

The state’s argument has been that the attorney general has “broad authority”to settle litigation, and the Point Thomson settlement isn’t subject to challenge.

—WESLEY LOY

continued from page 1

THOMSON PROGRESS

The state’s argument hasbeen that the attorney

general has “broadauthority” to settle

litigation, and the PointThomson settlement isn’t

subject to challenge.

BILL WALKER

toward the end of last year and the begin-ning of this year.

The Shark Tooth project is one of sever-al that ConocoPhillips explicitly mentionedin a recent press release announcing nearterm activities made more economic by thepassage of Senate Bill 21, which revises thefiscal regime for oil production in Alaska. Ina May 13 email, ConocoPhillips spokes-woman Natalie Knox Lowman wrote, “Weare working with co-owners on funding forDS-2S and hope to sanction it in late 2014to early 2015.”

ARCO discovered Shark Tooth with theKRU-21-10-8 exploration well in the late1980s, but the prospect lay fallow untilConocoPhillips drilled Shark Tooth No. 1 in2012. The company considered developingShark Tooth from the existing DS-2L, DS-2M or DS-2K pads, but decided that thoseplans would tax the abilities of existingdrilling technology.

The state is taking comments on the pro-posal through June 10. The current permit-ting covers the physical development.

ConocoPhillips is currently envisioninga 9.83-acre gravel drilling pad capable ofaccommodating 24 wells drilled at 30-footspacing, plus associated infrastructure. A

pair of permanent “snow fences” to the eastand west of the pad would reduce snowcover.

A 1.5-mile gravel road would connectthe pad to the Tarn Road. The road wouldcross the existing Meltwater pipelines,requiring a temporary shutdown duringconstruction.

ConocoPhillips said it considered twooptions to avoid the production loss associ-ated with a shutdown. The first was to builda bridge “similar to a highway roadwayoverpass,” an idea the company ultimatelyrejected because of its greater cost and itsgreater impact to the tundra as a result of theadditional gravel needed for the bridge.

The second was to shorten the verticalsupport members to make it easier to buildan overpass, but ConocoPhillips worriedthe lower pipelines would interfere withwildlife.

To accommodate these projects,ConocoPhillips would build a 16.2-acregravel mine near the proposed drilling siteto provide some 296,000 cubic yards ofmaterial.

ConocoPhillips said it considered usingthe existing Mine Site F and Mine Site C forgravel, but found both inadequate. MineSite F was opened in 1985 and providedmaterials for the Kuparuk River unit until2003 when “the remaining material in thepit was deemed to be unsuitable for road or

pad construction due to the amount of finespresent.” The company is rehabilitating themine under U.S. Army Corps oversight.

Using Mine Site C would require an 18-mile ice road shared by heavy-haul trucksand regular field traffic, whichConocoPhillips believes would create“safety concerns.”

The production stream of oil, natural gasand water would be transported by pipeline

to the existing Central Processing FacilityNo. 2. Sales quality crude would be furthertransported along the Kuparuk Oil Pipelineto the trans-Alaska oil pipeline while gasand seawater would be returned to SharkTooth for reinjection to maintain field pres-sure.

—ERIC LIDJI

continued from page 1

SHARK TOOTH

PETROLEUM NEWS • WEEK OF MAY 19, 2013 19

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seats in the provincial assembly (three morethan entering the campaign), the NDP had33 seats and the Green Party had elected itsfirst MLA (member of the legislativeassembly). And the Liberals had claimedwinning margin of 5 percentage points.

“Well, that was easy!” an ecstatic Clarktold party supporters. But for her the cam-paign is not over.

She was defeated in her Vancouver con-stituency (an area that embraces theUniversity of British Columbia and a largeenclave of the city’s wealthiest) and,although she can continue as premier, Clarknow depends on one of her own MLAsresigning to force a by-election in whatwould be seen as a “safe” Liberal seat.

Whether any seat could be viewed as“safe” in the more-than-usually volatilepolitical environment of British Columbiacould be an open question.

For the petroleum industry, despite unan-swered questions, the unstated preference

has been re-election of the pro-businessLiberals and the opportunity that presents toseek solutions to the obstacles Clark hasplaced in the path of oil sands bitumenpipelines and LNG projects that hold thekey to Canada’s hopes of opening exportmarkets outside North America.

The NDP, under Adrian Dix, hadpledged itself to blocking plans by Enbridgeand Kinder Morgan for their NorthernGateway and Trans Mountain expansionand a host of measures that could jeopardizethe LNG plans.

Dix was ready to order an indefinitereview of hydraulic fracturing methods toexploit British Columbia’s vast shale gasdeposits to use as LNG feedstock, raisingthe province’s carbon tax and expanding itto include greenhouse gas venting from oiland gas operations and scrapping plans fora large hydro dam that might have beenused to support LNG projects.

Clark has not shifted from her positionon Northern Gateway, demanding a share ofoil sands royalties and more stringent regu-lations covering the movement of crude oil

tankers in Pacific waters, but she has beenless clear about her Trans Mountain con-cerns.

However, she has eagerly seized onLNG as a job creator and a source of rev-enue to build a C$100 billion B.C.Prosperity Fund by 2030 to eliminate theprovince’s debt, currently at C$58 billion,and fund government programs, althoughshe has talked about independent science-based review of fracking.

Clark has also opened discussions withgas producers and LNG companies on herplans to introduce a new LNG tax and roy-alty regime.

In her victory speech, she said BritishColumbians made clear during the cam-paign that they want to “balance economicand environmental issues ... and we willheed their concerns.”

The Canadian Association of PetroleumProducers, which shies away from partisandebate, said it is prepared to “work con-structively with the government elected tocontinue delivering energy and economicbenefits to B.C. while protecting the B.C.

environment.”Geoff Morrison, B.C. manager of opera-

tions with CAPP, said the association isconfident gas developers will not be facedwith a government review of fracking meth-ods.

He acknowledged that Clark has laid outfive “pretty clear” conditions for pipelinestraversing B.C. from Alberta.

“They set the stage for discussions onhow projects can go forward and present awindow of opportunity to work with,”Morrison said.

Gerry Goobie, an energy consultant withCalgary-based Gas ProcessingManagement, said the petroleum industry isnow looking for clarity from the Clark gov-ernment on major energy issues.

He said investors are uneasy “when theyhear rhetoric about imposing new taxes ... oropposing development. Companies don’tlike making decisions with a lot of uncer-tainty hanging over them, particularly formoney of that magnitude.” �

continued from page 1

ELECTION STUNNER

industry to explore the viability of thisoption,” he said.

Ramsay said meetings have also beenheld with the Alberta government whichis anxious to break out of its landlockedposition and encourage growth of the oilsands, noting that Alberta has also joinedthe NWT in studying the possibility ofrunning a crude pipeline from the oilsands and north along the MackenzieRiver Valley to a deepwater tanker port atTuktoyaktuk on the Arctic Ocean.

He suggested a pipeline to Valdezwould extend north from the oil sands tothe closely watched Canol shale play inthe Central Mackenzie Valley, then con-nect with the trans-Alaska oil pipeline.

Ramsay said the system might alsopick up crude on a spur line from theCanadian Beaufort where ChevronCanada, Statoil and a partnership ofImperial Oil, ExxonMobil and BP havesecured exploration rights through C$2billion (US$1.99 billion) in work com-mitments, with no plans for how to getany crude they find to market.

The Alberta government hired consult-ing firm Canatec Associates Internationalin April to assess the feasibility of theTuktoyaktuk option and said it was in“serious discussions” with the NWTbecause of the “immense resources” inCanada’s Arctic.

—GARY PARK

continued from page 1

TRIAL BALLOON

20 PETROLEUM NEWS • WEEK OF MAY 19, 2013

cgg.com/multi-client

Tabasco: EmphaSeis 3D Multi-Client DataBroadband program on Alaska’s North Slope

High-density, broadband seismic is now available located near the Colville River on the Alaska North Slope. The Tabasco North and South 3D datasets were acquired with a slip-sweep HPVA methodology combined with CGG’s proprietary broadband EmphaSeisTM vibroseis sweep to better resolve shallow horizons and image complex faulting in the area. The data have been processed to retain amplitude information contained in the very rich offset and azimuth distribution. Outputs include azimuthal pre-stack time migration and pre-stack depth migration.

Visit our website at cgg.com/Tabasco to download the video about the Tabasco program and the innovative vibroseis techniques deployed in Alaska.

PSTM shows greatly improved imaging of shallow reflections and steep faults. Common offset, common azimuth PSTM gathers. Left image gathers with traditional acquisition parameters. Right image gathers obtained from high-density acquisition.

Contact: Mike Clement +1 403 205 6164 mike.clement@cgg.com

Ron Schmid +1 403 205 6109 ron.schmid@cgg.com

Kent Milani +1 403 205 6239 kent.milani@cgg.com